Overview

ETFs are mutual funds whose shares are traded at any time during market hours on a stock exchange. Typically regulated under the UCITS framework like other European funds, they are most commonly designed to track an index of securities.

Buying and selling an ETF

ETFs can be bought and sold on exchange or off exchange. If using a broker or investment platform, investors will generally submit a buy or sell order for a specified amount that the broker/platform will attempt to fulfil. Investors with the relevant access can also trade ETFs over-the-counter (OTC) directly with market makers.

Listing on different exchanges

Many ETFs will be listed on multiple stock exchanges. Their underlying index and exposure will be the same across the different listings, but for some investors a local listing will make the ETF more accessible.

Our products are listed on European exchanges including the:

Our products are available on the following platforms:

Our products are accessible via the following Authorised Participants:

  • Morgan Stanley and Co. International PLC
  • Flow Traders B.V.
  • Optiver O.F.
  • HSBC Bank PLC
  • Jane Street Financial Ltd
  • Goldman Sachs International
  • Societe Generale SA
  • Merrill Lynch International
  • J.P. Morgan Securities PLC
  • DRW Europe B.V.
  • Susquehanna International Securities Limited
  • Citigroup Global Markets Ltd
  • Barclays Capital Securities Ltd
  • UBS AG
  • Unicredit Bank A.G.
  • Goldenberg Hehmeyer LLP
  • Old Mission Europe LLP
  • Virtu Financial Ireland Ltd
  • Jefferies International Limited
  • BNP Paribas Financial Markets SNC
  • RBC Europe Limited

The total cost of ownership

Management fees are an important component of calculating an ETF’s total cost of ownership, but they are not the only consideration. One way of conceptualising an ETF’s cost is the following:

Total expense ratio (TER): Tracking Difference + Transaction Costs

Tracking difference

The tracking difference incorporates:

  • The ETF’s total expense ratio (TER)
  • Withholding taxes
  • Costs associated with the replication of the index

Each of these elements is described in more detail in our ETF guide.

ETF costs vs unlisted mutual funds

An ETF’s total expense ratio will generally be clearly disclosed and includes the fund’s management fee, administrative costs, custody and registration expenses, and audit fees.

These are the ongoing costs associated with owning an ETF. When comparing the ongoing costs of ETFs and mutual funds, it is important to look at the Ongoing Charges Figure (OCF) of the mutual fund, which is equivalent to the TER of an ETF.

To view specific product fees, see the individual product pages.

The creation and redemption process

While ETFs are listed on stock markets and trade like conventional equities, an important difference to note is that ETFs do not have a fixed number of shares. ETFs are open-ended just like traditional unlisted mutual funds, meaning that new shares can be created or redeemed to meet demand.

The creation and redemption mechanism is facilitated by Authorised Participants (APs), who interact with the ETF issuer.

  • To create ETF shares, APs usually exchange cash for a block of ETF shares which are then available for trading in the secondary market.
  • To redeem ETF shares, APs exchange the ETF shares for cash or the underlying securities. They can then distribute the proceeds to the redeeming investor.

 

Our products

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See more information on our products

For more information on how to trade ETFs please contact:

ETFCapitalMarkets@lgim.com

Tel: +44 (0)20 3124 3645

 

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Key risks

The value of any investment and any income taken from it is not guaranteed and can go down as well as up, and investors may get back less than the amount originally invested. The risks associated with each fund or investment strategy should be read and understood before making any investment decisions. Further information on the risks of investing is available from LGIM’s Fund Centres.

While LGIM has integrated Environmental, Social, and Governance (ESG) considerations into its investment decision-making and stewardship practices, this does not guarantee the achievement of responsible investing goals within funds that do not include specific ESG goals within their objectives.