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Demystify exchange-traded funds
We’ve been hearing a lot about exchange-traded funds over the last few years. While the comparisons with mutual funds are numerous and relevant, they are often misconstrued.
1 Mutual funds pool money from investors, which is then invested by a manager in different types of investment vehicles based on the fund’s objectives. In exchange for their money, investors in a fund receive units that give them an ownership right to a portion of the mutual fund.
2Passive or index management seeks to track the performance of a benchmark market.
3Active management seeks to outperform the managed portfolio’s benchmark market.
4 Source: Autorité des marchés financiers
5 A tracking error is the standard deviation between the returns of a portfolio and those of its benchmark index.
6 Financial operations that seek to ensure zero or positive gain by taking advantage of temporary price discrepancies between different securities or contracts.
7Brokerage fees refer to the fees charged by a financial organization acting as a broker when establishing a relationship, concluding a transaction or providing services.
8 Difference between the bid price and ask price of an asset on the market. This spread allows the market maker to get paid and indicates the liquidity of a security (the larger the spread, the less liquid a stock will be).
9 Series A: Funds series with advisory services - This series or class of a fund is offered with advice.
Series F: Load series - This series or class of a fund is offered to investors who have entered into a fee payment agreement with their advisor.
Series O: No-load series – This series requires a high minimum investment and is offered to individuals and institutional investors, as well as brokers who have concluded a security purchase agreement with the fund company. Series O unitholders pay the negotiated fees directly or indirectly to the fund company.
Series D: Reduced-load series – This series or class is suitable for independent investors who purchase funds through discount brokers. When they sell series D units of a fund, these brokers usually earn a very low trailing commission, because the investor receives no advice.
10 A broker is a professional who manages transactions between his clients and financial institutions, insurance companies or the stock market. Companies or brokers involved in legal transactions with regard to mutual funds are registered as mutual fund brokers.
11 Discount brokerage firms are similar to mutual fund brokers, but they don’t provide advice.
12 Independent brokers are self-employed. They are not associated with a single bank or financial institution.
13 Compared to their reference universe in Canada, according to Fundata Canada Inc.
IIROC : Investment Industry Regulatory Organization of Canada.
MFDA : Mutual Fund Dealers Association of Canada.
This review has been prepared for the general information of our clients and does not constitute an offer or solicitation to buy or sell any securities, products or services and should not be construed as specific investment advice. All opinions and estimates expressed in this document are as of the time of its publication and are subject to change. The information contained in this document has been obtained from sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. The content of this presentation is the exclusive property of Gestion FÉRIQUE and should not be further distributed without prior consent of Gestion FÉRIQUE.