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19.12.2008

Von Don Quixote, ETFs und neuen Wahrheiten

Rolotec ist seit vielen Jahren im ETF-Bereich engagiert und hat eine Spezialsoftware für die Berechnung der indikativen Net Asset Values von ETFs und anderen Basket basierten Produkten geschrieben (s. Beiträge zum Thema).

Alexia Coronini von Cronberg hat für SIX Telekurs die Kolloboration von Rolotec und SIX Telekurs aufgenommen und in den nachfolgend publizierten Artikel einfliessen lassen.

Why It's Alright To Put All Of Your Eggs Into One Basket

"If it please your worship…" said Sancho, ".... It is the part of a wise man to keep himself today for tomorrow, and not to venture all his eggs in one basket.” (Don Quixote, Miguel de Cervantes)

From a young age I often heard the phrase “Do not put all of your eggs into one basket”. I accepted these cautionary words without much thought; after all, it is not rocket science to understand that it is a very reasonable message and one which can potentially help avoid a lot of disappointment. Why run the risk of losing everything, when one can simply hedge ones bets, and to distribute ones proverbial eggs into a number of baskets, instead of just one single one? In any case, I have been relying on this useful rule of thumb for some time; I was, that is, until I discovered the delights of ETFs.

A bird’s-eye view

ETFs are baskets of shares which are available to investors to buy. Instead of tracking the share prices on individual companies, an ETF enables the investor to track the performance of a selection of companies which make up that particular ETF. The first ETF, the SPDR ETF simply tracks the performance of the top companies in the US which are listed in the S&P 500 index. In 1992, the American Stock Exchange requested the use of the first stand-alone, index based ETF from the SEC (Securities and Exchange Commission. The SEC granted permission for this new financial product, and the first ETF, the SPDR which is benchmarked to the Standard and Poor’s 500 Index, was launched. Since then, over 1000 ETFs have been created, varying from those following the NASDAQ-100, to ones that consist of shares in alternative energy companies. In the first quarter of 2008, 1280 ETFs were globally available , 100 of which were launched in Europe in 2007 alone .

The scramble for ETFs

In this current period of economic instability, nobody can afford failed investments. I was fascinated to learn that despite these turbulent times, investors continue to pour money into ETFs. The ETF market in Europe has increased by 13% this year to $145.17 billion, and is expected to exceed $200 billion in the coming year . SIX Swiss Exchange has also highlighted the popularity of ETFs, showing that the trading of ETFs reached a peak of over €5 million in October. This figure was up an impressive 95% on the previous month, and up over 180% compared with October 2007.

The egg-ception to the rule

The advantages of putting your eggs into this type of basket are immediately apparent. You get broad exposure from one single product, and instead of having to become an expert in one particular field, and having to search the market for one or two particular stocks, with ETFs you can gain the benefits from a range of shares. Some ETFs are sector-specific, focussing on agriculture, technology, telecommunications or precious metals. For example, the LSE’s AGAP ETF gives its investors exposure to soybeans, cotton, sugar and other commodities. You can also choose to invest in shares from a particular country or group of countries. The iShares FTSE BRIC 50 is made up of shares exclusively from Brazil, Russia, India and China. By putting your eggs into, say, the BRIC 50 basket, you would in fact be hedging your bets, despite having pinned all your hopes on one basket. Because, if, say, the shares from Brazil are not performing as well as expected, you are still left with the shares from the remaining three countries, which might well bolster your returns.

Another big attraction of ETFs is that they trade like shares, and so can be bought and sold in real-time, however often you want. This offers the investor the flexibility which mutual funds, (which have a similar but less extensive ability to group families of stocks together), lack. This is particularly attractive for those speculative investors, who want to take a bet on short-term market movements. ETFs incur only very low administration costs, especially compared to mutual funds. The average mutual fund fee is about 1.4%, whilst average ETF fees are around 0.32%. To take the SPDR ETF as an example once more, the amount deducted from your investment to manage the fund, the so-called “expense ratio”, is just 0,1% plus the usual broker fees. This is a significant saving compared to an actively managed S&P fund, for which you could be paying up to twenty times that amount. ETFs are also popular amongst tax-conscious investors, particularly those with large accounts, because ETFs allow investors to receive in-kind redemptions. The investor can exchange them for the shares the ETF is tracking, and thereby minimising taxable gains, as the investor can defer most taxes until the investment is sold.

How to count your chickens

SIX Telekurs is aware of the trends in the ETF markets, and for some time now has been offering its indicative NAV calculator to its clients. Developed in partnership with Rolotec AG, the indicative NAV calculator helps you calculate the net asset value of your chosen basket at fifteen-minute intervals. With this tool you have access to SIX Telekurs’ entire market data offering on which the real-time calculations of the indicative intraday valuation of all international ETFs are based. So not only should you put all of your eggs into one basket, with the help of SIX Telekurs you can also count your chickens before they hatch.

Verfasst von Hans Fischer um 19.12.08 14:09