Exchange Traded Funds (ETFs) are basically listed managed funds. ETFs offer you the opportunity to invest in a diversified portfolio of assets. The underlying assets could be shares, commodities or fixed interest.

There are three basic types of ETFs that are traded on Australian Stock Exchange.

1. Domestic Index ETFs - tracking the domestic indicies

2. International Index ETFs - tracking the international indicies

3. Commodoties based ETFs - eg..tracking Gold price movements

Domestic Index ETFs

Currently only State Street Global Advisors offers Domestic Index ETFs - SPDRs. They offer three types of Domestic Index ETFs:

SPDR S&P/ASX 50 Fund - Replicates performance of ASX 50 Share Index - MER .286%

SPDR S&P/ASX 200 Fund - Replicates performance of ASX 200 Share Index - MER .286%

SPDR S&P/ASX 200 Listed Property Fund - Replicates performance of ASX 200 Listed Property Index - MER .400%

The Benefits Of Index Exchange Traded Funds (over normal managed funds)

Low Cost: The fees are much lower than the normal managed funds - they are even lower than the normal index funds. There are no entry and exit fees.

Liquidity: Since they are traded on ASX, the liquidity is naturally much higher than the normal managed funds. You know exactly what price you can sell them at…

Transparent: All the investments of ETF are available for market information. They are subjected to all the rules and regulations of all the ASX listed companies.

And of course one other major benefit (which is offered by all managed funds) is diversification…

A Few Points To Bear In Mind Before You Take The Leap

1. These are good for long term investment and not for short term investors.

2. Brokerage fees are applicable (like with any listed shares) - so if you are planning to trade frequently in these, then they probably are not a good option for you.

3. Not much choice is currently available for the Australian market.

4. If you are investing with the aim of making regular monthly investments (like you would do with a savings plan in a managed fund), then this probably is not the right investment - every time you buy or sell there is brokerage fee. Whilst frequent buying may not work in your favour, buying annually or semi-annually may work better…Do your sums and decide on your strategy before you invest…

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Topics: Managed Funds, Shares |

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