Funds and ETFs as Investments

Funds and ETFs
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I myself have been actively following this forum for a few weeks now. This is indeed a great place to get information and insights into the current global situation, both economically and otherwise. From an investment perspective, other threads have a lot of information regarding stocks as a form of investment, but I couldn’t really find information about index funds and ETFs. However, they have also been quite prominent elsewhere and have a strong following. I myself also became interested in them, in addition to direct stock ownership, based on a comment that came up in a different thread.

So I was thinking, would it be possible to gather thoughts and tips from professionals familiar with these investment instruments in this thread for the upcoming bull market? I myself am a complete novice when it comes to ETFs, and I haven’t really delved much into index funds either. Thanks in advance for your thoughts and tips!

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Aloitteleva sijoittaja: miten aloititte sijoittamisen ja mistä lähteä liikkeelle?
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Good topic, and a great start!

But

would limit me to being just a questioner and reader.

I’ve been investing passively in funds with monthly savings for over 20 years, 18 of which I was unaware and inexperienced with expensive bank funds. Currently, however, Nordea’s pension savings with a fixed 3.5% interest rate are quite good, even though I’ve paid some fees.

Now I still have that fixed-interest investment, probably 45%, and on the same pension savings account in Nordea, 25% is in cash in an “insurance account” (I only recently converted it to cash). I built my own simulated “risk-ETF” in Nordea, which contains hydrogen and cleantech stocks, and a couple of other small technology companies, maybe a little over 1% there. The main “play money” in Nordnet is intended to be used for ETFs; the portfolio is visible on Shareville.

Currently, I strongly believe in passive index ETFs, due to last year’s intensive coding and simulations: optimizing practically any stock portfolio led to the conclusion that index ETFs were the most cost-effective (edit: most probable) path to success. I found very few reasons to make other investment decisions based solely on stock price (+dividend) development.

Stock picking would require other superior information, so I’m not going into that now. But for the last couple of weeks, due to the virus, there has been such information.

Now for the last few weeks, I’ve been playing with inverse ETFs and managed to get Nordnet’s portfolio back to a slight positive this year. I don’t know if it will still be positive on Monday, as I left a small short position for the weekend. This playing has been made possible by this forum and the “superior” understanding it provides regarding the coronavirus’s impact on stock prices.

The further we go, the harder this corona game gets with long ETF shorts. Currently, I’m pondering day and night the opportune moment to get back into the basic index, probably either Nasdaq or SP500. And also whether I should do it with leverage or without. At some point certainly with leverage, but what is the right moment.

By leverage, I mean, for example, a 2x Long ETF, not Nordnet’s loan. The good thing about these is that a margin call doesn’t hit, and in principle, 2x leverage is possible.

As a comparison, I keep the Nasdaq100 index, which I want to beat in the long run, even a little.

Disclaimer: This is by no means a recommendation for anyone, especially a beginner, to build their investment strategy on the ramblings of a pure amateur like me.

Edit: Oh, and passive index funds, like Super funds or Handelsbanken USA, are certainly good for steady wealth accumulation too, but “trading” with them is really slow.

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Try to ask some specific questions, that way it’s easier to answer/find the information yourself. There’s just so much information about ETFs that it’s difficult to just start writing.

But for example, a commonly praised ETF combo on Nordnet’s Shareville is IS3N + EUNL. IS3N covers emerging markets well, and EUNL covers developed markets, with the US having about a 60% weight, for instance.

You can also invest in a specific industry with ETFs – from clean energy/water to artificial intelligence/robotics. If you’re trying to find future megatrends with these, it’s probably worth considering if the industry is one where the winner takes it all. In such a case, an ETF that invests in, say, 100 companies in the industry, might invest in that winner, but the other 99 go bankrupt. And even if your bet on a “future megatrend” is correct, the ETF itself might still take a beating. Similarly, it’s worth considering if the industry is already in a bubble, like cannabis stocks, for example.

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Yes, good!

This is ETF investing, not gambling, like I’m doing now! :+1:
It’s probably a bad thing that I wrote my previous message in this thread :face_with_hand_over_mouth:

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Thanks for the feedback and thoughts. I need to get to know this world more in the future and ask more specific questions. It requires work. So, I’ll just have to do geographical and industry-specific surveys! Perhaps I was just trying to make it easier for myself and fish for direct tips from you about funds and ETFs… So, ETF guide out and to work. And I also need to look into those index funds more closely. In the last few weeks, I’ve just been following the stock rally and making plans related to them.

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Here’s some reading and listening material to get you started.

https://blogi.nordnet.fi/tag/etf-sijoittaminen/

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Thanks :+1:

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No, it doesn’t. That process just means that usually the buyer of the share you sold is either a market maker or an AP. If the stars align, I understand it’s possible for another retail investor to be the other party in the trade, but apparently this rarely happens. Of course, it’s pretty insignificant from an investor’s point of view who buys or sells the shares, as long as there’s liquidity.

My original hypothesis was that the popularity of ETFs and also other index funds increases this all-up and all-down movement in the market during a time like this. This is based precisely on the fact that, for ETFs, the activity of these APs in the underlying asset markets acts as an embedded mechanism within the ETF. In more traditional index funds, this works even more straightforwardly, as funds have to start selling shares to the market as investors withdraw their money, and even there, the fund manager doesn’t choose what to sell but puts shares on the market based on index weight.

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Is there a link where it states that in the aftermarket, the counterparty would always be MT / AP? I can’t find anything about this myself.

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I couldn’t find it right now, so I might be wrong about this. Something has stuck in my mind that most of the time the counterparty is a market maker or an AP, but indeed, I couldn’t quickly find flawless data on that. However, it’s relatively insignificant in terms of whether “passive” funds move the markets or not.

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Yeah, the selling pressure will come through if no one is buying. And anyway, for a basic investor, it’s all the same who is on the other side. It just sounds like a heavy process that every ETF bought/sold is broken up/assembled every time, when almost always someone is making the opposite investment decision. So MT would have 100,000 ETFs to break up and sell every second, and likewise 99,998 to buy and assemble.

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Funds are naturally forced to fight each other to a “bitter end,” where someone eventually has to swallow their losses and humble themselves for a new season with a bitter taste in their mouth…

I’ve always, always thought so…

In the US, hedge funds move prices…

Why not in Shorthex too, when the opportunity arises…???

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Costs to borrow ETFs jumps as volatility spikes
New things for me: short selling ETFs and “create to lend”.

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If you could refer to it, I would be grateful! The article is behind a paywall

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The spike in volatility across financial markets due to the coronavirus pandemic has sparked a surge in the use of exchange traded funds by market makers and other institutional investors that want to protect their positions from wild price swings.
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The cost to borrow many of the largest and most heavily traded ETFs has jumped by an average of 40 per cent, reflecting the steep increase in demand.
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“Investors and portfolio managers who turned to derivatives, such as options and swaps, to try and hedge their long exposure have been shocked to see premiums [costs] explode as volatility has surged higher. Many of these investors and portfolio managers turned to the ETF market to create hedges and alpha plays [profitable trades] in this volatile market,” said Ihor Dusaniwsky, managing director predictive analytics at S3 Partners, a New York-based data provider.
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“The order book on S&P e-mini futures [the most widely used derivative contract] has become thinner and we have seen extremely elevated levels of trading for SPY throughout March,” said Marcus Miholich, head of the ETF capital markets group in Europe at State Street Global Advisors.
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The surge in ETF borrowing costs has surprised observers. Borrowing costs are generally low because ETF providers are allowed to create new ETF units and to lend these to brokers to support liquidity in what are known as “create to lend” transactions. In addition, many institutional investors are sitting on large ETF positions, which they can lend out in return for a fee.

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Thanks!

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Not for longer-term protection. For day trading, why not?

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Here’s my list of inverse ETFs (Nordnet):

  • Lyxor ETF EURO STOXX 50 Daily Short
  • Lyxor ETF Daily Short DAX x2
  • Xtrackers ShortDAX x2 Daily Swap UCITS ETF 1C
  • ETFX DAX 2x Short Fund (ShortDAX x2)
  • Amundi ETF Short MSCI USA Daily UCITS ETF
  • Xtrackers S&P 500 2x Inverse Daily Swap UCITS ETF 1C

I’ve used the Xtrackers product, but Amundi was easier to trade. Trading was even harder with the DAX and Euro Stoxx products, and I was worried about the short selling bans on European exchanges (Italian and Spanish stocks).
Edit: harder because the trading volume is so low that trades don’t go through the minute you want them to. But then a few times I’ve noticed someone was in a panic with the stock, couldn’t sell, and then took my outrageously bold offer.

I’ve also been “long” in these ETFs, and it worked well when the prices dropped. Then you take a proper hit on the rebound.

Of course, the warning clause about asymmetry must be there, but in these products, the leverage is so small that even with positions of a few days or weeks, that asymmetry usually isn’t felt at all. In my opinion.

It has also worked quite well for portfolio hedging if you have many different products in your portfolio and also a lot of cash. With one product, you can avoid the trading costs of n other products.

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I myself have switched from stock investments back to only funds because I feel they are safer for me. I don’t own any ETF funds, but if I were to start buying them, what would be the minimum amount that makes sense to invest in them due to fees? I’m guessing that monthly investments of €100 or so are not worthwhile in ETFs? And is it generally better to invest less monthly or a bit more, say 4 times a year? And what would be the best broker for these? I’m pretty lost with ETFs, my funds only consist of 0/low-cost index funds.

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You should at least check out Nordnet’s monthly savings, especially if you’re already a customer: