Exchange Traded Funds (ETFs)
How ETFs work
An Exchange Traded Fund (ETF) is a sharemarket-quoted fund that comprises an investment portfolio of shares, bonds or property securities. Through purchasing a single ETF share, investors gain access to this diversified investment portfolio.
ETFs are constructed using an indexing approach, so their value moves in line with the index they track. For example, a 2% rise or fall in the index would result in approximately a 2% rise or fall for an ETF which tracked that index.
Buying an ETF share is an easy, fast and low cost way for investors to own a slice of that underlying portfolio, and benefit from changes in its value. ETFs are bought and sold on the Australian Securities Exchange (ASX) through a broker, like any other share.
You can buy or sell Vanguard ETFs at any time throughout the ASX trading day. Market liquidity for ETFs is maintained by ‘market-makers’ who ensure that buy and sell prices are quoted continuously on the ASX. The structure of ETFs ensures this investment generally trades close to the Net Asset Value (NAV). The NAV is the underlying total value of net assets divided by the number of units on issue.
As ETFs are quoted investments, a ‘share registry’ manages the administration for investors such as confirming settlement, providing distribution and tax information. Vanguard works with Computershare as their nominated share registry.
