ETF or FNB: what exactly is it?

ETF or FNB — A fund that trades on a stock exchange

An ETF, or exchange-traded fund, is a fund traded on a stock exchange. In French, the abbreviation FNB stands for “Fonds Négocié en Bourse.” Both terms refer to the same category of product. You buy shares or units of the fund through a broker.

Depending on its mandate, the fund holds stocks, bonds or other assets. Some strategies also provide exposure to commodities, for example through physical holdings or derivatives, depending on the product. These methods carry different risks and should be understood before buying. Owning a fund share gives you economic exposure to its portfolio; you are not directly buying a separate share of every company it contains.

One format, several strategies

Some ETFs seek to track an index, such as a group of stocks in a market. Others use active management. An ETF can be broadly diversified, concentrated in one sector or built around a complex strategy.

You therefore need to look beyond the label. “Buying an ETF or FNB” does not yet tell you what risk you are taking. A global equity fund and a short-term bond fund do not perform the same function.

Imagine two baskets: the first contains companies from several countries and sectors; the second focuses on a single industry. Both can be ETFs, but their diversification differs significantly.

What to read before buying

Identify the mandate, main holdings, geographic allocation, fees and risks. In Canada, the ETF Facts document and prospectus are useful starting points. Also check the trading currency and your broker’s fees.

The share price can fluctuate during the trading session. It is not guaranteed, and distributions do not promise a positive total return. A fund that is easy to buy is not necessarily easy to understand.

Do this today

Open an ETF’s information sheet and write one sentence explaining what it holds. If you cannot, keep reading before investing.

CONTINUE LEARNING

Discover Investir avec les ETF — Guide du débutant, by Benito Macean — Mendiaroos Ventures.

Editorial :  Investir avec les ETF — Guide du débutant

Source: Investor.gov — Updated Investor Bulletin on ETFs.

General educational content; an ETF can lose value. No personalized advice is provided.