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Point In Focus – Exchange Traded Fund
By Nahida Habib

Point In Focus – Exchange Traded Fund

Point In Focus - Exchange Traded Fund

An exchange-traded fund (ETF) is a collection of investments such as securities, commodities, bonds, or other assets. ETFs are traded on a stock exchange and provide investors with an easy way to invest in a broad range of assets.

Why do people invest in ETFs?

  • Investors can easily buy and sell like any other stock on the Exchange through terminals across the country.
  • Diversify into different markets and assets classes
  • Can buy or sell anytime during a trading session at a price close to the actual NAV of the scheme.
  • Lower transaction cost Passively managed ETFs have much lower expense ratios than actively managed funds. Expenses like management fees, shareholder accounting expenses at the fund level, service fees like marketing, board of director’s payments, and load fees for sales and distribution add to mutual fund expenses.
  • Exposure to the performance of an index with a smaller capital
  • Transparency with real-time information.
  • Less capital gain tax

Global ETF Market Facts

Global ETFs started a long time ago. Even in our neighboring country, in India, ETFs are popular now- a -days. In U.S.A. the first ETF launched in 1993 named Standard & Poor’s Depository Receipt(SPDR) ETF to track S&P 500 index. It is the largest ETF in the world by market capitalization by 365.73bn USD.

Global ETF Market Facts - 1
Size of the European Market
Global ETF Market Facts - 2
Size of the USA Market
Global ETF Market Facts - 3
Size of the Asia-Pacific Market

The figures show equity size and fixed-income ETF assets under management in comparison to the total equity market capitalization and total debt outstanding in the U.S., Europe, and Asia-Pacific.

Globally, assets under management in ETFs are only a fraction of the total financial market. ETFs represent 14.28% of equity assets in the U.S., 7.6% in Europe, and 3.9% in Asia-Pacific. Market share is smaller in fixed income, where ETFs account 2.4% of fixed income assets in the U.S., 1.5% in Europe, and 0.2% in Asia-Pacific here ETFs account for 2.3% of fixed income assets in the U.S., 1.5% in Europe, and 0.2% in Asia-Pacific. (According to ishares.com)

ETFs in Bangladesh’s Capital Market

Bangladesh Securities and Exchange Commission has taken various steps to improve the Bangladesh capital market. Efforts are being made to attract investors by introducing new instruments in the market to increase investment. One of these is ETF. Initially, the ETF (Exchange Traded Fund) that is planned to be launched in the market will follow the DSE-30 index. When a regulatory framework for ETFs was established in Bangladesh in 2017, no ETFs have come into the market so far. For this purpose, investors should be made aware about the stock market. The presence of a market maker is inevitable for ETFs which will act as intermediaries.

Relevant parties in ETF:

  • Sponsor
  • Eligible Investors
  • Asset Manager
  • Authorized Representative
  • Trustee
  • Custodian
  • Market Maker

ETFs actually operate in a different ecosystem from other instruments that trade on stock exchanges, such as individual scrips or closed-end funds. These instruments have a fixed supply of shares in the market, whereas ETFs are likely open-ended investment vehicles that allow investors to issue or withdraw shares in the secondary market according to the market’s supply and demand.

ETF is a unique product, hence, awareness and training of all parties related to ETF is required to market this new instrument. Besides, regulatory bodies should take necessary steps to increase investor confidence in asset managers. After all, the success of the ETF will depend on the economic development of the country as well as the performance of the underlying assets of the ETF.

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  • May 17, 2023

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