Exchange-traded funds refer to funds that can be listed and traded on exchanges, also known as ETFs (Exchang Traded Funds). They are an open-end fund that is listed and traded on exchanges and has variable fund shares. fund. It represents an investment portfolio of a basket of stocks. Investors complete the purchase and sale of a portfolio (such as all constituent stocks of an index) at one time by purchasing a fund. It is a special type of open-end fund that combines the advantages of closed-end funds and open-end funds. Investors can not only buy and sell ETF shares in the secondary market, but also subscribe or redeem ETF shares from fund management companies. However, the subscription Redemptions must be made in exchange for a basket of stocks (or a small amount of cash) for Fund shares or for Fund shares to be exchanged for a basket of stocks (or a small amount of cash). Due to the simultaneous existence of secondary market transactions and subscription and redemption mechanisms, investors can conduct arbitrage transactions when there is a difference between the ETF secondary market transaction price and the net value of the fund unit. The existence of the arbitrage mechanism allows ETFs to avoid the discount problem common to closed-end funds.

Investors can purchase ETFs in two ways: they can purchase them from the fund manager according to the net value of the fund on that day after the securities market closes (the same as ordinary open-ended ETFs); or they can Purchase directly from other investors in the securities market. The purchase price is determined jointly by the buyer and seller. This price is often a certain gap from the net value of the fund at that time (the same as ordinary closed-end funds).

Its advantages are:

1. Diversify investment and reduce investment risks

Passive investment portfolios usually contain more targets than general active investment portfolios Quantity, an increase in the number of targets can reduce the impact of a single target's fluctuations on the overall investment portfolio, and at the same time reduce the volatility of the investment portfolio through the different impacts of different targets on market risks.

2. It has the characteristics of both stocks and index funds

(1) For ordinary investors, ETFs can also be split into smaller transactions like ordinary stocks. Units are then bought and sold on the exchange’s secondary market.

(2) If you earn the index, you will make money. Investors no longer need to study stocks and worry about stepping on landmine stocks; (Before 2010, there was no short-selling mechanism in my country's securities market, so there was an "index" If it falls, you will lose money.” In April 2010, stock index futures were opened, and since December 5, 2011, seven ETF funds have been included in the scope of margin trading and securities lending targets)

3. Combined Advantages of Closed-End and Open-End Funds

ETFs, like the closed-end funds we are familiar with, can be traded on exchanges in the form of small "fund units". Similar to open-end funds, ETFs allow investors to subscribe and redeem continuously. However, when redeeming ETFs, investors receive not cash but a basket of stocks. Subscriptions and redemptions are only allowed after reaching a certain scale. Back.

Compared with closed-end funds, ETFs are both listed and traded on exchanges. They are listed like stocks and can be traded at any time during the day. The differences are: ①ETFs are more transparent. Since investors can subscribe/redempt continuously, fund managers are required to publish their net worth and investment portfolio more frequently. ② Due to the continuous subscription/redemption mechanism, theoretically there will not be a large discount/premium between the net value of ETFs and the market price.

ETF funds have two advantages compared with open-end funds. : First, ETFs are listed on exchanges and can be traded at any time during the day, which provides transaction convenience. Generally, open-end funds can only be opened once a day, and investors have only one trading opportunity (i.e., subscription and redemption) per day; secondly, when ETF is redeemed, a basket of stocks is delivered, without the need to retain cash, which is convenient for managers to operate and can increase the profitability of fund investment. Management efficiency. Open-end funds often need to retain a certain amount of cash to cope with redemptions. When investors in open-end funds redeem fund shares, they often force fund managers to constantly adjust their investment portfolios. The resulting taxes and losses of some investment opportunities are caused by Those long-term investors who have not requested redemptions bear the responsibility. This mechanism can ensure that when some investors in the ETF request redemption, it will not have much impact on long-term investors in the ETF (because the redemption is for stocks).

4. Low transaction costs

Index investments often feature low management fees and low transaction costs. Compared with other funds, index investment does not aim to outperform the index. The manager will only adjust the investment portfolio according to changes in index components, and does not need to pay investment research and analysis fees, so it can charge lower management fees; on the other hand, , Index investment tends to hold purchased securities for a long time, and unlike active management, which must pay higher transaction costs due to active buying and selling resulting in a high turnover rate, index investment does not actively adjust the investment portfolio, the turnover rate is low, and transaction costs are naturally reduced. .

5. Investors can take arbitrage on the same day

For example, the Shanghai Composite 50 fluctuated significantly within a trading day. The intraday increase was more than 5%, but the market closed flat or even fell. For ordinary open-end index fund investors, no matter how large the intraday increase is, it is meaningless. The redemption price can only be calculated based on the closing price. The characteristics of ETF can help investors seize the opportunity of intraday rise.

Since the exchange displays the IOPV (net value valuation) every 15 seconds, this IOPV instantly reflects the changes in the fund's net value caused by the rise and fall of the index. The ETF secondary market price changes with the change in IOPV. Therefore, investors can intraday When the index rises, sell the ETF promptly in the secondary market to obtain the profits from the intraday rise in the index.

6. High transparency

ETF adopts passive management, completely replicating the constituent stocks of the index as the fund investment portfolio and investment return rate. The fund holdings are quite transparent and easier for investors to understand. Portfolio characteristics and fully understand the status of the portfolio to make appropriate expectations. In addition, the index value and estimated fund net value are updated every 15 seconds for investors' reference, allowing investors to keep track of price changes and buy and sell at prices close to the fund's net value at any time. Neither closed-end funds nor open-end funds can provide the convenience and transparency of ETF trading.

7. Increase market hedging tools

Since ETF products can be conceptually regarded as an index spot, and combined with the commodity characteristics of ETF itself that can be operated in both long and short positions, if institutional investment If you have stocks in hand, but are not optimistic about the performance of the stock market, you can use securities lending to sell ETFs to perform reverse operations to reduce the amount of spot losses on hand. For the overall market, the birth of ETFs has made financial investment channels more diversified and increased short-selling channels in the market. For example, in the past, when institutional investors operated funds, they could only avoid risks by reducing their positions. Although short-selling channels were added after the launch of futures, investors still had to face monthly closing and transaction costs when using futures as a long-term hedging tool. and price difference issues. Using ETFs as hedging tools can not only reduce the risk of stock positions, but also eliminate the need to sell stocks in the spot market, thus providing investors with more diversified choices.

There are two ways to trade exchange-traded funds.

◎First, investors subscribe and redeem funds directly from the fund company. This has a certain quantity limit, usually 50,000 fund units or an integral multiple thereof; and it is a payment-in-goods transaction, that is, when subscribing and redeeming, what is paid or received is not cash but a basket of stocks.

◎The second is to list and trade on the exchange in the current way. Unlike typical open-end funds, ETFs can be bought and sold throughout the trading day, just like stocks, and can also be traded for short-term arbitrage.

We hope it will be helpful to you. If you have any questions, you can further consult our expert team.