Comparing ETFs to Managed Funds

Exchange traded funds (ETFs) combine features of managed funds and stocks. While ETFs share some features with managed funds, there are some key structural differences that can affect your investment exposure and tax consequences:

Strategy

All funds actively buy and sell investments in order to meet their objectives. Both "active" and "passive" funds have managers responsible for investment choices.

Index ETFs and Index Managed Funds Active Managed Funds
Index managed funds and most ETFs are passively managed. Index funds seek to match the fund's performance to a specific market index before fees and expenses. Active managed funds seek to provide performance in excess of market returns or the cash rate.
The fund's index benchmark is a standard against which the fund's performance is measured. One of dozens of indexes like the S&P 500 or the Russell 2000 can be used. Active managed funds generally have a more latitude in choosing investments than index fund managers do.

Trading

One difference between ETFs and managed funds is in the way the fund itself is traded.

Managed funds are bought and sold directly from the managed fund company at the current day’s closing price, the NAV (Net Asset Value) calculated for the fund at the end of the day. ETFs are traded throughout the day at the current market price, like a stock, and may cost more or less than NAV.

Managed fund transactions do not include commissions to a brokerage, while some ETF transactions do.

Fees

In all funds, there are two types of fees to watch: transaction fees and the fees included in the fund’s expense ratio.

In managed funds, transaction fees may include sales loads (or sales charges) or redemption fees. These are paid directly by investors.

* Infront  of the disclaimer at the end of the page, so it's recognised as a reference point.
ETFs may be comparatively more liquid than single securities as ETFs are open ended, and can be created and redeemed daily. This allows ETFs to rely on the liquidity of the underlying basket when on-exchange volume is insufficient to accommodate a purchase or sale.

This website provides general information only and has not been prepared having regard to your objectives, financial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs.