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The U.S. Securities and Exchange Commission has paved the way for ether-linked ETHUSD-4.84% exchange-traded funds. But ether ETFs won’t be sold to investors until the SEC approves S-1 registration statements, which offer comprehensive details about a product’s structure, management team, and how it will ether’s price movements accurately.
The promise of spot ether ETFs has garnered keen interest from cryptocurrency industry leaders. Gabriella Kusz, chief operating officer of TCS Blockchain, suggests it could open the floodgates for further development and mainstream adoption of ether.
While many will discuss the Wall Street impact, Kusz says the bigger story lies in the extent to which this approval awakens the “sleeping giant” of true blockchain mainstreaming, potentially disrupting long-standing industries…..Continue Reading…
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Critics:
Both ETFs and mutual funds charge annual expense ratios that range from 0.02% of the investment value to upwards of 1% of the investment value. Mutual funds generally have higher annual fees since they have higher marketing, distribution and accounting expenses (12b-1 fees).
ETFs are also generally cheaper to operate since, unlike mutual funds, they do not have to buy and sell securities and maintain cash reserves to accommodate shareholder purchases and redemptions. Stockbrokers may charge different commissions, if any, for the purchase and sale of ETFs and mutual funds.
In addition, sales of ETFs in the United States are subject to transaction fees that the national securities exchanges must pay to the SEC under section 31 of the Securities Exchange Act of 1934, which, as of February 2023, is $8 per $1 million in transaction proceeds. Many mutual funds can be bought commission-free from the issuer, although some charge front-end or back-end loads, while ETFs do not have loads at all.
ETFs can be bought and sold at current market prices at any time during the trading day, unlike mutual funds, which can only be traded at the end of the trading day. Also unlike mutual funds, investors can execute the same types of trades that they can with a stock, such as limit orders, which allow investors to specify the price points at which they are willing to trade, stop-loss orders, margin buying, hedging strategies, and there is no minimum investment requirement.
ETFs can be traded frequently to hedge risk or implement market timing investment strategies, whereas many mutual funds have restrictions on frequent trading. Options, including put options and call options, can be written or purchased on most ETFs – which is not possible with mutual funds, allowing investors to implement strategies such as covered calls on ETFs.
There are also several ETFs that implement covered call strategies within the funds. Many mutual funds must be held in an account at the issuing firm, while ETFs can be traded via any stockbroker. Some stockbrokers do not allow for automatic recurring investments or trading fractional shares of ETFs, while these are allowed by all mutual fund issuers.
The most popular ETFs such as those tracking the S&P 500 trade tens of millions of shares per day and have strong market liquidity, while there are many ETFs that do not trade very often, and thus might be difficult to sell compared to more liquid ETFs. The most active ETFs are very liquid, with high regular trading volume and tight bid-ask spreads (the gap between buyer and seller’s prices), and the price thus fluctuates throughout the day.
This is in contrast with mutual funds, where all purchases or sales on a given day are executed at the same price at the end of the trading day. Actively managed ETFs include active management, whereby the manager executes a specific trading strategy instead of replicating the performance of a stock market index.
The securities held by such funds are posted on their websites daily, or quarterly in the cases of active non-transparent ETFs. The ETFs may then be at risk from people who might engage in front running since the portfolio reports can reveal the manager’s trading strategy. Some actively managed equity ETFs address this problem by trading only weekly or monthly.
The largest actively managed ETFs are the JPMorgan Equity Premium Income ETF (NYSE: JEPI), which charges 0.35% in annual fees, JPMorgan Ultra-Short Income ETF (NYSE: JPST), which charges 0.18% in annual fees, and the Pimco Enhanced Short Duration ETF (NYSE: MINT), which charges 0.36% in annual fees.
Cryptocurrency ETFs invest in cryptocurrencies such as Bitcoin, Ethereum, or a basket of different cryptocurrencies. There are two types of crypto ETFs. Spot crypto ETFs invest directly in cryptocurrencies, tracking their real-time prices, and their share prices will fluctuate with the prices of the cryptocurrencies they hold.
On the other hand, future-based crypto ETFs refer to equities that do not invest directly in cryptocurrencies but rather in crypto futures contracts. These contracts are agreements to buy or sell cryptocurrencies at a predetermined price in the future. As a result, the share prices and price fluctuating trends of funds in these two types could be different, even though they hold identical cryptocurrencies and amounts.
ETF shares are created and redeemed when large broker-dealers called authorized participants (AP) act as market makers and purchase and redeem ETF shares directly from the ETF issuer in large blocks, generally 50,000 shares, called creation units. Purchases and redemptions of the creation units are generally in kind, with the AP contributing or receiving securities of the same type and proportion held by the ETF; the lists of ETF holdings are published online.
The ability to purchase and redeem creation units gives ETFs an arbitrage mechanism intended to minimize the potential deviation between the market price and the net asset value of ETF shares. APs provide market liquidity for the ETF shares and help ensure that their intraday market price approximates the net asset value of the underlying assets.
Other investors, such as individuals using a retail broker, trade ETF shares on the secondary market. If there is strong investor demand for an ETF, its share price will temporarily rise above its net asset value per share, giving arbitrageurs an incentive to purchase additional creation units from the ETF issuer and sell the component ETF shares in the open market.
The additional supply of ETF shares reduces the market price per share, generally eliminating the premium over net asset value. A similar process applies when there is weak demand for an ETF: its shares trade at a discount from their net asset value.
A brief history of ETFs – Trackinsight
Exchange Traded Funds (ETF) – Australian Stock Exchange (ASX)
Exchange Traded Funds (ETF) – Johannesburg Stock Exchange (JSE)
Exchange Traded Funds (ETF) – London Stock Exchange (LSE)
Exchange Traded Funds (ETF) – Toronto Stock Exchange (TSX)
Exchange Traded Products – New York Stock Exchange
Funds + ETFs – NASDAQ Stock Market
The ETF Hall of Fame: 25 People Who Revolutionized the ETF Industry – ETF Database
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