As the name Active Exchange Traded Funds (Active ETF) indicates, they are traded on a Stock Exchange like ordinary shares even though each Fund might very easily comprise more than 20 different stocks.
That’s a significant benefit of Active ETFs for investors who don’t already have a share portfolio. The wider your spread (or diversification) of shares is, the less likely you are to suffer a serious reverse if one share goes bad.
How do you get started?
If you don’t have a financial adviser who can recommend which ETF or Active ETF to buy, each exchange publishes lists of ETFs from which you can make your own choice.
After that you can email the managers for more information, usually contained in a PDS (Product Disclosure Statement). That will make clear whether the fund is active or passive, and what its charges are.
Buying and selling ETFs is no more complex a process than buying shares. You can choose a traditional “full service” stockbroker although it’s just as easy to open an account with one of the discount stockbrokers such as nabTrade, CommSec or BellDirect.
Given that ETFs exist because they save investors money, it’s logical and just as safe to go with a discount broker. They will give you a HIN (Holder Identification Number) which means you can sell the ETF through another broker if you would like to do so.
It’s that simple.
Buying Active ETFs
Active ETFs are so named because they are actively managed by fund managers rather than merely passively replicating a sharemarket index such as the ASX200.
There are now more than ten active global ETFs based in Australia issued by well known organisations such as Vanguard, Magellan, Platinum, BetaShares, Challenger, Perennial and Montgomery.
The ASX estimates there are probably 22 ETFs on issue that have active characteristics, of which about half are domestically based.
The fees for global ETFs are slightly higher than domestically focussed ETFs, not only because it costs more to invest overseas but also because most global ETFs are actively managed.
The managers of active ETFs choose which stocks to buy but their fees are still low in comparison with the costs of buying individual shares overseas, which is the only serious alternative for investors who want to hold a diversified spread of investments.
That’s one of the systemic disadvantages of only owning Australian shares: for instance financial stocks make up more than 30 per cent of the ASX200 index while new technology stocks, of the sort that would hope one day to link up with Silicon Valley in the US, represent no more than 2 per cent.
For more detail, please see the relevant Product Disclosure Statement (PDS) for the active ETF you are interested in. This article is the opinion of the author and is not financial advice. Speak to your financial advisor or broker for more information. I’m sure they’ll be happy to help you.