Investing in ETFs and other ETPs

ETFs and Structured Products will adopt an investment strategy to achieve the objective of the product.

Common investment strategies can include:

Index-tracking / passive 

These products seek to track the performance of an index (such as the S&P/ASX 200 Index), a currency or a commodity (such as gold).

The product usually does this by investing directly in securities that comprise the index. The weightings of the securities will typically match the index - this is known as the “full replication” method.

Active

These products are actively managed by a fund manager that is typically trying to outperform an underlying index, such as the S&P/ASX 200 or the S&P 500. This is known as ’seeking alpha’. Instead of buying all the securities in the index like index-tracking ETFs, active ETFs typically have a portfolio manager that is making decisions about which securities to include in the fund.

To alert investors that the product is actively managed the manager is required to use “Active” in the name of the product.

Alternative and complex investment strategies 

ETFs and Structured Products may have more “complex” investment strategies relative to traditional index-tracking or active products. Examples of investment strategies that may be considered complex is when the product;

• uses debt or leverage to make a financial investment
• uses short selling
• uses derivatives to a material extent
• is classified as a hedge fund

To alert investors that the ETF or Structured Product uses one of the above mentioned investment strategies there is a requirement for the manager to use “Complex” in the name of the product.

Like shares, you buy and sell ETFs and Structured Products through a licensed intermediary, be it an online broker, investment platform, full service stockbroker or financial adviser.

Settlement of the trade takes place two business days after the date the order traded on the market – this is known as T + 2.

A product disclosure statement (PDS) contains a lot of information you'll need to know about an ETF or Structured Product. It includes information on:

• what index, sector or asset the product aims to track or outperform
• the fees and costs
• how to buy or sell units in the product on market or, if allowed, directly with the ETF provider
• the risks of investing in the product
• how to complain if you have a problem with the product

If you have questions about an ETF or Structured Product you can contact the manager or get financial advice. You can also check recent market announcements for new information on the product.