Are ETFs Safe? The Real Risks for Australians (2026)
Are ETFs safe? The structure protects your money if the provider fails, but values still fall: DHHF dropped 17% in 2022. Which ETFs carry the most risk and why.
ETFs are safe in one sense and not in another. The structure is safe: an Australian ETF's assets are held on trust for investors, separately from the company that runs it, so if the provider collapsed your share of the assets would still be yours. The value is not: an ETF rises and falls with whatever it holds. Even a diversified all-in-one fund like DHHF fell 17.0% in the first half of 2022, and a tech-heavy fund like NDQ fell 31.2%. How risky an ETF is depends almost entirely on what's inside it.
What happens if the ETF provider goes bust?
Most ASX ETFs are registered managed investment schemes. The law requires the scheme's assets to be "clearly identified as scheme property and held separately from property of the responsible entity" (Corporations Act s601FC(1)(i)). The responsible entity holds them on trust for the fund's investors, often through an external custodian. If BetaShares, Vanguard or iShares itself failed, the shares and bonds inside your ETF wouldn't be available to its creditors.
The exception is a handful of US-domiciled funds quoted on the ASX, such as SPY and VTS. They're governed by US law and bring US estate-tax and W-8BEN issues instead (best S&P 500 ETF).
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Can an ETF close?
Yes. ETFs that don't attract enough money are sometimes closed. When that happens, the fund sells its holdings and pays investors their share of the proceeds. You don't lose the money, but the sale can crystallise a capital gain you hadn't planned on, and you'll need to reinvest. Small funds carry more of this risk than large ones. Fund size is listed on every issuer's page.
Can you lose money in an ETF?
Yes. Here's how far two popular BetaShares ETFs fell in recent sell-offs, including distributions:
| ETF | Period | Fall from peak | Back to the previous peak |
|---|---|---|---|
| DHHF (all-in-one, ~8,000 companies) | Jan–Jun 2022 | −17.0% | June 2023 |
| NDQ (Nasdaq 100, tech-heavy) | Feb–Mar 2020 | −21.4% | June 2020 |
| NDQ | Nov 2021–Dec 2022 | −31.2% | July 2023 |
Calculated from the daily performance data on BetaShares' fund pages for DHHF and NDQ, with distributions included. Past performance is not a reliable indicator of future performance.
Each of these was back at its previous peak within about 20 months of the fall starting. Not every fall recovers that fast: severe bear markets have taken years to recover, and an ETF tied to a single theme or commodity may never regain a peak. The crude oil ETF OOO has returned −6.55% a year since it launched in 2011 (oil ETFs).
The practical lesson: money you'll need within the next few years doesn't belong in a share ETF, however diversified.
Which ETFs are riskier?
Risk rises the further an ETF moves from "own a broad market":
| Type | Example | Main extra risk |
|---|---|---|
| Broad diversified | DHHF, VDHG, A200, VGS | Market risk only: falls with the whole market |
| Single country or index | IVV, NDQ | Concentration in one market or sector |
| Sector or theme | SEMI, FANG | A handful of related companies can fall together |
| Commodity futures | OOO | Futures roll costs as well as commodity swings |
| Geared or "complex" | GNDQ, YMAX | Borrowing or derivatives magnify losses or cap gains |
Moneysmart explains that ETFs labelled "complex" use strategies beyond simply owning assets, "might include borrowing, short selling or the use of derivatives", and that synthetic ETFs carry "an additional risk that the counterparty to the derivative could fail" (Moneysmart). If an ETF's name includes "Complex", read the PDS before buying.
Moneysmart's full list of ETF risks also includes currency risk (overseas assets move with the exchange rate), liquidity risk, interest-rate and credit risk for bond funds, and manager risk for active ETFs.
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Are ETFs a good investment?
For long-term money, broad low-cost ETFs have a strong case:
- They're cheap. A200 charges 0.04% a year (BetaShares), about $4 per $10,000.
- They beat most professionals. 89% of active Australian equity funds underperformed the S&P/ASX 200 over 15 years (SPIVA Australia Mid-Year 2026).
- They've grown over time. A200 returned 7.82% a year over five years, and IVV (S&P 500) 16.16% a year over ten years, both to 30 September 2026 and after fees (BetaShares, iShares).
They're not a good fit for money you'll need soon, for anyone who'd sell in a panic during a fall, or when "ETF" is just the wrapper around a narrow or geared bet. Compare the main options in best ETFs in Australia.
A five-point risk check before you buy any ETF
- What does it hold? A whole market, one sector, a commodity or derivatives?
- How many holdings? Check the top 10 weights. FANG's top 10 is the whole fund.
- Is it labelled "complex" or synthetic? If so, read the PDS risks section.
- How big is it? Very small funds are more likely to close.
- Where is it domiciled? Australian-domiciled avoids US estate-tax and W-8BEN issues.
Then decide how much of your portfolio it should be. Many investors keep riskier ETFs to a small satellite around a broad core (ETF vs shares: core and satellite). The ETF calculator can model different mixes.
Frequently asked questions
Are ETFs safe in Australia?
Structurally, yes. Most ASX ETFs are registered managed investment schemes whose assets must be held separately from the provider's own property, so a provider collapse wouldn't take your investment with it. But an ETF's value rises and falls with the market. DHHF fell 17.0% in the first half of 2022, so ETFs aren't safe in the sense of protecting your capital.
Can an ETF go bust?
The fund itself can't go bust the way a company can, because it simply holds assets on investors' behalf. It can close if too few people invest. In that case it sells its holdings and pays investors their share. A broad index ETF would only go to zero if every company it held failed.
Can you lose all your money in an ETF?
In a broad, diversified ETF, losing everything would require hundreds or thousands of companies to fail at once. Large temporary falls are normal, though: NDQ fell 31.2% between late 2021 and late 2022 before recovering. Geared, complex or single-commodity ETFs can lose far more, and some never recover their peak.
Are ETFs high risk?
It depends on the ETF. Broad diversified funds like DHHF or A200 carry share-market risk, which suits long-term money. Sector, thematic, commodity and geared ETFs carry much higher risk. Moneysmart notes that "complex" ETFs may use borrowing, short selling or derivatives.
Are ETFs a good investment?
For long-term investors, broad low-cost ETFs have been a good investment. Fees start at 0.04% a year, and 89% of active Australian equity funds underperformed the index over 15 years (SPIVA Mid-Year 2026). They're less suitable for money you'll need within a few years.
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Related calculators and guides
- ETF Calculator
- ETF investing for beginners
- Best ETFs in Australia
- Geared ETFs explained
- ETF vs managed fund
This article is for general information only and does not constitute financial, tax or legal advice. Individual circumstances vary. Consult a registered tax agent or licensed financial adviser before making decisions based on this information.
Written by
Mahi PatilSoftware engineer & personal finance enthusiast · Melbourne, Australia
Built Dolaro.com.au to create accurate, free Australian finance tools. Invests in Australian and global ETFs and writes about the topics researched firsthand. More about Mahi →