Investing in ETFs

How do you select which ETFs to invest in?

Once we have decided that an ETF may be an appropriate way to gain exposure to a market or asset class, we undertake a search of all available ETFs tracking that market and consider which one to select based on the following criteria:

  • The securities which make up the underlying market index of the ETF, for example both the S&P 500 and the Nasdaq index track US listed companies. However, they do not have the same constituents with the Nasdaq having a greater exposure to technology companies which will mean in some market scenarios the performance of each index will be quite different
  • Total expense ratio of the ETF – this is the total cost of investing in the ETF
  • How well the ETF tracks the underlying market index
  • Methodology being used to replicate the index – is it a physical or synthetic ETF
  • Size and liquidity of the ETF – some ETFs trade in much larger volumes than others. This will typically mean a lower bid-offer spread, which is the difference in price between buying and selling shares in the ETF.

We will always compare the benefits of investing in particular ETFs with other potential ways of gaining similar market exposure, for example via mutual funds or by direct investment.

Do you invest in overseas ETFs?

Yes, many ETFs are incorporated outside of the UK. However, we will ensure that we only make use of ETFs that are compliant for retail investors.

Do I pay charges to invest in ETFs?

Netwealth does not charge any transaction fees for buying or selling ETFs or any other investments. However, there are some costs associated with investing in ETFs: the ETF manager will charge a fee for managing the fund and there will be some other costs related to administering the fund. The total charges for investing in passive ETFs will vary depending on how easy it is to replicate the underlying market index. They can be as low as 0.07% for indices such as the FTSE 100 but may be as high as 0.75% for assets such as emerging market bonds. These charges will be taken by the ETF manager out of the value of the ETF. Netwealth will always take into consideration the cost of investing in an ETF before purchasing it for your portfolio.