Differences between ETFs and Traditional Mutual Funds
- ETFs offer many of the advantages of index mutual funds, such as the ability to obtain exposure to broadly diversified asset classes through a single trade, combined with additional advantages that come from a fund that trades like a stock on an exchange.
- ETFs can be a very cost-effective way to build a diversified portfolio.
- There are a wide variety of ETFs out there, covering many sectors, asset classes and market capitalization.
- Because of lower asset turnover ETFs tend to be more cost- and tax-efficient than traditional mutual funds.
|Exchange Traded Funds(ETFs)||Traditional Mutual Funds|
|Pricing||Throughout the trading day||Once per day using closing prices for fund net asset value|
|Short selling||Yes – investors can hold long or short positions||No – long positions only|
|Limit and Stop Orders||Yes – investors can request their own price to execute any trade, however, there are no execution guarantees||No – the only price available is the net asset value (NAV) per unit|
|Good-til Orders||Yes – at Disnat and Disnat Direct, investors can leave an order open for
up to 30 days
|No – any order entered will be traded on that day (or the next business day, if markets are closed).|
|Cost (MERs)||Low – MERs are typically under 1%||Varies – MERs are typically between 1.5% and 3%|
|Portfolio turnover||Very low (leading to lower taxable distributions)||Varies according to manager style (high turnover leads to high taxable distributions)|
|Marginable (ability to leverage)||Yes – standard security margin rules apply||Yes – maximum loan value of 50%|
|Disclosure of portfolio holdings||High – holdings disclosed daily for most ETFs||Low – holdings typically disclosed semi-annually|
Source: Barclays Global Investors Canada Limited. Used with permission. Adapted for use by Desjardins Online Brokerage.