ETFs give investors the best of both worlds: the ease of stock trading plus the diversification benefits of mutual funds.
iShares ETFs & BlackRock Funds cover a broad range of asset classes, risk profiles and investment outcomes. To understand the appropriateness of these Funds for your investment objective, please visit our product webpages.
iShares ETFs & BlackRock Funds cover a broad range of asset classes, risk profiles and investment outcomes. To understand the appropriateness of these Funds for your investment objective, please visit our product webpages.
Find out more about our products: https://www.blackrock.com/au/individual/products/investment-funds
Exchange-traded-funds, or ETFs, are like managed funds in that they invest in a basket of securities, such as stocks, bonds, or other asset classes. But unlike managed funds and similar to a stock, ETFs can be traded whenever the markets are open.
By combining the diversification benefits of managed funds with the ease of stock trading, ETFs can provide investors with a simple way to access the world’s financial markets.
ETFs can offer exposure to a portfolio of securities representing specific asset classes, sectors, countries or segments of the bond market.
Whether it’s at the shops or the petrol station, a dollar saved truly is a dollar earned. The same is true when it comes to your investments, where keeping costs low can help you reach your goals sooner. Even small fees can have a big impact on your portfolio because not only is your balance reduced by the fee, but you also lose any return you would have earned on the money used to pay the fee.
ETFs typically cost less than comparable managed funds. Buying an ETF can also be more cost effective than buying the same basket of securities individually.
Most investors would generally agree that the primary goal of investing is to generate the highest possible return for the lowest risk. Diversification can help you obtain this balance. By spreading investments across asset classes, geographies and sectors, investors lower their risks as the poor performance of one investment should be offset by stronger performance in another, and vice versa.
ETFs generally track indexes that are comprised of many individual securities, helping to spread the risk and insulating investors from the impact of price swings in any one security. Although this does not eliminate risk entirely, the diversified structure of ETFs has the potential to improve the risk-adjusted return of your portfolio.
The high liquidity of ETFs – the speed with which they can be bought and sold – comes from the markets on which they are traded. ETFs trade on exchanges and investors can buy or sell throughout the trading day, just like shares.
And just like shares, you can buy and sell ETFs in a variety of ways:
The ease of trading ETFs gives investors more control over when and how they trade. This high-liquidity feature is one of the key benefits of owning ETFs, particularly when compared to managed funds. To learn more, read Trading ETFs.
Knowing exactly what you own is important information you need to make financial decisions. ETFs are straightforward and transparent about their investment objectives. In addition, information on ETFs holdings, performance, and portfolio characteristics are published daily and freely available on the product page for each ETF.
While iShares ETFs disclose holdings daily, that generally only happens monthly or quarterly with managed funds. Because of their longer disclosure cycle and the greater flexibility that active fund managers have when choosing investments, some managed funds have historically been affected by what’s known as “style drift.” Style drift occurs when a fund’s holdings change over time and sometimes stray farther from the fund’s intended strategy than investors may realise. With ETFs, you’ll always be able to know what you own and don’t have to worry about style drift.
Exchange traded funds may trade like stocks, but under the hood they more closely resemble managed funds, which can vary greatly in terms of their underlying assets and investment goals. In this section, we explore the structures used to build the ETF.
Index ETFs seek to replicate the performance of an underlying index, like the S&P/ASX 200. The vast majority of ETFs are index funds – also known as ‘passive’ funds – which typically trade less frequently than traditional active managed funds.
Active ETFs seek to outperform a specific index – or achieve a specific outcome such as maximising income – by underweighting or overweighting certain securities relative to their index weighting. Both active and index ETFs are professionally managed, but active ETFs typically require more monitoring and trading by the portfolio managers, which can result in higher fees.
Equity ETFs invest in a basket of individual stocks. There are stock ETFs covering specific sectors, from technology and healthcare to consumer goods, as well as ETFs that provide exposure to international stocks, including regional, country-specific and sector-focused ETFs. For example, one of the largest equity ETFs is the iShares S&P 500 ETF (IVV), which aims to mimic the performance of the S&P 500. In addition, there are equity ETFs that focus on size or a particular investing style, such as minimum volatility.
Bond ETFs, also known as fixed-income ETFs, provide investors access to multiple bonds in a single trade. As with stock ETFs, bond ETFs trade on exchanges. Trading on exchanges provides greater liquidity, and transparency in pricing and execution, which is particularly beneficial to investors.
Bond ETFs come in a wide variety of sub-sectors; these include Australian Government bonds and corporate bonds or international government debt, as well as specific sectors such as high yield corporate bonds, and emerging market debt.
Commodity ETFs track the price of physical assets such as gold, oil and wheat. Commodity prices are generally not highly related to prices for stocks and bonds. Commodities also tend to rise in tandem with inflation. For these reasons, investors often use exposure to commodities to help diversify their portfolios, and to align with their views on inflation and the economic outlook.
Sector ETFs offer investors exposure to a basket of companies in specific industries such as consumer staples or healthcare. Sector ETFs provide investors an opportunity to express their views on a particular industry while limiting their exposure to the risks of owning individual securities.
ETFs invest in a basket of securities, such as stocks, bonds, and commodities, just like managed funds. Unlike managed funds, ETFs can be traded whenever the markets are open, just like individual stocks. In addition, ETFs typically have lower fees than managed funds, helping you keep more of what you earn.
| ACTIVE MANAGED FUNDS | INDEX MANAGED FUNDS | ETFs | STOCKS | |
|---|---|---|---|---|
| Diversified | ||||
| Traded on exchange | ||||
| Intraday pricing | ||||
| Management fees | ||||
| Index tracking |
There are a variety of ways to invest in ETFs, which largely comes down to personal preference. For hands-on investors, investing in ETFs is but a few clicks away via your online broker. For other investors, they may want to consult a financial adviser to help them construct a diversified portfolio using ETFs managed by investment professionals.
For investors wanting to be more hands-on with their investments, below are some considerations when selecting an ETF:
Everyone's investment needs are unique. Whether your goal is maximising growth, generating income, managing risk, or other objectives, you need to create a plan — and stick with it.
After setting goals and comparing ETFs, go deeper to learn more about how each ETF measures up on key metrics, including performance, risk, cost, and core holdings. Explore iShares funds.
ETFs are funds that trade on an exchange like a stock. They are an easy to use, low-cost way to invest money and are widely available on most online brokerage accounts and through financial advisers. Click here for more on How to buy ETFs.
IMPORTANT INFORMATION
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This material provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances. Before making any investment decision, you should assess whether the material is appropriate for you and obtain financial advice tailored to you having regard to your individual objectives, financial situation, needs and circumstances. Refer to BIMAL’s Financial Services Guide on its website for more information. This material is not a financial product recommendation or an offer or solicitation with respect to the purchase or sale of any financial product in any jurisdiction.
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BIMAL is the responsible entity and issuer of units in the Australian domiciled managed investment schemes referred to in this material, including the Australian domiciled iShares ETFs. Any potential investor should consider the latest product disclosure statement (PDS) before deciding whether to acquire, or continue to hold, an investment in any BlackRock fund. BlackRock has also issued a target market determination (TMD) that describes the class of consumers that comprises the target market for each BlackRock fund and matters relevant to their distribution and review. The PDS and the TMD can be obtained by contacting the BIMAL Client Services Centre on 1300 366 100. In some instances the PDS and the TMD are also available on the BIMAL website at www.blackrock.com/au. An iShares ETF is not sponsored, endorsed, issued, sold or promoted by the provider of the index which a particular iShares ETF seeks to track. No index provider makes any representation regarding the advisability of investing in the iShares ETFs. Further information on the index providers can be found in the BIMAL website terms and conditions at www.blackrock.com/au.
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