Visual Guide to ETFs

257 Pages·2013·10.98 MB·English

by  David J. Abner

Visual Guide to
ETFs
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Visual Guide to Candlestick Charting by Michael Thomsett
Visual Guide to Municipal Bonds by Robert Doty
Visual Guide to Financial Markets by David Wilson
Visual Guide to Chart Patterns by Thomas N. Bulkowski
Visual Guide to ETFs by David J. Abner
Visual Guide to Options by Jared Levy
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Visual Guide to
ETFs
David J. Abner
BLOOMBERG PRESS
An Imprint of
For Denise
Cover image: Background © Ali Mazraie Shadi/Stockphoto
Cover design: C. Wallace
Copyright ©2013 by David J. Abner. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Abner, David J., 1969
Visual guide to ETFs / David J. Abner.
p. cm. — (Bloomberg press series)
Includes index.
ISBN 978-1-118-20465-8 (pbk.); ISBN 978-1-118-22838-8 (ebk); ISBN 978-1-118-23158-6 (ebk);
ISBN 978-1-118-26561-1 (ebk); ISBN 978-1-118-52394-0 (ebk); ISBN 978-1-118-52387-2 (ebk);
ISBN 978-1-118-52397-1 (ebk)
1. Exchange traded funds. I. Title.
HG6043.A263 2013
332.63’27—dc23 2012030737
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
Contents
List of Exhibits vii ■ Chapter 5: ETFs and the Flash Crash 111
How to Use This Book xi
■ Chapter 6: How to Execute Orders in ETFs 121
Preface xiii
Acknowledgments xv
■ Chapter 7: Examining ETF Trading Strategies 137
■ Chapter 1: Characteristics of Modern Investment Products 1
■ Chapter 8: Product Labeling and Structural Impact 177
■ Chapter 2: Understanding How ETF Portfolios Work:
The Primary Markets 31 ■ Chapter 9: Where to Find ETF Information 205
Appendix: Bloomberg Functionality Cheat Sheet 221
■ Chapter 3: Understanding the Short Interest of ETFs 63
Index 235
■ Chapter 4: Trading and Liquidity of the ETF Markets:
The Secondary Markets 81
v

List of Exhibits
Exhibit 1.1: Investment Company Total Net Assets Exhibit 1.14: CEF Discount Chart (CLM)
(in $billions) by Type Exhibit 1.15: CEF Discount Chart (NRO)
Exhibit 1.2: SPY Price Spread Example Exhibit 2.1: ETF Holdings (MHD)
Exhibit 1.3: ETF Market Participants Exhibit 2.2: ETF Creation Unit
Exhibit 1.4: ETF Description (DES), Holdings Exhibit 2.3: Shares Outstanding and Volume
Exhibit 1.5: Number of ETFs and Assets both in the Exhibit 2.4: Shares Outstanding and Price
United States and Globally Exhibit 2.5: Shares Outstanding and Redemption
Exhibit 1.6: Fund Search Screen Exhibit 2.6: Looking at Historical Volume (HP)
Figure 1.7: Funds Launched and Closed per Year Exhibit 2.7: Looking at Large Trade Blocks (AQR)
and Current AuM Exhibit 2.8: Looking at a Trade Summary (TSM)
Exhibit 1.8: Bloomberg Closed Funds Screen Exhibit 2.9: ETF Creation Process
Exhibit 1.9: ETF Breakdown by Volume Bucket and Exhibit 2.10: ETF Redemption Process
Age since Inception Exhibit 2.11: Looking at Historical NAV (NV HP)
Exhibit 1.10: Breakdown of U.S. Mutual Fund Assets; Exhibit 2.12: Indicative Value DES Screenshot
Percentage by Type of Fund, Year-End 2011 Exhibit 2.13: Simplifi ed eNAV Calculation
Exhibit 1.11: Number of Investment Companies by Exhibit 2.14: ETF Spread Components
Type Exhibit 3.1: Table of Short Interest in ETFs: Twenty
Exhibit 1.12: CEF Discount Chart (ADX NAV) ETPs with Highest Ratio of Short Interest to
Exhibit 1.13: Bloomberg Typing Code—ADX NAV Shares Outstanding
vii
viii ■ List of Exhibits
Exhibit 3.2: ETF Short Interest (SI) Exhibit 6.1: The Long Tail of ETF Volumes
Exhibit 3.3: The Lending Tree: An Example of the Exhibit 6.2: ETF Large Blocks
ETF Shareholder Chain Exhibit 6.3: Trade Flow before Liquidity Aggregators
Exhibit 3.4: Table Showing Percent of Stock Float Exhibit 6.4: Trade Flow with Liquidity Aggregators
Held by an ETF Exhibit 6.5: ETF Broker Rankings
Exhibit 3.5: Days to Cover Short Interest—All Shares Exhibit 6.6: Indications of Interest keystroke
Exhibit 3.6: Days to Cover Short Interest—Excess Exhibit 7.1: Checking for High-Volume Days (HP)
Shares Only Exhibit 7.2: Checking for Large Blocks (AQR)
Exhibit 3.7: Percent of Float Exhibit 7.3: Checking the Spread (QRM)
Exhibit 4.1: ETF Price Spreads (QRM) Exhibit 7.4: Looking for Shares Outstanding
Exhibit 4.2: Level II Quote Screen (MDM) Changes (SO HP)
Exhibit 4.3: ETF Volume—Domestic (HP) Exhibit 7.5: Transaction Cost Analysis
Exhibit 4.4: ETF Volume—International (HP) Exhibit 7.6: Isolating High-Volume Days (HP)
Exhibit 4.5: Total ETF Liquidity Exhibit 7.7: Checking for Large Blocks (AQR)
Exhibit 4.6: ETF Implied Liquidity (IDTS) Exhibit 7.8: Checking Distance from the Market
Exhibit 4.7: Table of Funds with High ETF Implied (QRM)
Liquidity Exhibit 7.9: Checking for High-Volume Days (HP)
Exhibit 4.8: The Lowest IDTS Numbers for an ETF Exhibit 7.10: Checking for Large Blocks (AQR)
Exhibit 4.9: The Implied Liquidity of the Largest ETF Exhibit 7.11: Checking Distance from the Market
Exhibit 4.10: The Implied Liquidity for Three (QRM)
Comparable ETFs Exhibit 7.12: Checking Indicative Value (IV QR)
Exhibit 4.11: ETF Basket Implied Liquidity Scale— Exhibit 7.13: Checking for High-Volume Days
Dollars Exhibit 7.14: Checking for Large Blocks (AQR)
Exhibit 4.12: ETF Basket Implied Liquidity Scale— Exhibit 7.15: Checking Distance from the Market
Shares (QRM)
Exhibit 4.13: EBILS Rating Grid Exhibit 7.16: Checking Changes in the Market
Exhibit 4.14: EBILS Rating Listing (QRM)
Exhibit 5.1: SPY ETF Trade Price and Volume on Exhibit 7.17: Checking Indicative Value (IV QR)
May 6, 2010 Exhibit 7.18: ETF Historical Price and Volume
Exibit 5.2 According to the SEC Findings, the Exhibit 7.19: ETF Quote Recap
Timetable of What Happened on May 6, 2010 Exhibit 7.20: ETF Quote Montage