Investing - Share Dealing - Exchange Traded Funds
ETFs, or Exchange Traded Funds, are pooled funds that are traded on the stock exchanges around the world in exactly the same way as stocks and shares. They are neither Unit Trusts nor Investment Trusts, but are a new type of investment first traded in the US in 1993 and launched in the UK in late 2000.
Each fund is set up to track the performance of an index or sector by buying all the underlying stocks in proportion to their weighting. Effectively, each ETF is combining the performance of the traditional tracker funds with the flexibility of ordinary shares.
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An ETF is a pooled investment, typically set up to track the performance of a specific index or sector. This gives a number of benefits:
- reduced exposure to the risks associated with trading single shares
- straightforward access to the performance of key indices and sectors
- no stamp duty to pay (duty already paid on the underlying investments)
And furthermore, because of the way in which ETFs are set up, they also offer:
- low annual management costs compared to other pooled investment vehicles (and these costs are built into the fund pricing)
- continuous pricing throughout the day to closely reflect the share price performance of the underlying investments - giving flexibility in the timing of purchases and sales
- availability online and with CREST settlement
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No - as you own shares in the ETF, not in the underlying shares.
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The Motley Fool Share Dealing Service charges the same dealing commission for trading ETFs as for other equities - £10 flat fee for UK ETFs and £17.50 for those from the US. And there is no Stamp Duty to pay on an ETF, as the fund managers have already paid duty when buying the underlying shares. ETFs are managed by fund managers who levy a small annual charge for their services, although these costs are typically kept lower than for other pooled investment funds due to the ‘tracking’ nature of ETFs. And these management charges are already built into the stock price - there are no additional charges for the individual shareholder.
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The UK and US ETFs that we currently list already provide exposure to areas of the European market. We will look at increasing the range of ETFs on offer if our customers ask for it.
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They are denominated in the currency of the home exchange ie US$ for American ETFs and £ Sterling for UK listings - although all trading through The Motley Fool Share Dealing Service is in £ Sterling for your convenience.
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You can buy ETFs through The Motley Fool Share Dealing Service in exactly the same way as you would buy stocks and shares. There is a bid / offer spread on all ETF prices and you can set TradePlan orders in the same way as you would for any other stock. The only difference being that you don’t need to pay stamp duty on an ETF.
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Risk Warning
The value of your investments and the income from them can go down as well as up. You may not get back the full amount you have invested. If you're in any doubt about the suitability of an ISA, or whether to buy or sell shares, you should consult an appropriate Financial Adviser.
The Motley Fool Share Dealing Service is provided by Halifax Share Dealing Limited which is part of the HBOS Group. Registered in England No.3195646. Registered Office: Trinity Road, Halifax, West Yorkshire, HX1 2RG. Authorised and regulated by the Financial Services Authority, a Member of the London Stock Exchange and an HM Revenue and Customs approved PEP and ISA Manager.
The Motley Fool Limited is an Introducer Appointed Representative of Halifax Share Dealing Limited.
