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ETF.com Live!
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Dave Nadig
3:00
Howdy folks, welcome back to ETF.com Live, where I try not to make an utter fool of myself answering questions.
We had a good run of questions last week, feel free to keep them coming.  After the session, we'll do a quick pass for typos and post a transcript as quickly as we can.
3:01
You can enter your questions below, and no need to use a full name if you don't want to.
With that, let's get rolling.
Todd Rosenbluth - CFRA Research
3:01
Dave - You wrote in the past about impact of potential liquidity disclosure rules for funds. What do you think of the latest SEC decision requiring less disclosure? Do you think investors understand the related risks of what's inside high yield bond funds?
Dave Nadig
3:02
Hi Todd!  Great question.  So, the liquidity rule as proposed, gosh, i guess over a year ago, would have required that funds (including ETFs) make quarterly reports on the liquidity of their holdings
I wont wade into all the details, but the news today was basically that the SEC said "about that ... how about you just send US a report."
3:03
While I'm generally in favor of radical transparency, in this case, I think the way the liquidity rule was structured had a LOT of hairy problems
Some of it was that they didn't really carve out ETFs as well as I think they could have, but it also just had some fuzzy logic about how to think about the real liquidity of things like bonds.
3:04
So, in short: I think a period where issuers send the SEC a whole pile of data for a while is actually quite smart.  Hopefully it will let the SEC issue a smarter rule, eventually.
The core issue -- of funds (mutual funds in particular) having the ability to meet redemptions is legit.  So I'm not saying "good riddance."  I'd just like a better version of what they were after.
Warren
3:05
What is the best low-cost, diversified, liquid ETF for commodities as a broad asset class?
Dave Nadig
3:05
So, the commodities space, despite not being a huge asset gatherer in the last few years, has seen a lot of interesting innovations.
3:06
The biggest has been the launch of so-called "no K-1" funds.  THat is, funds that use a clever dodge to avoid having to send investors a K-1 partnership tax form at the end of the year.  Those forms are a pain, and a lot of investors, say 5 years ago, had some unpleasant experiences.
3:07
To actually ANSWER your question, there are now a bunch of no-K-1 broadly diversified ETFs out there (you can see the list of all commodities etfs here:)
3:08
If you sort that list just by expense ratio, you'll see it gets up above the 0.45% level pretty quickly.
The good news is that down at the low end you've got some very solid options, particularly from two firms: ETFS and GraniteShares.
3:09
In fact, several of them even track (or target) the same set of indexes from Bloomberg.
3:10
Investors seem most enamored with COMB and BCI, both of which are solid choices I'd say.  And pretty inexpensive!
Roger
3:10
Did you ever have hair?
Dave Nadig
3:10
HAH!
3:11
I love it.  So YES, I did. I like to say I didn't give up on hair, hair gave up on me.  Moving on...
Mike
3:11
SPY has way more liquidity than IVV, but IVV has ample liquidity and a lower expense ratio and it has outperformed SPY over the long-term.  Seems like IVV is  a better choice.  Under what scenarios is SPY the better choice?
Dave Nadig
3:12
GREAT question.  So, in MANY cases, there are what I would consider two choices of identical exposures.  Certainly SPY and IVV (and VOO, Vanguard's S&P fund) are a case where you can have a bit of a head scratch about why these funds all exist, given how similar they are.
3:13
If I recall, the expense ratio gap is about 5 basis points in IVV's favor here (9 vs. 4)... Which isn't NOTHING, but isn't a TON of money either, so its definitely the case that people see them as pretty much identical -- however, there are two big differences.
3:14
The first is that SPY is actually a different underlying structure -- it's a UIT, not an Open Ended Fund ...
Most of the time, nobody should care, but the manager of a UIT can't really make any decisions.  Like, they can't decide to take the dividends they got yesterday and invest them in futures to "equitize the cash."
3:15
So SPY is generally sitting on a little pile of cash in between dividend distributions, when it pays that cash out to investors.
IVV doesn't have to do that.  So over time, if the market is going up, SPY will have a SMALL amount of cash drag, hurting performance.  If the markets going down, it will have a tiny bit of outperformance.
3:16
Over long periods of time, its a difference of another handful of basis points.
So thats super nerdy answer 1.  Answer number 2 is just liquidity.
SPY is the single most liquid security in the world, last time I checked.
That means if you're some giant hedge fund looking to make a BIG trade in a VERY BIG hurry, SPY's your friend.
3:17
You see similar "trader vs investor" dynamics in a few other places - gold funds for instance.
Phil Bak
3:17
On the current trajectory, when does the amount of assets in cap weighted funds hinder price discovery for stocks? What are the ramifications to the overall market if that happens?
Dave Nadig
3:17
Oh good, a simple question with a one sentence answer (I kid, but i'll try to make this a bit shorter!)
3:18
There is an extreme example where every dollar in the world is in cap weighted indexes, and thus, there's literally nobody left to decide that, for instance, apple should be worth less today, and microsoft worth more.
But nearly up until that point, there are myriad price discovery opportunities, even if everyone's in index based ETFs.
3:19
When you decide to invest int he S&P instead of, say Emerging Markets, you are personally participating in price discovery -- that between, say, Gazprom and Exxon.
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