Structure of an exchange-traded fund

Structure of an exchange-traded fund

ETFs are the best products of financial engineering, designed to keep up with growing 
structures.

ETFs started operating in earnest in 1993, and there are more than 6,000 worldwide and
400 to 500 new ones are listed every year.

Most ETFs are characterized by adding new stocks, with weights adjusted or excluded, 
if the incorporated stocks do not meet the criteria.

Of course, there are ETFs that invest in the same stocks in the same ratio differently or 
invest in the same ratio by sector.

What this investment method means is that if the included stocks are high-quality
companies that can continue to grow, they can continue to benefit from their average
growth rate.

ETFs have evolved through three major generational changes.

In the first generation, representative index-type ETFs including spy, which followed the
s$p 500 index in 1993, were predominant, and spy is still a representative super-large ETF.

Since 2003, second-generation ETFs with diversified investment targets have emerged. Bonds in 2003 Equity sector represented by Vanguard in 2004 In 2006, commodity ETFs
that track crude oil futures also appeared.

The third-generation ETFs that have appeared since 2009 are smart beta-type stocks that
select and incorporate only stocks with a specific tendency, such as high-dividend stocks,
to increase the return.

In the US market, financial transactions using artificial intelligence started in earnest in 20
02, and most of the time, artificial intelligence is being used, such as adjusting the weight
of ETFs.

spy is an ETF product established by State and Street, and its name is spdr s&p 500 etf. 
Therefore, spdr is called a spider, and it is set by State and Street, and you can see that 
it is an etf that estimates the S&P 500 index.

spy was established in 1993 and consists of a total of 504 stocks, and the management 
fee is very low at 0.09%. Among the 504 stocks, the top 10 stocks accounted for about 
22%, and the 50 stocks accounted for more than 50%, with IT and healthcare stocks 
having the largest proportions.

Total assets under management are more than KRW 320 trillion as of 2020, and the 
daily trading volume is about 70 million shares, which is equivalent to a price of USD 
340 per share.

spy is invested by purchasing stocks directly from the market to incorporate the 504 
stocks according to their market capitalization weight.

Since the market capitalization of each stock changes every day, we adjust the investment
ratio at a specific point in time and correct any discrepancies with the index.

If item 2 of the 500 fails to maintain 4th place and is eliminated, the newly entered item 
is transferred to the relevant item.

Therefore, if the stock “a” continues to decline in performance and the stock price 
declines at the same time, and the 200th and 500th place become 505th, the inclusion 
ratio of the stock continues to decrease and eventually the inclusion ratio becomes 0 
as soon as it reaches 505th.

In this structure, the risk to the performance of individual companies is also close to zero.

One of the leading ETFs made up of NASDAQ stocks is the Invest qqq trust, called qqq, 
which went public in 1999.

qqq is designed to estimate the Nasdaq 100 and consists of 104 stocks excluding 
financial stocks. Therefore, the proportion of growth-oriented IT companies is high.

Also, like spy, they are more heavily invested and more affected by stocks that are
designed to automatically diversify based on each stock's market capitalization weight.

In addition, the weight is regularly adjusted according to changes in market capitalization,
and when the market capitalization falls below the 104th place, it is excluded from the
list and newly entered stocks are added.

As of July 2020, the proportion of the top 10 stocks, including Apple 12.26% Microsoft 
11.42% Amazon 10.87% Facebook 4.18% Alphabet 3.78%, is over 55%.

Achieved an average annual return of 15%.