What is an ETF?

An Exchange Traded Fund (ETF) is a fund that tracks a market index (like the NZX 50 in New Zealand or the S&P 500 in the US).

ETFs own shares in a proportion that matches the index they are tracking. They can be traded exactly like individual shares but because they are based on an underlying index, they offer more diversification than individual shares. ETFs charge lower costs than traditional investment funds as they don’t involve active management. The ETFs we will be buying are traded in New York (NASDAQ) and in London (London Stock Exchange).

Much like when you invest with kōura, the assets of an Exchange Traded Fund are held by a separate custodian and not by the manager. In the unlikely event that an ETF provider goes into administration, the ETF will be transferred to another manager or liquidated with kōura getting back its share.  An ETF is the same as a managed investment fund in this respect.

However, all investments involve market risk. An ETF will lose money if the index it is tracking falls because it means share prices are lower. Because you will be invested in literally thousands of companies across the world, you are not exposed to the bankruptcy of a single company to any significant degree.