Chapter 13-ETFs Flashcards
____ pioneered the concept of a tradable basket of stocks with the creation of the S&P ___ (SPDR) in 1993.
The American Stock Exchange; Depositary Receipt
___ of outstanding ETF shares are retail-owned by individuals. However ___ of day to day trading volume remains institutional, mostly by ___.
85%; 90%; hedge funds
The 10 largest ETFs account for ___ of all ETF assets and ___ of ETF trading volume. SPY (S&P 500 ETF) trades ___ a day with just a ___ bid/ask spread.
40%; 50%; over 100 million shares; 1 cent
ETFs are classified as ___ or ___.
open-end companies or unit investment trusts
ETFS don’t sell directly to ___ and only issue shares in large blocks (____ share blocks) known as ___.
investors; 50,000; creation units
An ETF, like any other type of investment company, has a ___. Those buying the creation units receive this and sometimes ETFs deliver a ___ to secondary market purchasers.
ETFs not delivering a ___ must give investors a document known as a ___ Description.
All ETFs deliver a ___ on request.
prospectus (3X)
Product
prospectus
ETFs structured as open-ended companies must also have a ___.
Open-end ETFs must also provide shareholders with ___ reports.
SAI
annual and semiannual
Four companies oversee ___ of all ETF assets (over $5 trillion): ___, _____, S____, I____.
90%; Barclays Global (Blackrock), Vanguard, State Street, and Invesco
If you have investors with ___ tolerance, consider triple or ___ ETF funds. These funds have average expense ratios of ___ and are designed to triple or ___ an investor’s ____.
high risk; double
less than 1%; double; gains or losses
ETFs are not required to ____ thus avoiding capital gains taxes for the remaining investors.
Since they’re traded on an exchange, ETFs are insulated from costs of having to ___.
sell securities to meet investor cash redemptions; trade securities to accommodate shareholder purchases and redemptions.
Power Shares ETFs had the ___ average fees and the ____ average tracking error, ___%.
highest; highest; 0.7%
A ___ allows you to buy at the best current price available. Most orders are ___ with the typical bid-ask spread with very popular ETFs being ___%.
market order; market orders; .01%
A ____ allows you place a buy order indicating that you are willing to pay $X per share or Less.
buy limit order
A ___ allows you to indicate you want $X per share or More. If someone is not willing to sell you shares for $X or less, the order is not filled.
sell limit order
A ___ order goes into effect as soon as the price per share hits a certain price. Then this order become a market order.
stop-loss or stop
ETFs and tracking errors
1) When there is a panic, ___ of several ETFs can be quite different than the underlying ___.
2) Advisors should think twice about ___ any investment, and in particular an ETF or ___, during period of high short-term volatility.
3) It’s very likely that any ___, no matter how narrow or ___, is likely to be corrected in 1-_ days.
1) pricing; index
2) selling; CEF
3) disparity; wide; 2
ETNs do not have to comply with the ____ but are registered under the ____.
Investment Company Act regulations; Securities Act of 1933
ETNs are traded throughout the ___, can be bought ___, and can be ___.
day; on margin; shorted
ETNs do not have a___; ___ is based on indexes published by the issuer.
NAV; daily value
Unlike an ETF, an ETN represents a ____. Since ETNs are backed by the the issuer’s ___, investors need to keep abreast of the issuer’s ___.
promise by its issuer to match returns of a particular index or commodity.
promise; credit rating
ETNs are not notes, they are ___ contracts.
The typical bid-ask spread of an ETN is ___.
prepaid forward futures.
5-10 basis points.
Many banks offer ETNs including ____, ____, B____, D____, and ____
Barclays, Goldman Sachs, Bear Stearns, Deutsche Bank, and JP Morgan Chase
Most commodity-type ETFs buy ____.
Taxable investors owe tax on any appreciation each year even if the ETF investor does not ____.
Any gain is taxed ___ as long-term and ___ as short-term.
Many ETFs are structured as ____ with investors getting a ___ instead of a 1099.
futures contracts.
sell any shares.
60%; 40%
limited partnerships; K-1
If someone wants to add a commodities-type asset, ___ are likely to be more tax efficient than similar commodity-based ____.
ETNs; ETFs
Although the IRS has not yet ruled on commodity ETNs, they currently treating the notes as ____.
This means gains are only taxed ___; and gains from ETNs held for ___ are considered long-term.
prepaid financial contracts.
upon sale; more than 1 year
Some ETF benefits include:
1) no sales ____
2) lower ___ and ____
3) broad or sector-specific ____
4) shareholders aren’t hurt by ____
5) the ability to write _____
1) load
2) fees and tax efficiency
3) diversification
4) active traders
5) covered calls
In general, ETFs have a ___ than mutual funds. Almost all ETFs are ___.
lower annual expense ratio; index funds
The IBF doesn’t recommend ETNs because the investor is relying on the ____; during a crisis the institution may have ____.
assets/creditworthiness of the financial institution; very few assets.
For very popular ETFs, the typical bid-ask spread is ___.
.01%
