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ETF Education

Our education page is designed to provide you with all the information you need to understand and invest in exchange-traded funds.

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What are ETFs

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An ETF is a type of investment vehicle that can hold a range of assets including equities, fixed income and commodities. ETFs are traded on stock exchanges and can be bought or sold similar to individual securities. ETFs can offer investors a convenient, tax efficient, cost-effective, and transparent way to diversify their portfolio exposure across a range of markets and asset classes.

A popular investment vehicle

$8.3 Tn

Global ETF AUM

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Source: ETFGI, as of Q4 2022

10,000+

ETFs listed globally

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Source: ETFGI, as of Q3 2022

$20 Tn

Projected global ETF AUM by 2026

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Forecast by PwC, as of Q2 2022

$6.7 Tn

US-listed ETF AUM

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Source: ETFGI, as of Q4 2022

3,000+

US-listed ETFs

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Source: ETF.com, as of Q4 2022

$13 Tn

Projected US-listed ETF AUM by 2026

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Forecast by: PwC, as of Q2 2022

ETFs can be deemed an attractive alternative to individual stocks and mutual funds

FEATURES

Investment Type

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ETFs

Basket of assets (e.g. stocks, bonds, commodities).

Mutual Funds

Basket of assets (e.g. stocks, bonds, commodities).

Stocks

Individual companies.

Trading

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ETFs

Can be traded intraday on exchange.

Mutual Funds

Can be traded at the end of day.

Stocks

Can be traded intraday on exchange.

Liquidity

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ETFs

Offer intraday liquidity on exchange, similar to stocks.

Mutual Funds

Typically less liquid than stocks, as the fund’s NAV is calculated once daily at market close.

Stocks

Can be traded intraday on exchange.

Diversification

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ETFs

Can offer diversification across themes and asset classess.

Mutual Funds

Can offer diversification across themes and asset classess.

Stocks

Less relevant for single stocks which tend to focus on individual companies.

Minimum Investment

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ETFs

The minimum investment is tied to the cost of a single share of the ETF.

Mutual Funds

The minimum investment is typically tied to a minimum fixed amount, starting as low as $500.

Stocks

The minimum investment is tied to the cost of a single share of the company and in some jurisdictions investors can also buy fractional shares.

Fees

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ETFs

ETFs usually charge a single unitary fee covering all costs including management fee and fund expenses.

Mutual Funds

Mutual funds generally charge higher fees in totality because in addition to management fees, the costs of running the fund are also charged to investors. Fee structures are less transparent.

Stocks

No fees apply, apart from any potential trading costs.

Tax Efficiency

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ETFs

ETFs are more tax efficient than mutual funds because they are able to minimize capital gains distributions by using a process called in-kind redemption, which is tax exempt.

Mutual Funds

The mutual fund creation and redemption process can lead to greater realized capital gains and more capital gains distributions, which can be tax inefficient for investors.

Stocks

Capital gains tax on individual stocks is dependent on the holding period and the investor's own tax position.

How ETFs work

Understanding the process of creating and redeeming ETF shares is important in understanding the benefits of an ETF. This process plays a key role in minimizing the spread between the ETF price and its net asset value (NAV) and providing a unique source of liquidity and tax efficiency for investors.

Creation Process

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Creation Process

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Redemption Process

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Redemption Process

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How ETFs are managed?

ETFs can be passively or actively managed. The main difference in practice is the extent of active involvement and the discretion that can be applied to managing the portfolio.

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Passive Management

Passive management, also known as index investing, involves tracking a market index, such as the S&P 500, and attempting to replicate its performance.

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Active Management

Active management requires a portfolio manager to actively trade securities based on a process or framework that may also incorporate factor analysis and risk management.

Key reasons to consider active management

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Investment Expertise

Investment analysts leverage investing and industry expertise to determine the optimal portfolio allocation for the ETF, incorporating qualitative and quantitative factors.

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Security Selection

Discretionary investment management allows for optimizing security selection to fit the investment strategy criteria.

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Risk Management

Active management empowers an investor with the flexibility to manage risk carefully and anticipate future challenges.

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Shareholder Engagement

Active managers can engage with company management of portfolio positions to drive accountability, unlock value and effect change.

What assets can you access with ETFs?

Some ETFs are designed to provide broad-based exposure to a particular market or sector, while others are more focused on a specific theme or investment strategy.

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Equities

ETFs that invest in the stocks of companies

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Fixed Income

ETFs that invest in bonds, which are debt securities issued by governments, municipalities, and corporations.

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Commodities

ETFs that provide exposure to commodities, such as gold, oil, or agricultural products

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Real Estate

ETFs that hold real estate investment trusts (REITs) and provide investors with access to a diversified portfolio of properties

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Currencies

ETFs that invest in foreign currencies and allow investors to gain exposure to the movements of specific currencies, such as the euro or the Japanese yensvg-gobbler (17)

 

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Cryptocurrencies

ETFs that track the price of cryptocurrencies such as Bitcoin or Ethereum

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Regions

ETFs that invest in markets that share similar economic status or growth trajectory such as emerging markets

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Countries

ETFs that invest in the stocks of companies based in a specific countrysvg-gobbler (17)

 

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Sectors

ETFs that invest in the stocks of companies within a specific industry or sector of the economy such as energy or healthcare

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Themes

ETFs that invest in a specific theme, such as renewable energy or reshoring

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Factors

ETFs that invest in stocks that exhibit certain characteristics, or "factors", such as value, growth, or dividendssvg-gobbler (17)

 

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ESG

ETFs that invest in companies that meet certain standards for environmental sustainability, social responsibility, and corporate governance

Investing in ETFs?

Set your goals, research, select brokerage firm, choose ETFs, monitor.

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Determine your investment goals

Before investing in ETFs, to have a clear understanding of the level of risk you are comfortable accepting.

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Research

There are thousands of ETFs available, so do your due diligence and research the ETFs that you are considering.

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Select trading brokerage

Compare the fees and features of different brokerage firms to find one that best suits your needs.

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Select and buy ETFs

Select the ETFs you want to invest in and place an order through your brokerage account.

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Monitor portfolio

Regularly review your ETF holdings and make adjustments when necessary to ensure they are still aligned with your investment goals.svg-gobbler (17)