Why this might be the best time in years to invest offshore
30 August 2021
An ETF, also known as an Exchange-Traded-Fund, is a liquid financial instrument that tracks a particular stock index, commodity, bond, or basket of assets. ETFs are similar to mutual funds with the key differential being the fact that ETFs trade like common stock on an exchange. The price of an ETF’s share will therefore change throughout the day as they are bought and sold throughout the various markets around the world.
ETFs are a type of fund that owns underlying assets and divides ownership of those assets into shares. ETF shareholders are entitled to a proportion of the profits in the form of earned interest or dividend payments and in the event the fund gets liquidated the owner of the ETF may get a residual value.
ETFs allow investors to build diversified portfolios without the need to hold 1000s of individual securities.
The average annual expense ratio for ETFs is around 0.2% while some of the largest indexed ETFs have expense ratios around 0.10%.
ETFs are highly liquid and also offer a high degree of transparency. Investors can see how a particular ETF has performed at any given time.
ETFs are index funds and therefore tend to generate fewer undesirable capital gains taxes. Levels of and reliefs from taxation are subject to change. Tax will depend on an individual’s circumstances.
ETFs are chosen with the aim to minimize the Total Expense Ratio as well as other ownership costs without compromising the quality of the ETF.
Higher trading volumes and liquidity will reduce the spread in asking bids thus reducing the costs involved with ETFs.
The tracking error relates to the extent one can accurately track a particular index. ETFs are selected with the aim of minimizing this tracking error.
We prefer physically replicating ETFs over synthetic ETFs. Since an ETN does not hold the underlying assets of the index it is tracking, there is increased risk which is not rewarded with lower costs or higher returns. For this reason, we do not invest in ETNs.
International Wealth & Prosperity are specialist investment advisors. We pride ourselves on delivering a highly personalised approach to managing your investment portfolio, and we look to achieve long term growth both in your investments and in our relationship with you.
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