Exchange traded funds trade on stock exchanges, just like stocks. Investors can buy them on margin, or sell them short. The best exchange-traded funds offer well-diversified, tax-efficient portfolios with exceptionally low management ETF fees. They are also very liquid.
Investors use ETFs in a variety of ways, and some investors work only with ETFs and no other type of investment in portfolio creation.
An amazing aspect of ETFs is their diversity. Some investors may create an entire portfolio solely from a few well-diversified ETFs.
ETFs trade on stock exchanges, just like stocks. That’s different from mutual funds, which you can only buy at the end of the day at a price that reflects the fund’s value at the close of trading.
Prices of ETFs are quoted in newspaper stock tables and online. You pay brokerage commissions to buy and sell them, but their low management fees give them a cost advantage over most mutual funds.
As well, shares are only added or removed when the underlying index changes. As a result of this low turnover, you won’t incur the regular capital gains taxes generated by the yearly distributions most conventional mutual funds pay out to unitholders.
ETFs have a place in every investor’s portfolio, at TSI Network we also recommend using our three-part Successful Investor strategy:
- Invest mainly in well-established companies;
- Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
- Downplay or avoid stocks in the broker/media limelight.
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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.
Semiconductor producers were the standout performer on the stock side with a 15.3% gain recorded by the Invesco Semiconductor ETF (New York PSI). Cybersecurity stocks (Toronto CYBR) also performed well. Of further note was the strong performance of the U.S. dollar against the major currencies (New York UUP).
RBC QUBE MARKET NEUTRAL WORLD EQUITY ETF $20.03 (CBOE symbol RNWH) aims to provide capital appreciation by taking both long (stocks expected to go up) and short (stocks expected to drop) positions in global companies. The ETF can also employ leverage and derivatives to enhance returns (although this can also work against the fund).
RELX PLC is a U.K.-based provider of information-based analytics and decision tools. Its software provides analysis to improve decision-making for clients in the legal, business and scientific fields.
Here is one ETF that provides exposure to the nation’s leading public companies.
Companies listed in the U.S. make up the largest component of the portfolio (45%), followed by Canada (31%), other developed markets (18%), and emerging markets (7%).
Below we take a closer look at ETFs that hold companies involved in various aspects of the overall telecommunications industry including infrastructure providers.
However, bond ETFs can also play a role in your portfolio, especially if you plan to take money out of your portfolio within, say, a couple of years and simply can’t risk stock market losses. Of course, bonds do tend to make your portfolio less volatile.