You Can See Our Exchange-Traded Funds Portfolio For December 2024 Here.

ETFs in brief

Exchange-traded funds are set up to mirror the performance of a stock-market index or sub-index. They hold a more or less fixed selection of securities that represent the holdings of that index or sub-index and will allow the fund to “track” its performance.

The MER (Management Expense Ratio) is generally much lower on traditional ETFs than on conventional mutual funds. That’s because most traditional ETFs take a much simpler approach to investing. Instead of actively managing clients’ investments, ETF providers invest so as to mirror the holdings and performance of a particular stock-market index.

ETFs practice this “passive” fund management style, in contrast to the “active” management that conventional mutual funds traditionally provide at much higher costs.

This traditional, passive style usually keeps turnover very low, and that in turn keeps trading costs down for your ETF investment.

How We Assess an ETF’s Risk

To help you decide if certain ETFs are suitable for your portfolio and investment temperament, we classify them into three easy-to-understand categories: Conservative, Aggressive and Income. To determine how an ETF fits into one of those three classifications, we examine a number of factors. They include

Stock holdings. We look carefully at the specific stocks the ETF holds, and their prospects. We also look at the track record of the ETF’s managers to see if they are likely to make good stock selections.

Diversification. The broader the ETF’s holdings, the less volatile its performance is likely to be.

Liquidity. We look at an ETF’s size and how many units trade hands per day. With more liquidity, the bid/ask spread for shares of a stock will be narrower.

Political and currency risk. This is especially important for country-specific ETFs and those that focus on international stocks, outside of Canada and the U.S.