While sophisticated, affluent investors like the typical MoneySense reader are well aware of the benefits of exchange-traded funds (ETFs), they’re still relatively unknown to most Canadian investors, according to a study being released today by the BMO Wealth Institute. While 55% know about mutual funds and 58% are familiar with GICs (Guaranteed Investment Certificates), only 19% claim to be knowledgeable about ETFs, says BMO, which also sells ETFs through its BMO ETFs arm.
However, once the benefits of ETFs are explained to them properly, the percentage that would be interested in using them more than triples to 60%, BMO found. ETFs have been around 20 years so it’s not that surprising that many investors are still in the process of learning about them, BMO says. They’re particularly appropriate for accumulating retirement nest eggs, it adds.
Low fees, tax efficiency main draws
The two big attractions with ETFs are low management fees and tax efficiency, the report says. Both are functions of the passive nature of most ETFs, the vast majority of which track major stock indices like the TSX composite or S&P 500. Such a passive approach doesn’t require the costs of research and portfolio managers, while the resulting low portfolio turnover makes them especially tax-efficient outside tax shelters like RRSPs, RRIFs or TFSAs. They also share with mutual funds the benefit of providing access to diversified baskets of stocks, bonds or commodities, and providing access to both broad markets and more specialized regions, sectors or themes.
In partnership with another ETF firm, BlackRock Canada’s iShares unit, MoneySense is hosting an ETF learning event on Saturday, Nov. 16, with a presentation by editor-at-large Dan Bortolotti, recent winner of the CFA Society Toronto’s financial journalism award. More details and registration info is available here.
Read the full BMO report here.