ETF Education

Our ETF 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?

An ETF (Exchange Traded Fund) is a investment fund that holds assets such as stocks, commodities, or bonds and is traded on a stock exchange.

An ETF (Exchange Traded Fund) is a type of investment vehicle that holds a collection of assets such as stocks, commodities, or bonds. ETFs are traded on stock exchanges and can be bought and sold like individual stocks. They offer investors a convenient, tax efficient and cost-effective way to diversify their portfolio and gain exposure to a wide range of markets and asset classes.

How ETFs Work

Understanding the process of creating and redeeming ETF shares is important in understanding how ETFs operate. 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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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 discretion that can be applied to managing the portfolio.

Passive Management

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.

Active Management

Active Management

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

Key Reasons to Consider Active Management

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

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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 affect change.

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

Features
Investment Type

ETFs

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

Mutual Funds

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

Stocks

Individual companies.

Trading

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

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

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

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

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

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.

What can you invest in 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

ETF that invest in the stocks of companies.

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Fixed Income

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

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Commodities

ETF 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 allow investors to gain exposure to the movements of specific currencies, such as the euro or the Japanese yen

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Cryptocurrencies

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

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Geographical Group

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

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A Country

ETF that invests in the stocks of companies based in a specific country.

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A Sector

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

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A Theme

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

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Factors

ETF that invest in stocks that exhibit certain characteristics, or "factors," such as value, growth, or dividends

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ESG

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