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How to Understand, Evaluate and Trade Exchange-Traded Funds

How to Understand, Evaluate and Trade Exchange-Traded Funds. Dave Nadig Director of Research IndexUniverse.com. Why ETFs?. Intraday Trading Lower Costs Tax Efficiency Transparency Access To Anything. Why ETFs?. Really? Creation/Redemption.

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How to Understand, Evaluate and Trade Exchange-Traded Funds

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  1. How to Understand, Evaluate andTradeExchange-Traded Funds Dave Nadig Director of Research IndexUniverse.com

  2. Why ETFs? Intraday Trading Lower Costs Tax Efficiency Transparency Access To Anything

  3. Why ETFs? Really? Creation/Redemption

  4. Lessons from the Flash Crash:ETFs Are Complex Rydex S&P 500 Equal-Weight ETF (NYSEArca: RSP)

  5. ETF Selection MattersSubsectors too: Three regional banking ETFs66% spread in performance

  6. Not Even All ETFs Tracking The Same Index Are Created Equal EEM vs. VWO: Same Index, Different Results

  7. Sometimes, the ETF industry reminds me of the cereal aisle at my supermarket … Completely overwhelming.

  8. Structuring ETF Choices: Three Decision Points Efficiency Tradability Fit

  9. Efficiency is how well a fund delivers on its core promise to investors. What’s Efficiency?

  10. What’s Efficiency? • Expense Ratio • Tracking Error • Optimization/Full Replication • Fund Structure • Tax Treatment And History • Fund Closure Risk • Credit Risk

  11. BND vs. AGG on Optimization What’s Efficiency?

  12. EEM vs. VWO on Tracking Error What’s Efficiency? Holdings 4/30/10, returns through 5/31/10

  13. It’s Favorable Tax Treatment What’s Efficiency?

  14. It’s Fund Structure: Grantor Trust, 1940 Act, Commodity Pool, etc. What’s Efficiency?

  15. 8,300 = Average Daily Volume 145,000 = Total Volume for the Day 92,800 = Size of a Single Trade $4.6m (28%) = Growth in the Fund for the Day What’s Tradability? Myth 1: You Can’t Buy An ETF With Less Than $50 Million In Assets.

  16. Myth #2a: An ETF is as liquid as its underlying What’s Tradability? Intelligent Limit Order (total volume during trade: 72,600 shares) Sweeping The Book (total volume during trade: 43,800 shares)

  17. What Is Tradability? Fair Value In Challenging Markets

  18. What’s Fit? It means knowing what you own.

  19. What’s the Market Cap of Wheat? Data as of March 31, 2010

  20. Evaluating Commodity Exposure For Fit: USO vs. Spot Oil

  21. Conclusion

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