What happens to an ETF if an underlying company goes bust?

So, I’m in the early phases of my investing journey, and trying to bring the better half along for the ride. Unfortunately she has an uncanny knack for asking difficult questions that seem to be hard to google! So the question is this: If a company in which an ETF invests goes belly-up, what happens to the ETF itself? Do you have less actual shares due to the fact that the shares you had in the underlying company no longer exist? Or does the ETF itself just lose the value that those shares represented, but you still have the same number of shares in that ETF? I.e say Company A is 10% of ETF A’s portfolio, and it goes under, do you have 10% less total shares, or the same number of shares but their value has taken a 10% hit? Sorry if it’s a dumb question! Thanks in advance.

Andrew Knott

Asked on 16 April 2023

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