ASX Traded ETFs Explained

The ASX offers a wide range of Exchange-Traded Funds (ETFs) that allow investors to diversify their portfolios with a single trade.

There are over 200 ASX-listed ETFs, covering various asset classes, sectors, and geographic regions.

These ETFs are designed to track the performance of a specific index, sector, or asset class, providing investors with a low-cost and efficient way to invest in the market.

Investors can buy and sell ASX-traded ETFs through a brokerage account, just like individual stocks.

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Australian ETFs are a popular investment option, and for good reason. They offer a low-cost way to track the performance of a particular market index, such as the S&P/ASX 200 Total Return Index, which contains 200 of the largest companies listed on the ASX.

There are several types of Australian ETFs that focus on shares, including those that track the return of the S&P/ASX 20 Index, the S&P/ASX MidCap 50 Index, and the S&P/ASX Dividend Opportunities Index.

Some Australian ETFs also specialize in specific sectors, such as the S&P/ASX 200 Financials Ex-A-REIT Index, which tracks the return of financial sector companies from the S&P/ASX 200 Index, excluding Australian real estate investments trusts.

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There are 185 Active and Passive ETFs available on the ASX.

As of January 2019, these ETFs had over $41 billion in assets under management.

You can find a list of notable Australian exchange-traded funds, or ETFs, listed on the Australian Securities Exchange.

The list of ETFs on the ASX is extensive, with many options to choose from.

As at the end of January 2019, there were 185 Active and Passive ETFs available on the ASX.

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There are over 200 ETFs on the ASX, making it overwhelming to choose just one.

The sheer number of investment options, including index funds, managed funds, LICs, and REITs, can be daunting, but wouldn't it be nice to simplify your portfolio with just one click?

The ASX is home to a vast array of investment products, and narrowing down the options can be a challenge.

Rask's lead ETF research analyst and investing team have identified a single ETF that stands out from the rest, making it a top pick for 2021 and beyond.

Their team has put together a comprehensive research report and step-by-step investment guide to help you make an informed decision about this top-rated ETF.

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ETFs are a straightforward way to invest, with trades settling like ordinary shares. You can buy and sell them using a CommSec Share Trading Account.

With ETFs, you can diversify your portfolio by investing in a single unit that represents a basket of securities, spreading your investment over multiple underlying companies.

ETFs also provide access to markets and asset classes not available on the ASX, making them a great option for investors looking to expand their portfolio.

Brokerage fees for ETF trades are the same as for ordinary Australian share trades, with a minimum investment of $500, and ETF management costs are generally lower than managed funds.

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Simplicity and flexibility are key benefits of ETFs. You can buy and sell them using a CommSec Share Trading Account, just like ordinary shares.

Diversification is a major advantage of ETFs. As a single ETF unit represents a basket of securities, just one transaction can spread your investment over multiple underlying companies.

ETFs can give you access to markets and asset classes that may not otherwise be available on the ASX. This is especially useful for investors who want to diversify their portfolio.

Brokerage for an ETF trade is the same as for an ordinary Australian share trade, with a minimum investment of $500. This makes ETFs a cost-efficient option for investors.

ETF managers regularly disclose to the market what securities are included in each ETF, providing clear price visibility. This transparency is a major benefit of ETFs.

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Liquidity risk can affect the buy/sell spread in an ETF. Most ETFs have adequate liquidity.

Market makers provide additional liquidity to help maintain a stable market. An illiquid market can have a negative impact on an ETF.

ETFs with adequate liquidity are generally less susceptible to large price swings.

ETFs are often misunderstood, but they share some key similarities with traditional mutual funds.

One of the main similarities is that both ETFs and mutual funds offer diversification, allowing investors to spread their risk across a range of assets.

Like mutual funds, ETFs are also traded on an exchange, which means their prices can fluctuate throughout the day.

You can buy and sell ETFs just like stocks, but they represent a basket of assets rather than a single company.

ETFs typically track an underlying index, such as the S&P 500, which means they're designed to mirror the performance of that index.

This tracking mechanism is a key similarity between ETFs and mutual funds, which also aim to track a specific index or benchmark.

ETFs have their own set of costs and fees, in addition to the brokerage fees charged by your broker.

Brokerage fees for trading ETFs are the same as those for trading shares, warrants, and other securities. You can find the specific rates in the article section on "Rates and fees".

If you trade online and settle your trade to a CDIA or CommSec Margin Loan, you'll pay $5 for trades up to $1,000, $10 for trades between $1,000 and $3,000, and so on.

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These brokerage rates apply each time you trade an ETF, and you'll need to trade online and be a CHESS Participant Sponsored with CommSec to be eligible.

For trades over the phone, the rates are different, ranging from $59.95 for trades up to $10,000 to 0.11% for trades over $1,000,000.

Some brokers may offer alternative brokerage rates, which can result in different charges than those listed in the CommSec FSG.

Here's a summary of the brokerage rates for trading ETFs:

In addition to brokerage fees, fund managers and issuers charge a fee for their professional management of ETFs, known as the Management Expense Ratio (MER). You can find the MER in the relevant Product Disclosure Statement (PDS).

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ETPs are required to demonstrate to ASX that they can either ensure a 'reasonable' bid and volume is maintained in the market for 90% of each trading day, or have in place other arrangements to meet maximum spread and minimum volume obligations.

Market makers play a crucial role in ensuring that buyers and sellers of an ETP can transact at prices close to the net asset value (NAV) of the ETP. They provide liquidity to the market by providing quotes (bids and offers) through the trading day and frequently update their quotes to reflect changes in the NAV of the ETP.

ETPs must be linked to an approved type of underlying instrument, including certain financial products, indexes, currencies, commodities, debentures or bonds.

Here is a list of the types of underlying instruments that are approved:

Issuers are required to publish the NAV per unit and either the full portfolio or a creation/redemption basket at the end of the trading day.

When investing in ETFs, it's essential to consider the counterparty risk associated with them.

ETFs are issued by third-party fund managers and product issuers.

You should always read the relevant Product Disclosure Statement (PDS) to understand the issuer-specific counterparty risk involved.

This is a crucial step in making informed investment decisions.

Reading the PDS will help you assess the potential risks and rewards of investing in a particular ETF.

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To be eligible to list on the ASX, an Exchange-Traded Product (ETP) issuer must meet certain requirements. This typically involves being a responsible entity of a registered managed investment scheme, an operator of a scheme exempted from registration by ASIC, or a foreign company with the economic features of a managed investment scheme.

ETP issuers must demonstrate to the ASX that they can maintain a 'reasonable' bid and volume in the market for at least 90% of each trading day. Alternatively, they can have arrangements in place with a Market Maker to ensure maximum spread and minimum volume obligations are met.

Market makers play a crucial role in maintaining market liquidity by providing quotes and frequently updating them to reflect changes in the Net Asset Value (NAV) of the ETP. ASX offers an incentive scheme to promote tighter spreads and more liquidity in ETP markets.

The types of underlying instruments that are approved for ETPs include certain financial products, indexes, currencies, commodities, debentures or bonds. Issuers must also publish the NAV per unit and either the full portfolio or a creation/redemption basket at the end of the trading day.

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Some issuers may be required to publish an indicative NAV (iNAV) every 15 minutes throughout the trading day. This allows investors to assess the quoted unit price available with an iNAV per unit.

Issuers must follow ASIC and ASX guidance regarding naming conventions to help retail investors differentiate between the different types of risks associated with the different types of ETPs.

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Comparing ETFs on the ASX requires considering various factors, including the investment product monthly update from the ASX.

One key aspect to note is that the ASX Investment Product Monthly Update – March 2023 provides a comparison of fund structures on the ASX, but it's essential to be aware of the important legal information provided.

In order to access this information, you must agree to the terms, which include confirming that you are an "habitual investor" or fall within one of the other categories set out in section 3(2)(a) of the 1978 Act.

This means you need to have a principal business of investing money or habitually invest money in the course of your business.

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A Passive ETF tracks an index, which can be a broad-based stock market index, a sector index, or a custom-built index.

They can either fully replicate an index by buying all the securities that make up the index or they can be optimized by buying the securities in an index that provides the most representative sample of the index based on correlations, exposure, and risk.

Physical ETFs attempt to track their target indices by holding all, or a representative sample, of the underlying securities that make up the index.

Synthetic ETFs, on the other hand, rely on derivatives such as swaps to execute their investment strategy instead of physically holding each of the securities in an index.

This difference in approach can have a significant impact on how an ETF tracks its target index.

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Comparing fund structures is a crucial aspect of investing in ETFs. The ASX Investment Product Monthly Update – March 2023, provides valuable insights into how fund structures compare.

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The update highlights that fund structures on the ASX vary, and it's essential to understand these differences when making investment decisions.

There are specific categories of investors who are exempt from the requirements of the Securities Act 1978 of New Zealand. These include habitual investors and others who fall within the categories set out in section 3(2)(a) of the Act.

If you're a habitual investor or fall within one of these categories, you're not considered a member of the public for the purposes of the Act. This means you can access information that's not intended for the general public.

The update also notes that no prospectus or investment statement has been produced for the information contained in the website. This is because the information is intended for institutional investors, not the general public.

To clarify the categories of exempt investors, let's take a look at the list:

You can access both Passive and Active ETFs on the ASX via your online share trading account or through your stockbroker. This is a convenient way to invest in ETFs.

As at the end of March 2023, there were 285 Active and Passive ETFs available on the ASX with over $138 billion in market capitalisation. This is a staggering number of options.

You will need to know the ASX code that relates to the ETF to invest in it. This code will be unique to each ETF.

There are hundreds of managed funds, LICs, and REITs available on the ASX, but ETFs are a popular choice for many investors. They offer a simple and cost-effective way to gain exposure to a particular asset class or market.

As at the end of January 2019, there were 185 Active and Passive ETFs available on the ASX with over $41 billion in assets under management. This shows the growing popularity of ETFs.

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