Talk:Exchange-traded fund

External Links

Any thoughts on improving external links? There are better resources out there for ETF Search, News etc. than exchanges. ETFDesk.com, Yahoo Finance ETF Section, ETFConnect.com to name a few.

Most of those sites would be in violation of the external link guidelines and have been removed in the past. TastyPoutine ^{talk (if you dare)} 03:15, 6 March 2009 (UTC)

The exchange external links are useless, they should be removed too. —Preceding unsigned comment added by 8.12.52.2 (talk) 16:24, 6 March 2009 (UTC)

Major Users of ETFs

Is this area really needed? Where's the source? Seems like spam to me.—The preceding unsigned comment was added by 71.217.199.80 (talk) 17:23, 6 February 2007 (UTC).

This entry should include ETF criticism for balance

some links with ETF criticism to consider :

• Five Myths of Exchange-Traded Funds
• Exchange-Traded Funds: Beyond the Hype
• ETF's vs Indexed Mutual Funds
• Sue Stevens in Forbes 2003
• Walter Updegrave in CNN/Money 2005

DrFunn 22:58, 29 December 2006 (UTC)

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Is the comment about leveraged powershares correct? I checked out powershares.com and did some web searching, and I think maybe it should say "proshares" not "powershares"... right ?

Proshares vs. Powershares

Pointless postulating

Hypothesis: Mutual Funds are not as Tax-Efficient due to any realize capital gains that must be distribute to their shareholders within in a given year (not sure if it is quarterly or annually). Vice Versa ETF capital gains do not need to be realized till they are redeemed however they are sold on the active market. This is assuming that at the end of the day The ETF and Mutual Fund NAV are about / near equal in value.

This study can really only be compared for Passively Manage Mutual Funds i.e. (Index funds, Passive Asset-Class Funds, and Passive Sector Funds) to their ETF counterparts however the following comparison if they exist can be further defined into the following categories.

No-Load Mutual Fund to No-load ETF (doubt that the No-Load ETF exist) Load Mutual Fund to Load ETF (doubt that the Loaded Passive Mutual fund exist) No-Load Mutual Fund to load ETF (Realistic) Loaded Mutual Fund to No-Load ETF (extremely unlikely to occur)

As for Actively Manage Mutual Funds unless otherwise proven not to utilized market timing (highly unlikely) should not even be consider in this study.

Additional things that should be considered & analyze are:

• Brokerage / Commission fees that is incurred for entry and exiting.
• Expense Ratio if any
• The amount being invested is a large amount in increments of

$10,000.00 (amount is open)

• Automatic Dividend Reinvestment fee if required

Restrictions that are imposed on study:

• No Limit Order
• No Buying on Margin
• No Short Selling
• No Stop-Loss Order imposed
• Tax-Loss Harvesting if incurred is a result of the Mutual fund’s & ETF’s Fund Manager not the Broker in question

Paul.Paquette (talk) 02:03, 1 January 2006 (UTC)

I have been talking to my finance professors via email correspondence here is a Transcript After reading the transcript, I would like to hear any suggestion and comment that you might have. Paul.Paquette

A few problems with your study:

• Open-end mutual funds can only be bought and sold at NAV at the end of the day. ETFs can be bought and sold at any price at any time based on supply and demand. This price may be higher or lower than NAV.
• ETFs are not immune from capital gains. Some ETFs have messed up their transactions and have realized capital gains which they have had to distribute to their shareholders.
• Some of the open-end mutual funds have accumulated huge capital losses, and they're able to use these to reduce or elimiate any capital gains they realize. I'm in two open-end mutual funds and neither has distributed any capital gains for the past five years.
• Why does it matter whether the share price of the ETF and open-end fund are similar? Don't you mean the dollar amount value of the shares?
• A "load" is a sales charge paid to the broker as a percentage of your investment. At a discount broker, when you buy an ETF or any stock, you pay a fixed commission which is not based on how large your investment is.
• There are plenty of index funds with loads out there.

correct me if i'm wrong, but all ETFs should be no-load.

- Jaysbro 16:02, 20 January 2006 (UTC)

This is an encylopedia! The aim of the article should be to present facts as established and held as consensus. The facts should be relevant to the subject at hand and appropriate to a global audience. Trying to answer this type of question is futile! The answer will at best be subjective, geographically limited and tempory; at worst it will be a gross simplification and misleading. If you wish to add facts then cite your sources. The answer to this type of question will almost always be someones POV. simonthebold 10:24, 15 September 2006 (UTC)

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Cost to Investor-------------------

Mutual funds can charge 1% to 3%, or more; index fund expense ratios are generally lower, while ETFs are almost always less than 1%.

This quote reads like a sales pitch from an ETF sales rep speaking from a call center. The reality is virtually all ETFs are index funds. You can invest in a no load index mutual fund e.g. Vangaurd, for a fee of 0.05%.

Please dont encourage readers to consider funds of any type with loads, trading fees, or management fees exceeding 0.1%.

---

Actively managed ETFs

I dont' beleive they exist. Please supply details if you know of one. simonthebold 10:28, 15 September 2006 (UTC)

I believe this is one: [1] -- Tim Starling 22:48, 28 September 2006 (UTC)

Pimco currently offers several actively managed ETFs. See http://www.pimcoetfs.com/Pages/default.aspx. — Preceding unsigned comment added by Tominator711 (talk • contribs) 22:52, 11 October 2013‎ (UTC)

Definition of ETF too narrow?

This article appears to define ETFs too narrowly. In its broadest definition an ETF is any financial instrument that is traded on a secondary market, that represents a basket of underlying securities. This includes certain actively managed investment companies (for example Closed-ended Funds and Investment Trusts).

The confusion lies, of course, in the fact that the term was invented for a certain type of open-ended passively managed fund and later broadened to encompass the older closed-ended variety. BaseTurnComplete 18:20, 17 December 2006 (UTC)

I would add that the introduction to the ETF entry does not clearly express how ETFs are different from other funds, at least to me. —Preceding unsigned comment added by 158.145.225.36 (talk) 21:33, 29 January 2009 (UTC)

at least in the us, doesn't the tax and security law define what an "etf" is, eg you don't pay cap gains on redemptionsCinnamon colbert (talk) 03:34, 5 March 2012 (UTC)

Closed-Ended

ETFs are not by definition closed-ended. This is just plain wrong. They are open-ended: shares are routinely created and cancelled to match supply and demand for the fund. However the mechanism by which they are created and cancelled is different to other open-ended funds. BaseTurnComplete 14:17, 27 March 2007 (UTC)

Trading Hours

The first sentence is not exactly correct, "Exchange-traded funds (or ETFs) are open ended mutual funds that can be traded at any time throughout the course of the day." ETF's can't be traded "any time" they can only be traded during market hours, but the reason it is worth addressing is because the ETF's have different market hours than other stocks. Most (but not all) ETF's in the USA are traded from 9:30am to 4:15pm, 15 minutes longer than regular stocks. —Preceding unsigned comment added by 208.124.36.198 (talk) 03:13, 21 September 2007 (UTC)

Improving the "ETFs Compared" section

February 18, 2008 18:53 (ETFguide) The current version of "ETFs Compared" section looks at ETFs from three key perspectives; costs, taxation, and trading. However, it omits two other important aspects of comparing ETFs; by indexing strategy and by active strategies.

Here's a pratical suggestion:

With regard to indexing strategies, there's traditional indexes which typically use a market capitalization weighting formula, fundamentally weighted indexes that use specific financial metrics like dividends or earnings as a weighting, and equally weighted indexes that assign the same weighting for all index components. In comparing ETFs, it's important that these distinctions be made. It's also important to underscore that not all index ETFs are necessarily passive.

The latter (active strategies) can be added later when full fledged active ETFs become available. They can be compared in the context of active ETFs vs. active mutual funds, closed end funds, etc. They can also be compared vs. index ETFs.

Another possible location for the discussion of "indexing strategies" and "active strategies" is in the "Investment Strategies" section. —Preceding unsigned comment added by Etfguide (talk • contribs) 00:52, 19 February 2008 (UTC)

Adding Relevant External Links

February 21, 2008 (ETFguide) Here's the ETF link that certain participants of Wikipedia have a prejudice against: http://www.etfguide.com/etfeducation.htm

If you carefully read the Education link above, you'll notice that its not propoganda or spam as has been asserted. Read the link for yourself. It contains a careful consideration of relevant topics like "ETFs vs. Stocks", "ETFs vs. Mutual Funds", "Understanding ETF Tables in the Newspaper", "History of ETFs", etc. This qualifies as "ETF Education" - as I've indicated to the deaf ears that peruse these quarters.

A "commercial" Website is any place that accepts money in exchange for advertising, which cleary, Yahoo Finance, About.com, MSN Money and theStreet.com are ALL doing.

If we use Montco's convoluted standard of "commercial" or "spam" that would pre-clude all of these Websites from being listed as external links on Wikipedia - because they are all "commercial" in nature. At one point, Montco wasn't even sure about his/her own Editorial policies, as he eliminated "TheStreet.com" link because it was "commerical", only to have someone else re-install it.

The Editorial standard for external links - isn't whether the Websites in question accept advertising or are "commercial", but whether they add value to Wikipedia's "Exchange-traded fund" page.

The issue of "Non-notable site" was raised by Ohnoitsjamie.

Further investigation reveals that the source I've recommended is indeed "notable". For example, both ETF Centers at Charles Schwab and Scottrade are using data from the ETFguide.com source. (see Scottrade link) http://research.scottrade.com/public/etf/news/news.asp

I deduce these "notable" brokers would not be using "non-notable" Websites or dubious sources for their ETF data, do you?

From the recommended changes I've suggested and the new edits I've already made - it should be clearly evident that I want the Wikipedia Exchange-traded fund to be the best and most definitive source on the topic. This is an idea which some Wiki Editors seem opposed to.

From viewing my Edits and suggestions I'm well-versed on the subject of exchange-traded funds and I remind you of this, not to flaunt, but to help you appreciate my perspective.

We understand that Wikipedia isn't a collection of external links. At the same time, this doesn't give it the right to be a junkyard of stale references.

There are other high level sources or external links that the Exchange-traded fund page is lacking. I would also argue the listing of About.com as a link of "ETF Basics" is laughable. Not only is it loaded with advertising and silly keyword advertisements, but it's not an authority on the subject of ETFs.

It seems to me that industry sources close to the ETF business, like the AMEX, the Securities and Exchange Commission and sources exclusively dedicated to the topic, are the best reference points. I would qualify my suggested external link as such.

Dismissing relevant external links and citing Wikipedia rules is bureaucratic and will assure this page almost certain oblivion and lack of usefulness. —Preceding unsigned comment added by 76.212.215.209 (talk) 18:36, 21 February 2008 (UTC)

And what does the link add? Nothing. You yourself have added content to the article and that's great. We think it would be great if you would add content. But the link adds no content to the encyclopedia. Zero. All it does is add a link. The point of the encyclopedia is to provide content, not to drive traffic to your site so that they can read more and sign up for a 30-day free trial to your ETF news letter. Montco (talk) 05:24, 22 February 2008 (UTC)

FYI, Montco you don't determine what gets added or deleted from the Encyclopedia and neither do I. Your characterization of my contributions as seeking to "drive more traffic to a Website" are baseless. As I've indicated in the note above, you know, the one you didn't read - I've recommended the removal of the About.com link, the addition of ETFguide.com and I also think adding more industry related links versus having advertising hubs with keyword ads that happen to have casual ETF data as "lead ETF sources." The forward progress of this page will happen with or without you. You've been "protecting" this page to the detriment of Wikipedia users.[User:ETFguide ]] 22 February 2008 —Preceding unsigned comment added by Etfguide (talk • contribs) 18:01, 22 February 2008 (UTC)

I understand both sides of the arguement and I've looked at the link, which appears to have good and related ETF information. robot126 —Preceding comment was added at 12:49, 26 February 2008 (UTC)

Article Structure and Direction: Do we list EVERY etf?

This article is a great resource for showing the diverse world of ETFs. But we need to think about how we are going to organize all this material. Right now the bulk of the article consists of ETF listings. While these listings are important, this structure is going to make less and less sense. ETFs are diversifying at a stunning rate. Listing all the ETFs here will soon be scarely easier and about as sensible as listing hundreds of stocks on the stock article. So I'm just posing an open question to my fellow wikipedians: how should we structure this article to accommodate growth? --Greg Comlish (talk) 22:43, 28 February 2008 (UTC)

I agree with your take, Greg. The number of U.S. listed ETFs will soon reach 1,000 - so listing each of these funds is NO LONGER a reasonable exercise. I would suggest listing only the top ETFs in terms of trading volume or assets. Perhaps, we could do the top 250 funds or some other arbitrary number. For the remaining funds, we can reference outside sources or Websites. --User:ETFguide 4 March 2008

More Problems

Guys I contribute to this article a lot, but we need to admit that it has a lot of problems still. The overall structure is disorganized, with a great deal of redundancy. The section on actively managed etfs is uninformative and POV. Our sections are ad-hoc with no sense of priorities or flow. The paragraphs "investment objectives" and "investment strategies" have lots of overlapping material and little about actual investment objectives or strategies. I'm also afriad that some information that was exported to the List of ETFs article needs to be repatriated back, such as information on leveraged funds. Anyway, please be bold and help me get this thing fixed up. Greg Comlish (talk) 03:51, 27 March 2008 (UTC)

As you can see, I've been actively taking you up on this request, as time allows. Still to be done: Edit "ETFs compared to mutual funds" and add sections on "Types of ETFs" and "Criticism." Please note that, while I know quite a bit about ETFs in the U.S., I am less knowledgeable about non-U.S. ETFs. The assistance of other editors in keeping the article from becoming too U.S.-centric is requested.

I see that you reverted the deletion of the "Lists of Popular ETFs" section. This is just deep links to the List of exchange-traded funds article. Can you explain your reasoning? I don't feel very strongly about it, not least because this article still has bigger problems, but the section doesn't seem to add much. John M Baker (talk) 17:07, 8 April 2008 (UTC)

I did revert that change. The lists illustrate the expansive class of assets traded under ETFs. Just as Princeton links to a list of famous alumni, I think it's important to have at least one prominent link to the lists. The deep linking could go. Ultimately I'd like to see the text from the lists (excluding, of course, the lists themselves) moved back into the ETF article at which point the deep-linking should be removed. Greg Comlish (talk) 17:42, 8 April 2008 (UTC)

I added a prominent link to the lists, at the top of the "Major Issuers of ETFs" section. If we get around to adding a "Types of ETFs" section, it should be possible to include the texts from the lists and to delete the "Lists of Popular ETFs" section. John M Baker (talk) 18:15, 8 April 2008 (UTC)

Investment Strategies

This paragraph has nothing to do with "investment strategies. I'm going to move all its content into the proper paragraphs.

Investment Strategies The first U.S. ETFs were based on broad market indexes; for example, "Spiders" (AMEX: SPY) (Standard & Poor's Depositary Receipts) is based on the S&P 500 index. Spiders is the largest ETF in the world. The index is determined by an independent company; for example, Spiders is run by State Street, while the S&P 500 is calculated by Standard & Poor's. Similarly, "Middies" (AMEX: MDY) is based on the S&P 400.

Next up were country funds (originally called "WEBS"). These allowed people to trade foreign markets as easily as U.S. stocks.

Fund companies also launched industry sector ETFs. In 1998, State Street Global Advisors introduced the "Sector Spiders" (website), which follow the nine sectors of the S&P 500.

Since then, ETFs have moved in various directions. As of early 2008 there are nearly 700 of them in the U.S.

Regional funds are popular; most investors do not need a separate fund for every country (iShares MSCI series has 22 country funds, and this still misses most countries). iShares MSCI EAFE (NYSE: EFA) and iShares MSCI Emerging Markets (NYSE: EEM) are the second- and third-largest ETFs in the world.

StreetTRACKS Gold Shares (NYSE: GLD) holds gold bullion. Its assets are about $19B (as of early 2008). Although it's registered as a grantor trust under the Securities Act of 1933 and not technically an ETF, the Gold Shares are still grouped together with ETFs. Most bond and equity ETFs are registred under the Investment Company Act of 1940.

Fund companies also launched ETFs based upon styles, such as "value" or "growth"; for example, iShares Russell 1000 Growth (NYSE: IWF) and iShares Russell 1000 Value (NYSE: IWD) split up the Russell 1000 index. Similar to this are funds based on dividends; for example, "Divvies" (NYSE: DVY) is based on the Dow Jones Select Dividend Index.

Bonds are another area that ETFs offer market exposure. Relatively few in number, some funds have gained respectable assets.

Major companies, such as Barclays Global Investors, State Street Global, and the Vanguard Group all offer a variety of fixed income ETFs. For example, each of these companies offer their own version of the Lehman Aggregate Bond Index, which is a popular bond benchmark. Barclays offers the iShares Lehman Aggregate Bond ETF (AMEX: AGG), State Street offers the SPDR Lehman Aggregate Bond ETF(AMEX: LAG), and Vanguard has the Total Bond Market Index ETF (AMEX: BND).

There are now inverse, leveraged, and inverse leveraged funds. These aim for daily returns of minus one, two, and minus two times the daily returns the relevant index.

In all cases, the SEC requires the index to be computed by a separate company.

ETFs in other localities have followed a similar progression: some "home" index (for example, Nikkei 225); some "foreign" index (for example, S&P 500); then perhaps various sectors.

References

Unsourced sections

I have deleted the following sections, which are unsourced, as part of a general move toward upgrading this article. (To avoid confusion, I have changed the headings to bold.) Much of the information is inaccurate or of low quality, but certainly some of it should be put back in the article if it can be adequately sourced. John M Baker (talk) 00:04, 8 April 2008 (UTC)

Managing ETFs

There is some confusion over terminology when referring to ETFs and other forms of pooled fund investments. For example, ETFs are highly flexible instruments for equalizing cash-flow. Money can be invested in an ETF that promises growth to achieve a higher rate of return than possible from other forms of investment available at the time. Since the ETFs shares are freely traded in an established market, you can sell when you require your money.

An actively managed ETF where the composition of the investments changes to achieve higher growth rates is entirely feasible and practised by a few funds. Observers draw analogies with mutual funds and seek to compare the two. Some have sought to bring the much older (and normally actively managed) investment trust class of fund under the ETF umbrella, pointing out that these are also funds that trade on exchanges. Real Estate Investment Trust units also commonly trade on exchanges and have properties similar to an ETF. The innovation of an ETFs does not exclude these other forms of investment vehicles in the market, nor restrict the potential application of ETFs to achieve different investor objectives in the market.

ETFs are mainly exchanged 'in-kind'; holdings of ETFs are made available daily. This is felt to be a strength since no one knows more than anyone else about what the fund holds. If holdings were secret, it would be difficult to buy an ETF, since one would not know what shares to transfer; similarly, if one sells and gets the component shares, the holdings would not be secret. This seems to cause problems for an actively managed fund. Similarly, arbitrageurs are less likely to bid aggressively if they don't know what they are buying and selling. All of this is in contrast to mutual funds, which are allowed to keep holdings unknown for many months. Lastly, some people think that owners of ETFs are more sophisticated, therefore more likely to be proponents of indexing (a passive strategy). So it is not immediately obvious who would buy actively managed ETFs.

Application

ETFs present an alternative investment option to traditional open-ended mutual funds, especially open-ended index funds. There are many available ETFs that attempt to track all kind of indices (such as large-cap, mid-cap, small-cap, boutique led criteria), fixed income, style (such as value and growth), industries, countries, precious metals, other commodities with more ideas being developed.

ETFs also enable people living outside the United States to participate in US based mutual funds. Traditional open-ended US mutual funds are available only to US residents, whereas anyone in the world can purchase shares in an ETF that trades on the open market.

As private banking moves towards a fee based model, the focus is shifting to asset allocation rather than stock selection. ETFs are a cheap and accessible way to populate asset allocation in client portfolios. Private bankers can focus on asset gathering for their clients.

Self-directed investors are following the lead taken by private bankers. A number of stock brokers report ETFs as their 'top-buys' by client selection. Evidence that private investors are using ETFs to gain cost-effective exposure to specific investment strategies in volatile markets.

One reason for the slow uptake of ETFs in the UK has been the lack of a rebate commission, providing little incentive for advisors to promote them. However, 2006–2007 saw a sudden 'jump' in ETFs activity as 'private' wealth managers decided to participate in this market.

Statistics

Early adopters of US ETFs were pensions funds, hedge funds and mutual funds. Wealth managers and self-directed investors followed. Today, more than half of ETFs in the US are held by retail investors.

One-third of European ETFs stock is in retail investors hands. There is every indication that the markets are heading the US way. In the UK, ETFs can be put into an Individual Savings Account [ISA].

First introduced by the TORONTO Stock Exchange, there are over four hundred ETFs traded on the US Stock Exchange. In other countries, there is varying momentum as the instrument is better understood and more ETFs registered for the advantages they offer. The US debut with SPY (launched by State Street Global Advisors and tracking the S&P 500) in 1993 has so far been an amazing success story.

The original ETFs were set up as competitors to open-ended index funds, and subsequent ETFs have usually followed in their footsteps: they typically have very low expense ratios compared to actively managed mutual funds. They also have a lower turnover ratio, often allowing for mitigation of taxes.

ETF managers BGI and State Street Global Advisors are the current leaders by assets under management, totaling 70% of the market.

Current status

It isn't perfect, but I think it's good enough now to be an actual resource, and most of the bad information is gone. I'm going to slow down, but if people have questions about the article or its subject matter, I'll be available. John M Baker (talk) 01:21, 10 April 2008 (UTC)

DIfference to Index Funds

EFTs are clearly similar to Index (tracker) funds. It would be great if someone explained the difference. --Timtak (talk) 12:21, 9 April 2008 (UTC)

Does the discussion now in text help? The short answer is that they are the same thing: Some index funds are mutual funds, and some are ETFs. John M Baker (talk) 00:11, 10 April 2008 (UTC)

An Index fund could be FOF but an ETF can't be. Though in theory it also could but in fact maybe not. —Preceding unsigned comment added by 59.37.15.58 (talk) 01:58, 21 May 2008 (UTC)

I assume by "FOF" you mean a fund of funds. Conventional index funds and index ETFs generally are not thought of as funds of funds, although they technically could be if there were funds that were among the securities comprising the underlying index. Anyway, this is not a distinction between index ETFs and conventional index funds. John M Baker (talk) 02:45, 21 May 2008 (UTC)

Segmentation & Organization

I would like to help but don't even know where to start. ETFs are all over the business/finance press and the market is growing tremendously. It's an important subject. This article needs organization, it should be compressed, it can benefit from some visuals. Can we create some "segmentation" of relevant information so it can be digested by the reader? If we have organization and segmentation perhaps we can get rid of the redundant, irrelevant information? Is there a particular task here I can help with? Influencenyc (talk) 20:02, 23 July 2008 (UTC)

Some visuals would absolutely be great. I haven't really looked into what might be available. What did you have in mind on segmentation and organization? It might be better to talk about those here, before implementing them on the article page. John M Baker (talk) 04:03, 24 July 2008 (UTC)

Dividend payments section

I've deleted the section below, previously entitled "An aparent [sic] ETF fail," from the main article. It was provided without sources, and it isn't clear just what it's saying. For readability, I've reformatted the heading to bold. John M Baker (talk) 01:54, 28 September 2008 (UTC)

Dividend payments — effect on price

According to theory, an inverse index ETF over [Dow Jones Industrial Average] (DJI) should rise when DJI drops, and vice versa, and if the ETF is leveraged x2 (as DXD is), then for a decrease of 1% in DJI the DXD should rise by 2%.

In the two charts below you can see what happened on 24 September 2008 on the New York market opening. The DJI remained more or less flat, but the DXD went down more than 5%. On the lower chart, the theoretical behaviour of DXD has been marked in red, and the actual bevaviour in blue below.

The reason for this behaviour is that this ETF pays dividends as stocks; this produces a stock depreciation equivalent to the amount of this dividend.

Security

There is no section on the security of ETF's, and what happens should investment company selling them should go bankcrupt. —Preceding unsigned comment added by Timtak (talk • contribs) 14:06, 6 October 2008 (UTC)

Creation

I believe it would be better if this article were to contain information regarding the creation, construction and management of ETFs. See here, for example: http://finance.yahoo.com/etf/education/01 and here too: http://finance.yahoo.com/etf/education/05 --137.186.228.13 (talk) 19:24, 14 October 2008 (UTC)

It is a shame those articles are anonymous. It is not clear what editorial fact checking goes into them, so it is hard to write their assertions into this article. However, I for one would support you if you added those links to the article. --Hroðulf (or Hrothulf) (Talk) 20:13, 14 October 2008 (UTC)

OK --- will try. You know, it's interesting that a unit of an ETF is created when bought and destroyed when sold. It's also interesting that the price of an ETF has nothing to do with supply and demand of that ETF --- the price is solely determined by the price of the securities it tracks. I will try to find verifiable sources that explain these phenomena. --137.186.201.86 (talk) 05:09, 16 October 2008 (UTC)

See here: http://www.investopedia.com/articles/mutualfund/05/062705.asp —Preceding unsigned comment added by 137.186.201.86 (talk) 05:32, 16 October 2008 (UTC)

What do you think is explained in these links, but not in the article now? I had thought that the article included reasonably good descriptions of the creation and redemption of creation units, the construction and management of ETFs, and the pricing of ETF shares. John M Baker (talk) 11:51, 16 October 2008 (UTC)

Proxy voting disclosure rules?

Are the proxy voting disclosure rules the same for ETFs as for mutual funds? (i.e. filing something like an N-PX form with the SEC to let shareholders know how proxy votes were voted on the underlying stocks?) Are there any sites like http://www.fundvotes.com/ that review ETF voting practices so people can find an investment that votes their money according to their values? --NealMcB (talk) 21:57, 3 February 2009 (UTC)

ETFs organized as open-end management investment companies (the large majority) are subject to the Form N-PX filing requirement. I don't know about aggregating web sites. ETFs organized as unit investment trusts, or UITs, are not subject to this requirement. There are only a few of these, but they tend to be large, such as the SPDR Trust. John M Baker (talk) 00:01, 4 February 2009 (UTC)

What the...

"ETFs are almost always compared to no-load funds, for the simple reason that, compared to loaded funds, there is no comparison" mike40033 (talk) 06:06, 16 April 2009 (UTC)

Well, ETFs technically are no-load funds, since they don't charge a load. Retail investors do have to pay a brokerage commission, but that's far less than a load would be. Are you getting at something more than that? John M Baker (talk) 15:00, 16 April 2009 (UTC)

Types of ETFs

Leveraged ETFs

The following was deleted:

The rebalancing of leveraged ETFs may have considerable costs when markets are volatile. The problem is that the fund manager incurs trading losses because he needs to buy when the index goes up and sell when the index goes down in order to maintain a fixed leverage ratio. A 2.5% daily change in the index will for example reduce value of a -2x bear fund by about 0.18% per day, which means that about a third of the fund may be wasted in trading losses within a year(0.9982^252=0.63). Investors may however circumvent this problem by buying futures directly, accepting a varying leverage ratio.

I have undone the deltion. If someone disputes this, please explain. Espen Sirnes (talk) 13:18, 12 May 2009 (UTC)

Here is an explanation:

Why they incur trading losses

The expected loss of 0.18% from a daily change of 2.5% is a mathematical fact that can be derived as follows:

Say an index increase from 100 by 2.5% and fall back to 100 the next day. It must then decrease the next day by about 2.44% since 100*(1+0.025)*(1-0.0244)=100.

Now, consider a -2x bear fund. Since the index increase by 2.5%, the bear fund must fall by 5% the first day. Since the cash holding remains fixed, this will reduce the funds short position in equity to less than 2x the cash (a bear fund is long on the risk free). Hence the beta rises from -2 and therefore reduces the negative exposure to less than -2x. The fund manager therefore needs to sell off some equity until the funds beta again reaches -2. Hence, leveraged ETFs need to trade each day, in order to maintain a fixed beta. Whats more, they need to sell when prices fall, and buy back when they rise.

Mathematically it is however sufficient to note that after the initial rise in the index, the beta is maintained at -2. All we need to do is therefore to calculate the net position of the fund, after a fall of -5% and a subsequent rise of 4.88%:

100*(1-2*0.025)*(1-2*(-0.0244)) =100*0.95*1.0488 =99.634

Remember that an unleveraged ETF will still be worth 100. Hence, by buying "on top" and selling low in order to maintain a fixed beta, the leveraged ETF incurs a loss of about 0.366%, or 0.18% each trading day, as stated.

This in fact a trading loss, since it is incurred by trading needed to maintain the funds beta.

The effect is slightly more pronounced for bear funds (try for your self to find the loss of a 2x bull fund), but the exact same mechanism applies for both types.

Empirical evidence

Below are returns on the OBX index of the Oslo Stock exchange and associated bear and bull funds (time series are available from Oslo Stock Exchange [2]) October 17th - February 19th:

Fund	Return
OBX:	0%
XACT Bull:	-21%
XACT Bear:	-33%
DNB Bull:	-21%
DNB Bear:	-35%

As we see the OBX happened to be the same at the start and the end of this particular period, all though it fluctuated a lot in between. The losses on the leveraged ETFs are however too large to be explained by trading costs and fees.

Espen Sirnes (talk) 11:34, 28 July 2009 (UTC)

As I understand recent press on this issue, the cause is the volatility. Each time the market fell, bull funds lost money when it closed out its options, which apparently they do every few days. Similarly, I am told that each time the market rises, bear funds lost money, even though the market eventually came back down again. I don't know if Wikipedia adequately covers this phenomenon yet, but perhaps it should, in the Index fund#Enhanced indexing section. --Hroðulf (or Hrothulf) (Talk) 09:35, 1 July 2011 (UTC)

Tax Issues with ETFs

A couple of years ago I thought to trade the USO Oil security. Much to my surprise the next year I got a tax bill K-1, etc. after my 1040 had been completed.

To help unsuspecting investors there should be a section explaining how this comes about.

There should also be words that tell what holding period would cause such a liability to happen. (Only one of my trades triggered a tax liability)

I am sending this writing to the SEC as I feel ETF descriptions should be more forthcoming and plainly state whether they are could incur tax liability as this is not prominently stated at present in my opinion.

The only quick way to save oneself from this trap is to buy and sell ETNs which of course are notes of the issuer and thus have more risk.

I do not post in Wiki very often and if suggestions are in order I welcome them. Pugetkid (talk) 22:53, 19 March 2011 (UTC)

In order to include info regarding tax issues with ETFs, we would need independent reliable sources discussing the issues. - SummerPhD (talk) 03:49, 20 March 2011 (UTC)

History

There are a couple of issues in the history section:

1. "Barclays Global Investors, a subsidiary of Barclays plc, entered the fray in 1996 with World Equity Benchmark Shares, or WEBS" WEBS were actually launched by Morgan Stanley, who later sold them to BGI. Some press articles have described WEBS as having been launched by a partnership between MS and BGI, as BGI was the adviser, but BGI's involvment in the creation of the product is questionable. The initial registration statement listed Wells Fargo Nikko as the fund's adviser, with a note that wells nikko had been purchased by Barclays plc. BGI is first mentioned in later amended reg. statements, and may well not have even existed at the time of the initial registration statement. It would be more accurate to describe WEBS as originally a MS product.

2. More significantly, the same paragraph states that "WEBS were set up as a mutual fund, the first of their kind." That's just wrong. Deutsche Morgan Grenfel launched Country Baskets trading on the NYSE contemporaneously with WEBS on the AMEX. Actually, the registrations of both WEBS and Country Baskets became effective on the same day, though according to the source cited (McClatchy 82) Deutsche's product began trading exactly one week before WEBS.Wadsworthj (talk) 08:47, 20 August 2011 (UTC)

Country Baskets were liquidated early on: perhaps you could edit the article to say "WEBS were set up as a mutual fund, among the first of their kind" or better, "WEBS were among the first ETFs to be structured as a mutual fund, instead of the unit trust structure of SPDRS."

While Nikko's involvement in WEBS may have been minor, I guess the writer wanted to draw the reader's attention to BGI's entry point, as it went on to play a significant role in the history of ETFs.

--Hroðulf (or Hrothulf) (Talk) 11:21, 23 August 2011 (UTC)

Trouble understanding arbitrage mechanism

Quote: "If there is strong investor demand for an ETF, its share price will (temporarily) rise above its net asset value per share, giving arbitrageurs an incentive to purchase additional creation units from the ETF and sell the component ETF shares in the open market. The additional supply of ETF shares increases the ETF's market capitalization and reduces the market price per share, generally eliminating the premium over net asset value. A similar process applies when there is weak demand for an ETF and its shares trade at a discount from net asset value."

It seems like the investments that are in the fund do not really exist. Suppose an ETF has investments which are worth £1000 and there are 100 creation units. Then one of the "authorized participants" purchases 20 extra creation units by exchanging shares worth £200. This quote implies that because there are more creation units for the same fund, each is worth less, so the price per creation unit will drop. But this ignores the fact that the fund has received an extra £200 in shares! It looks like the £200 is pocketed by the provider of the ETF and the value remains at £1000. Similarly, if creation units are turned back into component shares, then this is a loss for the provider. The article is not clear whether this is how it works or not. Count Truthstein (talk) 14:35, 17 September 2011 (UTC)

The arbitrage mechanism acts to bring the market trading price of the ETF's shares closer to their net asset value. Suppose that the ETF holds assets such that each share has a net asset value of $100. The net asset value per share is the value of all of the assets held by the ETF, net of its liabilities, divided by the number of outstanding ETF shares. Authorized participants of the ETF can purchase and sell creation units at the net asset value per share.

Now suppose that the ETF is quite popular, and lots of people want to buy its shares on the stock market. As a result, they bid its shares up to $103 per share. (I'm using dollars rather than pounds because, frankly, I don't have the pound symbol on my keyboard.) An authorized participant now can buy additional shares from the ETF, at $100 per share, and sell them on the stock market. This selling pressure will bring the market price down to about $100 per share. John M Baker (talk) 00:15, 18 September 2011 (UTC)

I understand your explanation. It also clears up another point I was confused about. The EFT shares aren't valuable because they give the owners direct access to the ETF's investments, but because they can be sold to an authorized participant. In turn, the authorized participants find the shares valuable because they can be exchanged for the ETF component shares.

It still seems to me that the provider of the ETF does not actually have to hold the component shares, as all that matters is that they are able to redeem the ETF shares when necessary. This is a technicality however. Count Truthstein (talk) 18:53, 18 September 2011 (UTC)

I'm not sure what you mean in your second paragraph, because I don't know what you mean by "the provider of the ETF." The ETF is a legal entity, and it is required to hold its portfolio securities. The ETF uses a bank custodian for this purpose. John M Baker (talk) 19:32, 18 September 2011 (UTC)

criticsm overstated

I think the criticism section is overstated. The criticism apply to ETFs that track narrow or exotic marekts; the criticsms don't apply to ETFs that track broad markets like SnP 500, russell 2000 etc Since for the avg investor, broad index funds are appropriat, this criticism is really a vieled criticasm of how the industry has created all the exotic ETFs not to "help' investors, but to generate fees and comissions for the ifnancial industry, in the same way that the proliferation of mutual funds does nothing but genreate fees for the industry from ordinary investors.Cinnamon colbert (talk) 03:32, 5 March 2012 (UTC)

Lot of jargon

I have a PhD in molecular biology, and I know how hard it is to write simply. Having said that, I think there is way, way to much jargon in this article, given that wiki is supposed to be an encyclopedia for the mythical avg person. Eg, " ETFs offer public investors an undivided interest in a pool of securities and other assets and thus " what on earth is an undivided interest and why do I care ? I might add, that for many investors, the sole features of interest in an ETF are the total costs vs mutual funds, and the tax costs; aside from this, most of the "features" such as the ability to trade every 5 minutes, are not actually features that benefit the investor, but features that either benefit the industry or professionals That is, if you know anything about investing, you know that for most people, the more you trade, the more likely you are to loose money (after all, every trade is a trade, so one of you has to be wrong !!) thus, any "feature" that encourages any sort of trading is, actually, bad for the investor, but good for the industry, since there is almost always a fee associated with the trade.Cinnamon colbert (talk) 03:40, 5 March 2012 (UTC) I understand that for large professionals, this may not apply (eg, the guy frm Yale , in his book, noted that yale did balancing every day between asset classes)

Issuers of ETFs

I am not an editor, and did not see how to create a new talk page section. This wiki could be more complete regarding the issuers of ETF's. Here is a list of the top 50 issuers with corresponding assets under management (AUM) http://www.indexuniverse.com/sections/etf-league-tables/14433-etf-league-table-as-of-sept-5-2012.html

Issuer AUM ($, mm) Net Flows ($, mm) % of AUM

BlackRock 500,682.00 213.55 0.04%

SSgA 300,268.22 -1,400.86 -0.47%

Vanguard 220,575.20 40.27 0.02%

Invesco PowerShares 73,026.69 1.64 0.00%

Van Eck 25,309.66 85.52 0.34%

ProShares 22,369.46 -56.12 -0.25%

WisdomTree 15,823.67 2.32 0.01%

Guggenheim 11,455.32 47.16 0.41%

First Trust 7,734.83 5.13 0.07%

PIMCO 7,277.25 17.85 0.25%

Charles Schwab 7,229.98 4.90 0.07%

Barclays Capital 7,153.13 37.25 0.52%

Direxion 6,102.13 -8.95 -0.15%

JPMorgan 5,123.98 0.00 0.00%

ALPS 4,161.99 29.41 0.71%

ETF Securities 4,097.19 0.00 0.00%

US Commodity Funds 3,135.83 0.00 0.00%

Northern Trust 1,306.24 0.00 0.00%

UBS 1,303.82 0.00 0.00%

Merrill Lynch 1,270.02 0.00 0.00%

Global X 1,253.76 8.32 0.66%

Emerging Global Shares 718.36 2.31 0.32%

VelocityShares 676.71 3.17 0.47%

AdvisorShares 655.51 5.38 0.82%

IndexIQ 545.99 0.00 0.00%

GreenHaven 504.83 0.00 0.00%

Pacer Financial 425.90 0.00 0.00%

Credit Suisse 398.36 -1.18 -0.30%

Russell 274.38 0.00 0.00%

Precidian 187.17 0.00 0.00%

Fidelity 182.43 0.00 0.00%

RBS Securities 177.52 7.91 4.46%

Deutsche Bank 147.29 0.00 0.00%

Teucrium 104.46 -2.18 -2.08%

Jefferies 79.57 0.00 0.00%

Goldman Sachs 77.13 0.00 0.00%

Exchange Traded Concepts 71.22 0.94 1.31%

FFCM 56.80 0.00 0.00%

Morgan Stanley 30.81 0.00 0.00%

Columbia 25.45 0.00 0.00%

Pax World 19.02 0.00 0.00%

BNP Paribas 17.14 0.00 0.00%

Factor Advisor 15.61 0.00 0.00%

Arrow Investment Advisors 13.40 0.00 0.00%

Huntington Strategy Shares 12.51 0.00 0.00%

CitiGroup 5.63 0.00 0.00% — Preceding unsigned comment added by 108.60.43.16 (talk) 18:02, 11 September 2012 (UTC)

There is a copyright notice at the bottom of the web page you cited. I think it would be a good idea to list the top ten, without the figures but saying that they are in decreasing order of AUM. The article is big already. There is a section titled "Issuers of ETFs". Wildfowl (talk) 22:29, 14 October 2013 (UTC)

Lack of neutral Language

"Only authorized participants,", " actually buy", "and then only". Already in the second paragraph this article seems like it's trying to sell something to me. 88.152.128.228 (talk) 15:10, 21 February 2015 (UTC)

That is unfortunate. The paragraph is really trying to explain one of the key differences between ETFs and other investment funds, and that is that retail investors do *not* buy units directly from the fund. It goes on to explain who does invest in the funds, and how those units end up in the hands of retail investors. Perhaps so much detail does not belong in the lede. Feel free to propose better ways for the article to achieve its goals. --Hroðulf (or Hrothulf) (Talk) 19:43, 21 February 2015 (UTC)

No mention of the risk that obtained in the August 2015 crash

In the late August crash of 2015, a serious risk of ETF's became apparent. Trading was halted in underlying stocks even before the market opened. Market makers therefore could not make an independent assessment of underlying value. They responded by creating very large bid-ask spreads. They offered to buy ETF shares at ridiculously low prices, and to buy at ridiculously high prices. Limit-loss orders then automatically kicked in, creating huge losses for investors and huge profits for market-makers.

This risk does not seem to be mentioned. It must be.

Mcamp@cinci.rr.com (talk) 23:22, 30 August 2015 (UTC)

@Mcamp@cinci.rr.com: This sounds like a nasty unintended consequence - thanks.

1. Can you recommend good sources for this analysis of the trades?
2. Does the risk differ significantly from those of the underlying investments? If so, in which ways? Does the risk apply equally to stock, bond, future, commodity and currency ETFs?
3. Are platforms or exchanges acting to prevent this?

--Hroðulf (or Hrothulf) (Talk) 12:52, 31 August 2015 (UTC)

@Mcamp@cinci.rr.com and Hroðulf:The only reference I can find is an article in The Economist (behind a paywall). The relevant part-paragraph is: "The see-sawing in stocks may even have put cracks in the architecture of markets: many exchange-traded funds, which investors use to buy baskets of stocks or other assets, decoupled from their underlying components, trading at nerve-wracking discounts. (Others blamed this on an ill-timed computer glitch.)". Wildfowl (talk) 21:11, 31 August 2015 (UTC)

What does "track" mean in this context?

This page says that "Most ETFs track an index". What does it mean to "track an index"? What it sounds like to me is that ETFs trade fake, valueless notes that are artificially priced to some reference asset. Is that what "track" means? Please explain it further, or in a different way, in the definition. 73.231.102.229 (talk) 06:24, 4 November 2015 (UTC)

Arbitrageurs incentive

The article says when the share price is temporarily above NAV, it gives arbitrageurs incentive to purchase additional creative units and sell the component ETF shares in the open market. Isn't it supposed to be other way round? Sell creative units and purchase component shares?--Pranav Varma 07:32, 16 April 2020 (UTC)

Exchange-Traded Portfolios

This term is used by WSJ and some research firms: here. Slavic frontier (talk) 09:15, 19 March 2021 (UTC)

exchange traded portfolios

Home use 197.215.21.250 (talk) 00:22, 27 July 2022 (UTC)

Wiki Education assignment: Research Process and Methodology - SP23 - Sect 201 - Thu

This article was the subject of a Wiki Education Foundation-supported course assignment, between 25 January 2023 and 5 May 2023. Further details are available on the course page. Student editor(s): StellaQuan441 (article contribs).

— Assignment last updated by xiaoqian quan (talk) 00:51, 8 April 2023 (UTC)