ETFs: A core part of your success

Due to the way ETFs are constructed and managed, they lend themselves to being a core part of a portfolio. What does it mean when we refer to the ‘core’ of your portfolio or ‘core’ holdings in a portfolio? To better understand this concept, let’s consider the idea of ‘core’ from a health and exercise perspective.

Building a better core

When you exercise, you often work to have a strong core by incorporating core exercises into your routine. Core, in this instance, refers predominantly to abdominal and back muscles. That’s because strong core muscles make it easier to perform other activities. In short, a strong core can lead to greater overall performance.

Core investing

This idea is equally relevant when it comes to a portfolio. To build an optimal portfolio, it’s important to focus first on the core. What are the key attributes of core holdings? Typically three things: low cost, tax efficiency and diversification.

It’s worth noting that these three attributes also happen to be key benefits of ETFs:

Low cost. This is perhaps the most well-documented benefit of investing in ETFs. Many ETFs tend to have low operating costs and in turn, those lower fees can translate directly into greater savings and growth potential for investors over the long term.

Tax efficiency. ETFs also offer some notable tax benefits, particularly as it relates to capital gains. Due to their more passive approach to investing, there tends to be less turnover of securities within an ETF, resulting in less frequent triggering of Capital Gains and the potential for lower capital gains distributions at year-end.

Diversification. The vast selection of ETFs currently available affords investors the opportunity to diversify and broaden exposure to various markets. This diversification may help to smooth out returns and minimize volatility over the long term.

Commissions, management fees and expenses all may be associated with exchange traded funds (ETFs). Investment objectives, risks, fees, expenses and other important information are contained in the prospectus, please read it before investing. ETFs are not guaranteed, their values change frequently and past performance may not be repeated.

Manulife ETFs are managed by Manulife Investments, a division of Manulife Asset Management Limited.

Read more about ETF and Investing