ETFs (Exchange Traded Funds) are one of the instruments still in favor of investors today. Cheaper than Funds, they allow to follow the performance of an index, short an index or can be an easy way to participate in the ups and downs of things you can hardly trade as a private person other-ways, like Gold or Wheat.
After heavy reading this weekend I am even more cautious on what ETF to buy. I did know, that ETFs, eg a DAX30 ETF, can be synthesized, meaning they do not hold stocks only, but options, derivatives, etc. - mainly from the mother company of the firm issuing the ETF. So what you have really got buying them is the promise of a big bank (like Commerzbank, SocGen, ...) to pay the ETF-issuing company (comstage, Lyxor, ... ) enough so that they can pay the ETF-Holder according to the development of the DAX30.
What I did not know is that even for non-synthezised ETFs - those actually holding the shares of the DAX30 in the same composition as the index - counter-intuitive things take place. Additional value for the issuer of those ETFs is often created by lending the stocks of the ETF to short-sellers. This is done up to 90 % of the portfolio. It is a crazy idea that by buying a long ETF you actually help the folks on the other side of the trade by lending them shares. This instrument is dead for me ...
Coming that far, do you know whether the stocks in your portfolio at which bank whatsoever you hold them, can be lended-out to short-sellers? I will investigate into this for my banks now and asking customer support for clarification.
After heavy reading this weekend I am even more cautious on what ETF to buy. I did know, that ETFs, eg a DAX30 ETF, can be synthesized, meaning they do not hold stocks only, but options, derivatives, etc. - mainly from the mother company of the firm issuing the ETF. So what you have really got buying them is the promise of a big bank (like Commerzbank, SocGen, ...) to pay the ETF-issuing company (comstage, Lyxor, ... ) enough so that they can pay the ETF-Holder according to the development of the DAX30.
What I did not know is that even for non-synthezised ETFs - those actually holding the shares of the DAX30 in the same composition as the index - counter-intuitive things take place. Additional value for the issuer of those ETFs is often created by lending the stocks of the ETF to short-sellers. This is done up to 90 % of the portfolio. It is a crazy idea that by buying a long ETF you actually help the folks on the other side of the trade by lending them shares. This instrument is dead for me ...
Coming that far, do you know whether the stocks in your portfolio at which bank whatsoever you hold them, can be lended-out to short-sellers? I will investigate into this for my banks now and asking customer support for clarification.
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