“ETF” describes how an investment is packaged and traded. It is not a guarantee that the thing inside is passive, diversified or low risk.
An exchange-traded fund is a pooled investment whose units trade on an exchange during market hours. Many ETFs track an index. One may follow South African shares, another global bonds, a commodity, a narrow industry or a rules-based strategy, and its behaviour comes mainly from those underlying assets.
Because it trades on an exchange, buying and selling can involve brokerage, bid-offer spreads and market prices that move during the day. Some platforms make ETF investing feel similar to a unit trust, but the mechanics and costs can differ.
So the important comparison is not ETF versus unit trust in isolation. Compare the strategy, holdings, diversification, tracking, tax context, trading costs, fund costs and how you will use it.
Try this now
Choose one ETF and write down the index or strategy it follows, its largest exposures, total cost measure and how you would buy or sell it. If you cannot identify the underlying exposure, pause at the label.
Ask your advisor
- What does this ETF track, and where could it be concentrated?
- Which trading and ongoing costs apply on my platform?
- Why is this structure suitable for the investment’s purpose?
Exchange listing provides a trading mechanism; it does not remove investment risk.