Exchange-traded funds

Exchange-Traded Funds (ETFs) provide an efficient and simple way for investors to buy and sell an entire basket of securities with a single transaction throughout the trading day. ETFs are built like an index fund, but trade like a stock. They are generally designed to track a specific index and offer investors the advantages of lower costs and improved tax efficiency over traditional, actively-managed mutual funds.

How do ETFs compare?	ETFs	Stocks	Index funds
Tax efficient
Low expenses
Low investment minimums
Intraday liquidity
Diversification
Fully invested			Possible
Portfolio transparency			Possible
Able to sell short
Able to buy on margin
Able to use limit and stop orders
Listed options available
Ease of dollar cost averaging

	Diversification – Owning an ETF allows investors to hold a basket of securities and have exposure across an entire index. Diversification primarily helps reduce volatility and also has the potential to enhance your returns.
	Low expenses – ETFs are index-based and not actively managed. Because of this, they are less likely to carry high management fees and usually have lower annual expense ratios.
	Tax efficiency – The ETF's structure allows it to substantially lessen and/or possibly eliminate capital gains distributions. The ETF's creation and redemption process allows some or all share activity to be facilitated through in-kind distribution transfers with institutional investors, preventing or reducing the amount of capital gains incurred by the fund as a result of shareholder trades. However, the ETF structure does not necessarily eliminate all capital gain distributions.
	Flexible – ETFs can be traded with the same flexibility as an individual stock allowing investors to place stop-limit orders, buy on margin, or sell short. Any of these transactions would make them subject to the same terms that would apply to individual common stocks.
	Transparency – ETF holdings are listed on a daily basis, whereas mutual funds generally release their holdings quarterly. The transparency of the ETF's portfolio allows investors to easily obtain or hedge exposure to a specific group of securities.
	Tradability – ETFs can be purchased or sold during any part of the trading day. Because ETFs are listed on an exchange, investors can obtain up-to-the-minute share prices from their broker or financial advisor and trade the relevant index as though it were one single stock.

You should consider a fund's investment objectives, risks, and charges and expenses carefully before investing. Contact your financial advisor or call First Trust Portfolios L.P. at 1-800-621-1675 to request a prospectus, which contains this and other information about a fund. Read it carefully before you invest.

Risk considerations
A fund's shares will change in value, and you could lose money by investing in a fund. An investment in a fund involves risks similar to those of investing in any fund of equity securities traded on exchanges. One of the principal risks of investing in a fund is market risk. Market risk is the risk that a particular stock owned by a fund, fund shares or stocks in general may fall in value.

You should anticipate that the value of the shares will decline, more or less, in correlation with any decline in the value of the index. A fund's return may not match the return of the index. A fund may not be fully invested at times. Securities held by a fund will generally not be bought or sold in response to market fluctuations and the securities may be issued by companies concentrated in a particular industry. A fund may invest in small capitalization and mid capitalization companies. Such companies may experience greater price volatility than larger, more established companies.

Investors buying or selling fund shares on the secondary market may incur brokerage commissions. Investors who sell fund shares may receive less than the share's net asset value. Unlike shares of open-end mutual funds, investors are generally not able to purchase ETF shares directly from the fund and individual ETF shares are not redeemable. However, specified large blocks of shares called "creation units" can be purchased from, or redeemed to, the fund.

The information contained in this document does not constitute tax advice. Please consult your tax advisor for specific information about your tax situation.