What determines the price of fixed income ETFs?
The literal answer to your question 'what determines the price of an ETF' is 'the market'; it is whatever price a buyer is willing to pay and a seller is willing to accept. But if the market price of an ETF share deviates significantly from its NAV, the per-share market value of the securities in its portfolio, then an Authorized Participant can make an arbitrage profit by a transaction (creation or redemption) that pushes the market price toward NAV. Thus as long as the markets are operating and the APs don't vanish in a puff of smoke we can expect price will track NAV. That reduces your question to: why does NAV = market value of the holdings underlying a bond ETF share decrease when the market interest rate rises?  Let's consider an example. I'll use US Treasuries because they have very active markets, are treated as risk-free (although that can be debated), and excluding special cases like TIPS and strips are almost perfectly fungible. And I use round numbers for convenience. Let's assume the current market interest rate is 2% and 'Spindoctor 10-year Treasury Fund' opens for business with $100m invested (via APs) in 10-year T-notes with 2% coupon at par and 1m shares issued that are worth $100 each. Now assume the interest rate goes up to 3% (this is an example NOT A PREDICTION); no one wants to pay par for a 2% bond when they can get 3% elsewhere, so its value goes down to about 0.9 of par (not exactly due to the way the arithmetic works but close enough) and Spindoctor shares similarly slide to $90. At this price an investor gets slightly over 2% (coupon*face/basis) plus approximately 1% amortized capital gain (slightly less due to time value) per year so it's competitive with a 3% coupon at par.  As you say new bonds are available that pay 3%. But our fund doesn't hold them; we hold old bonds with a face value of $100m but a market value of only $90m. If we sell those bonds now and buy 3% bonds to (try to) replace them, we only get $90m par value of 3% bonds, so now our fund is paying a competitive 3% but NAV is still only $90.  At the other extreme, say we hold the 2% bonds to maturity, paying out only 2% interest but letting our NAV increase as the remaining term (duration) and thus discount of the bonds decreases -- assuming the market interest rate doesn't change again, which for 10 years is probably unrealistic (ignoring 2009-2016!). At the end of 10 years the 2% bonds are redeemed at par and our NAV is back to $100 -- but from the investor's point of view they've forgone $10 in interest they could have received from an alternative investment over those 10 years, which is effectively an additional investment, so the original share price of $90 was correct.
In my experiences most hedge funds won't have a benchmark in their mandate and are evaluated based upon absolute returns.  Their benchmarks are generally cash + x basis points.  So, no attribution and no IR.  No experience at all with CTA's though, so not sure how things are there. You bring up good points, but the balance of power works both ways.   Investment Banks need ratings in order to push through with fixed income issuance. If rating agencies refuse to rate a product (and it has happened, I know we are shocked!), investors will be far less likely to participate and will demand substantially higher rates of return. There are the EDHEC-risk indices based on similar hedge fund types but even then an IR would give you performance relative to the competition, which is not useful for most hf's as investors don't say I want to buy a global macro fund, vs a stat arb fund, investors say I want to pay a guy to give me more money!  Most investors don't care how the OTHER funds did or where the market went, they want that NAV to go always up , which is why a modified sharpe is probably better. The ETF price quoted on the stock exchange is in principle not referenced to NAV. The fund administrator will calculate and publish the NAV net of all fees, but the ETF price you see is determined by the market just like for any other security.  Having said that, the market will not normally deviate greatly from the NAV of the fund, so you can safely assume that ETF quoted price is net of relevant fees. "Does the bolded sentence apply for ETFs and ETF companies? No, the value of an ETF is determined by an exchange and thus the value of the share is whatever the trading price is. Thus, the price of an ETF may go up or down just like other securities. Money market funds can be a bit different as the mutual fund company will typically step in to avoid ""Breaking the Buck"" that could happen as a failure for that kind of fund. To wit,   must ETF companies invest a dollar in the ETF for every dollar that an   investor deposited in this aforesaid ETF? No, because an ETF is traded as shares on the market, unless you are using the creation/redemption mechanism for the ETF, you are buying and selling shares like most retail investors I'd suspect. If you are using the creation/redemption system then there are baskets of other securities that are being swapped either for shares in the ETF or from shares in the ETF." What is the question?  A total return fund seeks to just maximize total returns, as opposed to benchmark tracking, low vol, high vol, sectoral, whatever, this is just a name you gotta read the long prospectus to see how they are supposed to go about doing it.  Fixed income investing DOES NOT rely on on interest rates, it relies on the movements of interest rates (this is a key difference).  When economies are doing poorly, there is a flight to quality (everyone is scared and lends only to governments) driving government interest rate downs and increasing the spread between government rates and corporates.  My usual advice is There is never a good time to buy a mutual fund :P, better to buy an ETF or a portfolio of ETF's that correspond to your views.  You need to sit down and ask yourself what type of risk tolerances you're willing to take as mutual funds by construction deliver negative alpha due to fees. The Creation/Redemption mechanism is how shares of an ETF are created or redeemed as needed and thus is where there can be differences in what the value of the holdings can be versus the trading price. If the ETF is thinly traded, then the difference could be big as more volume would be where the mechanism could kick in as generally there are blocks required so the mechanism usually created or redeemed in lots of 50,000 shares I believe. From the link where AP=Authorized Participant: With ETFs, APs do most of the buying and selling. When APs sense   demand for additional shares of an ETF—which manifests itself when the   ETF share price trades at a premium to its NAV—they go into the market   and create new shares. When the APs sense demand from investors   looking to redeem—which manifests itself when the ETF share price   trades at a discount—they process redemptions. So, suppose the NAV of the ETF is $20/share and the trading price is $30/share. The AP can buy the underlying securities for $20/share in a bulk order that equates to 50,000 shares of the ETF and exchange the underlying shares for new shares in the ETF. Then the AP can turn around and sell those new ETF shares for $30/share and pocket the gain. If you switch the prices around, the AP would then take the ETF shares and exchange them for the underlying securities in the same way and make a profit on the difference. SEC also notes this same process. Price, whether related to a stock or ETF, has little to do with anything.  The fund or company has a total value and the value is distributed among the number of units or shares.   Vanguard's S&P ETF has a unit price of $196 and Schwab's S&P mutual fund has a unit price of $35, it's essentially just a matter of the fund's total assets divided by number of units outstanding. Vanguard's VOO has assets of about $250 billion and Schwab's SWPPX has assets of about $25 billion. Additionally, Apple has a share price of $100, Google has a share price of $800, that doesn't mean Google is more valuable than Apple.  Apple's market capitalization is about $630 billion while Google's is about $560 billion.  Or on the extreme a single share of Berkshire's Class A stock is $216,000, and Berkshire's market cap is just $360 billion.   It's all just a matter of value divided by shares/units. They can rebalance and often times at a random manager's discretion. ETF's are just funds, and funds all have their own conditions, read the prospectus, thats the only source of truth. The key two things to consider when looking at similar/identical ETFs is the typical (or 'indicative') spread, and the trading volume and size of the ETF. Just like regular stocks, thinly traded ETF's often have quite large spreads between buy and sell: in the 1.5-2%+ range in some cases. This is a huge drain if you make a lot of transactions and can easily be a much larger concern than a relatively trivial difference in ongoing charges depending on your exact expected trading frequency. Poor spreads are also generally related to a lack of liquidity, and illiquid assets are usually the first to become heavily disconnected from the underlying in cases where the authorized participants (APs) face issues. In general with stock ETFs that trade very liquid markets this has historically not been much of an issue, as the creation/redemption mechanism on these types of assets is pretty robust: it's consequences on typical spread is much more important for the average retail investor. On point #3, no, this would create an arbitrage which an authorized participant would quickly take advantage of. Worth reading up about the creation and redemption mechanism (here is a good place to start) to understand the exact way this happens in ETFs as it's very key to how they work. I stumbled on the same discrepancy, and was puzzled by a significant difference between the two prices on ETR and FRA. For example, today is Sunday, and google shows the following closing prices for DAI. FRA:DAI: ETR:DAI: So it looks like there are indeed two different exchanges trading at different prices.  Now, the important value here, is the last column (Volume). According to Wikipedia, the trading on Frankfort Stock Exchange is done today exclusively via Xetra platform, thus the volume on ETR:DAI is much more important than on FRA:DAI.  Obviously, they Wikipedia is not 100% accurate, i.e. not all trading is done electronically via Xetra. According to their web-page, Frankfort exchange has a Specialist Trading on Frankfurt Floor service which has slightly different trading hours.  I suspect what Google and Yahoo show as Frankfort exchange is this manual trading via a Specialist (opposed to Xetra electronic trading). To answer your question, the stock you're having is exactly the same, meaning if you bought an ETR:BMW you can still sell it on FRA (by calling a FRA Trading Floor Specialist which will probably cost you a fee). On the other hand, for the portfolio valuation and performance assessments you should only use ETR:BMW prices, because it is way more liquid, and thus better reflect the current market valuation. "Because ETFs, unlike most other pooled investments, can be easily shorted, it is possible for institutional investors to take an arbitrage position that is long the underlying securities and short the ETF.  The result is that in a well functioning market (where ETF prices are what they should be) these institutional investors would earn a risk-free profit equal to the fee amount. How much is this amount, though? ETFs exist in a very competitive market.  Not only do they compete with each other, but with index and mutual funds and with the possibility of constructing one's own portfolio of the underlying.  ETF investors are very cost-conscious. As a result, ETF fees just barely cover their costs.  Typically, ETF providers do not even do their own trading.  They issue new shares only in exchange for a bundle of the underlying securities, so they have almost no costs.  In order for an institutional investor to make money with the arbitrage you describe, they would need to be able to carry it out for less than the fees earned by the ETF.  Unlike the ETF provider, these investors face borrowing and other shorting costs and limitations. As a result it is not profitable for them to attempt this.  Note that even if they had no costs, their maximum upside would be a few basis points per year.  Lots of low-risk investments do better than that. I'd also like to address your question about what would happen if there was an ETF with exorbitant fees.  Two things about your suggested outcome are incorrect.   If short sellers bid the price down significantly, then the shares would be cheap relative to their stream of future dividends and investors would again buy them.  In a well-functioning market, you can't bid the price of something that clearly is backed by valuable underlying assets down to near zero, as you suggest in your question. Notice that there are limitations to short selling.  The more shares are short-sold, the more difficult it is to locate share to borrow for this purpose.  At first brokers start charging additional fees.  As borrowable shares become harder to find, they require that you obtain a ""locate,"" which takes time and costs money.  Finally they will not allow you to short at all.  Unlimited short selling is not possible. If there was an ETF that charged exorbitant fees, it would fail, but not because of short sellers.  There is an even easier arbitrage strategy: Investors would buy the shares of the ETF (which would be cheaper than the value of the underlying because of the fees) and trade them back to the ETF provider in exchange for shares of the underlying.  This would drain down the underlying asset pool until it was empty.   In fact, it is this mechanism (the ability to trade ETF shares for shares of the underlying and vice versa) that keeps ETF prices fair (within a small tolerance) relative to the underlying indices." leveraged etf's are killer to hold because they seek to return some multiple of the DAILY price movement in an index. so twm seeks to return 2x the daily move in the russell 2000 Let's trace this out assuming (just to make it easy) large daily moves, and that you start with $1000 and the russell 2000 starts at 100. start of first day rusell 2000 == 100 you have $1000 end of first day (up 10% nice!) rusell 2000 == 110 you have $1200 end of second day (~9.1% down) russell 20000 == 100 you have $981.60 so the russell 2000 can move nowhere and you have lost money! This doesn't apply to all etf's just leveraged etf's.  You would be better buying more of a straight inverse etf (RWM) and holding that for a longer time if you wanted to hedge. You set it based on liquidity management. Cash drag is one of the reasons actively managed funds underperform. The longer your settlement date, the less cash you have to hold because you can take three days to liquidate positions to redeem. So it's a convenience vs performance question. "I thought the other answers had some good aspect but also some things that might not be completely correct, so I'll take a shot. As noted by others, there are three different types of entities in your question:  The ETF SPY, the index SPX, and options contracts. First, let's deal with the options contracts.  You can buy options on the ETF SPY or marked to the index SPX.  Either way, options are about the price of the ETF / index at some future date, so the local min and max of the ""underlying"" symbol generally will not coincide with the min and max of the options.  Of course, the closer the expiration date on the option, the more closely the option price tracks its underlying directly.  Beyond the difference in how they are priced, the options market has different liquidity, and so it may not be able to track quick moves in the underlying. (Although there's a reasonably robust market for option on SPY and SPX specifically.) Second, let's ask what forces really make SPY and SPX move together as much as they do.  It's one thing to say ""SPY is tied to SPX,"" but how?  There are several answers to this, but I'll argue that the most important factor is that there's a notion of ""authorized participants"" who are players in the market who can ""create"" shares of SPY at will.  They do this by accumulating stock in the constituent companies and turning them into the market maker.  There's also the corresponding notion of ""redemption"" by which an authorized participant will turn in a share of SPY to get stock in the constituent companies. (See http://www.spdrsmobile.com/content/how-etfs-are-created-and-redeemed and http://www.etf.com/etf-education-center/7540-what-is-the-etf-creationredemption-mechanism.html) Meanwhile, SPX is just computed from the prices of the constituent companies, so it's got no market forces directly on it.  It just reflects what the prices of the companies in the index are doing. (Of course those companies are subject to market forces.) Key point: Creation / redemption is the real driver for keeping the price aligned.  If it gets too far out of line, then it creates an arbitrage opportunity for an authorized participant.  If the price of SPY gets ""too high"" compared to SPX (and therefore the constituent stocks), an authorized participant can simultaneously sell short SPY shares and buy the constituent companies' stocks.  They can then use the redemption process to close their position at no risk.  And vice versa if SPY gets ""too low."" Now that we understand why they move together, why don't they move together perfectly.  To some extent information about fees, slight differences in composition between SPY and SPX over time, etc. do play.  The bigger reasons are probably that (a) there are not a lot of authorized participants, (b) there are a relatively large number of companies represented in SPY, so there's some actual cost and risk involved in trying to quickly buy/sell the full set to capture the theoretical arbitrage that I described, and (c) redemption / creation units only come in pretty big blocks, which complicates the issues under point b. You asked about dividends, so let me comment briefly on that too.  The dividend on SPY is (more or less) passing on the dividends from the constituent companies. (I think - not completely sure - that the market maker deducts its fees from this cash, so it's not a direct pass through.)  But each company pays on its own schedule and SPY does not make a payment every time, so it's holding a corresponding amount of cash between its dividend payments.  This is factored into the price through the creation / redemption process.  I don't know how big of a factor it is though."