Exchange Traded Funds

An Exchange Traded Fund (ETF) is an investment fund whose units are bought and sold on a stock exchange. An ETF combines money from multiple investors and invests it in a portfolio of securities. Many ETFs track an index such as the SMI or MSCI World, allowing investors to gain exposure to numerous companies, markets or bonds through a single transaction.

ETFs can provide broad diversification because one ETF may hold dozens, hundreds or even thousands of securities. Their holdings are generally published regularly, making the investment comparatively transparent. Many index-tracking ETFs also have lower management fees than actively managed funds. Investors should nevertheless consider spreads, brokerage fees, market fluctuations and currency risks.

Investors place an ETF order through a broker or bank, which sends the order to the stock exchange. Market makers provide bid and ask prices to support liquidity and tradability. The difference between the bid and ask price is the spread and represents part of the investor’s trading cost. Liquidity and spreads can vary depending on the ETF and market conditions.

A passive ETF follows predefined rules and aims to replicate an index as closely as possible. An active ETF is managed by investment professionals who decide which securities to buy, sell, overweight or underweight. Active ETFs seek to outperform a benchmark or achieve another defined objective, but they generally involve higher management costs.

A physical ETF holds the securities of its reference index directly. Full replication means holding all index constituents, while optimized replication uses a representative selection. A synthetic ETF uses a derivative agreement, usually a swap, to obtain the index performance. This can facilitate access to certain markets but introduces counterparty risk. See how an ETF is created.

On SIX Swiss Exchange, the ETF opening takes place at 09:00 CET. Continuous trading is followed by a closing auction starting at 17:30, with the auction running and trading closing at approximately 17:35. The auction time includes a random interval of up to two minutes. Different schedules apply to certain services and instruments, so investors should check the official trading hours.