ETFs offer easy entry to exciting markets

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Friday 16 July 2004

The controversy over the high cost of managed share funds may lead to consideration of ETFs (exchange-traded funds), which offer low costs (usually 0.75%) and entry to different and exciting markets.

By The Landlord

ETFs are essentially index funds that trade like shares on major stock exchanges. They were launched in the US in 1994 and now have a market value of $US150 billion ­ only a fraction of the $US7.5 trillion held in funds but growing quickly.

They are attractive because they are low-cost passive funds that track various indices. Their attractions also include high liquidity.

They trade continuously during market hours and allow investors to lock in a price at any moment. Other funds in contrast are priced once a day using the closing price of their stocks.

ETFs offer wonderful diversification. Investors can buy products designated by industry or country, growth or income. Many opt for an ETF that tracks Wall Street's most important index, the Standard & Poor's 500. The advantage is that fees have been honed down to as little as 0.09%.

The S&P500 iShare is a transparent investment; its price is quoted throughout the day and investors can also follow it on the futures market.

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