What does an exchange-traded fund mean? What is its formation mechanism? In the past, when the Internet was not developed, there were two ways to buy a fund: one was to queue up at a bank (or third-party institution); I went to the stock exchange floor to queue up. If things go on like this, funds that are traded on the stock exchange are called on-market funds, and funds that are not traded on the stock exchange are called over-the-counter funds; the price formation mechanism of on-market funds is that different funds have "unit net value" and "transaction price" Two prices.
We are no strangers to over-the-counter funds, which are ordinary open-end funds that everyone often comes into contact with, as well as some fixed-open funds and holding period funds. So, what do exchange funds refer to? The most common exchange funds currently on the market mainly include ETFs, LOFs and closed-end funds.
ETF: The English name is "ExcangeTradedFunds", the Chinese name is "Traded Open Index Fund", it is an open-end fund that is listed and traded on the exchange and the fund shares can be converted into cash. It uses passive management and completely replicates the constituent stocks of the index as the fund's investment portfolio. The operation combines the characteristics of closed-end funds and open-end funds. Investors can subscribe or redeem fund shares from the fund management company. At the same time, they can buy and sell in the secondary market at market prices like closed-end funds. However, the subscription Redemptions must be made in exchange for a basket of stocks for Fund shares or for Fund shares to be exchanged for a basket of stocks.
LOF: The English name is "ListedOpen-endedFunds" and the Chinese name is "Listed Open-ended Funds". It is an innovation in the trading method of open-ended funds. But the difference from ordinary open-end funds is that they can be traded on the market and have two prices: one is the fund's "net unit value" that we see every night, which is the over-the-counter trading price; the other is the same as stocks. Real-time changes in the market are called "transaction prices", which are the prices on the market.
Closed-end funds: They correspond to open-end funds. As the name suggests, they enter a closed period once established. During the closed period, the fund size remains unchanged. Investors cannot subscribe and redeem, but can only Transactions on the secondary market. Since there is no redemption risk in closed-end funds, it is convenient for fund managers to implement medium- and long-term investment plans and make long-term investments and value investments.
At present, open-end funds have become the mainstream variety in the international fund market. More than 90% of the fund markets in the United States, the United Kingdom, Hong Kong and Taiwan are open-end funds. Compared with closed-end funds, open-end funds have greater advantages in terms of incentive and restraint mechanisms, liquidity, transparency and investment convenience.
How are these two prices of on-exchange mechanism funds formed?
In the primary market, the price at the time of fund application and redemption is the net value of the unit share of the fund, and the net value is based on The market prices of stocks, bonds, and other securities invested by the fund, plus the cash retained, calculated using weighted methods, can also be regarded as the "intrinsic value" of the fund.
Why do funds rise and fall in the secondary market?
It is because when on-site funds such as ETFs, LOFs and closed-end funds are traded in the secondary market, The price is just like a stock, determined by the supply and demand relationship in the secondary market, which is its "transaction price." In the stock market, buying and selling prices fluctuate. Once the closing price is inconsistent with the net value announced on that day, a "premium" or "discount" will occur. If the transaction price is greater than the net value, it is called a premium; if the transaction price is less than the net value, it is called a discount.