An Exchange-Traded Fund, or ETF for short, are securities that trade on a stock exchange and are often designed to track another asset such as a stock index, commodity or even a currency. Since the launch of the first ETF in 1990, the market has grown to exceed US $4.4 trillion in assets as of the end of October 2017 (Source: ETFGI.com).
There are many reasons that explain the growth in ETF usage, however, a handful of them are directly applicable to how LINK manages workplace savings plans:
Lower Fees – All the ETFs that LINK uses in our portfolios are index-tracking in nature and follow a passive investment strategy…by passive we essentially mean “buy and hold”. Following this type of strategy reduces trading and employment costs as the ETF is not trying to outperform an index…they are representative OF the index.
“One Stop Shop” – The S&P 500 Index contains 500 different companies and it is not realistic for an investor to buy shares in 500 different companies. Purchasing an ETF that tracks the S&P 500 gives that investor exposure to 500 companies with a single investment.
Transparency – If an ETF seeks to track the performance the S&P/TSX Index, there won’t be any surprises if an investor were to “look under the hood” per say. An actively managed Canadian Equity fund can, and will often, hold foreign investments or cash as part of their portfolio.
Liquidity – Every trading day, ETFs can be bought and sold when an investor chooses to do so. Mutual Funds trade at the closing price at the end of a trading day regardless of when a buy or sell order was entered.
The portfolios in LINK’s corporate retirement offerings use only index-tracking ETFs, enabling us to provide employers and their employees with low cost, transparent and liquid investment solutions.
Notes on risk: All investing is subject to risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or protect against losses in a declining market. There is no guarantee that any given asset allocation or mix of securities will meet your investment objectives or provide you with a given level of income.
