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What is an Exchange Traded Fund?
An Exchange Traded Fund, or ETF, is a type of managed fund where the underlying securities comprising this fund mimic an Index. Indices are created by ratings agencies to represent a subset of the stock market e.g. the largest companies trading on the Australian Stock Exchange is represented by the All Ordinaries Index. An ETF aims to invest directly in those companies making up a particular Index. As the companies/stocks/securities have already been determined in the Index an ETF is aiming to replicate, the level of funds management required is minimal compared to other types of managed funds where active investment decisions are required. Investing in ETFs are a form of passive investing and generally incur cheaper management fees, as fewer investment decisions are required in terms of managing an ETF.