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Dave Nadig
2:59
Hey folks, welcome back to ETF.com Live!
3:00
As always, you can post your questions in the box below, anonymously if you like.  And we'll have a transcript up later this afternoon if you have to hop out.
Let's wade right into the questions.  Good mix of 101 and more esoteric stuff it seems.
Sean R
3:00
How do you measure implied liquidity for a fixed income ETF?  Are there any liquidity issues I should be worried about in this space?
Dave Nadig
3:00
Boy, talk about a thorny question.
3:01
I wrote a piece last week on how junk bond ETFs will respond to a crash, and this issue of implied or underlying liquidity remains super thorny.
3:02
For equity ETFs, it's pretty straightforward.  You can look at the dollar volumes, you can compare that to, say, how much of each stock you need to build a basket to hand in to create new shares, and soon.
We display factset's model on our fund pages, Dave Abner built a different model for Bloomberg, but ultimately, its a knowable problem.
But with bonds, its intractable.  Broadly speaking there are "things you need to worry about" and "things ya don't"
3:03
Treasuries, Agencies, even developed market soverigns, you really just don't need to worry.  ETFs are such a tiny part of that world its irrelevant
Junk, Munies, EM debt, it gets much trickier.  Something like HYG trades 1-2Billion a day (dollars) but owns bonds that literally won't trade today.
3:04
So the longwinded answer here sean is "you really can't" -- all you can do is know that as a class, you're investing in something that is more or less liquid, and exercise the appropriate caution.
3:05
I say that a bit flippantly, but we spent quite literally years trying to come up with a systematic way to do this, and you run into big roadblocks very very quickly.
efims
3:05
What are differences between ETF and ETN?
Dave Nadig
3:05
This is a question I can ACTUALLY answer!
3:06
So, we use "ETF" a bit like people use "Kleenex" -- overly broadly.  But the core distinction is between pooled vehicles that actually own securities, and debt.  Anything that actually pools securities is a fund (in my book) - so that includes things that are UITs (like SPY), or '40 act mutual funds under the hood (like most ETFs), or grantor trusts (like GLD).
I also include things like commodities pools (say, USO) which are differently regulated, but are still ultimately just pools.
3:07
ETNs are notes -- that's the N.  So a big bank issues a piece of debt.
but its just like a corporate bond
no different than if they just issued a bond for their own financing
3:08
the difference is they promise to pay a pattern of returns tied to some outside index -- say, 3X the return of the s&p 500, or something.
but ultimately, it's still a bond, and it could still default.
3:09
assuming it DOESNT default, it has aspects (like creation and redemption) similar to an ETF, that allow it to trade on an exchange, close to its fair value.
As an investor, they can give you access to some interesting patterns of return, but know you're really just buying some banks bond.
(tax wise, it gets treated essentially just like a stock, which can be a good thing for, say, commodities investors).
Ada Lovelace
3:10
I read Cinthia Murphy's piece on the most searched for ETFs and I can't figure out why QQQ is still so popular, even when other tech funds have better performance. Is it just because QQQ has been around for forever?
Dave Nadig
3:10
Ah, the Qs.  The thing is - they becaume the "easy button" for tech investing back in the 1990s.
For a brief period I was a mutual fund manager, and even *I* used the Qs as a quick way to try and catch a rally in big tech names. (this was back in the 90s, and I learned my lessons!)
3:11
so yeah, you kind of hit it - there's a historical connection to it.  And it's maintained just crazy good liquidity, so it really does serve as an easybutton trade.
3:12
They've rejiggered the underlying index (I wrote some pretty scathing articles about it at the time) to keep it investable, and the actual methodology is SO arcane it would give Dumbledore a run for his money to explain it briefly.
but mostly, it's a historical anomaly like the Dow Jones Industrial Average.
Over time (a long time) I'd expect it to continue to slowly lose share of mind, but its probably a literally-generational change that would have to happen.
Evan Martin
3:13
Hi Dave, Need ETF investors pay as much attention to world events as stock investors do, in terms of impact on investments?
Dave Nadig
3:13
Hi Evan!  So, interesting question.  I would say it depends not so much on the vehicle your using as the narrowness of your exposure.
3:14
If you invest in, for instance, the entire global equity market throuh something like vanguard's VT, well, it sort of doesnt matter how the UK is doing vs. the US, because you're in both.
a bit narrower, lets say your heavily in US stocks, and have a very small international position, well, you need to probably pay a BIT more attention, if only to rebalance those positions.
3:15
a bit narrower, lets say you load up on the Qs from the above question, because you like tech stocks? Well, now you have to pay even more attention, and so on.
that's true if you use ETFs or Mutual Funds of course.
3:16
But in general - the narrower your exposure, the more it behooves you to pay attention, even if it's only for basic portfolio maintenance - reinvesting income, rebalancing, etc.
M. Jemison
3:16
In what instances are ETFs actually the worse investment choice between ETFs and mutual funds, or something else?
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