Development, Management and Investment Strategy of Exchange Traded Fund
Date Issued
2009
Date
2009
Author(s)
Cheng - I ,Chen
Abstract
Exchange Traded Fund (ETF) is an index fund that has both roles of open-end mutual funds and closed-end mutual fund, and trading in the stock market. ETF is one of the most developed financial products in recent years. ETF is the most popular in the passive management, those characteristics including transparency of its investment portfolio, risk diversification, transaction convenience, low cost properties, was favorite by investors.esides, ETF tracking stock indices, kinds of assets like the bonds, currencies, energy, raw materials, agricultural products, etc... there are related ETF trading at the stock market. So that investors can easily invest in various types of assets by abundant types of ETF. ETF has a diversity of investment strategies, arbitrage, spread, and hedge. ETF can margin short, it is generally impossible by the mutual Fund. The lever-type and short-type ETF make investors have more opportunity to select investment strategies. ETF investment in the subject of diversity, and can be long, can be short, can be leveraged, much widen investors’ investment vision and investment flexibility. No matter in the period of bull market or bear market, investors can find appropriate vehicle to invest in the ETF field.TF performance must stick on index. It looks like easy to achieve. But in practice, ETF manager''s jobs are not as easy as it imagine at all. The performance of ETF can be influence by all the constituent stocks of ex-dividend, index change constituent stocks; constituent stocks changes in capital, the manager must keep the attention of all and take reaction in advance. Tracking error may be extended in unknowingly, if many of the details cannot be comprehensive. Active ETF track the index, which runs Rule-Based Model to select constituent stocks. Based on active ETF performance analysis, it is fair that active ETF return enhanced by Rule-Based Model or equally weight distribution. And to manage short-type ETF and lever-type ETF, in addition to stocks, it is necessary to large-scale use of derivatives, such as equity swap contracts and index futures. For now on, it’s a major challenge of competent authority and fund house in Taiwan.or the development of the domestic ETF, the Ministry of Finance with the Securities and Futures Bureau had opened up over 17 provisions, the Taiwan Stock Exchange also proposes to amend more than 14 relevant laws and regulations. In 2008, the domestic ETF market issued 11 ETF from 7 ETF last year, managing total assets grow to 47.4 billion from 43.9 billion, ETF assets under management does not scale because the stock market big drop, on the contrary, growth by 8.0 percent. Obviously, ETF has been the recognition of domestic investors to become an important investment vehicle, gradually. In order to expand ETF market further, in addition to, keep on developing the suitable products to domestic investors, and introduce local ETF to the international is another effective way. The internationalization of ETF has a direct relationship with soundness of the domestic product market, so the focus of development is develop new products. As long as be able to launch successful and popular ETF to investors, it is easy to internationalize it. In addition to the assets is expected to continue to enlarge, ETF will also be towards diversification, customization, internationalization direction.aiwan has attempted to develop into the Asia-Pacific financial center. And more open financial environment, more diversified financial products are indispensable elements for Taiwan towards the Asia-Pacific financial center. At present, cross-strait situation has gone beyond the hostile; the two side government begin to show goodwill, In addition to strengthening economic and trade exchanges, mutual assistance and communication of financial industry are very good re-starting point for Taiwan. Development of ETF, set up cross-strait trading platform, it is Taiwan''s financial industry to start recycling.
Subjects
Exchange Traded Fund
Passive Management
Tracking Error
Active ETF
Lever-Type ETF
Short-Type ETF
Arbitrage
Type
thesis
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