ETF stands for exchange-traded fund, i.e. an investment fund traded on the stock exchange that generally tracks an index (such as the SMI for Swiss equities).

ETFs track an index as precisely as possible and usually have lower costs than other investment solutions. ETFs are traded on the stock exchange at their current price. However, transactions may also be executed after close of trading via a broker. ETFs are known as “passive” funds because the fund manager does not attempt to beat the index with an allocation that differs from it (an “active” approach). With this passive investment strategy, ETFs pursue the objective of tracking the index as precisely as possible.

Passive strategies have lower costs, and many studies show that fund managers rarely manage to beat the benchmark index over an extended period of time (after costs and adjusted for risks). The average product costs for ETFs are around 0.25%, whereas actively managed funds can easily cost 1.50% per year or more.