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NAV-Based Trading Articles
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This article addresses many of the issues facing investors and especially advisors as they attempt to deal with the trading markets in ETFs. To the extent that many fund investors and advisors have little or no knowledge of or experience with the securities markets because they are used to buying mutual funds at end-of-the-day net asset value they need to understand the securities markets and more specifically the differences between the stock market and the market in ETF shares. This article represents my initial attempt to deal with these issues.
For more updated information see Chapter 8 of The Exchange-Traded Funds Manual, 2nd Edition.
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Transparency in costs and in some other areas is desirable. Transparency of pending portfolio changes is a very costly policy.
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ETFs do not have to hold cash balances to meet cash redemption requests. Sadly, many ETF portfolio managers have decided that holding cash makes them look better in bad years and does not hurt them too much in good years.
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ETFs are the best way to allocate the full cost of flow transactions to transacting shareholders. This is a working paper version of an article that appeared in the Financial Analysts Journal, (May/June 2004): 23–32.
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