WHAT IS AN ETF?

Trading stocks is second nature for most investors. You can trade stocks yourself or find a broker to help. Trading ETFs is no different from trading stocks, and a little research goes a long way to helping you choose the right ETF.

Managed funds (also known as mutual funds) are investment products that pool together money from a range of investors. A fund manager then actively manages and invests this money into a basket of different assets and securities – often stocks. You pay the manager in the hope they drive better performance than the market performance.

While managed funds may offer good returns, in most cases you can’t buy and sell them whenever you want. ETFs however, act similarly to stocks so you can buy and sell them anytime during market hours.

Like managed funds, ETFs are a basket of stocks, bonds or other assets, but overall there’s lots of key differences. ETFs combine certain key features of stocks and managed funds.

• ETFs are more diverse than investing in individual stocks. Instead of buying a handful of individual stocks, investing in an ETF would give you instant exposure to a multitude of stocks.
• Unlike a managed fund, an ETF does not aim to beat the index, but to match its performance, giving you potentially more predictable returns.
• Managed fund managers often charge you more to pick investments to outperform an index or benchmark, but since ETFs generally track the index, it is usually lower cost compared to a managed fund.
• ETFs give you flexibility in allowing you to enter and exit at any time.