Over the past few years a new type of asset has emerged on the financial markets – Exchange Traded Funds, better known under their acronym "ETFs". ETFs are funds which can be traded on the financial markets. They replicate a stock market index (tracker funds), an investment strategy or a specific type of asset.
The main advantage of ETFs
The main advantage of ETFs over more traditional products such as mutual funds is their lower management fees (0.1% to 1% per year).In contrast, actively managed funds charge fees of between 1% and 3%. Another advantage is that ETFs are more liquid that mutual funds, as they are traded in the same way as shares on the stock market. Like shares, they also trade with a bid-ask spread which can trip up the unaware investor given the size of the assets under management.
Research at SKEMA on ETFs
Research at SKEMA on ETFs focuses mainly on their use as a portfolio management tool. Investment strategies that were previously only accessible to hedge funds can now be implemented thanks to ETFs, and at a lower cost given the high fees charged by hedge funds. We also analyse their use as a way to protect portfolios against certain types of risks, such as interest rate risks, which enabling a relatively defensive strategy. A third approach to ETF, which we are developing in the context of our partnership with Société Générale, involves the use of performance indicators specific to the ETF universe (e.g. Liquidity or volume indicators) as anticipatory and market timing tools.
We would like to extend our thanks to the Société Générale for their support for our research on ETFs, which will enable us to jointly organize events in the coming months to advance research in this area.