Most of the ETFs on the market today are index-linked funds, i.e. passively managed funds that track the price and yield trends of an underlying index.
They combine the respective advantages of an index certificate and an investment fund yet still have the features of a share. Unlike an index certificate, ETFs have an unlimited lifespan, and unlike a fund unit, they can be traded permanently during exchange hours. They can also be sold short or arbitraged like shares, giving institutional investors in particular scope to respond fast to market movements.
Diversifying a portfolio couldn't be easier. With a single transaction, investors can buy into all the shares contained in the index. Fund investments are adjusted continually to the index weightings, guaranteeing immediate transparency. ETFs reflect the market price and net asset value (NAV) of the index virtually one-for-one. The effective NAV is calculated daily on the basis of closing share prices. During trading sessions, an indicative NAV is calculated and published every 15 seconds.
SWX Swiss Exchange appoints a market maker to quote attractive bid and ask prices for each ETF traded on the platform. This guarantees a very liquid market and keeps trade flowing. The bid and ask prices set by the market maker apply to amounts up to EUR 50,000 and may not deviate from the current NAV by more than +/- 1%.
Another advantage price-wise is that Exchange Traded Funds are not subject to issue and redemption fees. Investors merely pay the usual exchange charges imposed on securities orders. Issuers express the market price per unit as a fraction (usually 1/100) of the tracked index. Publication of an indicative NAV ensures that the fund's effective net asset value and its market price largely correlate.
Exchange Traded Funds offer investors an opportunity to:
- commit direct to a diversified, flexible investment
- buy into an entire market or index with a single investment
- build up a position in a reference portfolio of blue chips
- profit from products with an attractive risk/return profile
- buy and sell during normal exchange times
- receive regular dividend payments
