When you invest in an ETFAn exchange-traded fund (ETF) is an investment fund whose securities are traded on an exchange like shares.
These funds generally track a benchmark index. Unlike a mutual fund manager, an ETF manager does not seek to maximize the fund’s return but only to follow an index; this explains the typically lower management fees for ETFs. 
, you buy units of the ETF. The ETF units are traded on a stock exchange, just like shares.

You can also read the ETF Facts before investing by:

Warning

Starting on December 10, 2018, your dealer will be required to deliver the ETF Facts to you no later than midnight on the second business day after you enter into a purchase of ETF units.

End of the warning

Here is a sample Fund Facts that will be given to you. To view a specific section, click on the image to enlarge it.

First page : « Quick facts », « What does the ETF invest in? » and « How risky is it? »

1- Quick facts section

This section includes information such as the start date and the total size of the fund, as well as the ETF’s management expense ratioThe management expense ratio, or MER, corresponds to the management and operating expenses as a percentage of the total value of the fund.
These expenses are deducted directly from the fund’s earnings, decreasing its returns. 
(MER). This ratio is a combination of an ETF’s management feesManagement fees and operating expenses are the total fees paid by an investment fund.
Management fees are used to pay the fund manager, and expenses relating to administration, portfolio management, marketing and commissions for the representatives who sell you the funds.
A fund’s operating expenses include auditors’ fees, legal fees, bank fees, the cost of preparing and distributing the prospectus, etc.  
and operating expenses (see the How much does it cost? section for more information).

The Fund manager directs the business and operations of the fund, including fund accounting, administration and promotion.

The portfolio manager makes investment decisions and manages the ETF’s investment portfolio.

If the ETF makes money, it may make payments, called “distributions” to investors.

Distributions can take three forms:

  • interest
  • dividends
  • capital gains

The ETF Facts document tells you how often distributions are made. Distributions may be included in your taxable income if you hold your ETF in a non-registered account. Talk to your investment dealer representative about it.

Distributions are not guaranteed. 

2- Trading information and pricing information sections

These sections provide information about the stock exchangeAn exchange, such as a stock exchange, is a market where investors can buy and sell securities, including shares and options.
In order for a company to be listed on an exchange, it must meet certain criteria and regulations, relating to accounting practices and information for shareholders, for example. 
where the ETF is traded, the ticker symbol (in the form of an abbreviation) used to identify it and the currency in which it is traded.

You will also find quick information about the price of the ETF units (see the Trading ETFs section for more information). The average bid-ask spread is the difference between the price that a buyer is willing to pay and the price that a seller is willing to accept.

3- « What does the ETF invest in? » section

This section provides a snapshot of how the ETF’s investments are allocated. It may also specify the index it is attempting to replicate.

This section shows the ETF’s top 10 investments and the investment mix of the ETF’s investment portfolio. This information gives you a sense of how diversified the ETF is. Depending on the type of ETF, investments may be broken down by industry, asset class or geographic location.

4- « How risky is it? »section

Warning

All investments have a risk rating ranging from low to high. An ETF with a low risk rating can still lose money. ETFs do not provide any guarantees of future performance. You may not get back the money you invested. 

End of the warning

An ETF’s risk rating can change over time. It’s important to understand the risks and circumstances that could affect the ETF’s performance so that you can choose an ETF that is suitable for you. Additional information about the risk rating and risk factors is included in the ETF’s prospectus.

 

 

Second page : « Return », « Trading ETFs» and «Who is this ETF for?»

5- « How has the ETF performed? » section

This section shows how the ETF’s units have performed in each of the past 10 years (or in each of the years that have elapsed since the ETF’s start date, if the fund is less than 10 years old). How a fund has performed in the past does not tell you how it will perform in the future, but the change from year to year can help you assess how risky the ETF has been in the past.

It also shows the best and worst returns for units of the ETF in a three-month period over the past 10 years (or since the ETF’s start date, if the fund is less than 10 years old) and the average return assuming you invested $1,000 in units of the ETF over a maximum of 10 years (or over the number of years that have elapsed since the ETF’s start date).

6- « Trading ETFs » section

This section explains how ETF units are traded and includes information about pricing and orders. ETFs have two sets of prices: market price and net asset value. ETF units are bought and sold on exchanges at the market price. The market price can change throughout the day. Factors like supply, demand and changes in the value of an ETF’s investments can affect the market price.

Net asset value is the value of one ETF unit after the close of a trading day.

Other expressions are also explained in this section, including:

Market order: lets buy or sell units at the current market price.

Limit order: lets you set the price at which you are willing to buy or sell units.

7- « Who is this ETF for? » section

This section shows the types of investors for whom an ETF may or may not be suitable. You and your representative should evaluate the ETF’s investments, performance and associated risks to determine whether the ETF is in line with your investor profile.

Third page : « Costs » and « Expenses »

8- « How much does it cost? » section

This section shows the fees and expenses you could pay to buy, own and sell units of the ETF.

For example, you may have to pay your brokerage firm a commission every time you buy or sell ETF units.

9- « ETF expenses » section

The ETF pays management fees and operating expensesManagement fees and operating expenses are the total fees paid by an investment fund.
Management fees are used to pay the fund manager, and expenses relating to administration, portfolio management, marketing and commissions for the representatives who sell you the funds.
A fund’s operating expenses include auditors’ fees, legal fees, bank fees, the cost of preparing and distributing the prospectus, etc.  
.

Management fees are used to pay the ETF manager, the portfolio manager and the trailing commission. Many ETFs do not charge trailing commissionsThe trailing commission is a commission paid out of a mutual fund’s management fees. It is calculated based on the value of the investment. It covers the services and advice that the representative provides to investors who have units in the fund..

An ETF’s operating expenses include auditors’ fees, legal fees, bank fees and the cost of preparing and distributing the prospectus. Although you don’t pay the management fees and operating expenses directly, they affect you because they reduce the ETF’s returns.

The management expense ratioThe management expense ratio, or MER, corresponds to the management and operating expenses as a percentage of the total value of the fund.
These expenses are deducted directly from the fund’s earnings, decreasing its returns. 
(MER) and the trading expense ratioThe trading expense ratio, or TER, is the percentage that the fund’s trading expenses represent with respect to the fund’s total value. are expressed as an annual percentage of the ETF’s total value.

You can compare an ETF’s fees with those of a similar ETF. However, don’t only compare fees and expenses: make sure the ETF you are being offered suits your investor profile.