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Exchange traded funds (ETFs)

Buying a basket of shares or assets

Page reading time: 5 minutes

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:

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.

What you can invest in through an ETF

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

These include:

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.



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:

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:

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.