npavan78
23-06-2008, 08:18 AM
ETFs are the best investment idea to come along in the last generation. The origins of ETFs' can be found in academic studies, which support the idea that all managed mutual funds, over time, will under-perform an indexed fund representing a broad cross-section of the market. The fact that some funds may have outperformed the market average for ten or twenty years does not necessarily attest to their superior performance. With some 13,000 funds in existence, the law of averages combined with luck can easily account for a handful of funds having a string of superior results. As Nassim Taleb points out in his book "Fooled By Randomness - The Hidden Role of Chance in Life and in the Markets", never under estimate the importance of luck.
ETFs are designed to give you market average results for a particular market or sector, nothing more and nothing less. They buy a basket of securities representing a cross-section of a particular market. Most important, they make very few changes to that basket of securities. The fund sponsor creates new fund shares as demand requires. Sellers can either sell their shares on the open market, or turn them in to the fund sponsor who will give him the equivalent in underlying securities. This feature means that, unlike closed end funds, the fund will never vary much from the underlying net asset value of its holdings. Shares within the basket are only bought and sold if a new security is added or removed from the index being tracked or if a merger/acquisition makes a share disappear. Over time, such an ETF will outperform all but the most fortunate conventional/open-end funds
ETFs are designed to give you market average results for a particular market or sector, nothing more and nothing less. They buy a basket of securities representing a cross-section of a particular market. Most important, they make very few changes to that basket of securities. The fund sponsor creates new fund shares as demand requires. Sellers can either sell their shares on the open market, or turn them in to the fund sponsor who will give him the equivalent in underlying securities. This feature means that, unlike closed end funds, the fund will never vary much from the underlying net asset value of its holdings. Shares within the basket are only bought and sold if a new security is added or removed from the index being tracked or if a merger/acquisition makes a share disappear. Over time, such an ETF will outperform all but the most fortunate conventional/open-end funds