What is an ETF?

An ETF is a type of investment fund that’s designed to track the performance of a stockmarket or other financial index.

The Vanguard FTSE 100 ETF, for example, seeks to mirror the returns of the FTSE 100, an index of the biggest UK shares such as BP, Lloyds Bank and Tesco.    

Most ETFs invest in shares or bonds, but there are also funds that track the price of gold and other commodities — even bitcoin. There are also ETFs that focus on specific investment themes such as cybersecurity and climate change. 

ETFs are bought and sold on the stock market like shares, hence their full name of exchange-traded funds. 

They can be traded throughout the investing day — unlike traditional index-tracking funds such as unit trusts which can only be bought or sold once a day through their fund manager. 

Most ETFs are passively rather than actively managed — they simply buy and hold investments to mimic the performance of an index, rather than trying to beat the market by stockpicking and investment timing. This buy-and-hold approach also helps to keep ETF costs down. 

ETFs have grown in popularity among investors because of their low charges, straightforward investment approach, and the wide choice of stock markets and indexes they track. 

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Important information

This communication is provided for general information only and should not be construed as advice. 

If in doubt you may wish to consult a professional adviser for guidance.