At some point, “buy ETFs” became the default investing advice. And for good reason. Index-tracking ETFs democratized investing. They gave ordinary people access to diversified, low-cost portfolios that outperform most professional fund managers over the long run. The story of the ETF revolution is real, and it changed millions of lives for the better.

But somewhere along the way, the word “ETF” became a stamp of approval. People started assuming that if something trades as an ETF, it must be cheap, passive, and good. That’s not true. Some ETFs charge fees that rival the worst mutual funds. Some are actively managed bets wrapped in ETF packaging. Some hold things you’d never buy if you understood what was inside.

This isn’t a recommendation to avoid any specific fund. But you should know what you’re buying, regardless of the three letters on the label.

How we got here

The first ETFs were straightforward. They tracked well-known indexes like the S&P 500 or the TSX Composite. You bought one, you got the whole index, and you paid almost nothing for the privilege. The MER on a basic S&P 500 ETF today can be as low as 0.08% in Canada (or 0.03% for U.S.-listed versions). That’s $3 per year on a $10,000 investment. Practically free.

The success of these products created a massive market. And where there’s a massive market, product manufacturers rush in. Fund companies realized they could package almost anything as an ETF and benefit from the halo effect. Leveraged ETFs, inverse ETFs, covered call ETFs, thematic ETFs that track everything from cannabis to space exploration to artificial intelligence. All technically ETFs. All very different from a simple index fund.

The fee spectrum

Here’s the range of what you might pay, all under the ETF umbrella:

Type of ETF	Typical MER	Annual cost on $100,000
Broad index ETF (e.g. VFV, XIC)	0.03%–0.10%	$30–$100
All-in-one ETF (e.g. XEQT, VGRO)	0.20%–0.25%	$200–$250
Thematic / sector ETF	0.40%–0.75%	$400–$750
Active ETF	0.50%–1.00%	$500–$1,000
Complex strategy ETF (covered call, leveraged)	0.65%–1.50%+	$650–$1,500+

The cheapest ETF on that list costs $30 a year. The most expensive costs $1,500 or more. Both are “ETFs.” The label tells you nothing about the cost.

Active ETFs in passive clothing

The fastest-growing segment of the ETF market isn’t index funds. It’s actively managed ETFs. These are funds where a portfolio manager picks stocks, makes bets, and charges you for the effort, just like a traditional mutual fund. The only difference is the wrapper: they trade on a stock exchange.

Some of these are run by skilled managers with strong track records. But the research on active management hasn’t changed just because the vehicle has. Over long periods, the vast majority of actively managed funds, whether they’re mutual funds or ETFs, fail to outperform their benchmark index after fees. That’s not just my take. It’s what the data has shown consistently for decades.

The risk is that people see “ETF” and assume they’re getting the low-cost, passive approach, when they’re actually paying for active management with the same odds of underperformance as the mutual funds they were trying to escape.

Covered call ETFs: the yield trap

Covered call ETFs have exploded in popularity in Canada, largely because they advertise high distribution yields, sometimes 8%, 10%, even 12%. For investors searching for income, especially retirees, that number is magnetic.

Here’s what’s actually happening. A covered call ETF holds stocks and sells call options against them. Selling those options generates premium income, which gets paid out to you as distributions. Sounds great. But selling call options also caps your upside. If the stock goes up past the strike price, the ETF misses that gain. You got the premium, but you lost the growth.

In a rising market, covered call ETFs systematically underperform their underlying holdings. You’re trading long-term capital appreciation for short-term income. For some investors in specific situations, that trade-off might make sense. But many people are drawn to these funds by the yield alone without understanding that they’re giving up the compounding that actually builds wealth over decades.

Add a 0.65-0.85% MER on top, and the math gets even harder to justify for a long-term portfolio.

Thematic ETFs: narratives over numbers

Clean energy ETFs. Artificial intelligence ETFs. Blockchain ETFs. Space exploration ETFs. These products are designed to capture investor excitement about big trends. The sales pitch writes itself: “AI is the future, so buy the AI ETF.”

The problem is that by the time a trend is exciting enough to become an ETF, the market has usually already priced it in. The stocks inside these funds are often already expensive. And the narrow focus means you’re concentrated in a small number of companies in a single sector, which is the opposite of diversification.

Many thematic ETFs launch at the peak of excitement and quietly close a few years later when the hype fades. The investors who bought in at launch often take significant losses. The fund company moves on to the next theme.

How to check what you’re actually buying

Before buying any ETF, check three things:

The MER. This is the annual fee, expressed as a percentage. 0.25% and 0.75% look almost identical at a glance, but one is three times the other. For a core holding, I’d want to see 0.25% or less. Once you’re above 0.50%, it’s worth asking what you’re getting for the extra cost. Above 1%, the fund really needs to be doing something special to justify it. The fees guide breaks down what each type of fee actually costs you.

The strategy. Is it tracking a broad index (passive), or is a manager picking stocks (active)? Is it using options, leverage, or other complex strategies? These aren’t inherently bad, but you should know what’s happening inside before you buy.

The holdings. Look at what the ETF actually owns. If an “AI ETF” holds 30% in two mega-cap tech stocks you could buy yourself, the question is what the 0.70% MER is actually buying you. If an “all-in-one” ETF is 80% Canadian banks, that’s not as diversified as the name suggests.

The simple filter

The ETFs that changed investing for the better are still out there: broad, low-cost index funds that give you the whole market for almost nothing. All-in-one ETFs like XEQT and VEQT are genuine innovations. They cost 0.20%, they’re globally diversified, and they rebalance automatically. That’s remarkable.

The ETFs that benefit from the halo effect without earning it are the ones that charge mutual-fund fees for active management, promise yields that come at the expense of growth, or ride a narrative that’s already priced in.

The three letters “ETF” tell you how a fund trades. They tell you nothing about whether it’s good, cheap, or right for you. It’s worth reading the label, checking the ingredients, and knowing what you’re paying for.

Greenline surfaces the MER on everything you hold, so you can see exactly what each fund costs, whether it calls itself an ETF, a mutual fund, or anything else.

Not all ETFs are created equal