Could someone tell me if my understanding is correct? : ETF’s can be both closed or open ended, ETF’s just means the underlying assets in the fund track a specific market index. So rather than being an entirely separate asset, ETF’s are a type of Closed or Open ended fund. Thanks guys.
You are confusing ETFs with Mutual Funds which can be Open or Closed end. ETFs are essentially basket of securities that follow a particular index. They are traded on the exchange as a stock. So there is no Open End or Closed end ETF, its just ETF for different investment categories.
I’d say ETF can be EITHER open/closed -ended Closed-end fund has certain number of shares that are traded in the market. Open ended can issue new shares at any time. Tracking specific index is one of the strategies
Libra June, I completely disagree with you. If you have the CFAI material, please see page 378 in book 6. It clearly says, quote:“Exachange traded funds (ETFs) are index-based investment products that allow investors to buy or sell exposure to an index through a single financial instrument”. You and read the rest of it there. That is the whole point of creating an ETF that they follow an index. I think what most folks get confused with the fact that since a Closed End mutual fund company issues shares that can be bought or sold on an exchange, then it must be a sort of ETF too. But it is not. There is an important distinction between a Open Ended Mutual Fund company, a Closed End mutual Fund company and and ETF, and I think everyone should be clear on that. Haven’t we had this discussion once before? Someone should be able to dig it up.
ETF’s are a combination of the two it’s like a closed end fund but that always trades at the funds nav because of the redemption option offered. The company issues stock at the beginning and then the shares are traded, there is no contiuous redemption like in an open mutual fund. The thing that makes it different than a closed end fund is that closed end funds often trade at discounts and have their price created as a result of demand and supply Etf are different in that respect because they trade at NAV because you can go to the etf company with a bunch of etf shares and get the underlying securities in return.That creates an arbitration possibility which keeps the price same with the NAV