ETF (exchange-traded fund)
A listed fund that tracks an index at low cost.
A whole index in one security
An ETF is a listed fund that tracks an index: S&P 500, MSCI World, CAC 40, government bonds. It is bought and sold like a share, during the session. Its fees are low, often between 0.05% and 0.40% a year, as there is no manager picking stocks.
Fees 0.2%Fees 1.8%
6% gross return a year, fees deducted each year.
Physical or synthetic replication
A physical ETF holds the index’s securities. A synthetic ETF holds another basket and receives the index return through a swap with a bank: in France this is what lets global indices fit in a PEA.
Worked example
The effect of fees over 30 years
- €10,000 invested for 30 years, 6% gross return a year.
- ETF at 0.2% fees: 10,000 x 1.058^30 ≈ €54,270.
- Fund at 1.8% fees: 10,000 x 1.042^30 ≈ €34,400.
1.6 points more in fees costs nearly €20,000, over a third of the final capital.
Common mistakes
- Confusing ETF with safety: an equity ETF falls as much as its index.
- Ignoring the bid-ask spread on thinly traded ETFs.
Notitia newsroom · education, not investment advice.