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ETF Flows
12:13
Any fund that can handle a billion dollar redemption and only swing to a fractional discount is NOT in trouble.  It's a beast.
That said, see all the above.  It's the part of the market im watching the most closely.
RateHunter
12:13
ZROZ: Too late?
ETF Flows
12:13
Yes.
lol
12:14
But seriously:  ZROZ is up something like 60% on a one year basis.
because a 25 year zero coupon bond is just about the most interest rate sensitive security known to man.
It's very hard for me to build a bull case for owning ZROZ (or any of it's ilk) right now.
12:15
I can create a good short case!  Eventually interest rates will normalize, even if that just means a slightly upward slope to the curve.
and that will swing ZROZ right back down
Duration is a thing y'all.
Anon
12:15
Anything surprising to you in terms of investor reactions in the past week or two as seen through ETF flows?
ETF Flows
12:16
I think a lot of people are surprised to see as much INFLOW as we've seen.  In past market dislocations (particularly say 2000-2001, and the GFC) we didn't have an ETF for just about any possible thesis.
Today we do.
So even if your panicked idea was "Sell all my risk, buy short term bonds" you could do that in a net-zero-flow way, just selling equity ETFs and buying short duration bond ETFs.  Or gold.  Or whatever.
12:17
Net net, this will be a quite positive period for ETF flows, relative to active mutual fund flows.  Every market hiccup we've ever had, that's been the case.  Some short term chaos, then a FLOOD into low cost beta.
I see no reason for that to be different this time.
Anonymous
12:17
What happens when levered funds become mathematically impossible at times like this?
ETF Flows
12:17
Well, we've seen a tiny bit of this (we had two funds get delisted last week).
12:18
That was my piece yesterday, fwiw
12:19
But most levered products have triggers under which they simply shut down.  So for example, everyone was watching the levered oil funds.  They have a 75% drop trigger.  If they trade that far down on any day, the simply shut down, and you get whatever money you have left back.
The more leverage on the more volatile index, the more likely it is to happen.
Its for this reason, we don't have 3X volatility ETPs anymore.  They just trigger to quickly at times like this.
OK, time for one last question before I have to hop.
Anonymous
12:19
So, should we be worried about the "plumbing" breaking here?  What happens when nobody can go to work to run their funds, or trade, or calculate NAVs and such>?
ETF Flows
12:20
For the most part, I'm not super worried about this.  20 years ago, sure, this would have been really hard.  But 20 years is a long time.  Many, many key systems are now easily available remote.  Most trading is happening through systems that can be run remote, etc...
We're way past when we had to, had to have guys in blazers on the NYSE floor, or the markets simply stopped.
12:21
THere will be some hiccups for sure.  In particular, I don't know a lot of bond desks that have this completely figured out.  But technology is pretty awesome, and I feel confident in the core plumbing of the financial system.
This has been a heck of a test.  But so far, it's actually all passing with flying colors.  May not feel like that on a day like today, but, well, there it is.
12:22
OK folks, thanks for joining this inaugural chat.  Transcript up shortly on ETFTrends.com.  Have a great afternoon!  Stay safe out there!
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