Abner, The ETF Handbook, 2d ed.by Brenda Jubin
Since David J. Abner wrote the first edition of The ETF Handbook: How to Value and Trade Exchange-Traded Funds in 2010, the ETF industry has more than doubled, with new users continuing to incorporate ETFs into their trading strategies but not always knowing just how they work. A second edition of this book was definitely in order.
Abner’s handbook is directed primarily at institutional investors. The retail investor who owns, let’s say, a few hundred shares of SPY, TLT, and GLD does not need the kind of detailed information provided here.
Abner divides his book into three parts. The first part introduces the structures of ETFs, the methodologies underlying these products, and the ways of bringing them to the marketplace. The second part addresses trading, with special emphasis on volume and liquidity. In the third part Abner discusses the mechanics of calculating the fair value of the products.
Rather than going into the weeds of trade execution, however important it may be for institutions placing large trades (in fact, Abner writes that “the information in [the chapter on execution] alone should make owning this book mandatory for every trader and execution flow staff member who handles orders in exchange-listed funds”), I’ll focus on a topic that bedevils both retail and institutional investors: leveraged products.
Leveraged ETFs are structured to satisfy traders with short-term positions. At the close of every trading day leveraged ETFs have to be reset to 100% exposure, “which means the leveraged funds are truing up their exposure and trading in the close daily.” This also means that “the leverage performance applies only to day-over-day price movements, not to the basis at which you entered into the trade. … [O]ver time, the compounding of this reset can potentially cause the performance of the fund versus its underlying benchmark to diverge.” Consider, for instance, the extreme case in which the index rises 10% a day for ten days. It will have a ten-day cumulative change of 159%. A 2X ETF, however, will have a cumulative change of 519%. Because of the increasing price, the daily gains “are driving the value higher at a faster pace.” If the index declines 10% a day for ten days, its cumulative change will be -65%; the 2X ETF, -89%. It loses progressively less in notional points every day. In a rangebound, volatile market, up 10% then down 10% for ten days, the cumulative change for the index will be -4.90%; for the ETF, -18.46%. The returns of leveraged ETFs are, as can be seen, highly path dependent.
Abner’s book is both comprehensive and comprehensible, and he writes from experience. Earlier in his career he built and managed ETF sales and trading businesses at BNP Paribas and Bear Stearns. He currently leads the European business for WisdomTree Asset Management, an ETF issuer. No professional should enter the ETF world without taking advantage of his experience, analysis, and sound advice.
The ETF Handbook – Description
The ETF Handbook: How to Value and Trade Exchange Traded Funds by David J. Abner
Professional-level guidance on effectively trading ETFs in markets around the world
The ETF Handbook is a comprehensive handbook for using Exchange Traded Funds, designed specifically for institutional investors and professional advisors seeking to improve ETF profitability. While ETFs trade like stocks, they are not stocks—and the differences impact every aspect of their use. This book provides full guidance toward effectively monitoring, analyzing, and executing ETFs, including the technical details you won’t find anywhere else. You’ll learn how they work, where they fit, and who is using them, as well as the resources that exist to provide access for investors. This new second edition includes updated coverage on how business has moved from niche to mainstream, ETF performance and issuers around the world, and changes to the users of ETFs in the US. The companion website features instructional video, as well as ready-to-use spreadsheets for calculating NAV and IIV.
Most of the literature surrounding ETFs is geared toward individual investors or traders, but this book is written from the professional perspective—complete with the deeper mechanical information professionals require.
- Learn the analysis and execution methods specific to ETFs
- Discover why ETFs require a sophisticated level of skill
- Consider how ETFs perform in different market environments
- Examine the impact of managed ETF portfolio growth
ETFs are incredibly flexible and valuable tools, but using them effectively demands a more sophisticated skillset, even among professional money managers and traders. Daily volumes and spreads do not tell the full story regarding availability and liquidity, and treating ETFs just like stocks can dramatically impact profits. The ETF Handbook is the professional’s guide to the ETF markets worldwide with expert insight on the technical details that matter.
The ETF Handbook – Review
From the Inside Flap
The incredible growth of Exchange-Traded Funds means they now provide investors and advisors with a wide array of flexible tools useful for building sophisticated portfolios. Understanding how ETFs work and how they differ from investment products that have come before them is essential to using these now-mainstream products efficiently and effectively.
Investors may be fooled by the apparent ease of using ETFs since they trade on an exchange like a stock. When proper techniques for monitoring, analysis, and execution are learned, however, ETFs can be used in many valuable ways. This book walks investors through the nitty-gritty details of how the products work in both large and small block sizes. Whether you are building portfolios for clients or for your own investment goals, this book provides you critical information that should be understood before investing.
Written by a pioneering expert in sales, trading, and issuance of ETFs, this completely revised Second Edition gives you quick answers to the most frequently asked questions in the industry.
This comprehensive insider’s guide provides an advanced pro-level understanding of the mechanics of ETF development, most accurate methods to price and value, as well as privileged insight into these important products to enable you to better anticipate opportunities for profit.
No other resource gives you a greater depth of up-to-date practical knowledge. You will be able to:
- Understand the details of how ETFs are developed and brought to market
- Value all types of products for the foundation of an effectively crafted portfolio and efficiently executed order flow
- Master the most current trading techniques and begin learning the critical skills to use them to capture more profits
- Easily calculate the net asset value (NAV) and intraday indicative value (IIV) using clear formulas and ready-to-use tools
The ETF Handbook, Second Edition shows you the latest methods and best practices for valuing, trading, and profiting from these popular products in the U.S. and abroad.
From the Back Cover
The Updated Edition of the ETF Guide Preferred by Professionals Around the World
The ETF Handbook, Second Edition is the comprehensive guide to using exchange-traded funds that institutional investors and advisors turn to for effectively monitoring, analyzing, and executing ETFs all over the world—including the nitty gritty details you can’t instantly access anywhere else.
ETFs offer incredible flexibility and can be used in many valuable ways, but to do so requires a sophisticated skillset, even among professional money managers and traders. In this extensively revised and updated edition, pioneering expert David Abner reveals how ETFs work, where they fit into a portfolio, who is using them, and how you can use them to capture more profits. In this new edition he shares:
- The most up-to-date coverage on how the ETF business has grown from a niche to mainstream
- Privileged insight into ETF performance and issuers around the world
- All the critical changes affecting professionals using ETFs in the U.S.
The ETF Handbook, Second Edition gives you everything you need to develop professional capital as an ETF expert.
The ETF Handbook: How to Value and Trade Exchange Traded Funds by David J. Abner