Exchangetraded funds(ETFs)

SOA FActsheet

This Fact Sheet aims to provide an overview of how Exchange Traded Funds work.

Common types of scams

what is anexchange tradedfund?

An Exchange Traded Fund (ETF) is a share market quoted fund that is constructed as a broadly diversified investment portfolio of shares, bonds, or real estate securities. An ETF is like a managed fund, or unit trust, but trades like an individual stock throughout the day. ETFs combine the features of index mutual funds with individual securities.

Like a managed fund, ETFs allow investors to track hundreds of domestic and international indexes, including the S&P 500® and the S&P®/ASX 200 indices, as well as specific sectors or industries (e.g. financials, resources or listed property).

Like individual stocks, ETFs give investors the flexibility to buy and sell on the Australian Stock Exchange (ASX) throughout the day, at the market price. As with stocks, investors can place stop loss and limit orders on ETFs.

Suit 602, Level 6, 213 Miller StreetNorth Sydney NSW 2060

futureassist.com.au1300 118 618

ABN 24 151 337843 AFSL No 413674

General Advice WarningThe information contained in this document is not intended to be advice, it is for information purposes only. Where any part of this document is construed to be advice it is General Advice only. It has been prepared without taking into account any individual’s objectives, financial situation or needs. Before any person acts on any information in this document they should consider the appropriateness of the information, having regard to their objectives, financial situation and needs. Before making any decision about whether to acquire a product individuals should seek professional advice from their licensed adviser.

advantages of etfsDIVERSIFICATIONETFs offer one of the easiest ways to diversify a portfolio, especially for investors who want to focus on a specific sector or industry. As index investments, ETFs offer exposure to a particular market segment, helping to protect against the risk of a select number of individual stocks hurting an investor’s overall portfolio performance. This also includes shares that investors may not be able to access directly on the ASX, such as international shares.

Low fees and expensesSince ETFs are passively managed, they typically have low management fees and operating expenses. ETFs are also more cost efficient than investing in the same exposure of individually purchased shares.

Tax efficiencyThe traditional low turnover of investments provided by an indexing approach minimises the capital gains distribution impact. This improves performance and tax efficiency over the long term.

Trading flexibilityETFs trade all day long so investors can lock in the market value of the ETF any time during the trading day. Because ETFs trade like stocks on an exchange, a wider range of techniques (stop loss and limit orders) can be used to take advantage of anticipated market movements.

It’s important to keep in mind that frequent ETF trading, which typically occurs through a broker, can significantly increase brokerage commissions potentially washing away any savings from low fees or costs.

TransparencyInvestors have all the information they need to make informed investments – no strategy drift or black boxes to decipher. With ETFs, you know precisely which securities the ETF holds and what you’re invested in – there’s no need to wait for the end of the quarter to review the fund’s holdings.