If you invest in an exchange-traded fund, you should have a better idea of exactly what it is by next month. The Canadian Securities Administrators has set Dec. 10 as the deadline for ETF dealers to deliver a disclosure document called “ETF Facts”.
Investors are expected to receive an easy-to-understand summary of the potential benefits, risks, and costs associated with investing in an ETF. The document is also expected to include information about the product’s trading and pricing characteristics.
InvestorCOM, the firm tasked with delivering the document, says the new disclosure measures will give ETF investors three key advantages:
1.An easy-to-understand document when reviewing investments or portfolio changes.
2. Knowledge of exactly what the funds invest in, their risk and how they trade.
3. Identification of the fees and expenses you could pay to buy, own and sell units of the ETF.
ETFs are investment products that can seem simple and transparent on the surface, but are actually quite complicated. Many investors understand that a basic ETF tracks an index. As an example, S&P 500 ETFs generally track the 500 companies in the index according to their market weighting. When the S&P 500 goes up, the ETF goes up. When the S&P 500 goes down, the ETF goes down.
However, ETFs actually hold derivatives of the underlying companies in the index and changes in price and weightings aren’t precise. Many ETFs are also leveraged to mimic their corresponding indices more accurately.
As ETFs have evolved over the past three decades, offerings have become increasingly complicated – crossing the line between passive and active funds. Investors will now have one more tool to make informed decisions.
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