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Index Linked Funds, The good, the bad and the ugly
nipper
post Posted: Jul 19 2019, 03:50 PM
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Structurally, Passive ETFs and Active ETFs are similar, but they also have some differences that are important for investors to understand.

What are the similarities?

Structure

In Australia, both Passive and Active ETFs are generally registered managed investment schemes, a type of ‘unit trust’, that trades on the ASX in the same way that a share in a company trades on ASX. Like any share or unit traded on the ASX, investors can buy or sell units in the ETF from each other on the ASX.

Liquidity

To ensure there is efficient trading in the secondary market of ETF units and with the objective of having the trading price track the underlying net asset value, ETF issuers put in place additional liquidity arrangements. As ETFs are open-ended funds and can continuously issue and redeem units, they are able to facilitate these liquidity arrangements.

Passive ETFs issuers largely outsource the provision of liquidity to third-party market makers such as investment banks. Market makers trade an inventory of units on ASX and are able to apply or redeem with the ETF to settle their net trading position. These market makers form their own view of the net asset value of the ETF and provide bids and offers in the market around that value, within the bounds of their own balance sheet risk appetite for providing this liquidity.

Active ETF issuers either follow the same market making model as Passive ETFs or opt to have the ETF provide the liquidity. This means that the ETF might, at any time, be providing bids and offers in the market around the issuer’s assessed value of the units at that time.

Transparency

Investors have transparency as to the value of the underlying fund and the composition of its portfolio through regular disclosure provided on the ASX and the ETF issuer’s website. The value of the ETF’s underlying investments is generally provided in the form of the net asset value per unit and an indicative intraday net asset value (iNAV) per unit, which generally updates throughout the ASX trading day. The level of portfolio disclosure will generally depend on whether the ETF is a Passive ETF or an Active ETF and, in the case of the latter, what has been agreed with the ASX. Passive ETFs will either provide an iNAV per unit and/or the full portfolio comprising names and weights of the investments as well as monthly fund fact sheets. Active ETFs will generally provide daily net asset value and iNAV per unit, monthly fund fact sheets and a full portfolio comprising names and weights of the investments on either a monthly or quarterly basis.

Taxation

Being unit trusts, both Passive and Active ETFs allow a full pass-through of income such as dividends, franking credits, capital gains and discounted capital gains income, and provide investors with the ability to manage their own tax affairs.

What are the differences?

Types of Investments

With an Active ETF, a portfolio manager will undertake stock research to determine which underlying securities or stocks to hold and in what percentages. They will then actively manage weightings of the stocks depending on stock valuations, industry trends and views on macroeconomics. They can also hold cash to manage the overall risk of the portfolio and also to take advantage of opportunities when markets move.

A Passive ETF tracks an index. This can be over a broad-based stock market index, a sector index, custom-built indices or indices comprising fixed income, credit, commodities and currency. They can either fully replicate an index by buying all the securities that make up the index or they can be optimised by buying the securities in an index that provides the most representative sample of the index based on correlations, exposure and risk. Physical ETFs attempt to track their target indices by holding all, or a representative sample, of the underlying securities that make up the index whereas Synthetic ETFs rely on derivatives such as swaps to execute their investment strategy instead of physically holding each of the securities in an index.



How many ETFs are available on the ASX?

As at the end of January 2019, there were 185 Active and Passive ETFs available on the ASX with over $41 billion in assets under management

https://www.sharecafe.com.au/2019/06/26/active-exchange-traded-funds-and-passive-exchange-traded-funds-whats-the-difference/




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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
nipper
post Posted: Jul 3 2019, 02:45 PM
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QUOTE
Blackrock is poised to delist five ASX-listed exchange traded funds with around $145 million under management at the end of the financial year, in the biggest wind-up of its kind to take place.

The world's largest asset manager says the ETFs have underwhelmed in terms of fund flow, and winding up the funds will remove duplication for investors and allow them to concentrate on its remaining suite of funds.

"We believe some exposures are better served with our remaining range, and this change will allow BlackRock to focus on exposures which are relevant to Australian investors today," a statement from the company said.

The funds to be delisted are
- iShares Russell 2000,
- iShares MSCI Singapore,
- iShares Global Telecom,
- iShares MSCI Hong Kong and
- iShares MSCI BRIC ETF.

It will take place on June 30. Blackrock will remain one of the largest providers of ETFs in Australia, with more than $10 billion across 34 funds.
- this is a very real negative aspect. Too often investors in ETFs are passive, long-term. The issuers can't make money on that!

Always go for liquidity. Size matters




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"Every long-term security is nothing more than a claim on some expected future stream of cash that will be delivered into the hands of investors over time. For a given stream of expected future cash payments, the higher the price investors pay today for that stream of cash, the lower the long-term return they will achieve on their investment over time." - Dr John Hussman

"If I had even the slightest grasp upon my own faculties, I would not make essays, I would make decisions." ― Michel de Montaigne
 
Kuri
post Posted: Oct 24 2008, 08:16 PM
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Posts: 31


Seeing as the market has dropped sub 4000 I have decided to look into index linked funds to capture the market as it inevitably heads north. Reading various articles including the AFR these funds don't always track the ASX like they are supposed to. This has made my task harder.

Does anybody have any experience with this type of investing and know of any reputable funds?





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[color="#ff0000"]WARNING: Do not make any financial decisions based on anything in this post.[/color]
 
 



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