$iShares MSCI Saudi Arabia ETF(KSA)$
There are many reasons to put Exchange Traded Funds at the heart of your investing strategy when you compare their strengths with the alternatives.
ETFs have accumulated several trillions in assets under management since their benefits first came to the attention of savvy investors in the early noughties. Their popularity and credibility has only increased since then. We explain why institutional players and DIY investors alike buy into ETFs.
ETFs: 10reasons why....
1. Easy: ETFs can be bought and sold on the stock market like any other share.
2. Cost-effective: Fees are low compared to active funds. Active funds as a group fail to beat the market in the long-term after costs such as fees and taxes. Whereas ETFs aim to match the market return minus costs. The negative compounding effect of active money’s higher costs means that equivalent ETFs typically win over time.
3. Diversification and time management: Owning an ETF gives you exposure to dozens, hundreds, or even thousands of securities covering every worthwhile asset class. It’s an instant solution to the problem of constantly trying to pick winners and losers. Instead of trying to predict the market you simply own the market.
4. Transparent: You always know what an ETF is doing. It is designed to replicate the returns of its stated market index – so your return should match that index’s performance after costs and tracking error. You can check the holdings and exposures of your index anytime on its web page.
5. Choice and control: There are over 1.600 ETFs listed on the London Stock Exchange. Together they enable you to invest in every country, region, sector, and asset class that you need. From ethical investments to AI, from precious metals to genomics – ETFs enable you to invest in the future of the whole world.
6. Safe: ETFs are provided by large and highly capitalised financial institutions such as BlackRock, Vanguard, HSBC and State Street. In the unlikely event that any of these companies go bankrupt, Europe-wide regulations and compensation schemes exist to protect your assets.
7. Liquid: ETFs can be traded whenever you like during normal stock market hours. Contrast that with traditional funds that can only be traded once a day.
8. Ultra-low dealing fees: Some brokers offer zero commission trading while others offer very cheap regular investment plans.
9. Affordable: Fractional trading means you can buy an ETF from as little as 1€ or £1 with some brokers. Other brokers request a minimum contribution from 25€ / £25 or 50€ / £50 a pop.
10. Simple to understand: Investing in stocks is best left to the professionals, but even active funds require a lot of research – and you're still never sure how the manager is running your money. Meanwhile, ETFs are extremely straightforward even for inexperienced investors. Everything you need to know about an ETF is published on its webpage.
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