Online Investing

What different types of ETFs are available to retail investors?

Ludovic Gauthier is an investor and financial markets writer with over a decade’s experience in the sector. You can find more of his articles at

Investors can diversify their portfolios using ETFs – but in order to do so, they need to understand the product. ETFs come in a range of types. All of them are exchange traded, low cost products. Most track indexes or bundles of stocks. The main types of ETFs are outlined below:

  • Core ETFs. Core ETFs are intended to provide the core or base of an investment portfolio. They typically track major indices like the S&P500, or even broader groups such as ‘world equities’. These are intended to be low cost, fully diversified products that track the overall direction of the equity market. They are among the simplest ETFs available and have the highest overall allocations.
  • Commodity ETFs. The most popular commodity ETFs are those linked to precious metals such as gold. These provide diversification from equities, and allow investors to express a view on the direction of the commodities market. Industrial metals are also well served by ETFs, which can be backed up by physical holdings or futures.
  • Thematic ETFs. Thematic ETFs have names like ‘India growth’ or ‘Europe dividends’ and provide a selected group of thematically linked stocks. They are great for investors with specific requirements. For example, if you want exposure to Australian mining companies, there will be an ETF that provides access to a bundle of their stocks at low cost.

Which type is best for me?

This all depends on the purpose of your portfolio. Your own financial goals are going to dictate what should – and shouldn’t – be in your portfolio. If you are retiring in thirty years and looking to maximise gains over a long timeframe, then global equities and growth thematic ETFs are the way to go. If you want to hedge your equity portfolio, and gold ETF might be worth considering.

Complex ETF strategies involving inverse ETFs and leveraged ETFs are available, but only advisable for the most sophisticated investors. As with any financial product, it’s a smart move to make sure you fully understand what you are buying, before you invest. Many first time investors have been caught out by this, loading up their portfolios with products they don’t understand. That is a quick way to lose money.

How do I buy ETFs?

Exchange Traded Funds (ETFs) are, unsurprisingly, traded on exchanges. That means you buy them through your bank or broker like you would any other stock. Most major online providers will have an enormous range of ETFs. Companies like Blackrock have their own branded ETFs (iShares), but most brokers will allow you to buy ETFs owned by any company.

A spread is charged on the ETFs when you buy it, as with stocks. ETFs do have ongoing fees deducted from returns, but they are very low when compared to the fees of mutual funds. Generally speaking, ETFs are considered a low cost investment. Minimising fees comes with risk though – you cannot rely on the experience of a fund manager when market conditions worsen.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button