An Exchange-Traded Fund (ETF) is a type of investment fund that holds a collection of assets, like shares or bonds. These funds are traded on stock exchanges, and they allow you to invest in a wide range of markets or sectors through a single investment.
Think of an ETF like a hamper of investments, it contains a variety of ingredients, and by buying one unit, you get exposure to everything inside.
Read more about ETFs here
Why ETFs are popular with investors
ETFs have become one of the most popular ways to invest — and for good reason. Thanks to their low costs, diversification, and simplicity, they are the choice for many long-term investors around the world.
Diversification, made simple
With just one ETF, you can spread your investment across dozens - or even hundreds -of different companies or bonds. This reduces the risk of relying on the performance of a single investment and helps build a more balanced portfolio.
Low cost
ETFs tend to be cheaper to run than traditional investment funds, which often means lower annual charges for you. Many ETFs are “passive”, meaning they track a market index (like the FTSE 100) rather than relying on a fund manager to make decisions - and that simplicity helps keep costs down.
Transparency
Most ETFs clearly show what they hold and which index they follow. They will often publish their full list of holdings every trading day, as opposed to traditional funds which report less frequently (usually monthly or quarterly). This means with ETFs, you can easily understand where your money is invested -whether that’s large UK companies, global technology stocks, government bonds, or something more specialised.
On the InvestEngine platform, we make this easier still with our Portfolio Lookthrough tool, which shows you every company, region and industry an ETF is invested in- try it out our ETF page here.
Liquidity
Because ETFs are traded on stock exchanges, they’re generally easy to buy and sell - which makes them a flexible tool for investors. At InvestEngine, while we trade ETFs once per day (rather than in real-time) and only trade ETFs which are available on the London Stock Exchange, the underlying assets remain highly liquid and widely available.
Flexibility of choice
There are thousands of ETFs available worldwide, tracking everything from well-known indices to specific sectors, countries, themes, or strategies. Whether you’re looking to invest in clean energy, dividend-paying companies, or emerging markets, there’s likely an ETF that fits.
Explore our ETF range here
When investing your capital is at risk.
How ETFs Work
Most ETFs are designed to follow the performance of a specific market index,for example:
- A UK stock market ETF might track the FTSE 100, investing in the 100 largest UK companies.
- A global bond ETF could hold government or corporate bonds from around the world.
- A themed ETF might focus on renewable energy, technology, or healthcare.
Instead of trying to beat the index, these funds aim to match its performance, which keeps things simple, transparent, and cost-effective. However performance is not guaranteed.
Are ETFs Right for Me?
ETFs are usually designed for long-term investing. They’re popular among both beginners and experienced investors because they offer a straightforward way to access the markets.
ETFs provide an easy-to-understand, flexible foundation for building a portfolio.
At InvestEngine, we specialise in ETFs, offering both DIY investing (where you choose your own) and Managed Portfolios, where we build and manage your portfolio for you, using carefully selected ETFs.
We also offer a small number of Exchange Traded Commodities (ETCs) on the platform. An ETC is similar to an ETF in that it tracks an underlying index, trades with intraday liquidity on an exchange, and has full holdings transparency. However, an ETC tracks the price of a single commodity or commodity index, rather than holding a diversified basket of assets such as stocks or bonds.
Want to explore ETFs for yourself?
We offer a wide range of ETFs covering global equities, bonds, and alternative assets, all commission-free. You can browse and compare them directly in the app or visit our ETF Investments page to learn more.
When investing your capital is at risk
Want to understand more investing terms? Visit our Investment Glossary.