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How to invest in exchange traded funds (ETFs)

How to invest in exchange traded funds (ETFs)

Introduction

Exchange traded funds (ETF) have been available to investors in Europe for 11 years, over which time their popularity has grown massively. Although this has mainly been among institutional investors such as fund managers, private investors are increasingly aware of the advantages that these funds offer.

ETFs are passive tracker funds which follow a market or the price of an asset. They are listed on stock markets like investment trusts and you buy and sell shares in them via a stock broker. But like open-ended funds such as unit trusts and open-ended investment companies (Oeics) they can create units rather than having a finite number of shares.

This liquidity means that unlike investment trusts, they seldom trade at discounts to net asset value (NAV) because large institutional investors can redeem their ETF units in exchange for the underlying stocks.

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