About Exchange Traded Funds (ETFs) and Exchange Traded Commodities (ETCs)

Exchange Traded Funds (ETFs) and Exchange Traded Commodities (ETCs) are two of the fastest growing investments products in the world. Today there are approximately 30 ETFs / ETCs  accessible through ASX. A single trade in an ETF or an ETC can provide instant diversification to your portfolio. 

What are ETFs and ETCs?

ETFs are open ended funds that invest in a basket of securities that make up an index i.e. they seek to replicate an index. ETCs also have an open ended structure and seek to track the price of a physical commodity or a basket of commodities giving investors direct exposure to the underlying asset.

Benefits of using ETFs or ETCs

  • Buy / sell flexibility - ETFs and ETCs are traded on the Australian Stock Exchange and this means that you can buy and sell at any time during ASX's trading hours, at prices that you specify. This means you can enter and exit an investment in ETFs and ETCs as quickly and as easily as shares and be assured of three day settlement.

  • Low cost - as ETFs and ETCs are typically able to achieve lower operating costs, the management fees (commonly referred to as MERs - Management Expense Ratios)  are significantly lower than other managed funds or the expense in holding physical commodities directly.

  • Returns from capital appreciation and income -  an ETF or ETC will change in value as the underlying portfolio of assets changes in value. This can provide for investors through distributions. Investors may also enhance after tax returns from franking credits.

  • Fair value - ETFs and ETCs are designed to ensure that they trade close to their underlying value. This provides the investor with certainty that the on-market price will closely reflect the value of the underlying assets held in the fund. This is commonly referred to as trading at net asset value (NAV).

  • Taxation advantages - the turnover of the underlying portfolio tends to be low with ETFs changing only when there is a rebalance of the index. This means that the level of capital gains tax that needs to be paid by the fund and its investors can be  greatly reduced. 

Types of ETFs and ETCs

There are different types of ETFs available on ASX covering Australian, International indices and sector specific indices.  There is also a range of ETCs available covering precious metals.

Investing

Investing in ETFs or ETCs is easy as they trade in exactly the same was as any other share on the Australian Stock Exchange.

Four of the major providers have ETFs and ETCs on issue on the Australian Stock Exchange. These providers include ETF Securities, iShares, State Street Global Advisers (SSgA) and Vanguard Investments.

Risks of using ETFs and ETC

Like all investment products, ETFs and ETCs carry risks. These can include market risk,  tracking risk and potentially currency risk.  You should obtain independent financial advice from a professional adviser prior to making any financial decision.

Additional brochures and booklets

ETFs and ETCs fact sheet (PDF 116KB)