Is there a clear distinction between ETF and ETF feeder funds? What are the similarities and differences of this article!

Source | Monopoly Finance

Investors who often play in the capital market are no strangers to ETFs, but in fact, ETFs have a "twin brother", which is ETF feeder funds. It is derived from ETF, and its position is similar to it. Its trend direction and risk return characteristics are also very similar. But although they are twins, there are still some differences between them.

Fine dish, ETF and ETF Feeder Fund The main differences between Investment object, transaction mode, purchase channel, transaction price, transaction cost, tracking error and fund use efficiency And so on.

one

Different investment objects

ETF invests in the constituent stocks of the underlying index, generally 100% copying the index, and adopts a completely passive management strategy to track a specific index.

and ETF feeder funds, also known as shadow funds or replication funds Is to invest most of the fund assets in ETFs tracking the same underlying index managed by the same manager, so as to copy the target ETF trend.

In general, The proportion of ETF feeder fund investing in the target ETF shall not be less than 90% of the fund's net assets, and at the same time, it shall reserve no less than 5% of highly liquid assets (cash, government bonds with maturity within one year, etc.) to deal with redemption.

two

Different trading methods, channels and thresholds

As a tradable index fund, ETF belongs to OTC fund , which can be traded in the secondary market like stocks, and can also be subscribed and redeemed in the primary market. The prerequisite is to open an A-share account of the stock exchange or a securities investment fund account.

When trading ETF funds in the secondary market, the minimum buying unit is one (i.e. 100 fund units), and the minimum selling unit is one; However, the threshold for subscription and redemption in the ETF primary market is relatively high, usually 500000 or 1 million. Moreover, investors' subscription and redemption are all based on a basket of stocks corresponding to ETF fund constituent stocks, rather than cash.

ETF feeder funds are OTC funds , which is regarded as the "bridge" between OTC investors and OTC ETFs. There is no need to open a stock account, and the purchase method and trading rules are the same as those of general funds. The purchase and redemption can be made through the fund company, bank, securities dealer or fund third-party sales platform, generally starting at 1 yuan, and the transaction is made according to the net value on the trading day.

three

Net value update frequency is different

The net value of ETFs in the secondary market is generally updated once every 15 seconds , which can help investors seize the opportunity of intraday rise. and ETF feeder funds are updated once a day 。

four

Different transaction costs

The expenses of the Fund are mainly divided into operating expenses and transaction expenses. The operating expenses are mainly management fees, custody fees and other fees, while the transaction expenses include redemption fees, stamp duties, etc.

In terms of operating expenses, ETF is generally lower than active equity funds, usually 0.5% of management fee per year , custody fee 0.1%/year. After the rate reform this year, the minimum annual management fee rate and the annual custody fee rate of ETF have been reduced to 0.15% and 0.05% respectively. To avoid repeated charges, ETF feeder funds only charge management fees and custody fees for the part other than ETF investment.

In terms of transaction fees, ETF trading charges a lower trading commission and is free of stamp duty , the total cost of buying and selling ETFs is lower than that of buying and selling stocks, but The redemption of ETF feeder funds requires a certain fee Depending on the amount, holding period and different platforms, the front-end subscription rate is generally between 1.0% and 1.5%.

five

Different tracking errors

In terms of tracking error, The tracking error of ETF is small. Because of the special purchase and redemption system, ETF is generally close to full position operation, with relatively small deviation and tracking error in theory, and will not be impacted by the purchase and redemption on the net fund value, which is more consistent with the trend of the index in theory.

When ETF feeder funds replicate the trend of the index with ETF as the investment target, they must retain a part of current assets (cash+short-term debt) to deal with redemption because they are bought and sold through over-the-counter redemption. They are greatly impacted by the purchase and redemption, which may eventually affect tracking error.

six

Different transaction flexibility and capital use efficiency

ETF can be traded in the day , some support T+0 transactions. After being sold in the secondary market, the capital can be used to buy stocks or ETFs on the same day. Usually, the capital can be withdrawn from the securities account to the bank card on the T+1 day.

The ETF feeder fund can only be redeemed according to the net value of fund units after the close of the market on the day when the application is accepted The redemption money generally takes 3-4 trading days to arrive. In addition, compared with ETF, which requires manual operation of "superior alarm clock" to participate in fixed investment, ETF feeder funds support automatic fixed investment, and many sales platforms provide the function of automatic fixed investment, which is more convenient and worry free.

In general, ETF and ETF feeder funds have their own characteristics, and investors can choose their own investment products according to their own needs and risk tolerance.

Risk warning: The fund is risky, so investment should be cautious. The above is my personal opinion, not as investment advice.