ETFs are instruments which track an investment - whether that's an index, commodity, or currency. They are traded like shares, and like listed shares, can be held in an ISA or SIPP. Because they are not actively managed, you're not at risk of a fund manager making an unsuccessful market call. They also have lower costs than actively managed funds. For instance an iShares corporate bond ETF is available with a Total Expenses Ratio (TER) of 0.20 % a year That compares to traditional funds with typical charges of 1 to 1.5% - even on some passive tracker funds.

Unlike options, another way to trade indices, ETFs pay out a dividend based on the dividends paid by their index constituents. For instance IDVY (iShares DJ Euro STOXX Select Dividend) pays a distribution yield of 3.51% - not market-beating, but quite interesting compared to bank interest rates.

There's a vast choice of ETFs available to the UK investor. When ETFs began, they focused on equity indices. However, new product areas have been added to the basket over time; commodity ETFs have been a particularly fast growth sector recently. Some commodites stocks are geared, meaning you get double the underlying performance of the commodity - definitely one for the risk taker, but don't put your whole portfolio in them! There are also fixed income ETFs, currency ETFs, and sector or theme based ETFs such as the iShares FTSE/Macquarie Global Infrastructure 100 ETF (INFR), which offers international exposure to transport and utilities stocks. There are even short ETFs which allow you to place a bet against the market.

There are a few gaps. There are not really enough sector ETFs available to UK investors, particularly when you consider the plethora of sector and thematic ETFs available to US punters. For instance I've been looking for some exposure to the pharmaceutical and healthcare sectors outside the UK (having already stocked up on big yielders Glaxosmithkline and Astrazeneca ); there are a couple of interesting US quoted ETFs, but nothing in the UK, where the next best thing seems to be the Finsbury Worldwide Pharmaceutical Trust (Finsbury Worldwide Pharma ). But it's got a 1.18% TER according to the Association of Investment Trusts .

ETFs do have a few disadvantages. It can be difficult to find information on ETFs; your best bet is the ETF providers'…

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