Understanding ETFs

What is an exchange traded fund (ETF)?

An ETF is an open-ended mutual fund that can be bought or sold throughout the trading day like a stock on a stock exchange. Unlike a traditional mutual fund which can only be bought/sold at the end of the day, at net asset value and directly from the sponsor, an ETF can be bought/sold throughout the day through the exchange at a prevailing market price.

ETFs initially caught the attention of investors as an efficient investment vehicle for gaining access to broad passively managed equity indices such as the S&P/TSX 60, S&P 500, MSCI EAFE. Over time they have evolved to track more focused industry, sector or sub-sector indices, fixed income and commodities.

What are the benefits of an ETF?


Investors can generally see the portfolio composition of an ETF at any time as the current trading price of an ETF can be viewed throughout the trading day.


ETFs are listed on the stock exchange and can be bought or sold throughout the trading day.


Management expense ratios (MERs) for ETFs are generally lower than other investment solutions. However, it is important to remember that transaction costs (i.e. stock commissions) are incurred for every buy or sell and advisor compensation, if any, are extra.


ETFs are available in a broad range of asset classes and sectors including equities, bonds, commodities, and investment themes.


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