Extended information:
Similarities and differences between Shenzhen Stock Exchange LOF and Shanghai Stock Exchange ETF
Similarities between LOF and ETF
One, the same across two levels of the market
ETFs and LOFs both exist in both the primary market and the secondary market, and can be purchased and redeemed like an open-ended fund, through the fund sponsor, the administrator, the bank, and other sales agency outlets. The ETFs and LOFs can be purchased and redeemed through the fund sponsors, managers, banks and other outlets of the distributors. At the same time, they can also be bought and sold through the exchange system like closed-end funds.
Theoretically, there are arbitrage opportunities
Because of the co-existence of the two trading methods mentioned above, the subscription and redemption prices depend on the net asset value of the fund units, while the market trading price is formed by the system aggregation, which is mainly determined by the supply and demand in the market, and there is likely to be a certain degree of deviation between the two, and there is a theoretical arbitrage opportunity when the deviation is sufficient to offset the cost of the transaction. Investors take the low buy high sell way can get the difference between the income.
Third, the discount and premium range is small
While the trading price of fund units is affected by supply and demand and the market of the day, it always fluctuates up and down around the net value of the fund units. Due to the existence of the arbitrage mechanism mentioned above, when the deviation between the two exceeds a certain level, it will trigger arbitrage behavior, thus returning the trading price to the net value, so its discount and premium level is much lower than that of a pure closed-end fund.
Four, low cost, high liquidity
In the transaction process, there is no need for subscription and redemption fees, and only need to pay up to 0.5% of the bilateral fees. In addition, due to the simultaneous existence of primary and secondary markets, the liquidity is significantly stronger than that of general open-ended funds. In addition, ETFs are passive investments, with management fees generally not exceeding 0.5%, much lower than the 1%-1.5% level of open-ended funds.
The difference between LOF and ETF
One, the applicable fund types are different
ETF is mainly a passive investment fund product based on a certain index, while LOF, although it also adopts the way of open-ended funds listed on the exchange, it can be used not only for passive investment fund products, but also for economic investment funds.
Second, the subscription and redemption of the different underlying
In the subscription and redemption, ETF and investors to exchange fund shares and "package" of shares, while LOF is the fund shares and investors to exchange cash.
Third, the threshold of participation is different
According to foreign experience and the design program of ChinaAMC SSE 50 ETF, the basic unit of subscription and redemption is 1 million units, which is a higher starting point and suitable for institutional clients and individual investors with strength; while the subscription and redemption of LOF products is the same as that of other open-ended funds, with the starting point of 1,000 units, more suitable for small and medium-sized investors to participate. It is more suitable for small and medium-sized investors to participate.
Four, arbitrage operation and cost differences
ETF in the arbitrage trading process must be through a package of stock trading, involving both the fund and the stock market, while the arbitrage trading of LOF involves only the trading of funds. A more prominent difference is that, according to the design of SSE on ETFs, it provides investors with real-time arbitrage opportunities and can realize T + 0 trading, and its transaction costs are mainly impact costs in addition to transaction costs; while the current trading design of SZSE on LOF is that the fund units for subscription and redemption and the fund units for trading in the market are hosted respectively by the China registration and registry system and the system of China Clearing and Settlement Shenzhen Branch across the Subscription and redemption market and the exchange market transactions must go through the system between the transfer of custody, it takes two trading days, so LOF arbitrage also bear the cost of waiting time, which in turn increases the arbitrage cost.
The market impact of LOF and ETF
I. LOF impact
The launch of LOF provides a new exit route and way for investors in open-ended funds, and also provides a convenient way for investors to invest in the fund for trading.
With the launch of LOF products, it is also likely to lead to a decline in the current subscription and redemption fees for open-ended funds in China. Because, for investors if the transaction costs of the secondary market and the first level of subscription and redemption fees gap is too large, it is likely to be issued at the time of subscription is unfavorable, and in the exchange after the listing of active trading situation.
And LOF can build a bridge between closed-end and open-end funds, providing a good technical platform, if the implementation is smooth can be extended to closed-end funds to open up the solution to the problem.
Two, ETF impact
ETF fully replicates the index investment strategy will further promote the use of indexed investment concepts in China's stock market. ETF funds closely track a representative index, the investor to buy a unit of the fund is equal to the weighting of all the shares of the index purchased, so as long as the index can fully reflect the trend of the trend of the situation, the investor will not have a "good", the investor will not have a "good", the investor will not have a "good".
ETF provides the arbitrage function of the underlying index, which will attract a large number of investors to invest in the constituent stocks of the corresponding index, and keep a close eye on the deviation of the ETF price from the value of the constituent stock portfolio, and carry out a large number of arbitrage operations until the deviation returns to the range of no arbitrage space. These frequent and massive arbitrage transactions will increase the activity level of the underlying stocks, which will promote the liquidity of the underlying index and reduce the volatility of the index to maintain the stability of the market.