Investing basics
An exchange-traded fund, or ETF, is a pooled portfolio whose shares trade on an exchange. What it owns and how it follows its stated approach determine the real exposure.
Make it click
Picture a prepared basket containing many labelled items. Instead of buying every item separately, you buy one transferable ticket representing a small interest in the whole basket.
Now put that into markets
An ETF share is that ticket. The fund owns or references a portfolio, while authorised market participants and trading activity help keep its market price near the value of its holdings.
ETFs can track broad indices, sectors, bonds, commodities or more complex rules. Their shares trade throughout the session, so investors face both the fund's ongoing costs and normal trading costs such as spreads.
Read the index or mandate, holdings, replication method, domicile, currency exposure, fees and liquidity. Two ETFs with similar names can deliver meaningfully different exposures.
The wrapper does not make the contents diversified, simple or low risk. A leveraged, narrow or synthetic ETF can behave very differently from a broad physical index tracker.
Takeaway
