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.

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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.

Learn more

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.

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Important Legal Information

All investments involve risks, including possible loss of principal. For fixed income ETFs, bond prices, and thus an ETF's unit price, generally moves in the opposite direction of interest rates. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments; investments in emerging markets involve heightened risks related to the same factors. To the extent the ETF focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than an ETF that invests in a wider variety of countries, regions, industries, sectors or investments. Performance of the ETFs may vary significantly from the performance of an index, as a result of transactions costs, expenses and other factors. These and other risks are discussed in the ETF’s prospectus.

For more information on any ETFs, contact your financial advisor or download a prospectus or ETF Facts. Investors should carefully consider an ETF's investment objective and strategies, risks, sales charges and expenses before investing. The prospectus and ETF Facts contains this and other information. Please read the prospectus/ETF Facts carefully before investing.

ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETF’s net asset value. Brokerage commissions and ETF expenses will reduce returns.

Net Asset Value (NAV) represents an ETF’s per-unit value. The NAV per-unit is determined by dividing the total NAV of the ETF by the number of units outstanding. The ETF calculates the NAV per unit each business day as of 4 p.m. Eastern Time which normally coincides with the close of trading on the Toronto Stock Exchange (TSX). The ETF does not calculate the NAV on days the TSX is closed for trading. If the TSX has a scheduled early close or unscheduled early close, the ETF’s unit price would still be determined as of 4:00 p.m. Eastern Time.

ETF units may be bought or sold throughout the day at their market price on the exchange on which they are listed. However, there can be no guarantee that an active trading market for ETF units will develop or be maintained, or that their listing will continue or remain unchanged. While the units of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress.

The material for the Insights section reflects the analysis and opinions of the authors as of the stated date and may differ from the opinions of other portfolio managers, investment teams or platforms at Franklin Templeton Investments. It is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as of the date of this posting and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, security or strategy.

Statements of fact are from sources considered reliable, but no representation or warranty is made as to their completeness or accuracy.

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