The Role of ETFs in Australian Stock Market Investing

The Role of ETFs in Australian Stock Market Investing
The Role of ETFs in Australian Stock Market Investing

welcome to an other post which regarding the role of ETFs in Australian stock Market Investing, ETFs (Exchange trading funds) are the collection of pooled assets tracking specific indexes, communities, or sectors. These are open ended investment funds and are identical to the mutual funds. You can purchase and sell these funds via the Australian stock market just like other available stocks. 

Due to their low cost, ETFs are the most popular investment options for those looking to start from small investments. They are the most common cost effective investing option since their emergence in 1993. Let’s see what are these funds and whether investing in them is a good or bad idea! 

What are ETFs and What is Their Role in ASX? 

Exchange trading funds (ETFs) are clusters of trading funds that you can buy or sell during the market operating hours. As ETFs include different types of assets in them, these are the best way to diversify your portfolio. This way you can lower the risk chances on these low-cost funds. 

ETFs are not very popular in the global trading market but they hold a great share of the Australian market. In Australia, these are more popular than indexed, managed, and other fund types. They featured about 44% growth in Australian exchange in 2021 which was a remarkable growth rate globally. 

Exchange trading funds play a vital role on the ASX and expose the investors to the larger segment of the market. These flexible funds are available in a variety of sizes and styles enabling the investors to customize their portfolio. These are the best investment options if you are looking for a consistent financial need, low risk, and an expanded investment horizon.

Read more: Diversifying Your Portfolio: Beyond Australian Blue Chips

Why Invest in ETFs? 

When investing in any asset within the stock market, the most important thing is how you spread your investment. ETFs include different asset classes, so you can diversify your portfolio through these funds. 

ETFs are further divided into subclasses, so you can choose your favorite market for your investments. This way, you don’t need to pick different assets from different markets. In short, they are instant diversification options with high ROI. 

Advantages and Disadvantages of Investing in ASX ETFs

Though ASX exchange trading funds are unique funds to invest in, these are not ideal for all. These may not suit to all investors, so it’s important to weigh advantage and disadvantage of the ETFs before making the final decision; 

Advantages of ASX ETFs

Here are the most prominent pros of investing in ETFs; 

  • Diversified Portfolio: Investing in ETFs means buying different assets within a market. It’s an economical option to purchase different assets rather than buying individual funds separately. ETFs can be a gateway for you to a trading market that is otherwise expensive to buy.
  • Economical Trading Option: ETFs are easily accessible because these have low cost. Though the investor management fees may be higher, you don’t need to pay other fees, like in the case of managed funds. So, you can earn higher ROI on these funds.
  • Simple Trading: If you have ETFs in your portfolio, you can buy and sell them like shares in the exchange market. You’ll have to pay the trading fees depending upon the service type. You can simply buy and sell these funds just like other individual funds.
  • Transparent Assets: All trading funds upload their Net Asset Value on a daily basis that helps the investors get insight into particular stocks. The NAV value of any fund depends upon the latest buying and selling prices of that fund. So, the performance of the ETFs is transparent to investors and they can make a decision accordingly. 

Disadvantages of ASX ETFs

Here are some of the drawbacks of the ASX ETFs; 

  • Varying Liquidity: Different exchange trading funds have different liquidity based on their investment ratio. So, you can’t decide properly how much risk is there to invest in any particular ETF.
  • Currency Value Risk: Different ASX ETF invest in overseas assets, so they are affected by the currency fluctuation. The currency rate variations in that particular country will impact the rate and performance of ETF accordingly.
  • Market Risks: When you invest in ETF, you actually get access to a particular market. That market, say healthcare, may fall or rise as a whole or portion wise. Such a fall or rise will also affect the value of ETFs accordingly. 

What are the Best ETFs on the Australian Stock Exchange?

If you are interested in exchange trading funds, you should research the market to find the best options for you. Only then you can choose the best funds for you that will offer higher ROI; 

  • Vanguard Australian Shares 

Australian Vanguard includes about top 300 ASX companies. All these are the companies with high capitalization. The industries included in these ETFs are banking, consumer goods, healthcare, and mining. Out of all these ETFs shares, the top rated names are BHP group, Australian Commonwealth Bank, and CSL Limited of Australia. 

  • VanGuard MSCI Index International Shares 

The Australian Vanguard includes the local companies in it but the Vanguard MSCI index international shares includes the foreign industries as well. MSCI vanguard exposes the investors to the top international companies that offer high ROI for investors. The fees and taxes of these companies are in dollars and the same is for return values. 

  • iShares S&P 500 ETF

iShares includes the high paying securities of the US. It provides support to the largest US based companies and offers a higher ROI rate to the investors. The most reliable and high paying companies included in the iShares S&P 500 ETF are Microsoft, Apple, Nasdaq NVDA, and Tesla. All these are world class companies, so investing in them will not be a bad deal. 

Tips to Buy ETFs

All ETFs are not equally beneficial, so it’s important to look for the best possible option for your investment. Here are some tips to build your portfolio with cost effective assets; 

Align ETF and Your Investment

Ensure the ETFs you are going to finalize align with your investment goals and time plan. Look for those funds that give you access to your favorite subclasses. 

Narrow Your Focus

Being an investor, you should narrow your focus according to the market situations for choosing the best option for you. Always put that asset to your cart that seems to fulfill your long term goals. 

Compare Australian and International ETFs

As mentioned above, ETFs are available for both local and international markets. Based on your goals, decide whether you want international ETF or local Australia based. Ensure you compare all the options, like fees etc.

Explore the Market Interest Deeply

In the ASX, you’ll find a mixture of consistent and inconsistent ETFs means that they may vary differently. If the particular ETF has a low level of assets in it, it may not be best suited for your investment. So, don’t go for that! 

Analyze Buying and Selling Time Horizon

You should know when to buy and when to sell your ETF funds. There are golden hours for each ETF to buy and flip, so mark the peak hours accordingly for best rewards. 


Exchange trading funds (ETFs) play an important role in the Australian exchange market. These are great for investors looking for the low price investment options for their portfolio. Additionally, they have clusters of subclass assets in them. So, they naturally provide a diversified portfolio. However, it’s important to look for the best possible asset for your portfolio. Also, ensure that you have diagnosed the market well before finally investing in ETFs. 

FAQs: The Role of ETFs in Australian Stock Market Investing

What are the costs of investing in ETFs

The real cost of ETFs is not much higher but there are certain fees and underlying charges. The fees can be for brokerage, STT charges, and other processing fees. These are specific to the ETFs, so they may raise the ETFs prices.

Are ETFs only for stocks?

No, ETFs are not only for stocks. Any asset that is capable of trading daily can be added to stock as an ETF. These additional assets can be in the form of bonds, real estate, currencies, and other commodities. 

Why do ETFs trade close to their NAV?

ETFs are very transparent and investors keep a closer eye on the daily reports. So, the open and clear investment structures of the ETF ensure that there are no hidden charges for them. So, they tend to be very close to their NAV.

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