The quoted funds or ETF (acronym for the term Exchange-Traded Funds) are an investment vehicle whose policy seeks to replicate the behavior of the assets that make up a stock index , whether fixed income, variable, foreign exchange or raw materials or other financial assets.
We can define you as a hybrid financial asset , since they maintain similarities with the traditional investment funds themselves, but also with the actions . It has the ability to diversify the funds and the liquidity of the shares. That is, they are collective investment institutions (IIC) whose shares are listed on the stock exchange, liquidated and negotiated in real time.
This is the fundamental difference with respect to the classic funds in which case the net asset value is not established until the end of the session (at which time it is possible to trade with them), while in the ETFs the theoretical net asset value varies continuously as it does the reference, so that the investor can buy and sell at any time.
In the case of the shares, the divergence is that the quoted funds – through a single transaction – invest in a highly diversified portfolio (as well as the index they take as a reference).
The most popular ETFs are those that refer to the most important exchanges in the world, that is, those that replicate an equity index such as Ibex 35 , DAX 30 , Dow Jones Industrial Average , Standard & Poor’s 500 .
However, there is a wide variety of listed funds that allow operating with more specific matters such as fixed income, national, monetary, regional indices, according to capitalization, etc.
The so-called inverse ETFs that operate in the opposite way to the index they refer to deserve special mention, that is, they allow you to earn money when the rates fall.
Who are ETFs aimed at?
Originally, ETFs were negotiated by professional investors. This was the case of the SPDR, referenced on the S&P 500, the first quoted fund in history that emerged in the US in 1993.
In any case, its evolution has meant that all types of investors, both institutional and retail, participate in ETFs, although with a risky profile. That is: with the capacity to assume the risks that may arise from the fluctuations of the quotations in secondary markets (always less than that of the individual acquisition of shares or other financial products because it is a diversified portfolio).
Advantages of listed funds (ETF)
As we have indicated, ETFs enjoy great operational simplicity, since it is enough to acquire a single share to get a whole diversified basket of values that replicates the evolution of a market, obtaining a return equivalent to it without costs, time and the effort that would involve the continuous purchase and sale of the corresponding shares (so we could add that they also minimize the risk, at least from the point of view of passive management).
As we also pointed out, there is greater liquidity compared to traditional investment funds, since it is possible to invest and divest in an ETF at any time during the trading hours with total immediacy. Also, during this trading period the market calculates and disseminates an estimated value, guaranteeing maximum transparency to the participant (who can know how their investment evolves).
In general, they are more accessible than traditional investment funds, since they have a lower cost as subscription and redemption fees are not applied and, in addition, the participants of quoted equity funds have the possibility of obtaining dividends.
Finally, point out an important tax advantage of ETFs, and that is that the investors are subject to the regime of the shares, not the funds, so that the capital gains are not subject to withholding.
Disadvantages of listed funds (ETF)
Although we indicated that the ETF management fees are lower, it is also true that after each operation there is a sales commission (which varies depending on the bank).
On the other hand, ETF shares, unlike traditional funds, cannot be transferred. To make a change we must sell the quoted fund, pay the surplus value, and open a new one, also paying the purchase and sale commission.