An Exchange Traded Vehicle (ETV) tracks the performance of an underlying asset or index providing investors exposure to underlying assets such as futures contracts, commodities, and currencies without actually trading futures or ever taking physical delivery of the underlying asset. An Exchange Traded Vehicle is traded intraday like an Exchange Traded Fund and is an open-ended trust or partnership unit.
ETVs and commodities exposure
ETVs are especially popular in the commodities market. The two traditional methods for investing in commodities have been investing in the futures market or buying shares of a commodity orientated company. With ETVs, an investment depends only on the movement of the underlying asset—the spot price or future price. The simple structure and transparency make these products easily tradable.
Instead of acquiring a connection to a derivatives exchange, members can now trade commodities through ETVs on NYSE Euronext exchanges. Since ETVs are open-ended notes and have multiple market makers (low spreads), they are highly liquid.
ETV trading overview
ETVs issue new shares and redeem existing shares on any trading day in a process referred to as creation and redemption, which is open to qualifying entities that register as Authorized Participants (AP) with the fund. This mechanism allows an AP to exchange assets and receive ETV shares in return (i.e., a “creation”). Similarly, an AP can “redeem” ETV shares.