Not all people know what ETFs are? What it is? This abbreviation stands for Exchange Traded Fund. Now the popularity of these assets has grown so much that many investors have time to evaluate their benefits. Given the "youth" of this phenomenon, this is an amazing breakthrough in modern market relations.
ETF - what does it mean?
ETFs are investment funds that include a portfolio of exchange-traded assets. These include various stocks, currency pairs and bonds. Moreover, the investor himself can manage this portfolio. This reduces the costs of the person who decided to invest his money in the purchase of assets. An ETF trader is actually trading a basket of certain trading instruments.
How were ETFs created?
These funds first appeared in the late eighties of the 20th century. At this time, the first ETF analogues were created. They were exchange-traded funds that were traded on the American stock exchange and AMEX. In addition, ETF transactions were also available on Philadelphia stock exchanges.
However, trading in these instruments was soon canceled. This happened after the Chicago Mercantile Exchange filed a lawsuit against ETFs. The essence of the claim was that the ETF does not comply with the rules of the regulator. But this did not stop players interested in new opportunities.
Further development
Thus, the idea itself did not lose its relevance, and was appreciated. After that, a new financial instrument for trading appeared on the stock exchange in the city of Toronto. Exchange-traded funds successfully competed for the attention of investors. On stock exchanges in other countries, rules have been developed that meet the requirements of the US regulator.
The most popular fund was SPY. It was a depositary receipt for the SP500 stock index. In addition, MDY began to enjoy popularity among players. It includes shares of companies with an average capitalization.
ETFs
What did this mean for further development? Market participants reacted to the idea of exchange-traded funds positively. Soon after, an opportunity appeared on the American stock exchange to trade exchange funds. They were created specifically for each sector of the economy, which were included in the SP500 index. Thus, 9 new ETFs were formed. Subsequently, the DIA - fund for the DJ30 index entered this list. In 1998, another financial instrument appeared - QQQ, designed for the Nasdaq100.
What are the features of ETFs?
Unlike other tools, ETF funds have several advantages:
1. They save investor money, as an ETF buyer does not have to pay to manage a stock portfolio. As a result, the profit of the owner of the investor is used more rationally.
2. When buying, the investor invests in the finished portfolio. It contains the best securities that are highly liquid. This reduces the risk of the investor.
3. Buyers expect to make a profit for a long time. An investor does not have to deal with complex financial calculations. It is enough to buy a ready-made ETF portfolio and receive a stable income. Moreover, liquid assets can be sold at any time.
Russian situation
ETF in Russia also takes place. In our market, securities of only one company are traded - FinEx, which has issued more than 10 different index securities (ETFs). The papers have been openly accessible since the beginning of 2013 and fall under the regulation of the Russian law on the securities market of 1996.
The issue is provided by Irish issuers FinEx Physically Backed Funds Plc and Funds Plc. Management functions are performed by FinEx Capital Management LLP, which has a British legal registration. The Office of Supervision and Financial Regulation, the so-called listing, is implemented through the participation of the British regulator FSA. On the territory of the Russian Federation, the registration of a subsidiary company UK FINEX-PLUS LLC, which has a Central Bank license and has the status of a full-fledged market participant, was registered.
Bank of New York Mellon is the administrative center, and Pricewaterhouse-Coopers is the auditor. Bank of New York Mellon also provides custody services and saves funds. As in domestic mutual funds, the property of the management company is separated from the property of the fund. Regulatory and supervisory functions are performed by the National Bank of Ireland.
The papers were submitted to the cross-listing procedure with the aim of organizing ETF circulation on the Moscow Exchange, as part of the funds is traded on the Euromarket. ETF liquidity is a very important feature. A special marketing system is used to maintain the demand in the stock glass for sale and purchase. Well-known financial companies, the main Russian market-makers Jane Street Financial Limited, Goldenberg Hehmeyer, Bluefin Europe, working with ETF, are working hard to solve this problem. What does this mean? Through the participation of the Finam Russian broker, these corporations can gain access to the Russian market.
Investors are also required to have information that ETFs on the Moscow Exchange, thanks to cross-listing, comply with both European and Russian stock market requirements. Today, the purchase involves 13 types of funds from FinEx. Investments in ETFs, as well as investments in mutual funds, require a detailed study of the work of the fund and its features.
What you need to know about investments
In the field of stock investment, there is such an important concept as index replication, which can be synthetic and physical. Physical replication involves the presence in the fund or its portfolio of shares or another type of property as the underlying portfolio.
Synthetic replication means that the portfolio has various financial instruments, for example, options, forwards, futures. FinEx ETFs that are based on gold, for example, are synthetic because they use a gold futures contract . ETF index investment funds such as FinEx CASH EQUIVALENTS UCITS ETF and FinEx Tradable Russian Corporate Bonds UCITS ETF (RUB) have a mixed stock structure. They use both basic tools and derivatives. The investor may have access to the full structure of funds exclusively before the purchase transaction, and not be published on an ongoing basis.
Currency requirements
Participation on the Moscow Exchange implies a requirement to nominate securities in Russian rubles by the management company. ETF assets are calculated in euros, US dollars or British pounds. Thus, at the market rate, the dollar is recalculated in the currency market. This phenomenon has both pros and cons. The positive side can manifest itself in the form of income from the devaluation of the ruble, and the negative side can have its expression in the form of lower prices for reserve currencies. However, the currency dynamics of well-developed states indicate that currencies such as the euro and the dollar have strong long-term prospects. In the case of trading with other monetary units, the problems mentioned above may also occur.