Exchange traded funds (ETFs) are open-ended investment funds that can be bought and sold on a stock exchange, just like Australian shares. ETFs are usually made up of a basket of assets, which may include Australian shares, international shares, bonds, currencies and derivatives. They enable you to invest in asset classes you may not be able to access directly, making them a great tool for diversifying your portfolio.
Each ETF is given a stock code and traded on the securities exchanges. They are given a unit price based on the net asset value of the fund. Like shares, ETFs are open-ended and can be bought and sold at any time. Most ETFs are structured to replicate the return of a specific benchmark or index. For example, the S&P/ASX 200 Index, S&P/ASX 300 A-REIT Index, and MSCI World ex-Australia index.
Key features
Cost-effective – they can be more cost-effective than directly buying the equivalent portfolio of assets and typically have lower fees than managed funds.
Offers diversity – in a single trade you gain exposure to a diversified portfolio of securities or other assets.
International exposure – they can give you exposure to international markets, as well as fixed income and other sectors.
Simple – through just one trade, you can potentially invest in global and local markets.
Control – you can build your own portfolio across sectors, countries and asset classes using different ETFs.
Flexible – they give you liquidity and flexibility to react to changing market conditions.
Competitive brokerage through Westpac – start trading from just $19.95 or 0.11% of the value of the trade (whichever is greater)^.
The first ETF was launched in Australia in 2001 and the industry has experienced rapid growth.
Key risks
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.
For more information about ETFs, please refer to the Australian Security Exchange’s Investing in Exchange traded products webpage.
Things you should know
Westpac Securities Limited ABN 39 087 924 221, AFSL 233723 (‘Westpac Securities’) (trading as ‘Westpac Share Trading’) provides the opportunity to trade listed financial products through our arrangement with Australian Investment Exchange Limited ABN 71 076 515 930, AFSL 241400 (‘AUSIEX’), a wholly owned subsidiary of Nomura Research Institute, Ltd (‘NRI’). AUSIEX is a Market Participant of the ASX Limited (‘ASX’) and Cboe Australia Pty Ltd (‘Cboe’), a Clearing Participant of ASX Clear Pty Limited and a Settlement Participant of ASX Settlement Pty Limited. Neither AUSIEX nor Westpac Securities are representatives of each other. Westpac Securities is not a related party of AUSIEX, NRI, ASX or Cboe. Under this arrangement, all trading, clearing, settlement and stock sponsorship arrangements are directly with AUSIEX. AUSIEX is not authorised to carry on business in any jurisdiction other than Australia. Accordingly, the information contained in this website is directed to and available for Australian residents only.
You should read the Westpac Securities and AUSIEX Financial Services Guides (“FSGs”), which provide you with information on the services Westpac Securities and AUSIEX can provide. You can access the FSGs via https://westpac.com.au/personal-banking/share-trading.
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