PDF ETF trading, costs, and portfolio strategies

Beyond the basics

ETF trading, costs, and portfolio strategies

FOR FINANCIAL ADVISORS ONLY. NOT FOR PUBLIC DISTRIBUTION.

Agenda

How ETFs are bought and sold Five legal structures Costs associated with ETFs Portfolio strategies using ETFs Using ETFs in model portfolios

FOR FINANCIAL ADVISORS ONLY. NOT FOR PUBLIC DISTRIBUTION.

2

How ETFs are bought and sold

FOR FINANCIAL ADVISORS ONLY. NOT FOR PUBLIC DISTRIBUTION.

3

Exchange-traded

Financial advisor

Exchange

Financial advisor

Investor typically buys ETF through financial advisor who completes transaction via exchange

Investor typically sells ETF through financial advisor who completes transaction via exchange

FOR FINANCIAL ADVISORS ONLY. NOT FOR PUBLIC DISTRIBUTION.

4

Typical creation/redemption process

T-1 Authorized participant (AP) wants to sell ETF shares

shares

Market

Market

AP buys securities (published daily by Vanguard)

AP assembles the basket

Market

Vanguard

Vanguard

AP transfers basket to Vanguard

Vanguard transfers ETF shares to AP

Source: Vanguard.

FOR FINANCIAL ADVISORS ONLY. NOT FOR PUBLIC DISTRIBUTION.

5

ETFs offer trading flexibility

? Short selling ? Buying on margin ? Market orders ? Stop and limit orders

FOR FINANCIAL ADVISORS ONLY. NOT FOR PUBLIC DISTRIBUTION.

6

ETF trading best practices: Placing orders

Do your homework Use caution during certain periods

? At market open ? At market close ? In fast-moving markets ? When bond/international markets are closed

When trading large amounts, use a block desk if possible Use limit orders, even marketable limit orders

Source: Vanguard.

FOR FINANCIAL ADVISORS ONLY. NOT FOR PUBLIC DISTRIBUTION.

7

ETF trading best practices: International ETFs

Spreads and prices are typically better during morning trading hours

? Up until 12 noon, Eastern time, European markets are generally still open ? After 12 noon, Eastern time, international ETFs become highly correlated with

U.S. markets and futures

Large market swings could have greater impact because of fair-value adjustments/pricing models

? Each firm uses its own model to determine fair-value prices ? Firms do not want large positions during periods of market uncertainty

Source: Vanguard.

FOR FINANCIAL ADVISORS ONLY. NOT FOR PUBLIC DISTRIBUTION.

8

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download