What is an Exchange-Traded Fund (ETF)?

Share

ETFs are flexible investment vehicles that can be used within a portfolio in many ways to meet different investment needs and objectives.


Similar to a mutual fund, an ETF is a pooled investment vehicle that owns the underlying assets (stocks, bonds, commodities, currencies) and divides ownership of those assets into shares. Unlike a mutual fund that can only be bought or sold directly with the mutual fund company at the end of the day at net asset value, an ETF can be bought or sold throughout the trading day like a stock on a stock exchange at the prevailing market price.


Types of ETFs

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, and MSCI EAFE. Over time they have evolved to track all the major investment categories, sub-categories, industries and sectors, providing investors the ability to use them in multiple ways in a portfolio.

What are the benefits of an ETF?

ETFs can play an essential role in an investor’s overall investment strategy as they offer numerous benefits including:

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

Investors can generally see the portfolio composition of an ETF at any time as current holdings are available daily.

Liquidity

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

Cost

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, is extra.

Investors who are considering adding one or more ETFs to their portfolio should first take a careful look at their own situation, investment style, knowledge level and time horizon to determine whether an ETF fits their overall investment strategy.

To learn more about the benefits of ETF investing, talk to your financial advisor.

HOW TO USE ETFs IN A PORTFOLIO

Learn about these flexible investment
and trading vehicles.

Read More

ETF TERMINOLOGY EXPLAINED

Read More

UNDERSTANDING THE COSTS OF INVESTING IN ETFs

Read More

WHY RBC ETFs?

  • Innovative, high quality and professionally managed
  • Designed to provide attractive risk-adjusted performance
  • Invest with Canada's leading provider of income solutions*
  • Backed by the strength and stability of RBC Global Asset Management
Learn More

This information has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. The information contained herein is from sources believed to be reliable, but accuracy cannot be guaranteed. Commissions, management fees and expenses all may be associated with investments in exchange-traded funds (ETF). Please read the prospectus or Fund Facts document before investing. ETFs are not guaranteed, their values change frequently and past performance may not be repeated. ETF units are bought and sold at market price on a stock exchange and brokerage commissions will reduce returns. RBC ETFs do not seek to return any predetermined amount at maturity. Index returns do not represent RBC ETF returns. RBC ETFs are managed by RBC Global Asset Management Inc., an indirect wholly-owned subsidiary of Royal Bank of Canada.

® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. RBC Global Asset Management Inc. 2017