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Vanguard – specialist investments copywriting

Vanguard is a specialist investment company. I wrote many videos, articles, web pages and specialist guides for Vanguard Investors, including this one, for exchange-traded funds.

[Copy extract]

ETFs – an introduction

Introduced barely 30 years ago, the number and value of ETFs has grown rapidly to become one of the most popular products in the global investment industry. This guide has all the basics you need for finding out what they are, the different types and why to choose them, plus how to manage and trade in them.

 

What are ETFs?

Exchange-traded funds (ETFs) are the most common of a group of investments known as exchange-traded products (ETPs).

What gives them much of their popularity is that they combine the diversified nature and professional management of mutual funds with the liquidity of individual shares.

Just like regular shares, they can be traded on a stock exchange and their prices can fluctuate during the day.

Most are index ETFs – they track a traditional index such as the S&P 500, which is made up of the shares of the largest US companies, or the Euro Stoxx 50, comprised of the shares of the largest European companies.

They can also be structured to track specific sectors, themes, factors or commodities. Active ETFs are becoming more popular – these have the aim of managing risk or outperforming the market.

 

The benefits of ETFs

ETFs offer four key benefits: low cost, liquidity, diversification and transparency.

 

Low cost

ETFs are generally cheaper to manage than mutual funds. In addition, index-based are ETFs usually cost less than actively managed funds and ETFs. These lower costs mean that more of a fund’s returns can go to the investor. (However, transaction costs such as broker commissions should also be factored in.)

Liquidity

ETF units can be traded throughout the day at market-determined “bid” or “ask” prices (the prices at which an investor can sell or buy the ETF), just like individual shares. They can also be traded on any market that’s open, even when the underlying market is closed. This makes it quicker and easier for investors to react to changing conditions.

Diversification

An ETF that tracks an index might contain hundreds or even thousands of individual securities. This diversification helps spread risk that might be associated with a particular security or market segment. Multi-asset ETFs provide further diversification across shares and bonds.

Transparency

All Vanguard ETFs provide full transparency on constituent elements, performance relative to the benchmark and costs on a regular basis. In particular, index ETFs are extremely transparent when compared with actively managed funds.

 

 

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