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Erschienen in:

2016 | OriginalPaper | Buchkapitel

2. Characteristics of Exchange-Traded Funds: Weighting Myths and Realities

verfasst von : A. Seddik Meziani

Erschienen in: Exchange-Traded Funds

Verlag: Palgrave Macmillan UK

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Abstract

Mutual funds still dominate the index-fund industry, but exchange-traded products have been catching up to them very quickly. With more than 1,600 products and over $2 trillion in net assets under management, they are now considered by investors as a practical alternative to mutual funds. Exchange-traded funds (ETFs) and exchange-traded notes (ETNs) are the two most common varieties of exchange-traded products. This book’s emphasis is on the former.

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Vorheriges Kapitel Evolution and Outlook of the ETF Market: From a Trickle to a Mighty Roar

Nächstes Kapitel Exploring the Tax Advantages of Exchange-Traded Funds

https://www.invesco.com/portal/site/us/financial-professional/etfs/product-detail?productId=ADRE.

Note that we were unable to identify the exact termination date of these ADR ETFs even after reading the “Termination of a Fund” section several times. If this information indeed exists, we leave it to the discretion of the reader of this chapter (or the sponsor of the fund) to share with the author its exact location in the prospectus.

According to SPY’s prospectus, the fund pays dividends four times annually—on the last business days of April, July, October, and January.

Chelsey Dulaney, “IBM Boosts Quarterly Dividend 18%,” Wall Street Journal, April 28, 2015, Section C.

FactSet.com: http://www.factset.com/websitefiles/PDFs/dividend/dividend_6.19.14 (as of June 19, 2014).

Tracking Error = Return_B—Return_F, where B = benchmark and F = fund.

$ TE=\sqrt{\frac{{\displaystyle \sum}_{i=1}^n{\left({R}_F-{R}_B\right)}^2}{N-1}} $, where TE = tracking error, R_F = returns of the fund, R_B = returns of the benchmark and N = number of return periods.

Unlike ETFs, a corporation issues a limited number of shares.

Of these 10 stocks, ERSTE GROUP BANK ORD (EBKOF) alone accounts for 17.10% of the total, followed by VOESTALPINE AG (VLPNF), OMV AG (OMVJF) and ANDRITZ AG GRAZ (ADRZF), with 9.86%, 9.72%, and 8.83% of the index holdings, respectively, or 36.68% of its total as of May 10, 2015 (http://www.ishares.com/info_detail.jhtml).

Suffice to say that these scandals were serious enough to cause the resignation of Lawrence Lasser, the then-chief executive of Putnam Investments LLC, and the banishment from the industry of Richard Strong, the founder of Strong Capital Management, a company that was later absorbed by Wells Fargo.

For more information on the scandals that rocked the mutual fund industry, see Paul Schott Stevens, “Mutual Funds’ Duty to Investors,” InvestmentNews, September 8, 2013.

Ackert, Lucy F., and Yisong S. Tian, “Arbitrage and Valuation in the Market of Standard and Poor’s Depository Receipts,” Financial Management, 29 (2000), pp. 71–87.

Engle, Robert F., and Debojyoti Sarkar, “Premiums-Discounts and Exchange-Traded Funds,” Journal of Derivatives, 13(4) (Summer 2006), pp. 27–45.

Hedge, Shantaram P., and John B. McDermott, “Market Liquidity of Diamonds and Cubes and Their Underlying Stocks,” Journal of Banking and Finance, 28(5) (May 2004), pp. 1043–1067.

The 12(b)-1 fee is levied to cover the cost of marketing and distributing the fund. Assessed annually for as long as the fund is owned, it can amount to as much as 1% of assets.

http://www.etf.com/etf-education-center/21012-why-are-etfs-so-cheap.html.

Alerian has been reported as grossly understating its AMLP to the SEC until August 25, 2012, making investors believe that they were paying only 0.85% per year when in reality the fund’s expense is more like 8.56%, per the amendment to its prospectus that it filed with the Commission.

http://etfdb.com/compare/highest-expense-ratio/.

http://www.etfreplay.com/etf/amlp.aspx.

https://screener.fidelity.com/ftgw/etf/goto/snapshot/performance.jhtml?symbols=AMLP.

For a more systematic treatment of the tax efficiency of ETFs, the reader is encouraged to read an article written by this author on this specific topic in 2001: “Along Came A SPDR: How Tax-Efficient Are S&P Depositary Receipts?” The article is in “A Guide to Exchange-Traded Funds,” edited by Brian Bruce, Institutional Investor, pp. 144–154.

Mutual funds can be marginable, but unlike ETFs, they can be used as collateral to a margin account only after they have been fully paid for and held over 30 days. They cannot be, however, purchased on margin, as can ETFs or regular stocks.

Titel: Characteristics of Exchange-Traded Funds: Weighting Myths and Realities
verfasst von: A. Seddik Meziani
Verlag: Palgrave Macmillan UK
Buch: Exchange-Traded Funds
Print ISBN: 978-1-137-39094-3

Electronic ISBN: 978-1-137-39095-0

Copyright-Jahr: 2016
DOI: https://doi.org/10.1057/978-1-137-39095-0_2