ETF

What is an ETF

An ETF (Exchange Traded Fund) trades on the market exchange much like a share, but instead of representing the individual value of a company it represents the value of the assets that the ETF. These assets could be a basket of stocks representing specific indices or area of investment interest. ETFs can also be used to represent commodities, bonds and currency. 

They are popular with investors because they allow investors a very efficient and often discounted way to diversify their portfolio.  

Researching an ETFs assets

The potential value of an ETF can be affected by the nature of the assets it holds. A gold ETF for example may not have it’s assets made up with actual bullion, they may have decided to use a derivative in the commodity instead. So it is important to find out exactly how the assets of the ETF have been put together. You can find out the assets of the fund by researching the ETFs prospectus. A prospectus has to be created presented to a regulatory body like the FSA or SEC before an ETF can be traded.

Find out more about gold ETFs

More advanced ETFs

As they become more popular ETFs have started to offer more complex and exotic variations. One example for more advanced investors are ETFs which embody leveraged short strategy positions on indices, like the ftse 100. These can be included (at the time this article is being written) within an ISA.