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Increasingly popular on the Australian investing scene are exchange traded funds. This type of investment offers investors an opportunity to diversify their portfolios, in a “simple and low-cost way to get investment returns similar to a share index or another underlying asset”[1].
In Australia as of April 1st 2019, there were 191 exchange traded funds in Australia available for investment[2]. Of these similar to shares, investors can buy and set their exchange traded funds through their online brokerage, the ETF’s even have a three letter listing name on the ASX similar to that of companies.
[1] https://www.moneysmart.gov.au/investing/managed-funds/exchange-traded-funds-etfs
As an owner in an exchange traded fund in Australia, you are not an owner of the company that the fund has invested in, you are an owner of the fund that owns the shares. You also have no rights in terms of investment decisions, but can enjoy the profits (and losses) they generate in a manner known as ‘passive investment’, as you sit back and watch your money work.
Just because the exchange traded fund is listed in Australia though, it doesn’t mean that you have to be invested in funds that trade in Australian shares.
For example, the ISHARES MSCI JAPAN ETF (EJW), which tracks the Japanese Stock Market, and exposes investors to large and mid-size companies in Japan[1] - 331 company investments as at 29th of April 2019. As an investor, this is a fantastic way to beef up your portfolio in the world’s second largest stock market and home to some of the biggest companies in the world and a leader in innovation.
Meanwhile, you may like the tech-heavy Nasdaq with Amazon, Facebook, Apple and Google. Then BetaShares NASDAQ 100 ETF, tracks the performance of this often-explosive market and the largest 100 non-financial securities listed on this exchange[2].
While you may not feel you can afford Apple shares at $204.30 – as at 29/04/2019 – you could in fact put $500 down on the BetaShares NASDAQ 100 ETF and enjoy part of a fund that owns some of the best performing and innovative companies in the world.
As with all Australian Exchange Traded funds, it is important to note that you are not actually owning the physical asset at any stage. You are not able to attend Googles AGM and ask questions, as you are not a shareholder in their company. You are in fact a shareholder in a fund, as a part of that once your management fees are deducted, you can enjoy the benefits of your money tracking the performance of the index that it sets out to track – such as the NASDAQ top 100 companies.
As a first time investor, this is a great way to get in, learn about trading and look at the bigger picture or the macro-environment that the companies within the index you are trading. Then you can through research make better decisions on investing in shares that may or may not sit inside the index. Exchange traded funds in Australia are used by serious investors to diversify their risk profile and hedge short term positions they may hold in other markets or financial instruments.
Before moving into ETF’s ensure you read all the product disclosure statements and speak to your financial planner or stock broker before investing and never invest more than you can afford to lose.
[1] https://www.ishares.com/us/products/239665/ishares-msci-japan-etf
