Advantages of ETF First of all, ETF is an open-end fund. Investors can trade in the secondary market, or apply directly to the fund manager for subscription and redemption. This openness enables investors to arbitrage in the primary and secondary markets. The existence of arbitrage can restrain the deviation between the secondary market price and the net fund value, so that the transaction price in the secondary market is basically the same as the net fund value, unlike closed-end funds with discount transactions.
Secondly, in open-end funds, the transaction cost of ETF funds is low. Generally, the subscription and redemption costs of open-end funds are in the range of 1%- 1.5%, while the transaction costs of ETFs are only 0.5%. Moreover, ordinary fund investors need to go through banks, brokers and other consignment agencies, and it takes 3-7 trading days to receive the redemption money after redemption, while investment ETF funds can be traded directly through the exchange according to the public quotation, just like buying and selling closed-end funds such as stocks, the funds will arrive the next day after sale.
Therefore, ETF has the advantages of low transaction cost, convenient transaction and high efficiency.
Thirdly, ETF investment adopts passive indexation investment strategy, because it tracks the index of representative target, and the investment risk is more controllable. Investors can effectively avoid the unsystematic risks of the market by investing in a basket of representative index stocks at a lower cost. Usually, when the market falls, the loss of investing in ETF will be less than that of investing in other funds and directly investing in stocks.
The shortcomings of ETF Of course, when the bull market is coming and the stock market is booming, the shortcomings of ETF are also obvious. In the bull market, the index usually can't outperform the popular sector, so it is difficult to get the income beyond the broader market by investing in ETF funds.
In addition, ETF can be traded in real time through stock software, which will make investors have a gambling mentality when investing in stocks, and it is difficult to hold them for a long time because of frequent trading. Unlike investors who buy OTC funds, non-index funds do not display the ups and downs of the day in real time, so to some extent, they also alleviate investors' panic.
On the one hand, investors need to choose the right investment opportunity. When buying ETF, investors should choose the time when the transaction price is lower than the actual net asset value of the stock.
In addition, investors can also make profits through arbitrage trading. For example, when the market transaction price of SSE 50ETF is higher than the net value of fund shares, investors can buy portfolio securities, use the portfolio securities to buy ETF fund shares, and then sell the fund shares in the secondary market, and vice versa.
However, arbitrage trading requires skilled trading skills, which are difficult for retail investors to practice. Generally speaking, investors who are not particularly demanding on investment returns can reduce investment risks by investing in ETFs, saving time and worry.