Exchange traded funds (ETFs) - (2024)

Exchange traded funds (ETFs) are a low-cost way to earn a return similar to an index or a commodity. They can also help to diversify your investments. You can buy and sell units in ETFs through a stockbroker, the same way you buy and sell shares.

How ETFs work

An ETF is a managed fund that you can buy or sell on an exchange, like the Australian Securities Exchange (ASX) or Cboe Australia (CXA).

When you invest in an ETF, you don't own the underlying investments. You own units in the ETF and the ETF provider owns the shares or assets.

ETF units can be created or redeemed to match investor demand. This helps the price of the units to stay close to the net asset value (NAV) of the ETF. This differs from shares in a company or units in a Listed Investment Trust, where the price fluctuates based on investor demand.

The ASX ETF investor course can help you learn more about how ETFs work.

Types of ETFs

Passively managed ETFs

In Australia, most ETFs are passive investments that don't try to outperform the market. The role of the fund manager of a passive investment is to track the value of:

  • an index, for example the ASX200 or
  • a specific commodity, such as gold

The value of the ETF goes up or down with the index or asset they're tracking.

Active ETFs and Hedge Funds

Exchange traded managed funds (also known as ‘Active ETFs’) and exchange traded hedge funds are actively managed investments. For these funds, investment managers may use high risk trading strategies to try to outperform an index.

Physically-backed and synthetic ETFs

ETFs can be either physically-backed or synthetic.

  • Physically-backed ETF – invests in all the securities in the index or a sample of the securities in the index.
  • Synthetic ETF – hold some of the underlying assets and use derivatives to copy the movements of an index or asset. This type of ETF may use the word 'synthetic' in its name. Synthetic ETFs have an additional risk that the counterparty to the derivative could fail.

What you can invest in through an ETF

ETFs are available for a range of asset classes and individual assets.

These include:

  • Australian shares
  • international shares
  • sectors of the Australian or international share market, such as mining or financials
  • fixed income investments like bonds
  • precious metals and commodities
  • foreign currencies
  • crypto assets
  • diversified across multiple asset classes

Visit the ASX or CXA websites for the ETFs you can invest in.

Pros and cons of investing in ETFs

Weigh up the pros and cons before you invest in ETFs.


  • Diversification – ETFs allow you to buy a basket of shares or assets in a single trade. This can help to diversify within an asset class. ETFs also allow you to invest in markets or assets it can be difficult or expensive to access. You can also diversify across ETFs so there's less chance of loss if an ETF provider collapses.
  • Transparency – ETFs publish the net asset value (NAV) daily. This can help you track how the underlying asset are performing and if the price of the ETF is close to the NAV. Most ETFs publish the list of assets owned by the fund, so you know exactly what the ETF is invested in.
  • Low cost – a lot of ETFs have a low management expense ratio (MER). They're usually cheaper than equivalent managed funds.
  • Easy to trade – you can buy and sell ETFs during the trading hours of the exchange, through a broker. You can typically buy smaller quantities of ETF units than unlisted managed funds.


  • Market or sector risk – the market or sector the ETF is tracking could fall in value. For example, if the ASX200 declines, the value of your ETF investment will also fall.
  • Currency risk – if the ETF invests in international assets, you face the risk of currency movements impacting your returns. Some ETFs are 'currency hedged' which removes this risk.
  • Liquidity risk – some ETFs invest in assets that are not liquid, such as emerging market debt. This can make it difficult at times for the ETF provider to create or redeem securities.
  • Tracking errors – an ETF's return may differ from the index or asset it's designed to track. This can be due to differences in the assets owned by the ETF and the index it is designed to track, fees, taxes and other factors. This means you could buy or sell when it's not trading at the indicative net asset value (iNAV).

How to buy and sell units in ETFs

You can buy and sell units in an ETF through a stockbroker. It's the same as buying and selling shares. You buy and sell at the market price at the time of the trade.

Settlement of trades takes place two business days after you buy or sell the ETF. You have to pay brokerage fees when you buy or sell an ETF.

You may also be able to buy and sell units in the ETF fund directly with the ETF provider. These transactions will occur at the end of the day with a price reflecting the NAV of the units.

Compare the price and NAV or iNAV

You can check if an ETF is fairly priced by comparing its price on the ASX or Cboe with the NAV or the indicative or intraday NAV (iNAV).

The NAV is calculated by taking the assets of the fund, subtracting the liabilities and dividing this by the number of units in the fund at the end of the day. The iNAV is a real-time estimate of the NAV, published during the day.

ETF providers give updates of the NAV:

  • on the ASX at the end of the day
  • generally on the ETF provider's website

The price to buy and sell an ETF should be close to the NAV per unit. But at times, such as on days with large changes in prices of the asset classes, the price of the ETF may move away from the NAV.

You can use the iNAV as a reference point during the day to understand if an ETF you're buying or selling is at, or close to, the NAV per unit. You can see the latest iNAV from your broker by adding 'Y' before the ETF ticker. For example 'YABCD' for the ETF ticker 'ABCD'.

When to buy and sell ETF units

To get an ETF price that is more likely to represent its underlying value, place your trades at least 30 minutes after the market opens.

It's also better to buy or sell ETFs when the market for the underlying asset is open. For example, if you're buying or selling an ETF that tracks Asian shares, place your orders when the Asian sharemarkets are open.

Check the product disclosure statement before you invest

A product disclosure statement (PDS) contains a lot of information you'll need to know about an ETF. It includes information on:

  • what index, sector or asset the ETF returns aims to replicate
  • the fees and costs
  • how to buy or sell units in the ETF on market or, if allowed, directly with the ETF provider
  • the risks of investing in the ETF
  • how to complain if you have a problem with the ETF

If you have questions about an ETF you can contact the fund manager or get financial advice. You can also check recent market announcements for new information on an ETF.

Exchange traded funds (ETFs) - (2024)


What is the difference between an ETF and an exchange traded fund? ›

ETFs have lower expense ratios. Mutual funds have higher management fees. ETFs are passively managed, mirroring a particular index, making them less risky and transparent. Mutual funds are actively managed, with fund managers investing based on analysis and market outlook.

What is the best ETF in Australia? ›

Here are the three most popular ETFs by funds under management (FUM) in Australia.
  1. Vanguard Australian Shares ETF (ASX: VAS) $15.341 billion (at 31/03/2024) ...
  2. Vanguard MSCI International ETF (ASX: VGS) $7.708 billion (at 31/03/2024) ...
  3. iShares S&P 500 ETF (ASX: IVV) $7.638 billion (at 26/04/2024)

Which Australian ETF has the highest return? ›

Top 20 ETFs by 3yr returns (as at 06 May 2024)
CodeSecurity NameReturns
1 Yr
IWLDiShares Core MSCI World Ex Australia ESG Leaders ETF24.72%
IVViShares S&P 500 ETF24.47%
SPYSPDR S&P 500 ETF Trust24.54%
17 more rows

What is the safest investment with the highest return in Australia? ›

Investors seeking maximum returns in Australia should consider investing in Australian shares for long-term gains, as they offer high potential returns. Government and corporate bonds also present a safe option for low-risk, fixed-rate returns.

What is the downside of ETFs? ›

For instance, some ETFs may come with fees, others might stray from the value of the underlying asset, ETFs are not always optimized for taxes, and of course — like any investment — ETFs also come with risk.

Why buy an ETF instead of a mutual fund? ›

ETFs have several advantages for investors considering this vehicle. The 4 most prominent advantages are trading flexibility, portfolio diversification and risk management, lower costs versus like mutual funds, and potential tax benefits.

Which Australian ETF pays the highest dividend? ›

Best Australian high dividend ETFs
  • iShares S&P/ASX Dividend Opportunities ESG Screened ETF (IHD)
  • Russell High Dividend Australian Shares ETF (RDV)
  • SPDR MSCI Australia Select High Dividend Yield Fund (SYI)
  • Vanguard Australian Shares High Yield ETF (VHY)
  • Global X S&P/ASX 300 High Yield Plus ETF (ZYAU)
Apr 2, 2024

Should I invest in ETFs Australia? ›

Pros. Diversification – ETFs allow you to buy a basket of shares or assets in a single trade. This can help to diversify within an asset class. ETFs also allow you to invest in markets or assets it can be difficult or expensive to access.

Which ETF has the best 10 year return? ›

Top 10 ETFs by 10-year Performance
TickerFund10-Yr Return
VGTVanguard Information Technology ETF19.60%
IYWiShares U.S. Technology ETF19.58%
IXNiShares Global Tech ETF18.20%
IGMiShares Expanded Tech Sector ETF17.95%
6 more rows

What is the Australian equivalent of the S&P 500? ›

The S&P/ASX 200 Index is the benchmark institutional investable stock market index in Australia, comprising the 200 largest stocks by float-adjusted market capitalization.

How many ETFs should I invest in Australia? ›

Vanguard Asia Pacific Head of ETF Capital Markets Adam DeSanctis believes there is "no perfect number" when it comes to a portfolio of ETFs. However, while Thomas and Brycki believe investors need around a handful or more of ETFs, DeSanctis argues investors could do the same thing with just one.

Which ETF to invest in Australia in 2024? ›

Our Pick Of the Best Vanguard Funds of April 2024
Vanguard ETFFive-Year Total Return
Vanguard MSCI Intl (Hedged) ETF (VGAD)11.25%
Vanguard Australian Shares High Yield ETF (VHY)10.47%
Vanguard Diversified High Growth ETF (VDHG)9.67%
Vanguard Australian Shares Index ETF (VAS)9.16%
4 more rows
Apr 29, 2024

Is an exchange fund the same as an ETF? ›

Exchange funds are a long-term investment. Period. To take advantage of the tax benefits of an exchange fund, you are required to hold your shares for at least seven years. They simply do not offer daily liquidity like ETFs or mutual funds.

What is the difference between an ETF and an ETP? ›

Exchange-traded funds (ETFs) are a specific type of ETP that tracks an underlying index and can be bought and sold on an exchange throughout the trading day. ETPs also include other exchange-traded instruments, such as exchange-traded notes (ETNs) and exchange-traded commodities (ETCs).

What is an ETF in simple terms? ›

ETFs or "exchange-traded funds" are exactly as the name implies: funds that trade on exchanges, generally tracking a specific index. When you invest in an ETF, you get a bundle of assets you can buy and sell during market hours—potentially lowering your risk and exposure, while helping to diversify your portfolio.

What is the difference between ETF and fund of funds? ›

FoFs are actively managed funds while ETFs are considered to be passively managed funds. Hence the cost or the expense ratio is higher in the case of FoFs as compared to ETFs.


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