Investors tout big benefits in owning an ETF
(NC) - While many Canadians are familiar with stocks and mutual funds, financial experts now say that Exchange Traded Funds (ETFs) are becoming increasingly popular as an investment tool.
“ETFs are similar to mutual funds, in that they are essentially funds that hold a collection of investments (such as stocks and bonds), but trade like a stock on the exchange,” says Barry Gordon, the CEO at First Asset Exchange Traded Funds, a leading investment management company. “With ETFs now encompassing literally hundreds of types of asset classes and markets globally, investors can get access to a wide range of domestic and foreign equities, fixed income, commodities, currencies and even alternative strategies – all good tools to help build a diversified portfolio.”
Gordon adds that ETFs with intelligent indexing (otherwise called intelligent ETFs) are designed to provide potentially higher returns, and/or lower risk than traditional ETFs that mimic the performance of static market capitalization weighted indices, such as the S&P/TSX Composite, or S&P 500. Intelligent ETFs are constructed using either objective rules based, fundamental and/or technical analysis to select stocks from a benchmark or a customized index.
When investing in ETFs, it's often a good idea to seek out expertise from your financial advisor, as not all funds are created equal. Gaining information about ETFs, including price, underlying holdings, liquidity and fees, are all factors to consider when selecting an ETF. However, with the right help, ETFs can be extremely valuable to Canadian investors looking to save for retirement.
“ETFs allow exposure to a variety of different publicly traded securities, sectors and strategies in a liquid and efficient manner,” Gordon continued. “In many instances they allow for exposure to securities and asset classes that would be both difficult and expensive to buy individually — corporate bonds, for instance, or shares of companies listed on foreign exchanges.”
He points out that ETFs also act as a nice complement to a broader asset mix, considering that the concept of diversification remains a key issue for many investors. Combining ETFs with stocks, bonds, mutual funds and other investments provides for a higher level of diversification and may protect against downside risk.
Another selling point is the transparency involved. Most ETFs publish their holdings every day, so investors are kept informed including their relative weighting in the fund, and if the fund has changed its position in any particular investment. And because they trade on an exchange, investors can easily find the current market price.
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