Online Financial Tips

Archive for the ‘Exchange Traded Funds’ Category

Currency exchange traded funds (ETFs) are funds which enable traders to profit from the most liquid financial market on this planet, the forex market. Currency ETFs are one of the newest trading instruments available. Just like traditional exchange traded funds, currency ETFs too are traded just like stocks. The only difference is that they track foreign currencies, not indexes or stocks.

ETF firms create currency exchange traded funds by buying and holding foreign currencies in a fund. Then the shares of the fund are made available for traders. Whenever the foreign currency price rises (usually against US Dollar, USD) the whole value of the ETF rises and so as the price of shares. Whenever the foreign currency falls opposite events occurs.

Currently there are number of currency ETFs available for trading which can be classified into three broad categories.

ETFs which track Single Currencies: Here each share of the currency ETF represents a fixed amount of a single foreign currency. Examples include British Pound Trust (FXB), CurrencyShares Euro Trust (FXE), CurrencyShares Swiss Franc Trust (FXF), Australian Dollar Trust (FXB), CurrencyShares Japanese Yen Trust (FXY), Canadian Dollar Trust (FXC), etc. ETFs which track a number of currencies: Usually these are currencies which show greater correlations. Examples include PowerShares DB U.S. Dollar Bearish (UDN) and PowerShares DB U.S. Dollar Bullish (UUP); tracking currencies include Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Canadian Dollar (CAD), Swiss Franc (CHF) and Swedish Krona (SEK). The number and proportion of currencies can vary with fund to fund. ETFs which track currency indexes: These are fewer in number. Example includes DB G10 Currency Harvest Fund (DBV) – it track Deutsche Bank G10 Currency Future Harvest Index.

There are many advantages of trading currency ETFs over trading currencies, stocks and other ETFs.

They are easy to trade. They are traded like stocks enabling traders to buy, hold and sell them through a broker. They are instruments which track the world’s most liquid market. They are good options for diversifying the portfolio. They offer better tax savings than stocks. They enable traders to invest in growing economies across the world which are otherwise hard to reach. They are good instruments to hedge against decreasing dollar rates. They are transparent instruments are the ETF firms have to disclose the exact holding of funds on daily basis. They are flexible trading instruments to suit different trader styles and risk tolerance levels. They can be shorted and margin traded. They also can be used in complex trading strategies.

But like any other trading instrument there are also risks. Foreign currency rates can quickly fall with global economic changes, policy changes and political issues. In order to profit traders should be certain about their fund selection and market timing.

Gold Exchange Traded Funds have become a significant factor in the world gold markets.

Exchange Traded Funds buy and hold a set amount of gold, then sell shares in their gold inventory. These shares are bought and sold on the secondary markets by brokers just like shares of stock.

The market share price remains closely tied to the market gold price of the underlying amount of gold represented by each share. One share represents one-tenth of an ounce of gold.

Therefore, buying shares in gold Exchange Traded Funds is an easy way for both institutions and ordinary people to invest in gold. You don’t have to worry about taking possession of, or storing, the physical coins or bars. Buying shares of gold mining stocks represents additional risk, whether the company is well managed and has gold in the mines it owns. You also don’t have the many risks, expenses and hassles of buying gold commodity contracts or options, which are time-limited investments anyway, suitable only for speculators, not ordinary people who simply want to own some gold to hedge their portfolios.

Buying gold ETF shares is a direct way of benefiting from increases in the price of gold, without contact with the actual metal (which is held in storage by the ETF company). The ETF company can issue new shares only by purchasing additional gold and adding that to its inventory.

The first such fund was LyxOR Gold Bullion Securities (GBS) in Australia in March 2003. In October 2004 StreetTRACKS launched Gold Shares (GLD). Barclays ishares COMEX Gold Trust launched in 2005. Many other gold ETFs have been created in financial markets around the world.

Partly as a result of the rapid rise in the price of gold, GLD became one of the fastest growing Exchange Traded Funds.

Holdings by gold ETFs now exceed central bank reserves of the European Central Bank, The Netherlands, China, Russia, the United Kingdom and many other countries. As of a few years ago, ETF gold holdings amounted to 780 tonnes. Cumulatively, central banks hold a lot more, and there’s a lot more gold in jewelry.

Now the daily gold market is extremely liquid. Ordinary investors, institutions, and hedge funds all use gold ETFs. If Morgan Stanley is correct, the total assets of global ETFs will reach $2 trillion by 2011.

There’s no doubt that many small investors are using gold ETFs as a convenient way to invest in gold. Some many understand it’s a way of hedging against future financial crises, a collapse in value of the US dollar (and euro, yen, British Pound, and all fiat currencies), or other economic problems.

Some buyers are no doubt convinced by gold bug pundits and doom and gloomers that the end of the current world financial crisis is near and gold is their savior.

However, in a total economic collapse ETF shares will not be worth anything, so hardcore survivalists must remain more attracted to physical possession of gold bars and gold coins.

An ETF, or Exchange Trade Fund, tracks an index and trades on the stock market. An ETF is a combination of many types of securities like stocks and bonds, among others. They allow for a more diversified portfolio than just one singular stock would.

ETFs have many similarities to stocks:
They are an investment Bought and sold on a stock exchange Can be traded during trading hours Their prices can change throughout the day Are bought through brokerage accounts on and offline They also have many differences from stocks:
They have a basis in securities Already offer diversification to a portfolio You can buy a whole portfolio in just one ETF Most often have less volatility
ETFs: The Alternative to Mutual Funds

Timing: Mutual prices can change from the time you choose to buy to the time the price is calculated at the end of the day. This is not true with ETFs. When you see a price, it is the current market price.

Trading Flexibility: With ETFs you have many choices on how to invest. You can buy long or sale short, buy or sell ETF options, buy on margin or even consider arbitrage options.

Performance: Some ETFs will pay out regularly which helps to increase your overall earnings. On top of this, ETFs usually perform better over an extended period of time than mutual funds.

Transparency: Mutual Funds only disclose how much they are really worth quarterly or even semi-annually. ETFs are, in effect, transparent. They show you everything about the underlying index on a daily basis.

Cost Efficiency: Mutual Funds usually cost more in up-keep due to the excessive management and administrative fees. Therefore, ETFs are looked at as a more cost-efficient choice.

Tax Efficiency: Mutual Funds have no cap on their capital gains. Therefore, in the end, they could cause more problems when it comes to tax time. On top of that, ETF shareholders decide when to sale or buy so they have more control over how much they make and have to claim for their taxes.

No Minimum Investment: Mutual Funds have minimum amount you must invest. This is not true with ETFs.

Exchange Traded Funds (ETF)

ETF or Exchange Traded Funds are securities that are traded as stocks on the stock exchange. An ETF holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets. Most ETFs track an index.

They offer the advantages of mutual funds while being traded as stocks in the secondary market and can be bought and sold like any other stock. Individual investors having a demat account can trade in such funds.

ETF funds are available in different forms and can be selected as per the requirements. These include ETF bond funds, ETF Gold funds and many more forms.

The prices at which they trade are roughly in line with the net asset values of their underlying portfolios. Eg. Benchmark Goldbees fund replicates the NAV as 1 gram of Gold, hence you can purchase one gram of gold in demat form by buying 1 unit of this fund and paying the brokerage like any other equity purchase. This charge would be much lesser than the packing and bill charges that you pay to a goldsmith for purchase of a 1 gram gold coin.ETF funds are low-cost securities flexible than mutual funds as they charge lower annual expenses than index mutual funds. They first came into existence in the USA in 1993.

ETF in India listings include gold, silver and currencies. ETF funds are a new alternative to investing in mutual funds as they also minimize the risk involved in the investment in other finance solutions. Exchange traded fund lists have been increasing in India since their inception.

One of the major factors that deters me from investing in Unit Trust has always been the high sales charges and annual management fees. In Malaysia, sales charge averages at 5.5% and annual management fee at 1.75%. This also means that on the first year of your investment, you have lost at least 7.25% whether you like it or not.. So does it really make sense to invest in Unit Trust or Mutual Funds?

Where do I invest then?

Nowadays, I prefer investing in Exchange Traded Fund (ETF) which follows the performance of an index.

What is ETF?

ETF is an index fund that is listed on the stock exchange and trades just like any other stock. There are hundreds of ETFs created to track the different market indexes. For example, if you wanted to profit from the expected growth in the China economy, you could buy United SSE 50 China ETF.

This is United SSE 50 China ETF moves closely to the actual Shanghai Stock Exchange, hence the name SSE. So, when you buy a share of SSE 50 China ETF, it is the equivalent of you buying all 50 largest stocks of good liquidity listed on the Shanghai Stock Exchange (SSE).

And of course, I’m just using United SSE 50 China ETF as an example to show you what ETF is all about because this is one of the ETFs that I’m buying in Singapore Stock Exchange. There are hundreds of ETFs created by different investment banks which tracks different market as well as sector indexes.

If you like mutual funds to a point, but hate extra fees and not being able to enter and exit as you like, exchange traded funds are for you. When you buy an ETF, you’re getting a basket of securities, which is why many people like them. They have many great points to them. More so, than individual stock picking.

Did you know that you can by exchange traded funds just like stocks? Yep. There is not management fee or expense ratio like you would have in a traditional mutual fund. For example, if your broker charges $7 per stock trade, you’d pay $7 to buy an ETF and $7 to sell an ETF. ETFs, like stocks, bounce around and hopefully go up over time.

When you want to buy or sell an ETF, it’s as simple as putting in an order. With traditional mutual funds, you are confined to buying into them once at the end of the trading day. Don’t limit yourself. Mutual funds are a thing of the past. Missing out on moves intraday can be costly. I love ETFs.

Small cap investors will want to check out the exchange traded fund, symbol:IJS. It follows the S&P Small Cap 600.

Again ETF’s have similarities to mutual funds as well. You can find an ETF for virtually any and every investing approach these days. If you want to just invest in the technology sector, there is an ETF for that. One great ETF for today is “GLD”. That’s the gold investing fund of choice for the pros. Check it out. If you want to invest in the S&P 500, there is an ETF that tracks that. You’d have a hard time finding a mutual fund that isn’t available in exchange traded funds form.

Exchange traded funds have grown in popularity over the last several years, and with good reason. There’s so many advantages to using them, even if you like picking individual stocks too. Best of all, you can trade them like stocks right though your stock broker, which is great. You can also check out companies like Vanguard and BlackRock iShares to get product information on a variety of ETF’s.

Gold is hot right now. Make sure you check out symbol:GLD for the best gold exchange traded fund. This is the one I’ve invested with and you see mentioned all the time on shows on CNBC and other stations.