- ETF = EXCHANGE TRADED FUNDS
- An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks.
- Institutional Traders were the first one to invest in ETFs.
- ETFs have grown very rapidly in the past few years and investments in ETFs have grown over trillion dollars.
- ETFs are low cost investment vehicles.
- ETFs can give you an exposure to tax free municipal or high yield bonds.
- ETFs are eligible for RRSP in Canada and 401(k) in U.S.A
- Like any investment vehicle, past performance of ETFs is not an indicator of future performance.
- It makes sense for an individual average investor to own a pool of stocks or bonds through ETF than to own a single stock.
- ETFs have been in the market since early 1990s. The first ETF was introduced by Toronto Stock Exchange.
- S&P / TSX 60 index fund trades under ticker XIU and it tracks 60 of Canada’s largest and most liquid companies. It is managed by Black Rock Inc.
- The SPDR S & P 500 tracks S & P 500 index which is an index of the 500 largest U.S Companies. It trades under ticker SPY.
- ETFs are generally cost effective and tax smart.
- ETFs can help create a well-diversified portfolio because they tend to track very specific indexes.
- Black Rock Inc. controls about 45 percent of the U.S ETF market.
- About 60 percent of all ETF trading is done by individual investors.
- Buy and hold kind of investors benefit much more from ETFs than do institutional traders.
- A number of brokerage houses like Charles Schwab, TD Ameritrade and Fidelity allow customers to trade certain ETFs for free.
- Vanguard allows all its customers to trade all Vanguard ETFs for free.
- SPY remains by far the largest ETF on the market with total assets of $90 billion.
- A share of ETF means you have an ownership in a basket of company stocks.
- DIA represents 30 stocks of the DJIA index.
- QQQ represents 100 stocks of NASDAQ 100 index.
- SPY represents stocks from the S & P 500 index.
- Vanguard, Ishares, Schwab follow traditional indexes. Pro shares, Wisdom tree and Guggenheim develop their own indexes.
- IVW = Ishares S & P 500 growth index fund.
- EWJ = Ishares MSCI Japan index fund.
- You can buy ETFs just like stocks. Their prices change throughout the trading session.
- ETFs represent market indexes and market segments.
- ETFs usually declare much less in taxable capital gains.
- ETFs can be purchased with limit, market or stop loss orders.
- ETFs dealing in derivatives and currency will bring some very complex and costly tax issues.
Index funds consistently outperform managed funds because index funds carry much lower management fee and redemption charges. Trading costs and spread costs are much lower when turnover is low. They are much more tax efficient. They are very transparent and you know exactly what securities are you investing in.
Source of information
All information contained in this presentation comes from the book “EXCHANGE TRADED FUNDS FOR DUMMIES” written by Russell Wild who is a NAPFA registered financial advisor.