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Investing in ETF (Exchange Traded Fund)

Posted by Adrian on January 24, 2007

What are ETF ?

ETFs are funds that trade throughout the day over an exchange. Most ETFs track an index, such as the Standard & Poor’s 500 Index or the MSCI India – iShares . 

ETFs are not closed-end funds, and the fund companies do not redeem shares for cash.

ETFs are generally valued at close to their net asset value (NAV), although they sometimes trade at a slight discount or premium.

They have grown in popularity in recent years because they give an investor the opportunity to invest in an index or sector without exposing him to the risk of a single stock. In July 2005, there were $252.3 billion in ETFs.

Advantages of ETF for a retail investor (like you and me)

  1. They are passively managed, ETFs have low annual expenses. No conversion fee like in unit trust.
  2. Buying into an ETF could bring down your risk exposure by heavily invested in stocks.  By buying into an ETF, an investor has added a diversification flavour into his/her portfolio.
  3. An investor can easily buy and track the price of an ETF using your online brokerage account.

Some cons in ETF:

1. Although I mentioned that ETF could reduce your risk exposure of market volatility, however ETFs are not spared from a market meltdown situation like 9/11 or SARS event.

2. Singapore based ETFs are not heavily traded.  Due to the reason that ETFs are still very new to Singapore investors, daily transactions volume are be very low.  In another words, you won’t be able to purchase or sell your ETFs easily on a trading day. 

Heavily traded ETFs are mostly traded in the NASDAQ or Dow Jones (I will talk about it in the future as we progress further).

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One Response to “Investing in ETF (Exchange Traded Fund)”

  1. Hi, I would like to subscribe for this blog to take newest updates, thus where can i do it please help out.

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