Exchange Traded Funds (ETFs) and Active ETFs (which can also be referred to as Exchange Traded Managed Funds (ETMFs)) are open ended investment funds that are quoted and tradeable on the stock exchange. ETFs provide investors exposure to a certain index (ASX 300, S&P 500 etc), where Active ETFs use the skill and intellect of experienced investment professionals to put together portfolios of companies which may deviate away from index exposure.
In Australia, ETFs and Active ETFs are quoted on a stock exchange under the AQUA rules and are traded much like a share. ETFs and Active ETFs can provide you a good way to gain exposure to a wide variety of investments. They can also be used as the building blocks for a well-diversified portfolio.
The largest market for ETFs is the US, however they can be also found on exchanges in Canada, UK and on exchanges throughout Europe. In Australia, ETFs are not new, however have been increasing in popularity with many investors looking to gain control of their investing, provide additional liquidity to their portfolio and find a low cost solution to their investment needs. The first ETF was traded on an exchange in 2001 and investors have been trading them for over 17 years.
ETFs and Active ETFs can be used in your portfolio for many reasons. Including:
- Capital growth – For those investors aiming for long term capital growth in their investment portfolio;
- Income growth – For those investors seeking good income and tax effective dividends over time for their portfolio;
- A combination of capital and income growth; and
- Tactical use – for those investors seeking to take advantage of market valuation differences in their portfolio.
ETFs combine certain features of managed funds and listed shares in the one investment. Like managed funds, ETFs and Active ETFs provide you the diversification and access to skilled investment professionals who put portfolios like this together for investors; all day – every day. Unlike managed funds, however, ETFs and Active ETFs trade on the stock exchange, so they can also offer you the added benefits of flexibility and liquidity, allowing you to buy and sell during the course of the trading day through your broker, adviser or online trading account, much like any other listed share.
ETFs and Active ETFs may carry certain investment risks like all investments do. Please visit our discussion on risks by clicking here. Each eInvest Fund has specific risks associated with it. It’s best to read the PDS before investing to know more.