I had introduced the concept of Fund of Funds in this article, and now, there are new financial products called ETF of ETF’s.
Basically, what these new ETF products will do is simply invest in other ETFs.
In the US, Invesco PowerShares Capital Management LLC has launched three exchange traded funds that invest solely in other ETFs. The funds — the PowerShares Autonomic Balanced NFA Global Asset Portfolio, PowerShares Autonomic Balanced Growth NFA Global Asset Portfolio and PowerShares Autonomic Growth NFA Global Asset Portfolio — are each pegged to an index of ETFs maintained by New Frontier Advisors LLC of Boston.
Now this is an interesting development. Be it fund of funds or be it ETF of ETF’s. The underlying concepts remain the same. Like a retail investor can on his own create a fund of funds by investing in his choice of funds, in the same way investors can create their own ETF collection. However, this ETF collection will be slightly different from the fund of funds.
The advantage with ETF’s is that you can trade them in real time on the stock exchanges as shares. So when you attempt to create ETF of ETF on you own, you do not have the liberty to execute the buy-sell orders for all the ETF in your portfolio. Hence, this is the place where the ETF of ETF will help you. Buying or selling one unit or share of ETF of ETF will ensure that you can actually trade in multiple ETF’s.
However, this liberty comes at a price. The investment cost price is relatively high. Including the cost of the underlying ETFs, the three ETF-of-ETFs will have expense ratios that run from about 0.75% to 0.86%, according to their prospectuses. Compare this to the actual ETF, the cost may be just 0.21%.
| It’s a new product and it will take some time to see whether the investors really like this concept of ETF of ETFs. The biggest problem here is with the high cost of investment. | Table of Contents |
No comments:
Post a Comment