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Exchange-traded funds (ETFs)

Our share trading platform gives you access to a range of ETFs so you can easily diversify your investments.

What are ETFs?

An exchange-traded fund (ETF) is an investment fund that holds a collection of assets like shares, commodities and bonds. ETFs can be traded on stock exchanges such as the Australian Securities Exchange (ASX), and they can be shorted and traded on margin.

ETFs give you diversified exposure to an index that is comprised of assets such as bonds, commodities or securities (stocks). As one of the fastest growing investment products in the world, ETFs offer investors a simple and cost-effective way to build diversification into their investment portfolios. Just like shares, all ETFs listed on the Australian Securities Exchange provide investors with the flexibility to buy and sell units at any time during the ASX trading hours.

The CMC Invest platform provides access to the full range of ETF providers in Australia listed on the ASX and there are many different types of ETFs available. The most common types track an index that is a portfolio of stocks or bonds. There are also variants known as exchange-traded commodities (ETCs) that track the physical price of a commodity such as gold or other precious metals. There are now also a range of ETFs that are focused on achieving a specific outcome such as high-dividend returns.

For more information, visit our introduction to ETFs guide.

What you need to know before you invest in ETFs

Advantages of ETFs

Easy diversification – get exposure to an entire market, country or region with one trade

ETFs are a cost-effective investment product – it only takes one transaction to trade a fully diversified index. The cost of investing in ETFs generally attracts lower fees (lower management expense ratio) than investing in actively managed equity funds, and even some equity index funds. Low minimum initial investment of $500 (for ASX-listed ETFs)

Leverage and shorting – just like shares, ETFs can be bought or sold. They can also be traded through gearing facilities such as a margin loan or CFDs

Unlike managed funds, ETFs do not have minimum holding periods or early-withdrawal fees

ETFs hold the underlying securities in a trust separately with a custodian

ETFs, particularly index funds, aim to disclose their holdings regularly so you can see exactly what you hold in your portfolio

Risks of ETFS

Currency risk – investing in ETFs with an international focus exposes your capital to currency risk as well as local equity returns

Liquidity – liquidity varies between ETFs and it influences the buy/sell spread (or cost) you’ll encounter when trading

Tracking error – the return on the portfolio may deviate from the return on the index or benchmark tracked. These errors are more significant when the ETF employs a strategy other than full replication of the underlying index

Whilst there are no formal market maker obligations for ETFs, market makers will generally provide a bid/offer for ETFs during market hours. There may be periods where market makers are not active and this would generally occur in the period just after the market open. Additional care should be taken when placing ETF orders during these periods

More on ETFs

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†CANSTAR Online Share Trading Broker of the Year Australia 2011-2022. *CANSTAR Online Share Trading Outstanding Value Australia, Casual Investor 2011-2021. CANSTAR Online Share Trading Outstanding Value Australia, Active Investor 2021** By own client satisfaction. Investment Trends 2017 First Half Online Broking Report, based on a survey of over 15,000 investors/traders.

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