Additional definitions

Passive investment strategy: An investment approach aiming to closely match the returns of an index or other benchmark. A passive investor generally takes a position that doesn’t seek to outperform a benchmark or an index, but rather exactly mirror it. A passive investor would, for example, seek to track the performance of the entire Canadian stock market.

Active Investing: An active strategy aims to adapt to fluctuating market conditions rather than perfectly reproducing a broad index. Different types of ETFs can be included in an active strategy; pure active-investing ETFs that may use a portfolio manager to choose which stocks to include in the fund portfolio or Smart-beta ETFs that may use a rules-based, systematic approach to selecting stocks.

Index: A market index is a hypothetical portfolio of investment holdings, which represents a segment of the financial market. Investors use indexes as a basis for portfolio or passive index investing. For example, the S&P/TSX Composite Index is the benchmark Canadian index, representing roughly 70% of the total market capitalization on the Toronto Stock Exchange (TSX) with about 250 companies included in it.

Diversification: Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. The rationale behind this technique is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding or security. Because ETFs typically try to replicate a particular index, they can provide exceptional diversification for an investor looking to gain exposure to a particular area of the market.

Fixed-income ETF: Fixed income ETFs generally seek to track underlying indices composed of individual bonds. Like equity ETFs, they trade on stock exchanges. Government and corporate bonds are the most common types of fixed-income products.

Equity ETF: Equity ETFs generally seek to track underlying indices composed of individual stocks. Like fixed-income ETFs, they trade on stock exchanges.

Alternative investments: Alternative investment solutions generally include financial assets that do not fall into one of the conventional investment categories. Conventional categories include stocks, bonds, and cash. Alternative ETFs therefore provide diversification and risk management.

Management expense ratio (MER): The Management Expense Ratio (MER) represents the combined total of the management fee, operating expenses and taxes charged to a fund during a given year, expressed as a percentage of a fund's average net assets for that year. In general, ETFs tend to have much lower MERs compared to mutual funds.

Holdings: Holdings are the contents of an investment portfolio held by an individual or entity, such as a mutual fund or an ETF. The number and types of holdings within a portfolio contribute to the degree of its diversification. A mix of stocks across different sectors, bonds of different maturities and other investments would suggest a well-diversified portfolio, while concentrated holdings in a handful of stocks within a single sector indicates a portfolio with very limited diversification.

Distribution yield: A distribution yield is the measurement of cash flow paid by an exchange-traded fund (ETF), real estate investment trust, or another type of income-paying vehicle. Distribution yields generally provide a snapshot of income payments for investors.