Exchange Traded Funds

Exchange traded funds, or ETF’s are index funds that trade just like shares on major stock exchanges. All the major equity indices have ETFs based on them. There is an ETF covering the top 20 companies in the ISEQ. There are also ETFs covering bonds and some commodities. Pick an Asset class that is publicly available and there is a good bet that it is represented by an ETF or will be soon.

ETFs are index funds at heart which downplay stock picking in favour of buying the market. They are a relatively inexpensive way of tracking particular international markets, where buying individual shares would be prohibitively expensive. As these funds are not actively managed, but are passive index trackers, they will fall with what they track we well as rise, as there won’t be a portfolio manager there to sell the individual components or shares when they’re overvalued, unlike with a managed portfolio.

The most common ETFs that Goodbody has used in the past have been for tracking specific markets. In particular we have traded in the ‘Spider’ which tracks the S&P 500 and the ‘Lyxor’ which tracks the Eurostoxx 50. We have found ETF’s a very efficient and effective way of getting geographical diversification in small portfolios.

If you require any further information please email pclients@goodbody.ie.

If you are confused by some of the stock market terminology you hear you might be able to find an explanation of the term in our glossary.