What is the difference between a Managed Fund and an ETF?
A managed fund is an investment scheme through which investors can gain exposure to a portfolio of assets by purchasing ‘units’ in the fund. Generally, managed fund units are not traded throughout the day with investors purchasing or redeeming (selling) units based on the value of the underlying assets at the end of the day.
Unlike managed funds, ETFs are listed on a stock exchange & can be traded like shares. ETFs often have lower expenses when compared to managed funds.
Benefits of ETFs include:
Simple diversification: ETFs allow investors to buy an index of local or domestic shares or gain exposure to a currency or commodity with a single trade.
Listed on the ASX: Buy and sell ETFs just like shares. ETFs can also be purchased through gearing facilities such as a margin loan.
Cost effective: ETFs can be a cost-effective investment product – it only takes one transaction to purchase a fully diversified index.
Transparency: ETF portfolio holdings are disclosed frequently by the ETF providers.
Things to consider for ETFs:
Market Risk: Changes in the value of the underlying index or commodity may result in changes in the value of units in the ETF.
Liquidity Risk: There may be insufficient liquidity in the ETF and this may affect your ability to sell your units.
Currency Risk: Investing in ETFs with an international focus can expose investors to currency risk.
E*TRADE supports the full range of ETF providers in Australia listed on the ASX. You can trade ETFs provided by all four ETF providers, who are specialist providers of these products.