- ETFs are becoming one of the fastest growing investment products.
- They are bought and sold on exchanges like regular shares.
- There are many ETFs to choose from in New Zealand.
- ETFs range from the ones investing in NZ stocks to Australian to global ones.
Exchange Traded Funds (ETFs) are one of the fastest growing investment products in the world as they come with many advantages. They offer diversification. For investors, who do not have much knowledge of different sectors, styles, and industries, can invest in ETFs to get the exposure of a number of different securities like NZX-listed companies to dividend-paying companies to corporate bonds. ETFs also come with reduced costs. Passively managed ETFs have a reduced cost on them as compared to actively traded ETFs. The other advantage of ETFs is that they have flexibility and transparency. All information about ETFs is in public domain and since they trade like stocks, the prices and other announcements are all on the NZX.
The only negative about ETFs is that they don’t promise a profit or protect an investor from losses.
ETFs are bought on the stock exchange like ordinary/regular shares. and sold on stock exchanges like regular shares. They contain a portfolio of securities that fall in a specific sector or under a specific category. Very few funds have a diversified portfolio.
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How do ETFs work?
A majority of ETFs track existing market indices representing a broad spectrum of securities for an investor. These ETFs operate by buying shares of the companies in proportion to the index. The ETFs essentially mirror the performance of the companies on the index. By and large, the value of ETF unit should be the same with the index tracked. For instance, a 2% rise in the S&P/NZX 50 Portfolio index should result in an approximately 2% rise (before fees and taxes) in the Smartshares Top 50 ETF.
Top 10 ETFs on the NZX include:
Smartshares NZ Dividend ETF (NZX:DIV)
The Smartshares NZ Dividend ETF was created in 2015. It was meant to track the return on the S&P/NZX 50 High Dividend Index and invests in financial products listed on the NZX Main Board.
Smartshares S&P/NZX 50 ETF (NZX:NZG)
The Smartshares S&P/NZX 50 ETF represents the largest 50 companies of New Zealand. It has the leading stocks listed on the NZX main board. Each company is given a weightage depending on its market cap.
Smartshares NZ Bond ETF (NZX:NZB)
The Smartshares NZ Bond ETF seeks to track the S&P/NZX A-Grade Corporate Bond Index by investing in New Zealand’s fixed interest assets. The Fund’s investment advisor is Nikko Asset Management New Zealand Limited
Smartshares Top 10 ETF (NZX:GBF)
The Smartshares Top 10 ETF invests in the 10 biggest NZ companies. The criteria for judging the biggest companies is through market capitalisation. It excludes products issued by non-NZ issuers.
Smartshares NZ Property ETF (NZX:NPF)
This Fund invests in NZ’s real estate and tracks the return (before tax, fees and other expenses) on the S&P/NZX Real Estate Select Index.
Smartshares US 500 ETF (NZX:USF)
The Smartshares US 500 ETF represents the US companies, including heavyweights such as Microsoft, Apple. It invests through Vanguard S&P 500 ETF, which tracks returns on the S&P 500 Index.
Smartshares NZ Cash ETF (NZX:NZC)
This Fund invests in cash and cash equivalents. The Fund’s purpose is to overtake S&P/NZX Bank Bill 90-Day Index over rolling 1-year period.
Smartshares Total World ETF (NZX:TWF)
This fund also makes investments through vanguard in securities from all over the world.
The global shares ETF offers low-cost exposures to all the countries listed on the NZX and priced in New Zealand dollars.
Smartshares New Zealand Mid-Cap ETF (NZX:MDZ)
This fund invests in New Zealand shares and tracks their return (before tax, fees and other expenses) on the S&P/NZX Mid-Cap Index. The fund was started in 2016.
Smartshares Australian Top 20 (NZX:OZY)
This fund tracks top 20 Australian companies listed on the S&P/ASX 20 index.
The NZ investors can invest in smartshares through Kiwisaver as well. However, Smartshares is not an investment service provider like Sharesies, as it is a retailer of ETFs only. Smartshares operates for the sake of issuing ETFs on the New Zealand Stock Exchange and selling overseas ETFs.
Smartshares are suited to long-term investors looking for stability and growth that is low cost.
You can buy Smartshares anticipating local and/or global markets to rise over time, but due to diversification, if one or two stocks fall, the impact is not felt that much. However, they are definitely not meant for investors looking for individual investments in specific companies, or investors looking for short-term buying and selling. ETFs cannot be looked at for immediate or short-term gains as they give returns in the long-run.