An exchange-traded fund (ETF) is a fund listed on a stock exchange. Most track an index, such as the ASX 200 or the S&P 500, by holding its members in proportion. Others track sectors, bonds, commodities or strategies.
Fees are usually far lower than for actively managed funds. Some overseas ETFs hedge the currency, so returns are not affected by the Australian dollar; unhedged ones are.
Why it matters
Most active managers fail to beat their benchmark index after fees over long periods, which is why low-cost index funds have grown so fast. Owning an index also removes the risk of picking the wrong single company.
General information, not advice.