exchange-traded strongfundsstrong - rba.gov.au.pdfVIP

Exchange-traded Funds Mitch Kosev and Thomas Williams* the exchange-traded fund (etF) industry has grown strongly in a relatively short period of time, with the industry attracting greater attention as it grows in size. the original appeal to investors of these products was their simplicity, low-cost diversification benefits and ability to trade intraday. While this is still broadly the case, the evolution of the industry has resulted in a greater variety of etFs becoming available to investors and improved accessibility to different asset classes. However, etFs have also become more complex in the structure and types of strategies they employ in generating returns. these developments have created new opportunities and challenges for investors, market participants and regulators. Introduction an ETF may hold the stocks underlying a benchmark equity index. However, some use derivatives such This article examines a relatively recent innovation as futures, forwards, options and swaps to simulate in financial markets, exchange-traded funds (ETFs). the return from physically holding the asset, and are ETFs are investment vehicles that are listed on a stock referred to collectively as synthetic ETFs. ETFs may exchange and provide investors with the return of also use some combination of the two strategies. The some benchmark, such as an equity index. The appeal