ETF’s vs Managed Funds

Collective Wealth Advisers partner with some of the world’s leading research firms to construct, monitor and adjust our client portfolios.  Investment options are seemingly endless.  Two common styles of investments we utilise are ETF’s and Managed Funds.  But what’s the difference? 

ETF’s (or Exchange Traded Funds) and managed funds serve the same general purpose. They provide exposure to particular markets or market segments. So it’s not surprising that they share more similarities than differences.

Similarities between ETFs and managed funds

Diversification

By pooling money from many investors, ETFs and managed funds have greater buying power, enabling them to buy many different securities in large quantities. This results in greater diversification than an investor can achieve by buying individual shares and bonds. ETFs, like managed funds, can also provide diversified exposure to many segments of the market.

Regulation

ETFs are subject to all the usual requirements for registered schemes under the Corporations Act 2001. 

Transparency

Compared with actively managed funds, indexed ETFs and index managed funds are extremely transparent. Investors generally know what the holdings are and in what proportion based upon the target index, particularly when a full replication strategy is used to track the index. 

Differences between ETFs and managed funds

Trading flexibility

Orders to buy or sell ETF units are executed throughout the trading day at market-determined prices that change continually. On the other hand, an order to purchase or redeem managed fund units is executed at the end-of-day price, known as net asset value. 

Costs

Both ETFs and managed funds charge a management cost that essentially covers ongoing operating costs. But because ETFs trade on exchanges, they also have unique, and generally lower costs not associated with managed funds. 

For more information on ETF’s, managed funds, and your investment options, book an appointment with Collective Wealth Advisers.  We tackle today, and tomorrow, together!