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Investing,Personal Finance,Portfolio Management,Shares

ETFs, ADRs, GDRs,……and you thought you only could buy shares on the stock market

28 Feb , 2015  

Nick van den Berg
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Nick van den Berg

CoFounder at Simply Wall Street
I am the Co-Founder of Simply Wall St, a visual investing platform making the stock market more accessible for beginners and veterans alike.
Nick van den Berg
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Hey guys, I am Nick van den Berg writing today’s guest post. I am the co founder of Simply Wall St, a visual investing platform making the stock market more accessible for beginners and veterans alike. 

Gone are the days where just simply ‘stocks’ are listed on the share market, a somewhat bewildering array of different products are now available. Here is quick guide of what is floating around:

Shares:

Where it all began. Companies that wish to raise funds split the company into many parts (ie “shares”) and sell them to individual investors (in whatever form that may be, for example an individual or a Superannuation Fund). As a result this investor now owns part of the company and is entitled to any dividends the company issues and has a say in some of the company decisions, such as electing directors.

Exchange Traded Funds (EFTs):

EFTs are an investment fund that has an interesting mantra, they don’t try to “beat the market” they simply are the market. They do this by having a portfolio of shares that make up an index. For example the ASX 200 is the top 200 capitalised companies listed on the Australian Stock Exchange. An EFT that tracks the ASX 200 will own shares in those top 200 companies. An EFT is a way for you to diversify your investment portfolio by investing in just one listed stock, and also a way to get international exposure (for those that track an overseas indexes). EFTs do charge a management fee of your total investment, ranging from 0.2-0.7%

American Depositary Receipt (ADR)/Global Depositary Receipt (GDR):

ADRs & GDRs are a way for an investor to invest in an overseas stock, which is actually listed on their home exchange. In the case of an ADR a depositary bank in the US holds a set number of shares of a foreign company on their home exchange (such as LSE). They then issue tradable shares on the NYSE/Nasdaq which people can buy or sell. ADRs & GDRs are a cost effective way for people to get exposure to an international company.

Exchange Traded International Securities (ETIS):

ETIS are a similar flavour to an EFT. That is they have a set portfolio of US stocks and then have a listed share on the ASX. The main point of difference is that there is no ongoing management fee, however they take 50% of all dividends that are paid on those US stocks. This equates to management fee of 0.75-1.25%.

So there is a taste of what is available, for those that want to dive in deeper you can actually find out more information on other varieties, such as partially paid shares and preference shares, which you can see here http://www.asx.com.au/products/shares/types-of-shares.htm

Happy investing,

Nick
Co-Founder @ Simply Wall Street

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