A guide to Exchange Traded Products - The Share Centre

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A guide to Exchange Traded Products 

There has been significant growth in the number of Exchange Traded Products (ETP) available to investors in recent years. As the name suggests these products are traded on an exchange and in most cases are likely to have strong liquidity with regular and transparent pricing.

The two main types of ETP which can be purchased through us are Exchange Traded Funds (ETF) and Exchange Traded Commodities (ETC).

What's an ETF?

ETFs (Exchange Traded Funds) are funds that are listed and traded on a stock exchange. Their aim is, normally, to track the performance of an underlying benchmark, which is usually an equity or fixed income index, such as the FTSE 100, the S&P 500 or the FTSE UK Gilts All Stocks index. They are not restricted to tracking indices, for example some may track a pre-selected basket of equities. ETFs are easily grouped according to the country or region in which they invest, the type of asset class they invest in, and the level of risk associated with them. You can read more on ETFs here.

Before you start trading in ETFs please read our detailed risk warning.

What's an ETC?

An ETC (Exchange Traded Commodities) is likely to appeal to a more adventurous investor. As with an ETF, an ETC is also listed and traded on a stock exchange. However, unlike an ETF, which will generally track equity or fixed income indices, an ETC will track commodities, such as metals, natural energy resources, agricultural produce or livestock. In some cases an ETC will try to directly track the performance of a given commodity, in other cases an ETC will track an index that is designed to measure the value of that commodity.

Before you start trading in ETCs we will need to take you through our detailed appropriateness assessment.

How do ETFs and ETCs differ to Unit Trusts and OEICs?

Unlike most Unit Trusts and OEICs, there's no initial fee or stamp duty to pay on purchases and the spread between the bid and offer prices is typically low. With typical management fees of just 0.5% a year or less, ETFs and ETCs often appeal to investors, where cost is a particular consideration. Our normal dealing charges do apply.

We do still consider most ETFs and ETCs to be held as medium to long-term investments.

What are the risks involved?

ETFs and ETCs may not be suitable for everyone so it is essential you fully appreciate the risks involved.

We also recommend that you read the prospectus and/or the Key Investor Information Document for each product to ensure that you fully understand the product, its structure and the associated risks.

As with all investments, their value and the income they provide can go down as well as up and you might not get back what you originally invested. If you're not sure about the suitability of an investment please contact our Advice team.