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Dave Nadig
3:14
Hey Todd!
So, first, I dont think we can really call this much of a market pullback.  What we have here is just a little return of volatility.
3:15
So "what works" in markets like this are actually strategies that thrive on a little uncertainty.  Like the WisdomTree Put Write strategy (PUTW), which has done really well so far this year.  (Disclosure, it tracks an index developed by our parent company, Cboe Global Markets).
3:16
But what I meant by "defensive" were really things like DEF or QUAL -- I probably used those exact examples.
which are more classically defensive equity strategies.
I don't think any of that ilk is particularly beating their bogies right now.  We'd need a sustained long term pull back for their low-betas to really shine
3:17
right now, you're just missing the dips and the rallys, but we've actually had some really strong rallys these last 6 months.
So i think they're mostly trailing.
J. Gross
3:17
Hello Dave. My question relates to the etf "fee wars" and whether or not you think they may be coming to an end (obviously -0- being the end game). Recently, Vanguard lowered the expense ratios on their large/mid/small cap etfs to 5 basis points (from 6). They now match those at Schwab. For the first time in schwab's etf history, they have not responded with a fee cut. Your thoughts?
Dave Nadig
3:18
So a few poitns.
Unless I missed a press release (which I totally could have), I don't think Vanguard explicitly said "were cutting to match."  Vanguard changes their ETF fees almost quarterly -- and sometimes they go up!
3:19
On those big funds, a lot of its just rounding up or down from a fraction of a fraction of a percent.
and I think we could all probably agree, for any retail investor -- even a HUGE one -- one basis point isn't going to matter.
especially when you consider that Schwab and Vanguard track quite different indexes, even in things as simple as US equities.
3:20
Something as simple as Vanguard/CRSPs "banding" methodlology for when something gets moved from mid to small cap, for example, will DWARF the performance difference between it and a competitive schwab fund.
But to your other question -- the end state certainly CAN be zero.  There's enough "vig" in the securities lending business that you could conceive of a world where core equity beta is basically free (if 5bps isn't already basically free).
3:21
I don't think we get there, though, I think we're reacing a point of no return.
Someone will, inevitably, launch the free series as a gimmick.
but i dont think it will make THAT much difference for investors.
Where it really matters is in places where we have BIG gaps -- say, Gold funds, where Graniteshares is now 10s of basis points lower than some competitors.  That actually can move the needle, and of course, it's great for investors.
Nate Geraci
3:22
Thoughts on why more active mutual fund shops don't launch flagship equity strategies in ETF wrapper (i.e. Fidelity ContraFund)? Many experiencing outflows even if outperforming. Perhaps moving to an ETF wrapper could help. Are concerns over front-running/giving away secret sauce (given daily transparency in ETFs) legit?
Dave Nadig
3:22
So, it's a free country - there's no reason Fidelity has to launch a Magellan or ContraFund ETF, ever.
3:23
If the portfolio managers genuinely believe it will cost them performance -- they're obligated, as fiduciaries, not to make their portfolios transparent.
Are they right? Well, I'm crazy skeptical about that.
I understand the logic -- if I broadcast my moves, my alpha will disappear.  And to some extent, to be a traditional stock picker, you have to have the kind of belief that your sausage is made better than everyone elses.
3:24
But as a class, of course, they are wrong, because traditional active -- as a class -- fails.  So while some fraction of active managers indeed do have protectable secret sauce, most dont.
the devil is in which one.
But yeah, I think it's the transparency issue thats the big bugaboo for almost all of them
3:25
which is why it's so entertaining to watch Chris Davis at Davis Advisors on stage defending their decision to go full monte.
grin.
Anonymous
3:25
I was looking at DIVY's intraday NAV, and it never moves, even when the ETF itself does.  Is it's fair value really that stable?
Dave Nadig
3:25
Supernerd alert!
3:26
So, DIVY is the fund that basically uses swaps to do extract dividend growth as a unique pattern of returns
(it's from RealityShares).
the problem is, those swaps they enter into, even though they have a theoretical value which should be moving all the time, actually only get "marked" once a day.
3:27
So structurally, there's no way to directly say "this swap is worth .25% less at 10:30 AM then it was at 10:AM"
3:28
So in the case of most funds with weird underlyings, they just punt (I'm guessing) and they only re-price the things there are live prices for (like the short term treasuries or whatever they hold as collateral).
So the INAV ends up being essentially worthless.
the APs have their own algos to keep track of what "fair" is on pricing, but we don't get to see those (and each AP will have their own model, some good, some bad!).
3:29
INAV in general, is ONLY really useful when the underlying of an ETF is trading liquidly at the same time as the ETF itself.  Even in something like bonds, you need to take it with a grain of salt, as it can take a LONG time for INAV to react to new information (days, sometimes!).
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