Exchange Traded Funds

A lower cost alternative to index funds, are Exchange Traded Funds. ETFs trade like a stock and other than the commission to buy and sell units, have a lower management fee than most index funds. We can purchase ETFs in your account at ScotiaMcLeod, for the passive portion of your portfolio. Interestingly, while many proponents of ETFs suggest that they should replace active fund managers, ETFs are less likely to be held long term. The turnover on QQQ in the US is over 3,500% a year!

Comparison	ETFs	Index Funds
Tax Efficient	Not always	Good
Min Investment	Roughly $5,000 (board lot of 100)	$50 in PAC plans
Dividend Reinvestment	No	Yes
Cost to Buy Sell	Brokerage Commission for both buy and sell	None on most funds available at ScotiaMcLeod
Trades	Minute by minute like a stock	At the end of the day
MER	.08 - .6%	.3% - 2.2%
RRSP Eligible 100% Foreign	Yes (2)	Yes (10)
Leverage	Can be bought on margin, sold short or bought at limit prices.	Can be bought on margin only to 50% loan value
Services	Stop Loss orders possible, No PAC or SWP plan	Convenient PAC and SWP plans, no stop loss orders
Availability in your ScotiaMcLeod account	100 ETFs and growing, including all US ETFs	40 Index Funds and growing

Popular - ETFs

See below for a list of popular ETFs available from Canada and the major US markets.

ETF (ticker-exchange)	Covers	Foreign/ Domestic	Issuer	MER
XIU-TSE	TSE S&P 60	Domestic	iUnits / Barclay's Global Investors	.17
TTF-TSE	TSE 300	Domestic	TD Canada Trust	.25
IVV-Amex	S&P 500	Foreign	iShares	.09
SPY-Amex	S&P 500 (Spider) Depositary Receipt	Foreign	Amex	.12
QQQ-Amex	NASDAQ 500	Foreign	NASDAQ	.20
DIA-Amex	Dow Jones 30	Foreign	Amex	.18
XIN-TSE	MSCI International Equity Index RSP Fund (fund tracks MSCI's Europe Australia Asia and Far East Index)	Domestic	iUnits / Barclay's Global Investors	.35
XSP-TSE	S&P 500	Domestic	iUnits / Barclay's Global Investors	.30

Overall, ETFs and Index funds are cost effective, and can provide reasonable exposure to the equity markets. In strong up markets they will outperform the majority of active fund managers. Their higher volatility however should make investors think before allocating large portions to a specific unit. The sector specific ETFs should be avoided. ETFs and index funds should never form 100% of a portfolio.

"In theory, there is no difference between practice and theory. But in practice, there is." Jan L.A. van de Spepscheut

In theory ETFs and Index funds should be simple, but in practice, it might be a bit more complicated.