Exchange Traded Funds (ETFs)

What is an ETF?

With the current turbulence in financial markets and the threat to the values of individual equities, more and more investors are looking to Exchange Traded Funds as part of their balanced portfolios.

ETFs are funds that trade like a stock. They are a straightforward, low-cost way to invest your money.

There are more than 500 ETFs available in Canada alone and over 1,500 in the U.S. An ETF is a marketable security that tracks an index, a commodity, bonds, or a specific sector of assets like technology stocks. Some can also track a group of stocks from specific countries, and others allow investors to emphasize growth or value stocks within a particular index. There are also ETFs designed for accredited investors with short time horizons to profit from bull and bear markets by offering inverse and magnified exposure to the S&P/TSX 60 Index and other indices and sectors.

Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors. ETFs can be purchased or sold through most securities dealer.

What are the Benefits?

1. Diversification and Risk Control

Unlike individual stocks, ETFs are comprised of a basket of securities, thus providing a convenient and single-trade approach to achieving diversification. And because buying an ETF allows you to spread investments across an entire sector or market index, you reduce company-specific risk.

2. Cost-Efficient and Flexible

Because ETFs are mostly passive investment vehicles, their management expense ratio (MER) is much lower than a comparable mutual fund. Most ETFs are RRSP eligible. That is true even for many of the U.S. and global ETFs. In addition, unlike mutual funds that can only be bought or sold once a day at their closing Net Asset Value, ETF units trade like stocks so investors are able to buy and sell shares throughout the day at market prices.

3. Planning Is Essential

There are a lot of good reasons to consider ETFs as part of your portfolio – diversity, safety, and growth are three of the basics. There are many to choose from. Therefore, we can help you carefully select and introduce ETFs into your portfolio mix as part of an asset allocation and diversification strategy.