Education Central: Introduction

Exchange Traded Funds (ETFs) are baskets of securities seeking to replicate the performance of specific indices, benchmarks, or commodities. ETFs look to achieve this by fully replicating an index (owning all the securities comprising the index in proportion to what each contributes to it), sampling (buying some, but not all of the securities comprising the index), or swap/forward agreements (where the counterparty to the agreement commits to providing the returns of the underlying index).

ETFs trade on stock exchanges, providing investors the intra-day trading flexibility of stocks. They generally provide diversified exposure to stocks and bonds, as well as participation in commodities futures, and currencies.

Traditionally, ETFs have been known for their low fees, transparency, and tax efficiency, most often linked to passive indexing strategies. More recently, however, the attractive characteristics of ETFs as an investment vehicle has seen the ETF industry move into active management – an area normally seen as the purview of the mutual fund industry.

The Canadian ETF space continues to evolve rapidly. Canadian investors now have more choices and alternatives than ever. With that, comes the need to thoroughly understand these investment products, before deploying them as investment solutions.