What is an ETF ?
As its full name suggests, an ETF is an investment fund whose shares can be traded on an exchange.
Exchange Traded Funds (ETF) are essentially portfolios of shares managed by an investment professional. Shares in an ETF can be bought and sold through a stockbroker just like shares in any company. Some people refer to them as Index Funds .
Exchange Traded Funds are failry common retail investment products. They are usually a listed security in a fund that holds or tracks an index or investment sector. While one can select exotic ETFs, tracking cryptocurrency, for most investors, they are a simple low-cost method of investing in the FTSE, S&P 500 indices or similar.
Index-tracking ETFs typically have very low fees compared to actively managed funds, which makes them a good tool to diversify your investments quickly, easily and cheaply.
Shares in Exchange Traded Funds or Index Funds are listed on stock exchanges, just like shares in individual companies. ETFs can provide individual investors with an opportunity to buy a varied portfolio of stocks, in the same way as if they were dealing in a single listed share.
In recent years, investors have flocked to ETFs because they are easily tradeable and usually have low management charges.
Diversification with ETFs
ETFs can be an easier and more cost-effective way for investors to achieve returns from say the S&P 500 or the FTSE 100 without having to purchase all the individual stocks. Exchange-Traded Funds offer a convenient alternative to purchasing all of the underlying stocks of a particular index. For most investors, ETFs offer a lot more diversification than you’d ever hope to achieve by building your own portfolio of shares. (Lower fees too usually)
Exchange-Traded Funds are also generally easier and cheaper to manage than a big portfolio of self-selected shares.
If you just own a small handful of individual shares, a poor performance from one share will have a much larger impact.
- ETFs typically aim to track a specific stock market or index such as the FTSE 100 , FTSE 250 , ISEQ, S&P 500 etc.
- ETFs have charges built in to cover the fund manager’s operational costs. These charges tend to be very low, often below 0.2% a year.
Of course – as with any stock market based investment there is always a risk of losing money.
Choosing Accumulating or Distributing ETFs
There are two types of ETFs
- Distributing (DIST): they pay the dividends of the holdings to the investors.
- Accumulating (ACC): they reinvest any dividends to buy other stocks.
This has implications for taxation because there is a 41% tax on ETF dividends in Ireland.
More about ETF taxation further down the page.
Some Popular ETFs
Vanguard S&P 500 : This tracker ETF tracks the performance of the Standard & Poor’s 500 Index that is comprised of the stocks of 500 large US companies.
iShares Core MSCI World UCITS
The investment objective of this Fund is to provide investors with a total return, taking into account both capital and income returns, which reflects the return of the MSCI World Index.
Vanguard FTSE AW (All World) : This ETF seeks to track the performance of the FTSE All-World Index. This is a market-capitalisation weighted index of stocks of global large and mid-cap companies in developed and emerging countries.
iShares MSCI World Broad exposure to a wide range of global companies within 23 developed countries. Covering 85% of the listed equities in each country.
iShares FTSE 100 : This tracker ETF follows the FTSE 100 index – the 100 largest UK companies trading on the London Stock Exchange.
iShares Euro Stx 50 – This tracker aims to reflect the return of the EURO STOXX50 Index. This is the benchmark index that measures the performance of the 50 largest companies in the Eurozone.
How To Buy ETFs in Ireland ?
In our article about Buying Shares in Ireland – we compare the fees charged by some online stockbrokers available in Ireland. Most of the online brokers in the comparison will allow you to choose from a selection of European or UK ETFs. (DEGIRO , Davy , BUX Zero, Etoro, Goodbody, Interactive Brokers )
Some brokers will have a smaller selection of ETFs than others. Trading shares in an ETF will normally have the same brokerage fees as trading any other share – but the fees charged by some brokers can be many times greater than the cheapest option.
In our comparison below, the lowest fees for regular purchases of ETFs were available at BUX Zero (IF you opt for their Zero Order service).
If BUX Zero doesn’t have an ETF that you are interested in buying – then take a look at Degiro for their FREE ETF selection or Etoro for commission-free trades.
Fees On ETF Purchases Compared
|Buy €1000 worth of an EU ETF each quarter for 5 years then sell for €30000||Total Share Dealing Fees and Commissions|
(Deposit & Withdraw USD)
|DEGIRO (Free ETF Selection)||€12.50|
(Market Orders )
(Not on the Free List)
(Deposit & Withdraw Euro)
Bux Zero is a mobile trading app available in Ireland with a good but small choice of EU ETFs available. (about 170 when we checked in early 2022)
The commission is €1.50 per ETF trade. However , customers can also opt for a ” Zero Order” trade – which will always be commission-free.
Zero Orders on BUX are executed at the end of the trading day, between 4 and 5 pm (Central European Time). Orders placed after 4 pm (CET) will be executed on the following day. The daily price fluctuation of ETFs will usually be low – so waiting till the end of the day should have little effect on a long-term investment.
If the price differential at the time of the trade does exceed 5% for sell orders or 4% for buy orders, the zero-order is cancelled.
BUX Zero is regulated by the AFM, The Dutch Authority for the Financial Markets.
Please note that Investing involves the risk of loss.
DEGIRO charges a commission of €2 plus 50c handling fee per ETF trade.
However – they usually offer commission-free trading on a selection of European ETFs. (About 200) – Terms and Conditions apply – See Here .
The popular ETFs listed above were all in the DEGIRO free selection at the time of writing. (Early 2022)
DEGIRO also charge a €2.50 annual fee per stock exchange used. – So a good tip is to try and buy all your ETFs on DEGIRO from just one exchange (Amsterdam / Paris etc) to save paying multiple annual exchange fees of €2.50.
Please note that Investing involves risk of loss.
More about DEGIRO here.
Buying ETFs on Etoro
EToro has a selection of about 260 ETFs that can be traded . Most of them seem to be US ETFS but there are some Eu and UK ETFs available.
Some examples of EU/UK ETFs that are available on Etoro include:
iShares Core MSCI World UCITS ETF
iShares Core FTSE 100 UCITS ETF
iShares Core MSCI Europe UCITS ETF
iShares S&P 500 UCITS ETF
X-trackers Stoxx Europe 600 UCITS ETF
Xtrackers Nikkei 225 UCITS ETF
When you buy one of the above EU ETF’s – it is just the same as buying shares in a company. Etoro doesn’t charge a commission – but there will be a 0.5% currency conversion fee if you deposit or withdraw Euros. (No conversion fees if you can deposit USD).
It is possible to buy fractional ETFs on Etoro (from as little as $10)
(Your capital is at risk. Other fees apply. For more information, visit etoro.com/trading/fees)
More about Using Etoro in Ireland
It’s important to note all non-EU ETF trades opened on Etoro by residents of the EU or UK are only available as CFDs.
With a CFD (Contract for Difference) – you don’t own the ETF, instead, you are basically agreeing to a contract with the broker to replicate market conditions and settle the difference (profit or loss) when the CFD is closed.
In order to replicate a simple BUY of an ETF – make sure you set the leverage to 1. Any higher than that will increase the risk of losses.
Profits from Contracts for Difference (CFD) are liable to Capital Gains Tax in Ireland. (Same as profits from shares)
More about CGT and Investments here
The fee to open a CFD on Etoro is 0.09% – so on a $1000 CFD the fee would be $0.90.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
78% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
See more here on CFDs
Interactive Brokers is a worldwide company and in Ireland, they are regulated by the Central Bank of Ireland . Online share trading can be carried out on a desktop or also on the IB app. Funds can be held in several currencies including USD, EUR and GBP.
Their fixed fee for Euro ETFs is 0.1% per trade – Minimum charge €4
ETF Fee Comparison on Monthly Purchases
|Buy €1000 of an EU listed ETF once a month for 5 years. Sell for €90000||Total Share Dealing Fees and Commissions including Stamp Duty|
(Deposit & wthdraw USD)
(If on the Free ETF Selection)
(Not on the Free List)
(Deposit & withdraw Euro)v
What is UCITS ?
Many ETFs will have the letters UCITS mentioned in their name.
UCITS stands for “Undertakings for the Collective Investment in Transferable Securities”. This refers to a regulatory framework that allows for the sale of cross-Europe mutual funds.
UCITS funds are perceived as safe and well-regulated investments and are popular among many investors looking to invest across Europe.
Taxation of ETFs in Ireland
One thing that can put people off Investing in ETFs in Ireland is the taxation.
With “normal” shares , you pay income tax on the dividends and when you sell the shares you will be liable for Capital Gains Tax of 33% on any profit above €1,270 per annum.
More here on Tax on Dividends
More here on CGT on Shares
But with ETFs it’s different. You can end up paying 41% tax on any profits and dividends . Also – every 8 years you are “deemed” to have sold your EFTs and are liable for tax on the “deemed” profits.
Read more here about The Taxation of ETFs in Ireland
Investment Trusts Vs ETFs
Investment Trusts can be seen as an alternative to EFTs.
Some people prefer them because the tax treatment of Investment Trusts is preferable to ETFs.
An investment trust or investment fund is made up of a collection of underlying stocks or other financial instruments. However, an investment trust/fund , unlike most ETFs , will be actively managed by a fund manager. This means that the contents of the fund are often reviewed and can change over time. The charges for an actively managed fund will be higher than that of a passively managed tracker/ ETF .
harges on an investment trust tend to range between 0.5% – 2.00%. These costs will usually be included in the price of the product.
Investment trusts are funds that are publicly listed as companies on a Stock Exchange, and so can be traded like any other company shares. By buying shares in an Investment Trust you are getting exposure to several different assets with just one investment. (In a similar way to Exchange Traded Funds) .
EFTs will typically track an Index (FTSE100 , S&P500 etc) – but Investment Trusts are typically invested in a smaller, handpicked selection of companies or other assets/bonds/gold etc. As with all shares – their value can decrease as well as increase and you are at risk of loss.
Some popular UK based Investment Trusts include:-
- Scottish Mortgage Investment Trust (SMT),
- Edinburgh Worldwide Investment Trust ,
- MONKS INVESTMENT TRUST
- Templeton Emerging Markets Investment Trust
- All of these are available on Degiro for Irish customers.
- SMT was also available on Etoro at the time of writing.
Taxation of Investment Trusts
If you buy shares in Investment Trusts – there are no specific guidelines from Revenue on how they are taxed in Ireland. But we understand that they are treated like any other share and that any dividend income will be taxed at your marginal rate of income tax and any gains will be taxed at the CGT tax rate of 33%. (First €1270 of gain a year is exempt). (This is our opinion – and not financial advice)
Investment Trusts are NOT treated the same way as ETFs for tax purposes.
Taxation of Stocks and Shares in Ireland