Webcast & Podcast

The abbreviation ETF stands for "Exchange Trading Funds" and refers to funds that are traded directly on the stock exchange. The name already indicates what these securities are all about.

A classic equity fund is managed by a group of specialists who permanently analyse the stocks in the fund in order to possibly exchange them for more successful stocks. These so-called "actively managed" funds incur costs for fund management in addition to the front-end load. For some years now, some fund managers have also been paid a so-called performance fee - by the investor. These costs, management fee, administration costs and performance fee, naturally influence the return at the expense of the investor.

The index - the guide

For some years now, there has been an inexpensive alternative to these cost-intensive funds. Index funds are not subject to active management. When the fund is launched, the fund managers stock the fund analogously to the index that the fund is supposed to track. Further intervention is only necessary if the composition of the index being tracked changes. This eliminates large parts of the fees.

An ETF on the DAX 30 is composed (almost) analogously to the Dax. With index funds, all indices are mapped that are available. DAX, S&P 500, investors can choose from all indices. It must be said, however, that not 100 percent of the fund's assets are invested in the securities of the index.

A small part can also be invested in foreign exchange with bonus at exness trader or shares from another index. For example, an ETF on the DAX 30 may also contain a stock position of a Japanese company if the fund management sees above-average potential here. The fund managers do this in order to compensate for possible price declines in the index being tracked, to "hedge", as it is so nicely called in stock market parlance.

The past proves an interesting fact: index funds perform at least as well as actively managed funds in the long term.

The goal of a classic fund is to be better than the so-called benchmark, the measuring stick. As a rule, this benchmark is again an index. However, very few fund managers succeed in doing this. As a rule, they even underperform the index.

The aim of the ETF, on the other hand, is to replicate the benchmark as closely as possible and thus to track the performance of the index one-to-one.

The history of ETFs

If we assume that fund companies also calculate economically, they are actually cutting their own flesh when they launch funds that are designed to be significantly cheaper but in most cases perform better than conventional funds.

The history of ETFs goes back to 1900, when the French mathematician Louis Bachelier produced a largely unnoticed research paper on shares. He came to the conclusion that a correct forecast for the development of a share price can be a maximum of 50 percent. Harry Markowitz, who later won the Nobel Prize, developed the theory of diversification in portfolios based on Bachelier's findings. Index funds offered such diversification without incurring too many costs for fund management - an interesting alternative for large investors.

A few more years passed before the US investment house State Street Global Advisors launched the first real ETF in 1970. Until 1987, however, it was institutional investors, pension funds for example, who were interested in this investment. The global breakthrough for index funds came in 2000, when ETFs were approved by regulators in Germany, Sweden, Italy, Switzerland and Israel.