You buy and sell them like a stock or bond, but they offer diversification like an investment fund.
ETFs, or exchange-traded funds, and ETPs, or exchange-traded products, automatically track an index or type of financial asset, and can be bought or sold in real time on the stock market. Many investors put their savings in ETFs because they typically have lower management fees.
ETFs may be cheaper and less risky to own, but because of their design they are unlikely to significantly outperform the overall market.
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The vast majority of ETFs are passive investment vehicles following a broad index, like the S&P 500 or MSCI World, or a particular sector, like technology or AI, or geographic segment, like Japanese bonds or German mid-sized companies.
Some fund managers go beyond a benchmark index. For example, actively managed ETFs and ETPs add research and fund manager insight to adjust weightings with the aim of boosting returns.
ESG exchange-traded funds and ESG exchange-trade products use environmental, social and governance criteria to screen out and then select investments, in addition to financial measures.
Total assets under management in ETFs worldwide doubled between the end of 2019 and June 2024, reaching more than $13trn. About $2trn of those assets are based in Europe.