ExchangeTraded Funds

By
Sandeep Kusumanchi

Agenda

What is an ETF

Advantages of ETF

Structure of ETF

Types of ETFs

Why are ETFs so popular

Who provide ETFs

How ETF works

Best ETF Funds

ETF
Two great investment ideas brought together

Stock

Mutual Fund

Tradable
during the
day

Diversified

ETFs
Diversified
funds that trade
like stocks

Advantages
Transparency

Investors know the ETF holdings, price and costs

Liquidity

Traditional liquidity measured by secondary market trading volume

Diversification

ETFs provide immediate exposure to a basket or group of securities for instant diversification
Broad range of asset classes including equities, bonds, commodities, etc

Flexibility

ETFs are listed on exchanges and can be traded at any time the market is open
Pricing is continuous throughout the day

Cost
effectiveness

ETFs offer a cost-effective route to diversified market exposure

Structure
An ETF is a type of fund which owns the
underlying assets
Shares of stock
Bonds
Oil futures
Gold bars
Foreign currency etc.
and divides ownership of those assets into
shares.
The supply of ETF shares are regulated through
a mechanism known as creation and
redemption.

Process

Cash
Brokerage
account

Investor

Cash
ETF
Authorized
Participants

Capital
Markets

ETF
Shares

Securities

Creation Units

Basket of Securities

ETF Fund Advisor

Structure
In United states most ETFs are structured as open end
management investment companies.
Under the SEC Proposal, an ETF would be defined as a registered
open end management company that:
issues (or redeems) creation units in exchange for the deposit
(or delivery) of basket assets the current value of which is
disseminated per share by a national securities exchange at
regular intervals during the trading day
identifies itself as an ETF in any sales literature
issues shares that are approved for listing and trading on a
securities exchange
discloses each business day on its publicly available web site
the prior business day's net asset value and closing market
price of the fund's shares, and the premium or discount of the
closing market price against the net asset value of the fund's
shares as a percentage of net asset value
either is an index fund, or discloses each business day on its
publicly available web site the identities and weighting of the
component securities and other assets held by the fund

Types
o
o
o
o
o
o
o
o

Index ETFs
Stock ETFs
Bond ETFs
Commodity ETFs
Currency ETFs
Actively Managed ETFs
Inverse ETFs
Leveraged ETFs

Why so popular ?
o ETFs allow the Investor to purchase a diverse array of
assets at once
o They are more flexible, since they can be traded on the
stock market instead of being held until after markets
close
o Investors can buy and sell ETF shares quickly
throughout the trading day in response to shifts in
market value
o Investors can also take an advantage of different stock
strategies with ETFs such as Buy them on Margin and
Sell short
o The cost of running an ETF is usually lower than a
mutual fund.

Sample Portfolio Allocation 1:

20%
20%
20%
20%
20%

US Stocks (S&P 500)

Foreign Stocks [MSCI EAFE]
US 10Yr Gov Bonds
Commodities [GSCI]
Real Estate [NAREIT]

Another Sample Allocation:

As of December 2014, the total number of index

based and actively managed exchange traded
funds(ETFs), including commodity ETFs, domiciled in
the United states stood at 1,411

Total net assets of these ETFs were $1,974 trillion and

accounted for 13 percent of total net assets managed
by long term mutual funds, ETFs, closed end funds,
and Unit investment trusts at the end of 2014

As of December 2014, 52 sponsors provided as an

investment product.

Who Provide
ETFs ?
Below are the primary providers of the ETFs

Demand for
ETFs
Net Share Issuance of ETFs
Billions of dollars 2005-2014

300
250
200
150
100
50
0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

ETFs Concentrated
at
Total Net Assets of ETFs are concentrated in Large
cap Domestic Stocks
Billions of dollars, December 2014

700
600
500
400
300
200
100
0

About Invesco PowerShares

Capital Management LLC
Invesco Powershares Capital Management
LLC is leading the intelligent ETF revolution
through its family of more than 140
domestic and international exchange-traded
funds, which seek to outperform traditional
benchmark indexes while providing advisors
and investors access to an innovative array
of focused investment opportunities. With
franchise assets of over $100 billion as of
December 31,2014. PowerShares ETFs trade
on both US stock exchanges.

Q&A

Good, better, best. Never let it rest.

Until your good is better and
our better is best.
--- Tim Duncan

Thank
You