ETF is short for Exchange Traded Fund. It is a fund that is being traded at an exchange and so it is always possible to buy or sell. You will be able to buy or sell it at the amount of the underlying assets.
In some languages ETF’s are also called trackers. When an ETF is tracking an index they will call it an index tracker. In a way this is a good explanation of the word ETF as its main function is tracking the price(s) of underlying assets.
So in effect an ETF is tracking the underlying asset and it fluctuates with the same percentage as the underlying asset. Maybe you might think it would be just as simple as to buy the underlying asset directly. I will explain why that is not the case.
The meaning of an ETF for you as an investor
Let’s say you want to invest in the complete CAC 40 index. Buying all underlying stocks in the same weighing as the CAC 40 would be a tedious work. With an ETF you can do that with just 1 click.
The same goes for rapidly switching from the CAC 40 to the DAX. With an ETF you just sell the CAC 40 ETF and buy the DAX ETF.
Maybe you are now thinking: “But is a common investment fund not doing the same”? No, it does not! A traditional investment fund is not tracking the underlying assets, it tries to beat it. Due to this ambitions results may be higher or lower ,and unfortunately, they often are lower.
What an ETF means to me? Simplicity and certainty!
With an ETF you will be able to invest in markets that normally are not easy to enter. I am thinking of all sorts of commodities such as oil, soya beans cacao beans etc. But it will also be simple to invest in foreign markets just right from where you are. Another advantage is buying a group of shares of different companies such as all steel manufacturers in the world.