▌Exchange Traded Fund (ETF)

ETF funds track, replicate, or simulate the performance of the benchmark index. Investors can profit from good performances of the benchmark index. In some ways ETF is like an open fund, and in other ways a stock security. After being listed, ETFs are available in both primary and secondary market.

▌Leveraged ETF and inverse ETF

Leveraged ETFs amplify daily returns multifold, but not for long-term return.

Inverse ETFs allow investors to make profit from price declines.

▌Release Info

【Replication methods for passive ETFs】
  • Synthetic replication is a swap-based method that delivers return with swaps or derivatives rather than buying stock shares directly. It comes with liquidity risks and counterparty risks.
  • Full replication means the ETF holds 90% of the securities of the benchmark index that comes with higher transaction costs.
  • Optimization samples no more than 90% of the securities from the benchmark to build a similar investment with lower transaction costs than using full replication but might deliver a lower return.
  • Not applicable replication methods refer to active ETFs.
【Active ETFs】
Fund managers of active ETFs are actively trading and trying to beat market benchmarks, rather than trying to replicate or track benchmark performance. The Taiwanese authority has not given green light to positive ETFs.


▌Theme/Factor

【Themed ETFs】
Themed ETFs target rising innovations such as 5G, renewable energy or e-commerce, without tracking the benchmark directly or limiting composition shares to certain sectors or market caps.


【Factor ETFs】
  • Dividend ETFs target stock shares with high yield or high growth.
  • Momentum ETFs target stock shares with high return.
  • Quality ETFs target stocks with stable financial conditions.
  • Volatility ETFs target stock shares with high/low volatilities.
  • Size ETFs target stock shares with large/small market cap.


▌Trading Info

【Net asset value (NAV)】
= ETF asset value / shares outstanding
= the redeemed price in the primary market


【Discount and premium】
= last close / NAV - 1
Above 0 means the ETF is overvalued.
Below 0 means the ETF is undervalued.


【Asset under management (AUM)】
= NAV * shares outstanding


【Annualized dividend yield】
= dividend yield * other dividend yields in a year
Note that it does not guarantee high future return.


▌Net cash flow

【Net cash flow】
= changes in shares outstanding * NAV
Net cash flow of redemption in the primary market serves as an indicator for demand for the ETF and market sentiment.


▌Risk measurement

【Annualized standard deviation】
It serves as an indicator for annual volatility in price. The higher it gets, the more volatile it gets.


【Sharpe ratio】
= (Average return of an ETF - risk-free interest rate) / standard deviation
It serves as a measurement for the extra return from every unit of risk. The higher it gets, the higher the return gets.


【Correlation (with S&P 500)】
= the correlation between an ETF and the daily return of S&P 500 index
Above zero suggests a positive correlation; below zero suggests a negative correlation.


【Drawdown】
Drawdown measures the price difference from the highest price to the lowest price, representing the maximum potential loss.
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