An Exchange Traded Fund (ETF) is a share-market listed fund that comprises an investment in a portfolio of shares, bonds or property securities (or even a mix of all). When purchasing a single ETF unit, you gain access to a diversified investment portfolio.
ETFs are constructed using an indexing approach, so the value of each ETF moves in line with the index it tracks. For example, a 2% rise or fall in the ASX300 index would result in a 2% rise or fall for in the Vanguard Australian share index fund. An index manager’s aim is to deliver the index return, before fees, by building investment portfolios using similar assets and weightings as the benchmark index - they don’t try to pick winners from losers.
You can buy or sell ETFs at any time throughout the ASX trading day in the same way you would buy ordinary shares. Market liquidity for ETFs is maintained by ‘market-makers’ who ensure that buy and sell prices are quoted continuously on the ASX. The structure of ETFs ensures this investment generally trades close to the Net Asset Value (NAV) of the Fund. The NAV is the underlying total value of net assets divided by the number of units on issue.
ETFs deliver two primary sets of benefits to investors - the trading speed and flexibility of shares merged with the low-cost, diversification of index funds. This has made ETFs one of the fastest growing investment solutions in the world today, with hundreds of billions of dollars now invested globally using ETFs.
Investing in ETFs provide the following benefits:
Research suggests that indexing may offer superior long-term performance compared to many actively managed funds.
Low cost - ETF fees are usually significantly less than actively managed funds.
Diversification - ETFs provide investors with a highly diversified investment with broad exposure to entire markets within an index. This may also include shares that investors may not be able to access directly on the ASX, such as international shares.
Tax efficiency - The traditional low turnover of investments provided by an indexing approach may minimize the capital gains distribution impact. This improves performance and tax efficiency over the longer term.
Liquidity – The ability of a typical ETF to create and redeem units on a daily basis assists with underlying depth of liquidity. Secondary sources of liquidity exist in the volume of trading of the ETF itself and the investment environment it is trading in.
Transparency – ETFs provide regular information to the market including the daily fund Net Asset Value (NAV), making ETFs highly transparent investments.
The majority of funds under management are managed by the largest of the four ETF issuers: iShares; Vanguard Investments; SDPR and BetaShares, which account for approximately 85% of the value of ETF funds.
There are over 150 different ETFs covering a range of sectors, including:
Australian Shares (Broad Market)
Australian Shares (Sectors)
Global Shares (Broad Market)
Global Shares (Sectors)
Fixed Income & Cash
Please contact your Investment Adviser at DJ Carmichael, or contact us and we can introduce you to an Adviser who can provide advice regarding whether ETFs might be suitable for your investment needs.
Tel: (08) 9263 5224
This information is general advice only, which has been prepared without taking account of your objectives, financial situation or needs; and because of that, you should, before acting on the advice, consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs.