Is etf fund safe? There are many kinds of funds, among which ETF funds are favored by investors, so are ETF funds safe? Which is better to buy ETF fund or general fund? The following small series has prepared the security analysis of etf funds for your reference.
Is etf fund safe?
ETF fund is a kind of fund traded in stock exchange, which is characterized by good liquidity, low cost and low risk. From the security point of view, ETF funds are relatively safe compared with stocks, but there are also some risks to be noted:
1. market risk: the net value of ETF is affected by market conditions, so when the market fluctuates or falls sharply, its net value may also be affected, and investors may face the risk of loss or even loss.
2. Liquidity risk: ETF has good liquidity, but when the market fluctuates greatly or panic selling occurs, there may be risks such as excessive selling pressure leading to price drop, poor liquidity and widening bid-ask spread.
3. Operational risk: ETF's investment strategy and operational mechanism are relatively complex, and investors need to have certain market analysis and operational skills, otherwise it will easily lead to operational risk.
Which to buy, etf fund or general fund?
Compared with other types of funds, the cost of ETF funds is lower, and the market risk and liquidity risk are relatively small. When choosing funds, you can consider buying ETF funds. However, the risk of ETF funds also needs investors to fully understand and understand in order to make correct decisions.
When choosing between ETF and general fund, you need to consider your investment objectives, risk tolerance, time and experience. ETF funds have low fees and good liquidity, and are suitable for investors who want to buy and sell quickly and pursue short-term gains. Ordinary funds, on the other hand, pay more attention to long-term value investment and asset allocation, which is suitable for investors seeking stable long-term returns.
Generally speaking, ETF fund is a relatively safe investment tool, but it also has certain risks. Investors should choose suitable investment products according to their own conditions, formulate scientific investment plans and strategies, and avoid excessive trading or investment mistakes caused by emotional fluctuations and blindly following the trend.
Is etf fund risky?
Etf fund is a high-risk fund investment, but the corresponding high risk will also bring high returns. Etf funds mainly track a specific index. When the stock market rises, the net value of the corresponding etf fund will increase. When the stock market falls, the net value of etf funds will also decrease. This shows that etf funds are linked to the stock market. For investors with average risk tolerance, it is not recommended to invest in etf funds.
There are two main risks of etf funds. One is the risk existing in the financial market itself, that is, system risk, which can also be understood as the risk of market ups and downs; The other is the risk of all open-end funds, such as liquidity risk of funds, failure of purchase and redemption, etc.
Based on the above, the risk of etf funds is relatively large. Before investing in etf funds, we must rationally evaluate individual risk tolerance and avoid unbearable economic losses.
Funds are also risky, so how big is the investment risk of ETF funds? What misunderstandings should ETF fund investment pay attention to?
1, systemic risk of the underlying index:
According to portfolio theory, the risk of investing in a stock includes market risk and individual enterprise risk, but the market risk brought by overall economic factors cannot be eliminated by diversification. ETF is a tool for investment index. The so-called systemic risk is the risk of market ups and downs. Once it falls, investors will face losses, which is inevitable. However, investors should have the idea that only by taking the risk of market decline properly can they have the opportunity to gain the benefits of index rise.
2, tracking error risk:
The main task of ETF issuer is to control the tracking error between fund and index. It is precisely because the fund manager aims at minimizing the tracking error that short-,medium-and long-term investors can get almost the same investment return as the index by using ETF, or hedge investors can avoid the impact of market risks by using short ETF. In addition, the goal of minimizing tracking error also ensures that investors will not lose profits because of the sudden increase or decrease of tracking error during market activities.
3, can't surpass the index performance:
At present, in the financial market, the indexed investment method has been considered to be mature and successful. On the whole, the biggest disadvantage of this investment method that is prepared to follow the index is that ETF investment can only be close to the market during the bull market, and it is difficult to outperform the market. During the bear market, ETFs will also fall with the index. In addition, because ETF transactions need the same handling fee as stocks, if the trading is too frequent, the originally relatively low handling fee will become a relatively high handling fee.
4. Portfolio cannot be changed at will:
In order to keep up with the trend of the index, ETF's portfolio will only be adjusted when the index itself changes. Unlike other active funds, ETF can't change its portfolio because of poor performance of certain industries, nor can it overweight because it is particularly optimistic about certain industries.
5. Unable to enjoy the rights of direct shareholders;
As ETF belongs to the investment form of fund, it is the beneficiary certificate of investment through ETF issuer, even if its trading method is completely consistent with that of stock, ETF investors cannot be regarded as stock investors. Generally speaking, the rights of shareholders holding shares will be exercised by ETF issuers. For example, the rights issue will be directly reflected in the net value of ETF, and the participation in the shareholders' meeting is generally executed by the fund issuer.
6. Risk of fund net value fluctuation:
Because ETF funds aim at copying the underlying index, when the underlying index fluctuates due to various factors, the ETF net value will also fluctuate. This is the biggest risk of investing in ETF.
7. Transaction discount premium risk:
Secondary market discount premium risk: ETF has built-in arbitrage mechanism, which will make its market value and _ value not much different. In fact, it is precisely for this arbitrage mechanism that ETFs must track open-end indexes. The relationship between supply and demand in the secondary market determines the discount premium of ETF, but the relationship between supply and demand in the secondary market may be different from that in the broader market, so the price performance of ETF may be inconsistent with that in the broader market.
Since ETF is listed and traded in the centralized market, the transaction price is the market price of ETF, and there will be market prices during the session and at the close. At the same time, ETF also invests in a basket of stocks or fund targets, so the _ value of ETF will also change every day. The total market value of securities held by ETF can be divided by the total number of shares to calculate the _ value of ETF. The difference between the market price and _ value represents that ETF is in a premium or discount state.
When the market price is higher than _ _ value, it is the so-called "premium", which reflects the eagerness of the market, and the demand of investors for the ETF is greater than the supply, which makes the stock price higher than _ _ _ _ _ _ _. On the contrary, when the market price is lower than the value of _, the so-called "discount" is formed, which shows that the stock price of ETF is lower than its own value and investors are not confident.
8. Total cost rate risk:
The operation of purchasing ETF requires the participation of three financial institutions. First, the asset management company is paid by investors and is responsible for managing the daily operation of ETF. The second is that the custodian is responsible for the custody of ETF assets, which can be a bank or a trust company; The last one is the index provider, which is responsible for the construction and maintenance of the index. They authorize ETFs to use indexes and earn licensing fees from them. Every time investors buy ETFs, they have to pay commissions or handling fees, which sometimes offset the cheap advantages of ETFs, especially small regular investments.
9. Liquidity risk of the underlying stock:
Since most ETFs are mainly index stocks in specific markets, investing in ETFs in specific markets is equivalent to investing in specific markets, but we should pay attention to the problem of low liquidity. Therefore, investors only need to maintain the principle of long-term holding and diversify their investment time and market.
10, exchange rate risk
With the advent of globalization, investors may invest in overseas ETFs, which will lead to exchange rate risk. It is best for investors to know the exchange rate before entering the market, so as to avoid making money and losing the exchange rate.
Investment misunderstanding:
Myth 1: Only extended families can enjoy it.
Many investors mistakenly believe that the investment threshold of ETF is too high, and the minimum redemption units range from hundreds of thousands to millions. The physical redemption of a basket of stocks is complicated and only suitable for investors with large funds. In fact, ETF shares can be listed and traded like stocks, without stamp duty, starting with one hand (100 shares), and investors with small funds are fully capable of participating.
Myth 2: A bull market can make a profit.
With the expansion of ETF application, many application strategies have nothing to do with the bull-bear stage of the market. For example, the fluctuating band operation strategy means that there are profit opportunities, and the matching trading strategy with price difference changes means that there are profit opportunities. ETFs that are included in the margin trading target are short when the market falls.
Myth 3: only used for speculation and shorting.
ETF has both trading and configuration functions. As an index fund, ETF can perfectly shoulder the mission of medium and long-term index investment and portfolio asset allocation, and its transaction cost and tracking error are far lower than those of ordinary open-end index funds. With the introduction of innovative products such as cross-border ETFs, fixed-income ETFs, commodity ETFs and even leveraged ETFs, ETFs can provide richer medium-and long-term asset allocation schemes.
Myth 4: only keen on arbitrage trading.
The instantaneous arbitrage in the primary and secondary markets is only one of many application strategies of ETF, and the profit margin is very small. In addition to band operation and asset allocation, many strategies such as intra-day T+0 trading, industry rotation, style rotation, market neutrality and long and short positions have been applied in actual combat. Even in arbitrage trading, multi-strategy event arbitrage, spot arbitrage and cross-market arbitrage are constantly expanding the application boundary of ETF.
Myth 5: only think that the risk is extremely high.
Stock ETF almost operates in Man Cang, and its net value fluctuates greatly. But ETF can be regarded as a "super stock" composed of many constituent stocks. Compared with a single stock, ETF can fully spread risks. For investors with little capital or weak stock selection ability, ETF is an excellent tool to spread the unsystematic risk of individual stocks.
Myth 6: Focus only on advanced strategies.
Some investors believe that the more complex the ETF trading application strategy, the more perfect the trading system, the higher the trading frequency, the higher the profit probability and the higher the income. However, practice has proved that the complexity and trading frequency of ETF trading strategy are not necessarily proportional to the rate of return. In actual combat, ordinary investors also have many opportunities to obtain satisfactory returns by analyzing simple technical indicators and even using simple fixed investment strategies.
Myth 7: Share changes are often wrong.
Some investors tend to misread the share changes of ETFs after subscribing to ETFs during the issuance period, and feel that the scale of ETFs subscribed by them has suddenly shrunk dramatically. In fact, the share of ETF at the time of its establishment is different from that announced after its operation.