Influence of the growing ETF industry on active investor relations work32 Fundamentals of passive investments and ETFs In Xetra trading market makers are known as designated sponsors At least one designated sponsor commits for each ETF Usually around two or three designated sponsors are dedicated to one ETF which can lead to more effective price formation due to competition between market makers Krautbauer 2015 p 58 Schnorrenberg 2008 p 151 High requirements for those spon sors regarding the quality of their set courses are fulfilled with regulations of maximum spreads and minimum quotation volume Deutsche Börse 2018 p 74 Market makers are obliged to provide binding bid and ask prices for a certain minimum quotation volume for at least 80 of the Xetra trading hours Krautbauer 2015 p 57 Because liquidity is ensured the spread is very low and is less than 0 1 for the high volume ETFs on the well known indices Eibl 2008 p 28 Market mak ers try to profit from any arbitrage opportunity but are not obligated to enter the market Novick et Both an AP and a market maker are market par ticipants who are using the technology to balance the supply and demand of ETF shares and there fore ensure liquidity Novick et al 2017 2 2 5 Advantages and points of criticism Advantages There are several reasons why ETFs have gained in importance so quickly in such a short amount of time They form a combination of advantages of two investment forms as with classic managed investment funds risk diversification is achieved by spreading the investment At the same time ETFs like actively traded shares can be bought or sold in a matter of seconds at any time at the prices valid at the moment Deutsche Börse 2018 p 4 With a single transaction investors can bet on an entire market which underlines the easy use and simplicity of ETFs Nowadays nearly all asset classes are covered by ETFs which leads to a wide range of possible investment opportunities for investors Another important factor for the success of ETFs is their low cost structure Management fees and the commission to be paid are significantly lower compared to classic managed investment funds Deutsche Börse 2018 p 5 The front end load or issue surcharge of up to 1 is significantly lower than for traditional funds where it can be up to 5 Eibl 2008 p 28 Therefore the total expense ratio TER which includes annual costs such as management fees and costs for auditors is lower for ETFs than for actively managed funds Hein rich Jänner 2018 p 386 On average the cost of 40 of global ETF assets is less than 10 bps per year Kühn 2020b p 3 ETFs that track the major indices today often have annual costs of only 5 bps Kühn 2020a p 16 Costs are even decreasing further with a tendence of annual fees of zero In order to be able to offer plain vanilla ETFs with no annual fees ETF providers engage in stock lend ing to be able to generate return Stevenson and Tuckwell 2019 p 15 This additional return comes from the fee the lender ETF provider charges the borrower Boyde 2020b The high transparency is a key difference to tra ditional investment funds The composition of an ETF is daily published by its issuer whereas port folio holdings of classic investment funds are only available on a quarterly basis Balchunas 2016 p 9 Transparency enables simple and at any time comprehensible price determination Eibl 2008 p 17 The indicative net asset value iNAV is an approximation of the fund s assets in the course of trading and because it is calculated at least once per minute it contributes to a high transparency Eibl 2008 p 25 The iNAV is calculated by divid ing the fund s asset by the number of fund units in circulation Deutsche Börse 2018 p 8 High liquidity is ensured on the one hand by stock exchange trading and on the other hand by the creation of new ETF shares through market mak ers Deutsche Börse 2018 p 8 Liquidity is also

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