ETF fund is a very popular fund at present, which can be said to be the king of fund family. What does ETF fund mean and why is it so popular?
ETF funds are generally called "listed and traded open-end index funds", sometimes also called "exchange traded funds". Because the name is complex, it is usually called ETF. It means that the shares of funds that can be listed and traded on the secondary market exchange can be changed. Generally speaking, ETF is a special kind of open-end fund.
We all know that open-end funds and closed-end funds have their own advantages and disadvantages. Open end funds can be purchased and redeemed at any time, and shares can be changed. Open end funds are easy to trade. However, in order to deal with the liquidity risks brought by investors' redemption, it increases the difficulty of fund managers' trading and reduces the efficiency of capital utilization. Closed end funds cannot be redeemed at will. They can only go to the secondary market to buy and sell with other investors. Fund managers are comfortable investing, but investors are in trouble when trading. Therefore, ETF funds can be purchased and redeemed in the OTC primary market like ordinary open-ended funds, and can also be bought and sold in the OTC secondary market like ordinary closed-end funds, thus greatly enhancing the attractiveness of such funds to investors.
ETF funds were born earlier in the world, but China's ETF funds were born on December 30, 2004, called Huaxia SSE 50ETF. At present, there are more than 100 ETF funds issued in China, most of which are stock index funds, and a small number of which are currency ETFs.
What are the advantages of ETF funds over traditional funds?
First, the fund utilization efficiency of ETF funds is the highest among all funds. ETF funds combine the advantages of open-end funds and closed-end funds. The advantage of closed-end funds is that they have a fixed scale. Fund managers can invest freely, but ETF funds can be purchased and redeemed like open-end funds. How can they achieve stable scale? This is the difference between the purchase and redemption rules of ETF funds and ordinary open-ended funds. ETF does not directly take money to subscribe for fund shares, but takes a basket of stocks to subscribe for. The same is true for redemption of fund shares. Instead of money, ETF returns a basket of corresponding stocks. That is to say, the purchase and redemption of ETF funds in the primary market is not a buying and selling behavior, but a kind of exchange behavior, which is to exchange shares belonging to assets for funds belonging to assets. However, this kind of redemption is more suitable for institutional investors. For our ordinary investors, they usually buy and sell ETFs in the secondary market. In this way, institutional investors can buy and redeem stocks in the primary market or buy and sell stocks in the secondary market, and ordinary investors can buy and sell stocks in the secondary market, so that fund managers can increase their positions in stocks. When the stock market rises, an ETF fund must rise more than an ordinary index fund.
In order to meet the redemption requirements of investors, ordinary index funds often have a position of only 90%. When the stock market falls, investors have to sell stocks at a low price when they redeem in succession, causing greater losses. When the stock market rises, investors have to buy in succession because of the rapid expansion of the fund size, and it is too late to build a position. The real growth of the fund often lags far behind the theoretical growth of the index.
Since ETF operation is relatively simple and does not require fund managers to worry too much, the management fee of ETF funds is also lower, generally only 0.5% a year, which is the lowest among all partial equity funds. This is why ETF funds can become the king of today's fund family.
