Exchange-traded funds are a relatively new development. They were introduced in the US in 1993 and in the UK in 2000, and are based on the idea of gaining exposure to a stock index through a single tradeable share.
ETFs combine some of the advantages of investment trusts and unit trusts. Like a normal share, trading takes place throughout the day while unit trusts offer only a daily price. Unlike an investment trust, ETFs do not trade at a discount or premium to net asset value but trade close to the underlying value of their net assets.
ETFs can be bought or sold through a stockbroker, and no stamp duty is payable on purchase. Dividends run in line with the sectors they replicate net of management fees. They can be put into an individual savings account (Isa), or self-invested personal pension (Sipp). Fees are lower than those of many trackers, and generally range between 0.1 and 0.65 per cent.
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