Structure of ETFs

ETFs are like open-ended managed funds which are listed and traded on major stock exchanges around the world. Similar to an index tracking pooled fund, an ETF seeks to reflect the performance of the chosen index. This is achieved through holding a diversified underlying basket of securities as represented by a particular index with, for example, a domestic or international focus.

ETF Performance

The performance of an ETF generally corresponds to the price and yield performance, before fees and expenses, of a particular index sponsored by an independent index provider. (For example, the iShares MSCI EAFE seeks to provide investment results that correspond to the price and yield performance of publicly traded securities in European, Australiasian and Far Eastern markets as measured by the MSCI EAFE Index.) By corresponding to an index, an ETF can represent a particular market, country, region or group of countries, thus providing a diversified international investment through holding a selected underlying basket of securities.

iShares Advantage

A distinct advantage iShares have over managed funds is that iShares trade like any other listed share. They can be bought and sold on the ASX, and can employ the same trading and investment strategies used with listed shares such as market, limit and stop orders, short sales and margin lending.

Trading volumes and market depth in iShares are not the complete picture of liquidity, but rather an indication of the existing shares (CDIs) traded. Liquidity of iShares can be increased beyond their trading volume and market depth through the creation/redemption process conducted in the United States (US). This means that an order that is sized beyond the market depth visible on the ASX can be accommodated. For more details about the creation/redemption process see Track 4: Buying and owning iShares.