Canadian Securities Course (CSC) Level 2 Practice Exam

What is a characteristic of Standard Exchange Traded Funds (ETFs) that differentiate them from other types?

1. Low MER

2. High turnover

3. Indexed-based tax efficiency

4. Use of leverage

The correct answer is: Low MER

Low Management Expense Ratios (MER) are indeed a key characteristic that differentiate Standard Exchange Traded Funds (ETFs) from other investment vehicles, particularly mutual funds. Standard ETFs typically have lower operating costs due to their passive management strategy, which tracks an index rather than actively selecting securities. This passive approach requires fewer resources and less frequent trading, translating to lower fees for investors. While other characteristics like indexed-based tax efficiency also apply to ETFs, the primary distinguishing feature is often the low MER, which makes them an attractive option for cost-conscious investors looking to keep their overall investment expenses minimal. This cost advantage is important as it can significantly enhance long-term investment returns. High turnover and the use of leverage, while applicable to some funds, are not defining features of Standard ETFs.