ETF creation "DIA" example

(5 posts)

  1. Mohamed
    Member

    When a new ETF is created, what comes first the number of shares the provider wants to issue or the price of the share?

    for example "DIA", the prospectus mentions the following:

    Net Trust Assets: $7,388,963,445

    Number of Trust Units: 76,042,188

    NAV per Unit (based on the
    value of the Portfolio
    Securities, other net assets
    of the Trust and number
    of Units outstanding): $97.17 .

    market forces determines the price of the unit either at a premium or a

    discount of the NAV= $97.17 in this case.

    my ques. is 1-when the trust was launched back in 1998 on what bases did
    SPDR chossee the NUMBER of shares?

    2- how do investment companies determine the price of the share in the first

    listing day? can they control the price of one share by issuing more shares?

    Posted 1 year ago #

  2. Donato
    Member

    When I first read your post, I was considering addressing your questions. Then it occurred to me, whether you are swing trading, position trading, or investing, you are over thinking things.

    In order to be profitable in the market, you only need one simple strategy. Paramount to the success of that strategy is risk management. If you are new to trading, initially, your time would be best spent learning and fully understanding the principles and concepts of risk management.

    Good Luck

    Posted 1 year ago #

  3. Mohamed
    Member

    I am ETF investor, my portfolio consists basically of ETFs and also from time
    to time i open positions in stocks. Now I'm doing in depth research
    about the creation of exchange-traded products in order to understand
    the exact value of each share i intend to add to my portfolio.

    According to this, i want to know how the pricing mechanism works and can two different ETFs that track exactly the same index be issued at different prices.

    Posted 1 year ago #

  4. Donato
    Member

    "Can two different ETFs that track exactly the same index be issued at different prices." The short answer is yes. But different ETF's that track different indexes, and in the same sector or industry, will often track exactly the same on a percentage basis. It's usually not worth getting too hung up on those details.

    When given the choice, here is how I decide: Usually there will be what I call a minor ETF and a major ETF. Meaning, one ETF will trade on much higher volume. That is the one I lean towards.

    The other criteria that will sway me one way or the other will be the price. All else being equal, I will pick the cheaper one. That just means I can buy more shares which makes it easier for me to scale into and out of the trades in uniform share sizes (like 500 shares instead of 325 shares).

    Good Luck

    Posted 1 year ago #

  5. Mohamed
    Member

    First of all thank you for your attention.

    If the short answer is yes, that means
    ETFs don't have to be issued at the NAV per share
    based on the constituents of the underlying index securities.
    because if two different ETFs are replicating exactly the same index,
    how come they can be issued at different prices?

    the only reason might be that some ETFs don't contain
    all the securities inside the index, they can contain samples
    of the index securities witch means different NAV.

    my question is do ETFs have to be issued at NAV per share
    then market forces determine the price of the share in the
    secondary market? or providers can control the price of
    the share by any means of pricing mechanism, if so
    i really want to know how this can be done.

    I'm not wasting time on those details, i just started an in depth
    research and i want to understand how ETFs are created and priced.

    Thank you again.

    Posted 1 year ago #

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