Exchange-traded index funds, often referred to as exchange-traded funds (Exchange Traded Funds, referred to as "ETF"), ETF is an exchange-traded fund share of the variable of an open-end fund.
Exchange-traded index funds are open-end fund is a special type of closed-end funds, and it combines the advantages of open-end fund, investors can either ETF shares traded in the secondary market, they can purchase or redeem fund management companies back to the ETF shares, but must purchase a basket of shares redeemed (or a small amount of cash) in exchange for fund shares or to fund shares in exchange for a basket of stocks (or a small amount of cash). Owing to the existence of secondary market transactions and subscription and redemption mechanism, secondary market investors can trade in the ETF price and NAV when the difference between the arbitrage trading. Arbitrage mechanism, there can ETF to avoid closed-end fund discount common problem.
Two ways investors can buy ETF: in the stock market closed, following the day of the NAV of fund managers to buy (and common as open-end mutual fund); also from other directly in the stock market, where investors purchase, purchase price determined by the buyers and sellers together, often with funds at this price there is a certain gap between the net value (the same as an ordinary closed-end funds).
ETF Advantages1, ETF-diversification, to reduce investment riskInvestors buy units of a fund China - Shanghai 50ETF, equal to the purchase by the weight of all the SSE 50 Index stocks.
2, ETF-both the characteristics of stocks and index funds(1) for ordinary investors, ETF shares can be as common as in the transaction split into smaller units, in exchange secondary market trading. (2) make the index to make money, investors no longer have to research stocks, shares the worry about stepping on landmines; (2010, short of China's securities market mechanism does not currently exist, so there is a "index fell would lose money," the of 2010 in April, the index futures opened December 5, 2011, the ETF fund has seven subject areas included in margin)
3, ETF closed with a combination of the advantages of open-end fund
ETF and closed-end funds we are familiar with, like, can be small "units" in the form of exchange-traded. With a similar open-end funds, ETF allows investors to continuously purchase and redemption, but redemption of ETF at the time, investors not to get cash, but a basket of stocks at the same time required to reach a certain size before allowing the purchase and redemption back. ETF and closed-end funds compared to the same point is to have exchange-listed securities, like stocks listed on the transaction at any time of day, the difference is: ① ETF transparent. Because investors can continuously Subscription / Redemption, requiring fund managers and portfolio announced net frequency of the corresponding speed. ② As a continuous subscription / redemption mechanism exists, ETF's NAV and market price theory does not exist a discount / premium. ETF fund compared with the open-end funds, there are two advantages: First ETF on the Exchange listed transaction at any time of day, with the convenience of the transaction. Open-end funds generally can only be opened once a day, investors only once a day trading opportunities (ie, subscription and redemption); Second ETF redemption is to deliver a basket of stocks, without the need to retain cash to facilitate the operations manager, can improve the Fund investment management efficiency. Open-end funds often need to keep some cash to meet redemptions, open-end fund investors when the fund shares, when redeemed, often forcing fund managers constantly adjust the investment mix, the resulting tax and investment opportunities in some of the losses by those who do not require the redemption of long-term investor. This mechanism ensures that when some investors to redeem ETF when the ETF's long-term investors do not have much impact (because redemption of the stock).
4, ETF trading costAlthough the ETF in exchange-traded costs has not been finalized, but is estimated to not exceed the cost of closed-end funds, which are now far more open-ended fund subscription and redemption fees low.
5, the day investors can arbitrage.
For example, the card 50 in a major fluctuations in the trading day, the day was more than 5% intraday gain to close it flat or even decline. Open for ordinary investors, index funds, intraday or longer most of the day does not make sense, redemption price can only be calculated based on closing price, ETF's characteristics can help investors to seize the opportunity to dish up. As the exchange every 15 seconds to display a IOPV (net valuation), this index reflects the ups and downs IOPV immediately bring changes in net funds, ETF's secondary market prices change with IOPV, so investors can dish rose promptly thrown in the secondary market when the ETF, index day delivery rose to get the benefits.
