Chapter 1

INTRODUCTION










Introduction:
The financial markets are a continuously evolving sector globally and many of the developing
countries usually follow these new offerings. The new concepts and services usually go through
the different phases of adaptation before being delivered to the retail customers. Some of these
services are dealt at corporate level when compared to retail segment. Indian financial market is
still in the evolving state when compared to other G8 countries.

As part of these new services many new products will be launched in Indian Financial Markets
some of them are Exchange Traded Funds, Real Estate Investment Trusts etc., and some of these
namely the ETFs are launched in 2007 in the areas of indices and Gold but they did now take off
because of the financial crisis globally.

But, eventually these products will be pushed into the financial market because of the benefits it
offers to the retail and investors. The project study looks at the overall ETF industry in Global
Environment and the different types of ETFs which are created. These products provide varied
benefits to investors when compared to Mutual Funds, the project study looks at the variety of
ETFs and how a portfolio can be built using the different risk factors and returns. The project
study analyzes the different ETFs which are available in Metals Sector Globally and look

performance of Precious Metals vs Base Metals by taking 3 types and offerings from 3 different
companies.



Need of Study:
The scenario on ETFs in India is yet to be developed. There is no awareness of ETFs on the
people in & around the society. The individuals need to know that ETFs helps in saving their
investments in a safer way.
Majority of the individuals lack knowledge on as how does ETFs work?.There is a need to know
the knowledge of ETFs in a holistic way & the awareness is to be created.
As there are various types of ETFs in the market, an effective & clear study should be made to
clear the ambiguousness in the investors mind.

Objectives:
1. Study the evolution of ETFs (Exchange Traded Funds) in India as well as Globally
2. Study ETFs are structure, types of ETFs traded globally, type of ETF funds available in
India and benefits of investing in ETFs
3. Study different methods/techniques/strategies used to invest in ETFs
4. Analyze Performance of Precious Metals (e.g. Gold, Platinum etc.) vs Base Metals
(Copper, Aluminum etc.)








Methodology:

The project study is in the mode of exploratory and uses secondary data available through
financial magazines, companies offering these funds, financial websites
The performance of each of ETF is calculated for the ROI in past 5 years along with
cumulative and average returns
These calculations are done for 3 Precious Metals and 3 Base Metals offered in the
international markets

Scope:

Study on ETFs globally
Study on ETFs in India
Study Basics of Investing in ETFs and who provides these funds
Study benefits and investing in ETFs
Precious Metals (3 Gold, Silver & Platinum) and Base Metals (Copper,
Aluminum & lead)
Limitations:
The project study cannot be done specific to India as these ETFs are not available or
launched in India
There are limited number of previous Metal ETFs
Only ETFs offered from 3 companies are considered for the study because of Time
Constraints













CHAPTER 2
REVIEW OF LITERATURE










What is Exchange Traded Fund?
ETFs are essentially mutual fund schemes or index funds that are listed and traded
on the exchange like stocks.
ETFS are priced continually and can be bought or sold throughout the trading day.
Buying/Selling of ETFs are as simple as buying/selling any other stock on the
exchange allowing the investors to take the advantage of intraday price movements.
ETFs can be bought/ sold just by a call to the broker or through the internet trading
account.
With the ETFs one can benefit both from a flexibility of a stock as well as
diversification.
Exchange Traded Fund is a security that tracks an index, a commodity or a sector like
an index fund or a sector fund but trades like a stock on an exchange.
ETF's experience price changes throughout the day as they are bought and sold.
Exchange Traded Funds (ETFs) have been in existence in India for quite some time
now.
But so far ETFs have not enjoyed the kind of popularity that the conventional Mutual
Funds enjoy.
One reason could be the lack of understanding of the concept of ETF amongst the
general investor. Second, and probably the more important reason, is that ETFs by
nature track a certain index (e.g. S&P BSE SENSEX or the BANKEX).
The returns one can expect from ETFs will be equal to the rise in the index.
India is a growing market and hence offers huge opportunities in the non-index shares
too.
Two things could, however, make ETFs popular in India
One, of course, is that as market valuations become fairly or over-valued, it will become
more & more difficult to beat the index. Then index-based funds (both conventional MFs
& ETFs) may become a better option than actively-managed funds
Gold ETFs or Real-Estate ETFs have no comparable product in the conventional MF sector,
and hence become the only MF route to invest in such markets.
In recent times, Exchange-traded funds (ETFs) have gained a wider acceptance as financial
instruments whose unique advantages over mutual funds have caught the eye of many an
investor.
These instruments are beneficial for Investors that find it difficult to master the tricks of the
trade of analyzing and picking stocks for their portfolio.
Various mutual funds provide ETF products that attempt to replicate the indices on NSE, so
as to provide returns that closely correspond to the total returns of the securities represented
in the index.
Globally, ETFs have opened a whole new panorama of investment opportunities to Retail as
well as Institutional Money Managers.
The ETFs trading value is based on the net asset value of the underlying stocks that it
represents.
An ETF combines the valuation feature of a mutual fund or unit investment trust, which can
be bought or sold at the end of each trading day for its net asset value, with the tradability
feature of a closed-end fund , which trades throughout the trading day at prices that may be
more or less than its net asset value.

Types of ETF instruments
Index ETFs
Stock ETFs
Bond ETFs
Commodity ETFs
Currency ETFs
Actively Managed ETFs
Exchange traded grantor trusts
Inverse ETFs
Leveraged ETFs.











Index ETFs
Most ETFs are index funds that attempt to replicate the performance of a
specific index. Indexes may be based on stocks, bonds, commodities,
or currencies.
An index fund seeks to track the performance of an index by holding in its
portfolio either the contents of the index or a representative sample of the
securities in the index.
Index ETF assets are about $1200 billion, compared with about $7 billion for
actively managed ETFs.
Some index ETFs, known as leveraged ETFs or inverse ETFs, use investments
in derivatives to seek a return that corresponds to a multiple of, or the inverse
(opposite) of, the daily performance of the index.
Some index ETFs invest 100% of their assets proportionately in the securities
underlying an index, a manner of investing called "replication".
Other index ETFs use "representative sampling", investing 80% to 95% of their
assets in the securities of an underlying index and investing the remaining 5% to
20% of their assets in other holdings, such as futures, option and swap contracts,
and securities not in the underlying index, that the fund's adviser believes will
help the ETF to achieve its investment objective.
For index ETFs that invest in indices with thousands of underlying securities,
some index ETFs employ "aggressive sampling" and invest in only a tiny
percentage of the underlying securities.
Stock ETFs
The first and most popular ETFs track stocks.
ETFs can also be sector funds. These can be broad sectors, like finance and technology,
or specific niche areas, like green power.
They can also be for global or for country.
The funds are popular since people can put their money into the latest fashionable trend,
rather than investing in boring areas with no "cachet".
Bond ETFs
Exchange-traded funds that invest in bonds are known as bond ETFs.
They thrive during economic recessions because investors pull their money out of the
stock market and into bonds (for example, government treasury bonds or those issued by
companies regarded as financially stable).
There are several advantages to bond ETFs such as the reasonable trading commissions,
but this benefit can be negatively offset by fees if bought and sold through a third party.





Commodity ETFs or ETCs
Commodity ETFs (ETCs or CETFs) invest in commodities, such as precious metals,
agricultural products, or hydrocarbons.
Among the first commodity ETFs were gold exchange-traded funds, which have been
offered in a number of countries.
The idea of a Gold ETF was first officially conceptualized by Benchmark Asset
Management Company Private Ltd in India when they filed a proposal with the SEBI in
May 2002.
Generally commodity ETFs are index funds tracking non-security indices.
Commodity ETFs trade just like shares, are simple and efficient and provide exposure to
an ever-increasing range of commodities and commodity indices, including energy,
metals, soft and agriculture.

Currency ETFs or ETCs
Currency ETFs are widely used by investors who wish to gain exposure to the
foreign exchange market and would prefer not to enter the futures or Forex
markets.
With the growing popularity of ETFs, investors have found it very easy and
relatively inexpensive to trade currency ETFs in order to take advantage of
fluctuations between currencies.
Currency ETFs can be purchased to track most international currencies including
the U.S. and Canadian dollars, the Euro, British pound and Japanese yen
Actively Managed ETFs
Most ETFs are index funds, but some ETFs do have active management. Actively
managed ETFs have been offered in the United States only since 2008.
Currently, actively managed ETFs are fully transparent, publishing their current
securities portfolios on their web sites daily.
The SEC indicated that it was willing to consider allowing actively managed
ETFs that are not fully transparent in the future, and later actively managed ETFs
have sought alternatives to full transparency.
The fully transparent nature of existing ETFs means that an actively managed ETF
is at risk from arbitrage activities by market participants who might choose
to front run its trades as daily reports of the ETF's holdings reveals its manager's
trading strategy.
The initial actively managed equity ETFs addressed this problem by trading only
weekly or monthly.
Actively managed debt ETFs, which are less susceptible to front-running, trade
their holdings more frequently.
Actively managed ETFs grew faster in their first three years of existence than
index ETFs did in their first three years of existence.



Exchange Traded Grantor Trust
An exchange-traded grantor trust share represents a direct interest in a static basket
of stocks selected from a particular industry.
HOLDRs are neither index funds nor actively managed; rather, the investor has a
direct interest in specific underlying stocks.
While HOLDRs have some qualities in common with ETFs, including low costs,
low turnover, and tax efficiency, many observers consider HOLDRs to be a
separate product from ETFs.
Inverse Exchange-Traded Funds
An inverse exchange-traded fund is an exchange-traded fund (ETF), traded
on a public stock market, which is designed to perform as the inverse of
whatever index or benchmark it is designed to track. These funds work by
using short selling, trading derivatives such as futures contracts, and
other leveraged investment techniques.
By providing, over short investing horizons and excluding the impact of fees
and other costs, performance opposite to their benchmark, inverse ETFs give a
result similar to short selling the stocks in the index.
Short sales have the potential to expose an investor to unlimited losses,
whether or not the sale involves a stock or ETF. An inverse ETF, on the other
hand, provides many of the same benefits as shorting, yet it exposes an
investor only to the loss of the purchase price.
Leveraged ETFs
Leveraged exchange-traded funds (LETFs), or simply leveraged ETFs, are a
special type of ETF that attempt to achieve returns that are more sensitive to
market movements than non-leveraged ETFs. Leveraged index ETFs are
often marketed as bull or bear funds.
Leveraged ETFs require the use of financial engineering techniques,
including the use of equity swaps, derivatives and rebalancing, and re-
indexing to achieve the desired return. The most common way to construct
leveraged ETFs is by trading futures contracts.
The rebalancing and re-indexing of leveraged ETFs may have considerable
costs when markets are volatile.
The rebalancing problem is that the fund manager incurs trading losses
because he needs to buy when the index goes up and sell when the index goes
down in order to maintain a fixed leverage ratio.








Benefits of ETF
1. Single Transactions

ETFs act like indexes and follow certain market sectors. However, unlike an index, you
can purchase an ETF with one single transaction. You are purchasing a mini-portfolio, not a
basket of stocks. That makes life easier when targeting a certain price. You also get filled on
your complete order as opposed to a basket where you are chasing each individual stock.
2. Cost-Effectiveness
Since there is only one transaction per trade, commissions are lower on an ETF as opposed
to an index, which requires a basket of stocks and multiple trades. Also, there are no load fees,
and managing fees tend to be lower for ETFs as opposed to regular mutual funds.
3. Taxes
Capital gains taxes are generally lower for ETFs than traditional mutual funds due to the
structure of each trade. When a gain is realized in a daily mutual fund trade or even within an
index trade, capital gain taxes are incurred immediately. In the case of exchange traded funds,
the individual capital gains are not realized until the assets are sold with the entire fund.
Therefore ETFs are a "tax friendly" investment.
4. Derivatives
Many ETFs list options and futures contracts, which are great tools for risk-managing your
portfolio. So whether you want to hedge your ETFs with calls and puts or trade ETF volatality
with option straddles, some funds will have that flexibility.
5. Flexibility
Speaking of flexibility, like an equity, ETFs trade throughout market hours. ETFs can be sold
short or on margin, and prices are continuously updated during the trading day. In other words
ETFs trade just like equities on the stock market.
6. Accountability
The company sponsor/designer/creator of the ETF publishes the list of assets in the fund on a
daily basis. Most mutual funds publish the constituents on an infrequent basis and are not known
for their transparency. However, this is the opposite case with ETFs.

7. Passive Management
ETFs are meant to follow a particular index, not outperform it. Therefore, only minor
adjustments are needed for the ETF, as opposed to an aggressively managed fund, which is
looking for a higher return than its underlying asset. This in turn lowers risk and management
fees for ETFs as well.
8. Immediate Dividends
With most ETFs, (open-ended) dividends are immediately reinvested back into the fund. In the
case of traditional funds, the time frames may vary. However, while ETFs are tax friendly, one
must not ignore the taxes on ETF dividends either.
9. Simplicity
ETFs are simple in structure and easy to understand. If you are looking to invest in a certain
industry or want to emulate the ROI on a particular index or underlying asset, you are only a
trade away from getting started with ETFs.

10. Low Expense Ratios
Everybody loves to save money, particularly investors who take their savings and put them to
work in their portfolios. In helping investors save money, ETFs really shine. They offer all of the
benefits associated with index funds - such as low turnover and broad diversification (not to
mention the often-cited statistic that 80% of the more expensive actively managed mutual funds
fail to beat their benchmarks) - plus ETFs cost a lot less.

11. Diversification
ETFs come in handy when investors want to create a diversified portfolio. There are hundreds of
ETFs available, and they cover every major index (those issued by Dow Jones, S&P,NASDAQ)
and sector of the equities market (large caps, small caps, growth, value). There are international
ETFs, regional ETFs (Europe, Pacific Rim, emerging markets) and country-specific (Japan,
Australia, U.K.) ETFs. Specialized ETFs cover specific industries (technology, biotech, energy)
and market niches (REITs, gold).















Comparison of ETFs with other Investments

ETFs Vs Open Ended fund Vs Closed Ended fund


Parameter Open Ended
Fund
Closed Ended
Fund
Exchange Traded Fund
Fund Size Flexible Fixed Flexible
NAV Daily Daily Real Time
Liquidity
Provider
Fund itself Stock Market Stock Market / Fund itself
Sale Price At NAV plus
load, if any
Significant
Premium /
Discount to NAV
Very close to actual NAV
of Scheme
Availability Fund itself Through Exchange
where listed
Through Exchange where
listed / Fund itself.
Portfolio
Disclosure
Monthly Monthly Daily/Real-time
Uses Equitizing cash - Equitizing Cash,
Hedging, Arbitrage
Intra-Day
Trading
Not possible Expensive Possible at low cost











ETFs Vs Managed funds and Shares

ETFs vs. managed funds and shares
ETFs Managed Funds Shares
Type of investor Likes to hold shares
but wants greater
diversification across
an asset class and
automatic portfolio
rebalancing in line
with an index
Wants diversification
from investment
strategies that blend
multiple investment
managers and styles,
along with the
potential to generate
high returns
Prefers to pick
specific individual
companies and
undertake his/her own
research, trading and
portfolio rebalancing
How often you invest Suited to investors
who make large or
infrequent
investments
(brokerage fees do
apply)
Suited to investors
who make ongoing
smaller contributions
(brokerage fees do not
apply, but entrance
and exit spreads do)
Suited to investors
who are willing to pay
associated brokerage
costs for trades
Liquidity Provide high
flexibility for trading,
including market
orders, limit orders,
options / warrants
Restricted entry and
exit points
Provide high
flexibility for trading,
including covered
short sales, limit
orders, options /
warrants
Diversification in
holdings
An easy way to
acquire a diversified
portfolio instantly
Provide access to a
wider range of asset
classes and
investment strategies
(e.g. fixed interest,
global property
securities,
infrastructure and
other alternative asset
classes)
No diversification
unless you build a
diversified portfolio
of shares yourself
Priced throughout
the day
Yes, providing
investors with full
transparency
No Yes
Exchange traded Yes No Yes
Potential to
outperform a
benchmark
No Yes Not applicable


Exchange Traded Funds (ETFs) A pooled investment with shares that trade on a
stock market like an individual share or bond. ETF shares are priced and traded throughout the
business day, and they can be bought and sold through a stock broker or online broker platform.
ETFs can be actively managed or indexed, although the vast majority of ETFs currently available
are indexed.
OEIC (Open-Ended Investment Company) A pooled investment fund
similar to a unit Trust, but established under company law, rather than trust law. As such, it
issues shares, rather than units, but these are not traded on a stock exchange, they are issued by
the OEIC itself. The OEIC increases or reduces the numbers of shares issued in response to
demand from buyers and sellers, which is why its called `open ended.
Unit Trust A pooled fund established as a trust. A unit trust is an open-ended investment.
This means that the manager can create or cancel units depending on public demand.
Investment Trust A closed-ended fund (a fund with a limited number of shares)
established as a company, with the aim of producing returns by investing in other companies .
Investment trusts trade like shares on stock exchanges and are priced and traded throughout the
business day. They can be bought and sold through a stockbroker.



History of ETFs(Global)
Exchange-traded funds as we know them today were launched in 1993 by State Street
Global Advisors, though similar products traded in both the U.S. and Canada in years
prior to that.
The SPDR fund (pronounced spider) the very first ETF tracks the Standard &
Poors 500 stock index and is still the largest ETF on the market.
With assets of around $58 billion, it is the granddaddy of all ETFs, accounting for about
16% of all assets in the ETF market.
In the early days, ETFs were marketed mostly to institutional investors for use primarily
in sophisticated trading strategies like hedging, or for things like keeping cash active
during a change in investment managers.
But today the pros probably only account for about half of the assets held in ETFs,
according to Amex. Their recent popularity among individuals has snowballed thanks to
a few underlying trends in the market.
For one thing, the ability of individuals to access financial advice online has given them
the ability to invest in products about which they might not have been previously aware.
In addition, many individuals purchase ETFs on the advice of their financial adviser, and
the way brokers work with clients has undergone a major shift in the last decade.
The migration from the commission-based financial adviser to the fee-only financial
adviser is a trend that is ongoing, says Jim Ross, senior managing director of SSGA
Funds Management at State Street Global Advisors. Initially, the brokerage community
wasnt ready for ETFs they were earning high commission rates then, and preferred to
sell single stocks to their clients instead of something that got you broad exposure in one
trade.
But now, many investors would rather pay a straight fee or percentage of assets for
advice on their investments rather than per-trade commissions. And financial advisers
have gotten more comfortable that they can use ETFs perceived as a passive product
in an active environment.
Clients are paying financial advisers to allocate their assets and tell them when to
reallocate, and advisers are looking for the best way to do that, which can be through
ETFs. Financial advisers are a driver to growth in ETFs.

In less than 20 years, exchange-traded funds (ETFs) have become one of the most
popular investment vehicles for both institutional and individual investors.

Often promoted as cheaper, and better, than mutual funds, ETFs offer low-cost
diversification, trading and arbitrage options for investors.

Often promoted as cheaper, and better, than mutual funds, ETFs offer low-cost
diversification, trading and arbitrage options for investors.

ETFs are so popular that many brokerages offer free trading in a limited number of ETFs
to their customers.

Since then ETFs have proliferated, tailored to an increasingly specific array of regions,
sectors, commodities, bonds, futures, and other asset classes. As of January 2014, there
were over 1,500 ETFs traded in the U.S., with over $1.7 trillion in assets.

















ETFs History (India)
Exchange Traded Funds (ETFs) have been in existence in India for quite some time now.
Apart from Benchmark AMC, which specializes in ETFs, there have been a couple of
ETFs from Prudential ICICI AMC and UTI AMC.
Second, and probably the more important reason, is that ETFs by nature track a certain
index (e.g. Nifty or the Banker). Hence, the returns one can expect from ETFs will be
equal to the rise in the index.
Whereas, India is a growing market and hence offers huge opportunities in the non-index
shares too. Therefore, it is not difficult for an active fund manager to beat the index and
offer better returns. As such ETFs (and index-funds too, by that logic) have
comparatively negligible AUMs.
Two things could, however, make ETFs popular in India
One, of course, is that as market valuations become fairly or over-valued, it will
become more & more difficult to beat the index. Then index-based funds (both
conventional MFs & ETFs) may become a better option than actively-managed funds
Gold ETFs or Real-Estate ETFs have no comparable product in the conventional
MF sector, and hence become the only MF route to invest in such markets.







STRUCTURE OF ETFs

The structure of exchange-traded funds (ETFs) makes them different
than mutual funds. Actually, ETFs are legally structured in three different ways: as exchange-
traded open-end mutual funds, exchange-traded unit investment trusts, and exchange-traded
grantor trusts. The differences are subtle.
One seminal difference between ETFs and mutual funds is basically an extremely clever setup
whereby ETF shares, which represent stock holdings, can be traded without any actual trading of
stocks.
In the world of ETFs, there are no croupiers, but there are market makers. Market makers are
people who work at the stock exchanges and create (like magic!) ETF shares.
Each ETF share represents a portion of a portfolio of stocks, sort of like poker chips represent a
pile of cash. As an ETF grows, so does the number of shares. Concurrently (once a day), new
stocks are added to a portfolio that mirrors the ETF.

When an ETF investor sells shares, those shares are bought by a market maker who turns around
and sells them to another ETF investor.
By contrast, with mutual funds, if one person sells, the mutual fund must sell off shares of the
underlying stock to pay off the shareholder. If stocks sold in the mutual fund are being sold for
more than the original purchase price, the shareholders left behind are stuck paying a capital
gains tax. In some years, that amount can be substantial.
In the world of ETFs, no such thing has happened or is likely to happen, at least not with the vast
majority of ETFs, which are index funds. Because index funds trade infrequently, and because
of ETFs poker-chip structure, ETF investors rarely see a bill from Uncle Sam for any capital
gains tax.
Thats not a guarantee that there will never be capital gains on any index ETF, but if there ever
are, they are sure to be minor.
The actively managed ETFs currently a very small fraction of the ETF market, but almost
certain to grow may present a somewhat different story. They are going to be, no doubt, less
tax friendly than index ETFs but more tax friendly than actively managed mutual funds.



















APPLICATIONS OF ETFs


Efficient Trading: ETFs provide investors a convenient way to gain market exposure viz. an
index that trades like a stock. In comparison to a stock, an investment in an ETF index product
provides a diversified exposure to the market. Depending on the index, investors may obtain
exposure to countries/ markets or sectors.
Equitizing Cash: Investors with idle cash in their portfolios may want to invest in a product
tied to a market benchmark like an index as a temporary investment before deciding which
stocks to buy or waiting for the right price.
Managing Cash Flows: Investment managers who see regular inflows and outflows may use
ETFs because of their liquidity and their ability to represent the market.
Diversifying Exposure: If an investor is not sure about which particular stock to buy but likes
the overall sector, investing in shares tied to an index or basket of stocks provides diversified
exposure and reduces stock specific risk.
Filling Gaps: ETFs tied to a sector or industry may be used to gain exposure to new and
important sectors. Such strategies may also be used to reduce an overweight or increase an
underweight sector.
Shorting or Hedging: Investors who have a negative view on a market segment or specific
sector may want to establish a short position to capitalize on that view. ETFs may be sold short
against long stock holdings as a hedge against a decline in the market or specific sector.

What kind of investments can investors make through ETFs?
As with mutual funds, investors in ETFs can access a wide variety of investment strategies and
markets. ETFs invest in domestic and international stock, bond, and commodities markets using
either an index-based investment strategy or an active management investment strategy.
Index-based ETFs invest in securities selected to match market indexes, including broad indexes
that track large parts of the stock or bond markets or narrow indexes covering particular market
sectors. Some index-based ETFs also invest in commodity-based derivatives. Other index-based
ETFs may try to return a multiple of their respective index, an inverse of the index (e.g., the
ETFs value goes up when the index goes down), or even a multiple inverse of the index.
Actively managed ETFs do not seek to track the return of a particular index. Instead, an actively
managed ETFs investment adviser, like that of an actively managed mutual fund, creates a
unique mix of investments to meet a particular investment objective and policy.
Finally, some ETFs hold physical commodities. The share prices of these funds are based on spot
prices.
How do ETFs work toward their investment objective?
An ETF originates with a sponsor, who chooses the investment objective of the ETF. In the case
of an index-based ETF, the sponsor chooses both an index and a method of tracking its target
index. Index-based ETFs track their target index in one of two ways. A replicate index-based
ETF holds every security in the target index and invests 100 percent of its assets proportionately
in all the securities in the target index. A sample index-based ETF does not hold every security in
the target index; instead, the sponsor chooses a representative sample of securities in the target
index in which to invest. Representative sampling is a practical solution for an ETF when its
target index contains thousands of securities or contains securities that are not readily available,
such as certain bond issues.
The sponsor of an actively managed ETF also determines the investment objective of the fund
and may trade securities at its discretion, much like an actively managed mutual fund. In theory,
an actively managed ETF could trade its portfolio securities regularly. In practice, however, most
existing actively managed ETFs trade less frequently for a number of reasons, including
minimizing the risk of other market participants front-running their trades (submitting trades in
advance of the ETF to take advantage of any predictable changes in security prices).
How are ETF shares created and redeemed?
ETFs are required to publish information about their portfolio holdings daily. Each business day,
the ETF publishes a creation basketa specific list of names and quantities of securities or
other assets.
Unlike traditional mutual fund shares, ETF shares are created and redeemed by an entity known
as an authorized participant, which is typically a large institutional investor, such as a broker
dealer. An authorized participant provides the creation basket to the ETF. In return for the
creation basket or cash (or both), the ETF issues to the authorized participant a creation unit, a
large block of ETF shares (generally 25,000 to 200,000 shares). The authorized participant can
either keep the ETF shares that make up the creation unit or sell all or part of them on a stock
exchange. ETF shares are listed on a number of stock exchanges, where investors can purchase
them as they would shares of a publicly traded company.
A creation unit is liquidated when an authorized participant returns the specified number of
shares in the creation unit to the ETF. In return, the authorized participant receives the daily
redemption basket, (a set of specific securities and other assets contained within the ETFs
portfolio), cash, or both. The composition of the redemption basket typically mirrors that of the
creation basket.
What determines an ETFs price?
The price of an ETF share on a stock exchange is influenced by the forces of supply and demand.
While imbalances in supply and demand can cause the price of an ETF share to deviate from its
underlying value (i.e., the market value of the underlying instruments, also known as the Intraday
Indicative Value, or IIV), substantial deviations tend to be short-lived for many ETFs.
Two primary features of an ETFs structure promote trading of an ETFs shares at a price that
approximates the ETFs underlying value: portfolio transparency and the ability for authorized
participants to create or redeem ETF shares at net asset value (NAV) at the end of each trading
day.
The transparency of an ETFs holdings enables investors to observe discrepancies between the
ETFs share price and its underlying value during the trading day and to attempt to profit from
them. ETFs contract with third parties (typically market data vendors) to calculate an estimate of
an ETFs IIV, using the portfolio information an ETF publishes daily. IIVs are disseminated at
regular intervals during the trading day (typically every 15 to 60 seconds). Some market
participants for whom a 15- to 60-second latency is too long will use their own computer
programs to estimate the underlying value of the ETF on a more real-time basis.
If the ETF is trading at a discount to its underlying value, investors may buy ETF shares or sell
the underlying securities. The increased demand for the ETF should raise its share price, while
sales of the underlying securities should lower their share prices, narrowing the gap between the
ETF and its underlying value. If the ETF is trading at a premium to its underlying value,
investors may choose to sell the ETF or buy the underlying securities. These actions should bring
the price of the ETF and the market value of its underlying securities closer together.
The ability of authorized participants to create or redeem ETF shares at the end of each trading
day also helps an ETF trade at market prices that approximate the underlying market value of the
portfolio. When a deviation between an ETFs market price and its underlying value occurs,
authorized participants may engage in trading strategies similar to those described above, but
will purchase or sell creation units directly with the ETF. For example, when an ETF is trading at
a premium, authorized participants may find it profitable to sell short the ETF during the day
while simultaneously buying the underlying securities. At the end of the day, the authorized
participant will deliver the creation basket of securities to the ETF in exchange for ETF shares
that they use to cover their short sales. When an ETF is trading at a discount, authorized
participants may find it profitable to buy the ETF shares and sell short the underlying securities.
At the end of the day, authorized participants return ETF shares to the fund in exchange for the
ETFs redemption basket of securities that they use for their short positions. These actions by
authorized participants, commonly described as arbitrage opportunities, help keep the market-
determined price of an ETFs shares close to its underlying value.
How are ETFs regulated?
The vast majority of assets in ETFs are in funds registered with and regulated by the SEC under
the Investment Company Act of 1940. Other ETFs invest in commodity futures and are regulated
by the Commodity Futures Trading Commission (CFTC), or invest solely in physical
commodities and are regulated by the SEC under the Securities Act of 1933. In addition, the
Depository Trust Clearing Corporation oversees the settlement of ETF trades, ensuring that ETF
certificates are assigned correctly in a trade.
ETFs are only one type of structured exchange product, and they should not be confused with
other types of exchange-traded products, such as closed-end funds or exchange-traded notes,
which differ materially from ETFs with respect to their key features and risks.
Are ETFs guaranteed?
While shares of an ETF are regulated under various securities laws, they are not guaranteed
against risk of loss. The value of an ETFs shares may decline. Investors should consider the
risks associated with an ETFs underlying Are there other products similar to ETFs? Securities ,
and the liquidity of the ETF itself, before investing.
What are the costs of purchasing and owning ETFs?
There are three primary costs to purchasing and owning an ETF.
Brokerage commissions: Because ETFs are exchange-traded, investors will buy and sell ETFs
through a broker who will need to be compensated for this service. Some brokers will charge a
flat fee for each buy or sell transaction, while other brokers who may not charge by the trade
will usually assess a fee based on the total assets in the investors account.
Bid-ask spreads: An investor will incur a bid-ask spread each time the investor buys or sells an
ETF. The bid-ask spread is the difference between the bid price and the ask price of a security.
The bid price is the highest price a liquidity provider is willing to pay to buy a security from an
investor. The ask price is the lowest price a liquidity provider will accept to sell a security to an
investor. Bid prices are almost always lower than ask prices.













CHAPTER 3
COMPANY PROFILE































CHAPTER 4
DATA ANALYSIS, INTERPRETATION &
FINDINGS










Analysis Approach:





BASE METALS
ALUMINUM
JJU (I path Dow Jones-AIG Aluminum total return sub-index ETN)
The Dow Jones-UBS Aluminum Sub index Total Return is a single-
commodity sub-index currently consisting of one futures contract on the commodity of
aluminum.


2009 2010 2011 2012 2013
JAN-2

DEC-25 JAN-1 DEC-31 JAN-7 DEC-30 JAN-6 DEC-28 JAN-4 JAN-25
23.90 32.50 31.68 33.10 33.31 25.30 25.956 24.12 24.035 18.64

ROI 35.98326 4.482323

-
24.087
-
7.0735
-22.4464
AVERAGE -2.6206
OVERALL
ROI
-22.0084


INTERPRETATION:
The JJU I path Dow Jones AIG aluminum total return sub index ETN has good
returns in 2009, 10 compared with 2011, 12,13.
Average return of JJU is -2.62% being 2011 worst performance.
The overall returns of JJU is -22.% with a single year performance of 35.98%.



FOIL (I path pure beta Aluminum)
The index is comprised of a single exchange traded futures contract, except
during the roll period when the Index may be comprised of two futures contracts. However,
unlike many commodity indices, which roll their exposure to the corresponding futures
contract on a monthly basis in accordance with a pre-determined roll schedule, the Index may
roll into one of a number of futures contracts with varying expiration dates, as selected using
the Barclays Capital Pure Beta Series 2 Methodology.
2011

2012
2013
Apr-21 Nov-28 Jan-10 Dec-28 Jan-4 Dec-27

50.13 36.29 38.29 34.6 35.15 28.45
ROI -27.7279

-9.63698

-18.8087

AVERAGE

-18.8087
OVERALLROI

-31.2564

INTERPRETATION:
The FOIL I path pure beta aluminum has worst performance in 2011,12,13.
Average returns of FOIL is -18.80%.
The overall returns of FOIL is -31.25.






PERFORMANCE OF ALUMINUM


SYMBOLS


OVERALL ROI

JJU -22.0084
FOIL -31.2564










-22.0084
-31.2564
-35
-30
-25
-20
-15
-10
-5
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JJU FOIL
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SYMBOLS
ALUMINIUM
LEAD
LEDD (I path pure beta lead)
The index is comprised of a single exchange traded futures contract,
except during the roll period when the Index may be comprised of two futures
contracts. However, unlike many commodity indices, which roll their exposure to the
corresponding futures contract on a monthly basis in accordance with a pre-
determined roll schedule, the Index may roll into one of a number of futures contracts
with varying expiration dates, as selected using the Barclays Capital Pure Beta Series
2 Methodology.

2011 2012 2013
Apr-21 Dec-13 Jan-12 Dec-28 Jan-4 Dec-27
49.9 38.88 38.34 43.27 43.98 40.53
ROI -22.0842 12.85863 -7.84447
Average -5.69
Overall ROI -18.7776

INTERPRETATION:
The LEDD I path pure lead ETN has good returns in 2012 compared with 2011,13.
Average returns of LEDD is -5.69% being 2011 worst performance.
The overall returns of LEDD is -18.77% with single performance of 12.85%.



LD (I path Dow Jones-AIG lead total return sub index ETN)
The Dow Jones-UBS Lead Sub index Total Return is a single-commodity sub-
index currently consisting of one futures contract on the commodity of lead.

2009 2010 2011 2012 2013
Jan-6 Dec-25 Jan-1 Dec-31 Jan-7 Dec-30 Jan-6 Dec-28 Jan-4 Dec-13
29.903 60.958 62.95 64.98 66.34 49.051 48.30 55.92 56.697 49.446
ROI 103.859 3.224782 -26.062 -15.70 -12.78
Average 10.50645
Overall
ROI
-142.745

INTERPRETATION:
The LD I path DJ-UBS lead sub index total return has good returns in 2009,10 compared with
2011,12,13.
Average returns of LD is 10.50% being 2012 worst performance.

The overall returns of LD is -142.74% with single performance of 103.85%.










PERFROMANCE OF LEAD


SYMBOLS

OVERALL ROI

LD -142.745
LEDD -18.7776













-142.745
-18.7776
-160
-140
-120
-100
-80
-60
-40
-20
0
LD LEDD
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SYMBOLS
Lead
COPPER
CPER (United states copper index)
The index is designed to reflect the performance of the
investment returns from a portfolio of copper futures contracts fully collateralized with 3-month
U.S. Treasury Bills.


2011 2012 2013
Nov-18 Dec-30 Jan-6 Dec-28 Jan-4 Dec-27
24.43 24.50 24.42 25.013 25.755 22.89
ROI 0.286533 2.428337 -11.1241
Average -2.80306
Overall ROI -145.534

INTERPRETATION:

The CPER United States Copper Index Fund ETF has good returns in 2011, 12 compared with
2013.
Average returns of CPER is -2.80% being 2013 worst performance.

The overall returns of CPER is -145.53% with a single performance of 2.49%.











CUPM(I path pure beta copper ETN )

The index is comprised of a single exchange traded futures contract, except
during the roll period when the index may be comprised of two futures contracts. However, unlike
many commodity indices which roll their exposure to the corresponding futures contract on a monthly
basis in accordance with a pre-determined roll schedule, the Index may roll into one of a number of
futures contracts with varying expiration dates, as selected using the Barclays Capital Pure Beta
Series 2 Methodology.


2011 2012 2013
Apr-21 Dec-20 Jan-4 Dec-28 Jan-4 Dec-27
50.08 39.24 39.184 40.00 41.54 37.05
ROI -21.6454 2.082483 -10.8089
Average -10.1239
Overall ROI -50.0639




INTERPRETATION:
The CUPM I path pure beta copper ETN has good returns in 2012 compared with
2011,13.
Average returns of CUPM is -10.12% being 2011 worst performance.
The overall returns of CUPM is -50.06% with a single year performance of 2.08%.





JJC(I path exchange traded notes Dow Jones AIG copper total return sub-index ETN series)

The index includes the contract in the Dow Jones-UBS Commodity Index Total
Return that relates to a single commodity, copper (currently the Copper High Grade futures
contract traded on the COMEX).


2009 2010 2011 2012 2013
Jan-2 Dec-25 Jan-1 Dec-31 Jan-7 Dec-30 Jan-6 Dec-28 Jan-4 Dec-30
20.59 45.18 45.80 59.10 56.90 44.04 44.03 45.22 46.69 41.30
ROI 119.4269 29.0393 8.7294 2.7027 -11.525
AVERAGE 29.67461
OVERALL
ROI
-155.975


INTERPRETATION:
The JJC I path exchange traded notes Dow Jones AIG has good returns in 2009,10,11,12 compared
with 2013.
Average returns of JJC is 29.67% being 2013 worst performance.
The overall returns of JJU is -155.97% with a single performance of 119.42%.








PERFORMANCE OF COPPER

SYMBOLS OVERALL ROI

CPER -154.534
CUPM -50.0639
JJC -155.975











-154.534
-50.0639
-155.975
-180
-160
-140
-120
-100
-80
-60
-40
-20
0
CPER CUPM JJC
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SYMBOLS
Copper
PRECIOUS METALS
GOLD
GLD (SPDR gold trust (ETF))
This ETF is designed to track the spot price of gold bullion. The spot
price for gold bullion is determined by market forces in the 24-hour global over-the-counter
(OTC) market for gold. The OTC market accounts for most global gold trading, and prices
quoted reflect the information available to the market at any given time.
2009 2010 2011 2012 2013
JAN-2 Dec-25 Jan-1 Dec-31 Jan-7 Dec-30 Jan-6 Dec-28 Jan-4 Dec-31
86.23 108.36 107.31 138.72 133.58 151.99 157.20 160.54 160.44 116.12
ROI 25.6692 29.2703 13.782 2.1246 -27.624
AVERAGE 8.643382
OVERALL
ROI
34.66311

INTERPRETATION:
The overall return of SPDR is 34.66% with the single performance of 29.27% .





The GLD SPDR gold trust ETF has good returns in 2009,10,11,12 compared with 2013.
Average returns of SPDR is 8.64% being 2013 worst performance.

IAU (I shares gold trust (ETF))
This ETF is designed to track the spot price of gold bullion. The spot
price for gold bullion is determined by market forces in the 24-hour global over-the-counter (OTC)
market for gold. The OTC market accounts for most global gold trading, and prices quoted reflect the
information available to the market at any given time.
2009 2010 2011 2012 2013
Jan-2 Dec-25 Jan-1 Dec-31 Jan-7 Dec-30 Jan-6 Dec-28 Jan-4 Dec-27
8.64 10.84 10.74 13.90 13.385 15.23 15.76 16.13 16.112 11.78
ROI 25.4296 29.4227 13.7840 2.3477 -26.8868
AVERAGE 8.826138
OVERALL
ROI
36.34259

INTERPRETATION:
The IAU shares gold ETF has good returns in 2009,10,11,12 compared with 2013.
Average returns of IAU is 8.82% being 2013 worst performance.
The overall returns of IAU 36.34% with single year performance of 25.42%.







DGP (Deutsche Bank AG power shares DB gold double long ETN)
The index is designed to reflect the performance of certain gold
futures contracts plus the returns from investing in 3 month United States Treasury Bills.


2009 2010 2011 2012 2013
JAN-2 Dec-25 Jan-1 Dec-31 Jan-7 Dec-30 Jan-6 Dec-28 Jan-4 Dec-27
18.05 26.99 26.44 42.93 39.68 47.61 50.79 51.01 50.96 25.56
ROI 49.52909 62.3676 19.9848 0.4331 -49.843
AVERAGE 16.4943
OVERALL
ROI
41.6066

INTERPRETATION:
The DGP bank AG powers shares AG gold double long ETN has good returns in
2009,10,11,12 compared with 2013.
Average returns 16.49% being 2013 worst performance.
The overall return of DGP is 41.60% with the single year performance of 62.36%.













PERFORMANCE OF GOLD

SYMBOLS Overall ROI
SPDR 34.66311
IAU 36.34259
DGP 41.60665











34.66311
36.34259
41.60665
0
5
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15
20
25
30
35
40
45
SPDR IAU DGP
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Symbols
GOLD
PLATINUM
PTM (UBS E-TRACS CMCI long platinum total return ETN)
The CMCI Platinum TR measures the collateralized returns from a basket of
platinum futures contracts. The commodity futures contracts are targeted for a constant maturity
of three months.
2009 2010 2011 2012 2013
Jan-2 Dec-25 Jan-1 Dec-31 Jan-7 Dec-30 Jan-6 Dec-28 Jan-4 Dec-27
11.81 18.03 18.40 20.92 20.40 16.12 16.279 17.41 17.84 15.68
ROI 52.6672 15.96452 -20.9804 6.9476 -12.1076
AVERAGE 8.4982
OVERALL
ROI
32.7688

INTERPRETATION:
The PTM long platinum total return has good returns 2009, 10 ,12 compared with
2011,13.
Average of PTM long platinum total return 8.49% with 2011 worst performance.
Overall returns of PTM is 32.76% with single performance of 52.66%.







PGM (I path DJ-UBS platinum sub index total return SM ETN)
The Dow Jones-UBS Platinum Sub index Total Return is a single-
commodity sub-index currently consisting of one futures contract on the commodity of platinum.
2009 2010 2011 2012 2013
JAN-2 Dec-25 Jan-1 Dec-31 Jan-7 Dec-30 Jan-6 Dec-28 Jan-4 Dec-27
23.572 38.12 38.54 41.85 40.47 32.025 32.238 34.32 35.27 30.181
ROI 61.7172 8.5884 -21.391 6.4582 -14.428
AVERAGE 8.180789
OVERALL
ROI
28.0375

INTERPRETATION:
The PGM I path DJ-UBS platinum sub index total returns has good returns in
2009,10,12 compared with 2011,13.
Average of PGM is 8.18% being 2011 worst performance.
The overall returns of PGM is 28.03% with the single performance of 61.71%.








PTM (platinum group metals ltd)
Platinum Group Metals Ltd. (Platinum Group) is a platinum focused
exploration and development company conducting work on mineral properties it has staked or
acquired by way of option agreements in the Republic of South Africa and in Canada. The
Company conducts its South African exploration and development work through its wholly
owned direct subsidiary, Platinum Group Metals (RSA) (Proprietary) Limited (PTM RSA). PTM
RSA holds the Companys interests in the Project 1 platinum mine (Project 1) and Project 3.
PTM RSA also holds 100% of Wes plats Holding (Proprietary) Limited (Wes plats), and a 37%
interest in Wildebeest Platinum (Pty) Limited (Wildebeest). In September 2011, it purchased the
Providence Copper-Nickel-Cobalt-Platinum Group Metals (Cu-Ni-Co-PGM) property from
Arctic Star Exploration (Arctic Star).

2009 2010 2011 2012 2013
JAN-2 DEC-18 JAN-8 DEC-31 JAN-7 DEC-30 JAN-6 DEC-28 JAN-4 DEC-27
2.04 1.78 2.39 2.66 2.34 0.92 0.97 0.82 0.81 1.15
ROI -12.7451 11.29709 -60.6838 -15.4639 41.9753
AVERAGE -7.1241
OVERALL
ROI
-43.6275

INTERPRETATION:
The PTM platinum group metals has good returns in 2010,13 compared with 2009,11,12.
Average of PTM is -7.12%.
The overall returns of PTM is -43.62%.

PERFORMANCE OF PLATINUM



SYMBOLS
Overall ROI

PTM 32.76884
PTM group metals -43.6275
PGM 28.0375








32.76884
-43.6275
28.0375
-50
-40
-30
-20
-10
0
10
20
30
40
SYMBOLS PTM PTM grp metals PGM
SILVER
SLV (I shares silver trust)
I Shares Silver Trust (the Trust) owns silver transferred to the Trust in
exchange for shares issued by the Trust (Shares). Each Share represents a fractional undivided
beneficial interest in the net assets of the Trust. The assets of the Trust consist primarily of silver
held by the Trusts custodian on behalf of the Trust. The sponsor of the Trust is I Shares
Delaware Trust Sponsor LLC (the Sponsor). The trustee of the Trust is The Bank of New York
Mellon (the Trustee) and the custodian of the Trust is JPMorgan Chase Bank N.A., London
branch (the Custodian).

2009 2010 2011 2012 2013
Jan-2 Dec-25 Jan-1 Dec-31 Jan-7 Dec-30 Jan-6 Dec-28 Jan-4 Dec-27
11.41 17.17 16.539 30.18 28.10 26.94 27.91 29.10 29.238 19.27
ROI 50.48203 82.4778 -4.12811 4.2637 -34.0926
AVERAGE -19.8005
OVERALL
ROI
68.8869

INTERPRETATION:
The SLV I shares silver trust has good returns in 2009,10,12 compared with 2011,13.
Average of SLV is -19.80%.
The overall returns of SLV is 68.88% with the single performance of 82.47%.


AGQ ( pro shares ultra silver(ETF))
Pro Shares Ultra Silver seeks daily investment results, before fees and
expenses, that correspond to twice (200%) the daily performance of silver bullion as measured
by the U.S. Dollar fixing price for delivery in London.
2009 2010 2011 2012 2013
Jan-2 Dec-25 Jan-1 Dec-31 Jan-7 Dec-30 Jan-6 Dec-28 Jan-4 Dec-27
131.08 242.74 224.60 634.36 547.80 166.44 178.60 173.28 173.96 66.84
ROI 85.1846 182.439 -
69.6166
-
2.97872
-
61.5774
AVERAGE 26.69035
OVERALL
ROI
-49.0082

INTERPRETATION:
The AGQ pro shares ultra silver has good returns in 2009,10 compared with 2011,12,13.
Average of AGQ is 26.69% being 2011 worst performance.
The overall returns of AGQ is -49.01% with the single year performance of 182.43%.












ZSL (pro shares ultra short silver)

Pro Shares Ultra Short Silver seeks daily investment results, before fees and
expenses , that correspond to twice (200%) the inverse (opposite) of the daily
performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in
London.

2009 2010 2011 2012 2013
Jan-2 Dec-25 Jan-1 Dec-31 Jan-7 Dec-30 Jan-6 Dec-28 Jan-4 Dec-27
85.25 22.25 23.95 49.10 56.05 79.35 73.35 51.06 49.78 85.91
ROI -73.900 105.0104 41.57003 -30.388 71.1329
AVERAGE 22.6849
OVERALL
ROI
-0.0703

INTERPRETATION:
The ZSL pro shares ultra short silver has good returns in 2010,11,13 compared with
2009,12.
Average of ZSL is 22.68% being 2009 worst performance.
The overall return of ZSL is -0.07% with single year performance of 105.01%.











PERFORMANCE OF SILVER



SYMBOLS
Overall ROI

SLV 68.88694
AGQ -49.0082
ZSL -0.07038








68.88694
-49.0082 -0.07038 -100%
-50%
0%
50%
100%
SYMBOLS SLV AGQ ZSL
O
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SILVER
OVERALL INTERPRETATION

























CHAPTER 5
SUGGESTIONS & CONCLUSION

FINDINGS






























CHAPTER 6
BIBLIOGRAPHY