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Country-Specific ETFs: An Efficient Approach to Global Asset Allocation - Essay Example

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index-tracking funds with the tradability of listed shares, at the same time overcoming the main drawbacks of these two investment options for investors. Unlike trading in other open or closed-end country funds trading in country specific ETFs offers investors four additional benefits…
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Country-Specific ETFs: An Efficient Approach to Global Asset Allocation
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Download file to see previous pages They can therefore be continuously sold short at any time during the trading day enabling liquidation or assumption of short positions at will, needed generally in down markets.Continuos trading and short selling lead to efficiency gains in trading in ETFs when compared to trading in open or closed-end country funds.ETF country specific funds are tax efficient. They are created in kind and redeemed in kind. ETFs shares are bought by market participants by depositing with the fund the index constituents. They are redeemed by investors getting underlying high unrealized capital gain stocks with the fund retaining low unrealized gain stocks. Thus ETF reduces capital gains tax liability as it would not be called upon to sell high capital gain stocks and incur capital gains tax. Open or closed end funds, on the contrary, redeem in cash and may have to sell high capital gains stocks in order to meet rushed redemption requirements and may end up paying capital gains tax on realized capital gains. ETF investors can exchange their ETF shares and receive in kind the underlying shares, or even sell their ETF shares on the stock exchange without getting into selling the underlying shares. This circumvents capital gains tax liability for all investors. ...Download file to see next pagesRead More
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