What is an ETF?

1
Exchange-traded funds, or ETFs, are a type of investment structure made up of a basket of securities that trades like a stock and can be bought or sold at any time during the trading day.
2
When you, the investor, invest in an ETF, you do not actually own the securities (stocks, bonds, etc.) in which the fund invests; you only own shares in the ETF itself. ETFs can be used to gain access to virtually any market industry or sector in the world.
3
A unit in an ETF is also called a “share,” and the combined holdings of the ETF are known as its “portfolio.” Investors buy shares of an ETF and are called “investors,” “fund holders” or “unitholders.” The number of outstanding shares can change daily because of the continual creation of new shares and the redemption of existing shares.

 

What is an ETF? Exchange-traded funds or ETFs are a type of investment structure made from a basket of securities. When you purchase an ETF you purchase a collection of stocks, bonds or other securities called a portfolio. ETFs can be used for broad market exposure and portfolio diversification. You as the fund holder can gain access to virtually any market, industry or sector in the world.

 

Tip

Once you have determined your investment goals, ETFs can be used to gain exposure to virtually any market or industry sector in the world. While ETFs offer a number of benefits, including low cost and myriad investment options, ETF investing can lead investors to make unwise decisions. In addition, not all ETFs are alike. Management fees, execution prices and tracking discrepancies can cause unpleasant surprises for investors.

 

How do ETFs work?

With ETFs, you can add diversification to your portfolio with a single trade. ETFs can provide trading flexibility, liquidity and lower costs than other investment vehicles. Let’s run through some basic definitions to help understand where and how ETFs are purchased and traded.

 

Tip

Much like stocks, ETFs trade on a stock exchange. The exchange provides the infrastructure and services for brokers and traders to buy and sell stocks, shares and other tradable financial assets called “securities.” You’ll find stock exchanges all around the world, such as the Toronto Stock Exchange (TSX), the New York Stock Exchange (NYSE), Nasdaq, the London Stock Exchange (LSE) and the Japan Exchange Group (JPX).

 

Investor Investor

An investor places an order with the broker. An ETF has a ticker symbol, and its intraday price can be easily obtained throughout the trading day.
Broker Broker

The broker enters the order in the exchange. A broker is an individual or firm that acts as an intermediary between an investor and a securities exchange. You can purchase an ETF through a brokerage house or platform. Like stocks, ETFs are bought and sold during the day when the major exchanges are open, and they are priced continually during normal exchange hours.
ETFs share ETFs share

The order is filled and ETF shares are delivered to the investor.

 

Tip

ETFs are offered on virtually all asset classes, ranging from traditional investments (stocks and bonds) to alternative assets such as commodities or currencies.

Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in mutual funds and ETFs. Please read the mutual fund’s or ETF’s prospectus, which contains detailed investment information, before investing. Mutual funds and ETFs are not guaranteed. Their values change frequently, and investors may experience a gain or a loss. Past performance may not be repeated.

The statements contained herein are based on information believed to be reliable and are provided for information purposes only. Where such information is based in whole or in part on information provided by third parties, we cannot guarantee that it is accurate, complete or current at all times. It does not provide investment, tax or legal advice, and is not an offer or solicitation to buy. Graphs and charts are used for illustrative purposes only and do not reflect future values or returns on investment of any fund or portfolio. Particular investment strategies should be evaluated according to an investor's investment objectives and tolerance for risk. Fidelity Investments Canada ULC and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.

Commissions, fees and expenses may be associated with investment funds. Read a fund’s prospectus or offering memorandum and speak to an advisor before investing.  Funds are not guaranteed, their values change frequently and investors may experience a gain or loss.  Past performance may not be repeated.

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This site is for persons in Canada only.  Mutual funds and ETFs sponsored by Fidelity Investments Canada ULC are only qualified for sale in the provinces and territories of Canada.

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