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What are ETFs?

An Exchange Traded Fund (ETF) is a security that trades on a stock exchange and generally tracks the performance of an index. It is a single stock representing a basket of securities underlying the index which can be comprised of stocks, bonds, or other assets such as commodities. The simplest ETFs generally seek to replicate an index. However, ETFs have evolved over recent years to allow for exposure to alternative asset classes, the implementation of more sophisticated investment strategies, and even active management.

There are many ETFs trading on Toronto Stock Exchange, providing investors with a wide selection of investment choices.

ETFs as an Alternative to Mutual Funds

	Timing - ETFs can be bought and sold throughout the day at the current market price, in contrast to mutual funds where the price can change between the time an investor decides to purchase or sell and when the end-of-day net asset value (NAV) is calculated.
	Trading flexibility - ETFs provide flexibility for your investment strategy - buy long or sell short, buy or sell ETF options and buy on margin.
	Performance - over time, indices can perform better than actively managed mutual funds. In addition, some ETFs pay regular dividends or other distributions, thus enhancing your return over time.
	Transparency - ETFs disclose their holdings, i.e., the constituents of the underlying basket and their weightings, on a daily basis, while mutual fund holdings are typically disclosed only quarterly or semi-annually.
	Cost effective - ETFs generally incur lower management fees and administrative expenses than do mutual funds, making ETFs more cost-effective.
	Tax efficiency - the unique "in kind" redemption process employed by ETFs, which reduces the amount of capital gains that must eventually be distributed to shareholders, results in greater tax efficiencies than those provided by traditional mutual funds. In addition, the ability of each investor to decide when to sell shares and take gains or losses results in greater control over taxes.
	No minimum investment - unlike mutual funds there are no minimum investment requirements.

Other Exchange Traded Products

Variations on the ETF structure have led to the development of the term Exchange Traded Products (ETPs), which encompasses traditional ETFs, Exchange Traded Commodities (ETCs), and Exchange Traded Notes (ETNs). The universe of exchange traded products on Toronto Stock Exchange currently comprises both ETFs and ETNs.