Six Ways to Use Exchange-Traded Funds

27 June 2019 by National Bank
Exchange-Traded Funds

Looking for a versatile investment? Exchange-traded funds (ETFs) can aid you in many situations.

ETFs are baskets of securities that trade like stocks on an exchange. They usually track an index, but they can also be focused on other types of assets, such as currencies and commodities.

Here are six ways to use exchange-traded funds in your portfolio:

  1. Diversify your portfolio. Exchange-traded funds are perfect for diversification. They are easy to purchase and their management fees are lower than regular mutual funds and even index funds. ETFs can be used to invest in an asset class, a geographic region or a specific country, and even by management style such as growth, value or dividends. In addition, you will find ETFs that can help reduce the risk of your portfolio.

  2. Reduce the volatility of your portfolio. It is possible to reduce the risk associated with your portfolio without sacrificing returns. You’ll find on the market ETFs designed to reduce the volatility of a portfolio (low volatility ETFs) by investing more heavily in “defensive” sectors (consumer staples, utilities and health care).

  3. Liquidity of ETFs. The fact that most ETFs are highly liquid and can be traded throughout the day is a major advantage which mutual funds or guaranteed investment certificates (GICs) cannot match. Even bond ETFs allow clients to quickly sell their holdings without experiencing large fluctuations in their value. This is not the case with individual bonds (they are less liquid).

  4. Tax loss selling. In order for a tax loss to be valid, you must wait 30 days after selling a security before you can buy it back. If you do not wish to wait the required 30-day period, you can invest in an ETF that will allow you to maintain a position similar to the one you held. After 30 days, you can even sell your ETF to buy back the securities.

  5. Take advantage of alternative investments. Once only available to institutional investors and the wealthy, the average investor—even with a small account—can now gain access to this asset class with ETFs. Alternative investments can help investors improve their diversification, lower their portfolio’s volatility and smooth out its returns. Clients now have access to ETFs that invest in real estate, infrastructure, private equity or even Hedge fund ETFs.

  6. Socially Responsible Investing (SRI). One of the main reasons for the growth of ETFs is that their issuers have been at the forefront in terms of launching new and innovative products. ETF issuers have responded quickly to investor demand by tracking trends. One of the most important trends in recent years is ethical or responsible investing. Recently, several issuers have launched ETFs that adhere to environmental, social and governance (ESG) investment principles.

National Bank Direct Brokerage has an entire section dedicated to exchange-traded funds on its transactional site: the ETF Centre. The ETF filter tab allows you to search for ETFs using a variety of specific criteria. You can find funds that meet your exact needs. You will be able to discover all the possibilities offered by this tool under Quotes & Markets > ETF Centre > ETF Filter.

National Bank Direct Brokerage’s transactional site regularly provides you with documents prepared by leading experts in the field. You can read the ETF research reports issued by National Bank Financial. You can access these investment ideas under Research & Analysis > ETFs > NBF Research Reports on ETFs.

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