Exchange-traded funds refer to funds that can be listed and traded on exchanges, also known as ETFs(ExchangTradedFunds), which represent a portfolio of stocks. For domestic investors, this is still a strange new thing, so we only introduce some of its basic characteristics.
In the early 198s, a new technology appeared in new york Stock Exchange, which enabled investors to buy and sell a portfolio (such as all the constituent stocks of an index) at one time by issuing a single trading order. This provides a basis for the emergence of exchange traded funds.
in January p>1993, the world's first exchange-traded fund was listed on the American Stock Exchange, tracking the S&P 5 index. According to the statistics of the Association of Investment Companies, as of September 23, there were 115 exchange-traded funds in the US market, with a net asset value of about $119.8 billion. The key to the popularity of exchange traded funds with flexible trading and low cost lies in their advantages of flexible trading and low cost.
there are two trading methods for exchange-traded funds. First, investors directly purchase and redeem from fund companies. This has a certain number limit, generally 5, fund units or an integral multiple thereof; Moreover, it is a transaction of goods for payment, that is, when purchasing and redeeming, what is paid or recovered is not cash but a package of stocks. Second, it is listed on the exchange and traded in cash. Different from the usual open-end funds, exchange-traded funds can be bought and sold all day on the trading day, just like buying and selling stocks, and they can also conduct short-term arbitrage transactions. Therefore, only institutions or wealthy individuals can directly purchase and redeem from fund companies. For ordinary individual investors, they can only buy and sell on the exchange through brokers.
Because most of them are passively managed indexed investments, exchange-traded funds do not need to bear the expenses of huge investment and research teams, so the cost is low, and their management fee is even lower than that of the index fund with the lowest fee. For example, SPDRs reduced the management fee to .12% per year in 2.
passive investment or indexed investment is the characteristic of exchange traded funds, and the indexes they choose are mostly familiar and widely recognized by investors. In the United States, there are SPDRs closely following the Standard & Poor's 5, Qubes following the NASDAQ 1, and so on.
indexed investment and arbitrage mechanism
why choose indexed investment? Because exchange-traded funds must rely on arbitrage mechanism to maintain the consistency between the exchange market price and the net asset value, and arbitrageurs need comprehensive and timely information about the fund portfolio. Because it is usually impossible for active investment funds to disclose their portfolio information frequently, passive index investment has become the first choice.
the market price of exchange-traded funds is not based on the net value of the fund unit, but depends on the relationship between supply and demand of the fund, which is driven by the portfolio value of the fund assets. In addition, there are other influencing factors, so the market price of the fund fluctuates around the unit net value.
It is worth noting that the arbitrage mechanism formed by allowing large institutions to purchase or redeem makes the market price of the fund not deviate too much from the unit net value. For example, when the fund trades at a discount, institutional investors will buy fund units through the secondary market, then redeem them to get a portfolio of stocks, and then sell them for profit. This arbitrage transaction greatly increases the demand for discount trading funds, thus narrowing the gap between the market price of funds and the unit net value. It is precisely because of the existence of arbitrage mechanism that the market price of funds is consistent with the unit net value in most cases. Editing and finishing of stock knowledge network