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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 stock exchanges, such as the ASX in Australia.

An ETF can provide an investor with diversified exposure by investing in a 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. And if an ETF is listed on the ASX, it can be bought or sold during ASX trading hours, making it a highly liquid investment as well.

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 - with an ETF it only requires one transaction to trade a single diversified investment.
  • Accessibility - ETFs can provide exposure to a range of investments that would likely be out of reach for direct investors
  • Leverage - they can be traded using gearing facilities such as a margin loan
  • 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. An ETF that focuses on international markets, for instance, could expose you to currency risk.

ETFs can be used as a strategy to diversify risk by investing across markets. However, there is still the risk that you could lose some or even all of your investment if the value of the underlying assets decreases. 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.

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.