How does a "Tracking ETF" work?

[Quanto]

As is known, listed companies have to report every quarter their Earnings numbers.
It seems ETFs don't have any such quarterly Earning Releases.
But then how is the success of an ETF measured?
I guess it's simply the market price as it traded at the exchange.

BUT then I wonder how a "Tracking ETF" works? Ie. ETFs that track indices or even other ETFs etc.
How is their success get measured? Again just via the traded share price?
But isn't it then becoming very complicated? B/c that ETF does it's own work for achieving its goal,
and at the same time its own shares are traded at the exchange...
Ie. under such conditions how can the success be measured from just the share price, since there is no Earnings reporting....?
Anybody can clarify the confusion?

 

[Sekiyo]

ETF success is measured by AUM (Asset Under Management).

An ETF better has to outperform (Risk wise) a benchmark but it’s not a success if no one is willing to allocate money towards it.

Financiers don’t really care about price per se …
All they care about is risk and return.

If your ETF provides better risk adjusted rewards then funds are going to inflow and you’ll collect more fees.

ARKK used to be a success.

 

[Quanto]

ETF success is measured by AUM (Asset Under Management).

An ETF better has to outperform (Risk wise) a benchmark but it’s not a success if no one is willing to allocate money towards it.

Financiers don’t really care about price per se …
All they care about is risk and return.

If your ETF provides better risk adjusted rewards then funds are going to inflow and you’ll collect more fees.

ARKK used to be a success.

So, is then the AUM (ie. the "Net Assets") value of an ETF independent of its share price?
If that is the case, does the trader then not need to chart the AUM value?
But does such historic time-series data with AUM value exist at all? For example at YahooFinance? I don't think so.
How would one analyse/research the AUM (or its success generally) of say SOXS, for example?
SOXS is such a "Tracking ETF", tracking the SOX index.

 

[BMK]

AUM refers to how many millions or billions of dollars the ETF contains. It is not something that anyone monitors in real time. The previous post said it is a measure of the overall success of an ETF, i.e., whether the ETF is going to continue to exist or close down at some point.

AUM is not something that anyone monitors on a day-to-day basis.

You need to clarify what you mean when you ask "How is their success get measured?"

Most ETFs are designed to track an index. There is a newer breed of active ETFs that are not simply tracking an index, but rather are actively managed, like a mutual fund or a closed-end fund. That's a very different animal.

But a tracking ETF, by definition, is successful, and it is meeting its objectives, if it closely tracks the index with which it is associated. The oldest ETF out there is SPY, and it does a fantastic job of tracking the S&P 500.

What do you mean by success? If traders and investors are not interested in the index associated with an ETF, then they won't buy it, and it won't have a lot money in it, and eventually it will shut down.

If people are interested in the index, but some other ETF does a better job of mirroring its performance, or does so with lower expenses, or is more tax efficient, then people will choose that other ETF.

SPY is not particularly tax efficient. Other ETFs that track the S&P 500 are more tax efficient. But SPY remains very popular, for various reasons. It has options with high volume, high liquidity, and tight bid-ask spreads. You can't find that with other ETFs. SPY is not going away any time soon.

 

[Quanto]

We have to differentiate (since as usual the devil is in the detail ):
The SOXS ETF tracks the SOX index.
SOX index cannot be traded (Volume is 0).
SOXS can be traded (Volume is not 0).
So, how does SOXS achieve its set goal tracking the SOX ?
Its own market price (ie. the price of SOXS) seems to show that it indeed tracks SOX.
But I wonder how this is made possible when there are in fact two forces that determine the price of SOXS:
1) The management of SOXS
2) SOXS share price: it obviously gets influenced also by external traders who trade SOXS.
So, then how can this "Tracking ETF" achieve its goal when it does not have 100% control over SOXS (ie. itself)?
I just try to understand this.

 

[2rosy]

authorized participants effectively cause the tracking. Other than setting up the etf legally I don't know what ishares or similar do...collect fees

 

[Sekiyo]

If the goal of an ETF is to track an underlying then they try to replicate it by buying the underlying.
SOXS is made of (inverse) SOX. Then you have arbitragers that might buy SOXS and buy a basket of SOX constituents or inversely.

SOXS:
The fund invests at least 80% of its net assets (plus borrowing for investment purposes) in swap agreements, futures contracts, short positions or other financial instruments that provide inverse (opposite) or short daily exposure to the index or to ETFs that track the index.

 

[Quanto]

If the goal of an ETF is to track an underlying then they try to replicate it by buying the underlying.
SOXS is made of SOX. Then you have arbitragers that might buy SOXS and sell SOX constituents or inversely.

SOXS:
The fund invests at least 80% of its net assets (plus borrowing for investment purposes) in swap agreements, futures contracts, short positions or other financial instruments that provide inverse (opposite) or short daily exposure to the index or to ETFs that track the index.

And how can we see that it achieved its set goal?
From the market price of SOXS ?

 

[Sekiyo]

And how can we see that it achieved its set goal?
From the market price of SOXS ?

I believe the % return more than the price. (Risk adjusted return is even better)
Because different ETFs tracking the SPX (for example) have different prices but similar returns.

 

[Quanto]

I believe the % return more than the price. (Risk adjusted return is even better)
Because different ETFs tracking the SPX (for example) have different prices but similar returns.

Yes the return in %, that's obvious.
But the question is how is that possible at all when SOXS gets controlled by the management and by the external traders around the World... Ie. by two independent forces...