An ETF or Exchange Traded Fund is a collective investment scheme, typically formed as an open-ended investment company, that is listed and traded on a recognised stock exchange. The majority of ETFs are passive and aim to track a market benchmark or index, for example an equity index such as the FTSE 100 or a bond index such as the iBoxx GBP Gilt index . They typically offer a well diversified and low cost means to gain exposure to the returns of a particular asset class, such as UK government bonds or Japanese equities. As they are exchange traded, they can be bought and sold at any time during market trading hours unlike traditional funds which generally trade once a day.
There are also some specific risks to note when investing through an ETF:
Netwealth aims to minimise the costs of investing for clients. By making use of ETFs we can gain market exposure to various asset classes at a low cost. ETFs are, in most cases, passively managed which means that they have low management charges. ETFs also have the added flexibility of being able to be bought or sold at any time during market hours. It will not always be appropriate to use an ETF to gain exposure to a market and so we will always consider ETFs in the context of all available securities.