Influence of the growing ETF industry on active investor relations work 19Fundamentals of passive investments and ETFs In order to allow a comparison of the costs of indi vidual funds cost components are summarized in the total expense ratio TER This is calculated by dividing the nominal total costs in fund currency by the average net asset value of the previous year and then multiplying it by 100 Krautbauer 2015 p 73 The costs include the management admin istration and performance fees as well as custody fees and conversion fees the front end load and the order fee are not included Eibl 2008 p 19 This shows that the TER only takes into account the explicit costs e g management fees but not the implicit costs such as market impact costs or opportunity costs Krautbauer 2015 p 64 A distinction is made between two types of profit distribution Income generated can either be reinvested or distributed In case of a rein vestment investors have no direct access to the income However if pursuing a long investment horizon they benefit from a compound interest effect Furthermore investors do not have to take care about reinvestment themselves as income is automatically invested in shares of the same fund In contrast investors can freely dispose of the income in case of a distribution which can usually take place up to four times a year Generally there are two types of calculating an index price and performance indices A price index tracks the development of security prices without taking interest and dividend income into account A performance index Total Return Index on the other hand includes dividends in its performance Based on the assumption that all dividends are reinvested in the securities of the index the price of a performance index is usually higher than that of a price index Heinrich Jänner 2018 p 360 p 366 2 1 2 Overview of exchange traded products ETPs are one subcategory of passive investment types and can be further divided into exchange traded funds ETFs exchange traded commod ities ETCs and exchange traded notes ETNs Deutsche Börse 2018 p 12 ETCs and ETNs are in contrast to ETFs not a special asset but rather a type of debt securities ETFs will be explained in chapter 2 2 As the name indicates ETCs provide a direct investment opportunity in commodities and can be seen as a combination of ETFs and certificates They are debt instruments that are either backed by physical contracts or directly linked to the spot price of the commodity Eibl 2008 p 14 Physi cally backed ETCs build the vast majority of ETCs and are structured similarly to zero bond coupons Since physical ETCs are seen as a safe investment vehicle with no counterparty risk they are applied also in countries whose ETF markets are still very little e g in India Synthetic ETCs like synthetic ETFs are based on a swap deal and are also col lateralized Stevenson and Tuckwell 2019 p 18 Although ETCs like ETFs are structured securities they are not constructed as funds and are there fore not presented as special assets but as debt securities This results in an issuer risk that does not apply to ETFs Eibl 2008 p 14 The price of the ETCs is based on the price of one or more under lying Industrial metals such as copper or nickel precious metals particularly gold and silver as well as energy sources oil or gas and agricultural commodities are the most asked investment types among ETCs Deutsche Börse 2018 p 12 ETNs are stock exchanged traded bonds that are related to the performance of a certain market indicator e g volatility or share indices ETNs are similar to synthetically replicated ETFs but are not categorized as funds resulting in a higher vehi cle variety since also futures or commodities can be tracked Stevenson and Tuckwell 2019 p 18 Many ETN providers include options to protect the investor against the existing downside risk ETNs can be either secured or unsecured Deutsche Börse 2008 p 13

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