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Exchange Traded Fund Guide

Low cost

Good deal for all investors

Pricing
All investors equal
ETFs represent fair value to all investors, smaller individual investors and large institutions alike. The benefits of the structure are equally available to all.

No inherent gearing
There is not usually any leverage within an ETF. This means that the fund cannot borrow to increase its exposure to the marketplace. Accordingly, £100 invested will typically represent £100 value of equity exposure.

Volume is not the same as liquidity
Volume is defined as number of shares traded. Liquidity is the number of shares available to be traded. Therefore if volume is low this is not an indication that large orders to buy or sell an ETF cannot be placed in the market. The liquidity of the ETF relates to the liquidity of the underlying basket of shares. Large orders will usually often be transacted within the visible market price even when volume is low.

Premium/discount
The Exchange Traded Fund delivers a good deal to the client by trading at a price that is very close to the exact value of the underlying stocks. The mechanism for creating new shares and redeeming old shares will prevent sustained premiums and discounts from occurring.
Fees
No hidden charges
Unlike other collective investment schemes, Exchange Traded Funds DO NOT incorporate charges within their secondary market pricing mechanism. The share price will reflect the underlying value of stocks and market movement.
Furthermore since the fund is registered in Ireland an investor in the secondary market will not be liable to pay stamp duty under current regulations.

Low internal costs
The costs involved within an ETF are exceptionally low. The costs of passive management is small and the administration/custodial charges are available to large funds at very competitive rates.

Trading costs are external to the fund
Much of the expense of the investment process is external to the fund - i.e. broker commission, savings plan costs etc.
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