What are ETFs?

An ETF combines some of the characteristics of shares and managed funds. ETFs offer investors the ability to gain exposure to a portfolio of shares or other assets (like managed funds) while purchasing units through your adviser (like shares).

ETFs have emerged as one of the fastest growing investment products in the world. In the US, trading in ETFs accounts for over half of all daily sharemarket trades.

Since first being launched on the Toronto Stock Exchange in 1989, ETFs have grown to represent assets of over US$570 billion, with over 732 ETFs trading on 38 exchanges around the world (as at 31 December 2006).

The ASX ETF market segment covers a broad range of investment funds:

Indexed ETFs

Indexed ETFs (sometimes referred to as Classical ETFs) typically offer low management fees, since they have a low operating cost structure. There are a number of factors that contribute to the low cost structure, including:

  • The fund manager does not need to deal with high levels of administration, as investors wanting to buy or sell units can only do so on ASX.
  • Typically tracking a share market index , which minimises the turnover of underlying shares in the portfolio. In addition, once the target investment portfolio is established, there is no ongoing need for the ETF manager to undertake research, since the portfolio composition is determined by the index. see list of indexed ETFs currently available


Actively managed ETFs

Actively managed ETFs provide access to a much broader range of investment management styles, strategies, asset classes and operational practices than indexed ETFs.

Additionally, actively managed ETFs can usually accept cash applications, which means investors can buy units directly from the fund manager through lodging an application form contained in the fund prospectus as well as being able to buy units already issued on ASX.

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