Find out what an exchange traded fund (ETF) is, its benefits and how you can invest in them. Learn why they are an option for Canadian investors.
WHAT IS AN ETF?
An exchange traded funds (ETF) is a basket of securities that is bought and sold like shares on an exchange during the entire trading day just like individual stocks. But unlike shares – which are ownership stakes in businesses – ETFs are investment funds that can invest in several securities such as a portfolio of shares or bonds.
The value of an ETF on a stock exchange generally represents the value of all the different underlying investments held by that ETF. The ETF share prices fluctuate all day as the ETF is bought and sold which is different from mutual funds, which only trade once a day after the market closes.
Some ETFs only invest in one type of asset class such as shares, bonds or commodities. Many ETFs seek to provide the return of an index such as the S&P 500® or the NASDAQ® (known as “index investing”). Other ETFs aim to track the performance of an asset class such as fixed income, a sector such as energy, or provide access to a particular investment strategy. Unlike mutual funds, ETFs do not have minimum initial investments. Investors can get started buying a single unit of an ETF.
Globally, more than 11 trillion U.S. dollars were held in ETFs at the end of 2023 and the industry continues to grow. Professional services firm PwC estimates that Canadian ETF assets under management could reach as much as $1 trillion by 2028.
WHAT ARE SOME OF THE BENEFITS OF AN ETF?
ETFs can offer a number of benefits:
Diversification
- By buying an ETF, an investor is buying exposure to all investments held in the ETF in a single trade.
Transparency
- Since ETFs are traded on a stock exchange, investors can see the price when they are bought and when they are sold. In addition, the ETF’s underlying investments are generally readily available to investors as frequently as daily.
Liquidity
- ETFs are generally easy to buy and sell because they trade during the day on a stock exchange like any share. As a result of this, there is no specific minimum investment and no additional paperwork to fill in when an investor wants to buy or sell.
Lower Management Fees
- Due to their unique structure, ETFs typically charge lower management fees than comparable regular mutual funds.
Global X offers a wide range of ETF solutions. We can help investors of all experience levels meet their investment objectives in a variety of market conditions.
CAN I BUY ETFS DIRECTLY FROM GLOBAL X?
ETFs can only be purchased through a brokerage account or a financial advisor. Fortunately, Global X Funds are available on many Canadian online investment platforms.
HOW DO INDEX ETFs WORK?
Global X Funds are overseen by professional portfolio managers. With index ETFs, managers are not responsible for picking individual securities; they trade according to an underlying index, or sample of an index, with clear guidelines and rules governing the trades.
Passive management is a preferable approach for most long-term, buy-and-hold investors because it removes impulse and emotion from trading decisions.
WHAT IS THEMATIC INVESTING?
Thematic investing involves gaining broad exposure to long-term, disruptive trends. These may be driven by technological innovations, changing consumer preferences, or adaptations to the environment. Examples include the rise of Artificial Intelligence, the emergence of E-commerce, and the shift to renewable energy sources.
CAN I INVEST IN COMMODITIES THROUGH AN ETF?
Global X offers ETFs that provide exposure to a range of commodities such as gold, silver, copper, and uranium. Global X’s range of commodities funds offer exposure to commodities and also invest in miners, refiners, explorers, and other companies involved in the production of major commodities.
DO ETFS PRODUCE INCOME? Investors’ search for yield shouldn’t just be limited to government bonds and corporate debt. Not only does Global X offer traditional fixed-income ETFs, but it also manages ETFs that invest in preferred stocks, dividend-paying stocks, and equity options that aim to produce income. Many of Global X’s income ETFs are designed to provide monthly distributions.
Published May 1, 2024
DISCLAIMERS
Commissions, management fees, and expenses all may be associated with an investment in products (the “Global X Funds”) managed by Global X Investments Canada Inc. The Global X Funds are not guaranteed, their values change frequently and past performance may not be repeated. Certain Global X Funds may have exposure to leveraged investment techniques that magnify gains and losses which may result in greater volatility in value and could be subject to aggressive investment risk and price volatility risk. Such risks are described in the prospectus. The Global X money market funds are not covered by the Canada Deposit Insurance Corporation, the Federal Deposit Insurance Corporation, or any other government deposit insurer. There can be no assurances that the money market fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the Funds will be returned to you. Past performance may not be repeated. The prospectus contains important detailed information about the Global X Funds. Please read the relevant prospectus before investing.
This communication is intended for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase investment products (the « Global X Funds ») managed by Global X Investments Canada Inc. and is not, and should not be construed as, investment, tax, legal or accounting advice, and should not be relied upon in that regard. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. These investments may not be suitable to the circumstances of an investor.All comments, opinions and views expressed are generally based on information available as of the date of publication and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.
Categories: Education, Perspectives