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At a first glance an ETF might look a bit like its distant relative: a unit trust. But unlike its cousin this sexy little portfolio of different shares, bonds, and other instruments, is single and ready to mingle – it can be traded on stock exchanges (like the JSE) as one instrument. The most common ETF’s are designed to track the performance of a market benchmark or index by mirroring the makeup of that index in a portfolio. Some ETF’s even include international companies like Apple, Microsoft and General Electric which is handy when the rand takes a dive.
When it comes to investing, diversification is the word! You need to spread your investments between different shares in different amounts to hit the sweet spot on your risk vs return ratio. Exchange-traded funds (ETF’s) are the cheapest and easiest way to do this. The National Treasury has even decided they are a perfect match for tax-free savings accounts (TFSAs) – so once you’ve deposited some money into your TFSA you can treat yourself to an ETF shopping spree! But they can also be bought as you would normally buy a share in your EasyEquities account, just nje.
The db x-trackers USA Index ETF is 100% exposed to US equities. Ironically, in moments of severe uncertainty, US markets tend to benefit as risk averse investors consider it a safe haven. Given the difficult global environment and risks of seismic political shifts in the US, we think US assets will benefit disproportionately.Read more...
Equities are the highest risk financial asset. They generally provide the best returns, but can be volatile so only suit longer-term investors. The NewFunds MAPPS Protect ETF is low risk with 40% invested in equities. The balance is invested in bonds (15%), inflation-linked bonds (35%) and cash (10%).Read more...
The main difference between an ETF and a unit trust is that ETF’s are listed on the JSE so you can buy or sell them just like a share. That means you can see the prices all day and the only cost to you in buying them is the brokerage fee (with EasyEquities that’s a market low of 0.25%, whoop whoop!). In contrast, unit trusts are not listed on the stock exchange and prices can only be set at the end of the day. Unit trust investors also have to dish out an upfront fee of up to 2% and because most unit trusts are actively managed they tend to have higher costs than ETF’s, which passively track their index.