The acronym “ETF” stands for Exchange-Traded Funds. ETFs are considered securities because they are listed and traded on a continuous basis, enabling them to be bought and sold on the markets.

ETFs offer the same advantages as investment funds, allowing you to invest in several securities through a single instrument, while being less expensive than actively managed funds. ETFs are available for different types of securities, such as stock market indices (CAC 40, Nasdaq, etc.), government bonds, corporate bonds, commodities and an increasing number of new indices for exposure to different strategies.

Low Fees

The main advantage of ETFs is their low cost. In general, most ETFs charge between 0.10% and 0.30% in annual management fees.

Unlike some investment funds, ETFs do not charge entry fees, thus limiting costs for investors. Brokerage fees, on the other hand, are charged by the broker and vary according to the trading platform.

Good diversification

ETFs are a highly effective way of diversifying investments, since a single transaction can be used to acquire a basket of stocks or bonds.

For example, buying an ETF replicating the MSCI World index exposes the investor to around 1,800 companies in 23 countries. This means that your investment will depend on global trends rather than on the performance of specific companies, which greatly limits volatility, i.e. the amplitude of fluctuations in your investment.

Equity performance

ETFs are traded on stock markets in the same way as equities, making them easy to buy and sell. Liquidity is therefore very good.

Since they reconstitute indices, ETFs reproduce the performance of the stocks making up the index. In this way, the investor participates in the stock market trends of the chosen index: the ups and downs. This exposure to stock market volatility is the source of its performance.

Annual dividends

Lastly, two ETF management options are available: dividend capitalization or dividend distribution.

Some ETFs pay close to 4% in dividends a year, a major advantage for building a complementary annuity portfolio.

Bear in mind that stock market indices move up and down regularly. There is a significant risk of fluctuation, so capital is not guaranteed.

What’s more, ETF managers need to replicate stock market index fluctuations, which means constantly monitoring the inflows and outflows of stocks in the index, in order to replicate it effectively. The ETF manager has to do this work efficiently and with constant attention to reduce costs.

Some ETFs are more complex than others, due to their management strategy. While the oldest, traditional ETFs are limited to replicating a recognized stock market index, other, more recent ETFs adopt a more active management approach, tracking complex indices or using leverage.