A
Active ETF
An ETF where a fund manager chooses the investments, aiming to beat a benchmark, rather than simply tracking an index. Fees are usually higher than index ETFs.
AMIT statement
The annual tax statement an ETF sends you (Attribution Managed Investment Trust Member Annual statement). It shows the income, franking credits and capital gains to include in your tax return.
Asset allocation
How your money is split between asset classes such as Australian shares, global shares, bonds and cash. It drives most of a portfolio’s risk and return. Learn more →
Asset class
A group of similar investments, such as shares, bonds, property, commodities or cash. Learn more →
B
Base
A sideways price pattern that forms after a fall or before a new rise. We look for ETFs breaking out of a base as a buy point. Learn more →
Benchmark
The index or measure an ETF is compared against, such as the S&P/ASX 200.
Bid-ask spread
The gap between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask). Wide spreads add to your cost of trading. Learn more →
Bond ETF
An ETF that holds bonds (loans to governments or companies), paying regular interest. Usually less volatile than shares. Learn more →
Brokerage
The fee your broker charges each time you buy or sell. With small, regular purchases it can cost more than the ETF’s management fee.
C
Capital gains tax (CGT)
Tax on the profit when you sell an investment for more than you paid. Australians who hold for more than 12 months usually get a 50% discount.
Cash ETF
An ETF that holds bank deposits or very short-term securities and pays interest, such as AAA. Used for stability and cash buffers. Learn more →
Cboe Australia (TMX)
Australia’s second stock exchange, alongside the ASX. Some ETFs are listed there, and you can buy them through most brokers. Learn more →
CHESS sponsored
When your shares and ETFs are registered in your own name on the ASX’s settlement system, with a unique Holder Identification Number (HIN), rather than held by a custodian for you. Learn more →
Complex ETF
A product the ASX classifies as complex, such as geared, short (inverse) or some active and currency funds. They can behave differently from a simple index ETF. Learn more →
Core and satellite
A portfolio approach: a low-cost diversified core held for the long term, plus a smaller satellite portion for themes, regions or commodities. Learn more →
Covered call ETF
An ETF that sells options over the shares it holds to earn extra income, giving up some upside when markets rise. Learn more →
Currency hedging
Using currency contracts to remove most of the effect of exchange rate moves on an international investment. Learn more →
Custodian
An independent institution that holds an ETF’s assets in safekeeping, separate from the fund manager’s own money.
D
Distribution
Income paid out by an ETF, usually from dividends or interest, typically quarterly or half-yearly.
Distribution reinvestment plan (DRP)
An option to receive new ETF units instead of cash distributions, so your income is automatically reinvested.
Diversification
Spreading money across many investments so that one poor performer has less impact on the whole portfolio. Learn more →
Diversified (all-in-one) ETF
A single ETF that holds a whole portfolio, such as Australian and global shares and sometimes bonds, and rebalances automatically. Examples: DHHF, VDHG, VDAL. Learn more →
Dollar-cost averaging
Investing a set amount at regular intervals, regardless of price, so you buy more units when prices are low. Learn more →
E
Emerging markets
Developing economies such as China, India, Taiwan and Brazil. Higher growth potential, but more volatile. Learn more →
ETF (exchange traded fund)
A fund that holds a basket of investments and trades on a stock exchange like a single share. Learn more →
F
Franking credits
Tax credits attached to dividends from Australian companies that have already paid company tax. They can reduce your tax or be refunded.
G
Geared ETF
An ETF that borrows to increase its exposure, magnifying both gains and losses. Learn more →
Growth vs defensive assets
Growth assets (shares, property) aim for higher long-term returns with more volatility. Defensive assets (bonds, cash) aim for stability and income. Learn more →
H
Hedged ETF
An international ETF that uses currency hedging, so returns mainly reflect the underlying shares, not the Australian dollar. Often has “hedged” or an H in its name or code, such as VGAD or IHVV. Learn more →
I
Index
A list of investments that represents a market, such as the S&P/ASX 200 (Australia’s 200 largest companies) or the S&P 500 (large US companies).
Index ETF
An ETF that aims to track an index rather than beat it. Also called a passive ETF.
Issuer
The company that creates and manages an ETF, such as Vanguard, Betashares, iShares, VanEck or Global X. Learn more →
L
Limit order
An order to buy or sell only at a set price or better. Recommended for ETFs so you don’t pay more than you intend. Learn more →
Liquidity
How easily you can buy or sell. For ETFs this depends mainly on what the fund holds, not how much the ETF itself trades. Learn more →
M
Management fee (MER)
The annual percentage fee an ETF charges, taken from the fund’s assets. For example, 0.07% a year is $7 on every $10,000 invested. Learn more →
Market capitalisation
The total value of a company’s shares. Most indexes are weighted by market cap, so the largest companies have the biggest influence.
Market Health-O-Meter
Our weekly signal tracking 17 key markets to show whether conditions are risk on, caution or risk off. Learn more →
Market maker
A firm that continuously offers to buy and sell an ETF, keeping its price close to the value of its holdings. Learn more →
Moving average
The average price over a set period, such as 50 or 200 days. Used to judge trend: above the 200-day average is generally a long-term uptrend. Learn more →
N
P
Product Disclosure Statement (PDS)
The official document describing an ETF’s strategy, risks and costs. Read it before investing.
R
Rebalancing
Selling some of what has grown and buying what has lagged, to bring a portfolio back to its target mix.
Risk on / risk off
Market conditions. Risk on: trends are favourable and investors can consider new positions. Risk off: protect capital and manage existing positions closely. Learn more →
S
Satellite
A smaller part of a portfolio used for targeted ideas such as themes, regions or commodities, ideally with clear buy points and stop losses. Learn more →
Sector ETF
An ETF that focuses on one part of the economy, such as technology, healthcare or financials. Learn more →
Sequence of returns risk
The risk of a market fall early in retirement, when you’re drawing money out, which can permanently reduce how long savings last. Learn more →
Short (inverse) ETF
An ETF designed to rise when a market falls. Usually meant for short-term use. Learn more →
Smart beta ETF
An ETF that tracks an index built on rules other than company size, such as quality, value, momentum or equal weight. Learn more →
Stop loss
A pre-set price at which you’ll sell to limit a loss. We use stop losses on satellite positions. Learn more →
T
Target Market Determination (TMD)
A document describing the type of investor an ETF is designed for.
Thematic ETF
An ETF built around a long-term trend, such as AI, cybersecurity, clean energy or uranium. Learn more →
Total return
Price change plus distributions, assuming income is reinvested. The fairest way to compare ETF performance. Learn more →
Tracking difference
The gap between an ETF’s return and its index’s return over a period, mainly due to fees and costs.
U
Unhedged ETF
An international ETF whose returns include the effect of currency moves. When the Australian dollar falls, unhedged returns rise, and vice versa. Learn more →
Units
The individual “shares” of an ETF that you buy and sell.
V
Volatility
How much and how quickly an investment’s price moves up and down.
New to ETFs? Start with ETFs: the what, the why and the how or our full guide, ETFs explained.
General information only. Definitions are simplified; check the PDS for how a specific ETF works.