Benefits of ETFs
Investors get access to both core ETFs that track broad indices such as the S&P 500 and more focused ETFs that track market sectors and industries.
ETFs provide intraday liquidity through buying and selling during the trading hours of the stock exchange.
ETFs offer potentially lower risk than individual securities.
Investors have access to the price of an ETF and the portfolio composition at any time during regular market trading hours.
Generally management fees for ETFs are lower than many other investment solutions. This means more of your money is working for you over the long term.
ETFs provide the potential for relatively lower capital gains tax liabilities than other investment products.
How They Work?
ETFs can be bought and sold at any point throughout the trading day through your advisor or trading platform.
The purpose of an indexed ETF is to track as closely as possible the return of a specific market benchmark or index. Deviation from the benchmark return, known as a tracking error, can occur for several reasons:
- Fund Trading Costs. However, since the underwriters deliver, or take possession of, the underlying securities during subscriptions and redemptions, ETFs lessen the need for the Fund Manager to trade securities on the exchange. Therefore, trading and commission costs are kept to a minimum.
- 'Cash drag' (the result of an un-invested portion of a portfolio's net assets). ETFs will seek to minimize cash drag by reinvesting the proceeds or providing income distributions to investors.