What is the ETF?
Exchange-traded index funds, usually also known as ETFs (Exchange Traded Funds, referred to as the “ETF”), is an open-ended funds which can be traded on the market and funds shares are variable.
Exchange-traded index funds is a special type of open-ended funds, which combines the operational characteristics of closed-ended funds and open-ended funds. Investors can either purchase or redeem of fund shares to the fund management company, at the same time, they can be traded the ETF shares at market price in the secondary market like closed-ended funds. However, purchase and redemption must be based on a package of stocks to interchange fund shares or funds shares in exchange for a package of stocks.
Owing to the presence of stock market trading and the subscription and redemption mechanism, investors can trade arbitrage when the price difference exists between the market price and the NAV ETF funds. Arbitrage mechanism makes the ETF avoid the closed-ended fund discount widespread problem.
Depending on the investment approach: ETF can be divided into index funds and actively managed funds. The vast majority of foreign ETFs refer to index funds. At present, the domestic launch of ETF is also index funds. ETF index funds on behalf of a package of stock ownership refers to index funds in the stock exchange like a stock transaction. Its transaction price, Indicative Optimized Portfolio Value is consistent with the tracked index. Therefore, as investors trade an ETF, is equivalent to the sale of the index it tracks, you can get returns basically the same with the index. ETF usually adapts completely passive management approach to fit a particular index as the goal, which both have the characteristics of stocks and index funds.
Shanghai Stock Exchange launched the Shanghai 50ETF, which is the first ETF Shanghai Stock Exchange planned to launch. Since then, the Shanghai Stock Exchange successively launched 180ETF, high dividend stock index ETF, large cap index ETF and ETF in industries.
1, The first ETF–Shanghai 50ETF
Shanghai Stock Exchange, the SSE 50 Index licensed the use to the China AMC. China Asset Management Company came out on top, becoming China’s first ETF managers.
China AMC and SSE 50ETF products will adopt full replication method, closely tracking the SSE 50 Index. Stock types in the portfolio are the same as component stocks which SSE 50ETF contains. And the number of shares and the component stocks constitute the consistent weight. It is in pursuit of track deviation and tracking error minimizing. After being traded its purchase and redemption in SSE, its purchase and redemption will also be carried out through the SSE system.
The entire operation of ETF includes the public offering cash subscription, a public offer to subscribe for shares, traded on the purchase and redemption, arbitrage, portfolio management, accounting and valuation, disclosure of information and customer service.