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The price of an ETF reflects the changing value of its underlying securities and the supply and demand of the ETF in the marketplace. The difference between an ETF and an actively managed fund is that the price of a managed fund, which similarly reflects the value of its underlying securities, is fixed once a day and only after the market closes, while ETF pricing changes throughout the day in real time. This doesn’t mean that ETFs are more volatile – their price changes are just more visible.
Just like a managed fund, the risk profile of an ETF is tied to its underlying holdings, or the assets it invests in: so a managed fund and ETF that hold similar stocks or bonds will have similar risk profiles. But that risk is not related to whether you choose to hold a managed fund or an ETF.
On the flip side, an ETF offers greater diversification than an individual stock, which may help reduce risk in a portfolio1.
ETFs come in virtually any “flavour” you can think of. They offer low-cost access to specific markets (e.g., a country or industry), and to broad exposures (e.g. ASX, Hang Seng, STI or the U.S. bond market). This, combined with the ease and speed with which they can usually be bought and sold, means that investors can access investments that may otherwise be out of reach.
So whether it’s hard-to-access foreign markets, core building blocks for your portfolio, or funds that target specific outcomes, there’s an ETF that can help.
The hunt for income in the low interest rate environment can be challenging. But whether it’s through dividend-paying stocks or fixed income exposures, ETFs offer investors a broad range of opportunities to potentially generate income. And with ETFs, you get the added benefit of greater diversification than an individual stock or bond, all typically at a lower cost than a managed fund.
Because ETFs have the same trading flexibility as stocks, short-term traders can use ETFs to quickly move in and out of a position. But ETFs are also a cost-efficient way to build a long-term, core portfolio. In fact, almost 80% of ETF investors view them as long-term holdings with an average holding period of nearly 6 years2.
1 Diversification does not fully protect you from market risk and does not guarantee returns or eliminate potential for loss.
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