Exchange-Traded Funds: Investment Practices and Tactical Approaches PDF
Preview Exchange-Traded Funds: Investment Practices and Tactical Approaches
A. SEDDIK MEZIANI EXCHANGE- TRADED FUNDS Investment Practices and Tactical Approaches Exchange-Traded Funds A. S eddik M eziani Exchange-Traded Funds Investment Practices and Tactical Approaches A. Seddik Meziani Montclair State University Montclair , New Jersey , USA ISBN 978-1-137-39094-3 ISBN 978-1-137-39095-0 (eBook) DOI 10.1057/978-1-137-39095-0 Library of Congress Control Number: 2016941230 © Th e Editor(s) (if applicable) and Th e Author(s) 2016 Th e author(s) has/have asserted their right(s) to be identifi ed as the author(s) of this work in accordance with the Copyright, Designs and Patents Act 1988. Th is work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifi cally the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfi lms or in any other physical way, and transmission or informa- tion storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. Th e use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specifi c statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Th e publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. Printed on acid-free paper Th is Palgrave Macmillan imprint is published by Springer Nature Th e registered company is Macmillan Publishers Ltd. London I would like to dedicate this book to the memory of my father, Lakhdar Meziani, and that of my very good friend James Dean Lubbers, Ed.D, both now so far away yet still so close. Jim passed away this year after a long struggle with Parkinson’s disease. By means of honoring their memory, a quarter of the net proceeds from this book will go to the American Diabetes Association Research Foundation and another quarter to the Parkinson’s Disease Foundation. Foreword Th e various positive attributes of ETFs have driven their exponential growth in popularity among institutional investors and individual investors alike, especially since 2006, when they started showing real market traction. Most investment advisers are now recommending them to their clients—in fact, more so than any other product, including mutual funds. W ith growth comes diversity and increased complexity. Newer ETFs, from “smart-beta” to inverse or leveraged products, engage in some level of active management. Other new ETF structures embody a particular strategy for investment or trading. All of these innovative types of ETFs require a level of monitoring and scrutiny from investors and regulators that is beyond what is needed for holdings that are simply based on an index with very little turnover or intra-fund trading that would trigger capital-gains taxes. It is safe to assume that the space will continue to evolve in complexity as investment in ETFs grows. As it does, it will be important for investors to continue educating themselves to adjust to the changes and take advantage of new opportunities. Th is book is pertinent in that regard, bringing academic rigor to the various themes it addresses. In view of the ETF industry’s vastly increasing complexity, the book is infused with much-needed clarity while still providing strong insights with respect to the complicated investment and trading strategies that maximize the value of these products. Th e author is an academic who unquestionably understands the needs of the market, having been a frequently invited speaker at ETF trade conferences since 2000, long before ETFs began to evolve into the investment of choice they are today. His two previous books on the subject and many published articles landed him on a prestigious global list of 17 ETF-friendly professors compiled by Yahoo! Finance. His reputation also earned him an invitation vii viii from Institutional Investor Journals to become the Soliciting Editor for Th e Journal of Index Investing , a quarterly publication that is widely considered an authority in its coverage of topics related to index-linked products, including ETFs, and that is highly praised by its readership. He has served in this posi- tion since 2010. I know Seddik very well, having myself attended many of his presenta- tions and sat with him on panels covering various ETF themes and issues. I feel extremely comfortable with his knowledge of the topic and, keen to contribute to the educational value that permeates this book, I contributed a vignette to the chapter on active ETFs. In writing the vignette, I drew upon my background as a securities lawyer who was actively involved in the launch of the SPDR Trust in 1993, and has represented those who design and off er fi nancial products to the investing public since, to express an opinion on two recent applications to the SEC seeking exemptive orders for non-disclosed active ETFs. I am delighted that Seddik is once again providing the ETF industry with a highly informed book that capably and productively guides investors through its content. Its broad coverage of the important issues, its rigor, and its thor- ough analysis will, in my opinion, allow its readers to not only understand the current market but reach a new level of wherewithal to keep abreast of the many complex transformations that will continue to shape the evolution of ETFs. Kathleen H. Moriarty Kaye Scholer LLP Preface I n today’s fi nancial markets, which are changing more than ever, there are many challenges in the process of making investment choices: What are the best investment vehicles among the multitude of products available to investors? What is the market outlook in light of the overwhelming and often confl icting information available to investors, as has often been the case so far in 2016? Which of the frontier markets will further enhance portfolio diversifi cation and how can an investor properly assess risks in these newly formed markets in light of the dearth of information originating from them? What roles can options and futures play in mitigating risks? What are the tax implications of a given investment strategy? Th ese are a few of the many hard questions investors must ask themselves before committing to a specifi c investment plan. Th is book is designed to answer many such questions with regard to exchange-traded funds (ETFs) registered with and regulated by the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940. Th ese funds hold the vast majority of ETF assets. Th e book’s main target audience is the many investment professionals who use ETFs every day. Th e manuscripts published since 2010 or so were written in the midst of the changes sweeping the ETF market and serve, in my opin- ion, narrow market corners or specifi c investment strategies. Most of them can be considered, at best, light entreaties that provide quick, albeit needed, answers to some of the complex issues surrounding ETFs. Th ey are not com- prehensive educational tools that serves both established ETF strategists in need of a reference manual against which they can test their own approach to investing, and those who seek to further their understanding of these increas- ingly complex instruments. ix
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