Exchange-Traded Funds (ETFs)

What is an ETF?

An Exchange-Traded Fund (ETF) is a type of financial asset that groups different securities such as stocks, bonds or commodities together. ETFs can passively replicate an underlying index, such as the S&P 500, or can be actively managed.

Investing in ETFs is one of the most efficient and low-cost passive investing strategies. In his 1993 shareholder letter, Warren Buffet (even though he is an active investor) aknowledges the power of investing in ETFs:

"By periodically investing in an index fund, for example, the know-nothing investor can actually out-perform most investment professionals."

How to choose an ETF?

In order to choose and ETF, you first need to look at the holdings of this ETF and which type of index it replicates : MSCI World, MSCI Emerging Markets, S&P500, etc...

Then, when you need to choose between similar ETFs here are some criteria to take in to account :

  • Fees: The lowest fees the better
  • Fund size: Larger funds tends to be better because it generally means lowest fees
  • Volume: Larger volume is better because it offers more liquidity
  • Tracking difference: You want the ETF to deliver a return which is very close to the index it tracks
  • Replication method: ETFs can have a full physical replication, which means it holds the assets; or synthetic replication which tracks an index using financial products such as swaps.
  • Income treatement: ETFs can be dibtributing, meaning they pay you all interests and dividends, or accumulating (eg. capitalising) meaning that they automatically reinvest interests and dividends.
  • Currency: ETFs can track the same index, but in different currencies such as USD or EUR

Here are some of the largest Exchange-Traded Funds as of 2021 according to :

  1. iShares Core S&P 500 UCITS ETF (Acc)
  2. iShares Core MSCI World UCITS ETF USD (Acc)
  3. Vanguard S&P 500 UCITS ETF
  4. iShares Core MSCI Emerging Markets IMI UCITS ETF (Acc)
  5. iShares Core S&P 500 UCITS ETF (Acc)
  6. iShares Core S&P 500 UCITS ETF USD (Dist)
  7. Xetra-Gold
  8. iShares Physical Gold ETC
  9. iShares Core FTSE 100 UCITS ETF (Dist)
  10. Invesco Physical Gold A

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