‘Trillions’ Podcast: ETF Pundits Debate Industry Topics in Roundtable Discussion
This article was originally published on ETFTrends.com.
With over 2,000 exchange-traded funds (ETFs) in the United States alone in a bevy of assets, sectors and strategies, the industry is ready to continue capitalizing on its exponential growth seen within the past decade.
Over the course of its expansion, hot-button issues have arrived and in the latest episode of Bloomberg's podcast "Trillions," a group of expert ETF pundits came together to divulge their thoughts and debate on 20 topics swirling within the industry.
Joining "Trillions" hosts Joel Weber and Eric Balchunas were Dave Nadig, managing director of ETF.com; Tom Lydon, ETF Trends publisher; and Todd Rosenbluth, director of ETF and mutual fund research at CFRA. Topics included in this roundtable discussion were industry trends, expense ratios, social responsibility investing, and innovation.
Below is a smidgen of topics discussed on the podcast, but readers can derive the full benefits of hearing these industry experts by listening to the full podcast by clicking here or on the image below.
1. Expense Ratios: Is Too Much Attention Paid to Them?
An expense ratio, the cost charged to investors in order to manage an exchange-traded fund, may cause investors to screen ETFs solely on which provide the best return at the cheapest price. However, investors relying strictly on using expense ratios as a screener, can be foregoing opportunities that can be had if they looked at other fund characteristics.
"Most definitely (too much attention is paid to the expense ratio)," said Rosenbluth. "You've seen a race to the bottom, but there are products that compete with one another where the exposure is quite different from one another."
"It always matters because fees are important," said Nadig. "But, I think what Todd was trying to say, but stumbled over his own tongue, was that exposure matters way more than fees and that's the number one thing that determines your performance."
"Price is important, but major market indicators, if you're paying four basis points that's great," said Lydon. "But as we see, thematic, factor, multi-factor--you're going to pay a little bit more for it, but compare that to mutual fund expense ratios, it's crazy."
2. How Will a Bear Market Affect ETFs?
With the rise of ETFs following the recovery after the financial crisis and now into the extended bull run, the pundits addressed how they would perform when a market downturn does take place.
"It's going to be great for ETFs because it's going to flush out a lot of overpriced, underperforming, low-active, share-active managers," said Nadig.
"We haven't talked about this before, but a lot of money is going to go into mutual funds, money market funds, short-term fixed-income," said Lydon. "The industry's going to be hurt."
"I think people don't want to pay much when they're losing money so the less that they can pay through ETFs, fixed-income and equity products I think are going to garner more interest," said Rosenbluth.
3. How Much Responsibility is Given to ETFs for the Current Bull Market?
With the major indexes like the S&P 500 reaching historic levels, a lot of the current bull market can be attributed to growth in the technology sector, but are ETFs culpable as well?
"I would say ETFs are a symptom of that; not a cause," said Nadig.
"The ETF is riding in the back seat of the car; not driving," said Rosenbluth.
"They've just been along for the ride," said Lydon.
4. Which ETF Provider is Most Likely to Crack the Top 5 that Isn't there Now?
Cream rises to the top and with the number of ETFs rapidly expanding, a saturated market means that innovation can be born and ETF providers who weren't in the forefront of the industry before can do so in the future.
"WisdomTree--if you look at WisdomTree, the whole idea is they were built on the currency strategy and with the dollar strong, it's really tough for them," said Lydon. "But it's well positioned that when things start to cool off here in the U.S., it will heat up oversees, especially in developing countries."
"JP Morgan is crashing the ETF party," said Rosenbluth. "They're about to hit the top 10 with their beta builder products being a driver and with active management and multi-factor, I think they're going to put the resources behind growing in this space."
"Charles Schwab is rapidly headed towards a top 3 player," said Nadig.
5. Which ETF category Will See the Most Innovation in Five Years?
Disruptive innovation is already taking hold of the ETF space, but in five years, it will be an arms race by ETFs to see who can capitalize on the latest and greatest technologies.
"Thematic ETFs," said Nadig. "I think it's where you're seeing the most interesting stuff happen right now."
"I think fixed-income is where we're going to start to see this," said Rosenbluth.
"I think active equity," said Lydon. "We get a bear market in stocks, there are a couple of ETFs poised to go all cash and if they catch it on the downside, sidestep it and get in on the upside, here is where an ETF company can set themselves apart performance-wise."
6. What's the Problem with ESG ETFs--How Come No one is Buying Them?
The rise of ETFs have also called to mind social responsibility, allowing investors to allocate capital into environmental, social and governance (ESG) ETFs, which are not relatively new, but the concept is still struggling to break into the realm of the mainstream, particularly in the current risk-on investing landscape.
"I just think people just want to buy simple things from an ETF wrapper," said Rosenbluth. "The other part of the problem is the money that's in these mutual funds is sticky."
"I think money is going to come, but it's going to be a long, slow trickle," said Nadig.
"All the backtesting shows that there's some alpha to be gained there, but that's the question," said Lydon.
7. Will there be a Bitcoin or Crypto ETF by the End of 2019?
Thanks to the Securities and Exchange Commission, nine have tried and nine have failed when it comes to a Bitcoin or cryptocurrency-related ETF breaking into the capital markets. However, with another year to process the data and scrutinize it further, will the SEC finally embrace digital currencies by the end of 2019?
"No," said Rosenbluth. "The SEC has concerns about it. There isn't the data to back up that this can be handled in a way without fraud--it's a hard thing to overcome proving that."
"SEC is looking at it for sure; they're trying to get their arms around it," said Lydon. "It will happen by the end of 2019."
"I think futures-based products is where this is going to happen," said Nadig. "It's really hard for the SEC to say you can invest in oil futures and natural gas futures, but you can't invest in crypto futures, they settle the same way, they trade the same way. I think it's just a matter of time and the time is 2019."
To listen to the full, complete podcast, click here.
For more market strategies, visit ETF Trends.
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