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What is an ETF?
Since launching our initial suite of ETFs, we’ve been meeting with financial professionals who are eager to learn more about the ETF vehicle and our new active transparent core ETFs. Below are some of their most frequently asked questions. Keep an eye on this page because we’ll continue to update it as new questions emerge.
Q: How do ETFs offer tax advantages?
A: The way ETFs are structured allows for two main sources of tax efficiency. First, individual ETF investors aren’t affected by selling activity within the fund and only realize capital gains when they sell their own ETF shares. The second source of tax efficiency stems from ETFs’ ability to satisfy redemption requests in the primary market, which allows ETF issuers to systematically push out low cost-basis stocks (the shares carrying the most unrealized capital gains) through normal redemption activity. In this way, ETF issuers can continually work to minimize or completely negate the potential for realizing capital gains in the ETF.
Q: Are the Capital Group ETF investment strategies the same as the American Funds® mutual funds?
A: Capital Group ETFs aren’t clones or conversions of popular retail American Funds mutual funds and have different investment strategies. While there may be some overlap of individual portfolio managers among the teams managing the ETFs and American Funds, the overall portfolio management teams are different and so the vehicles’ holdings (or weightings) will differ — even across investment strategies with similar investment objectives.
Financial professionals who are registered with us and have logged into their accounts can download a detailed view of which American Funds align with the investment objectives of our ETFs (RIAs should enter their Capital Group RIA Insider login credentials). If you haven’t registered with us, you may do so here.
Q: What are some best practices for trading ETFs?
A: There are several considerations that investors should keep in mind when trading ETFs to ensure an optimal execution experience, such as:
- Use limit orders, which allow investors to specify the price at which the order is executed and thereby allow for more control over pricing, instead of market orders (which are executed immediately, and at the current price).
- Avoid trading during the market open or close when pricing tends to be more volatile.
- For large orders, contact your internal block trading desk.
- Reach out to your Capital Group representative to help connect you with our ETF Capital Markets team for real-time market information and trading assistance. For more information on ETF Capital Markets, see this brochure (log-in to view).
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses.
This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Capital Group exchange-traded funds (ETFs) are actively managed and do not seek to replicate a specific index. ETF shares are bought and sold through an exchange at the then current market price, not net asset value (NAV), and are not individually redeemed from the fund. Shares may trade at a premium or discount to their NAV when traded on an exchange. Brokerage commissions will reduce returns. There can be no guarantee that an active market for ETFs will develop or be maintained, or that the ETF's listing will continue or remain unchanged.
All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.
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This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.