Good advice if investing in shares
AN Exchange Traded Fund (ETF) is an open-ended managed fund listed on an exchange which invests in shares.
These include listed property trusts, international and Australian shares, currencies, commodities and fixed income.
ETF's typically invest in a basket of shares that replicates an index and investors may buy units in the managed fund and obtain an index exposure.
They have been designed to offer the coverage of index-tracking unit trusts with the ease of trading normal shares.
Global ETF's have grown substantially over the past 10 years.
At the end of May 2016, the global industry had 4,602 ETF's with 9,764 listings, assets of US$2.996 billion from 247 providers on 63 exchanges around the world.
On the back of growth in Australian ETF's, Australian Exchange traded products increased to $24.6 billion by November 2016.
There are over 100 ETF's accessible through the ASX.
The Australian index ETF's provide exposure over the S&P/ASX 300 Index, S&P/ASX 200 Index, S&P/ASX 20, S&P/ASX small ordinaries, S&P/ASX 50 Index, sector specific ETF's such as resources, physical commodities and commodities index.
There are also ETF's which cover specific outcomes such as high dividends and sector.
It is important to note while ETF's track an index the different types of ETF investment products will produce a diverse range of total return and risk or standard deviation outcomes.
This means the overall portfolio's return and risk profile will vary depending on which ETF's are included and the weighting they hold in the portfolio.
Historically, small companies have produced higher risk than the broad market.
International shares and regional share markets have had higher levels of risk relative to broadly based Australian shares.
You should expect investing in ETF's that track these higher risk share segments are likely to have greater levels of risk.