What are ETFs and why would anyone use them?
Exchange Traded Funds (ETFs) combine the advantages of index tracking funds and exchange-traded shares, thus giving access to an entire stock market index in a single share. The ability to track an index has long been recognised as a valuable way to diversify against risk, but was previously available only through collective investments schemes such as Unit Trusts. ETFs give you all the diversification of an index-tracker in a single, easily traded share. In addition, ETFs don’t attract stamp duty at the time of purchase and just like Unit Trusts, they can be wrapped in tax-efficient vehicles like PEPs and ISAs. There are currently 10 ETFs available to investors in the UK and they give access to global investment indices such as the UK FTSE 100 or the American S&P 500 (a US index). They can be bought and sold during market hours and, just like ordinary shares, transactions can be made through your broker. Prices can be checked in the Financial Times, or online.
