ETFs (Exchange Traded Funds)
An ETF is a basket of securities (stocks, bonds, commodities, or a mix) that trades on an exchange like a single stock. ETFs combine the diversification of mutual funds with the real-time trading flexibility of stocks.
🔑 Key Characteristics
| Property | Detail |
|---|---|
| Code in LibreFolio | ETF |
| Pricing | Real-time exchange prices, like stocks |
| Currency | Denominated in the listing exchange's currency |
| Dividends | May distribute (Dist) or reinvest internally (Acc) |
| TER | Total Expense Ratio — annual management fee deducted from NAV |
| Typical providers | Yahoo Finance, justETF, CSS Scraper |
📊 Accumulating vs Distributing
| Feature | Accumulating (Acc) | Distributing (Dist) |
|---|---|---|
| Dividends | Reinvested internally | Paid out to holders |
| Tax event | Only on sale | On each distribution |
| Compounding | Full compound growth | Reduced by tax drag |
| Best for | Long-term growth | Income needs |
The tax deferral advantage of accumulating ETFs can be significant over long horizons.
📈 NAV vs Market Price
- NAV (Net Asset Value): The true value of underlying holdings ÷ shares outstanding. Computed daily.
- Market Price: What the ETF actually trades for on the exchange. Can deviate slightly from NAV.
- Premium/Discount: When market price > NAV, the ETF trades at a premium; when < NAV, at a discount.
🔍 Index Tracking
Most ETFs track a benchmark index (e.g., S&P 500, MSCI World). The tracking error measures how much the ETF's return deviates from the index:
\[
TE = \sigma(R_{ETF} - R_{index})
\]
Lower tracking error = better replication of the index.
🔗 Related
- 💰 Dividend Events — Distributions from ETF holdings
- 📈 Index & Benchmark — How benchmarks work
- 💰 Taxation — Acc vs Dist tax implications