ETF Definition and Investment

ETF: Definition and investment

Etfs Are One of the Easst Ways to In the Stock Market. That's Why Seasoned Investors and Newbies Alike Love TheM. In 2021, The Net Inflow of These Financial Products in Europe Increased to 162 Billion Euros, Whereas It Had Already Reached A Record Level (117 Billion euros) in 2020.

Focus on Etfs.


What is an etf ?

An ETF (Exchange Traded Fund) Refers to an investment fund list on the stock exchange that replicates the variations of an index such as the cac 40, the nasdaq, the euro stock 50, etc. It is also Called Tracker. Unlim traditional investment funds such as sicavs and fcps, etfs do not love to outperform the market.

Rather, its Objective is to reproduce the Performance of A specific Stock Market Index in order to Offer the Same Return as that that was generated by the letter. Concretely, if the index rises, the etf also risks. On the other hand, ifs its performance drops, the tracker follows an identical trend.

This Financial Instrument Gives Rise to Passive Management.

Thanks to an Etf, it is possible toInvest in Hundreds of Companies simultaneously. There are different types of trackers:

  • ETFs accumulation, with that dividends are reinvested in shares of the same fund;
  • Distribution ETFs, which Allow Investors in the Fund to Receive Dividends Every Three Months Or Every Year;
  • Bond Etfs, which include Government and Corporate Bonds;
  • Sector Etfs, which Replicate The Benchmark of A Particular Sector (Automotive Industry, Real Estate, etc.)).);
  • Geographic Etfs, with that the replication concerns a country, a region or the white world.

Do not hesitate to read even more about trackers before integrating these financial product into your investment portfolio.

What is the’Interest of Etfs ?

There are Several Reasons for Invest in Etfs. First, these funds allow you to invest in a stock market index, which is usally made up of the large companies in an industrial or country. As a result, you will no long was Time Selecting Companies One by One to Invest Your Money.

You just need to choose the andfs that best meet your objectives. Sale these index funds are quoted continuously, you can also buy and sell them at any time.

Diversification is another Major Benefit of Investing in Trackers. Indeed, the risk is spread over a large number of securities. This will therefore Protect You From A Possible Poor Performance of A specific company and allow you to optimize the Risk/Return Ratio.

In addition, Etfs have the advantage ofInvolve less significant fees Compared to Traditional Investment Funds. Concretely, trackers management fees are around 0.20 % per yearar. As a comparison, they amount on agerage at 2 % per year for ucits, sicavs or fcp. In addition, the eths are not subject to the tax on financial transactions which stands at 0.30 %.

In addition, Investment on the Stock Market via trackers will allow you to benefit from Various Tax Advantages. You Should Know That these Financial Products Can All Be Housed in An Ordinary Securities. Some of them are also eLigible for pea, pea-pme and some life insurance contracts.

Invest in Etf: What are the risks ?

Despite these different Advantages, theInvestment in ETF Involves Risks. Capital loss is one of them. Indeed, the volatility of the market followed exhibits you to a risk of loss, because if the reference index fals, your portfolio will suffer proportions consequences.

The Risk Will Be Even Higher If you opt for the leverage trackers.

This is why it is recommended to invest only what you are Willing to Lose.

For Etfs quoted in Foreign Currency, there is also Currency Risk. In Other words, it will be necessary to take into account the variation of the currencies, in addition to that of the index itself.

On the other hand, it is possible to face the liquidity risk for some trackers due to the lack of buyers. This situation usally Arises for Little-Known Index Funds.

Finallly, it happens that theEvolution of an ETF Deviates from that of the benchmark. Called tracking error, this phenomenon causes an investment to lose value. Note that the more values an index has, the more difficult it will be replicate.