| ETF 101 |
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| 20/06/2005 | |
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Götz Kirchhoff, CEO of Indexchange Investment AG answers this week's 101 for bfinance What is an ETF? What is the difference to a certificate? Exchange Traded Funds are publicly traded funds with no issuer risk. Generally they track equity and bond indices. In contrast to "normal" investment funds the net asset value of ETFs for market trading purposes is recalculated and published every 15 to 60 seconds. This enables investors to trade these funds constantly. The advantages of ETFs compared to certificates can be summarised by the following acronym– Efficient, Transparent, Flexible and very cost-effective. Due to their low transaction costs and minimal management fees ETFs can also be an alternative to special funds and are especially suitable for long-term investments. Originally targeted at institutional investors, private investors are increasingly turning to them. How can an ETF be included in the Asset Allocation? The possibilities for including ETFs in the asset allocation are almost unlimited largely due to their main qualities of transparency and liquidity. As a general rule, investment decisions can be implemented more efficiently and easily in the asset allocation with ETFs. This is seen in core satellite strategies where a large proportion of assets can be diversified very widely with ETFs in sector ETFs while also making specific investments. This also applies to cash management where in turbulent periods, such as currently experienced, efficient processing of cash inflows and outflows is very much in demand. Investors can build or unwind exposure with ETFs, even for large volumes, extremely rapidly, almost at the push of a button and without affecting the market. Transfers from one market to another or from one benchmark to another, Transition Management, are made easier. With bond ETFs for corresponding duration classes investors can also implement interest curve strategies. And ETFs provide excellent solutions for building long positions in equities or developing "long-short" strategies . Is an ETF useful to invest in small- and mid-caps or emerging markets? What are the recent developments in the market? What next? ETFs are especially appropriate for investment in small and mid-caps or even emerging markets, since they offer something that is lacking with individual stocks, securities or funds actively focusing on them – namely practically unlimited liquidity. ETFs give investors flexibility to act in these relatively narrow investment classes without affecting the market or prices by trading directly. This is a particular advantage in emerging markets. This, among other things, has led INDEXCHANGE to set up the first ETF focusing on Eastern European equity markets a few weeks ago. The trend in the ETF market is clearly moving towards growing use of investment products with innovative concepts. There will be also greater competition among suppliers of these products in the future, leading to improved terms for investors. We have witnessed this in the last few months in Germany. More suppliers, countless product innovations and highly attractive conditions even for private investors: in our opinion these are the key advantages driving forward the ETF success story, the most exciting chapter of which is still to come in the next few years. |
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Articles of the same Serie : 101 |
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