What are ETFs or exchange-traded mutual funds?
New institutions are coming to the Russian financial market, the popularity of which is growing rapidly all over the world. With the entry into force of Federal Law No. 145-FZ of 28.07.2012 "On Amendments to Certain Legislative Acts of the Russian Federation" from September 1 of this year, investors have the opportunity to invest in exchange-traded funds Mutual FundsThe analog of which in foreign practice are ETF-funds.
Fundamentals of ETF funds
First ETF-fund (Exchange Traded Fund) originated in Canada, but the starting point in the history of the development of these financial institutions is rightly considered to be the creation in 1993 in the U.S. territory of the spider - a fund focused on investments in stocks included in the calculation of the S&P500 index. Over almost twenty years of history, the number of exchange-traded funds has grown to several thousand, and the value of their assets has exceeded $1.3 trillion.
In essence. ETF-fund is very close to a mutual fundAs it allows investors to get professional management, its securities are characterized by high liquidity, it provides wide diversification of assets and does not require large-scale investments.
However, unlike a mutual fund stock price ETF-fund is formed on the stock exchange on the basis of supply and demand and changes throughout the day. At the same time, its securities can be borrowed or bought with borrowed funds. In addition, leverage and short-selling techniques are allowed when trading shares of exchange-traded funds, which makes operations more risky.
Fictitious capital bubble
Thus, ETF securities are a kind of certificate for the fund's portfolio of assets, in connection with which some economists loudly declare that another bubble of fictitious capital is inflating on the world financial market.
I would certainly not exaggerate, but the growing popularity of exchange-traded funds can be taken as a fait accompli. First, they have room to grow, as ETFs currently account for only 2.2% of global equity issuance and 0.3% of fixed income issuance. Second, stricter disclosure requirements for issuers of underlying securities make the products of such funds more interesting. Thirdly, the increasing share of OTC trading makes exchanges look for new ways to attract clients and the growing popularity of ETFs is only good for them. Fourth and finally, characteristics such as low entry thresholds and the ability to use margin trading are a tidbit for clients.
Performance of ETF funds
Currently, the top ten largest ETFs by asset size are mostly asset-oriented institutions with a securities.
TOP-10 largest ETF-funds by asset size
| Name | Asset value, $ billion. |
Priority assets |
| VTI - Vanguard Total Stock Market ETF | 190,4 | Stocks |
| BND - Vanguard Total Bond Market ETF | 116,0 | Bonds |
| SPY - SPDR S&P 500 | 104,3 | Stocks |
| GLD - SPDR Gold Shares | 64,8 | Gold |
| VWO - Vanguard MSCI Emerging Markets ETF | 63,6 | Stocks |
| EEM - iShares MSCI Emerging Markets Index | 35,4 | Stocks |
| EFA - iShares MSCI EAFE Index | 35,4 | Stocks |
| QQQ - PowerShares QQQ | 31,9 | Stocks |
| IVV - iShares S&P 500 Index | 31,4 | Stocks |
| VNQ - Vanguard REIT Index ETF | 26,3 | Stocks |
As can be seen from the names of the funds, their active operations are based on the principle of "index copying", whereby managers purchase securities that are part of the structure of a particular stock exchange index (MSCI, S&P and others).
The returns of many exchange-traded funds have been hovering around the 50% mark since the beginning of the year .
| Exchange | Number of funds |
Yield, % |
||
| Maximum | Minimum | Medium | ||
| Stuttgart | 152 | +48,8 | -35,3 | +6,7 |
| Madrid | 70 | +45,1 | -34,4 | +7,5 |
| Italian | 797 | +55,6 | -52,3 | +7,8 |
| Hong Kong | 98 | +26,7 | -20,9 | +6,6 |
| London | 1275 | * | -99,9 | +10,0 |
| NASDAQ | 98 | +49.6 | -42,4 | +7,3 |
| Stockholm | 59 | +48,1 | -44,2 | +8,6 |
| Amsterdam | 124 | +48,4 | -26,3 | +6,5 |
| Paris | 568 | +50,8 | -53,4 | +6,6 |
| Oslo | 66 | +35,0 | -23,0 | +16,7 |
| Swiss | 885 | +51,6 | -42,9 | +7,6 |
| Vienna | 22 | +15,2 | -20,4 | -0,8 |
| XETRA | 1224 | +56,4 | -73,9 | +4,8 |
A special place is occupied by the London Stock Exchange (LSE), where the use of financial leverage has allowed more than three dozen funds to have returns of several hundred percent.
Thus, the expansion of exchange-traded funds in the global financial market is growing by leaps and bounds, and Russia is an integral part of this process. How popular are ETF-funds focused on investments in securities of domestic issuers and on their role in changing the dynamics of quotes We will talk about different assets in our next publications. Now we would like to know the readers' opinion about what such a rapid development of relatively new financial institutions can bring to the world economy?