ETF is a form of passive investment that investors will contribute capital through buying shares on the exchange and converting into ETF certificates.
Viewing: What is an etf fund
An ETF can be viewed as a combination of an investment fund and a stock. Because in addition to the characteristics of a normal investment fund, ETFs are also listed and traded directly on the stock exchange.
For ordinary investment funds, you just need to put money into the fund and get back the number of certificates (ie the net asset value (NAV) calculated according to the closing price) issued by the fund corresponding to the amount of money. you spent at the end of the day’s trading session.
With ETF, investors will have more roles to play thanks to the quite special operation process of this fund.
Operation of ETFs
First, ETFs only issue certificates in large quantities (at least 100,000) instead of selling certificates in odd form to investors. This quantity is usually calculated in batches of units.
To own a lot of fund units, investors need to buy reference shares corresponding to the converted value of the unit lot. Then, they will bring the newly acquired shares to trade with the ETF issuer in exchange for ETF certificates according to the fund’s NAV. This activity will take place in the primary market. For investors (buyers) are usually organizations and market makers (Authorized Participant – AP).
Next, investors can profit from arbitrage with very little risk:
– If the ETF price is higher than the NAV, investors can buy more reference shares to exchange for ETF and retail to other investors on the secondary market.
– If the ETF price is lower than the NAV, investors can buy more ETF certificates on the stock market in exchange for reference shares and resell.
What are the opportunities of ETF
?With a rather special way of working, ETF has been asserting its position in the market by opening up many new opportunities for investors.
ETFs allow investors to have a variety of options depending on the portfolio that the ETF is anchored in such as stocks, bonds, commodities, currencies. As a result, investors can choose an ETF that is suitable for the investment strategy or the market. According to statistics, more than 80% of ETFs in the world are stock ETFs.
Compared to stocks and other asset classes, ETFs are highly liquid and transparent. Investors can profit with relatively little risk through secondary market ETF trades. Or transactions with converted assets with the fund management units themselves. Investors can also check and capture the types of assets they own thanks to the ETF at any time. Because ETFs publish their portfolios daily instead of announcing them at the end of each quarter like other entities.
In addition, the operating costs of ETFs are quite competitive compared to other investment funds. Operation fees usually fall in the range of 0.1% – 0.5% depending on the type of transaction, there are even transactions that do not charge a fee. This will help investors save quite a bit when choosing to use ETFs over other funds.
Low tax rate
Furthermore, ETFs have a tax advantage. For ordinary investment funds, when investors want to withdraw money, the management unit must sell assets to convert to cash and this amount will be taxed on capital gains. While ETF management units will be subject to a lower tax rate because the trades are done in unit lots and are proven to be non-profitable.
Another advantage to mention is that you can trade ETFs during the trading time of a day instead of only being traded once after the end of the session like other investment funds. Thanks to that, investors can buy/sell ETFs and use supporting tools at any time.
What is the risk of an ETF
?It gives investors a lot of opportunities, but ETFs also have a lot of potential risks.
Variations with the market
Being directly anchored to the convertible asset, the value of the ETF will fluctuate in the same direction as the market. Therefore, when the market goes down, the ETF price will also drop, causing great losses for investors.
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ETFs also affect investors by reducing the return or increasing the cost of the investment. Normally, ETF prices trade based on supply and demand quite a lot. Therefore, ETFs with high liquidity will have a low price gap with the NAV and vice versa.
Risk of converted assets
Equity is also a factor to consider when talking about ETF risk. Occasionally, the ETF price has unpredictable movements when it cannot be anchored to the value of the converted asset.
A typical example is the case of ETF prices in the Egyptian market. The Arab war caused exchanges in India to stall for a while, although the Market Vector Egypt ETF (EGPT) was still conducting transactions. This causes investors to push up the price of the ETF because they believe that the price will increase sharply when the exchange is up and running again. But sadly, the market came to a standstill making the ETF price too high when the stock market reopened.
Exchange rate risk
Finally, ETFs also introduce exchange rate risks when fund certificates are listed in a market other than convertible assets. For example, ETF certificates are traded in the foreign market but the convertible assets are in the domestic market. At the same time, the domestic currency’s devaluation against foreign currencies will reduce the NAV of the ETF and cause great losses to investors.
ETFs started appearing in Vietnam’s stock market during the period 2008-2009. At this time, ETFs received little attention from the community because the fund’s assets were quite small. Up to now, there are about 9 large and small ETFs operating in Vietnam market.
VanEck Vectors Vietnam ETF (VNM ETF)
VNM ETF is currently the largest ETF operating in Vietnam, established in 2009 by VanEck Global with an initial capital of 14 million USD. As one of the first units of the ETF market, VNM ETF is restructuring 25 portfolios of stocks. According to newly-recorded information in the early days of 2020, VNM ETF has just issued a net of 50 thousand fund certificates, equivalent to about 800 thousand USD (~ 18.5 billion VND).
VFMVN30 ETF is known as the first and second largest domestic fund in the market with a current size of nearly VND 7,098 billion (USD 298 million) issued and managed by VFM company with the initial public offering capital of VND 7,098 billion. 202 billion VND. Operating since 2014, VFMVN30 uses the VN30 reference index including a portfolio of 30 stocks. VFMVN30 is applying a passive investment strategy to reduce costs and simulate closer to the reference index. In early 2020, the fund issued a net of 8.2 million fund certificates, equivalent to 120 billion dong.
FTSE Vietnam ETF
FTSE Vietnam ETF is an old name in the market when it was established very early. 2019 can be considered as a backward milestone for FTSE Vietnam when VFMVN30 is surpassed when the capital inflow into the fund is quite limited with $9.6 million. Currently, the FTSE Vietnam ETF is managed by Deutsche Bank, which laid off 18,000 employees in 2019 to conduct reforms and this factor may have affected capital inflows to Vietnam more or less.
iShares MSCI Frontier 100 ETF
Referring to Frontier ETFs, perhaps the iShare MSCI Frontier 100 ETF will be the first to be called out with a portfolio size of more than 500 million USD. In general, 2019 was not a good year for the iShare MSCI Frontier 100 ETF when the fund had a net withdrawal of fund certificates of up to 18.53 million USD and the net selling volume in Vietnam was estimated at 2.3 million USD. At the beginning of 2020, the fund issued fund certificates worth $4.6 million. But the proportion of Vietnamese stocks in the fund’s portfolio is only 11.5%, so it is estimated that the fund only net bought about 12 billion VND of Vietnamese shares.
KIM Kindex Vietnam VN30 ETF
As a rookie of the market with more than 3 years of operation, the KIM Kindex Vietnam VN30 ETF has proven its position when attracting the strongest capital flow in the period 2018 – 2019. The KIM Kindex Vietnam VN30 ETF is currently owned by Korea. Investment Management Co (KIM) managed. This unit has issued fund certificates worth about 51 billion dong in the early days of 2020.
SSIAM VNX50 ETF
SSIAM VNX50 ETF is known for its reference index VNX50. Managed by SSIAM. Including 50 stocks with the largest market capitalization and the most liquid on HoSE and HNX. 2017 – 2018 is a prosperous period for SSIAM VNX50 ETF when the fund is rated as having the top performance in the market.
Invesco Frontier Markets ETF (FRN ETF);
The FRN ETF is a rare case of a successful reversal of Frontier ETFs. When net issuance of fund certificates worth USD 4.3 million. In addition to the Vietnamese business, FRN also looks for emerging businesses trading on the London Stock Exchange, New York Stock Exchange, NYSE Amex, and Nasdaq. Therefore, this will be a suitable name for investors who both want to put money into the domestic market and also want to gain exposure to other emerging markets.
S&P Select Frontier ETF
Similar to the iShares MSCI Frontier 100 ETF, the S&P Select Frontier ETF also suffered a net withdrawal of fund certificates of up to 34.26 million USD in 2019. The fund uses the S&P Select Frontier Index as a reference index. This index consists of 40 largest constituent stocks (in terms of capitalization, liquidity) selected from the S&P Extended Frontier 150 Index.
It is forecasted that in 2020, ETFs will enter the market more strongly. When many funds were born based on the VNDiamond, VNFin Lead, and VNFin Select indexes. It can be mentioned is the case of SSIAM when it was approved to establish the SSIAM VNFin Lead fund with an expected mobilized scale of 25-30 million USD.
Experts also expect the market to receive more international ETFs such as the Vanguard FTSE Emerging Market ETF. Thanks to the upgrade prospect of Vietnam’s stock market. The proportion of Vietnamese stocks in the EM indexes is forecasted to be low. But, experts are still optimistic about the volume of money flowing into Vietnam’s stock market.
Hope the article “What is an ETF? What is an ETF? Learn about Vietnam ETF” has brought readers a lot of valuable information. Wish you have more knowledge, experience and successful investment.