Exchange traded funds (ETFs) are investment funds that are listed and traded on a stock exchange. The investors’ money is pooled with money from other investors and invested according to the ETF’s stated investment objective.

 

An Exchange Traded Funds (ETF) is an easy-to-use way of investing in a portfolio.  One way to understand how ETF’s work is to think of something familiar like a traditional mutual fund. Both represent professionally managed “baskets” of individual securities, such as stocks or bonds – that provides the investor with a convenient way to invest in a theme, asset class or in virtually every corner of the market.

The big difference between an ETF and a Mutual Fund is that an ETF trades on an exchange (ie: Toronto Stock Exchange) and the value of each unit is calculated throughout the day in real time — whereas with mutual funds, the value of each unit its calculated at the end of each trading day.  In other words, when you buy or sell a mutual fund, you are transacting directly with the fund, whereas with ETFs (or stocks), you are trading on the secondary market (the stock exchange) and the price fluctuates continuously throughout the day.  The bid is the price you are willing to pay for your shares of that ETF and the ask is the price you are willing to sell those shares.

The ability to buy and sell on the exchange with real-time pricing is one of the reasons investors like ETFs.

How do I buy and sell an ETF?

ETFs, including Harvest Portfolio ETF’s, are listed on the Toronto Stock Exchange (TSX). They have ticker symbols like stocks and are traded like stocks. They have no minimum investment amounts. Investors can buy or sell ETFs through their financial advisor or a brokerage account.

What about the liquidity of ETFs?

ETFs are as liquid as the underlying securities they hold. If the underlying stocks are easy to buy or sell, so is the ETF.

Are there currency risks associated with ETFs?

If you hold international securities in an ETF, you are impacted by the movements of those currencies. Some Harvest ETF’s hold stocks that are bought in a foreign currency. They include U.S. dollars, Euros or pounds sterling. The movement of these currencies against the Canadian dollar can affect total return.

Harvest uses a hedging strategy to reduce the impact of these fluctuations. This gives Canadian investors the return in Canadian dollar terms, or in other words, the return that approximates the return of the local market.

Good to know

  • ETFs can hold assets such as stocks, commodities, REITS, bonds or blends
  • ETFs can be domestic or global, broadly diversified or sector specific
  • An equity ETF’s can hold hundreds of companies under one fund
  • ETFs can track and index (passive) or be actively managed.
    • A passive ETF provides investors with a single security that tracks a particular index.
    • An active ETF has a manager or team making decisions on the underlying portfolio allocation.  There are defined rules and processes, but the manager has the flexibility to make changes to adapt to market conditions, in a way that is potentially more beneficial to the portfolio returns or to meet the performance goals.

 

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The above is for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase any Harvest Portfolios Group Inc. managed investment fund and is not intended to provide specific financial, investment, tax, legal or accounting advice, and should not be relied upon in that regard. Investors should seek the advice of investment professionals, as appropriate, regarding any particular investment and/or trading strategy, which should be evaluated relative to each individual’s circumstances, as these investments may not be suitable for all investors.

Commissions, management fees and expenses all may be associated with investing in Harvest Exchange Traded Funds (managed by Harvest Portfolios Group Inc.). Please read the relevant prospectus before investing. The funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are paid to you in cash unless you request, pursuant to your participation in a distribution reinvestment plan, that they be reinvested into Class A or Class U units (if available) of the Fund. If the Fund earns less than the amounts distributed, the difference is a return of capital.

 

Download in PDF format: What is an ETF