Understanding exchange-traded funds (ETFs)
ETFs, or “exchange-traded funds”, are exactly what the name implies: funds that are traded on exchanges, generally tracking a specific index.
Key takeaways
- An exchange-traded fund (ETF) is an open-ended fund that replicates an index, which is a basket of stocks, bonds, or other securities that come from a specific market, sector, or theme.
- ETFs are bought and sold on public exchanges, just like stocks, which makes them highly liquid and your investment is easy to manage.
- The assets held by an ETF are segregated from the issuer’s assets, which means that the money invested is protected even if the issuer experiences financial difficulty.
- ETFs are low-cost investments that charge relatively low fees compared to other types of funds.
What is an ETF?
ETFs, or “exchange-traded funds”, are exactly what the name implies: funds that are traded on exchanges, generally tracking a specific index.
- Exchange: A public, regulated platform for buying and selling financial instruments for example, Credit Suisse ETFs are traded on the SIX Swiss Exchange, Deutsche Börse, and Borsa Italiana
- Traded: Bought and sold
- Fund: A fund accepts money from people and institutions, and pools that money to buy stocks, bonds, or other financial instruments
When we put these definitions together, we see that an exchange-traded fund is a pool of money invested in multiple financial instruments, while investors buy and sell units of the fund on a public, regulated platform.
It’s important to understand that units of the fund are traded just like regular stocks – anyone with access to a trading platform can do it – making ETFs a simple way to start investing. They are open-ended funds, which means that there is no fixed period for subscriptions and no limit on the number of units or investors.
Another thing to remember is that the portfolio of a given ETF is based on the replication of a particular index.
ETFs and index replication
What do we mean when we say that ETFs replicate indices?
An index is a basket of stocks, bonds, or other securities that belong to a specific sector of the market (e.g. tech stocks, financial services companies) or are linked by other characteristics like size or geographical region. However, investing directly in an index isn’t possible. That’s where index funds come into play.
ETFs are designed to replicate indices as precisely as possible. For example, the CSIF (IE) MSCI World ESG Leaders Blue UCITS ETF invests in stocks from a basket of companies selected by MSCI – an independent research company – for their high performance on environmental, social, and governance (ESG)1 matters. In other words, the fund holds sustainable stocks identified by MSCI, buying all the stocks that compose the underlying index.
Learn more about sustainable investing at Credit Suisse Asset Management, and be sure to review the details of our Sustainable Investing Policy.
*Net performance does not take into account sales charges, detailed information on this can be found in the prospectus. Full performance data is available under 'fund details'. Past performance does not predict future returns. Neither simulated nor historical performance is a reliable indicator for current or future performance.
Why invest in an ETF?
An ETF provides you with diversified exposure to a particular segment of the market. For example, say you want to invest in US-based tech companies, but instead of picking individual stocks, you want to invest broadly in the sector.
To get exposure to this part of the market, you could invest in the CSIF (IE) MSCI USA Tech 125 ESG Universal Blue UCITS ETF B USD. Buying units of this ETF will instantly give you a diversified investment in companies in the US market at the forefront of technology-driven transformation with high ESG performance relative to their sector peers.
Because ETFs are traded much like stocks, they are highly liquid, which means that you can both buy a position and sell off that position quite easily. This also means that the market price of an ETF unit will fluctuate throughout the day.
Investor assets used to buy stocks are kept entirely separate from the assets of the company that manages the fund. This practice, called asset segregation, means that money invested through the fund is safe even in the event the fund manager experiences financial difficulties.
One more benefit of ETFs is that they are low-cost ways of investing. Fees are quite low because ETF fund managers don’t select individual stocks, so they don’t invest a lot of resources into research.
How to trade ETFs
Simple, low-cost, offering quick access to a broad range of securities, ETFs are a valuable tool every investor can use to pursue their goals, both in the short-term and over the long haul.
Potential risks
- Potential loss: Investors may lose part or all of their invested amount.
- Market risk: Market conditions can trigger fluctuations in total returns.
- Liquidity risk: Some investments may entail liquidity risk.
- Foreign currency risk: The fund’s total return can be adversely affected by exchange rate fluctuations.
1 For further information about the ESG investment criteria and the sustainability-related aspects of the fund please consider the legal and regulatory documents of the fund (such as, e.g., the prospectus) and visit credit-suisse.com/esg. In addition to sustainability-related aspects, the decision to invest in the fund should take into account all objectives and characteristics of the fund as described in its prospectus, or in the information which is to be disclosed to investors in accordance with applicable regulations.
This is a marketing communication. Please refer to the prospectus/information document of the fund and to the KIID/KID (as applicable) before making any final investment decisions.
Disclaimer
Source: Credit Suisse, otherwise specified.
Unless noted otherwise, all illustrations in this document were produced by Credit Suisse Group AG and/or its affiliates with the greatest of care and to the best of its knowledge and belief. This material constitutes marketing material of Credit Suisse Group AG and/or its affiliates (hereafter "CS"). This material does not constitute or form part of an offer or invitation to issue or sell, or of a solicitation of an offer to subscribe or buy, any securities or other financial instruments, or enter into any other financial transaction, nor does it constitute an inducement or incitement to participate in any product, offering or investment. This marketing material is not a contractually binding document or an information document required by any legislative provision. Nothing in this material constitutes investment research or investment advice and may not be relied upon. It is not tailored to your individual circumstances, or otherwise constitutes a personal recommendation, and is not sufficient to take an investment decision. The information and views expressed herein are those of CS at the time of writing and are subject to change at any time without notice. They are derived from sources believed to be reliable. CS provides no guarantee with regard to the content and completeness of the information and where legally possible does not accept any liability for losses that might arise from making use of the information. If nothing is indicated to the contrary, all figures are unaudited. The information provided herein is for the exclusive use of the recipient. The information provided in this material may change after the date of this material without notice and CS has no obligation to update the information. This material may contain information that is licensed and/or protected under intellectual property rights of the licensors and property right holders. Nothing in this material shall be construed to impose any liability on the licensors or property right holders. Unauthorised copying of the information of the licensors or property right holders is strictly prohibited. The full offering documentation including, the prospectus or offering memorandum, the Key Investor Information Document (KIID), the Key Information Document (KID), the fund rules, as well as the annual and bi-annual reports ("Full offering documentation"), as the case may be, may be obtained free of charge in one of the languages listed below from the legal entity/entities indicated below and where available via FundSearch (credit-suisse.com/fundsearch). Information on your local distributors, representatives, information agent, paying agent, if any, and your local contacts in respect of the investment product(s) can be found below. The only legally binding terms of any investment product described in this material, including risk considerations, objectives, charges and expenses are set forth in the prospectus, offering memorandum, subscription documents, fund contract and/or any other fund governing documents. For a full description of the features of the products mentioned in this material as well as a full description of the opportunities, risks, and costs associated with the respective products, please refer to the relevant underlying securities prospectuses, sales prospectuses, or other additional product documents, which we will be pleased to provide to you at any time upon request. The investment promoted in this marketing material concerns the acquisition of units or shares in a fund and not of any underlying assets. The underlying assets are owned by the fund only. Some of the product(s) included in this material may not be registered and/or available for purchase in your country of domicile. If in doubt whether the product(s) is/are registered for distribution in your country, please consult your relationship manager or locally registered distributor. If investment products have not been registered with, or authorized by a supervisory authority, certain investor protections provided under supervisory laws and regulations may not be provided. This material may not be forwarded or distributed to any other person and may not be reproduced. Any forwarding, distribution or reproduction is unauthorized and may result in a violation of the U.S. Securities Act of 1933, as amended (the “Securities Act”). The securities referred to herein have not been, and will not be, registered under the Securities Act, or the securities laws of any states of the United States and, subject to certain exceptions, the securities may not be offered, pledged, sold or otherwise transferred within the United States or to, or for the benefit or account of, U.S. persons. In addition, there may be conflicts of interest with regard to the investment. In connection with the provision of services, Credit Suisse AG and/or its affiliates may pay third parties or receive from third parties, as part of their fee or otherwise, a one-time or recurring fee (e.g., issuing commissions, placement commissions or trailer fees). Prospective investors should independently and carefully assess (with their tax, legal and financial advisers) the specific risks described in available materials, and applicable legal, regulatory, credit, tax and accounting consequences prior to making any investment decision. The alternative investment fund manager or the (UCITS) management company, as applicable, may decide to terminate local arrangements for the marketing of the shares/units of a fund, including terminating registrations or notifications with the local supervisory authority. A summary of investor rights for investing into European Economic Area domiciled investment funds managed or sponsored by Credit Suisse Asset Management can be obtained in English via www.credit-suisse.com/am/regulatory-information, local laws relating to investor rights may apply.
Copyright © 2022 CREDIT SUISSE. All rights reserved.