Exchange Traded Funds (ETFs)

What are Exchange Traded Funds?

ETFs, like unit trusts, are bundles of individual stocks offering diversification over a whole market or sector. However, they are listed on the London Stock Exchange and can be traded continuously during the day, like ordinary shares.

How Do ETFs Work?

ETFs trade on the London Stock Exchange's extraMARK market. Like shares they are traded through a broker at any time of day. Anything you may do with a share you can do with an ETF.

There is no initial set up fee or stamp duty when you buy them and they are eligible for ISAs.

How Risky are they?

As the underlying holdings of ETFs are openly traded securities, they will be vulnerable to market price fluctuations.

As an investor, it will be important to be clear about your investing goals before you decide how to include ETFs in your portfolio.

Before you invest in an ETF you should make sure that you understand its characteristics to make sure that it fits in with your investment goals. The sector, nationality and liquidity of the ETF could all have an effect and increase the risk to your capital.

Some ETFs aren’t as actively traded as others. It can be a sector-related issue or even a regional issue.

It is important to understand that ETFs are not the ideal investment for every situation. ETFs should be evaluated on a case-by-case basis for every investing strategy. Please note the tax treatment of these products depends on the individual circumstances of each customer and may be subject to change in future.

Benefits

ETFs instantly diversify your investment across a bundle of stocks or indices, so smoothing out the sharp ups and downs you may get from holding just one stock, therefore your risk can be reduced.

• Instant diversification over a whole market index or sector, so spreading risk and increasing access to range of securities.
• Easily traded and continually priced throughout the working day like shares.
• No stamp duty on purchases*.
• No initial set up fee.
• Eligible for ISAs.

*Please note that the tax treatment of the products depends on the individual circumstances of each customer and may be subject to change in the future.

How much will it cost?

ETFs are traded like shares at normal dealing commissions from £8.95 per online trade. See full rates and charges.

Which account should I choose to invest in ETFs?

You can invest in ETFs through our Trading Account, Trading Plus Account, Trading ISA, or SIPP Accounts.

Where can I find more information?

From the London Stock Exchange: www.londonstockexchange.com/etfs