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Dave Nadig
12:03
If you're a little guy with an idea, I'll be honest, it's a TOUGH market.
12:04
I don't think thats a new thing however.  It's always been tough for small investment managers to move the needle on distribution.
12:05
Many if not most major platforms will have some process for limiting the list of ETFs available to their investors -- that can be a retail shop having a blanket rule against, say, all leveraged funds or all ETNs, or it can be an advisor platform limiting their advisors to a small "approved list"
12:06
There's no secret sauce, but demand generation is the name of the game.  I remember when "HACK" caught fire.  It was NOT on many platforms, but there was enough advisor demand (calls back to home office) that I know it got on at least a few platforms in an expedited fashion.
BUt there's no secret sauce. It's about shoe leather and good ideas.
12:07
I've been asked a lot if this is "fair" and I guess my response is: what business is?  How easy is it to launch a new desktop operating system?  Or airline?
its a BIG business with entrenched players.  Disruption is *hard*.
Mike Shell
12:08
I promise that my original question asking if you think selecting an index ETF is any different than selecting active funds is any different. You made a great point that I very much concur with that it’s essential to look at the exposures. But then, when you say:

“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.”

It brings up another observation - so are indexes. An index is a black box and many are also operated by “a human being, or a team of human beings”. We don’t know in advance which stocks they’ll add or delete and the index weighting changes over time as well. So, we can know what the exposures are until the next reconstitution, but then it changes.
Dave Nadig
12:08
Good followup here, I'll focus on the observation, and disagree a bit.
MOST indexes have a rulebook, and that rulebook tells us what the index WILL do.
12:09
This is why, for instance, the Russell rebalance is pretty predictable.  We can all read the rules, and know with pretty near certainty which stocks will go in and out.
There are exceptions, particularly in old school indexes.  The S&P 500 and the Dow, for instance, are not nearly as formulaic as, say, the MSCI US Large Cap index.
12:10
Even if you get into the smarty-pants smart beta stuff, most of them have pretty easy to understand rulesets.
I would argue if they DONT, if they're littered with committees and over-rides, well, then you should be skeptical, and start looking at them like active funds, where the people and processes are of primary importance.
12:11
But, U.S. Min Vol?  I can predict preeeeety clearly whats going in and out at each reballance.
DMV
12:11
Why are ETFs not used in 401(k) accounts if they are better than mutual funds?
Dave Nadig
12:11
So, super nerdy answer.
12:12
If you're sticking $500 into your 401k, you need to divide that up across a few funds.  If an ETF can only be bought one share at a time, you're going to have a very sloppy trade.  If the ETF is $150, well, you're either putting in 150, 300 or 450 into it.
Mutual funds trade in fractional shares, so you can buy 1.0243 shares of some mutual fund.
12:13
this makes doing any kind of dollar cost averaging much much easier in a mutual fund, and that's how every 401k record keeping system since the dawn of time was built.
there ARE ways around it, of course, and some folks (Invest 'n' Retire, Schwab, to name 2) have figured it out.
12:14
Usually, it involves "repooling" the ETF shares into a trust, and then doing fractional shares of the trust.
to which the logical quesiton is "why bother, if you can just get the same exposure at the same cost in a mutual fund"
and most of the time, you can get pretty close.
the second less-nerdy answer is that many 401k plans use 12b1 fees from the target mutual funds to offset recordkeeping costs.
99.99% of etfs don't charge 12b1 fees.
12:15
Also worth noting, two of the big etf features -- intraday trading and tax efficiency -- are generally irrelevant in 401ks.  So not a huge push.
Jim Wiandt
12:15
What issues in the ETF and index industry are you most concerned about/ excited about for 2018?
Dave Nadig
12:16
The prodigal son returns!  Hey Jim.  Great question!
So, I have been saying it for 3 years, so eventually I'll be right -- I think we'll see Non-Transparent Active finally crack here soon.  Soonish.  Soon enough.
12:17
I'm excited to see how that plays out.  On the one hand, I think a lot of the various structures are super interesting and clever, and I love clever.
and I think it could bring a whole raft of new players to the market.  All of that's exciting.
On the other hand, I'm not 100% convinced they're solving a problem investors actually have, so I'm curious to see how they do in gathering assets.
12:18
As for the index industry -- I'm watching the moves into direct indexing by folks like Personal Capital, Wealthfront and their ilk with a keen eye.
theoretically, a real move towards direct indexing (just buying individual stocks in a pool, instead of an ETF, using tech to make it efficient) could hamper ETF growth, but at the same time, make a choice of INDEX even more important.
12:19
LOTS of things have to happen for it to move the needle, but I think it's super interesting.
ClockworkAngelInvestor
12:19
How much does a cute/clever/memorable ticker REALLY matter to the success of an ETF?
Dave Nadig
12:19
Hey, we all LOVE a cute ticker.  It's one of the reasons (ok, it's the only reason) we still have that as the last category in the ETF.com awards every year.
12:20
I would really, really like to tell you it doesn't matter at all.  However I know better.  Investors and advisors often associate a whole investment theme with a specific ticker when there's some sort of event, and boy, does that STICK.
12:21
Consider the QQQs -- back when I was running a mutual fund, the guys on my trading desk were *addicted* to trading the QQQs when they had extra cash (we were a tech fund).
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