Although Exchange Traded Funds (ETFs) are generally regarded as lower-risk investments, particularly over the medium- to long-term, they are still based on shares or securities with the inherent risks of trading on any securities exchange.
The value of ETF securities will rise and fall according to market changes. As with unit trusts and most investment vehicles, your capital is not protected in an ETF. Therefore, depending on market movements during your investment period, you are not guaranteed to get back your full investment when you decide to sell.
Particular risks include:
- General market risks
- Interest rate risks
- Liquidity risks
- Tracking error
Why are ETFs different?
The ETF simply replicates the index and no additional amount of money goes in trying to outperform the market.
Because ETFs are pasively managed they tend to have lower costs e.g. the rebalancing process is infrequent compared to actively managed funds, which means less transactional costs.
Pricing and trading
ETFs – like any other listed security – are re-priced continuously in accordance with market movements and can be traded at any time during normal JSE trading hours.
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