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The Institutional ETF Toolbox: How Institutions Can Understand and Utilize the Fast-Growing World of ETFs

ISBN: 978-1-119-09386-2
384 pages
March 2016
The Institutional ETF Toolbox: How Institutions Can Understand and Utilize the Fast-Growing World of ETFs (1119093864) cover image

Description

Get up to speed on the booming innovation surrounding institutional ETF usage.


The Institutional ETF Toolbox is the institutional investor's guide to utilizing exchange-traded funds and taking full advantage of the innovative new products in their expanding repertoire. The ETF toolbox is expanding rapidly with nearly one new ETF launching every day this decade so far. As with any financial innovation, this phenomenon brings both opportunity and concerns, as well as a dire need for clarity and strong due diligence skills.

This book is both reference and resource, providing data-driven explanations backed by real-world market examples—alongside valuable insight from leading practitioners. Coverage includes an examination of the advantages and growth of ETFs as well as current and future uses of ETFs, emerging markets, and the strategic and tactical perspectives you need to effectively use ETFs to optimal effect. The major concerns surrounding ETFs are addressed in full to give you the background you need to formulate a better ETF strategy.

ETF allocations are expected to keep growing rapidly across all institutional types, and new and emerging products are becoming more and more liquid allowing easier expression of investment opinion. This book shows you how any investors can utilize these tools to strengthen your portfolio and safely expand into particularly appealing areas.
  • Understand how the ETF ticks and the how to take advantage of all the myriad of advantages
  • Learn how to perform effective due diligence using exposure, cost, liquidity, risk and structure
  • Utilize ETFs for cash equitization, portfolio rebalancing, liquidity management, and more
  • Learn how ETFs are expanding into equities, fixed income, emerging markets, and alternatives
  • Learn how to avoid unwanted costs, liquidity issues and hidden complexities
ETF usage is climbing with assets growing by about 25 percent per year, and those who use them expect to expand their usage quickly. The Institutional ETF Toolbox provides the actionable information institutions need to identify and adopt the most suitable approach.
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Table of Contents

Acknowledgments xiii

Introduction: Institutions and ETFs xv

SECTION I: THE ETF PHENOMENON

CHAPTER 1 Why Are ETFs So Popular? 3

Low Cost 4

Liquidity 6

Tax Effi ciency 8

Transparency 9

Diversification 11

Easy Asset Allocation 13

Standardization 14

Democratic 16

No Emotion 17

Passive Investing 17

Flexibility 19

Anonymity 20

Price Discovery 21

Fiduciary Vehicles 23

Battle Proven 24

Convenience 24

Notes 25

CHAPTER 2 ETF Growth 27

Asset Growth 27

ETF Assets in Perspective 29

Trading Growth 30

Product Growth 34

Notes 36

CHAPTER 3 ETF Mechanics 37

The Story of the ETF 38

The Creation/Redemption Process 42

AMEX Wasn’t Alone 44

Finally Ready for Launch 46

Notes 51

CHAPTER 4 Institutional Usages 53

Cash Equitization 55

Manager Transitions 60

Portfolio Rebalancing 63

Portfolio Completion 63

Liquidity Sleeves 64

Shorting/Hedging 66

Long and Lend 70

Tactical Moves 72

In-Kind Creation/Redemption 74

Bespoke ETFs 77

Tax-Loss Harvesting 82

Long-Term Allocation 83

Personal Usage 87

Notes 89

CHAPTER 5 ETF Due Diligence 91

Exposure 93

Cost 100

Liquidity 119

Risk 130

Regulatory Structure 133

ETF Issuers 136

ETF Ratings 138

Notes 140

SECTION II: THE ETF TOOLBOX 143

CHAPTER 6 U.S. Stock ETFs 145

Large Caps 146

Mid Caps 155

Small Caps 156

Broad Market 159

IPOs 162

Sector and Industry ETFs 165

The Tech Sector 166

Industries 175

Thematic ETFs 180

Notes 189

CHAPTER 7 Smart Beta 191

Controversy 192

Smart Beta versus Active Management 193

Growth and Value 196

Fundamentally Weighted ETFs 197

Single Factors 199

Notes 204

CHAPTER 8 International/Global ETFs 205

International Developed Markets 206

Global 209

Emerging Markets 212

The First Movers 212

Second-Generation EM 217

Next-Generation EM ETFs 221

Currency-Hedged ETFs 225

Single-Country ETFs 233

China 241

Notes 248

CHAPTER 9 Fixed Income 251

Regulations 253

Aggregate Bond ETFs 258

Treasuries 261

Mortgage Backed Securities 267

Municipals 268

Corporate 270

Senior Loans 273

Interest Rate–Hedged ETFs 278

Multi-Asset Income ETFs 281

International Debt 282

Notes 284

CHAPTER 10 Alternatives 285

Hedge Fund Strategies (aka “Liquid Alts”) 286

Commodity ETFs 293

Physically Backed Commodity ETFs 293

Futures-Based Commodity ETFs 300

Notes 308

CHAPTER 11 Leveraged, Inverse, and VIX 309

Leveraged ETFs 309

The VIX 318

Notes 324

CHAPTER 12 Actively Managed ETFs 325

Fixed Income 327

Equity 329

Notes 334

Conclusion: Five Takeaways 335

Note 340

About the Author 341

Index 343

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Author Information

Eric Balchunas is a senior ETF analyst at Bloomberg, where he has more than a decade of experience working with ETF data, designing new functions, and writing ETF research for the Bloomberg terminal. He also writes articles, feature stories, and blog posts on ETFs for Bloomberg.com and appears each week on Bloomberg TV and Radio to discuss ETFs.

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