In the aftermath of the credit meltdown and the more recent implosion of MF Global, many investors are putting a premium on transparency. They want to know exactly what they own.
Transparency in an exchange traded fund involves the disclosure of the funds’ holdings every day, unlike mutual funds, which provide periodic disclosures. [5 Things Financial Advisors Should Know About ETFs]
Daily transparency of the securities in an ETF has been one the “unique selling points” of ETFs, Deborah Fuhr, an independent strategist, said on ETF Daily News. [What You Should Know About Bid/Ask Spreads]
As the ETF industry continues to work on making transparency a constant feature in all aspects of the business, such as swap counterparties and synthetic ETFs, there are major advantages of this feature. [Active Vs. Passive ETFs]
- Exchange traded funds disclose whether they lend out securities, and give detail on the collateral they hold so an investor is aware of the amount of risk that they are taking on, and knows exactly what they are investing in.
- More transparency in ETFs will also give investors background such as the value of the collateral they hold, if it is sufficiently diversified and if the index the fund tracks buys derivative swaps or shares, reports Leona Walters for Investors Chronicle.
- ETF transparency also helps investors that really want to diversify. The holdings of an ETF are disclosed and made public knowledge, making it easier to avoid overweighting or underweighting a certain stock, country or asset class in a portfolio.
Tisha Guerrero contributed to this article.