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 accessible via the following Authorised Participants:

  • Barclays Capital Securities Limited
  • Bluefin Europe LLP
  • Citigroup Global Markets Limited
  • Credit Suisse Securities (Europe) Limited
  • DRW Europe B.V.
  • Flow Traders B.V.
  • Goldman Sachs International
  • HSBC Bank Plc
  • Jane Street Financial Limited
  • JP Morgan securities PLC
  • Merrill Lynch International
  • Morgan Stanley and Co. International PLC
  • Optiver VOF
  • Société Générale S.A.
  • Susquehanna International Securities Limited
  • UBS A.G.
  • UniCredit Bank A.G.

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

To download our list of authorised participants, please click here