Exchange Traded Funds (ETFs)
Exchange traded funds (ETFs) - a collection of securities packaged within a fund structure, against which fractional ownership is provided in the form of units which are listed and traded upon an exchange.
Almost all ETFs passively track a benchmark index. The index may consist of stocks, bonds or a commodities. The first ETFs in Qatar will track well known equity indices calculated by QSE. Typically stocks in an equity index are weighted by market capitalization although different schemes are now became prevalent, for example you might see a stock weighted by its PE ratio. Whatever the methodology, the more heavily weighted a stock the greater the effect a one riyal movement in its price will have upon the index return (when compared to smaller weighted stocks).
The advantages of ETFs is that they can be bought and sold intraday, they’re cheaper than other actively managed funds and they can provide exposure to securities that might otherwise have been difficult to invest in. A time may come where QSE lists ETFs based on securities whose primary listing is overseas. ETFs bring convenience to the investor, he may use existing local architecture (accounts, brokers, order types) to quickly invest in a new and diversified holdings set.