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Dave Nadig
11:47
The HUGE difference is that a CEF, while you do buy and sell it on an exchange, like a stock or an ETF, doesn't have a continuous creation/redemption process.
Most CEFs issue a set number of shares, and that's mostly it.  They have various liquidity periods and lockups and conditions for issuing new shares and so on, but not a daily process like ETFs.
11:48
That continuous process is what allows ETFs to trade very close to fair value, and hte lack of it is what forces many CEFs to trade at wide discounts or premiums to their fair value.  They're trading price is at the whim of investor supply and demand.
Matt Hougan
11:48
Five years from now, will the largest S&P 500 ETFs exclude any of the following securities: a) Companies that manufacture firearms; b) Companies that have clear failures on equal pay; c) Companies that don't offer appropriate voting rights for shareholders?
Dave Nadig
11:49
Matt Hougan - slumming it from the Bitcoin mines I see.   But seriously ...
I dont think you see the S&P 500 change it's rules.  I really don't.
Because the index your talking about basically exists.  It's the SPXESRP (I was looking at it earlier for an article).
11:50
its the S&P500, minus all the sin stocks and gun companies and heavy polutors and so on.
It culls down to something like 350 stocks.
11:51
So what I *do* think you'll see, slowly, is institutional mandates migrating towards products like that.  It will be slow, but I do think it will happen.
(Worth noting, I don't think the S&P500 has any gun stocks as they are all small caps)
Anonymous
11:51
Can you ever close an ETF to new investors, like with a mf, when it gets too big to efficiently scale?
Dave Nadig
11:51
Short answer: No.  Longer answer: Sort of.
11:52
So, TECHNICALLY, a fund can "close the window" for new creations.  And we have seen it from time to time.
It generally only happens when either the issuer forgot to file some paperwork (happened in some USCF funds a while back if I recall, for like, a day), or when there's some sort of structural problem.
11:53
An example of the latter would be when EGPT closed for new money during the 25-ish day closure of the Egyptian markets during the Arab Spring.
What happens then is predictable -- the ETF trades out of whack to fair value -- in that case, to monster premium.  When it reoppened, it came way back down to fair value.
11:54
but from a practical perspective, no, ETFs are designed to be continuously open so they will trade around fair value.  If an issuer's strategy can't handle size, generally it shouldn't be in an ETF.
Sam
11:54
Are all gold ETFs taxed as collectibles?
Dave Nadig
11:54
Nice and simple one!!!  Most.
GLD/IAU and so on, which old physical gold in vaults, get taxed as collectibles.
11:55
the ones that hold futures (DGL I believe) are taxed as commodities pool (60/40 long/short marked to market each year).
11:56
and of course, miners (GDX/GDXJ for instance) are just equity funds.
Sam
11:56
Can exchange trading halts cause ETFs to deviate from their NAV?
Dave Nadig
11:56
(I'm sort of bouncing around questions, ill try and get to all of them here if I can)...  But on Sam's here:
11:57
So when an ETF halds trading, generally whatever it owns doesn't also get halted.  So for example, if a small cap tech ETF halts for some reason, let's assume the 100 small cap tech stocks it owns keep trading.
Sort of by definition, the fair value will continue to move, while the ETF doesn't.  All else being equal, when that ETF reopens, it will price pretty close to fair value.
11:58
Now, if there's some sort of huge market disruption -- all the small cap tech stocks gapped down 20% on the open or something -- then all bets are off.
in those cases, we've historically seen a back and forth of pricing information, where as stocks reopen, the ETFs reprice, and vice versa.
but fingers crossed, we haven't seen that kind of event in quite some time now.
David
11:59
Are there any hidden risks to etfs and how they are built? Can a broadbased etf based on the S&P 500 reduce more than market Beta in a downturn? What's the best way to "look under the hood"?
Dave Nadig
11:59
In general, ETFs are a pretty straightforward wrapper.
The vast majority are just 40 act mutual funds under the hood, with boards that are looking after the interests of investors, and so on.
12:00
That said, I think where investors can get in trouble are in a few places.
1: They're traded vehicles.  Because they are traded, disruptions in the trading markets can impact them on a short term basis.
12:01
So can an S&P ETF get pushed off its fair value -- yes, for a short period of time, or with a low volume.  But assuming otherwise functioning markets, it's too easy for Authorized Participants to make "free money" arbitraging out price differences for anything like that ot persist.
12:02
Now if its a tiny ETF, with no trading interest, etc, then you can see a small trade on the tape be out of whack -- but that's why you as an investor need to just use some basic trading common sense.  No limit orders.
2: they're just exposures.  You *have* to know what you own and why you own it, just like you would with anything else.  Don't believe headlines.
12:03
Under the hood?  Dare I say read prospectuses?  Or you can find info here (etf.com/spy or whatever ticker).  You can find holdings and portfolio info there as well
ClockworkAngelInvestor
12:03
With most big trading platforms restricting which ETFs they list based on size, liquidity, longevity, etc., do small/new ETFs even have a chance to get big any longer? Or does the infrastructure of trading itself prevent all but the luckiest or hottest-trend funds from getting in front of investors?
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