2017 - The Creation and Redemption Process and why it Matters for ETFs

OVERVIEW
Session Highlights:
• The Creation/Redemption mechanism as the key to understanding how ETFs works.
• It allows ETFs to be less expensive, more transparent, and more tax efficient than traditional mutual funds.
• It keeps ETF share prices trading in line with the fund’s
• underlying net asset value
• It recognize the value of the authorized participant (AP) in keeping ETF share prices in line with fair value through a process known as arbitrage.
With the increasing popularity of exchange-traded funds (ETFs), the market is seeing institutional investors, consultants and individual investors alike using them for a wide range of portfolio purposes thanks to their transparency, liquidity, and the access they offer to a broad range of asset classes.
In a nutshell, the purpose of this webinar is to explain what they are, how they compare to individual stocks and mutual funds, and how they work. It’s the first of a series of webinars that outline their characteristics, benefits, the breath of investment strategies they facilitate, but also the systematic risks they could pose to those who use them without thoroughly understanding them.
This webinar and subsequent ones draw on my experience as (i) a
professor of finance who uses ETFs in various finance courses and
included on a worldwide list of seventeen “ETF friendly professors” compiled by Yahoo finance, (ii) an author of three ETF books, (iii) a researcher who penned 30 ETF research articles, and (iv) an ETF speaker who has been invited to talk about them for the past 16 years at professional conferences as a guest speaker, panelist, moderator and keynote speaker.
WHY SHOULD YOU ATTEND
This webinar is conceived for both novice and experienced investment professionals interested in using ETFs as part of their investment strategies. This ETF webinar will provide knowledge and perspectives that can help them formulate informed investment decisions. The complexities surrounding ETFs such as their creation/redemption process will be sorted out for those seeking to put them to work in their portfolios.
This webinar will also benefit academics seeking to include ETFs in their research agenda and CPA’s, CFA’s and CFP’s who are turning their attention to this unique breed of investment products.
AREAS COVERED
• What exactly are ETF?
ETFs are portfolios of holdings across a variety of asset classes. In addition to broad-based asset class exposure, they also allow investors to take advantage of global opportunities almost anywhere in the world including hard reaching areas like frontier markets. ETFs are listed on intraday trading exchanges and can be bought and sold throughout the day.
• How do they compare to individual stocks and mutual funds?
ETFs are investment funds that share the characteristics of both individual stocks and mutual funds. Just like stocks, they trade real time (intraday) on an exchange. Mutual funds, on the other hand, are priced only at closing and cannot be traded intraday. ETFs also share the characteristics of index funds since they aim to replicate the performance of the index they track minus fees.
• What do they do?
They don't try to beat the market; they try to be the market. Most aim to replicate the performance of the index they passively track minus fees. Investors can do just about anything with an ETF that they can do with a normal stock. If an investor wants to buy stocks in Russia, he could simply buy an index ETF mimicking the Russian stock market but traded on a U.S. exchange rather than risking putting funds into Russia directly.
• What benefits do they offer?
Broadly speaking, the benefits they offer fall into five main categories:
o Transparency : Investors are able to know what they own every
o single day
o Liquidity: ETFs can be traded at any ????me the market is open. This gives them the ability to be sold and bought quickly, easily, and at a reasonable transaction cost.
o Cost effectiveness: ETFs are cheap because of their passive nature.
o Flexibility: ETF can make changes to their portfolios whenever they desire.
o Diversification: ETFs allow investors to construct a portfolio of creative holding across asset classes such as stocks, bonds, commodities, real estate, and currencies. They can also go global with
o ETFs.
o Manage downside risk: Unlike mutual funds, investors don’t need to worry about being stuck in a rapidly deteriorating position. ETFs allow them to implement a portfolio protection plan by placing automatic stop losses.
o Execute investment strategies: ETFs allow investors to execute a trade that is desirable on either buy or sell side of the transaction.
o Tax efficiency: The manager can effectively reduce the fund’s tax burden by handing off the shares with the lowest possible tax basis.
• ETFs’ cons
o Commission : Commission for those who invest small amounts in
o ETFs can be prohibitive.
o Spreads : In addition to commissions, investors also pay the
o “Spread” when trading ETFs. The larger the spread between the bid
o price and ask price, the larger the cost of trading ETFs
o Premiums and discounts: ETFs can trade above net asset value (at a premium) or below net asset value (at a discount). Never buy at a premium and sell at a discount.
• What exactly is the creation and redemption mechanism?
The creation/redemption process further enhances our understanding how ETFs work. Some refer to it as the secret sauce of ETF. It’s what allows ETFs to work.
WHO WILL BENEFIT
Investment professionals seeking to further/refine their understanding of these products.
LEARNING OBJECTIVES
• Understand what an ETF is
• Understand their differences with mutual funds counterparts
• Understand their benefits but also their risk.
• Understand what they do
• Understand how they work
For more detail please click on this below link:
https://goo.gl/6XdUPh
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