WHAT IS AN ETF?

ETFs, or Exchange Traded Funds, are a basket of securities such as stocks or bonds that are held in a single fund. Over the last 20 years, ETFs have become popular because they provide investors with a simple method of investing into a wide variety of markets at a relatively low cost.

ETFs VERSUS MUTUAL FUNDS

ETFs share similarities with mutual funds, but they also have several key differences.

Similarities

  • Diversification: In a single fund, investors have the opportunity to own a diversified portfolio of stocks or bonds, which can help reduce overall risk compared to owning an individual security.
  • Professional Management: Both mutual funds and ETFs are managed by a portfolio manager who buys and sells securities for the portfolio.

Differences:

  • Ability to Trade: Similar to stocks, an investor has the ability to buy or sell an ETF at any time the market is open and through a brokerage account. Investors have the option to place a number of order types from limit orders, stop-loss orders and buying on margin. Mutual funds shares are purchased and sold once a day, after the market is closed..
  • Cost: The cost to trade an ETF is comprised of brokerage transaction fees, with some brokerages offering free commissions on certain ETFs. In addition, the management fees for ETFs are generally lower compared to mutual funds because ETFs are typically traded on the secondary market like stocks and bonds, which keeps operational expenses down.
  • Investment Minimums: ETFs typically have much lower investment minimums when compared to mutual funds.
  • Transparency: ETFs typically provide a full listing of all the portfolio’s holdings on a daily basis, allowing investors to know exactly what securities they own. Mutual funds typically post holdings on a quarterly basis and 30 days after the quarter end period.

Once investors have identified their goals, ETFs can be used on their own or with other types of investments as the building blocks of a diversified portfolio.

TYPES OF ETFS FROM FRANKLIN TEMPLETON

Franklin Templeton offers a variety of equity, fixed income and balanced ETFs that can be used as core and tactical building blocks in a diversified portfolio.

Smart Beta

Smart Beta ETFs track an underlying index which uses a rules-based approach to determine which stocks are included in an index. Smart Beta ETFs offer transparency, diversification and low cost—with an index methodology grounded in research-based insights that seeks to achieve a specific goal, such as strong risk-adjusted returns, consistent performance, income or low volatility.

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Active

An actively managed ETF is overseen by professional portfolio managers with a specific goal, such as outperforming a benchmark or achieving lower volatility than a benchmark. Since active managers are not required to follow a specific index, they may make changes to the fund’s allocation they deem appropriate based on changing market conditions. As a result, the return may be higher or lower than the return on the benchmark. Expense ratios of actively managed funds tend to be higher than passive ETFs but lower than traditional mutual funds.

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Featured ETFs

Franklin Templeton offers ETFs that track a variety of asset classes, including equity and fixed income.

EXPLORE OUR FULL SUITE OF ETFS

How do I invest in ETFs?

Talk with your financial advisor about adding a LibertyShares ETF to your portfolio or purchase an ETF directly through an online brokerage account.