What is an ETF (Exchange Traded Fund)?

ETF 101

Think of an Exchange Traded Fund, or an ETF, as a shipping container full of investments, such as shares and bonds. If you invest in an ETF, you buy a share of the whole container and own a tiny slice of every investment contained within it.

ETFs mean that investors can buy a group of investments in a single order. As the name suggests - Exchange Traded Fund  - when people buy an ETF, they’re investing money in a fund. This is similar to how it may work with some KiwiSaver funds.

Why would you invest in an ETF?

Rather than picking a handful of individual companies yourself (putting all your eggs in a few baskets), ETFs mean you can choose to spread your money over tens, or hundreds of investments. This is called diversification.

Diversification may help investors sleep well at night

Diversification simply means owning a variety of different investments. Think of it like this: If you only invested $10,000 in Banana shares, you're relying on Banana's share price to increase. If instead, you spread that $10,000 over 20 different companies, your Banana shares now only account for 5% of your investments. If Banana’s share price drops, 95% of your investments won't be directly affected (they might have gone up or down in value for other reasons, of course).

Back an industry or trend, not a company

With ETFs, you may choose to focus on an industry or trend that you think could potentially grow over time. For example, if you’ve researched and seen that an industry has had a lot of investment, consumer interest, and has potential to expand, you may choose to invest in a bunch of them at once in an ETF. Hatch lists over 1,200 ETFs. We’ve also listed well-known types of ETFs, which may be a starting point for your research.

View all ETFs on Hatch and see popular types of ETFs

‍

‍
Invest in themes

In Hatch, you can browse by themes. In each theme, you’ll find ETFs that you can invest in to spread your money across a lot of companies at once. Whether it’s gender diversity, the cannabis industry, tech or sustainability, themes give you a straightforward way to back what you believe.

Browse themes

Key terms

As with most things in finance, there are a lot of acronyms. It can be scary even looking at the names of ETFs! Our share market glossary is designed to cut through the jargon. Here are useful terms that dig deeper into EFTs:

• Active
• Diversification
• Dividends
• Index
• Index fund

As always, it pays to do your research, and Google can be a valuable resource. If you want to invest in a particular industry, trend or economy, you can search for: 'Industry or Trend + ETFs'. There you can read more about which companies are included in each ETF and each one’s past performance.

Take care not to follow any one opinion or resource to help form your opinion. And remember, for Hatch investors, our Hatch Investors’ Club is also a friendly place to chat about all things investing.