What are Exchange Traded Funds (ETFs)

ETFs explained

Exchange traded funds (ETFs) are investment funds that hold a pool of assets such as shares, fixed interest investments and commodities. Just like shares, they can be bought and sold on the Australian Securities Exchange (ASX)and Cboe Australia or on overseas exchanges such as the New York Stock Exchange or NASDAQ.

An ETF can provide an investor with diversified exposure by investing in a single fund that includes a range of asset classes such as shares, property and fixed interest. That means an ETF can be a straight-forward and cost-effective way for an investor to diversify their portfolio. ETFs can be structured to track specific investment goals for a particular index, sector, strategy, theme or commodities (such as gold) allowing for greater trading flexibility. Through a single investment, you could gain exposure to hundreds of underlying assets.

What are some of the advantages of investing in ETFs?

Diversification - as ETFs consist of a broad range of securities and investments, Exchange Traded Funds are highly diversified investment products.
Liquidity - ETFs are considered a highly liquid investment and can be bought and sold during market hours
Cost-effective - ETFs are more cost effective than buying the equivalent portfolio of shares as it only requires one transaction to trade a single diversified investment. Although, be mindful that ETFs have varying annual management costs.
Accessibility - ETFs can provide exposure to a range of investments that would likely be out of reach for direct investors
Simplicity – invest in global and local markets through a single trad
Transparency - ETFs publish details of their underlying assets frequently (sometimes even daily), making it easy to know exactly what underlying investments you own.

What about the risks?

As with all investments, ETFs do contain a degree of risk. And as different ETFs invest in a range of different markets, some will be risker than others.

Asset values – ETFs are inextricably linked to the trend of the underlying asset. If the value of the underlying asset falls, the value of the ETF will also fall.
Trades – certain market conditions (for example, lack of liquidity) could make it hard for you to buy or sell ETFs.
Asset classes – ETFs that use synthetic investments or derivatives to replicate the performance of an investment could expose you to additional risks and/or losses.
Foreign currency volatility – Some ETFs with underlying exposure to international assets may have added currency risk.
Geopolitical risks – the political situation in the home country of the market or benchmark could affect the value of the ETF’s assets.

Before selecting an ETF to invest in, it’s a good idea to read the Product Disclosure Statement or any other disclosure document to make sure it meets your individual circumstances and investing goals.

Looking for more information on ETFs?

Westpac Share Trading together with Betashares are proud to introduce a series of four short and easy to understand educational videos covering the following topics:

Our first video in this series is an introduction to Exchange Traded Funds (ETFs), helping you understand the basics. Ele de Vere, Chief Marketing Officer at Betashares and Oliver Laumberg, Director at Westpac Share Trading, discuss what an ETF is, the potential benefits and risks, why investors use them, and how to invest in and choose ETFs.

The second video in our series explains how to use ETFs to diversify and build your portfolio. Ele discusses how ETFs can provide exposure to different shares, asset classes, global markets and investment strategies. She also covers thematic, fixed income, and cash ETFs, the difference between growth and income ETFs, and their potential to reduce risk.

In the third video, Tom Wickenden, Investment Strategist at Betashares, and Oliver Laumberg from Westpac Share Trading explore how ETFs can be used to implement various investing strategies. ETFs are versatile tools suitable for a range of basic, advanced, and common investment and trading strategies.

Our fourth and final video in this series discusses how investors can generate income through ETFs. Similar to shares and bonds, ETFs can provide income via fixed income ETFs, equity ETFs (such as those focusing on high dividend companies or income strategies), and bond ETFs (including government and corporate bonds). Tom emphasizes the importance of thorough research when investing in ETFs to understand their objectives and encourages investors to consider their goals – whether they are seeking portfolio growth or income.

Want to learn more

Things you should know

The information on this website has been prepared without taking account of your objectives, financial situation or needs. Because of this, you should consider its appropriateness, having regard to your objectives, financial situation and needs and, if necessary, seek appropriate professional advice. If a Product Disclosure Statement is available in relation to a particular financial product, you should obtain and consider that Product Disclosure Statement before making any decisions about whether to acquire the financial product. The information contained on this website does not constitute the provision of advice or constitute or form part of any offer, solicitation or invitation to subscribe for or purchase any securities or other financial product nor shall it form part of it or form the basis of or be relied upon in connection with any contract or commitment whatsoever. Any securities or prices used in the examples on this website are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold. Past performance is not a reliable indicator of future performance. This website may contain material provided directly by third parties. This information is given in good faith and has been derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group nor any of their related entities, employees or directors (together, "Westpac"), nor the Participant, accepts responsibility for the accuracy or completeness of, or endorses any such material. This website may also contain links to external websites. Westpac and the Participant do not accept responsibility for, or endorse the content of, such external websites. Except where contrary to law, Westpac and the Participant intend by this notice to exclude liability for material provided directly by third parties and the content of external websites.