The Creation and Redemption Process and why it Matters for ETFs
OVERVIEW
Session Highlights:
- The Creation/Redemption mechanism as the key to understanding how ETFs works.
- It allows ETFs to be less
expensive, more transparent, and more tax efficient than traditional
mutual funds.
- It keeps ETF share prices trading
in line with the fund’s
- underlying net asset value
- It recognize the value of the
authorized participant (AP) in keeping ETF share prices in line with fair
value through a process known as arbitrage.
With the increasing popularity of
exchange-traded funds (ETFs), the market is seeing institutional investors,
consultants and individual investors alike using them for a wide range of
portfolio purposes thanks to their transparency, liquidity, and the access they
offer to a broad range of asset classes.
In a nutshell, the purpose of this webinar is
to explain what they are, how they compare to individual stocks and mutual
funds, and how they work. It’s the first of a series of webinars that outline
their characteristics, benefits, the breath of investment strategies they
facilitate, but also the systematic risks they could pose to those who use them
without thoroughly understanding them.
This webinar and subsequent ones draw on my
experience as (i) a
professor of finance who uses ETFs in various
finance courses and
included on a worldwide list of seventeen “ETF
friendly professors” compiled by Yahoo finance, (ii) an author of three ETF
books, (iii) a researcher who penned 30 ETF research articles, and (iv) an ETF
speaker who has been invited to talk about them for the past 16 years at
professional conferences as a guest speaker, panelist, moderator and keynote
speaker.
 |
| The Creation and Redemption Process |
WHY
SHOULD YOU ATTEND
This webinar is conceived for both novice and
experienced investment professionals interested in using ETFs as part of their
investment strategies. This ETF webinar will provide knowledge and perspectives
that can help them formulate informed investment decisions. The complexities
surrounding ETFs such as their creation/redemption process will be sorted out
for those seeking to put them to work in their portfolios.
This webinar will also benefit academics
seeking to include ETFs in their research agenda and CPA’s, CFA’s and CFP’s who
are turning their attention to this unique breed of investment products.
AREAS
COVERED
- What exactly are ETF?
ETFs are portfolios of holdings across a
variety of asset classes. In addition to broad-based asset class exposure, they
also allow investors to take advantage of global opportunities almost anywhere
in the world including hard reaching areas like frontier markets. ETFs are
listed on intraday trading exchanges and can be bought and sold throughout the
day.
- How do they compare to individual
stocks and mutual funds?
ETFs are investment funds that share thecharacteristics of both individual stocks and mutual funds. Just like stocks,
they trade real time (intraday) on an exchange. Mutual funds, on the other
hand, are priced only at closing and cannot be traded intraday. ETFs also share
the characteristics of index funds since they aim to replicate the performance
of the index they track minus fees.
- What do they do?
They don't try to beat the market; they try to
be the market. Most aim to replicate the performance of the index they
passively track minus fees. Investors can do just about anything with an ETF
that they can do with a normal stock. If an investor wants to buy stocks in
Russia, he could simply buy an index ETF mimicking the Russian stock market but
traded on a U.S. exchange rather than risking putting funds into Russia
directly.
- What benefits do they offer?
Broadly speaking, the benefits they offer fall
into five main categories:
- Transparency : Investors are able
to know what they own every
- single day
- Liquidity: ETFs can be traded at
any ????me the market is open. This gives them the ability to be sold and
bought quickly, easily, and at a reasonable transaction cost.
- Cost effectiveness: ETFs are
cheap because of their passive nature.
- Flexibility: ETF can make changes
to their portfolios whenever they desire.
- Diversification: ETFs allow
investors to construct a portfolio of creative holding across asset
classes such as stocks, bonds, commodities, real estate, and currencies.
They can also go global with
- ETFs.
- Manage downside risk: Unlike
mutual funds, investors don’t need to worry about being stuck in a
rapidly deteriorating position. ETFs allow them to implement a portfolio
protection plan by placing automatic stop losses.
- Execute investment strategies: ETFs
allow investors to execute a trade that is desirable on either buy or
sell side of the transaction.
- Tax efficiency: The manager can
effectively reduce the fund’s tax burden by handing off the shares with
the lowest possible tax basis.
- ETFs’ cons
- Commission : Commission for those
who invest small amounts in
- ETFs can be prohibitive.
- Spreads : In addition to
commissions, investors also pay the
- “Spread” when trading ETFs. The
larger the spread between the bid
- price and ask price, the larger
the cost of trading ETFs
- Premiums and discounts: ETFs can
trade above net asset value (at a premium) or below net asset value (at a
discount). Never buy at a premium and sell at a discount.
- What exactly is the creation and
redemption mechanism?
The creation/redemption process further
enhances our understanding how ETFs work. Some refer to it as the secret sauce
of ETF. It’s what allows ETFs to work.
WHO
WILL BENEFIT
Investment professionals seeking to
further/refine their understanding of these products.
LEARNING
OBJECTIVES
- Understand what an ETF is
- Understand their differences with
mutual funds counterparts
- Understand their benefits but also
their risk.
- Understand what they do
- Understand how they work
For more detail please click on this below link:
Email: support@trainingdoyens.com
Toll Free: +1-888-300-8494
Tel: +1-720-996-1616
Fax: +1-888-909-1882
Comments
Post a Comment