Exchange Traded Funds (ETFs)

Diverse as mutual funds, flexible as securities.


What are ETFs?

Exchange Traded Funds (ETFs) can be an easy way to help investors get into the market with instant diversification. ETFs are a collection of stocks, bonds, and more, traded like a stock on an exchange. Sound similar to mutual funds? They are both designed to add diversification to an investment portfolio. However, there are some differences between the two including when they can be bought or sold. Mutual funds are traded at the end of the day, so you pay whatever the value is at the time. You can trade an ETF just like a stock anytime during the market day.

Benefits of Exchange Traded Funds (ETFs)

  • Diversification

    One ETF can provide instant diversification—either within a broad market portfolio or a focused sector (technology), without having to buy and manage multiple stocks.

  • Transparency

    You can always get a real-time view of an ETF's price during the trading day, plus see how the holdings are doing and if they are right for you.

  • Trading flexibility

    Like stocks, ETFs can be traded any time—even after hours and weekends—and get them filled during market hours. You have control.

  • Lower cost of entry

    Depending on an investor's situation, ETFs that hold stocks and other investments may be more cost-effective than buying the investments separately.


Things to consider

Since an ETF is a collection of underlying stocks, bonds and other assets, its value will change based on the fluctuation of these underlying assets. Sometimes this may cause the price of the ETF to fall, therefore losing value. Other impacts on the value of an ETF might include changes in interest rates and/or currency exchange rates. Always do detailed research before making any investment decision.

ETFs: The basics

ETFs can be a simple way to get into the market, allowing you to invest in multiple companies, industries, or sectors you're interested in, and to diversify your portfolio. Watch the video to learn more about how ETFs can:

  • Help build an asset allocation that matches one's investment strategy
  • Be either actively or passively managed, and the difference between the two
  • Be purchased from your direct investing brokerage

ETF investing strategies

An ETF can be either passive or active, or it can be a combination of both. Choose the ETFs that align with your investment strategy.

  • Passively managed ETFs

    A passively managed ETF is set up to track the performance of a particular index—stocks or bonds and covering large or small sectors of the market.

  • Actively managed ETFs

    An actively managed ETF attempts to outperform a specific benchmark or index.

  • All-in-one ETF portfolios

    An all-in-one ETF invests in multiple ETFs that can be both actively and passively managed—providing a simple, low-cost way to create a diversified portfolio.


Discover more about ETFs

Investment in ETFs has boomed in recent years. Today, there are many different ETFs listed on Canadian stock exchanges to choose from—a huge variety of options for investors. Although mutual funds will continue to coexist with ETFs, the growth rate for ETFs has far surpassed the mutual fund industry since the global financial crisis of 2008/2009.1

The growth in popularity of ETFs is indisputable, however, many investors are still in the dark when it comes to knowing and understanding what ETFs even are.


When you hear that the stock market increased, decreased or was flat on any given day, what’s being measured is the change in the value of a particular stock index.

An index is designed to measure the performance of the particular market it tracks. For example, a broad Canadian index would contain possibly all, or more likely a selection of Canadian stocks, that represent all the stocks listed on stock exchanges in Canada. The change in the value of the index provides us with an indication of how well (or poorly) that particular sector is performing.

Passive ETFs are designed to replicate the performance of a given index. Essentially, these indexed ETFs are investing in the same securities held by the index. So, when the index goes up or down, the ETF also goes up or down.


ETFs

Mutual Funds

Flexibility

ETFs trade on stock exchanges and can be bought and sold any time during the trading day

Mutual funds are transacted at the end of the trading day

Price transparency

ETF prices are communicated throughout the day

Mutual fund prices are not known until the end of the day

Costs and fees

ETFs can incur a management expense ratio (MER) fee, sales taxes and independent review committee (IRC) fees. Brokerage commissions may also apply.

Mutual funds can incur many of the same costs as an ETF, including a MER which is usually higher since mutual funds typically carry operating expenses on top of management fees and sales taxes. At the same time, mutual fund transactions rarely carry transaction/commission fees.


An index fund is a mutual fund that's built to follow and attempt to match a specific market index. But there are also ETFs designed to follow an index. So, which one is better? There are advantages and disadvantages to both. For example:

  1. ETFs are more flexible—because they're traded during the day, like a stock. The price is determined at the time you buy or sell

  2. Index mutual funds are bought and sold when the markets close—and the price is determined then

  3. Brokerages may offer zero trade commission options on some ETFs which may mean, but not always, lower costs than an index mutual fund

  4. Index mutual funds typically do not have a transaction or commission fees, however they may have early redemption fees or potentially higher management fees when compared to ETFs

  5. ETFs can be considered more tax efficient compared to traditional Mutual Funds. More information on how ETFs are taxed


When you pick your own stocks to build a portfolio—or add to an existing one—you're committing yourself to a single company's growth and success. You do the research and make the decision that buying a specific stock is a good investment—for a variety of reasons that make sense to you.

When you buy an ETF, you buy a bundle of stocks (a portfolio) that have been preselected by a portfolio manager. While you have less control over which securities are in that ETF, you can determine whether it's aligned with what you're looking for configured by industry, sector or otherwise.


The advantages of dividend investing

Some ETFs will track an index that emphasizes holding investments that pay dividends. These dividend ETFs are designed to provide investors with a regular income stream.

A dividend ETF can:

  • add diversification
  • minimize risk
  • hedge against inflation

Dividend ETFs to choose from:

  • Canadian dividend
  • U.S. Dividend
  • Global Dividend

Before choosing an ETF that may also offer dividends, be sure and research its performance history, holdings and fees, because its value will fluctuate with the market.


ETF pricing: clear and simple

It's the service, support, and overall experience of investing with us that defines the value for you.

  • Standard: $9.99 flat rate to buy or sell

    Canadian & U.S. stocks standard online commission rate.

  • Active trader: $7.00 flat rate

    150+ trades / quarter on Canadian & U.S. stocks, + $1.25 per contract for Canadian & U.S. options

  • What you get:

    • Real-time market data and quotes for the Canadian and U.S. markets
    • Exclusive research reports
    • Education resources that are online and on-demand

Start investing in ETFs with TD Direct Investing

  • 1

    Open an account

    Select the TD Direct Investing account you want to open online or book an appointment.

  • 2

    Fund your account

    Transfer funds into your account with the online bill payment or funds transfer feature – or set up recurring deposits. Moving investments from another brokerage? Ask about how we could cover the transfer fees up to $1502.

  • 3

    Start investing toward your goals

    Build your portfolio using ETFs, stocks, options, mutual funds, GICs and more.

Explore other investment types


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