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posted by Fnord666 on Friday November 24 2017, @11:31PM   Printer-friendly
from the is-marijuana-shipped-in-reefers? dept.

As reported by CNBC, on Oct. 27, ETF Managers Group filed for a new ETF, the Alternative Agroscience ETF. This ETF will mimic an index as closely as possible that tracks cannabis cultivators, producers and distributors, cannabinoid drugmakers, fertilizer producers, and tobacco companies.

But there's an interesting catch behind its "inception." The Alternative Agroscience ETF won't really be a new ETF at all. ETF Managers Group is switching the focus and tracking index of an existing ETF, the Tierra XP Latin America Real Estate ETF (NYSEMKT: LARE), which tracks the Solactive benchmark of real estate in Mexico and Brazil, to an ETF that predominantly follows cannabis companies.

[...] According to a Securities and Exchange Commission filing, the switch to a cannabis-based index will occur on Dec. 26, so there's still a few weeks to go before investors will have an ETF that truly tracks marijuana stocks.

http://www.foxbusiness.com/markets/2017/11/20/say-hello-to-very-first-marijuana-etf-can-buy-in-u-s.html

What is an ETF? "An ETF, or exchange-traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors."

https://www.investopedia.com/terms/e/etf.asp


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  • (Score: 0) by Anonymous Coward on Saturday November 25 2017, @11:38AM (1 child)

    by Anonymous Coward on Saturday November 25 2017, @11:38AM (#601349)

    i don't really know how they can make a ETF that "tracks" another stock or index or whatnot.

    if a buyer wants to pay "more" (and finds a seller) then the spot price, the new (higher) stock price reflects this.
    if a buyer wants to pay "less" (and finds a seller) then the spot price, the new (lower) stock price reflects this.

    for a "tracking" ETF this would mean that somebody has to maybe sell (or buy) at a lose to "make the ETF" track?
    assume a index goes up, and the tracking ETF has to lock on to this, then "who" is going to buy at a
    higher price to reflect this tracking-change?
    assume their are people that want to invest into this ETF, but then the tracked index goes up and nobody
    buys at the new higher ETF price? how can the ETF price then go up, if nobody buys?
    or the other way around, the tracked-index goes down, then for the ETF to go down, "somebody" has to sell at a lower
    price .. but maybe nobody wants to sell?
    this ETF tracking stuff seems mightly complicated :]

  • (Score: 2, Informative) by j-beda on Saturday November 25 2017, @06:26PM

    by j-beda (6342) on Saturday November 25 2017, @06:26PM (#601446) Homepage

    i don't really know how they can make a ETF that "tracks" another stock or index or whatnot.

    Basically you buy a diversified bunch of the actual stocks.

    An ETF is just a mutual fund that you can buy shares of on the stock exchange. Imagine you have a million dollars hanging around. Buy up shares in the companies that make up the S&P 500 in the same proportions of the S&P 500 and you have an index mutual fund. Since lots of the stocks in the S&P 500 are in similar businesses and their stock values go up and down together (at least broadly), you might be able to get away with not needing to buy each individual stock, but to only need to buy some of them and then use various derivatives and contracts to keep your mutual fund tracking the index.

    OK, now that you have an index mutual fund (or any mutual fund for that matter), I suppose you do something like incorporate that mutual fund and sell some of its shares on the stock market. The fund/corporation actually owns shares in the underlying S&P 500 companies, and so the overall value is well known at any time. The fund/corporation can also buy/sell it's own shares and so whenever someone offers to buy or sell shares at a price that does not reflect the underlying value, if nobody else trades, the company can do so, thus ensuring that the fund share price accurately reflects the value of the underlying assets.

    I don't know how new shares are created - maybe there is some mechanism for the fund/corporation to create new shares and issue them, thus bringing in new cash to make new purchases of the underlying securities.

    Hum, a web search turns up this: http://www.etf.com/etf-education-center/7540-what-is-the-etf-creationredemption-mechanism.html?nopaging=1 [etf.com]

    Basically, a big player can trade actual stocks to the fund/corporation for shares in the ETF - this gives (or absorbs) shares to (or from) the broader market when demand is high (or low), with the big player making some money on this transaction while providing a mechanism so that the ETF price continues to reflect the value of the underlying securities. If the ETF price gets high, someone buys a bunch of stock shares and turns them into ETF shares which they then sell for cash, providing downward pressure on the ETF share price and making a profit. If the ETF price gets low, someone buys a bunch of ETF shares and turns them into individual stocks which they sell for cash, providing upward pressure on the ETF share price, and making a profit.