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VanEck Blog & Insights

Exchange Traded Funds (ETFs) - VanEck Vectors ETF

  • MVAU ETFs new investment frontier
  •    What is an Exchange Traded Fund?

      Exchange Traded Funds (ETFs) are one of the fastest growing investment products in the world. ETFs offer investors a simple and cost-effective way to achieve diversification in their investment portfolios.

      ETFs track the performance of a particular index. For example, the VanEck Vectors Australian Banks ETF (ASX code ‘MVB’) tracks the MVIS Australia Banks Index.

      VanEck Vectors ETFs combine the benefits of both managed funds and listed shares. They offer investors an efficient, low-cost, liquid, diversified investment option. Our ETFs can be bought and sold on the ASX like any other shares. What all this means is that through one trade in our ETFs investors gain immediate exposure and diversification.

       What are the advantages of buying ETFs versus other similar investment products?

      Fees
      Fees for ETFs are generally lower than actively managed funds.

      Fair value
      ETFs have an advantage over managed funds listed on the ASX, otherwise known as Listed Investment Companies (LICs). LICs often trade at a discount or premium to their fair value or Net Tangible Assets (NTA). For example, a LIC that has assets worth $1 per share and is trading at $1.20 on the market is trading at a premium to its NTA. This may not represent fair value to the investor as the gap between the market price and asset valuation is significant.

      Tax efficiency
      Generally speaking, ETFs have lower turnover of their holdings compared to actively managed funds. ETF turnover reflects changes to the underlying index, which usually occur on a quarterly basis often resulting in a relatively more tax effective outcome for investors.

      The actions of one investor on the secondary market are generally quarantined from other investors; as such, redemptions by one investor do not trigger a tax event for other investors (as may be the case with a managed fund). The tax implications of redemptions by an authorised participant on the primary market are also potentially reduced as any tax is allocated out to the exiting unit holder (the authorised participant), rather than left to be borne by remaining investors in the ETF.

      Diversification
      ETFs can provide diversification benefits versus single stock purchases by providing exposure to a broad range of securities, making them less susceptible to the performance movements of a single investment.

      Liquidity
      Authorised participants act as dedicated market makers and seek to provide continuous liquidity to the market. Market maker quotes are updated continuously throughout the trading day to reflect price changes in the underlying securities. ETFs are bought and sold just like any other share on the ASX.

      Transparency
      VanEck Vectors ETFs offer full transparency with daily access to the list of underlying shares in the ETF basket.

       How do I buy ETFs?

      Units in a VanEck Vectors ETF can be bought and sold, just like any other share listed on the ASX, through a stockbroker or a licensed financial adviser during normal trading hours using the same strategies with trading shares (market, stop and limits orders).



       Can I purchase or redeem ETF units directly through the ETF issuer?

      Institutional investors called ‘authorised participants’ who have signed an agreement with VanEck Vectors Investments can directly apply for and redeem units in VanEck Vectors ETFs directly with us.

      Individual investors can only purchase units in our ETFs on the ASX through your stockbroker, financial adviser or online trading platform provider.

       What is an Authorised Participant?

      An authorised participant is an ASX trading participant that has signed an authorised participant agreement with VanEck Vectors, the ETF issuer. Authorised participants have the ability to create and redeem ETF units directly with VanEck Investments.

       What is a market maker?

      The role of a ‘market maker’ is to satisfy supply and demand for ETF units by investors. They generally seek to ensure that the price of the ETF does not materially deviate from the Net Asset Value (NAV).

       How is liquidity offered in a VanEck Vectors ETF?

      Liquidity in a VanEck Vectors ETF is offered four ways:

      1. By trading on the ASX among buyers and sellers;
      2. By market markers who provide bids and offers for units on the ASX through market opening hours;
      3. By authorised participants who can create and redeem units based on market demand; and
      4. By tracking an index purpose-built for the ETF which ensures strict liquidity rules are applied when selecting underlying securities for inclusion in the index.

       Who are ETFs suitable for?

      Any investor with access to trading on the ASX can buy our ETFs.


       What are the costs associated with investing in VanEck Vectors ETFs?

      Each VanEck Vectors ETF has a management cost disclosed in the Product Disclosure Statement (PDS). In addition, as they are traded on the ASX like shares, investors will incur brokerage cost to buy and sell. Speak to your stockbroker or financial adviser to determine the brokerage charges.

       What is the NAV?

      An ETF’s NAV is calculated as total assets less total liabilities. The NAV per unit is calculated by dividing the NAV by the total number of units outstanding. The NAV and the number of units outstanding for each VanEck Vectors ETF are calculated daily and available on our website.

       What is an iNAV?

      An iNAV or Indicative Net Asset Value is an estimate of the underlying parcel held by the ETF and is typically representative of the ETF's benchmark index. It is usually calculated every 30 seconds.

       How are ETFs priced?

      ETF issuers, like VanEck Investments, do not set the bid/offer price for their ETFs. ETF issuers do, however, publish an Indicative Net Asset Value (iNAV) during ASX market hours allowing brokers and market makers to set an accurate bid/offer price. The bid/offer price is determined by market makers based on the NAV. The iNAV is updated continuously throughout the trading day inline with the movement in price of the underlying constituents. Investors can check the fair value of the bid/offer price against the published Fund NAV and intraday movement of the Fund NAV (the iNAV).

       Do I receive franking credits?

      VanEck Vectors ETFs that invest in Australian shares may generate franking credits. Investors will be entitled to dividends and franking credits paid by the constituents of the relevant ETF. Franking credits attached to distributions will be shown in the annual tax statement.

       How can I make enquiries about my holdings in a VanEck Vectors ETF?

      Link Market Services Limited is the appointed registrar for the VanEck Vectors ETFs.

      You can call Link on 1300 68 3837 or visit www.linkmarketservices.com.au