Understanding ETFs

Offering access to almost every corner of the market and every major asset class, Exchange Traded Funds (ETFs) are one of the fastest growing categories of investment products in the world. The reason for this is clear – ETFs offer simple to use, transparent, low cost and flexible investment options for investors.

What is an ETF?

An ETF is an open-ended investment fund, similar to a traditional managed fund, that is traded on the ASX – just like any share. ETFs aim to closely track the performance of a given index or asset class, and provide the returns of that index or asset class – less any fees.

Watch our “What is an ETF?” video to learn more

Advantages of ETFs

Here’s why more and more Australian investors are turning to ETFs to help them achieve their financial objectives.

Simplicity

ETFs help investors gain exposure to a range of investment strategies, geographic regions and asset classes, and can be bought as simply as buying a share.

Liquidity

ETFs are traded on the Australian Securities Exchange (ASX) so can be bought and sold during the trading day.

Transparency

Information relating to ETFs, including underlying portfolio holdings and fees, can be accessed at any time via the fund manager’s website.

Cost-effective

Because ETFs either aim to simply track the performance of an index or asset class or rules-based methodology, there are no in-built ‘active management’ fees to worry about.

SMSF friendly

Just like shares, ETFs are eligible to be bought inside Self-Managed Super Funds, and the popularity of ETFs has been growing strongly with this client base.

How do investors use ETFs?

ETFs offer investors flexibility for a wide range of investment strategies. Some examples include:

  • Portfolio construction and asset allocation: ETFs can be used as core holdings in a portfolio and as building blocks for portfolio construction.
    • For example: A ‘sector’ ETF can be used by an investor in order to simply obtain exposure to a particular industry sector such as healthcare, energy or technology companies.
  • Core / Satellite strategy: ETFs can be used to build a core portfolio of broadly diversified indices or asset classes. Single individual stocks can then be added as alpha generating ‘satellites’.
    • For example: Investors can use a broad market Australian shares ETF to ‘buy the market’ and instantly gain exposure to the Australian sharemarket in a single trade as a core component of their portfolio.

BetaShares has a large selection of ETFs and other exchange tradeable funds that cater to different investor needs. To learn more about the Funds, click here.

Investing in ETFs

Buying and selling units in ETFs is as simple as buying or selling any share on the Australian Securities Exchange.

To learn more about ETFs and how they could to help you achieve your investment goals, visit our BetaShares Education Centre or talk to your financial advisor.

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