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They provide access to a range of asset classes and investment strategies that non-institutional investors may not ordinarily have access to, for example international equities, fixed income securities and currency markets. By investing in an ETF you can achieve a level of diversification that would normally be too difficult to realise investing in each asset individually. ETFs also have no minimum investment requirements which makes them more accessible.
ETFs usually have lower fees as passive investing strategies rely less on the skill and experience of the managers than active investing strategies. This makes them a cost effective way to diversify your portfolio and gain access to markets that traditionally tend to be more difficult to invest in.
Benefits of investing in ETFs include:
Accessibility: You can purchase or redeem units in an ETF at any time during market hours in the same way as you would for any ordinary share. This means no additional paperwork or unnecessary delays like with unlisted managed funds. ETFs also have no minimum investment
Transparency: Unlike a traditional actively managed fund that discloses its holdings at varying intervals, ETFs are highly transparent. Most ETFs are required to publish a list of their holdings on a daily basis.
Cost effectiveness: As ETFs are generally designed to track a specific index or other rules-based methodologies, fees are (on average) lower than a traditional actively managed fund.
Liquidity: Given their open-ended structure, an ETF can be as liquid as its underlying constituents.
Diversification: ETFs are an easy way to achieve a high level of diversification that retail investors are unlikely to achieve by themselves