Exchange Traded Funds, or ETF’s as they are commonly known, have quickly become one of the most popular investments on the Australian Stock Exchange (ASX). While their popularity soars, exactly what an ETF is remains a mystery to some. In this article we look at what ETF’s are and why they have become one of the hottest investments on the ASX.
ETF stands for ‘exchange traded fund’, and as the name suggests, they are a type of fund which is traded on the stock exchange. ETF’s are similar to a managed fund, in that they generally hold a number of different stocks, bonds or other investments, based on an index, asset class or sector. Unlike a managed fund, the units in these funds are bought and sold through the Australian Stock Exchange.
There are currently over 140 different ETF’s on the ASX, with the majority of these being ‘passive’ style investments. This means that they track an underlying indices or benchmark, and do not try to outperform the market, but simply mirror it. An example of an ETF would be VAS, which is a Vanguard ETF which tracks the ASX300 index. This ETF buys all of the equities which comprise of the ASX300 index, in the same weightings. Units, or shares in this ETF, are then sold on the stock exchange.
ETF’s are bought and sold on the ASX, the same way as individual shares are bought and sold. If you have a share trading platform, it is as simple as submitting a buy or sell request. As with the purchase or sale of any share, there are costs involved in these transactions which need to be considered. These costs can mount quickly if you are trading on a regular basis. The buy-sell spread should also be considered when purchasing and ETF, particularly if you only intend on holding the units for a short period of time.
One of the primary reasons behind the emergence and popularity of ETF’s is the advantages they over traditional managed funds. These advantages include;
The risks associated with the purchase and holding of an ETF are very similar to the risks of hold any other share or equity. These include;
If you would like to learn more about ETF’s, give the team at Steve May Financial Services a call and start a conversation today.
You need to consider with your financial planner (or adviser), your objectives, financial situation and your particular needs prior to making an investment decision. Futuro Financial Services Pty Ltd and its authorised representatives (or credit representatives) do not accept liability for any errors or omissions of information supplied on this website
Steve May, Luke Styles and May Wealth Pty Ltd T/A Steve May Financial Services are Authorised Representatives / Corporate Authorised Representative of Futuro Financial Services Pty Ltd ABN 30 085 870 015, Australian Financial Services Licensee, Licence number 238478. Please refer to our website at www.stevemayfs.com.au to reference our Financial Services Guide and business/adviser profiles.
May Wealth Pty Ltd ABN 71 612 234 518 trading as Steve May Financial Services is a Corporate Authorised representative of Futuro Financial Services Pty Ltd ABN 30 085 870 015, Australian Financial Services Licensee, Licence number 238478.
Steve May and Luke Styles are Authorised Representative’s of Futuro Financial Services Pty Ltd ABN 30 085 870 015, Australian Financial Services Licensee, Licence number 238478