Originating in the United States in the early nineties, Exchange Traded Funds began to make up a part of the securities available to Italian investors starting in September 2002, and since then they have achieved rising success, witnessed by the increase both of exchange volume and of the assets managed and by the ever-increasing number of ETFs traded in the ETFplus market (go to the statistics), the regulated market managed by Borsa Italiana dedicated to these products.
Simplicity: ETFs are passive instruments, whose exclusive investment aim is to replicate the performance of the benchmark index to which they refer, allowing in an immediate way for investors to expose themselves to the interest market (stocks, bonds, commodities, etc.) or to objective strategy (short and leverage - accessible through structured ETFs). Operationally, thanks to the trading in real time on the stock exchange, ETFs can be purchased and sold as if they were stocks through one's own bank/broker.
Transparency: ETFs, replicating a well-known market index, allow for investors to be perfectly aware of the risk/profit profile of their investment as well as the security portfolio to which they are exposed. Furthermore, the price of ETFs is updated in real time as a function of the trend of components of the reference index and therefore the investor is always aware of the valorisation of his own investment in ETFs, also thanks to the daily publication of the official value of the ETF (NAV).
Flexibility: ETFs do not have expiries and at the same time they are listed on the stock exchange in real time; the investor can, therefore, adjust the temporal horizon of the investment based on his own objectives, which can go from a very short term (intraday trading) to medium/long term, as for investments carried out for social security purposes. In short, considering that the minimum trading lot is equal to only one share/unit, it is possible to take a position in the indices of the whole world, even for reduced amounts.
Economy: The policy of passive management particular to all ETFs and the listing on the stock exchange allow for ETFs to knock down the typical costs of active management (analyst teams) and those linked to distribution, guaranteeing investors access to markets and investment strategies that otherwise would be difficult to reach with reduced management commissions.
Reducing issuer risk: ETFs are funds or SICAVs whose assets are, by law, the exclusive property of the possessors of the ETF shares/units. Consequently, even in the possibility of insolvency of the ETF manager, administrator and promotion company, the assets of the ETF would not be harmed.
Even in its simplicity and flexibility of use, the ETF remains a sophisticated and innovative instrument in constant evolution (see the origin of the structured ETFs) whose characteristics need to be understood in their specific details in order to comprehend their potential and limits. To this end, this educational section is fully dedicated to describe the main features of ETFs and structured ETFs.