Index ETFs
The majority of ETFs are index funds that track the performance of a particular equity index. For example, State Street Global Advisors STW product tracks the performance of the S&P/ASX200 index by holding the contents of the index in its portfolio, when you hold all the shares at index weight the relative prices automatically rebalance the portfolio in real time with no trading. Index ETFs generally distribute dividends and franking credits to the holder of the ETF, making it a low cost, diversified, tax-effective investment. iShares now offer a number of ETFs that track the performance of particular overseas indexes. It is however, very important to remember that ETFs that track overseas indexes are priced on the ASX in Australian dollars and are generally unhedged to foreign currency movements. There are three distinct determinants of performance returns:
- the movement in prices of the underlying securities (including the management costs)
- fluctuations in the A$ rate of foreign exchange conversion with the currency (or currencies) of the underlying basket of securities; and
- fluctuations in the A$ / US$ rate of foreign exchange conversion on cash amounts while the fund is processing any distributions payable.
Commodity ETF’s
Also referred to as ETCs (Exchange Traded Commodities) commodity ETFs invest in commodities such as precious metals and commodity futures. Gold ETFs were among the first commodity ETFs available.
Commodity ETFs invest in commodities, such as precious metals and futures. Among the first commodity ETFs were gold exchange-traded funds, which are offered in a number of countries. Commodity ETFs generally are index funds, but track non-securities indexes.
Sector ETFs
These ETFs seek to track the performance of stocks within a particular sector.
All sectors have varying factors that affect their performance, and are diversely return-oriented ie. growth v.s income, defensive v.s cyclical etc. Therefore investing directly into certain sectors can be extremely beneficial when trying to achieve a perfectly personalised portfolio.
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