Investing 101: What is an ETF?
An exchange traded fund (ETF) is a listed fund that provides exposure to a basket of securities, shares or other assets.
How is an ETF created and traded?
- A fund manager will bundle together a set of various assets and launch the ETF.
- The ETF will be quoted on an exchange and given a unique identifier known as the ticker symbol.
- Using the ticker and their stockbroker, investors will find the ETF on the exchange to buy and sell.
ETFs provide investors with relatively low-cost access to a variety of asset classes, industries and markets. They are often considered lower-risk investments as they involve a basket of securities, therefore increasing diversification. Some ETFs have more risk than others.
Types of ETFs available for trade:
- Equity ETFs: contain stocks and may be focused on a particular country (e.g., Australia) or an exchange.
- Bond ETFs: contain fixed income securities such as corporate bonds and treasury bills.
- Commodity ETFs: contain commodities like gold, crude oil, silver and sugar.
- Industry ETFs: contain stocks with a focus on particular sectors or industries like healthcare or financial services.
- Currency ETFs: contain a single or a basket of currencies in the foreign exchange market.
- Sustainable ETFs: contain social, environmental and governance related stocks.
Before you start investing, complete your due diligence, do your market research and choose the ETF(s) that best suits your reward and risk profile.