An etf primer

Although Exchange-Traded Funds were first introduced to the global market more
than 13 years ago, Thai inestors remain mystified about how these financial tools
work!
But, since the Stock Exchange of Thailand (SET) aims to have Thailand's first Exchange
Traded Fund (ETF) that links with the securities index working on the Thai bourse b the
second !uarter of next ear, it's about time to get to know the new "roduct#
$hat is an ETF%
&n ETF is an o"en'ended fund that tracks s"ecific indices and can be traded like
securities#
(ow does it work%
&n ETF will mainl involve five "arties) the SET, a fund manager, a trustee, an index
vendor and a "artici"ating dealer#
&n asset'management com"an will *oin forces with a securities firm ' which will act as a
"artici"ating dealer ' to set u" an ETF# +nl the "artici"ating dealers can create or
redeem the unit trust#
The tracked stocks selected to create the ETF will be weighted according to the analsis
of the fund manager#
,nvestors will trade them via brokerage firms#
$ho will run ETFs%
The SET will consider "ro"osals submitted b asset'management com"anies that have
teamed u" with brokerage firms#
(owever, forget about the com"lexit involved in setting u" ETF shares on the stock
market# That's the res"onsibilit of the five "arties mentioned above#
The ETF is a virtual com"an stock# ,nvestors can trade it like other shares via
brokerage firms or ,nternet trading# The "rice is !uoted in real'time, like other normal
stocks, but the investment risk is diversified like an index fund# Tax from gains on ETFs
will be waived, similar to investments in mutual funds#
,nvestors can also trade ETFs with whatever brokerage firm the are registered with#
Besides the benefits, the fees for ETF trading are lower than mutual funds because of
the "assive stle of investment#
"ho needs ETFs#
ETFs are for those investors who "refer to trade several stocks at the same time#
Those who are fond of trading single stocks don't need it and neither do those who
"refer mutual funds for the long term#
"ill ETFs be a success#
The global ETF market had a net'asset value of more than Bt-. trillion in /a, with a
com"ound annual growth rate of about 01 "er cent#
,n our region, ETFs are traded in South 2orea, Taiwan, Singa"ore, /alasia and 3hina#
SET senior vice "resident Setha"ut Suthiwart'arue"ut said the creation of ETFs in the
Thai market is a bid to offer more "roducts on the Thai bourse at a time when fewer
large com"anies are being listed#
,s the Thai bourse read for ETFs%
Setha"ut said regulations are to be revised to su""ort the launch of ETFs# (owever,
some restrictions, such as the number of distribution channels, cannot be changed#
The most im"ortant factor is the investment culture of Thai investors, who are usuall
da traders and don't like index funds#
&lthough introducing and "romoting ETFs on the Thai bourse is a huge task, it had to
ha""en sooner or later, Setha"ut said#
Since it is sooner rather than later, investors can visit the website
www#set#or#th4setresearch4setresearch#html to gather more information#
$an only e%uities be used in ETFs#
Bonds and commodities can also be used#
&s a matter of fact, the first Thai ETF is the Thai &sian Bond Fund, whereas the SET is
aiming for an ETF linked to the securities index# 5ue to a lack of li!uidit and difficulties
in understanding, the Thai &sian Bond Fund is not well known to Thai investors#
For a commodities ETF, StreetTracks 6old Trust has been widel traded as an ETF
share in man countries# Tomorrow, StreetTracks 6old Shares, a fractional, undivided
beneficial ownershi" interest in the StreetTracks 6old Trust, will make its debut on the
Stock Exchange of Singa"ore# Exchange Traded Fund
has first been introduced to the global market over -7 ears ago, for the
Thai investors, it's remained doubtful how this financial tool works#
&s the SET is "utting its effort to make the first Exchange Traded Fund (ETF), that links
with securities index, ha""en in the Thai bourse b the second !uarter of next ear, it's
never too late to get ourself "re "ared for the new "roduct to come#