There are a number of techniques that are valuable in managing index-based portfolios. These include
❑ Cost-efficient trading that includes electronic crossing networks
❑ Purchasing derivatives when they are initially cheaper than the un- derlying stocks
❑ Pledging securities of the portfolio for security lending
❑ Cost-efficient trading that includes electronic crossing networks
❑ Purchasing derivatives when they are initially cheaper than the un- derlying stocks
❑ Pledging securities of the portfolio for security lending
❑ Purchasing stocks before they are added to the index
❑ Taking advantage of an imbalance in a particular security
Anything the investors can do that leads to superior results without taking on undue risk should be encouraged.
Anything the investors can do that leads to superior results without taking on undue risk should be encouraged.
The last point is that ETFs have lagged the performance of their mu- tual fund tax-managed peers with similar portfolios by a very slight margin before tax but have done quite well after tax. One of the reasons for the minor differential in before-tax returns of the SPDR Trust Series 1 is that it has not been allowed to reinvest the dividends it receives from its port- folio holdings: the cash must be held in a money market fund. Addition- ally, shares cannot be put out for securities lending. Early ETFs, like the SPDR, were registered as unit trusts, whereas newer ETFs are registered as open-end mutual funds and do not face this disadvantage.
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