:: 永豐金證券(亞洲) SinoPac Securities(Asia) ::

Introduction

1.ETF means「Exchange Traded Funds」

2.ETF is an innovative product of securitized index which measures the trend of the securities market. Investors indirectly invest in the portfolio by holding beneficiary certificates, which represent the index funds.

3.Therefore, investors are able to follow the trend of the index by investing in the ETF, a fund traded on the stock exchange. The ETF consists of the same constituents as the stocks in the index and is divided into smaller trading units.

4.Data source: Taiwan Stock Exchange
http://www.twse.com.tw/ch/products/securities/ETF/introduce.php

Product features

1.Passive management, targets the profit of the trading index.
2.A product that comprises the features of both stock and index fund.

By subject

By product

By leverage

•Stocks: global, regional, industry
•Bonds: government bonds,
  corporatebonds, MBS
•Currency/Foreign exchange:
  USD, G10
•By product futures: crude oil,
  gold, agricultural products

•ETF(Exchange Traded Funds )
•ETN(Exchange Traded Notes)
•DR(Depositary Receipts)

•Inverse 100%, 200% 300%
•Leveraged 200%, 300%

Open Ends Funds

The majority of ETFs follow the open-end structure. This type of ETFs does not have to track every constituent stock of a specific index (partial composite index). In actual operations, the futures, options and stocks can be used to help for tracking the performance of the index as long as the asset management company feels this method can allow the ETF to sufficiently track the index. Dividends resulted from the portfolio in these types of funds can be reinvested into the constituent stocks and must follow the prospectus to pay dividends to investors.

Unit Investment Trusts (UIT)

UIT is a type of investment instrument, mainly offering investors a fixed portfolio of securities, which may contain bonds or stocks. Holding this type of ETF means that the investor has partial ownership in this securities portfolio. If this securities portfolio happens to be a certain index, then this UIT is a type of ETF, but this doesn’t mean all UITs are ETFs. This type of ETF structure applies a completely replication method to track the index. SPY, QQQQ, and DIA are all representative ETF targets.

Grantor Trusts

The most commonly seen ETF include GLD and USO. For GLD, investors will own an actual bullion of gold. Each share of ETF matches a certain weight of gold and GLD has custodian fees (storage costs) per se. If an investor sells GLD, then the gold will be taken directly out from the vault and sold on the market. USO buys in West Texas Intermediate (WTI) crude oil futures. Besides general cost of carry of the futures, investors should also be careful of the rolling costs. When the level of futures Contango expands, it might erode the partial return of the USO.