The different types of exchange traded funds explained
09 Aug 2021
The first exchange traded fund (ETF) hit Australian shores back in 2001. Now many years later, they have become one of the most popular investment products. Their growth in popularity has seen a variety of ETFs emerge which we will cover in detail throughout this article.
If you are interested in investing in ETFs, we’ve put together a cheat sheet on the different types of funds you may encounter. The types of ETFs you may choose to invest in include:
- Active and passive ETFs
- Stock ETFs
- Bond ETFs
- Sector or industry ETFs
- International ETFs
- Commodity ETFs
- Factor ETFs
Active and passive ETFs
First and foremost, ETFs will generally fall into two categories: active or passive. Initially, exchange traded funds were constructed as a purely passive investment product where the ETF would track or imitate the index it was designed to follow. Today this has changed – investors now have the option to invest in exchange traded funds that are passive or active.
Active investments are managed by a fund manager who decides on the investments included within the portfolio and buys and sells assets according to changes in the market. Fund managers are actively trying to beat the market in order to optimise returns. Whereas, passive investments track an index, and therefore cannot beat or underperform the market. Although, one thing to consider when considering actively managed ETFs is the cost. As you are paying for the service of a fund manager, active investments are can be more costly. Additionally, fund managers don’t always get it right and can under-perform the market.
Related article: Active vs. Passive – What’s the difference?
Stock ETFs
Stock ETFs track shares and are likely to be the most common type of ETF you will come across. Stock-based ETFs can replicate a stock index or a collection of stocks grouped by sector, geographical location or by a common feature that is shared between them. Each individual stock is weighted and their overall performance is tracked. One share in a stock-based ETF will buy you a nominal amount of each company it is tracking and can be set up as an active or passive investment.
Below are links to some of our Partners’ Online Share Trading platforms where you may be able to buy ETFs.
| Provider | Fee for $15K trade* | Ongoing fees# | Trade with live prices^ | |
|---|---|---|---|---|
  |
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$15.00 | Yes | Yes |
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$7.50 | Yes | Yes |
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$14.98 | Yes | Yes |
View all Canstar rated Online Share Trading products. View Disclosures.
* Online brokerage fee for a $15,000 trade based on the number of transactions specified in the search inputs
# Ongoing fee for the account. There may be waivers and discounts subject to account use
^ The ability to view and trade on live prices
Cover image source: Things/Shutterstock.com
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