What are Exchange Traded Funds ETFs?
Published / Last Updated on 18/06/2025
You may be familiar with stock market indices around the world such as the FTSE 100 Index (the 100 largest UK companies listed on the London Stock Exchange), the Dow Jones (the 30 most prominent companies listed on stock exchanges in the United States) and the Nikkei (the 225 biggest publicly owned companies in Japan).
You may also be familiar with Index Tracker Funds. These are funds that you pension, ISA or investment can buy into that track indices such as the FTSE 100, the Dow and the Nikkei. There is no active investment management, the fund simply mirrors and trackers what the relevant index does. By their very nature, given there is little management, the annual management and fund charges are low so can be popular with those looking at investment costs.
What are Exchange Traded Funds ETFs?
Exchange traded funds are index tracker funds too. They started in the USA in 1993 and then came to the UK in 2000.
ETFs does not just track major stock market indices but can be more focused or specialist such as being created to track the top companies across a country or the world in things like electric vehicles, artificial intelligence, wind energy, wood/timber, travel and leisure, specialist metals, global water, cryptocurrency, block chain, fintech, cybersecurity, cancer research and many more.
ETFs give you access to sectors that you
- May have little or no time to research such specialist sectors.
- Allow you to spread risk across many firms in that sector rather than just one or to stocks that may succeed or fail.
- Access to low charges again as annual management and fund charges are again low.
ETFs have grown in popularity in the UK with now over 2,300 ETFs available daily.
ETFs work in a similar way to open ended investment companies (OEICS) and unit trusts in that they can issue as many units/shares in the fund as they wish (i.e., open ended) as the value of your unit is directly linked to the value of the underlying assets/shares held inside the ETF fund (net asset value) rather than the market demand for that fund or shares (investment trusts or individual company shares).
Access to Wide Ranges
As mentioned, there is a huge range of ETFs in many sectors, both defensive, passive, aggressive, in new sectors or old and with low charges, they are valuable addition to fund choices for those with private pensions, SIPPs, Stock ISAs and General Investment Accounts (GIAs).
