What is an ETF?

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An exchange traded fund (ETF) is one that aims to match the performance of the given index. Unlike traditional investment funds (which trade once a day), ETFs are traded on a stock exchange and can be bought or sold throughout the day.

The value of the investments and the income from them can fall as well as rise and are not guaranteed. The investor might not get back their initial investment.

Types of ETF

Examples of the many ETFs available are:
 

Equity ETFs

These track an index of company shares, like the FTSE All Share or the S&P 500.

Bond ETFs

These track bond markets including government, corporate , high yield, international and emerging markets.

Commodity ETFs

These track the prices of physical materials, such as gold, copper or oil.

Advantages and disadvantages of an ETF

ETF Advantages

  • They work like stocks, ETFs can be bought and sold throughout the day.
  • Their price fluctuates over the course of the trading day, rather than being priced up or at the end of trading, like some other funds.

ETF Disadvantages

  • Because ETFs track the returns of an index they do not try to avoid poor performance in the way active funds do.
  • Unlike traditional funds, the value of an ETF's shares might not reflect the value of the assets within the fund.

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