Macquarie ETFs

Like a mutual fund, an exchange-traded fund (ETF) is a type of pooled investment vehicle comprising of a portfolio of securities that can offer access to a variety of investment strategies. Unlike mutual funds, they can be purchased or sold on a stock exchange just like a regular stock.

There are several, but you’ll probably hear most often about the following:

• Tax efficiency: The ETF vehicle has a natural mechanism that can enhance the tax efficiency of a portfolio. Securities can be redeemed in-kind (i.e. securities are traded for other securities), which allows portfolio managers to remove securities with gains in the portfolio. This does not remove the gains in the portfolio, but instead isolates the gains to the investors when they buy and sell at market price.
• Liquidity: ETFs can be traded continuously when the exchange is open, while mutual funds can only be bought or sold at the end of the day once net asset value (NAV) is determined.
• Lower costs: Generally, the fees associated with ETFs are lower because there are typically no distribution (e.g. 12b-1) or transfer agent fees.
• Transparency: Although not all ETFs are transparent, Macquarie ETFs in the US are, and they provide investors with daily disclosure of portfolio holdings.
• No transaction fee (NTF): Many ETFs can be accessed through platforms with no commission fees.

Investors purchase or sell mutual funds at the end of the day at NAV. However, investors can purchase or sell ETFs on an exchange at market price throughout the day. Investors may also purchase or sell fractional shares in a mutual fund, whereas ETFs typically do not offer this option.

Active and passive ETFs generally operate the same way. The main difference is that a passive ETF has an investment strategy that seeks to track an underlying index (such as the S&P 500^® Index). An active ETF seeks to outperform the benchmark, similar to an actively managed mutual fund.