ETFs, short for Exchange Traded Funds, are investment trusts traded on the stock exchange. ETFs do not have any restriction on their contract period and can therefore be permanently traded at the current stock exchange price in the same way as shares. Upon purchasing a share in a fund, the investor becomes the shareholder of the constituent parts of the fund. When purchasing an ETF the investor also participates in the development of the securities within the fund. In contrast to actively managed funds, Exchange Traded Funds are primarily passively managed. A benchmark index is reproduced as accurately as possible. Consequently, no fund manager is responsible for permanently monitoring the fund and actively adjusting it in response to the market situation, but instead the index itself determines the composition. Because there is no active management, the management fee for ETFs is generally considerably lower than for other investment funds. If shares in a fund are purchased over the stock exchange, only the costs of purchasing and selling securities over the stock exchange without an issue surcharge are to be paid. (read more)
Because Exchange Traded Funds with passive management aim to reproduce a benchmark index as accurately as possible, ETFs can never outperform the development of the associated index.
ETFs combine the advantages of three asset classes: shares, certificates and funds. Like shares, ETFs can be traded at any time at the current stock exchange value and are therefore a very flexible investment instrument. In addition, because they have a cost structure similar to that of certificates, they are of interest to private investors. Their composition also guarantees broad diversification, as is common for funds, which is why they are regarded as a relatively secure asset class.
