ETF Exchange Traded Funds
What Is An Exchange Traded Fund?
An exchange-traded fund or ETF is an investment vehicle traded on stock exchanges, much like stocks or bonds. An ETF holds assets such as stocks, bonds, or futures. Institutional investors can redeem large blocks of shares of the ETF (known as "creation units") for a "basket" of the underlying assets or, alternately, exchange the underlying assets for creation units. This creation and redemption of shares enables institutions to engage in arbitrage and causes the value of the ETF to approximate the net asset value of the underlying assets. Most ETFs track an index, such as the Dow Jones Industrial Average or the S&P 500.
An ETF is Like a Mutual Fund and a Closed End Fund
An ETF combines the valuation feature of a mutual fund or unit investment trust, which can be purchased or redeemed at the end of each trading day for its net asset value, with the tradability feature of a closed-end fund, which trades throughout the trading day at prices that may be substantially more or less than its net asset value. Closed-end funds are not considered to be exchange-traded funds, even though they are funds and are traded on an exchange. ETFs have been available in the US since 1993 and in Europe since 1999. ETFs traditionally have been index funds, but in 2008 the U.S. Securities and Exchange Commission began to authorize the creation of actively-managed ETFs.
July 21, 2014 - Russian Sanctions and Malaysian Plane Crash Put These ETFs in Focus by Zacks Investment Research
Thursday was a volatile session for the markets as major benchmarks finished the day in the red. The S&P 500 was down more than 1% on the day, while volume was elevated too. However, the reason for the big swing wasn’t due to earnings so much as it was thanks to more geopolitical worries from Eastern Europe.
Late Wednesday night, the U.S. announced fresh sanctions against Russia, this time targeting key large cap companies. Thanks to this news, Russian ETFs were down more than 2% in after-hours trading on Wednesday, suggesting that Thursday was likely to be a volatile session for the region.
While Russian ETFs definitely trended lower by several percentage points in the early part of the session, the real worries came when a Malaysian Airlines jet crashed near the Russian/Ukrainian border. Though details are still being gathered at time of writing, it appears as though the aircraft was shot down, leading to the death of nearly 300 people and escalating the Eastern European crisis to a new level.
Immediately following this event, which some are calling a ‘terrorist’ act, markets went into risk-off mode. Stocks sold off and lower risk securities were in vogue, including metals and bonds which were the few to move higher on the session.
Meanwhile, (SPY) saw volume that exceeded 120 million shares on the day, well above the roughly 83 million share average. And when investors look to a volume chart, big spikes in trades were seen right after the news broke, suggesting this really drove the market in Thursday trading.
In particular though, a few key securities were impacted by today’s market moving news events. Below, we highlight three ETFs which were especially volatile in the wake of the Russian sanction and the possible terrorist attack in Eastern Europe:
Market Vectors Russia ETF (RSX)
The Russian ETF was an early loser on the day thanks to new sanctions against some key companies in the nation. The fund was well off of its open price throughout the day and saw heavy early volume as well.
The fund continued to move lower following the plane crash, and the ETF finished the day lower by about 7.2%. Volume was quite high too, as more than 22 million shares moved hands, compared to just 6.4 million on average.
iPath S&P 500 VIX Short Term Futures ETN (VXX)
During times of turmoil or uncertainty, a move towards VIX-linked products is always popular. Today was no different, as VIX-related ETFs and ETNs soared.
The most popular in this regards is VXX, an ETN from iPath that has over one billion dollars in assets under management, and that tracks short-term futures of the VIX index. The note moved higher by about 9.75% on the session, while volume hit 77 million shares for the day, well above the 25.8 million average.
SPDR Gold Shares (GLD)
Gold is often considered a traditional safe haven investment, as many investors look to it in times of turmoil. Gold has actually been having a decent year to start 2014 after a horrendous 2013, but its three month trailing performance has been flat.
However, Thursday trading was a fresh catalyst for this fund, pushing GLD higher by about 1.7% on the day. Gold miners, such as (GDX), also were big winners from the turmoil, as the gold mining fund added about 2.7% on the session.
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