When you invest in an ETF you are essentially investing in a portfolio of many different assets. ETFs are passively managed by a portfolio manager and investment team to follow a specified index. To invest in an ETF you will need to buy some units using your broker. You will also pay a management fee which is usually included in the unit price and in return for investing in the ETF you will receive distributions of the ETF’s net income.
The managing team of the ETF will invest in the securities for you, buying the underlying securities in different weights in order to accurately replicate the index or benchmark for a physical ETF or in derivatives e.g. swaps for a synthetic ETF. Investing in an ETF means that you will own units in the ETF but not the underlying securities or derivatives themselves.
Buying into an ETF means that you will receive exposure to a specific asset class. Keep in mind that if the index falls so will the ETF. The ETF price will fluctuate during the day, reflecting the market supply and demand.
They provide access to a range of asset classes and investment strategies that non-institutional investors may not ordinarily have access to, for example international equities, fixed income securities and currency markets. By investing in an ETF you can achieve a level of diversification that would normally be too difficult to realise investing in each asset individually. ETFs also have no minimum investment requirements which makes them more accessible.
ETFs usually have lower fees as passive investing strategies rely less on the skill and experience of the managers than active investing strategies. This makes them a cost effective way to diversify your portfolio and gain access to markets that traditionally tend to be more difficult to invest in.
A traditional managed fund often has minimum investment requirements that an ETF does not have. ETFs usually have lower fees as passive investing strategies rely less on the skill and experience of the managers than active investing strategies. This makes them a cost effective way to diversify your portfolio and gain access to markets that traditionally tend to be more difficult to invest in.
Because of their ability to be traded on the stock exchange, ETFs are much more flexible. Managed funds are not always listed but ETFs can be traded easily through a broker. However, this means that to invest more money into an ETF you must pay a brokerage fee every time, unlike a managed fund where additional investments can usually be made with no extra cost.
Managed funds tend to trade the securities they hold more often than ETFs do which means higher brokerage costs. This additional cost affects the performance of the fund and the income you receive from it.
EQMFs are similar to actively managed ETFs. Instead of using a passive investment strategy mimicking an index or other benchmark, EQMFs have a fund manager who makes active decisions about what to invest in. EQMFs aim to beat the benchmark or index whereas ETFs aim to follow the benchmark or index as closely as possible. Whilst EQMFs will try to avoid falls in the benchmark, ETFs will go down when their benchmarks fall. As a result of an active investing strategy, EQMFs will have higher fees to pay for the skill and experience of the fund manager.
EQMFs and ETFs share similarities in that they are both listed on the exchange and investments in them are made through purchasing units via a broker.
You can invest in an ETF the same way you invest in an ordinary share, through your preferred broker. Live, continuous pricing means that you can choose what price you invest in the ETF.