On the Internet: Exchange-Traded Funds
by CI Staff
Over the past few years, exchange-traded funds have grown in popularity as an alternative to traditional open-end mutual funds. Exchange-traded funds, called ETFs for short, are similar to open-end mutual funds in that they are a basket of stocks, but they trade on an exchange. In other words, they can be traded throughout the day through a broker just as if they were individual stocks with trading commissions charged. In contrast, open-end mutual funds are only traded at their closing net asset value. Exchange-traded funds come in a few different varieties, but the majority track broad-based indexes, sector groups, or international segments. ETFs are often favored by investors because of their tax efficiency, low costs and liquidity. See the October 2003 AAII Journal article titled The Individual Investors Guide to Exchange-Traded Funds for a complete list of the current ETFs and details on how they work.
Most of the information on exchange-traded funds comes via the fund sponsors and marketers. However, a few independent sites offer research, in-depth information, and ratings on the Internet. Here we list both.
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ETF Connect provides some of the most comprehensive information on index ETFs and closed-end funds. A closed-end fund is a specialized type of mutual fund that trades on a stock exchange. Traditional mutual funds are open-ended investment companies that pool investors money to invest in securities. They are open-ended because they continuously issue new shares when investors want to invest in a fund, and redeem shares when investors want to sell. The share price, or net asset value, of an open-ended mutual fund is the market value of the securities held by the fund. Closed-end funds issue a fixed number of shares through an initial public offering, and these shares then trade on the stock exchanges just like individual stocks. The trading share price of a closed-end fund may or may not equal the underlying value of assets held by the fund. Closed-end funds do not create new shares when more funds are added unless there is a secondary offering.
Sponsored by Nuveen Investments, ETF Connect offers information from ETF sponsors such as Barclays, Merrill Lynch, and State Street. You can view a list of ETFs categorized in a variety of ways—by total asset size, by year-to-date return, or by percentage of premium or discount. Quite often, an exchange-traded fund or closed-end fund will trade at a premium or a discount to its underlying value, and current information on this can be crucial to decision-making.
ETF Connect provides an easy tool to search for either closed-end funds, ETFs, or preferred stock funds. Visitors can search by ticker symbol and CUSIP. A multi-fund search allows users to specify a particular asset class and compare data on similar funds from different sponsors.
Once a fund has been selected from the search, a comprehensive report displays performance figures, top holdings, diversification percentages, research data, and a link to SEC filings. The sites education center includes a tutorial, glossary, and frequently asked questions (FAQs). Links are also provided to industry Web sites, fund providers and newsletters.
Barclays Global Investors sponsors exchange-traded funds called iShares. In order to browse the site, visitors must complete a free registration. iShares track popular indexes from Morgan Stanley Capital, Cohen and Steers (Real Estate), Dow Jones, Goldman Sachs, Nasdaq, Russell, and Standard and Poors. The Web site provides a one-page profile, charts, fundamentals, and holdings for each exchange-traded fund.
The site also has a few interesting tools for analyzing and choosing ETFs. The Index Tracker ranks indexes in terms of performance by means of bar charts. You can specify various time periods and categories to rank the indexes. Indexes are hyperlinked to the corresponding ETF offerings with performance data. The ETF allocator tool mimics the makeup of the Dow Jones U.S. Sector and Total Market Indexes. You simply input total funds to be invested and a percentage amount to dedicate to the Total Market Index, and the allocator shows you how the remainder of your assets would be distributed among the sector funds based on the current market weight of each sector. You can then tweak any allocation percentages. Finally, the tool shows the current net asset value (NAV) for each index fund and calculates the dollar amount and number of shares to be purchased based on your percentage allocations.
Visitors can search for funds based on region, sector, performance, and a variety of financial ratios. An education area explains the basics of how exchange-traded funds work. Use of the iShares Web site is free.
American Stock Exchange
The American Stock Exchange (Amex) is the largest marketer of exchange-traded funds and includes over 100 listed ETFs. The sites ETF area provides valuable research information on exchange-traded funds, a wide array of tools and an educational section.
The market summary section of the ETF area provides up-to-the-minute trading data on exchange-traded funds. The quote summary lists last trade time and price, percent change, number of shares available, and volume and provides a link to a price chart. You can view a list of new highs and lows and see the current activity of the major indexes. A valuable tool allows the visitor to select a major index, such as the S&P 500, and see the available exchange-traded funds that track that index.
The product information section offers in-depth data on each exchange-traded fund. A brief overview of the fund includes expense ratio, trustee, and a description of the funds objective. Total return performance data is reported based on net asset value and on market value both before and after taxes. A detailed distribution history is provided. Premium/discount history can be viewed in chart form for various time periods by dollar amount or percentage.
The ETF screener allows visitors to specify criteria such as size of the ETF, objective, expense ratio, and individual security holdings. The total return matrix sorts ETFs in terms of performance over various time periods. Other tools include a performance measurement tool and premium/discount performance matrix. News and downloadable files round out the Amexs ETF area.
The exchange-traded fund section of Morningstar.com opens with commentary on individual ETFs and information on new issues. A helpful ETF matrix offers a quick idea of how ETFs fall into the Morningstar style boxes—value, growth, blend, and small, medium, large. The ETF basics section provides information on the characteristics of ETFs—how ETFs are created, how they work, and the effect of discounts and premiums. Another segment addresses the question of whether ETFs are right you.
The ETF reports are similar in format to the familiar Morningstar mutual fund reports. For each ETF, you can view return and risk data, Morningstar ratings, sector listings, a list of top holdings, and fees and expenses. Written commentary on select ETFs and a cost analyzer are available to premium subscribers only.
Use of the site is free with a required registration; premium membership is $109 per year (14-day free trial).
The Nasdaq site provides detailed information on the Nasdaq 100 index tracking stock (QQQ) as well as education, screening, and data on exchange-traded funds in general. The ETFs are broken down into three types—international, sector, and broad-based.
Nasdaqs ETF comparison tool helps to identify the best-performing ETF funds. Visitors can search by timeframes that range from months to years. Further research includes detailed quotes, news, charts, and analysis tools. The helpful analysis tools employ various financial ratios such as price-earnings (PE) and price-earnings to earnings growth (PEG) ratios. There is also a consensus area with analyst recommendations.
The ETF Screener allows visitors to search for ETFs by market capitalization, style, return, and price. Visitors can request to have ETF prospectuses E-mailed or mailed to them. Use of the site is free.