Exchange Traded Funds. Anyone who builds up a fortune today but does not want to pay high fees will soon come across the option of Exchange Traded Funds, or ETFs for short . They are public funds that are traded on the stock exchange.
ETFs follow a special investment strategy. These indices themselves reflect the performance of the assets that make up them. Such funds are therefore also referred to as passive management: Because the manager does not make his own decisions on how the fund assets are invested in detail. Rather, it is based exclusively on how the value of the index it modeled develops. In contrast to this, in the case of an actively managed fund, the manager decides at his own discretion about the “right mix”, ie how he composes the portfolio, although he must remain within the scope of the stated investment objectives and policy. In addition, an ETF is not only valued daily by the manager, but also continuously by the market – in accordance with the price development.
If you want to invest in ETF shares, you can usually buy them on the stock exchange without having to pay front-end loads. In this case, the provider of ETFs no individual shares out, but usually blocks of shares. These are then traded by so-called market makers.
Possible goals: When could exchange traded funds be useful for me?
ETFs offer the investor the opportunity to invest in an index without actually having to buy the assets contained therein, e.g. shares, individually. With index funds you can invest relatively easily, cheaply and broadly in stocks. Accordingly, it is a flexible form of investment: You can buy and sell your fund units at any time.
Risks: What are the dangers of investing in Exchange Traded Funds?
Market Risk: The value of ETFs is directly dependent on how the index was developed, which the ETF is used as the base value. The tracked index is in turn significantly influenced by how the respective assets that it summarizes develop. Stock markets, for example, can fluctuate enormously and the respective index takes these fluctuations accordingly. Always be aware that ETFs also involve risks!
Costs: With passive management of the ETF , the manager is strictly bound to replicate the respective index. He cannot therefore react actively when the market changes. This means that he cannot try to counteract possible risks by making certain investment decisions.
On the other hand, this means that a passively managed ETF generally incurs fewer costs than an actively managed fund. Here the manager tries to outperform the respective index. And this active management is an achievement that you as an investor have to pay for!
Use: What can investment in Exchange Traded Funds do for me?
The replication of indices gives the investor the opportunity to participate in increases in value through his fund units. Since indices are average values from a certain asset class, the return does not depend on how an individual asset, e.g. the share of a single company, develops. That on a ETF it is easier to losses by the values of other fixed assets that asset class balancenamely the shares of other companies. However, this model of risk limitation only works if the entire group of assets is not affected by a downturn, the development of which the index tracks.
Own duties: What are my obligations and costs when purchasing Exchange Traded Funds ?
Since ETFs only display indices, i.e. the fund is only passively managed, the fees incurred are usually lower than with actively managed funds.
Termination: Can I return or sell Exchange Traded Funds at any time?
You can resell your shares in an ETF at any time on the stock exchange. You usually also have the alternative of returning your units to the fund.
What information does the provider have to provide me with?
Anyone who wants to offer a mutual fund must prepare a sales prospectus. This contains all economic and legal details on the relevant fund. In addition, the key investor information, which summarizes the information in the sales prospectus, must be prepared. In addition, the provider is legally obliged to make the current version available to the public on its website. The sales prospectus, main investment facts and most recently released annual and semi-annual reports must be made available to investors before investing in the ETF.
For example, if you seek advice from a bank, savings bank or financial services institution, they must provide you with all of this information. In addition, a record of this consultation must then be drawn up and given to you.
Where can I buy Exchange Traded Funds?
Shares in ETFs are traded on the stock exchange. You can buy ETFs through your bank, savings bank, or other financial services institution, as well as through financial investment brokers.