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Dave Nadig
3:32
then tomorrow morning (really, tonight) the desk will frantically try and figure out how to unload enough to generate the offsetting cash.
3:33
They will inevitably end up dumping their most liquid, least risky bonds
you can see how this could create a problem.  And in fact, this is PRECISELY what happened to third avenue mutual funds a few years ago, where they had to close the funds for redemption
In the ETF -- no matter what, at least you could get a price!
You may not like the price, but you KNOW the price.
(phew, my fingers hurt.  Time for a few more ...)
Mickey
3:34
The US leads the world in terms of ETF assets.  Do you see other regions catching up?
Dave Nadig
3:34
Short answer - probably not.
The U.S. has an investor culture that's fairly unique.  European ETFs are dominated-still by institutional trading
3:35
and investors with some wealth tend to rely very much still on point of distreibution - generally big banks.
those banks control the products.
those kind of quasi-captive systems make it hard for a real retail movement to take off.  It's happening -- but it's just slow.
We've seen a bit more catch in the UK market.
3:36
but it's also worth pointing out that the regulatory regimes are complex.  Not that they're simple here.  It's just hard to build a fast growing, pan-european complex.
Outside of Europe - in Asia, ETFs are mostly an afterthought.  If you remove the buying from the BoJ, theres very little focus from Japanese investors.  Similar captive distro issues there as well.
3:37
its not that it couldn't happen, its just a lot of cultural and regulatory hurdles.
ETF Newbie
3:37
What niches do you see so far untapped in potential new ETFs?
Dave Nadig
3:37
I’m still shocked we don’t have real Credit default swap products, or explicit spread products (we talked about those a few sessions ago.)
3:38
I think there are interesting and arcane things that could be done in fixed income.
I am surprised how few high-conviction active management products we have as well.
Last, I think we need – and will see – a lot more approaches on the ESG front, particularly impact-focused products. Kind of like what UBS has done with PRID and HONR.
Hugh Syme
3:39
Does it matter what kind of trade order I use for an ETF?
Dave Nadig
3:39
An easy one.  YES!
The only people who should ever use a market order are investors who care more about speed than price.  I don't really know any of them, but I'm sure they exist.
3:40
If you care about price, you should ALWAYS use a limit order.  If you want to be super sure you get an execution, you can use a marketable limit.
3:41
What that means is if the etf is bid 100-101, you could put in your buy order at 101, or even at 101.25.  You're essentially telling the market "hey, I'll take the market price right now, but just in case, don't fill this if between when I it "enter" and when it hits the book, the price EXPLODES.
The way your broker deals with that order is they internally view it as a market order, and will get you the next available fill.  But you're protected from the rare case of a flash crash in either direction.
Ryan Hessenthaler
3:42
A number of firms go to S&P, Solactive, or others with investment strategies and have them create and calculate an index. As the fee war continues, do you expect custom index providers (i.e. those who utilize S&P or Solactive or others as a calculation agent) to be squeezed further and further in terms of basis points compensation from ETF providers?
Dave Nadig
3:42
Great question.  There's no question that prices are really only going one way and that's down.
3:43
it used to be, for instance, that if you had a great idea for an index, you went to one of these firms, paid a decent chunk of change up front to develop it and run backtests and so on, and then paid them a basis point fee on top of that for any assets that target against it.  Maybe there was an additional negotiation about using the brand as well.
3:44
Now, from what I hear, you can go in with a flat fee - pay X dollars a year, period, and do whatever you like with the index, if you negotiate it well.
thats a huge shift, and I think you'll continue to see far more "fee for service" arrangements as the BPS get squeezed out of every corner of investment management (see question above around self indexing - same thing applies!).
OK, last question -- another biggie.
Concerned Investor
3:45
I've read about when ETFs lend out the securities they own to short sellers.  Is this legal/ethical?
Dave Nadig
3:45
Many ETFs – and mutual funds, and separate accounts, etc. – do lend out their securities.
In general, this is a good thing. When some hedge fund borrows the shares of AAPL that are locked up inside, say, IVV, they put up collateral – generally 104% of the value of the shares.
That collateral is trued up daily, so essentially the fund always has excess.
3:46
Depending on how desirable the stock is for short sellers, there’s also a fee of some sort baked into the deal, sometimes as high as a few percent, annualized.
There’s also some small overnight-level interest on the collateral itself.
3:47
That additional revenue accrues in part or in whole (depending on the issuer) to the funds shareholders.  You can actually see the split (what you get vs. what the issuer keeps) on the ETF.com fund pages
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