Index ETFs offer many advantages
over other forms of investing.

Don't look for the needle in the haystack. Just buy the haystack.

John Bogle
John Bogle

Why investing in ETFs is the
most reasonable choice for you?

  • ETFs represent the most suitable investment tool for smaller investors
  • ETFs fulfill all of the 9 principles of successful investing
  • ETFs are the most ideal tool for passive investing, which should be preferred by all small investors

Benefits of ETFs over other investments:

  • tool of passive investing
  • replicate indices
  • Wide diversification
  • the lowest fees
  • market returns
  • zero or low taxes
  • high liquidity
  • high transparency
  • flexibility
  • meet the UCITS criteria

The fundamental question each investor should ask is: what return will my investment bring me and at what risk?

Here is a demonstration of the difference in performance of popular mutual funds in Slovakia and ETFs with the same focus:

Mutual fund vs. ETF performance (p.a.)

Mutual fund ETF 3 years 5 years 10 years
TAM Americký akciový iShares S&P 500 -3.87% -3.13% -2.18%
IAD Global Index iShares MSCI ACWI -2.09% -2.8% -3.58%
TAM Európsky akciový iShares MSCI Europe -6.25% -3.74% -3.67%
SPORO Fond max. výnosov iShares MSCI ACWI -0.11% 0.58% -1.68%
Pioneer Global Equity EUR iShares MSCI Europe -4.35% -3.65% -1.99%
Pioneer Emerging World Eq iShares MSCI Emerging Markets 0.13% -0.64% -4.8%
AXA Selection Global iShares MSCI ACWI -2.42% -2.35% -2.75%
Amundi Rytmus S10plus iShares MSCI World -8.76% -6.28% -4.42%

*source, 31.12.2018

What are ETFs?

ETF stands for exchange-traded funds. In principle, they work in the same way as other funds, such as the well-known mutual funds for the public, but in addition their shares are traded on an exchange.

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What is fund?

A fund is an investment instrument designed for retail investors. It issues units of the fund (units) in which the public invests (buys). A unit represents a share of the fund's total assets, i.e. the right to a part (a fraction) of them. The accumulated funds collected are subsequently invested by the fund. This is the origin of the name of the collective investment industry, the instrument of which is the fund - the fund invests the common assets of all its investors. The fund's assets consist of all its investments.

To simplify, the fund can be explained by looking at your colleague's birthday. You have agreed with 9 other employees to buy him a present for his birthday. You collect 20 euros each and for 200 euros you buy him a weekend break, which he talked about at length. The fund's asset is the 200 euros collected, each colleague's share is 20 euros and the fund's investment is a stay for the birthday boy. Neither colleague would buy him such a gift on his own, but collectively it is not a problem. This is how it works with funds that allow retail investors to invest in securities they could never buy on their own.

ETFs work on the same principle.

The primary difference in investing in ETFs and mutual funds - liquidity

Conventional mutual funds are not traded on exchanges. It usually takes a few days to enter and exit a mutual fund.

ETFs are flexible and liquid due to exchange trading. Whenever you decide to sell shares, you do so on an exchange through a trader and the funds are immediately credited to your account. So with ETFs, you don't wait for money like you do with mutual funds.

Difference between ETF portfolios and mutual funds - diversification

Most ETFs are index funds. Definition of an index is explained in the section Passive Investing. Index funds copy indices, investing in the same securities as the benchmark index at proportions corresponding to their weights in the index.

That's why ETFs are nowadays considered as the fundamental tool of passive investing.

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ETFs provide excellent diversification - spreading risk. With one small investment, you can buy a lot of securities. If you wanted to buy all 500 stocks in the U.S. S&P 500 Index, you would need tens of thousands of dollars of capital. You can buy ETFs starting at tens of euros and invest in all 500 stocks.

In contrast, conventional mutual funds tend to follow an active management strategy that favors more concentrated portfolios with fewer securities.

A big advantage of ETFs is that you know in advance and throughout the investment exactly what you are investing in.

Difference in fees

If you choose not to invest via ETFs, charges and fees will consume a large part of your returns. ETFs offer a significant advantage in terms of fees. By simply copying indices, they do not need personal workforce and sophisticated technical equipment in the process of securities selection.

The cost of administering and managing ETFs today is close to zero. The cheapest ETFs charge an asset management fee of up to 0.1% per year.

Mutual fund management and administration fees typically range between 0.5% and 3% per year. The average of the best-selling equity funds in the country is around 2.3% per year.

ETFs do not have entry and exit fees. Mutual fund entry fees range from 1% to 5% of the investment amount.

Entry fee
Ongoing fees
Equity mutual fund

Comparison of the cost of the basic investment in Finax and the average of the 10 largest mutual funds in Slovakia as of 16.6.2023 (data source Fund Key Information Documents).

Difference in performance

Thanks to passive investing and low fees, the net performance of ETFs exceeds that of mutual funds offered in Slovakia by more than 2 times.

Comparison of the performance of a chosen ETF investing in global stocks (db x-trackers MSCI World Index UCITS ETF 1C) and the 3 best selling mutual funds in Slovakia investing into global stocks (Iad Global Index, AM SLSP Fund of maximized returns and Axa Selection Global Equity) during the past 10 years.

The reasons of the difference are being explained in the sections of Successful Investor Rules and Passive investment.

Differences by tax domiciles

Certain countries in CEE region has better tax implications for exchange traded mutual funds to those that are not traded on an exchange.

There are two basic categories of mutual funds: accumulating and distributing. While building portfolios we consider this aspect to maximize clients’ after tax return.

Inform yourself with us, and we will advise you based on your tax domicile.

In some countries ETFs may have better tax impications than clasic mutual funds.

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Safety & Security

ETFs can be classified as one of the safest securities. They are intended for the general public and are traded on stock-exchanges; hence, they are subject to the highest level of control and regulations.

ETFs fall under the regulatory framework of UCITS, a Europe-wide harmonized regime governing the management and sale of mutual funds. UCITS unifies the regulation of funds within Europe, introduces the required standards for funds and uniform consumer protection requirements.

The majority of the European ETFs are UCITS, as well as the most of the mutual funds. For investors, this means that tools with this designation are safer and controlled. Essentially, it is the highest possible protection for the consumer of financial services in the context of collective investment in Europe.

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