ETFs are a flexible investment vehicle that can be used within a portfolio to achieve a variety of needs and objectives.
Similar to a mutual fund, ETFs can provide access to a diversified portfolio of stocks or bonds in a single investment, but can be traded like a stock on an exchange.
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An ETF, or exchange traded fund, is a group of diverse assets that trades on the stock exchange as a unit. Imagine a set of building blocks. Each block is a piece in and of itself. But if you group them together, they create a structure or an ETF. An ETF is made up of several diversified building blocks, such as stocks, bonds, or commodities.
Diversified
ETFs are characterized for being diversified. They contain a variety of assets such as stocks, bonds, and commodities.
Transparent
You can see the underlying investments contained within each ETF.
Accessible
ETFs provide access to markets and industries worldwide.
Flexible
ETFs operate similarly to stocks. They can be traded as long as the exchange where they are traded is open, and their price adjusts throughout the day.
The first ETF was created in Canada in 1990 and sought to closely match the performance of the Toronto Stock Exchange. The industry has since evolved to track all the major investment categories, sub-categories, industries and sectors, providing investors the ability to use them in multiple ways within a portfolio.
Diversification
ETFs can provide exposure to various asset classes such as equities or fixed income and a broad range of sectors and geographic regions including commodities or emerging markets.
Transparency
With ETFs, investors know exactly what they are investing in with daily visibility into what securities the fund holds, how it’s performing and what it costs.
Liquidity
ETFs can be bought and sold on an exchange at market price whenever the market is open.
Cost
Management fees for ETFs are generally lower than other investment solutions, particularly for funds that investors plan to hold for the long term. As with all investment vehicles, investors who are interested in including ETFs in their portfolio mix should ensure it fits their overall investment strategy.
For more information about ETF investing, visit our ETF Learning Centre.
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