ETFs, investment funds, active or passive management, index management, asset classes... These terms can chill investors who want to get acquainted with the financial markets. The diversification of investment supports is constantly increasing, responding to new issues. In these new and fashionable media, one seems to stand out: the ETF!

Exchange Traded Fund is an investment fund that groups together a set of assets (stocks, bonds, etc.) and replicates the performance of a benchmark index such as CAC 40 or S&P 500. It is traded on the markets as a livestock, allowing you to buy or sell it in real time at a transparent price.

However, it should be noted that “ETFs”, “passive management” and “index management” are not synonymous. There are ETFs whose sole objective is not to track the performance of an index, so they are called active ETFs.

Difference between a “classic” ETF with passive management and an active management ETF?

While passive strategies still dominate ETF collection, investors are gradually becoming aware that the ETF structure is also ideal for actively managed strategies. Active ETFs involve a manager or team making strategic decisions to surpass an index or achieve specific objectives such as risk management or performance research.

They can also be thematic by selecting the values of the index with certain characteristics. Some active ETFs follow specific factor-based approaches, such as valuation, quality or volatility. Others focus on specific strategies (for example, investing in short-term bonds or environmental-focused companies).

But then what are the differences between an ETF and an investment fund with active management?

In addition to the marketing aspect of the term “ETF”, the major difference between ETFs and an investment fund will be the fees and the valuation of the fund. An investment fund and an ETF could have the same investment strategy and values in their portfolio. However, the very structure of the ETF will minimize the costs for the investor. In addition to this, the ETF has a real-time valuation on financial markets unlike an investment fund which has at best only a daily valuation.

But then why lower fees, even for active ETFs?

1. Effective ETF structure:

ETFs, whether passive or active, use a structure that reduces costs through the way they buy and sell assets, lowering fees associated with traditional stock market transactions and tax impacts.

2. Economies of scale:

ETFs often attract many investors because of their accessibility. With a high volume of assets under management, suppliers can spread fixed costs on a broader basis, reducing the cost per investor.

It must be borne in mind that diversification is the key word of your wealth strategy and that this concept should be applied to all strata of your investment, diversification of asset classes, envelopes, management style...

To implement this, the members of the Finankap Group firm contribute their expertise to determine with you a global strategy for your assets with investments supports in line with your values and risk profile!

Finankap Group, always by your side to give life to your desires.