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Investing in Exchange Traded Funds - ETFs

Updated on April 4, 2014

How To Invest in Exchange Traded Funds - ETFs

Exchange Traded Funds or ETFs are an alternative to other kinds of collective investment funds, such as Mutual Funds, Unit Trusts or Investment Trusts ETFs are a relatively new invention, especially in the UK, but in the USA there are many hundreds to choose between and the number of available funds is continuously increasing. ETFs are passively managed, either tracking an index or using some sort of screening algorithm to determine the undelying investments. They have the advantage that, as a consequence, they have far lower fees and total expense ratio (TER).

Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained before making any such decision.

Pros and Cons of ETFs

Exchange Traded Funds are similar to Mutual Funds or Unit Trusts except the price is quoted continuously through the trading day, like Investment Trusts rather than just once and there is no real manager, because they simply track an index (or other more complex screening algorithm) using computers, therefore have very low annual fee and small bid/offer spread. This makes them very good for short term trading.

The main disadvantage is you will have exposure to the whole index including badly performing companies or assets, whereas with a managed fund, if the manager is good, you may be able to avoid exposure to the badly performing assets (managers however do not have a good reputation for justifying their fees)

How to Buy ETFs

ETFs are available from any stock broker in the same way you might buy a share, stock or managed fund. They are also listed in many good financial publications such as the Financial Times.

There are many companies providing ETFS including:

iShares Plc

Lyxor ETF

ETFS Securities

What Can You Invest In?

ETFS can be used to gain exposure to:

Stock indices such as the S&P, Dow, FTSE

Bond indices in many countries

Commodity Prices e.g. Gold, Silver

House Prices

In addition to these index trackers there are also inverse index trackers and leveraged short and long trackers. These are more complex and far riskier.

Some Examples

iShares £ Corporate Bond (SLXX)

iShares FTSE 100 (ISF)

iShares FTSE UK Dividend Plus (IUKD) - High yielding shares

iShares £ Index-Linked Gilts (INXG)

iShares FTSE UK All Stocks Gilt (IGLT)

ETFS Silver (SLVR)

Gold Bullion Securities (GBS)

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    • profile image

      TechnicalIndicators 4 years ago

      Great lens, a lot of useful information!

    • profile image

      TechnicalIndicators 4 years ago

      Great lens, thanks for your sharing! I am an ETF trader, hope to learn from you.

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      julieannbrady 8 years ago

      Wow! I don't know how you keep all this financial info straight Andy!