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Do you have any ideas for a catchy ETF?

Money & Finance


In the price war being waged by U.S. brokerages, the biggest battle looks to be that for ETF (exchange-traded fund) dominance.

Just this week, both Fidelity and Charles Schwab announced they would each expand commission-free trading to hundreds more ETFs.

Why are ETFs so important for brokerages? Much like your student council elections in middle school, this is a popularity contest—and low-cost ETFs have become popular enough to attract about $3.3 trillion in assets as of the end of December (plus 91% of millennials said ETFs were their choice investment vehicles last year).

But that’s where the fun ends and the Hunger Games begin, according to Bloomberg’s Barry Ritholtz. “New [ETFs] must endure a brutal Darwinian struggle for attention and assets...new ETFs need a good investment idea and a catchy marketing approach,” he wrote.

Zoom out: The average ETF lifespan is 3.4 years, per Bloomberg Intelligence.

Do you have any ideas for a catchy ETF?


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    • Guest
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      (Great question, by the way! This is the “Passive Investing Bubble” that many are worried about.)
      Most arenÂ’t considering the risks that accompany index funds and ETFs.
      In fact, most people think that those two investment vehicles have no risk.
      Just like the housing market didnÂ’t have any risk in 2006Â…
      LetÂ’s take a look at the largest ETFs:
      Source: ETFdb
      IÂ’ll pick the largest ETF, $SPY, as an example.
      $SPY is by far the largest ETF with almost double the assets under management than $IVV, the next largest.
      So what is $SPY? What equities does the ETF hold?
      WellÂ… thatÂ’s easy to find out. Here are the top ten holdings:
      Source: SPDRS
      Looks good, right?
      A fairly balanced mix, with no huge allocations to one company.
      That means the ETF is completely protected from a market crashÂ… because itÂ’s so diversifiedÂ… right?
      Do you know what happened during the housing crash?
      Basically, the crappy home loans of thousands of homes were spread out among many securities… hence the name “Mortgage Backed Securities.”
      But not many people were worried because these crappy mortgages (that people might not pay back) were spread out. So, even if a bunch defaulted, then it wouldnÂ’t effect anything.
      Well, we all know what happened.
      BUT THIS SCENARIO IS TOTALLY DIFFERENT! (I can hear you saying that!)
      Well, thatÂ’s kind of true.
      We donÂ’t have a bunch of toxic mortgages floating around our financial system.
      But, we do have A TON of money investing in passive investing vehicles like ETFs and index funds.
      “This concern is rooted in the very nature of passive funds: They buy stocks without considering the fundamentals.” Source: LATimes
      And guess what those ETFs and index funds are buying?
      They are buying the top companies in our stock market, which are expensive by a variety of measures.
      So the ETF and index fund you may be invested is definitely diversifiedÂ… but itÂ’s diversified among a bunch of expensive companies!
      The problem here is liquidity.
      Liquidity is a word I know we will all be hearing more about.
      If you are an experienced stock trader, then you should be very familiar with liquidity.
      Basically, liquidity is the ability to buy and sell an equityÂ… or really anything.
      YouÂ’ve got to have buyers and sellers to make a market work.
      What will happen when those equities in those ETFs and index funds start to lose value?
      People will start selling. And then more people will sell. And then more.
      Pretty soon there will be large numbers of people who want to sell and there will be no BUYERS.
      ThatÂ’s because all the buyers have either lost their money from the falling ETF and index fund prices OR they are the major funds who have seen this scenario unfold from a mile away.
      (TheyÂ’re just waiting for everything to fall, so they can pick up the pieces.)
      There are 2 arguments to the above:
      #1 This is all wrong, and I donÂ’t know what IÂ’m talking about.
      Answer: Maybe. LetÂ’s see what unfolds in the near future.
      #2 It doesnÂ’t matter when you buy an index fund, because you hold it over the long runÂ… market fluctuations donÂ’t matter in the bigger picture.
      Answer: True. But, IÂ’d much rather buy when things are cheap and ride the wave up than buy when things are expensive and wait years to get back to where I started.
      ***ItÂ’s important to note that not all index funds or ETFs are at risk right now. For example, $URA is a uranium ETF. Uranium is trading at historical lows with not much room for a major price fall.
    • By admin
      Just curious about the differences over the very long term (40 years)
      There are fees with sector ETF's.... but the diversification would mitigate the risk as well.
    • Guest
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      When investors want to sell their ETF holdings, they can do so by one of two methods. The first is to sell the shares on the open market. This is generally the option chosen by most individual investors. The second option is to gather enough shares of the ETF to form a creation unit, and then exchange the creation unit for the underlying securities. This option is generally only available to institutional investors due to the large number of shares required to form a creation unit. When these investors redeem their shares, the creation unit is destroyed and the securities are turned over to the redeemer. The beauty of this option is in its tax implications for the portfolio.
      We can see these tax implications best by comparing the ETF redemption to that of a mutual fund redemption. When mutual fund investors redeem shares from a fund, all shareholders in the fund are affected by the tax burden. This is because to redeem the shares, the mutual fund may have to sell the securities it holds, realizing the capital gain, which is subject to tax. Also, all mutual funds are required to pay out all dividends and capital gains on a yearly basis. Therefore, even if the portfolio has lost value that is unrealized, there is still a tax liability on the capital gains that had to be realized because of the requirement to pay out dividends and capital gains.
      ETFs minimize this scenario by paying large redemptions with stock shares. When such redemptions are made, the shares with the lowest cost basis in the trust are given to the redeemer. This increases the cost basis of the ETF's overall holdings, minimizing its capital gains. It doesn't matter to the redeemer that the shares it receives have the lowest cost basis, because the redeemer's tax liability is based on the purchase price it paid for the ETF shares, not the fund's cost basis. When the redeemer sells the stock shares on the open market, any gain or loss incurred has no impact on the ETF. In this manner, investors with smaller portfolios are protected from the tax implications of trades made by investors with large portfolios.

    • Guest
      By Guest
      An ETF has many advantages over a mutual fund including costs and taxes. The creation and redemption process for ETF shares is almost the exact opposite of that for mutual fund shares. When investing in mutual funds, investors send cash to the fund company, which then uses that cash to purchase securities and in turn issues additional shares of the fund. When investors wish to redeem their mutual fund shares, they are returned to the mutual fund company in exchange for cash. Creating an ETF, however, does not involve cash.
      The process begins when a prospective ETF manager (known as a sponsor) files a plan with the U.S. Securities and Exchange Commission to create an ETF. Once the plan is approved, the sponsor forms an agreement with an authorized participant, generally a market maker, specialist or large institutional investor, who is empowered to create or redeem ETF shares. (In some cases, the authorized participant and the sponsor are the same.)
      The authorized participant borrows stock shares, often from a pension fund, places those shares in a trust and uses them to form ETF creation units. These are bundles of stock varying from 10,000 to 600,000 shares, but 50,000 shares is what's commonly designated as one creation unit of a given ETF. Then, the trust provides shares of the ETF, which are legal claims on the shares held in the trust (the ETFs represent tiny slivers of the creation units), to the authorized participant. Because this transaction is an in-kind trade — that is, securities are traded for securities—there are no tax implications. Once the authorized participant receives the ETF shares, they are sold to the public on the open market just like stock shares.
      When ETF shares are bought and sold on the open market, the underlying securities that were borrowed to form the creation units remain in the trust account. The trust generally has little activity beyond paying dividends from the stock, held in the trust, to the ETF owners, and providing administrative oversight. This is because the creation units are not impacted by the transactions that take place on the market when ETF shares are bought and sold.

    • Guest
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      The use of exchange traded funds (ETFs) has increased rapidly in recent years. If you're just getting started with ETFs, here are a few basics to help get you oriented on these convenient, low-cost, flexible funds.
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      Like mutual funds, ETFs are bundles of securities, such as stocks or bonds. Both ETFs and mutual funds make it easy to gain exposures to a wide range of markets.
      A key difference between ETFs and mutual funds is how they are bought and sold. Mutual funds are traded directly with the fund company and shares are priced once a day, after the market close (4 p.m. Eastern). ETF shares, on the other hand, can be bought and sold throughout the day at market price when the market is open, just like a stock.1
      Two: They have been around for a long time.
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      Costs have a direct impact on your bottom line. Many investors are drawn to ETFs because they're generally cheaper to own.3 Those savings can really add up year after year. Also, if taxes are a concern, many ETFs have historically had lower taxable capital gains distributions than mutual funds.4 The result? ETFs may help you keep more of what you earn.
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      Exchange Traded Funds
    • By admin
      I saw this while researching a Vanguard index ETF

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