What is an ETF and how do ETFs work? (2024)

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What is an ETF and how do ETFs work? (2)

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Important information - the value of investments, and the income from them, can go down as well as up, so you may get back less than you invest. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment.

What is an ETF and how do ETFs work? (3)

What is an ETF?

ETFsare funds that issue shares, which are traded on a stock exchange. ETFs cover a broad range of asset classes and can give exposure to specific markets, sectors or investment strategies. Many ETFs track an index in order to provide this return.

What is an ETF and how do ETFs work? (4)

How they work

ETFs can provide exposure to a variety of asset classes such as equities or fixed income by:

  • following the performance of a market index, such as the FTSE 100 or the S&P 500
  • following the performance of asmart beta index, such as S&P 500 Minimum Volatility or MSCI Europe Value
  • being actively managed by an experienced and dedicated manager

Why you may be interested

Bought and sold throughout the day

Like any stock on an exchange, ETFs can be traded at any time when the exchange it's listed on is open.

Typically low operating expenses

Passively tracking an index is less expensive than active fund management.

Easy access to a diverse portfolio

ETFs give you instant access to international markets as well as commodities such as gold, silver and precious metals.

ETF investment strategies

Passive ETFs
Smart beta ETFs

Benefits of investing in ETFs

With ETFs in general you know exactly what you're investing in. Many ETFs provide daily visibility as to what securities the fund holds, how the ETF is performing and Total Expense Ratio (TER) costs. When investing in an ETF you know exactly what price you’re paying for units, unlike mutual funds.

Diversification
Cost effectiveness
Efficiency and access

Risks of investing in ETFs

There are, however, a number of things to consider.

Understanding the risks involved
Tracking difference

Choosing an ETF

Explore our full range of ETFs to search, filter and select your favourite, including the iShares Core Series by BlackRock and our smart beta ETFs.

Find an ETF

What is currency hedging?

When investing internationally an investor is effectively making two investments - one in the foreign equity itself and the other in the exchange rate value of that investment. Unhedged international investments tend to be more volatile as they are exposed to the risk and return of both equities and foreign exchange. Currency hedging strategies aim to mitigate this risk. They allow separation of equity market risk from currency risk and therefore allow more accurate implementation of investment views.

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What is an ETF and how do ETFs work? (2024)
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