ETF Education Center

ETF Basics

An exchange traded fund (ETF) is an investment fund that is priced and traded on an exchange throughout the day just like a stock. ETFs hold a basket of securities (stocks, commodities, or bonds), and most track an index. ETFs offer a multitude of potential benefits, including:

  • Transparency: most ETFs report exact holdings daily, so investors can verify that the ETF is closely tracking its benchmark.
  • Intra-Day Trading: Like stocks, ETFs trade throughout the day, so their price fluctuates with market supply and demand.
  • Lower Cost: Because ETFs do not have minimums, front-end loads, or redemption fees, they can offer significant cost savings.
  • Diversification: ETFs are designed to track market indexes that may contain hundreds or thousands of securities.
  • Stable Market & Risk Exposure: ETFs can provide much more stable market exposure than mutual funds, allowing CLS to minimize style drift.
  • Tax Efficiency: ETFs typically distribute fewer capital gains to shareholders than traditional mutual funds.

Advanced ETF Topics

Smart Beta ETFs

Smart beta ETFs are ETFs whose holdings aim to intentionally diverge from a broad market cap weighted index. Smart beta ETFs mimic commonly known investment strategies or risk factors pursued by institutional active managers. They offer a set of institutional-quality tools for managing Risk-Budgeted portfolios.

Factors & Factor Based Investing

Factor based investing is an important subset of the smart beta universe. Factors are broad, persistent drivers of returns (and risks). For example, the seven we tend to emphasize the most in our investment decision-making at CLS are: value, momentum, quality, minimum volatility, size, credit, and duration. You can read more about factor based investing in our white paper.