Many of you may have heard the term ETF, but not everyone knows what it means. The topic is quite extensive, but I will try to go through the possibilities and risks in a concise manner. I will also discuss what strategies can be implemented with them and what you should definitely pay attention to.
📊The ETF Report
ETF is an abbreviation for Exchange Traded Fund, but I have also seen Exchange Traded Funds, which is the plural, which is usually translated as an exchange-traded investment fund. The biggest difference compared to traditional investment funds is the low costs, the fact that they can be traded like other instruments listed on the exchange, and most of them passively track one of the stock market indexes (Meaning and use of stock index). Of course, you would need to know what an investment fund is, because without this you will not be able to compare the two instruments.
📌In practice: It is important to note that the investment funds offered by banks and other organizations are the same financial instruments that you can buy through a broker, they just package them up for you in a product and charge you huge fees. So, if the only question is whether to buy a product from a bank or open a brokerage account and buy the same in an ETF, the latter is the answer.
🌍A slice of history
The predecessor of mutual funds was created in 1774 by a Dutch merchant who wanted to finance the expenses of overseas colonies. The next milestone was the investment form called The Foreign and Colonial Government Trust, established in London in 1868, which offered investment opportunities to smaller investors. Notice that the name includes Trust, from which the modern word trust also comes. In English, it means trust, which is a bit funny in terms of how bad an investment form I think all over-the-counter funds are, but more on that later.
The world's first investment fund was established 100 years ago, in 1924, in Boston, USA, under the name Massachusetts Investors Trust. It actually functioned like a modern, open-ended investment fund.
🏦What is an investment fund?
What does this term even mean? An investment fund is a legal entity owned by small investors and managing their money. This legal entity issues investment certificates, which small investors can buy. This is very good because a small investor does not understand investing and is not able to diversify his capital because it is not large enough for this. For example, he would not be able to build a stock or bond portfolio with 1500 USD, because his profit would be immediately taken away by the costs.
💡Therefore, small investors put this seed money into a financial fund, and the many small sums of money swell into a significant amount that can be sufficiently diversified and invested cost-effectively.
When the fund is created, it issues investment shares, the nominal value of which is usually very low, so anyone can join. This covers a specific period of time, the goal of which is to reach the minimum capital of the created fund. If this is unsuccessful, the fund is not created, if successful, the fund is created and its activities begin.
Without going into the intricacies of investment funds, there are open-end and closed-end funds. The main difference between the two is that in the case of closed-end funds, the investment units cannot be bought or sold after the subscription has closed, while in the case of open-end funds, they can. Therefore, closed-end funds must be listed on the stock exchange, but this does not make them ETFs, but if the turnover is low, the price will be distorted. Because of this, the liquidity of such funds also becomes questionable. There are other pitfalls, e.g. the payout period of real estate funds is at least 90 days, so I would not call this liquid.
🪙Why is the investment fund expensive?
If the disadvantages so far haven't discouraged you, let me tell you the biggest problem: the costs are high. Since the investment fund is a legal entity, it also carries out market trading in the active manner described in the investment strategy. However, the resulting costs and tax obligations affect all unit holders. This also means that even if the fund does well, you will still lose significant amounts – 1-3% – due to management fees. There is another problem that when creating a fund, you have to determine what instruments you will invest in.
Absolute return funds are the exception to this, but if you are not invested in such, then the fund cannot deviate from the predetermined proportion of financial assets. So if you have to hold 50% bonds, 40% stocks and 10% government securities, then they will keep your money in these too. The problem is that if yesterday the bonds did well, but tomorrow the real estate is already making money, the fund cannot buy buildings, for example. Because of this, it is a rather inflexible form of investment, and you cannot sell them with one click.
The above situation is even worse if you have invested in a fund of funds. This is a fund that buys other funds. This may also include hidden costs and will be even more expensive overall than regular mutual funds. It is relatively easy to see that everyone wants to make a big profit, but the fund and the investor are opposing parties in this case. Therefore, the fund charges high management fees, the risk of which is almost zero, and you take on the risk of the investment in exchange for the expected profit, if any. This is not so good for you, so this problem had to be solved somehow. Among other things, ETFs were invented for this.
📌In practice: My favorite anomaly is the capital-protected mutual fund. A mutual fund is capital-protected if it promises or legally commits that you will get your invested principal back at the end of the term, no matter what happens in the markets. However, this is only reassuring at first glance. Most of your money is invested in a very conservative way, for example in a government bond or bond held to maturity, which pays out exactly the same amount as the initial investment at the end of the term.
For example, they lock up 95% at a fixed interest rate, and they "play" with the remaining 5%, say by buying Tesla shares, buying options, etc. So the whole thing is a big scam, these are again things that you can buy on the market, much cheaper.
📊What is an ETF?
The first ETF was introduced to the market in 1993, called the S&P 500 Trust, named after John C. Bogle (John C. Bogle). The fund is abbreviated as SPDR and nicknamed “Spider”. The key idea in the topic is that in the case of investment funds there is expert added value, financial professionals select among market instruments. The goal of the investment fund is to outperform its own benchmark, that is, to beat some market index. You have to pay a higher fee, among other things, because of the expert contribution.
In contrast, in the case of ETFs, the fund only passively tracks the market, essentially copying the movement of the index, so there is no active fund management. In other words, it does nothing more than buy the products included in the given index, such as stocks, or write futures contracts. This is most typical of the commodities market, where the exchange-traded fund will obviously not buy physical goods.
The rapid spread of ETFs was preceded by the fact that actively managed products, which try to outperform the market, were pushed into the background. The reason is prosaic: due to higher costs, active funds could not beat passive instruments that follow the market index in terms of returns. Before anyone misunderstands, I am not saying that an actively managed instrument cannot generate additional returns compared to a passive one, but the additional costs take away the additional profits. If you are interested in the topic, you should read about the Blind Monkey strategy (Blind Monkey Strategy), or search for Burton Malkiel. We recently analyzed the fund manager T.Rowe Price in detail, where you can also find specific numbers regarding the strengthening of passive funds, as the above trend poses a serious challenge to active fund managers: T.Rowe Price Group stock analysis
📌In practice: There are actively managed funds that can beat their own benchmark, the problem is that the typical 2% basic cost and the 20% premium cost take away the return. The latter also applies in a falling market, for example, because if the benchmark performs -20% and the fund only performs -10%, the fund manager still gets +2%, so your cost will be 4%. So in practice, in the long run, almost no one is able to outperform the market. There are a few exceptions, such as the closed-end Medallion Fund.
🤔Main features of ETFs
What does the S&P 500 Trust ETF do? It passively tracks the American S&P 500 index, it's as simple as that. And if the traded funds track the market index, then quite a lot of people buy and sell them, so their liquidity will be brutally high. In other words, ETFs are practically passive, mostly index-tracking funds that have been introduced to the stock exchange, have high liquidity, and low costs. Since many people trade them on the stock exchange, the amount of capital received far exceeds the amount of money in traditional investment funds. How much money is in the largest exchange-traded fund? The SPDR S&P 500 ETF, designated by the SPY ticker, will manage approximately 635-640 billion USD in 2025, and this is just one of many. You can see the largest ETF funds in the table below:
| ETF | AUM (Jul 2025) |
|---|---|
| SPY | ~US$636–639 billion |
| VOO | ~694 billion USD (leading at the moment) |
| Ivv | ~633 billion USD |
💸The role of the market maker
There is another reason why exchange-traded funds can be cheap. This is because with the development of information systems, the so-called market maker appeared, which ensures liquidity and executes transactions in the purchase/sale operation. The market maker quotes a price regardless of the current demand/supply. Its profit is the difference between the purchase and sale price, which you should look for in the name of spread. This is important because only the client involved in the transaction, that is, the person who is currently selling or buying the paper, and not all investors who own the ETF, are affected by the costs, unlike traditional investment funds. The average cost of an ETF on the US stock exchange is around 0.1-0.5% per year, which is significantly cheaper than a traditional investment fund.
Going back to the market maker, his presence does one more special thing. When you sell a traditional stock, you put supply pressure on that stock. Obviously, this will be negligible for a small shareholder, but if someone suddenly dumps 10% of a company's shares on the market, it will inevitably drive the price down due to oversupply. However, what happens in the case of an ETF if we start selling it? Pretty much nothing. The reason for this is that the market maker is always active in the market. He simply buys back ETF shares, so up to a certain level, sales will not have a significant impact on the price of the fund. Since exchange-traded funds mirror other instruments, it is their price movements that affect the price of the ETF, rather than the actual purchases.
📌In practice: I tried to search my memories when I had liquidity problems in the American market, but I can only mention one case, simply because your capital will be too small compared to the size of the market, you simply cannot influence it, even if it is a million USD. However, if you buy individual stocks, which are also ADR papers and are relatively unknown, then your orders may be slowly fulfilled. I did this in the case of Dino Polska (WSE:DNP), you can read my stock analysis of this company here: (Dino Polska stock analysis).
🔀ETF vs. mutual funds: what's the difference?
Actually, I have already detailed the more significant differences in the lines above, but let's summarize how the two investment forms differ from each other:
🔥Investment fund
- ☝🏻high annual costs of 1-3% (or more in the case of fund of funds)
- ☝🏻issued by a financial institution, usually a bank
- ☝🏻You don't need any knowledge to buy it, just walk into a bank branch
- ☝🏻not necessarily tradable on the stock exchange
- ☝🏻Liquidity may be low, which may lead to distorted prices
- ☝🏻usually an actively managed investment instrument
- ☝🏻Prices are only published once a day
- ☝🏻Investment shares can be purchased through subscription, and closed-end funds can also be traded on the stock exchange.
📦ETF
- 💪🏻low costs, 0.1-0.5% per year
- 💪🏻usually listed by a fund manager, requires a brokerage account to purchase
- 💪🏻listed, passively managed fund (although there are also actively managed ones)
- 💪🏻high liquidity and significant capital
- 💪🏻Continuous intraday price quotation, in line with market movements
- 💪🏻most funds track some kind of index
- 💪🏻can be purchased like a stock or a collection of stocks, and behaves much the same way
- 💪🏻Passive funds have been created for almost everything, be it bonds, commodities, stock ETFs for a given sector, etc.
As you can see, there are quite a few differences between the two financial products, I personally don't really understand why anyone would buy traditional investment funds. In fact, I know that it is much easier and more convenient to go to the bank, where an agent selects and buys the product, than to open a brokerage account. But opening a brokerage account is also very easy these days, I have already described the details of this in a previous article: Step-by-step process of buying sharesYou can also find information a little further down in this article specifically regarding ETF purchases.
✅Benefits of ETF investing
Now that the basic concepts are clear to you, and I have summarized the main points earlier, it is worth expanding the thought process a little. If you are a beginner investor and do not want to deal with the selection and analysis of individual stocks or other financial instruments, then it is advisable to buy an ETF. Moreover, if you invest in individual stocks, you have to pay a commission for each purchase/sale, which is likely to cost more overall than, for example, buying an index-tracking fund.
There is another case when it is worth investing in ETFs if the investor is planning to build a portfolio. Let's say you want to build a 20-stock portfolio with positions worth 1500 USD. It is very unlikely that you will find so many good targets in the market at once, since prices are constantly changing. Building a suitable portfolio can take up to 1-2 years, so why not store your capital in an ETF until then? Once you have your targets, you can sell part of the position and transfer it to individual stocks.
📌In practice: Of course, you can also use cash substitutes, such as discount treasury bills, or US T-bills, while you deploy your capital.
🤦The advantage is also a disadvantage
And here I would like to mention that one of the disadvantages of ETFs is that you cannot select the instruments included in them. This can be a problem, for example, if you invest in dividend-paying or sectoral companies. Let's say you consider the following stocks from the pharmaceutical sector to be a good choice: Merck (MRK), Johnson & Johnson (JNJ), Amgen (Amgn) and Bristol Myers Squibb (BMY). But you wouldn't want to buy the following: Pfizer (Pfe) and Moderna (mRNA). However, this is not possible in the Health Care sector ETF with the XLV ticker, all of them are purchased by the fund.
So, if you're bothered by the fact that there's a lot of junk mixed in with the wheat, then this financial instrument may not be for you. On the other hand, if you like calm, passive investments and don't want to fiddle with individual stocks, then ETFs are your instrument.
📌In practice: For the above reasons, I don't buy ETFs, but instead build a portfolio of individual stocks, because a much better quality portfolio can be created, IF you know how. If not, then definitely don't do this, for 99% of average investors, ETFs are more advantageous, the costs will be about the same. However, you also have to accept that if you buy the entire market or sector, your returns will also be average.
📚Resources for investment
You can't make good decisions without information, so I've made a list of sources worth getting information from. Here are some screener pages where you can search among the funds:
- 💡ETFcom: the alpha and omega on the subject, it provides search capabilities across all kinds of ETF data sources. One of my favorite features is that it also returns data from the company that lists the ETF. There is an ETF University section where educational materials are shared.
- 💡justETF: one of the largest ETF screeners on the web. They sort the securities into groups quite well, e.g. if you want to buy precious earth metals or bond ETFs, you will find them quickly. They only deal with EU securities.
- 💡ETF Database: it's right there in the name, a huge database for searching ETFs.
🧾ETF buying process
As I mentioned, you need to open a brokerage account to buy ETFs. This is not a big task, for example, Interactive Brokers can handle the whole thing in a few days (Interactive Brokers). In addition, there is no cost to maintain a securities account with them, unlike if you open something like this at a bank. One thing you should check is exactly what ETFs your prospective provider has access to, but in the case of Interactive Brokers, the answer is usually everything.
Those with a keen eye can immediately spot that only ETFs listed on the stock exchanges of EEA member states and the United Kingdom are available to European citizens. What is the reason for this? The so-called PRIIPs regulation. This set of rules was drawn up by EU legislators in 2014 and came into force in 2018. The problem with the PRIIPs regulation is that it has a document called the KID, which is a few-page information sheet that lists the main parameters of the investment instrument.
☝🏻However, most US providers have not prepared the KID document for ETFs listed on US exchanges, so they are in principle not available to European investors.
This is a problem because ETFs registered on the US market have the highest liquidity, and on the other hand, European ETFs are generally more expensive. There are other differences that manifest themselves in the characteristics of fund management, but more on that later. What can a savvy investor do in this case? He looks for a legal loophole, because there is always one.
🔓There is a loophole in ETFs too
Since fund managers are typically staffed by knowledgeable people, US funds were simply introduced to the stock exchanges of EEA member states, and were labeled UCITS. They usually, but not always, have higher costs. The other thing is that the PRIIPs regulation basically applies to the stock exchanges of EEA member states, so brokers registered here will not provide you with ETFs available on US markets. But who said you can't open an account with a US broker?
For example, in the case of Tastyworks and Tradestation, this restriction no longer applies, they can also freely access American securities. The restriction can be circumvented in other ways, for example with CFDs, futures, options products, if a company buys ETFs, but this is unlikely to affect you, small investors.
🌀Is an ETF accumulative or distributive?
There is one more thing to consider, and that is the taxation of dividend-paying ETFs. If a fund holds a stock that pays a dividend, two things can happen to that dividend:
- 🫗the ETF pays dividends, this is called a distributive fund (this is more typical in the USA)
- 🥂The ETF reinvests dividends, this is called an accumulative fund (this is more typical in EEA member states)
🗝️The ETF name is always telling.
Read between the lines and notice that there is a lot of useful information hidden in the ETF name:
- iShares – this is the name of the series, and from this you can see that Blackrock (BLK) company issued the paper
- Core S&P 500 – i.e. tracks the S&P 500 index
- UCITS – this is a security registered on the stock exchange of the EEA member states
- USD – quoted in dollars
- Dist/Acc – this is the notation for distributive and accumulative
🇺🇸US ETF or EEA is the winner?🇪🇺
I have written about the taxation of dividend-paying stocks before (Dividend-paying stocks), but similar rules apply to ETFs, so I'll just cover the gist. The easiest way to illustrate how the cost advantage of ETFs listed on the US market is offset by brokerage fees is through an example:
- Vanguard S&P 500 (VOO), Distributing (Dist) ETF, cost: 0.03%
- iShares Core S&P 500 UCITS USD (Acc), cost: 0.07%
A very large percentage of American funds pay dividends, meaning the money goes into your accounts and you have to reinvest it. In contrast, the stock exchanges of the EEA states are more of an accumulation type of construction, but there are also distributive ETFs. I will stick with the former, here the base capital in the ETF increases with the amount of the dividend, no payout is made. In other words, the big difference between the two is that with the distributive type instrument you have to reinvest the dividend, while with the accumulative one this happens automatically.
Let's say you choose a payout type fund, which is the majority of American funds. You invest 1000 USD, for which you get a 5% dividend, which is 50 USD, which is credited to your account, but the withholding tax is deducted - 30% -, leaving 35 USD. Where do you transfer this amount? The problem is that if the broker asks for, say, 2 USD for the transaction, your costs will be more than 5% when buying, and the same when selling. In other words, you cannot effectively reinvest the money, only if you invest a sufficiently large amount of capital in the fund. If, on the other hand, you choose a reinvestment type - which is the majority of EEA funds -, your ETF position will simply be increased by 35 USD, and everything will continue. For this reason, the lower cost of payout American funds often cannot be applied due to the additional costs caused by the broker.
What data should you look for in an ETF?
One of the cornerstones of investing in ETFs is the characteristics of the instrument. I could have even listed this as a disadvantage, as there are a lot of indicators that you should check before jumping into the purchase. In the image below, you can see a cropped image from the justETF page, which contains the fundamental data of the iShares Core S&P 500 UCITS USD ETF. It is very important that the justETF page lists the information for the given ETF (iShares Core S&P 500 UCITS USD ETF document), which is a document similar to a prospectus, also found in government securities. No matter where you look at the data, the point is to always do this before buying.
🔎Main features
- 🧩ETF name: As I wrote above, it contains a lot of information. For example, the names bear, short, inverse usually refer to the fact that the index being followed is tracked in the opposite direction. Bull usually refers to the long direction, meaning that if the underlying product rises, so does the ETF price. Leveraged, ultra, 2X, 3X usually refer to leverage.
- 🧩Device class: what the fund holds, such as stocks
- 🧩In what currency is the fund denominated? Even if you buy the fund in, say, EUR, if the stocks in it are American, you will have dollar exposure.
- 🧩index: the index that the fund tracks and uses as a reference point, such as the S&P 500 or the MSCI World
- 🧩Cost: the annual cost of the fund, how much it costs to maintain it, you need to look for the TER indicator
- 🧩method: how the fund replicates the index. Physical replication means that it physically buys the shares in the same proportion as they are in an index.
- 🧩Compliant with European standards (UCITS): Paper registered for the EEA market, here you will see a yes or a no
- 🧩Use of profits: This is the distributive, accumulative method, i.e. whether the fund reinvests or pays dividends. You can also filter for it separately under the "use of profit" tab in the justETF search engine.
- 🧩Net asset value: Value given in millions of dollars, generally the higher this number, the greater the liquidity. Naturally, if there are several ETF funds with the same characteristics, because for example several fund managers, Vanguard and Blackrock, hold such funds, then you should buy the one with the larger amount of assets.
- 🧩Biggest positions: usually the Top 10 largest positions are listed. This is interesting in cases where, for example, if you follow the S&P 500, there will be 490 other stocks in addition to the listed positions.
📌In practice: You need to be careful with leveraged ETFs because they aggregate positions at the end of the day and can therefore slip. For example, 2x leverage will result in a larger negative return if positions are closed every day because the potential for a downside move is greater than the potential for an upside move. To give you a simple example:
- If a market falls 25%, it needs to rise 33% to break even.
- If you do this with a 2x leveraged ETF, you will have a 50% downside risk and a 100% upside risk to compensate. This means your risk will be asymmetric compared to what you would experience with a “plain” non-leveraged ETF.
🔥Other features that may be important
- 🧩Performance: for index-tracking ETFs it is not significant, they copy the benchmark, but for inverse ETFs it will move in the opposite direction to the index. Leveraged ETFs will also have significant deviations from the benchmark, for the reasons mentioned above.
- 🧩ID: which refers to the ETF, e.g. SXR8. You can also search for ETFs using the ISIN code, which is nothing more than the international securities code.
- 🧩Geographical breakdown: What assets does the fund contain, broken down by geography? In an S&P 500 index fund, this is almost 100% US (and minimal cash), while in an MSCI index, there will be stocks from all over the world.
- 🧩Leverage: extremely dangerous ETFs, their essence is that both the return and the loss must be multiplied by the amount of leverage. There are other problems with it as well (e.g. Contango effect), beginners should definitely avoid.
- 🧩Unsecured or secured: whether they hedge against currency risk or not. For example, you buy ETFs in EUR, but the ETF already buys US stocks in USD. These are hedged by entering into various currency transactions.
📌In practice: I would like to add a thought to the above geographical breakdown. The weight of the US stock markets in the world's total capitalization of 110 trillion USD ranges between 40-60%. The latest data I found is from December 2024 and refers to the MSCI World index, and the weight of the US stock markets was 67!%, which is brutal, you can see this in the image below:
So, before you buy all kinds of ETFs, think about what's the point of buying ETFs that cover each other, instead of buying a stock and a bond ETF and that's it?
⚙️How safe is ETF trading? 🔥Risks, potential dangers
From the above, it can be seen that although buying an ETF is much easier than buying a stock, it does have its pitfalls. The risks are quite similar to stocks, if you hold stocks, but there are a few differences that I must detail:
- 🔥currency risk: I mentioned this above, but the problem with stocks and ETFs is a little different. When you buy US stocks, you exchange your national currency for dollars with your bank or brokerage, and then buy shares from that. The problem with ETFs is that if you buy an ETF listed on an EEA member state stock exchange, you do so in EUR or some national currency. The ETF fund, on the other hand, buys US stocks in USD, so you have to pay attention not only to, for example, SEK/USD, but also to SEK/EUR and EUR/USD parity. Or at least you should, but I don't know anyone who messes with that.
- 🔥taxation: This includes the problem of distributive and accumulative ETFs, which I explained above.
- 🔥the “waste” problem: If you buy individual stocks, you decide which stocks to put in your portfolio. With ETFs, the fund manager decides what goes into the fund. For example, sector ETFs buy all the stocks in a given sector.
- 🔥annual maintenance fee: Although buying ETFs is very cheap, it is not zero cost. When you buy an individual stock, you pay a one-time fee when you buy and sell. However, the fee for holding an ETF is annual. Even so, in 99% of cases, building a diversified portfolio is less expensive than buying individual stocks.
- 🔥ETFs, ETNs, ETCs: These abbreviations do not cover the same product. ETN stands for Exchange Traded Notes, which is a debt instrument, and is subject to completely different rules than ETFs. The same is true for ETC, which stands for Exchange Traded Commodities. Since these are not physically purchased by the funds – with one exception, gold – they are subject to different rules than ETFs.
📌In practice: In fact, you can track the stock market index not only with ETFs, but also with individual stocks, since the more stocks you buy, the greater the correlation with the stock index. So what's the point of buying individual stocks instead of ETFs? You can choose which stocks to buy, and theoretically you'll end up with a portfolio of better quality companies with a similar correlation, of course at the cost of a lot more work.
✅ Estimated standard deviation and correlation compared to index
| Number of shares | Volatility / variance | Risk reduction |
|---|---|---|
| 1 | 100% | - |
| 4 | 60% | already significant |
| 10 | 50% | further decrease |
| 20 | 44% | ~90–95% diversification |
| 30 | 42% | near-index variance |
📁Other risks
Since an ETF is a financial product that buys other instruments, you also have to bear their risk. So if you buy an ETF that invests in the tech sector, you should expect to have higher than average volatility. If you choose the utilities sector, you will likely be rewarded with a smaller average price increase, etc. If you buy a commodity ETF, the specifics of the futures market will also apply to ETFs.
In other words, always be aware of the characteristics of the underlying product, as the ETF fund will behave accordingly.
🌐ETF trading, strategies
ETFs are basically designed for longer holdings, intraday trading, and investment. Speculative transactions are more often carried out with forex or CFD products. However, there are extremely cheap and volatile ETFs, such as large index funds, which can also be good for speculative transactions. These will not be discussed in this article. Instead, I would like to mention some investment strategies that are particularly easy to implement with ETFs. ETFs are perfectly suited for practically any strategy where stocks need to be grouped in some way. A group of outperforming stocks, sector ETFs, precious metals, a group of stocks related to all kinds of philosophies, dividend paying, value-based, growth, etc., and so on.
One is sector rotation, which I wrote about in a previous article (Stock market index meaning and usage (2025)). This is easy to do because there are countless such funds created to track a given sector, and you have to “exchange” these depending on the performance of the current sector. In the article above, I mention a few more strategies that ETFs are perfectly suited to implement.
I don't want to write too much about full index tracking, because practically all index-tracking ETFs do this. However, there are individual stocks that your brokers won't reach. For me, one of these was Largan Precision (3008.TW), a company that "trapped" Apple at the time, and which is listed on the Taiwan Stock Exchange. It's an excellent company, but I just couldn't buy it as an individual stock.
However, your broker may list, for example, the iShares MSCI Taiwan UCITS security (iShares MSCI Taiwan UCITS), which includes the company, so there is still a chance that you can buy such a stock in a roundabout way. The “beauty” of the matter is that unfortunately the company only accounts for 1.13% of the fund's total position, but that's more than nothing.
ETF information summary
Actually, this article shouldn't end here, but unfortunately, no document can be infinitely long. In the article, I went over how ETFs work, their advantages, disadvantages, risks, and much more. However, the topic is so diverse that it is impossible to cover everything. Therefore, I advise everyone to read, buy courses, use screener sites, and then you will get the hang of things. The iO Charts blogYou can also read countless articles on the topic (iO Charts blog). However, you should not buy ETFs rashly, just like you should not buy stocks. These instruments are also designed for long-term investment, but in today's market, those who prefer speculative forms can also find their way.
Frequently Asked Questions (FAQ)
What is an ETF?
An ETF (Exchange Traded Fund) is an exchange-traded fund – that is, it's like a mutual fund, only it behaves like a stock. You buy and sell it like an Apple share, but it could contain 500 shares, 50 government bonds, or even the price of gold bars.
What is a disruptive ETF?
A disruptive ETF is an exchange-traded fund that invests in disruptive, market-changing technologies or industries—such as artificial intelligence, robotics, gene editing, space, or blockchain. These ETFs focus not on stable, established companies, but on those that have the potential to shake up the status quo, but also carry greater risk. In essence, they don’t follow the world, they follow what could shake it up.
What is an accumulation ETF?
An accumulating ETF (also known as a reinvesting ETF) is an exchange-traded fund that does not pay out income (e.g. dividends or interest) in cash to the investor, but automatically reinvests it back into the fund. This way, the income generates further income – i.e. it works on the principle of compound interest, without any transactions or tax events (in some countries). Such an ETF is ideal for the long term, if the goal is not continuous payments, but wealth accumulation.
What is a UCITS ETF?
A UCITS ETF is an exchange-traded fund that complies with the EU’s UCITS (Undertakings for Collective Investment in Transferable Securities) regulations. This framework strictly regulates the risk management, transparency and investor protection of funds – so if an ETF is UCITS-qualified, it means it is considered safer, more regulated and acceptable to EU investors. In short: UCITS = EU-friendly, well-regulated, and often more tax-efficient ETF.
Where can I find ETFs?
If you're looking for an ETF, don't start at your bank, where you'll find overpriced funds. Instead, head to the real market, where the choice is not in prospectuses, but in data:
- JustETF.com
- The best European ETF search engine, also for Hungarian investors.
- You can filter by country, topic, yield, cost.
- You can see whether the ETF is accumulative or distributive, whether it is a UCITS, which stock exchange it is available on, and in what currency it is listed.
- ETF.com
- US market focus if you are interested in US ETFs (e.g. ARK, SPY, QQQ).
- Detailed return and risk analysis, categories, comparison tools.
- Morningstar
- Detailed basic assessments, risk classification, portfolio breakdown.
- Sophisticated, but a bit more complicated for beginners.
How much can you earn with ETFs?
It depends on what you buy, for how long, and how patient you are. But now here's the real answer (with nominal returns):
- Global Equity ETFs (e.g. MSCI World, S&P 500):
- 📈 ~7–10% annual average return in the long term (over 10–20 years)
- Due to US dominance, returns have often outperformed the rest of the world
- e.g. S&P 500 ETF (e.g. VOO, CSPX): ~10–12% per year over the past 14 years
- Bond ETFs:
- 💤 1–4% annual return, lower risk, but often not even beating inflation
- Thematic/disruptive ETFs (e.g. AI, biotech, ARK):
- 🎢 Anything between -50% and +100%, extreme volatility is not uncommon, see ARKK after 2021
- Dividend ETFs:
- 💸 4–7% annual return including dividends, but with smaller capital gains and some stocks may suffer dividend cuts
Which broker should I choose to buy shares?
There are several aspects to consider when choosing a broker - we will write a complete article about this - but I would like to highlight a few that are worth considering:
- size, reliability: The bigger a broker, the safer it is. Those with a banking background – Erste, K&H, Charles Schwab, etc. – are even better, and well-known brokers are typically more reliable.
- expenditures: Brokers operate with various costs, such as the account management fee, the portfolio fee - which is the worst cost -, the purchase/sale fee and the currency exchange cost (if USD is not deposited in the brokerage account)
- Availability of instruments: It doesn't matter which broker has which market available, or whether they add the given instrument upon request and how quickly.
- account type: cash or margin account, the latter can only be used for options. For Hungarian tax residents, having a TBSZ account is important, but citizens of other countries also have special options – such as the American 401K retirement savings account – which are either supported by the broker or not.
- surface: is one of the most underrated aspects, and it can be a real pain. Anyone who had an account with Random Capital, a now-defunct Hungarian broker, knows what it's like to work on a platform left over from the 90s. Erste's system is lousy slow, Interactive Brokers requires a flight test, and LightYear believes in simple but modern solutions.
Based on the above, I recommend the Interactive Brokers account because:
- the world's largest broker with a strong background
- a few million instruments are available on it, and shares listed on multiple markets – e.g. both the original and the ADR – of a single share are often available
- Interactive Brokers a discount broker, they have the lowest prices on the market
- you can link your Wise account to them, from which you can quickly transfer money
- Morningstar's analyses are available for free under the fundamental explorer (good for analysis)
- EVA framework data is available under fundamental explorer (useful for analysis)
- they have both cash and margin accounts, Hungarian citizens can open a TBSZ
- you can use three types of interfaces: there is a web and PC client and a phone application
Which is better: individual stocks or ETFs?
There is no truth to this question. It is very easy to track the market with an S&P 500 ETF, and it is worth doing for beginners, because it can be done with a little knowledge and practice. Analyzing individual stocks requires 30-50 hours per company, so we do not recommend it to those who do not like it.
Do you hold stocks and ETFs in a TBSZ account?
Legal and liability statement (aka. disclaimer): My articles contain personal opinions and are written solely for my own entertainment and that of my readers. iO ChartsThe articles published on do NOT in any way exhaust the topic of investment advice. I have never wanted, do not want and am unlikely to provide such in the future. What is described here is for informational purposes only and should NOT be construed as an offer. The expression of opinion is NOT in any way considered a guarantee to sell or buy financial instruments. You are SOLELY responsible for the decisions you make, and no one else, including me, assumes the risk.
