OPEN AN ACCOUNT
LOG IN

About Vanguard
Our history
How we're different
Investment principles
Investment stewardship
Meet our team
Awards
Our values in action
What is Vanguard Personal Investor?
Fees and costs
Invest overview
Investment products
About our funds
Funds by asset class
Account types
PDS and offer documents
Forms and notices
Education centre overview
Education guides
Smart Investing™
Tools and calculators
Investor resources
Help and support
FAQs
Financial advisers
Institutional investors
Media centre
Careers
Vanguard Global sites

  1. Back to guides

About exchange traded funds (ETFs)

ETF myths and misconceptions

5 of 6

Myth 1: All ETFs are the same

Some view ETFs (and index funds in general) as commodity-like products with no material differences. However, even ETFs supposedly tracking the same market segment can deliver very different results because of factors such as the construction methodology of their target index and their day-to-day portfolio management.

Vanguard ETFs are a diversified portfolio of securities constructed using an index approach which invests in all or a representative sample of the index they track. Using this approach enables the portfolio performance to be broadly in line with the returns of the underlying asset class or market over the long-term.

Myth 2: ETFs are illiquid

There are two levels of liquidity to think about with ETFs. The first, like listed shares, is shown in the quotes in the market as the number of shares available for purchase or sale at a particular price during the trading day. This liquidity is affected by the number of investors trading each ETF, the number of orders from other investors and the investment environment on that day.

The second source of liquidity comes from an ETF's capability to issue or redeem units to meet excess demand or supply for purchases or sales more than the liquidity shown in the market. This source of liquidity is defined by the composition of the ETF itself and the trading volume of the individual securities in the underlying fund.

In effect, Vanguard's creation and redemption process ensures an ongoing underlying depth of liquidity on a regular basis for Vanguard ETFs making them a flexible investment solution.

Myth 3: ETFs are complex

Vanguard ETFs are very simple to understand. Just like Vanguard's range of managed funds, Vanguard ETFs provide exposure to a broad market index. There is no leverage or derivative structure involved with these products.

Put simply, Vanguard ETFs combine the low cost, diversification benefits of index funds with the trading flexibility of shares.

Myth 4: ETFs are tax inefficient

Vanguard ETFs offer investors potential tax efficiencies due to their buy and hold approach and are potentially more tax-efficient than traditional managed funds. As index portfolios, Vanguard ETFs tend to realise fewer capital gains than actively managed funds. This is due to a low turnover in the underlying securities in the fund.

Myth 5: ETFs are only for market-timers

Some believe that ETFs are only appropriate for speculators, market-timers, or other investors with short time horizons. However, ETFs may benefit long-term investors even more so as an ETF's low expense ratio can more than offset commissions and spreads over time.

Myth 6: ETFs are derivatives

Vanguard ETFs are not derivatives1. Like any managed fund, the value of an ETF depends on the net asset value of the fund underlying the ETF. Vanguard ETFs are invested directly in the securities in the benchmark index.

1 Note: Synthetic ETFs may use derivatives in their investment strategy. Vanguard currently does not offer synthetic ETFs.

Previous topic

ETF fees and costs

4 of 6

Next topic

Choosing between ETFs and traditional index managed funds

6 of 6

About Vanguard
About Vanguard
Our history
How we're different
Investment principles
Investment stewardship
Meet our team
Awards
Our values in action
Invest with us
What is Vanguard Personal Investor?
Fees and costs
Invest overview
Investment products
About our funds
Funds by asset class
Account types
PDS and offer documents
Forms and notices
Education centre
Education centre overview
Education guides
Smart Investing™
Tools and calculators
Investor resources
Help & support
Help and support
FAQs
GENERAL ADVICE WARNING
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer of managed investment schemes, the operator of Vanguard Personal Investor and the promoter of Vanguard Super. We have not taken yours or your clients' circumstances into account when preparing our website content so it may not be applicable to the particular situation you are considering. You should consider your or your clients' circumstances and our IDPS Guide, Product Disclosure Statements (PDS) or Prospectus before making any investment decision. You can access our IDPS Guide, PDS or Prospectus online or by calling us. This website was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

Important Legal Notice - Offer not to persons outside Australia
The PDS, IDPS Guide or Prospectus does not constitute an offer or invitation in any jurisdiction other than in Australia. Applications from outside Australia will not be accepted. For the avoidance of doubt, these products are not intended to be sold to US Persons as defined under Regulation S of the US federal securities laws.

©2021 Vanguard Investments Australia Ltd. All rights reserved.
  • Terms and conditions of use
  • Disclaimers
  • Privacy policy
  • Whistleblower policy
  • Accessibility
  • Security