The ETF Handbook: How to Value and Trade Exchange Traded Funds


  • Format: PDF
  • Pages: 370
  • Published Date: 2016


The ETF Handbook is a comprehensive handbook for using Exchange Traded Funds, designed specifically for institutional investors and professional advisors seeking to improve ETF profitability. While ETFs trade like stocks, they are not stocks—and the differences impact every aspect of their use. This book provides full guidance toward effectively monitoring, analyzing, and executing ETFs, including the technical details you won’t find anywhere else. You’ll learn how they work, where they fit, and who is using them, as well as the resources that exist to provide access for investors. This new second edition includes updated coverage on how business has moved from niche to mainstream, ETF performance and issuers around the world, and changes to the users of ETFs in the US.

Author’s Introduction:

This book has three main parts that will appeal to different sections of the ETF universe. Part One introduces the various structures of exchange-traded products, the methodologies underlying those products, and the ways of bringing them to the marketplace. Part One is written from the perspective of my role within an ETF issuer. I have been working at an issuer for almost ten years at the time of the writing of this book. I had been trading ETFs for more than ten years prior to deciding to move to the other side of the fence. A brief history of my interaction with the ETF product may be helpful to you.

Part One of this book presents many of the concepts related to bringing ETFs to market and how they fit into the investing landscape. I have avoided presenting more than a brief history of the ETF or reviewing every detail of the product mechanics, since those topics are well covered by other books. I focus on topics and concepts that have not been previously discussed in detail and may not have been fully understood unless the reader worked for a product issuer or had been a liquidity provider in the products. I bring the insider’s perspective to the investor with the hope of creating a broader understanding for all interested parties.

Part Two goes into an unappreciated core of the ETF ecosystem: trading. It is amazing how little some investors, large and small, know about the trading mechanism underlying the product that might make up their entire portfolio. I go deeper than ever before into the trading mechanism of the products, their underlying liquidity, and providing new ways for investors to rank products for usage within their portfolios by a detailed presentation of implied liquidity and my EBILS ranking system for ETFs. I also introduce you to all the different types of players in the ETF ecosystem.

In Part Three I discuss the mechanics of calculating the fair value for the products. I explain why an international ETF might be trading away from its intraday indicative value (IIV) during the trading day. Part Three also details the types of products available in the commodities category and the varying structures of the currency ETFs. Part Three presents a frame-work for understanding how to value those products to build the foundation for effectively executing ETF order flow. I often speak with people who are interested in getting into the ETF business; this will help them understand how the valuation process works. When an exchange-traded product moves to a premium, for instance, if you understand its underlying mechanism, you will know why this may have occurred and what may happen in the future.


  • How Did We End Up Here?
  • Steps for Developing an ETF
  • Giving an ETF Life in the Markets
  • Trading Volumes and ETF Liquidity
  • Volume ≠ Liquidity—Understanding ETF Implied Liquidity
  • Execution
  • Market Participants and Their Trading Strategies
  • Market Structure and ETFs—Protecting Your Portfolio from Flash Crashes
  • ETFs with Domestic Holdings
  • ETFs with International Constituents
  • Fixed-Income and Currency ETFs
  • Leveraged, Inverse, and Commodity Products
  • Structure of an ETF