An exchange traded fund, often shortened to ETF, is a product with no active human investment oversight. It operates by systematically buying every asset within the market it is designed to track.
It could be isolated to one particular industry or sector or it can own hundreds of stocks across various industries. Some funds focus solely on the UK while others have a global outlook.
For example a banking focused ETF would contain stocks of various banks across the industry. So a Footsie one hundred ETF will buy all 100 companies in the UK Footsie one hundred stockmarket in the same proportion they are in the index.
The key attraction of these passive products is their comparatively low costs but it’s important to remember that with no one to manage the fund it can’t tell the difference between a good and a bad investment.
An ETF is a type of fund that holds multiple underlying assets. Because there are multiple assets within the ETF they can be a popular choice for diversification. ETFs are becoming more popular with investors and many new funds have been created often tracking weird and wonderful baskets of shares in order to provide a given outcome.
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