An exchange-traded fund (ETF) is an open-ended investment fund that is listed on an exchange. They are one of the fastest growing categories of investment products because they can simply be traded like a share and are a quick and cost-effective alternative to implementing investment strategies.
ETFs are available for a broad range of assets including equities (Australian and global), fixed income, currencies and commodities. There are also multi-asset solutions that offer exposures based on risk profile.
Most ETFs closely track the performance of an index or asset class and are referred to as passive ETFs. There are also active ETFs (or exchange traded managed funds) that seek to outperform an index and deliver a return that exceeds a specified benchmark.
ETFs can also be classified into ‘physical’ and ‘synthetic’. A physical ETF will hold all, or a sample of, the underlying securities of an index, whereas synthetic ETFs will often use derivatives (e.g. options, swaps, futures) to replicate the performance of a particular asset or index.
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