The Structure of Exchange-Traded Fund

Exchange-Traded Funds (ETFs)
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Table of Contents TOC \o "1-3" \h \z \u AARK Innovation PAGEREF _Toc75784766 \h 3Health sector PAGEREF _Toc75784767 \h 4ARK Genomic ETF (ARK G) PAGEREF _Toc75784768 \h 4Financials PAGEREF _Toc75784769 \h 5SPDR S&P Regional Banking ETF (KRE) PAGEREF _Toc75784770 \h 5Real estate Sector ETF PAGEREF _Toc75784771 \h 5 VanEck Vectors Mortgage REIT Income ETF (MORT) PAGEREF _Toc75784772 \h 6Energy Sector ETF PAGEREF _Toc75784774 \h 6Invesco Solar ETF (TAN) PAGEREF _Toc75784775 \h 7Thematic ETF PAGEREF _Toc75784776 \h 8Advantages of Thematic ETF PAGEREF _Toc75784777 \h 9Disadvantages PAGEREF _Toc75784778 \h 9Index ETFs PAGEREF _Toc75784779 \h 9Construction of the Index PAGEREF _Toc75784780 \h 10Advantages of Index ETFs PAGEREF _Toc75784781 \h 10Disadvantages PAGEREF _Toc75784782 \h 11Sector ETFs PAGEREF _Toc75784783 \h 11Invesco QQQ trust PAGEREF _Toc75784784 \h 12VanEck Vectors Oil Services ETF PAGEREF _Toc75784785 \h 13ALBILAD ETF PAGEREF _Toc75784786 \h 14HSBC MSCI Tadawal 30 ETF PAGEREF _Toc75784787 \h 14Falcom Equity ETF PAGEREF _Toc75784788 \h 15Derivative as leverage ETFs PAGEREF _Toc75784789 \h 15References PAGEREF _Toc75784790 \h 17
Macro-Level Research
ARK Innovation
ARK can be best described as the disruptive innovation of a new service or product that is technologically enabled and has the ability to change the way the world works. In addition, this is an investment that seeks the growth of the capital on a long-term basis. The investment fund is normally an actively exchange managed fund (EFT) that primarily invests 65% of its asset foreign and domestic equity securities of the company’s funds investment themes relevant to disruptive innovation(‘’ARK INNOVATION ETF’’,2021). The foreign equity securities investments are both found in developed and emerging markets. The funds are non-diversified since the fund can be invested in the Global Depository Receipts (GDR), American Depository Receipts (ADR) as a foreign security, and securities listed on the foreign exchanges.
Most of the companies with ARK benefit from the development of new products or services that undergo technological improvements and advanced scientific research that relate to the DNA technologies better known as the Genomic Revolution. In addition, industrial innovation in some areas such as manufacturing, automation, and energy has increased the demand for the shared technology, services, and infrastructure that make part of the Next Generation Internet (NGI) that ensures the financial services are more efficient (Andersson,2021).
Since 2014, ARK innovation began its operations by developing an EFT mainly centered on disruptive innovation. By 2019 the fund had two index funds grown to more than $2.3 billion by 2019)(‘’ARK INNOVATION ETF’’,2021). ARK's ETFs since inception has managed to outperform the broad-based equity market. For example, in 2018, the Asset under the management of the ETF that focused on disruptive innovation increased by 190% compared to the year 2017 (‘’ARK INNOVATION ETF’’,2021). According to NASDAQ, by January 2019, AARK had more than $1.3 billion Asset under Management (AUM)( ‘’ARK INNOVATION ETF’’,2021). The overall strategy AUM, which included the American Beacon ARK Disruptive innovation mutual fund, was $ 2 billion. After five years since its inception, ARK investment management privately held $6.6 million under management.
Health Sector
Exchange-Traded Funds (EFT) invest in companies that develop drugs or medical equipment, provide medical services, provide health care to patients, and offer medical insurance. Some of the health sector notable companies such as Pfizer Inc., Merck & Co. Inc., and United Health Group Inc. due to the services they offer are seen as necessity has enabled the health care ETFs a position that is strong in a defensive portfolio. However, as measured by the S&P 500 Health Care Sector Index, health care underperformed in May 2021.
ARK Genomic ETF (ARK G)
The ARKG is a health care fund that seeks to add value through the identification of the companies that are likely to benefit from the latest scientific research, such as gene editing, stem cell research, molecular diagnostics, and genetic therapy. Generally, the fund is largely focused on the biotechnology sector growth of stocks in the United States of America (USA). Equity Security risks are the main principle risk when investing in ARKG. The equity security value the security holds may fall due to the economic conditions and market in general. In addition, medical expenses reimbursement restrictions from the government, health care programs under the government, and regulations governing all the health policies from the government may adversely affect the health sector. Before investing in ARKG, investors should consider all the risks that are involved with the funds. ARK Genomic fund consists of a $7.9 billion Asset under Investments (AUM)( ‘’ARK Genomic Revolution ETF,’’2021).
Financials
The institutions and the firms that provide financial services to individual customers and corporates form the financial sector. The sector is made up of Investment funds, banks, and insurance companies, among other companies. The majority of revenue from this sector comes from loans and mortgages. As interest rates increases, the revenue also increases. Thus, the financial sector determines the overall health of the economy.
SPDR S&P Regional Banking ETF (KRE)
KRE helps track the S&P Regional Banks Select Industry Index, which regional banks are listed in the regional banks. The ETF focuses on the value stocks, which are well diversified in the regional banking sector within the US. KRE was issued by the state street SPDR and has a $5.2million Asset under management(Royal, 2021).
Real Estate Sector ETF
Real Estate Investment Traded funds (REIT) can be best described as the financial instruments that allow investors to obtain a Real Estate exposure market. Generally, this is achieved through collective ownership of developed and constructed real estate that qualifies to generate periodic rental income. REITs can invest regionally, globally, and locally where the total assets should not exceed 25% of the fund’s total assets(Royal,2021).REITs are made up of units where each particular unit represents real estate underlying ownership. Just like equities, REITs are traded on the exchange during trading hours. As per the instructions issued by the Capital Markets Authorities(CMA), at least 90% of the net profits should be distributed to the unit owners annually(Royal 2021). REITs should always adhere to the rules and regulations of the CMA since it’s the control and supervisory body. In addition, REITs abide by disclosures and high standards of transparency applied and followed in the equity markets.
VanEck Vectors Mortgage REIT Income ETF (MORT)
This is a Multi fund that targets the mortgage REITS index in the US. The main aim of the index is to track the US mortgage REITS overall performance. Mortgage REITs differ from traditional REITs by generating revenues from acquiring loans and issuing mortgages rather than owning real estate. As a result, REITs carry both the potential for significant risk and substantial return. Annaly capital management Inc. forms the top holding of the MORT. The revenue streams generated from various operations can be quite attractive, making MORT a beautiful potential tool for investors seeking to expand and enhance current returns caused by their portfolios. In addition, since most of the entities in their operations utilize leverage, this ETF can be sensitive to the real estate market's health and interest. Asset under Management for MORT currently stands at $ 306.5 million(Royal, 2021).
Energy Sector ETFs
Investors can get exposure to various economies that deal with alternative energy, natural gas, and oil through Exchange Traded Fund (ETF). The energy sector has a huge representation in the global economy and virtually touches every business. Energy sector investments are more volatile as compared to other ETFs in the market due to the huge returns and losses the assets present. Since the energy ETF offers a wide cover range of risk profiles, businesses, and regions, they offer a range of investment opportunities to almost all the investors who may be willing to invest in the sector. The approach of the ETF provides industry diversification that allows the investors to gain from the exposures without necessarily taking the level of inherent risk when investing in a specific energy company. Due to government policies that could be favorable many energy companies may experience rising earnings and sales.
Specialized energy ETFs encompass a sophisticated and complex network of companies that are mostly involved with the distribution and production of the energy required to power everyday routine business. Global energy demand and supply are outsized in the performance of the sector, although the demand is not static. For example, when oil and gas prices are high, the producers always outperform and earn less when the commodity prices decline.
Invesco Solar ETF (TAN)
TAN is used to track the MAC Global Solar Energy Index, which is made of companies focused on the solar energy industry. The index tracks at least 90% of the total assets in the securities. As of May 2021, the fund consisted of 55 holdings with lots of investments in the technology sector (Royal,2021). The fund has been dominated by companies in the US and China, although the fund is globally diversified. The fund has adopted a blended strategy by investing in growth stocks and value in various market capitalizations (Hill,2019). The fund performed so well amid the expectations of the political change that provided more fuel via renewable energy. Over the last few months, Solar energy has recorded an increase in revenue growth which the positive regulatory changes have boosted. TAN consists of $2.9 billion Assets Under Management (AUM), mostly attributed to favorable government policies. In addition to favorable policies, most people have embraced renewable energy to reduce emissions and protect the environment, which benefits solar energy.
Types of ETF
Thematic ETF
Thematic funds cover different sectors and identify companies that are more relevant to the primary theme. For example, a health care fund or a technology fund would specifically invest in sectorial companies such as the Information Technology Enabled Services (ITES) and Information Technology (IT) for pharmaceutical companies, companies affiliated with hospitals, health care fund for the health insurance companies, and technology fund. On the other hand, a thematic fund is most likely to invest in a theme such as secular trends, Emerging Technology (ET), rural development, and outcome-oriented. A single theme has the capability of involving a single business or various businesses. For example, given the size of the rural population in Saudi Arabia and the number of farmers in the rural areas, that are just a few compared to the urban population, which leads to high food demand (Miziołek et al. 2020). Suppose the government announces various reforms to boost the farmers in the rural areas. In that case, the reforms will benefit the companies that tend to derive most of their raw products and revenues from the rural areas. Some of the companies that may fall under this theme are the Fast Moving Consumer Goods (FMCG) industry which includes, food and beverages, personal care, h...