Benefits of ETFs
The unique structure of iShares ETFs provides investors with a number of benefits:
iShares are liquid.
High or low demand for an iShares fund is unlikely to affect its market price. If the demand for an iShares fund rises, new baskets of securities can be created in the US. This process works in reverse if the demand should "fall". This ensures the iShares fund value and price only represent the prices of the shares it holds.
iShares are transparent.
iShares aim to reflect the performance of an index, so you know what you are investing in. iShares disclose their holdings regularly so you can see exactly what you hold in your portfolio. Actively managed equity funds usually disclose holdings much less regularly.
iShares give you portfolio diversification.
Rather than the higher risk strategy of concentrating your investment on a few individual companies, index investing gives you the benefit of broader exposure to entire markets. This means you can still make targeted investments in your chosen areas – but with more risk control.
iShares are cost-effective.
The cost of investing in iShares is generally less than in most actively managed equity funds and even some equity index funds. They are also more cost-effective than holding the same exposure via individual shares. To achieve the level of diversification an iShares fund offers, you would normally have to buy a large number of individual shares, taking on the trading costs for each transaction.
iShares are flexible.
They can be bought or sold just like shares, traded through investment adviser, brokerage or internet trading accounts. Because iShares are so flexible, institutional and individual investors are using them in a whole range of investment strategies.
...but there are risks. Investing in ETFs can give foreign currency exposure. This means that the value of your iShares investment will vary depending both on movement in the underlying shares as well as exchange rates. As with all investments, iShares ETFs are subject to risk. It is important to understand that you can lose money on your investments or that they may not meet all of your investment objectives.
