ETF is the short name for Exchange Traded Funds which were first developed in the 1990s and managed by investment advisers who operate legally under registered investment companies. ETFs provide market access to passive investors, be it indexed funds or individual investors, and it is promoted as a cheaper investment than mutual funds with no minimum capital injection aside from saving investors intensive market risk research and market volatility. Passive investing is an investment strategy aiming to maximize returns by minimizing the buying and selling frequency. Exchange-Traded Funds contain a number of securities, simply put, it is like a basket tracking an index; moreover, ETFs product diversification would include securities of the same criteria from different industry sectors be it stocks, bonds, commodities, or metals, and even cryptocurrencies.
The values of the stocks in the basket constantly vary, so the value of the basket also varies. But when shares of the basket are trading freely on the market, the price of a share of the basket won’t quite stay in sync with the true value. This pledges the arbitrage option for the ETF manager as a balancing act to maintain the ETF’s fair value, assuming the ETF price is above its value, the fund manager adds stock to the ETF at a lower price and sells the ETF at a higher price. The opposite takes place by returning shares of the ETF for a higher price.
SPDR S&P 500 ETF Trust (SPY.ETF): is the most recognized and oldest US-listed ETF. SPY tracks US large and midcap stocks selected by the S&P Committee.
iShares Core S&P 500 ETF (IVV.ETF): Fund committee can exercise discretion to exclude specific companies. Also, dividends can be reinvested when paid.
Invesco QQQ ( QQQ.ETF): mimics the Nasdaq-100 Index and held assets of approximately $157 billion in February 2021. This fund was launched in March of 1999. The fund only invests in nonfinancial stocks listed on NASDAQ. The fund and index are rebalanced quarterly and reconstituted annually
As stated by Bloomberg, there are over 6000 ETFs traded daily in over 60 exchanges around the world with more than 3 trillion assets. Adding to that, an average of $6.8 billion is injected since the beginning of 2022 versus $5.8 billion last year – 30%- In semiconductors ETFs speculating that the industry would rebound from supply chain shortage which has already dragged shares lower. Both iShares Semiconductor ETF (SOXX.ETF) and VanEck Semiconductor ETF (SMH.ETF) dropped almost 20% this year. However, they have witnessed inflows of $137 million and $2.5 billion respectively in an industry sale jumping to more than 20% each month.
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