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The Facts and Fallacies of ETF Investing: Addressing ETF Liquidity & Volume

The Facts and Fallacies of ETF Investing: Addressing ETF Liquidity & Volume. Stan Ueland ETF Portfolio Manager. Example of ETF Pricing. This example is for illustrative purposes and does not represent any actual investment or fund. Example of ETF Pricing. 00.

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The Facts and Fallacies of ETF Investing: Addressing ETF Liquidity & Volume

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  1. The Facts and Fallacies of ETF Investing:Addressing ETF Liquidity & Volume Stan Ueland ETF Portfolio Manager

  2. Example of ETF Pricing This example is for illustrative purposes and does not represent any actual investment or fund.

  3. Example of ETF Pricing 00 This example is for illustrative purposes only. The intraday NAV for an ETF is typically calculated and published by a third party under a separate symbol every 15 seconds throughout the trading day over the Consolidated Tape based on the current value of the securities specified for creation and redemption plus any estimated cash amounts associated with the creation unit, all on a per-ETF share basis. The intraday NAV is designed to give investors a sense of the relationship between a basket of securities that are representative of those held in the ETF’s portfolio and the share price of the ETF on an intraday basis.

  4. ETF Liquidity Buy $10m in FNX (First Trust Mid Cap AlphaDEX ETF) Trader’s perspective: “Stock trades $467k per day” $10m / $467k = 2,140% of ADV Liquidity of underlying: Shares trade $7.5b per day $10m / $7.5b = 0.13% of ADV This example is for illustrative purposes only. ADV statistics as of 1/7/2010. Liquidity of the underlying holdings is a significant factor in the liquidity of an ETF. For Broker/Advisor Use Only • Not For Use With The Public

  5. ETF Structure Provides Liquidity Investor Advisor Market Maker AP ETF ETF ETF Sponsor

  6. ETF Structure – Creation Market Maker AP ETF ETF Sponsor This example is for illustrative purposes only.

  7. ETF Liquidity Examined • 8,300 = Average Daily Volume • 145,000 = Total Volume for the Day • 92,800 = Size of a Single Trade • $4.6m (28%) = Growth in the Fund for the Day

  8. ETF Liquidity – Case in Point (FDM & BICK) • 1.8m share trade (17k = 30 day ADV) • Microcaps • Smallest but most compelling • 3.8m shares trade (21k = 30 day ADV) • $114m - growth in a single day

  9. ETF Structure – Redemption Market Maker AP ETF ETF Sponsor This example is for illustrative purposes only.

  10. ETF Structure Compared to Mutual Fund Structure Traditional Mutual Fund Example

  11. ETF Structure – Redemption Revisited Investor Advisor Market Maker AP ETF ETF ETF Sponsor

  12. ETF Liquidity – Case in Point (FXG & FXD) Despite a meaningful selloff, both small and large ETFs trade up tight to their Indicative Value.

  13. Selling ETFs…An Example • FDD – 10/21/08 • ½ fund • High Volatility • Returning clients • …

  14. Thoughts on Trading ETFs Example of Daily Fund Pricing • Tips • Open/Close • Limits • iNAV • INTL funds • Stops  Stop Limits Alerts • Implementation • Engage Us • Assistance • Access • Trading Desks • ‘It’s an ETF’ This example is for illustrative purposes and does not represent any actual investment or fund

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