Exchange-Traded Funds (ETFs) are low-cost investments that aim to replicate the performance of a particular index, commodity or asset class - like the FTSE 100, S&P 500, US corporate bonds or gold bullion.
They act like mutual funds in some ways, diversifying an investor’s money across a range of underlying holdings, but can be bought and sold like a company share for a live market price on the stock exchange throughout the day.
The most popular ETFs are those with relatively mainstream underlying holdings, but they also offer a useful way to invest in new markets, sectors and strategies that would otherwise be difficult to access, like Vietnamese shares.
ETFs offer retail investors access to the financial markets at a much lower cost than active funds because they simply track the performance of an index, strategy or asset class without trying to outperform it. This means they can eliminate most of the administrative and manager costs of an active fund that employs an army of analysts to search for opportunities.
In addition, ETFs offer investors portfolio diversification, liquidity, transparency and hedging combined with trading simplicity and without stamp duty costs.