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Expat Investor : September 2008
INVESTMENT NEWS We make savings simple for you 1Year Fixed Rate Bond £ Also available *6 Months Fixed Rate Bond * International 30 * Monthly interest option 6.75% movements of the index being tracked. In most cases, the bid/offer quotes for an ETF share on the stock exchange will move in line with its INAV. Major investment banks as well as more specialist trading houses, are involved in the market making and trading of ETFs across Europe. What are they? Exchange traded funds (ETFs) combine elements of stocks (tradability and liquidity) and index funds (low costs and diversification) into one product. ETFs are regulated, open–ended investment funds that track the movements of a specific underlying index and can be traded intra-day on the stock exchange in the same way as any other listed tradable security. In one transaction it is possible to get exposure to a diversified index of securities. Through ETFs it is possible to get exposure to a wide variety of equity markets (developed and emerging markets), different asset classes (bonds, money market, credit and commodities) and alternative investment strategies fundamental and structured (for example short or leveraged) indices. ETFs can be used by both institutional and retail investors There is no separate share class with a lower fee structure – it is the same product for all types of investors. How are ETFs traded? ETF shares can be traded through a broker. They trade and settle through the local clearing system in the same way as any other listed tradable security. There is no set up documentation required to trade ETF shares. The pricing of ETFs is transparent. Many ETFs publish an Indicative Net Asset Value (INAV) which is calculated and updated to reflect real time What are the costs of using ETFs ? Compared to active funds and even traditional index tracking funds the annual management fees on ETFs are competitive. The annual management fees on ETFs in Europe generally range from 0.15% on ETFs tracking benchmarks such as the DJ EuroSTOXX 50 or fixed income ETFs, 0.30% for FTSE 100 ETFs and 0.50–0.95% for emerging market and theme indices. In most cases, there are no other charges associated with buying/selling ETF shares beyond normal trading commissions that would be charged by brokers for the buying/selling ETF shares. What types of ETFs are available? Globally there are over 1,300 ETFs available and in Europe there are over 500 available on the major stock exchanges – London, Frankfurt, Milan, Zurich and Paris. If you are an investor who has exposure to a wide range of markets and asset classes then there are many different ETFs available. It is possible to access a wide range of markets and asset classes such as: ? Developed markets – UK, US, Europe, Japan, world. ? Emerging markets – regional and individual countries eg India, China, Brazil and frontier markets such as Vietnam. ? Dividend Indices – high yield strategies on a European and global basis. ? Fixed Income – government, inflation and credit indices. ? Money Market – track overnight 5.35% € Gross/AER Gross/AER 3.40% $ Gross/AER Download an application form at www.irishpermanentintl.com +44(0)1624 641641 for a personal service Individual product terms and conditions apply. Interest rates are quoted gross p.a. without any deduction of tax. AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year. The minimum opening balance is £10,000/€10,000 or US $10,000. Irish Permanent International is a registered business name of Irish Permanent (IOM) Limited which is licensed by the Isle of Man Financial Supervision Commission for Banking and Investment Business. Registered Office: 12/14 Ridgeway Street, Douglas, Isle of Man. IM1 1EN. Irish Permanent International is part of the Irish Life and Permanent plc Group. Fast Facts 77005 Exchange Traded Funds explained Manooj Mistry, Head of db x-trackers UK with Deutsche Bank, explains the basic principles of investing in exchange traded funds (ETF). money market rates for major currencies – euro, US dollar, sterling. ? Commodities and Currencies – diversified indices covering a range of commodities and currency strategies. ? Themes – Infrastructure, Private Equity. ? Structured – eg short ETFs providing exposure to the inverse performance of indices such as the FTSE 100 or S&P 500. How can investors use ETFs ? As ETF shares can be traded intra- day and are transparent, they are a flexible investment tool for achieving index exposure on both a long and short term basis in a low cost and efficient way. Below are two examples showing how retail investors can use ETFs: Core Portfolio Holding – as ETFs are low cost index tracking instruments they can be used to form the cost efficient core of any investment portfolio. By holding a few different ETFs an investor can access various countries or regions which allows an investor to diversify and reduce risk in a portfolio. This can then be combined with active stock picking or buying actively managed funds or specialist investments such as hedge funds or private equity. Trading Tool – as ETFs are flexible to trade, they can be used to take advantage of movements in markets or to access new emerging markets or asset classes such as commodities.With the development of inverse or leveraged ETFs, investors can further take advantage of short- term market movements. ETFs are eligible for inclusion in ISAs (Individual Savings Plans) and SIPPs (Self Invested Pension Plans) and offshore savings bonds. They can, therefore, be used as the cost efficient core holdings in such products. Always consult with a financial advisor before investing in ETFs. Fast Facts 77180 September 2008 ? EXPAT INVESTOR 11
July August 2008