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ETF.com Live!
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Dave Nadig
1:00
Hi there!
Welcome to ETF.com Live! The 1PM edition.
As always, we will have a replay of this up on the site shortly after we finish up.
1:01
You can pile in questions any time, and I'll get to as many as I can over the next 30-40 minutes or so.  So lets get rolling.
Ed Slamme
1:01
Are fixed term defined maturity bond ETF's like Bulletshares an effective way to guarantee the "return of principle" in a rising rate environment?  How good are these products at actually returning the NAV at the point of distribution when the products mature?
Dave Nadig
1:01
Hi Ed.  Love this question.
1:02
So the short answer is -- the Bulletshares so far have done exactly what you'd expect.  They've moved into cash as they approach maturity, then distribute it all out on the last day.
They've matured these since 2011, so there are a dozen or so examples of these funds basically just doing what they promise to do as they reach maturity.  I'm actually a big fan of the approach - I think it solves a real problem.
1:03
Does it "solve" rising rates?  Well, not really, in the sense that they day you buy, you're still buying securities that lock in a certain payout.  They will mature at par, of course, so if you hold till the end, it really doesn't matter if rates spike -- you'll get your coupons, and you'll get your coverage on maturity -- pretty much just like owning the paper yourself.
Mark in OH
1:03
When deciding between 2 ETFs, does volume and AUM matter? Vanguard Total Mkt has a lot more vol. and AUM vs Schwab Total Mkt. thank you!
Dave Nadig
1:04
So this is another version of the rule of thumb question.
And my short answer is -- well, not really.  That is - the exposure matters SO much more.
1:05
AUM can be quite misleading.  I suppose it's natural to be a LITTLE skeptical of an ETF that has the same 5mm it launched with a year ago ...
but if you can trade it, the larger asset base isn't inherently better.
Scale does matter for the issuer -- a larger fund increases the chances you're covering your fixed costs and so on.  But if the expenses are capped on a small fund (which they usually are), then that's mostly irrelevant.
1:06
Volume -- same thing.  What matters is whether you can trade it, and volume can be a shorthand -- but nothing beats looking at the actual bids and offers on screen, and putting in smart limit orders.
but truly, exposure matters the most.
Todd Rosenbluth - CFRA Research
1:06
With the PowerShares/Guggenheim deal soon to close, do you think it more likely there are more smart beta strategies (size plus low vol, etc) from them or a consolidation of existing ones.
Dave Nadig
1:07
Hi Todd!  So, consolidations are always super interesting.
1:08
For the most part, we really haven't seen any "consolidations" in ETF M&A activity, meaning where, say, 2-3 funds get collapsed down into one.  That's actually a pretty thorny thing to manage, and it's really rare even in traditional mutual funds.
It's much more likely you just see a little pruning around the edges, I tink.
1:09
as for "more or fewer" - well, there should be some product rationalization, and when they squish the product lines together, I imagine they'll find a few holes, and launch to fill them, along with a few overlaps.
But I doubt we'll see anything dramatic -- like a huge new suite launching, or 15 funds with real assets getting wiped.
(and perhaps it goes without saying, but I wouldn't expect there to be really any investor impact, except as a result of a closure, and even there, it's mostly just timing.)
Danny
1:10
Dave,why we don't have high yield bond spread ETF yet ? (short HY-long Treasury,something opposite of interest rate hedged HY bond ETF-s)
Dave Nadig
1:10
Hi Danny, I'll consolidate this and your other question into one "why not more curve/spread based fixed income!?"
1:11
I'll point out that there are two ETFs that bet on whether the curve will get steeper or flatter (STPP and FLAT).  Importantly, they're ETNs, so you're not literally going long or short anything, you're just betting directionally with the issuer (Barclays) about which way the curve moods.
But we don't have explicitly a credit spread ETF or ETN.  I think it's an interesting idea, and again, one that would probably be cleanest in an ETN wrapper.
1:12
My suspicion is that this has been floated, but that institutions that want to make this trade are big/sophisticated enough to either put it on themselves (using ETPs, Futures, or bonds), or just get a swap contract for it.
Stefania Perrucci
1:13
Good day! Do you ever see ETFs using multiple cayman subs in a single ETF in order to get around diversification rules?
Dave Nadig
1:13
(Rubs hands together, a nice nerdy question)
1:14
So, for those not familiar, there are a few commodities products that get around the K-1, commodity pool structure by investing in a cayman islands subsidiary, which in turn owns all the futures contracts.
Because most futures contracts have HUGE inherent leverage, this  means they can put just a small amount of money in the subsidiary, but get notionally full exposure to whatever commodities they are tracking.
1:15
These funds actually end up (I believe) passing the basic IRS diversification rules, because they don't put a large percentage in the sub, and the rest is just sitting in cash collateral.
1:16
So I'm not sure why you'd need a second cayman subsidiary, unless you were explicitly trying to access all the leverage inherent in the futures.  For instance, if you were launching a 3X GSCI fund.
Bill Donahue
1:16
Dave, Hester Peirce, SEC Commissioner and Dalia Blass, SEC Director Investment Management, both gave speeches earlier this week which included discussion about a proposed ETF Rule.  What are some areas that you think should be addressed in a proposed ETF Rule.
Dave Nadig
1:16
Ah, the much discussed "ETF Rule!"
1:17
I'm a big proponent of an ETF Rule.  To me the number one thing is leveling the playing field. Right now, firms that "got in early" have a different set of rules to work under in terms of all sorts of nuances, from what they can hold to how they structure to how they manage creation and redemption baskets.
1:18
Getting that sorted out will both be more explicitly "fair" but it will also make it easier for new entrants to get products to market.
1:19
Now it's not like we're at a huge lack of new products, but still, I like the idea of a cleaner set of rules.
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