Details

<p>Preface ix</p> <p>Acknowledgments xi</p> <p><b>Chapter 1 An Introduction to Exchange-Traded Funds 1</b></p> <p>Exchange-Traded Funds Were Introduced as “Something to Trade” 1</p> <p>Shareholder Protection 3</p> <p>Tax Efficiency 7</p> <p>Cost Transparency is Desirable, But Trading Transparency is Costly 9</p> <p>Intraday ETF Trading 10</p> <p>Comparing ETF and Mutual Fund Economics 11</p> <p>Conclusion 17</p> <p><b>Chapter 2 The History and Structure of Exchange-Traded Funds—and Some of Their Competitors 19</b></p> <p>Some Major Financial Market Developments (1975 to 2000) 19</p> <p>Declining Trading Costs Increase Financial Engineering Opportunities, and Financial Engineering Reduces Trading Costs in the New Millennium 23</p> <p>A Brief History of ETFs 25</p> <p>Other Tradable Basket Products 34</p> <p><b>Chapter 3 The Regulatory Framework and Mechanics of the Open-End ETF 43</b></p> <p>U.S. Fund Regulation Has Played a Major Role in the Structure of ETFs Introduced around the World 43</p> <p>The Investment Company Act of 1940 45</p> <p>Exemptions from the Investment Company Act of 1940</p> <p>Have Been Granted to Permit Issuance of Open-End ETFs 47</p> <p>ETF Developments Outside North America 50</p> <p>Proposed Rule 33-8901 and Limitations on ETF</p> <p>Trading Transparency 53</p> <p>The Mechanics of ETF Creation and Redemption In-Kind 53</p> <p><b>Chapter 4 Taxation of ETFs and Their Shareholders 65</b></p> <p>Taxation of Investment Companies: Subchapter M and Regulated Investment Company (RIC) Requirements 65</p> <p>The Mechanics of RIC Shareholder Capital Gains Taxation 73</p> <p>The Wash Sale Rule 81</p> <p>Other Pass-Through Collective Investment Vehicles 82</p> <p>The Relative Tax-Efficiency of Mutual Funds, Exchange-Traded Funds, and Portfolio Baskets 90</p> <p>Deferral of Long-Term Capital Gains 93</p> <p>Outlook for Changes in Investment Company Taxation 98</p> <p><b>Chapter 5 The Economics of Indexing, Trading Transparency, and Limited-Function Active Management of ETFs 101</b></p> <p>Indexing Works Best When Approached with Common Sense 102</p> <p>The Continuum: From Passive to Active 108</p> <p>Benefits from a Decline in ETF Trading Transparency 110</p> <p>How Trading Plans Become Transparent 112</p> <p>Effect of Transparency Costs on Fund Performance 121</p> <p>Silent (Nontransparent) Indexes 124</p> <p>A Battle of Contrasting Index Fund Management Strategies 126</p> <p><b>Chapter 6 Fund Ratings and Rankings—The Evaluation and Selection of ETFs and Mutual Funds 131</b></p> <p>An Introduction to Fund Ratings 131</p> <p>Wanted: A Comprehensive But Eclectic Approach to Fund Evaluation and Analysis 140</p> <p>Measuring and Comparing Fund Performance 141</p> <p>A Perspective on the Limitations of Fund Analysis Today 142</p> <p>Elementary Fund Economics 146</p> <p>The Largest Cost for Most Funds is Not Reported to the Fund’s Investors 149</p> <p>What is Tracking Error? 155</p> <p>Net Tracking Error as a Framework for Fund Performance Evaluation 161</p> <p>Positive (Value-Added) Elements 168</p> <p>eXtensible Business Reporting Language (XBRL): The New Data Standard 170</p> <p>There is a Wide Range in the Quality of Fund Touts, Tools, and Techniques 172</p> <p>Fund Governance 179</p> <p><b>Chapter 7 How Will Full-Function Actively Managed ETFs Work? 183</b></p> <p>The SEC Concept Release and Limited-Function Actively Managed ETFs 183</p> <p><b>Chapter 8 How to Minimize Your Cost of Trading ETFs 197</b></p> <p>ETF Trading is Different from Stock Trading 197</p> <p>ETF Intraday Net Asset Value (NAV) Proxies 200</p> <p>The Brave New World of High-Frequency Electronic Trading 202</p> <p>ETF Trading Volume is Huge, Growing, and Highly Concentrated 207</p> <p>How to Trade ETFs Efficiently 208</p> <p>Market-on-Close (MOC) Transactions in ETFs 210</p> <p>Introducing NAV–Based Trading in Exchange-Traded Funds 218</p> <p>Conclusion 224</p> <p><b>Chapter 9 Economics and Market Effects of ETF Short Selling 227</b></p> <p>Understanding the Risks of Selling ETFs Short 227</p> <p>The Implications of ETF Short Selling 231</p> <p>ETF Short Selling for Traditional Investors 234</p> <p><b>Chapter 10 Leveraged Long and Inverse Exchange-Traded Funds 245</b></p> <p>Trading Sardines 245</p> <p>How Leveraged Long and Leveraged Inverse ETFs Construct Their Portfolios 246</p> <p>Is It Useful to Describe Leveraged Fund Returns as Path Dependent? 254</p> <p>Leveraged Fund Return Patterns 255</p> <p>Taxation and Distributions from Leveraged ETFs 259</p> <p>Other Issues Affecting Leveraged ETFs 260</p> <p>Another Way to Obtain Leverage Without Borrowing 261</p> <p>The Bottom Line on Leveraged ETFs 262</p> <p><b>Chapter 11 ETF Applications for Individual Investors and the Advisors Who Serve Them 263</b></p> <p>Short-Term ETF Trading Sometimes Makes Sense 265</p> <p>ETFs as Portfolios and as Components 266</p> <p>Integrating Diverse Family Accounts 267</p> <p>Tax Management 268</p> <p>Other Tax Issues 270</p> <p>Thinking Outside the Box 274</p> <p>Measuring the Comparative Economics of Trading and Holding Different Components of an Index Arbitrage Complex 275</p> <p><b>Chapter 12 ETFs for Investors Living Outside the United States 279</b></p> <p>Some Features of the ETFs Described in This Book Are Not Universal 279</p> <p><b>Chapter 13 A Few Things Everyone Should Know about Investment Returns and Retirement 285</b></p> <p><b>Chapter 14 Where to Look for Help in Using ETFs 293</b></p> <p>Sources of Professional Help 293</p> <p>The Advisory Relationship 296</p> <p>Sources of ETF Information 298</p> <p>Bibliography 303</p> <p>Glossary 313</p> <p>About the Author 351</p> <p>Index 353</p>

<p><b>GARY L. GASTINEAU</b> is principal of ETF Consultants LLC, which provides specialized exchange-traded fund consulting services to ETF issuers, exchanges, and investors. He is also a managing member and cofounder of Managed ETFs LLC, a firm that has developed new ETF trading systems and new actively managed ETFs. Preceding a position as managing director for ETF product development at N veen Investments, Gastineau directed product development at the American Stock Exchange for approximatel five years. He is also the author of the first edition of <i>The Exchange-Traded Funds Manual</i> and <i>Someone Will Make Money on Your Funds—Why Not You?</i> (both published by Wiley) and <i>The Options Manual</i>, as well as coauthor of the <i>Dictionary of Financial Risk Management.</i> Gastineau is an honors graduate of Harvard College and Harvard Business School.

<p>The original edition of Gary Gastineau's <i>The Exchange-Traded Funds Manual</i> was one of the first books to describe and analyze ETFs. It made the case for the superiority of investor-friendly ETFs over mutual funds and helped investors select the best ETFs—which now hold more than $1 trillion of investor assets worldwide. <p>But much has changed—in both the ETF marketplace and the general investment environment—since that time. That is why Gastineau has filled this <i>Second Edition</i> of <i>The Exchange-Traded Funds Manual</i> with new insights and expert advice. This new edition provides comprehensive coverage of the latest ETF offerings, evaluation techniques, regulatory and tax changes, and trading cost reduction methods. <p>Page by page, this reliable resource offers a realistic evaluation of today's index ETFs; valuable insights on actively managed ETFs and new, improved index funds; as well as guidance in fund and advisor selection. Gastineau skillfully addresses these essential issues, as well as: <ul> <li>The historic and continuing development of ETFs and how they stack up against other financial products that compete with them</li> <li>How to understand ETF applications as an individual investor or advisor and incorporate them into an effective investment plan</li> <li>The tax treatment of investment company ETFs and other exchange-traded instruments</li> <li>Fund ratings and the evaluation of ETFs</li> <li>The best ways to minimize the cost of trading ETFs</li> <li>And much more</li> </ul> <p>Exchange-traded funds offer diversification and opportunities to participate in market segments and investment strategies that have not been available to most investors. If you want to make ETFs a productive part of your portfolio, the <i>Second Edition</i> of <i>The Exchanged-Traded Funds Manual</i> will show you how.

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