Exchange Traded Funds (ETFs) are very similar to tracker funds – aiming to replicate the performance of a particular index. ETFs are listed on a stock exchange (e.g. the London Stock Exchange) and can be purchased and sold freely, just like shares in a company. The price of an ETF is in direct accordance with the respective index that it is trying to track.
Just like tracker funds, ETFs are a type of passive investment strategy and are therefore associated with lower charges than actively managed funds. In recent times, more and more ETFs have launched that passively tracker more risk inducing markets.
Synthetic ETFs are also associated with a greater level of risk due to the fund not actually holding the underlying assets, relying on a swap agreement with a counter party.