The Irish Stock Exchange has set up a new market for trading funds. The Iseq 20 ETF, which started operating yesterday morning, aims to match the returns of an index and expose an investor to a more diversified portfolio - all in one transaction.

ETFs, which are listed and traded like stocks, enable investors to put their money into a portfolio of the 20 largest and most liquid stocks on the Irish Stock Exchange.

"There was a gap in the market that needed to be filled," said Brian Healy, director of trading and regulation at the Irish Stock Exchange.

"This will give investors the ability to access Irish markets via a single share. It's a fund by name but its very much a share by nature."

Mr Healy said he expected the new market to attract three different types of investors: retail investors, who would see it as a cost-effective, transparent product with significant tax advantages; foreign investors, for whom the ETF would be an "easy way to access the Irish market"; and domestic institutions, which would be able to benefit from the market's hedging opportunities.

He also said the market would make a good investment opportunity for personal pension funds.

While the Iseq 20 ETF is the first exchange-traded fund to be based on the Irish stock market, the concept has been around since the early 1990s.

At the end of last year, there were 336 ETFs listed on 29 exchanges across the world - including the UK and Germany - with more than $310 billion (€237 billion) worth of assets under management.

According to the Irish Stock Exchange, the worldwide market for ETFs grew by 46 per cent last year, with growth of 66 per cent in Europe alone.