Which Is The Best India Small Cap ETF? [View article]
CEFs are definitely another way to invest in funds that are listed on an exchange. Both CEFs and ETFs generally own the same underlying investments - Indian stocks in this example - thus their NAV should be identically impacted based off the market movement of Indian stocks. (assuming they owned the exact same portfolio)
CEFs are almost always actively managed whereas the majority of ETFs track an index. This difference often shows up in the expenses of CEFs versus ETFs. The India CEF IIF, for example, charges approximately 1.3% and the India ETF SCIF charges .85bps.
These structures also differ in two ways. First, CEFs are generally allowed to take on leverage within the fund. (with a ceiling of around 30% of assets) The ability for CEFs to leverage provides greater flexibility for the fund and can magnify the impact of investment decisions within the fund. IIF, based on http://bit.ly/o4ngfR data is not currently leveraged. It does however pay a sizable distribution to shareholders - often a characteristic of CEFs - of 7.8% according to http://bit.ly/o4ngfR.
The other major difference between the ETF structure and CEF structure is the level of premiums or discounts found relative to the NAV of fund shares. CEFs issue a set amount of shares at inception and that specific number of shares change hands on the stock exchange based on level of demand. That price - the market price - of a CEF is often very different than the actual value of the securities in the fund (NAV). This is because the limited amount of shares trade based off market sentiment and there is no easy arbitrage mechanism. This means that the CEF usually has a market price that trades at a discount or premium to the actual value of the securities the CEF holds. (NAV) For example, according to http://bit.ly/o4ngfR data on IIF, the fund's market price is at a 9.84% discount to NAV. This may be a positive for new investors as the discount could improve but it also could be negative should it widen.
ETFs differ in that the amount of shares issued of the ETF fluctuate based on demand. Shares of the ETF can be created or redeemed to arbitrage any premium or discount that may arise in market pricing, which keeps ETFs market price and NAV very tight - usually less than 1% at most.
Thus ETFs are less impacted by inflows and outflows into the product structure than CEFs. On the flip side, some investors like to take advantage of pricing disconnects found in the CEF world as this may add another element to the return of the investment.
Great comments. Gold is priced in dollars so the stronger the dollar becomes the less gold is worth in dollars. The weaker the dollar becomes the more gold is worth in dollars. This is one of many factors that move the price of gold. From November 2001 to November 2011 gold gained about 500% while the U.S. dollar lost about 30% of its value. Some of this difference is due to the relationship between the dollar and gold but that does not explain it all. I believe the dollar is being considered a "safe haven" temporarily and the realities of the U.S. budget deficit will erode this perception and benefit gold substantially in the longer term.
India Consumer ETF: Ready To Ignite? [View article]
There's definitely a lot of robust discussion here! Thanks for the comments. It's clear that the India consumer story is not one of consensus. Remember, ETFs are effective as long and short positions, depending on your views. Some of your comments inspired me look into how consumer categories are faring and I just wrote an article about it on http://www.indiaetfs.com titled "India Consumer Categories: Where's the Growth?" Here's the link. http://bit.ly/sRWoLy
ETF Misnomers: Why You Never Judge A Fund By Its Cover [View article]
Michael is spot on in his article and examples. Be sure to understand the index the ETF tracks and then compare the holdings of the ETF to that index to be sure the ETF holdings are similar. Like many types of investment products, spending a little time under the hood of an ETF doing research will prevent a lot of headaches.
Which Is The Best India Small Cap ETF? [View article]
CEFs are almost always actively managed whereas the majority of ETFs track an index. This difference often shows up in the expenses of CEFs versus ETFs. The India CEF IIF, for example, charges approximately 1.3% and the India ETF SCIF charges .85bps.
These structures also differ in two ways. First, CEFs are generally allowed to take on leverage within the fund. (with a ceiling of around 30% of assets) The ability for CEFs to leverage provides greater flexibility for the fund and can magnify the impact of investment decisions within the fund. IIF, based on http://bit.ly/o4ngfR data is not currently leveraged. It does however pay a sizable distribution to shareholders - often a characteristic of CEFs - of 7.8% according to http://bit.ly/o4ngfR.
The other major difference between the ETF structure and CEF structure is the level of premiums or discounts found relative to the NAV of fund shares. CEFs issue a set amount of shares at inception and that specific number of shares change hands on the stock exchange based on level of demand. That price - the market price - of a CEF is often very different than the actual value of the securities in the fund (NAV). This is because the limited amount of shares trade based off market sentiment and there is no easy arbitrage mechanism. This means that the CEF usually has a market price that trades at a discount or premium to the actual value of the securities the CEF holds. (NAV) For example, according to http://bit.ly/o4ngfR data on IIF, the fund's market price is at a 9.84% discount to NAV. This may be a positive for new investors as the discount could improve but it also could be negative should it widen.
ETFs differ in that the amount of shares issued of the ETF fluctuate based on demand. Shares of the ETF can be created or redeemed to arbitrage any premium or discount that may arise in market pricing, which keeps ETFs market price and NAV very tight - usually less than 1% at most.
Thus ETFs are less impacted by inflows and outflows into the product structure than CEFs. On the flip side, some investors like to take advantage of pricing disconnects found in the CEF world as this may add another element to the return of the investment.
Explaining Gold's Manic Monday [View article]
I believe the dollar is being considered a "safe haven" temporarily and the realities of the U.S. budget deficit will erode this perception and benefit gold substantially in the longer term.
India ETFs: Moody's Downgrades India's Banking Sector [View article]
India Consumer ETF: Ready To Ignite? [View article]
Some of your comments inspired me look into how consumer categories are faring and I just wrote an article about it on http://www.indiaetfs.com titled "India Consumer Categories: Where's the Growth?" Here's the link. http://bit.ly/sRWoLy
ETF Misnomers: Why You Never Judge A Fund By Its Cover [View article]
Be sure to understand the index the ETF tracks and then compare the holdings of the ETF to that index to be sure the ETF holdings are similar.
Like many types of investment products, spending a little time under the hood of an ETF doing research will prevent a lot of headaches.