About ETFs
An Exchange Traded Fund ('ETF") is an investment fund that trades throughout the day on stock exchanges during normal trading hours. ETFs combine the advantages of investing in index funds, including diversification and low costs, coupled with the liquidity and flexibility of investing in individual stocks. ETFs offer investors many advantages over other investment vehicles, including enhanced tax efficiency, all day liquidity and complete transparency. ETFs are designed to closely track the holdings and performance of their designated index, whose selection methodology can be either passive or strategic.
Comparing Claymore ETFs to Other Investment Soluitons
Claymore ETFs provide access to innovative indexes distinctly designed as investment solutions. Unlike ETFs that track traditional indexes representing market participation, the indexes Claymore ETFs track seek to best capture the investment potential of unique strategies.
Claymore believes that a strategy-driven, quantitative process provides a disciplined investment approach that may offer the potential for superior performance over market cycles.
The indexes Claymore ETFs seek to track are designed by best-in-class index providers with defined investment philosophies. These index providers have backgrounds in areas including financial analysis, academic research and investment research and management.
To create an ETF, large institutional investors or dealers commit millions of dollars to the fund and purchase a minimum number of units. Rather than delivering money, they deliver a basket of securities. This basket is based on the construction of the benchmark the ETF is tracking. The institutional investor delivers all of the securities in the index weights and in the value they would like to contribute. The investor delivers these securities to the fund, which issues the institutional investor ETF units. The institutional investor can either hold them in their account or resell them to their retail investors in the secondary market, known as the stock exchange, if they are licensed to transact stocks. It is through this process that ETFs are always invested.
When an ETF is created, it is pegged to a benchmark. Benchmarks may be large indexes or a basket of securities may be chosen from one, both or other domestic and/or international indexes. ETFs that seek to track the performance of an actively managed fund represent another possible benchmark.
Unlike traditional mutual funds - active and index - which carry cash to either meet redemptions or seize perceived investment opportunities, ETFs have no need to maintain a cash balance. As a result, ETFs will rarely, if ever, suffer from what is called "cash drag." Cash drag affects performance because the fund is not fully invested to benefit from market movements.
ETFs earn both income and capital gains, which are distributed at least annually to investors. Stock-only ETFs will primarily earn dividend income and capital gains, while bond-only ETFs will primarily earn interest income and capital gains. For Claymore ETFs, dividend income is distributed quarterly while realized capital gains, if any, will be distributed annually.