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The ETF Strategist: Balancing Risk and Reward for Superior Returns - Russ Koesterich - Google Книги
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Close Report a review At Kobo, we try to ensure that published reviews do not contain rude or profane language, spoilers, or any of our reviewer's personal information. Would you like us to take another look at this review? No, cancel Yes, report it Thanks! You've successfully reported this review. An index fund seeks to track the performance of an index by holding in its portfolio either the contents of the index or a representative sample of the securities in the index.
There are various ways the ETF can be weighted, such as equal weighting or revenue weighting. The first and most popular ETFs track stocks. Stock ETFs can have different styles, such as large-cap , small-cap, growth, value, et cetera.
Others such as iShares Russell are mainly for small-cap stocks. ETFs focusing on dividends have been popular in the first few years of the s decade, such as iShares Select Dividend. ETFs can also be sector funds. These can be broad sectors, like finance and technology, or specific niche areas, like green power. They can also be for one country or global. Critics have said that no one needs a sector fund. The funds are popular since people can put their money into the latest fashionable trend, rather than investing in boring areas with no "cachet".
Exchange-traded funds that invest in bonds are known as bond ETFs. Because of this cause and effect relationship, the performance of bond ETFs may be indicative of broader economic conditions. Among the first commodity ETFs were gold exchange-traded funds , which have been offered in a number of countries. However, generally commodity ETFs are index funds tracking non-security indices.
They may, however, be subject to regulation by the Commodity Futures Trading Commission. SLV , owned the physical commodity e. However, most ETCs implement a futures trading strategy, which may produce quite different results from owning the commodity. Commodity ETFs trade just like shares, are simple and efficient and provide exposure to an ever-increasing range of commodities and commodity indices, including energy, metals, softs and agriculture. However, it is important for an investor to realize that there are often other factors that affect the price of a commodity ETF that might not be immediately apparent.
For example, buyers of an oil ETF such as USO might think that as long as oil goes up, they will profit roughly linearly. What isn't clear to the novice investor is the method by which these funds gain exposure to their underlying commodities. In the case of many commodity funds, they simply roll so-called front-month futures contracts from month to month. This does give exposure to the commodity, but subjects the investor to risks involved in different prices along the term structure , such as a high cost to roll.
ETC can also refer to exchange-traded notes , which are not exchange-traded funds. FXE in New York. Since then Rydex has launched a series of funds tracking all major currencies under their brand CurrencyShares. The funds are total return products where the investor gets access to the FX spot change, local institutional interest rates and a collateral yield.
However, the SEC indicated that it was willing to consider allowing actively managed ETFs that are not fully transparent in the future,  and later actively managed ETFs have sought alternatives to full transparency. The fully transparent nature of existing ETFs means that an actively managed ETF is at risk from arbitrage activities by market participants who might choose to front run its trades as daily reports of the ETF's holdings reveals its manager's trading strategy. The initial actively managed equity ETFs addressed this problem by trading only weekly or monthly.
Actively managed debt ETFs, which are less susceptible to front-running, trade their holdings more frequently. The actively managed ETF market has largely been seen as more favorable to bond funds, because concerns about disclosing bond holdings are less pronounced, there are fewer product choices, and there is increased appetite for bond products. Actively managed ETFs grew faster in their first three years of existence than index ETFs did in their first three years of existence. As track records develop, many see actively managed ETFs as a significant competitive threat to actively managed mutual funds.
Jack Bogle of Vanguard Group wrote an article in the Financial Analysts Journal where he estimated that higher fees as well as hidden costs such a more trading fees and lower return from holding cash reduce returns for investors by around 2.
An exchange-traded grantor trust was used to give a direct interest in a static basket of stocks selected from a particular industry. Such products have some properties in common with ETFs—low costs, low turnover, and tax efficiency: Inverse ETFs are constructed by using various derivatives for the purpose of profiting from a decline in the value of the underlying benchmark. It is a similar type of investment to holding several short positions or using a combination of advanced investment strategies to profit from falling prices.
Many inverse ETFs use daily futures as their underlying benchmark. A leveraged inverse bear ETF fund on the other hand may attempt to achieve returns that are -2x or -3x the daily index return, meaning that it will gain double or triple the loss of the market. Leveraged ETFs require the use of financial engineering techniques, including the use of equity swaps , derivatives and rebalancing , and re-indexing to achieve the desired return. The rebalancing and re-indexing of leveraged ETFs may have considerable costs when markets are volatile.
Investors may however circumvent this problem by buying or writing futures directly, accepting a varying leverage ratio. The re-indexing problem of leveraged ETFs stems from the arithmetic effect of volatility of the underlying index. The index then drops back to a drop of 9. The drop in the 2X fund will be This puts the value of the 2X fund at Even though the index is unchanged after two trading periods, an investor in the 2X fund would have lost 1. This decline in value can be even greater for inverse funds leveraged funds with negative multipliers such as -1, -2, or It always occurs when the change in value of the underlying index changes direction.
And the decay in value increases with volatility of the underlying index. The effect of leverage is also reflected in the pricing of options written on leveraged ETFs. The impact of leverage ratio can also be observed from the implied volatility surfaces of leveraged ETF options. The decision concerns two potential products: ETFs have a reputation for lower costs than traditional mutual funds.
This will be evident as a lower expense ratio.
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- The ETF Strategist: Balancing Risk and Reward for Superior Returns?
However, this needs to be compared in each case, since some index mutual funds also have a very low expense ratio, and some ETFs' expense ratios are relatively high. An index fund is much simpler to run, since it does not require some security selection, and can be largely done by computer. Not only does an ETF have lower shareholder-related expenses, but because it does not have to invest cash contributions or fund cash redemptions, an ETF does not have to maintain a cash reserve for redemptions and saves on brokerage expenses.
Over the long term, these cost differences can compound into a noticeable difference. Because ETFs trade on an exchange, each transaction is generally subject to a brokerage commission. Commissions depend on the brokerage and which plan is chosen by the customer. Generally, mutual funds obtained directly from the fund company itself do not charge a brokerage fee. Thus, when low or no-cost transactions are available, ETFs become very competitive.
De interessantste boeken over Exchange Traded Funds (ETF's)
The cost difference is more evident when compared with mutual funds that charge a front-end or back-end load as ETFs do not have loads at all. The redemption fee and short-term trading fees are examples of other fees associated with mutual funds that do not exist with ETFs. Traders should be cautious if they plan to trade inverse and leveraged ETFs for short periods of time. Close attention should be paid to transaction costs and daily performance rates as the potential combined compound loss can sometimes go unrecognized and offset potential gains over a longer period of time.
ETFs are structured for tax efficiency and can be more attractive than mutual funds. This can happen whenever the mutual fund sells portfolio securities, whether to reallocate its investments or to fund shareholder redemptions. These gains are taxable to all shareholders, even those who reinvest the gains distributions in more shares of the fund.
In contrast, ETFs are not redeemed by holders instead, holders simply sell their ETF shares on the stock market, as they would a stock, or effect a non-taxable redemption of a creation unit for portfolio securities , so that investors generally only realize capital gains when they sell their own shares or when the ETF trades to reflect changes in the underlying index.
In most cases, ETFs are more tax-efficient than conventional mutual funds in the same asset classes or categories. An important benefit of an ETF is the stock-like features offered. A mutual fund is bought or sold at the end of a day's trading, whereas ETFs can be traded whenever the market is open. Since ETFs trade on the market, investors can carry out the same types of trades that they can with a stock. For instance, investors can sell short , use a limit order , use a stop-loss order , buy on margin , and invest as much or as little money as they wish there is no minimum investment requirement.
Covered call strategies allow investors and traders to potentially increase their returns on their ETF purchases by collecting premiums the proceeds of a call sale or write on calls written against them. Mutual funds do not offer those features. New regulations were put in place following the Flash Crash , when prices of ETFs and other stocks and options became volatile, with trading markets spiking : These regulations proved to be inadequate to protect investors in the August 24, flash crash,  "when the price of many ETFs appeared to come unhinged from their underlying value".
ETFs were consequently put under even greater scrutiny by regulators and investors. A non-zero tracking error therefore represents a failure to replicate the reference as stated in the ETF prospectus. The tracking error is computed based on the prevailing price of the ETF and its reference. Tracking errors are more significant when the ETF provider uses strategies other than full replication of the underlying index.
Some of the most liquid equity ETFs tend to have better tracking performance because the underlying is also sufficiently liquid, allowing for full replication. ETFs that buy and hold commodities or futures of commodities have become popular. The commodity ETFs are in effect consumers of their target commodities, thereby affecting the price in a spurious fashion. A synthetic ETF has counterparty risk, because the counterparty is contractually obligated to match the return on the index. The deal is arranged with collateral posted by the swap counterparty.
The ETF Book: All You Need to Know About Exchange Traded Funds
A potential hazard is that the investment bank offering the ETF might post its own collateral, and that collateral could be of dubious quality. Furthermore, the investment bank could use its own trading desk as counterparty. ETFs have a wide range of liquidity. Some funds are constantly traded, with tens of millions of shares per day changing hands, while others trade only once in a while, even not trading for some days. There are many funds that do not trade very often. This just means that most trading is conducted in the most popular funds.
In these cases, the investor is almost sure to get a "reasonable" price, even in difficult conditions. With other funds, it is worthwhile to take some care in execution. This does not mean that less popular funds are not a quality investment. This is in contrast with traditional mutual funds, where everyone who trades on the same day gets the same price. Bogle , founder of the Vanguard Group , a leading issuer of index mutual funds and, since Bogle's retirement, of ETFs , has argued that ETFs represent short-term speculation, that their trading expenses decrease returns to investors, and that most ETFs provide insufficient diversification.
He concedes that a broadly diversified ETF that is held over time can be a good investment. ETFs are dependent on the efficacy of the arbitrage mechanism in order for their share price to track net asset value. The trades with the greatest deviations tended to be made immediately after the market opened. The tax advantages of ETFs are of no relevance for investors using tax-deferred accounts or indeed, investors who are tax-exempt in the first place. In a survey of investment professionals, the most frequently cited disadvantage of ETFs was the unknown, untested indices used by many ETFs, followed by the overwhelming number of choices.
Some critics claim that ETFs can be, and have been, used to manipulate market prices, including having been used for short selling that has been asserted by some observers including Jim Cramer of theStreet. From Wikipedia, the free encyclopedia.
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