Exchange traded funds (ETFs) are managed 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.
- 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.
- 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 ETFs and other ETPs webpage.
Visit our platform features webpage to see how easy it is to trade with Westpac Share Trading.
Things you should know
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