ETF Overview
Not sure which type of ETF is right for you? Here’s a quick overview.
ETF Investing: Types of ETFs
From stocks and bonds covering country and regional exposures, thematics and sector ETFs, digital assets, and commodities, ETFs provide investors with more choices to access more segments of more markets than ever before.
| Type | What it invests in | Why investors typically use it | Things to consider |
|---|---|---|---|
| Equity ETFs | Company shares | Long-term growth | Can be volatile in the short-term |
| Bond ETFs | Government and or corporate | Income and stability | Returns may be lower than equities over time |
| Commodity ETPs | Gold, oil, agricultural goods | Diversification | Prices can be affected by global supply and demand |
| Cryptocurrency ETPs | Digital assets like Bitcoin | Access to cryptocurrencies | Highly volatile and higher risk |
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
ETF Deep dive
Explore the different types of ETFs and understand how each one works, what they invest in, and the role they can play in a portfolio.
Equity ETFs
Equity ETFs - also called stock ETFs - invest in a collection of company shares. Instead of buying individual stocks one by one, you can invest in many companies all at once through a single ETF, helping spread your investment across different businesses and reducing the risk of relying on just one company for your returns.
Equity ETFs are commonly used by investors seeking long-term growth. However, share prices can rise and fall in the short term.
There are equity ETFs covering many different markets, such as the US, the UK or global companies. Some focus on specific sectors like technology, AI, healthcare or consumer goods while target a particular country or region.
Bond ETFs
Bond ETFs, also known as fixed-income ETFs, give investors access to many bonds in a single trade. They are often used by investors seeking regular income and to help add stability to a portfolio.
What is a bond?
A bond is essentially a loan. When you buy a bond, you lend money to a company or a government for a set period of time.
In return, they typically pay you interest. At the end of the agreed period, known as the maturity date, you receive your original investment back.
A bond ETF lets you invest in lots of different bonds in one simple purchase, helping you spread your investment across multiple bond issuers.
However, unlike a single bond, most bond ETFs don’t have an end date. When the bonds inside them mature, they’re replaced with new ones. So your investment keeps going.
Commodities ETPs
Commodities are any raw materials used throughout the global economy. These include precious metals like gold and silver, energy products such as oil, and agricultural goods like wheat or coffee.
Just like shares and bonds, commodities are another type of asset that investors may include in their investment portfolio – often to add diversification because commodity prices can behave differently from stock and bond markets.
There are different ways to gain exposure to commodities in your investments. One of the simplest is through Exchange Traded Commodities, or ETCs.
An ETC works in a similar way to an ETF, but instead of tracking a basket of shares or bonds, they typically aim to track the price of a specific commodity, such as gold or oil. The value of an ETC will rise and fall with the price of the underlying commodity.
Digital Assets
Digital assets can be anything non-physical that exists online and can create value – think cryptocurrencies, tokens, and blockchain-based assets.
Typically, when people hear the term crypto, they often think of bitcoin – the world’s first widely accepted cryptocurrency – which can be accessed via an ETP (Exchange-Traded Product).
An ETP is similar to an ETF in that it trades on a stock exchange and can be bought and sold through a regular investment account. However, unlike most ETFs — which usually hold a basket of investments — a crypto ETP typically tracks a single asset, such as bitcoin.
Importantly, the ETP provider handles the storage and security of the underlying bitcoin. This means investors do not need to set up crypto wallets or manage private keys themselves, making it a more straightforward way to access digital assets.
It’s important to note that cryptocurrencies are highly volatile and may not be suitable for all investors.
Video 07:51
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Find out why investor like using ETFs, how to buy ETFs, and the answers to many common questions.
ETFs are all about convenience and variety. They offer a mix of investments in one single package, which helps spread out risk through diversification and could lead to more stable returns.
So, think of ETFs like playlists in your music library, or investment portfolio. And each song is like a stock or a bond. So, the ETF is a playlist that contains a mix of these songs. Just as you can enjoy different genres in a playlist, you can also invest in various assets through an ETF. And, in the same way you can customise your music library to include your favourite playlists and genres. There are many, many types of ETFs available to match your investment goals. So, join me in this episode of BlackRock Basics for the ultimate guide to ETFs!
An exchange-traded fund, or what we call an ETF, is a type of investment fund that is traded on stock exchanges like individual stocks. ETFs pool together a group of assets such as stocks, bonds or even commodities into one single fund. And this allows investors to buy shares of the ETF, which represent a proportionate ownership of the underlying assets. Oh, by the way, when I say pool together, I mean that this is an investment that aggregates capital, so money, from multiple investors to create a diversified portfolio of assets.
There are four main characteristics of ETFs.
Firstly, ETFs are low-cost. ETFs are widely available without any transaction costs on most online brokerage accounts and qualified financial advisers.
Secondly, diversification. ETFs offer diversification benefits by spreading your investments across various assets, reducing the risk of any single investment's poor performance.
And thirdly, ETFs are highly liquid. In case you didn't know, in very simple terms, liquidity refers to how easily you can convert an asset into cash, but without affecting its price. ETFs can be bought and sold quickly because they are traded on exchanges, allowing investors to buy and sell them throughout the trading day.
And finally, ETFs are transparent. Information on ETFs holdings, performance, and even costs are published daily. Yes, daily! And are freely available on the website of the ETF provider.
Mutual funds are also a type of pooled investment security. However, in this specific case, the pooled money tends to be actively managed by a fund manager who invests it into various assets and securities. While there are also actively managed ETFs, which are growing in prominence, mutual funds can only be purchased at the end of each trading day based on their net asset value. Or what we call NAV price.
There are many types of ETFs available catering to different investment strategies and goals. So, let's run through some! Active ETFs are managed by professionals aiming to outperform a market index or even achieve specific goals, like, for example, maximising income. And this often results in higher fees due to frequent monitoring and trading. However, unlike traditional ETFs, active ETFs aren't always tied to a benchmark and can freely select investments.
Oh, did you know that the vast majority of ETFs are index funds? Anyway, index ETFs are funds that aim to mirror the performance of a specific index, like, for example, the FTSE 100. Which are the UK's 100 largest listed companies. Oh, I'm sorry, I've just realised I haven't explained what an index is. Indices are used to measure how baskets of certain assets are performing. So for example, you might hear on the news that the FTSE closed up 1% compared to the previous day. And this means that the overall value of the 100 largest companies listed on the London Stock Exchange increased compared to the previous day. Indices also provide benchmarks for how professional investors are doing compared to the market.
Stock or what we call equity ETFs, invest in a group of stocks on exchanges and they can focus on specific sectors like for example, technology or even healthcare. And some even provide exposure to international stocks, including regional and country specific ETFs.
Also known as fixed-income ETFs, Bond ETFs give investors access to multiple bonds, but in one single trade.
Commodity ETFs track the prices of raw materials like, for example, gold, oil, or even agricultural products.
Sector ETFs let investors invest in a group of companies, but within specific industries. Like, for example, consumer goods or healthcare, while at the same time reducing the risk of owning individual stocks.
So, there are loads of ways to invest in ETFs. But it all comes down to an investor's personal preference. For example, hands-on investors can use online brokers to invest in ETFs with relative ease. Others may prefer to consult financial advisers to build a diversified portfolio with ETFs. Regardless, investors should always be sure to check the fund documentations.
So, there you have it. ETFs explained! Just like a curated playlist with different genres and artists, ETFs offer a diversified mix of investments in one convenient package, helping you build a balanced and flexible portfolio, or a music library. So, next time you're thinking about your investment strategy, remember the power of ETFs. Your ultimate investment playlist.
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