What is an ETF?
An Exchange-Traded Fund (ETF) is an investment vehicle that invests into a portfolio of others investments, such as stocks, bonds or commodities. Like mutual funds, ETFs allow you to invest in a variety of assets within a single investment, helping you diversify your portfolio. Unlike mutual funds, ETFs are bought and sold on a stock exchange throughout the day, and their price changes as the market moves.
ETFs can be used to build a diversified investment portfolio by providing exposure to different companies, industries, markets and geographic regions. They may be a good option if you want to spread your investments across multiple assets, target a specific sector or gain access to markets beyond Canada. Like all investments, ETFs come with risks and their value can fluctuate based on market performance.
Why choose an ETF?
Transparency
Know exactly which assets are held.
ETFs disclose their investments regularly, allowing you to know exactly which assets are held within the fund. This can help you make informed investment decisions and align your portfolio with your goals.
Cost efficiency
Often lower fees than mutual funds.
ETFs are known for their cost-efficiency. They often have lower management fees compared to actively managed mutual funds which can benefit you when looking to maximize your returns.
Align your investment preferences
A wide range of themes and strategies.
ETFs come in a wide range of options, covering various investment themes and strategies. Whether you’re interested in broad market exposure, specific sectors of the market, or even strategies tied to the environment or governance, there’s likely an ETF that aligns to you.
How does it work?
An ETF can hold a wide range of investments, from hundreds or thousands of stocks across different industries to investments focused on a specific sector or market. Like mutual funds, ETFs provide diversification by allowing you to invest in a collection of assets within a single investment.
While ETFs and mutual funds share many similarities, they are structured differently. The main difference is how they are bought and sold. ETFs trade on a stock exchange throughout the day, similar to individual stocks, meaning you buy or sell a specific number of units at the current market price. Mutual funds are bought and sold once per day after the market closes, based on the fund’s calculated value at that time.
Both ETFs and mutual funds can be used as part of a variety of investment strategies. The right option depends on your goals, investment approach and how involved you want to be in managing your investments.
Is this right for you?
Right for you if:
- You want to minimize investment costs. ETFs are a good option if you're looking for cost-efficiency due to things like passive management (less active decision making and trading) and lower trading costs.
- You'd like flexibility. ETFs trade on stock exchanges, which provides high liquidity. This means you can buy or sell ETF shares during market hours, offering you flexibility in managing investments.
May not be right for you if you:
- You want an active investment strategy. If you prefer an active management role in your investments, ETFs may not align with your goals. ETFs are primarily passively managed and aim to replicate the performance of a market index.
- You want to pick specific stocks. If you have a strong interest in selecting individual stocks and believe in your ability to pick winning investments, you may not find ETFs appealing. You may want to consider stocks if this aligns with your investment portfolio.
Tools to help you reach your goals.
Common questions.
Here’s what people ask us the most.
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ETFs are bought and sold on a stock exchange throughout the trading day, similar to individual stocks. The price of an ETF changes based on the value and performance of the investments it holds. When you buy an ETF, you are purchasing units of a fund that may include a variety of underlying investments.
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Like any investment, ETFs carry some level of risk and their value can go up or down based on market performance. The level of risk depends on what the ETF invests in, such as stocks, bonds, specific industries or geographic markets. A diversified ETF may help spread risk across multiple investments.
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ETFs can hold many different types of investments, including stocks, bonds, commodities and other assets. Some ETFs provide broad market exposure, while others focus on specific industries, sectors, countries or investment themes.
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Yes. ETFs can be held in eligible investment accounts, including registered accounts such as TFSAs and RRSPs. The account type you choose may affect how your investments are taxed.
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ETFs are bought and sold through a brokerage account, similar to stocks. Conexus members can work with an advisor to explore their investment options or use Qtrade Direct Investing to buy and sell ETFs online on their own. The right option depends on how involved you want to be in managing your investments and the level of support you need.
We're here to help.
Not sure which investment option is right for you? Our advisors can help you understand your choices, explore different options and create a plan that fits your goals and financial situation.
