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Dave Nadig
11:30
Good morning folks, Dave here.  Welcome to the first run at a new feature for us -- a live Q&A.
You can use the little box at the bottom to ask any questions you like, and can keep yourself anonymous, so don't be bashful.  There are no stupid questions.
11:31
Or if there are, I've probably already asked a lifetimes worth.
So let's get started.
Bill Donahue
11:31
Eric Balchunas shared a chart on Twitter showing that 1/2 of the top 30 asset managers do not currently have ETFs. How do expect this landscape will evolve over the next two years?
Dave Nadig
11:31
It seems like just a few years ago we were talking about how the industry was too concentrated in the first movers, and it was impossible for anyone to make any headway.
11:32
But honestly, I look at the league tables, and I see a lot of movement.
I was at the launch event for Schwab's ETFs like, maybe 7-8 years ago, and a lot of us in the room were thinking "good luck trying to out-Vanguard Vanguard"
and here they are, knocking at 4th place.
11:33
Northern Trust - a bit out of nowhere, now a powerhouse.  Fidelity, now a 10B complex, with just a few funds.
So I think there's a lot of room still, with the big caveat that distribution is incredibly important.
11:34
If you look at who's been successful in the last few years, it's folks who bring some distribution to the table -- or who get very, very lucky with a niche, thematic product (HACK, for example).
But I think Non-Transparent Active funds become a thing, and then it's a bit Katy Bar The Door -- we'll see a lot of products launch.  Whether the assets flow?  Well, we'll see.
Joel Miller
11:34
They were talking about new fund RVRS on Bloomberg yesterday. Would you buy that one or just RSP?
Dave Nadig
11:34
Hi Joel.  So RVRS -- that's the Reverse S&P 500 Fund.  It basically weights the S&P backwards.
11:35
THeoretically, if you take SPY and RVRS and you own them equally, you're *sort of* making RSP.   RVRS is just a much more extreme version of overweighting the midcaps.
11:36
I think it's an *interesting* product.  It's a bit of a scalpel for reweighting your large cap -- or really megacap -- exposure if your an S&P 500 investor.
So I think it's a pretty narrow, fine-tuning use case.  Honestly you can say that for a lot of funds launched in the last few years -- narrow, fine-tuning use cases.
Mike Shell
11:37
Do you see selecting ETFs any different than choosing between active funds? Even in the same sector or classification, index ETFs can have unique return streams, so the dispersion can be material.
Dave Nadig
11:37
Hi Mike -- boy I think there's a WORLD of difference.
Selecting active managers is, to me, a bit of voodoo.  You're making a direct assessment of a human being, or a team of human beings, and the processes surrounding them.
11:38
Picking a passive (indexed, or smartbeta) ETF is really just about understanding your exposures.  But those exposures are a LOT more predictable.
THere's essentially zero chance that your index-based emerging markets fund all of the sudden starts buying UK manufacturers, for instance, or decides to hold 20% cash for a while.
11:39
That being said, I actually worry some ETF investors DONT look enough at exposures.  As you point out, the difference between funds that look very headline similar can be HUGE.
it all comes down to looking under the hood at the index itself, and how its constructed.
Stephen
11:39
Are there trading halts based on the deviation between the ETF market price and its indicative value?
Dave Nadig
11:40
At the moment, I'm unaware of *any* formal system that looks at the iNav or IOPV or IV (all acronyms for intraday fair value assessments) and relate that back into the exchanges themselves.
11:41
If you think about it, it would be blisteringly difficult to do.  How would you handle foreign securities, non-trading bonds, commodities that close before 4PM, and so on.
these are all issues that drive day to day prices to differ from INAV very naturally, so building halts off them would be super problematic.
In the wake of August 24th some years ago, the exchanges did fine tune a lot of the plumbing around circuit breakers and re-opens from halts and so on, and so far, my assessment is its worked quite well.
Tim D
11:42
Why is there not level a playing for exemptive relief regarding custom baskets as it relates creating/redeeming in FI ETFs?
Dave Nadig
11:42
Now THAT'S a big hair question (grin).
11:43
So, ETFs are super unique, among financial products, in that they essentially exist by loophole and exemption.  Everything cool about ETFs comes about because they break the rules -- legally.
So the first firms out of the gate -- State Street and now-Blackrock (then Wells Fargo Nikko Investment Advisors) -- got very different rulings on how and what rules they could bend than someone going in today would get.
11:44
This tends to come up around creation/redemption.  Early entrants often have huge flexibility.  They can, for instance, have ZYX in the creation basket, but put XYZ in the redemption basket, essentially allowing creation/redemption activity "make trades" for them.
11:45
they can even negotiate a basket for a big trade.
So it's mostly a historical accident, but a very meaningful one.  Every year or so, regulators talk about an "ETF Rule" that would clean all this up.  But it's perpetually abotu a year out, so I'm no longer holding my breath.
11:46
I do think it's needed, however.  Level playing fields are, long term, good for everyone, including investors!
Guest
11:46
Why are closed-end funds not considered ETPs?
Dave Nadig
11:46
So, CEFs are, generally speaking, also registered under the 1940 act (like mutual funds and most ETFs).  So they live by *some* of the same rules as both ETFs and Mutual Funds.
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