ExchangeTraded Funds
By
Sandeep Kusumanchi
Agenda
What is an ETF
Advantages of ETF
Structure of ETF
Types of ETFs
Why are ETFs so popular
Who provide ETFs
How ETF works
Best ETF Funds
ETF
Two great investment ideas brought together
Stock
Mutual Fund
Tradable
during the
day
Diversified
ETFs
Diversified
funds that trade
like stocks
Advantages
Transparency
Investors know the ETF holdings, price and costs
Liquidity
Traditional liquidity measured by secondary market trading volume
Diversification
ETFs provide immediate exposure to a basket or group of securities for instant diversification
Broad range of asset classes including equities, bonds, commodities, etc
Flexibility
ETFs are listed on exchanges and can be traded at any time the market is open
Pricing is continuous throughout the day
Cost
effectiveness
ETFs offer a cost-effective route to diversified market exposure
Structure
An ETF is a type of fund which owns the
underlying assets
Shares of stock
Bonds
Oil futures
Gold bars
Foreign currency etc.
and divides ownership of those assets into
shares.
The supply of ETF shares are regulated through
a mechanism known as creation and
redemption.
Process
Cash
Brokerage
account
Investor
Cash
ETF
Authorized
Participants
Capital
Markets
ETF
Shares
Securities
Creation Units
Basket of Securities
ETF Fund Advisor
Structure
In United states most ETFs are structured as open end
management investment companies.
Under the SEC Proposal, an ETF would be defined as a registered
open end management company that:
issues (or redeems) creation units in exchange for the deposit
(or delivery) of basket assets the current value of which is
disseminated per share by a national securities exchange at
regular intervals during the trading day
identifies itself as an ETF in any sales literature
issues shares that are approved for listing and trading on a
securities exchange
discloses each business day on its publicly available web site
the prior business day's net asset value and closing market
price of the fund's shares, and the premium or discount of the
closing market price against the net asset value of the fund's
shares as a percentage of net asset value
either is an index fund, or discloses each business day on its
publicly available web site the identities and weighting of the
component securities and other assets held by the fund
Types
o
o
o
o
o
o
o
o
Index ETFs
Stock ETFs
Bond ETFs
Commodity ETFs
Currency ETFs
Actively Managed ETFs
Inverse ETFs
Leveraged ETFs
Why so popular ?
o ETFs allow the Investor to purchase a diverse array of
assets at once
o They are more flexible, since they can be traded on the
stock market instead of being held until after markets
close
o Investors can buy and sell ETF shares quickly
throughout the trading day in response to shifts in
market value
o Investors can also take an advantage of different stock
strategies with ETFs such as Buy them on Margin and
Sell short
o The cost of running an ETF is usually lower than a
mutual fund.
Sample Portfolio Allocation 1:
20%
20%
20%
20%
20%
US Stocks (S&P 500)
Foreign Stocks [MSCI EAFE]
US 10Yr Gov Bonds
Commodities [GSCI]
Real Estate [NAREIT]
Another Sample Allocation:
As of December 2014, the total number of index
based and actively managed exchange traded
funds(ETFs), including commodity ETFs, domiciled in
the United states stood at 1,411
Total net assets of these ETFs were $1,974 trillion and
accounted for 13 percent of total net assets managed
by long term mutual funds, ETFs, closed end funds,
and Unit investment trusts at the end of 2014
As of December 2014, 52 sponsors provided as an
investment product.
Who Provide
ETFs ?
Below are the primary providers of the ETFs
Demand for
ETFs
Net Share Issuance of ETFs
Billions of dollars 2005-2014
300
250
200
150
100
50
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
ETFs Concentrated
at
Total Net Assets of ETFs are concentrated in Large
cap Domestic Stocks
Billions of dollars, December 2014
700
600
500
400
300
200
100
0
About Invesco PowerShares
Capital Management LLC
Invesco Powershares Capital Management
LLC is leading the intelligent ETF revolution
through its family of more than 140
domestic and international exchange-traded
funds, which seek to outperform traditional
benchmark indexes while providing advisors
and investors access to an innovative array
of focused investment opportunities. With
franchise assets of over $100 billion as of
December 31,2014. PowerShares ETFs trade
on both US stock exchanges.
Q&A
Good, better, best. Never let it rest.
Until your good is better and
our better is best.
--- Tim Duncan
Thank
You
