Four angles on ETFs!
An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features.
Iranian ETFs aimed to lure foreigners after nuclear deal. Currently there are 17 tradable funds in the market, categorized in:
- Fixed Income fund (4)
- Equity funds (7)
- Balance funds (4)
- Index funds (2)
In this report, four major measures has been taken under consideration:
- Performance Evaluation
The scale measures funds’ performance over different periods. Sharpe ratio is compared for 15 out of 17 funds (there must be at least 3 months of historical data for the analysis to be valid).
For all of them 3M and annual Sharpe ratio was negative indicating an underperformance in comparison to risk free rate.
- Liquidity Measures
When exchange-traded funds (ETFs) originated, they were widely viewed as a more liquid alternative to mutual funds. Not only could investors gain the same broad diversification that they could with indexed mutual funds but, unlike mutual funds, they could also trade them during market hours.
Lower levels of liquidity lead to greater bid-ask spreads, larger discrepancies between net asset value and the value of the underlying securities and a decreased ability to trade profitably. Let’s look at which ETFs give you the most liquidity and therefore the most opportunity for profit.
In this regard, the value and volume of trades have been taken in to account comparing the ETFs.
- Risk Assessment Criteria
Standard Deviation and Beta are the risk measures here have been considered.
As for lower SD of fixed incomes, they can be more suitable for risk averse investors. It would follow that Beta, the correlation to market return indicator, was near zero as well which presents that the return on fixed income ETFs was not sensitive to market volatility.
- Tracking Measures
The scale is to evaluate compliance function in comparison to designated targets. Alfa and Tracking error have been taken under consideration here. The tracking error indicates the similarity of fund performance to predetermined extents. The more the figure is near zero, the more similar the performance is to the pier.
Alfa shall be equal to the difference of true and expected returns with regards to market systematic risk imposed. Accordingly equity funds outperformed the investors anticipated return which could be the result of weaker than expected market performance.
As can be seen from the above analysis, Iranian ETFs had acceptable performance up to the date and with the market to develop even further, they can be considered as a lucrative investment opportunity for foreseeable future. In addition, extension of new financial instruments in Iranian capital market will eventually end up in more interest shown from foreign players and utilization of said vehicles on ETFs make them even more attractive to all market participants.
DISCLAIMER: This report has been prepared and issued by Agah Brokerage Firm on the basis of publicly available information, internally developed data and other sources believed to be reliable. The information contained herein is not guaranteed, does not purport to be comprehensive and is strictly for information purposes only. Agah does not assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions. Any expressions of opinions are subject to change without notice.
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