How to track exchange-traded funds (ETFs)
Exchange traded funds (ETFs) are an increasingly popular type of investment fund that can be bought and sold directly on stock exchanges. Among Sharesight users, the share of ETFs within investor portfolios has grown steadily over the last decade from <1% to almost 10% as investors increasingly switch from managed funds (managed trusts) to ETFs.
Like all investments, it’s critical to track the performance of ETFs in your portfolio. In this article we’ll cover:
ETF history (what, why, where)
While there is some contention over which ETF commands the title as “the first ETF”, the concept of using a listed investment trust structure as a vehicle to invest in a broad range of underlying stocks gained traction in the early 1990s with the launch of the S&P 500 Trust ETF “SPDR” (NYSE: SPY) on the NYSE on January 22 of 1993.
Initially ETFs followed in the footsteps of the SPDR ETF and allowed investors to gain exposure to a fund that sought to replicate (minus fees) the performance of a ‘passive’ market index like the Standard & Poor’s 500. Over time fund managers added “smart-beta” (seeking to replicate an ‘alternative’ index) and “active” (actively managed by a fund manager with a strategy aiming to beat the market) ETFs to their offerings that have further blurred the lines between managed funds and their exchange traded fund cousins.
Read our guide on what to look for when buying ETFs if you’re considering investing in exchange traded funds.
Tracking ETF performance
ETFs have an open ended structure, which means that when investors seek to purchase additional units of the fund, the fund manager (or issuer) can issue additional units to the exchange. This means that unlike listed investment companies that can trade significantly above or below their Net Asset Value, ETFs trade at a unit price close to the value of the underlying assets each unit holds.
Unlike managed funds, which can have opaque price discovery, tracking the performance of ETFs is much like any other stock, because ETFs are listed (and traded) on stock exchanges.
How to track your ETFs in Sharesight:
Fortunately Sharesight tracks almost 25 worldwide stock exchanges, making tracking the price and performance of your ETF investments easy. Here’s how to track your ETFs in Sharesight:
Start tracking your investment performance with Sharesight!
(Here’s the NYSE:SPY ETF in Sharesight showing both the ETF’s performance and distribution income.)
ETF tax considerations
Tracking the performance of your ETF investments is only one part of the puzzle, managing the tax implications is the other. ETFs are a unitised trust structure that hold a number of underlying assets that each have their own tax implications on distributions earned by the ETF. The tax implications will vary by region, for example in the USA distributions earned by the ETF are typically treated as ‘ordinary dividends’ and taxed accordingly, whereas in Australia most ETFs use the Attribution Managed Investment Trust (AMIT) structure and are a tax nightmare.Here are all the ways Sharesight makes ETF tax calculations easy.
ETF benchmarking with Sharesight
Exchange traded funds make for excellent ‘index tracking’ (such as the S&P 500) benchmarks because they take into account all the inner workings of a real portfolio, including fees, dividends and any franking credits that may apply. This provides investors a benchmarking option that incorporates all the “real world” costs of running an investment portfolio. Sharesight allows investors to benchmark against ETFs as part of the expanded benchmarking options that include any managed funds, trust or stock tracked by Sharesight.
To select an ETF as a benchmark, from the Portfolio Overview page, click on the “Add a Benchmark” button. You can either select from a common ETF benchmark, or, in the “Search for a Benchmark” field, type the market code and select the desired instrument from the results (in the image below, we searched for all the SPY ETFs that track the S&P 500 available on different stock exchanges like the ASX.
Track ETF investments with Sharesight
Whether you invest purely in ETFs (like some in the FIRE investing movement) or you use ETFs as a vehicle to gain exposure to a wide range of investments to increase your portfolio diversity, Sharesight is the perfect tool to track both the performance, and tax implications of investments in Exchange Traded Funds.
To get started, simply sign-up and import your ETFs and other investments to your Sharesight portfolio. Then watch as corporate actions such as dividends, ETF distributions and stock splits are automatically tracked in Sharesight.
Sharesight is FREE for users with under 10 holdings. Sign up today and try it for yourself.