You are viewing the chat in desktop mode. Click here to switch to mobile view.
X
ETFTrends Live Chat!
powered byJotCast
View Full Chat Next Page
ETF Flows
12:00
Good afternoon, welcome to the first edition of ETF Trends Working Lunch.
I'm Dave Nadig, Director of Research around these parts. Ask any questions you like, and ill do my best to answer them in the next 30 minutes or so.
A transcript will be up at the end of the session, in case you miss something, at this same URL>
Let's get going!
OldGuy
12:01
You used to give a soundtrack for this.  Too crazy today? Or ...
ETF Flows
12:01
God bless ya.  Yeah, at times like this I tend to go either super chill, or straight up punk.  Today it's the latter.
Uranium Club.  Good stuff.
Bill Donahue
12:01
Dave,  what are some of the things that have surprised you the most about the impact of the Coronavirus and related market volatility, including flows, liquidity, etc. related to ETFs?
ETF Flows
12:01
Hi Bill, welcome back!
12:02
I'm actually less surprised right now than I was a month ago.  The market took a very, very long time to realize this was going to be a major economic event.
12:03
So far, what we've seen is about what I'd expect.  Everything is "working" for the most part, in that there aren't any catastrophes.  I'm not like, happy, but clearly the systems are all working.
I have been most surprised by what's happened in credit and treasuries.
I never actually thought I'd see a curve this low and flat in my lifetime.  It really changes the nature of investing, when the risk free asset yields nothing.
So if I was picking one thing to really pay attention to, it would be corporate bonds.
Anon
12:04
I saw your piece just now on the trading halts.  As a regular old advisor, do I have to worry about participating in auctions and halts and all that???
ETF Flows
12:04
Hi Anon, and welcome.  Short answer ... no, you don't really need to worry about this.  Here's a link to the article referenced, FWIW:
My advice really remains the same as always:  never play in the first or last 10-15 minutes of the market, and never use market orders.
12:05
The latter is perhaps the most important.  THere's literally nothing else I can think of where a rational person would say "I don't care what the price is, just get it done."
You wouldn't put your house on the market for "best offer I get in the next 10 minutes, no matter how low!"
So why would you put in an order to sell an ETF that way?
12:06
The example of the JPST auction, while interesting, isn't a systemic problem, it's a human problem.  Some human (or humans) stacked up some indiscriminate sell orders.
Meghan
12:06
Hi Dave, can you further explain why you think we should pay attention to corporate bonds?
ETF Flows
12:07
Sure.  So, this is pretty well known, so hardly deep geek from Dave.  A HUGE chunk of corporate issuance int he past decade has been in BBB rated bonds.  That's the step above junk.
These are the most at risk of default, and obviously the environment is NOT GOOD for companies at the bottom of the credit food chain.  I expect a rash of downgrades over the next few months.
12:08
So that BBB paper has to go somewhere, at some price.  It will probably be a CHEAP price, because far fewer people want junk than want Investment Grade paper.
First, the fallen angel funds (FALN/ANGL) will pick up a lot of that paper when it gets oversold.  But then its just flush in the market.  It will have real implications.  High grade paper likely gets bid up, junk bid down.
there could be some dramatic moments.
Guest
12:09
Lots of ETFs had short sale restrictions last couple days, seemed to cause a disconnect to the NAV of the fund at times.   What do you think?
ETF Flows
12:09
So, when a fund (or stock) gets short sale restricted, this shouldn't have a mechanical impact on whether the fund prices well.  Market makers can still sell ETFs they don't have in inventory in order to make markets.  APs can still do their part, selling short and buying the underlying in order to create at the end of the day.
12:10
The disconnect is much more around volatility.  The reason securities get restricted or halted is because "they moved a lot."  In those markets, APs often step back and widen out their spreads, because by definition, they have less certainty in their outcomes.
wider spreads in fast moving markets means trades off of advertised fair value.
12:11
BUT, in the bond market in particular, you can't believe NAV/INAV anyway, because those are set by pricing services, not real world activity, as often as not.
pricing services are always lagged off real market sentiment.
Todd Rosenbluth - CFRA
12:11
Hi Dave. Great to have you do this again. Can you comment about how high yield bond ETFs have held in there despite record volume and outflows?  Investors have been getting prices close to NAV and most trading has been in secondary market.
ETF Flows
12:11
And here's Todd making my point (Hi Todd!).
For the most part, the junk ETFs have done EXACTLY what they are supposed to do.
12:12
In particular, HYG/JNK have traded at premiums/discounts completely in line with their norm.  Yes, HYG swung from a 30-40bps premium to a 30-40bps discount
But it did that while simultaneously dealing with HUGE, billion dollar redemption days.
Connecting…