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The Exchange-Traded Funds Manual, Second Edition

Book Description

Full coverage of ETF investments from an expert in the field

The initial edition of Gary Gastineau's The Exchange-Traded Fund Manual was one of the first books to describe and analyze ETFs. It made the case for the superiority of the structure of investor-friendly ETFs over mutual funds and helped investors select better funds among the ETFs available.

With this new edition, Gastineau provides comprehensive information on the latest developments in ETF structures, new portfolio variety, and new trading methods. With a realistic evaluation of today's indexes, Gastineau offers insights on actively managed ETFs, improved index funds, and fund and advisor selection.

  • Discusses how to incorporate ETFs into an investment plan

  • Offers updated coverage of new ETFs, including full-function actively managed ETFs, and a valuable chapter on trading ETFs

  • Written by the leading authority on exchange traded funds

Exchange-traded funds offer you diversification and participation in markets and investment strategies that have not been available to most investors. If you want to understand how to use ETFs effectively, the Second Edition of The Exchanged-Traded Fund Manual can show you how.

Table of Contents

  1. Title Page
  2. Copyright Page
  3. Preface
  4. Acknowledgements
  5. CHAPTER 1 - An Introduction to Exchange-Traded Funds
    1. EXCHANGE-TRADED FUNDS WERE INTRODUCED AS “SOMETHING TO TRADE”
    2. SHAREHOLDER PROTECTION
    3. TAX EFFICIENCY
    4. COST TRANSPARENCY IS DESIRABLE, BUT TRADING TRANSPARENCY IS COSTLY
    5. INTRADAY ETF TRADING
    6. COMPARING ETF AND MUTUAL FUND ECONOMICS
    7. CONCLUSION
  6. CHAPTER 2 - The History and Structure of Exchange-Traded Funds—and Some of Their Competitors
    1. SOME MAJOR FINANCIAL MARKET DEVELOPMENTS (1975 TO 2000)
    2. DECLINING TRADING COSTS INCREASE FINANCIAL ENGINEERING OPPORTUNITIES, AND FINANCIAL ENGINEERING REDUCES TRADING COSTS IN THE NEW MILLENNIUM2
    3. A BRIEF HISTORY OF ETFs
    4. OTHER TRADABLE BASKET PRODUCTS
  7. CHAPTER 3 - The Regulatory Framework and Mechanics of the Open-End ETF
    1. U.S. FUND REGULATION HAS PLAYED A MAJOR ROLE IN THE STRUCTURE OF ETFs INTRODUCED AROUND THE WORLD
    2. THE INVESTMENT COMPANY ACT OF 1940
    3. EXEMPTIONS FROM THE INVESTMENT COMPANY ACT OF 1940 HAVE BEEN GRANTED TO PERMIT ISSUANCE OF OPEN-END ETFs
    4. ETF DEVELOPMENTS OUTSIDE NORTH AMERICA
    5. PROPOSED RULE 33-8901 AND LIMITATIONS ON ETF TRADING TRANSPARENCY
    6. THE MECHANICS OF ETF CREATION AND REDEMPTION IN-KIND
  8. CHAPTER 4 - Taxation of ETFs and Their Shareholders
    1. TAXATION OF INVESTMENT COMPANIES: SUBCHAPTER M AND REGULATED INVESTMENT COMPANY (RIC) REQUIREMENTS
    2. THE MECHANICS OF RIC SHAREHOLDER CAPITAL GAINS TAXATION
    3. THE WASH SALE RULE
    4. OTHER PASS-THROUGH COLLECTIVE INVESTMENT VEHICLES
    5. THE RELATIVE TAX-EFFICIENCY OF MUTUAL FUNDS, EXCHANGE-TRADED FUNDS, AND PORTFOLIO BASKETS
    6. DEFERRAL OF LONG-TERM CAPITAL GAINS
    7. OUTLOOK FOR CHANGES IN INVESTMENT COMPANY TAXATION
  9. CHAPTER 5 - The Economics of Indexing, Trading Transparency, and Limited-Function Active Management of ETFs
    1. INDEXING WORKS BEST WHEN APPROACHED WITH COMMON SENSE
    2. THE CONTINUUM: FROM PASSIVE TO ACTIVE
    3. BENEFITS FROM A DECLINE IN ETF TRADING TRANSPARENCY
    4. HOW TRADING PLANS BECOME TRANSPARENT
    5. EFFECT OF TRANSPARENCY COSTS ON FUND PERFORMANCE
    6. SILENT (NONTRANSPARENT) INDEXES
    7. A BATTLE OF CONTRASTING INDEX FUND MANAGEMENT STRATEGIES
  10. CHAPTER 6 - Fund Ratings and Rankings—The Evaluation and Selection of ETFs and Mutual Funds1
    1. AN INTRODUCTION TO FUND RATINGS
    2. WANTED: A COMPREHENSIVE BUT ECLECTIC APPROACH TO FUND EVALUATION AND ANALYSIS
    3. MEASURING AND COMPARING FUND PERFORMANCE
    4. A PERSPECTIVE ON THE LIMITATIONS OF FUND ANALYSIS TODAY
    5. ELEMENTARY FUND ECONOMICS
    6. THE LARGEST COST FOR MOST FUNDS IS NOT REPORTED TO THE FUND’S INVESTORS
    7. WHAT IS TRACKING ERROR?
    8. NET TRACKING ERROR AS A FRAMEWORK FOR FUND PERFORMANCE EVALUATION
    9. POSITIVE (VALUE-ADDED) ELEMENTS
    10. eXTENSIBLE BUSINESS REPORTING LANGUAGE (XBRL): THE NEW DATA STANDARD
    11. THERE IS A WIDE RANGE IN THE QUALITY OF FUND TOUTS, TOOLS, AND TECHNIQUES
    12. FUND GOVERNANCE
  11. CHAPTER 7 - How Will Full-Function Actively Managed ETFs Work?
    1. THE SEC CONCEPT RELEASE AND LIMITED-FUNCTION ACTIVELY MANAGED ETFs
  12. CHAPTER 8 - How to Minimize Your Cost of Trading ETFs
    1. ETF TRADING IS DIFFERENT FROM STOCK TRADING
    2. ETF INTRADAY NET ASSET VALUE (NAV) PROXIES
    3. THE BRAVE NEW WORLD OF HIGH-FREQUENCY ELECTRONIC TRADING
    4. ETF TRADING VOLUME IS HUGE, GROWING, AND HIGHLY CONCENTRATED
    5. HOW TO TRADE ETFs EFFICIENTLY
    6. MARKET-ON-CLOSE (MOC) TRANSACTIONS IN ETFs
    7. INTRODUCING NAV-BASED TRADING IN EXCHANGE-TRADED FUNDS
    8. CONCLUSION
  13. CHAPTER 9 - Economics and Market Effects of ETF Short Selling
    1. UNDERSTANDING THE RISKS OF SELLING ETFs SHORT
    2. THE IMPLICATIONS OF ETF SHORT SELLING
    3. ETF SHORT SELLING FOR TRADITIONAL INVESTORS
  14. CHAPTER 10 - Leveraged Long and Inverse Exchange-Traded Funds
    1. TRADING SARDINES
    2. HOW LEVERAGED LONG AND LEVERAGED INVERSE ETFs CONSTRUCT THEIR PORTFOLIOS
    3. IS IT USEFUL TO DESCRIBE LEVERAGED FUND RETURNS AS PATH DEPENDENT?
    4. LEVERAGED FUND RETURN PATTERNS
    5. TAXATION AND DISTRIBUTIONS FROM LEVERAGED ETFs
    6. OTHER ISSUES AFFECTING LEVERAGED ETFs
    7. ANOTHER WAY TO OBTAIN LEVERAGE WITHOUT BORROWING
    8. THE BOTTOM LINE ON LEVERAGED ETFs
  15. CHAPTER 11 - ETF Applications for Individual Investors and the Advisors Who Serve Them
    1. SHORT-TERM ETF TRADING SOMETIMES MAKES SENSE
    2. ETFs AS PORTFOLIOS AND AS COMPONENTS
    3. INTEGRATING DIVERSE FAMILY ACCOUNTS
    4. TAX MANAGEMENT
    5. OTHER TAX ISSUES
    6. THINKING OUTSIDE THE BOX
    7. MEASURING THE COMPARATIVE ECONOMICS OF TRADING AND HOLDING DIFFERENT COMPONENTS OF AN INDEX ARBITRAGE COMPLEX
  16. CHAPTER 12 - ETFs for Investors Living Outside the United States
    1. SOME FEATURES OF THE ETFs DESCRIBED IN THIS BOOK ARE NOT UNIVERSAL
  17. CHAPTER 13 - A Few Things Everyone Should Know about Investment Returns and Retirement
  18. CHAPTER 14 - Where to Look for Help in Using ETFs
    1. SOURCES OF PROFESSIONAL HELP
    2. THE ADVISORY RELATIONSHIP
    3. SOURCES OF ETF INFORMATION
  19. Bibliography
  20. Glossary
  21. About the Author
  22. Index