You are viewing the chat in desktop mode. Click here to switch to mobile view.
X
ETF.com Live Chat!
powered byJotCast
Prev Page View Full Chat Next Page
Dave Nadig
3:12
But that can happen with an ETF as well (and has, in rare cases, like EGPT during the arab spring).
Roberto
3:12
There are target date mutual funds for managing your retirement assets. Why don't we have similar products in an ETF?
Dave Nadig
3:12
Hi Roberto -- the short answer is - you just missed it!
3:13
I think it was 2014 the last target date fund closed
but we used to have a whole slew of them.  The problem is, nobody really used them, so they languised, so they eventually closed.
so the question is, why did nobody use them.  The answer is that most target date funds aren't used once, they're used as part of a continuous investment strategy
3:14
typically, a defined contribution plan, or an IRA where you're making regular contributions.
ETFs aren't always a great choice for that, because you have to pay commissions, or at least you have to incur a spread on the trade.
So, while target date funds are awesome for 401ks, they're not a perfect fit for ETFs.  Or put another way, ETFs aren't a perfect fit for 401ks.
anonymous
3:15
do you report tracking error anywhere on your fund pages
Dave Nadig
3:15
No, and we have a good reason for it.
3:16
"Tracking error" is actually not that useful a statistic for most investors -- it's the standard deviation of daily return differences.
It's pretty non-intuitive, because it doesn't tell you much about your actual performance experience as an investor.
3:17
it also bakes in lots of noise -- any discrepancy between how the fund calculated NAV and how the index is calculated blows it up.  And there are lots of reasons for small discrepencies -- pricing service differences, currency timing decisions, etc...
3:18
So what we present is what we call "Tracking Difference" which is a comparison of 1-year returns between the fund and the index it tracks.  THe specific stat we show is a median 1-year holding period in a 2 year window (so a years worth of observations)
we also show you the best and worst 12 month period in that window.
in general, you'd expect the number to just be the expense ratio
3:19
so for instance, SPY has a Trackign Difference of -.13%
its expense ratio is .09%
so you'd expect it to have a Trackign Difference of -.09%
3:20
so it does slightly worse than you'd expect.  In the worst 12 month window it trailed by .17% and in the best by .11%
so that gives you a real, tangible window on what your experience as an investor would be, compared to the theoretical index.
we think it's a lot more useful.
3:21
(incidentally, the reason SPY trails is because there is a tiny bit of cash drag from uninvested dividends between distributions, because it structurally can't invest that cash, as a UIT under the hood).
great question though.
Jillian T.
3:21
re your comment about target date funds, why is that ETFs "arent a perfect fit for 401(k)s"? Could that change?
Dave Nadig
3:22
Good followup -- this has come up a lot, but its worth repeating.  ETF's big advantages include intraday trading and tax efficiency.  Both of those are irrelevant to 401(k) investors.
on the flip side, they add transaction costs (no matter how small) and can only be bought in whole shares (advantage: mutual dunds).
Funds.
3:23
I don't see this changing quickly, although there are folks like Invest'n'Retire and Schwab who've "cracked the nut" on getting all the accounting to work and minimizing the impacts.
But cheap index mutual funds are a natural fit for 401k investors generally.
3:24
(there's another issue, which is that many 401(k)s use more expensive funds, that bake in a 12b1 fee, which is used to offset recordkeeping expenses.  That's another thing ETFs don't do -- charge big 12b1 fees!)
Todd Rosenbluth - CFRA Research
3:24
Hi Dave. What do you think about the SEC proposal today to allow brokers to publish and distribute research reports on ETFs?  If they do so, would it be the largest and most liquid ETFs, focused on fees, volume and tracking error? Something else?
Dave Nadig
3:25
Hi Todd!  So, I don't think this will have nearly the impact the headline suggests.  There have been all sorts of nibbling at the edges on this for years,
but I don't think that sell-side research shops are just DYING to get their hands on writing coverage.
3:26
I also think the buy side isn't clamoring for it either.  THeyv'e gotten pretty used to relying on, say, the excellent coverage you guys (CFRA) provides, or the fine folks at FactSet or Morningstar, and so on.
With ETFs, research is mostly about data, and that's a bit of a solved problem.  So I just don't think it really matters all that much.
3:27
Many brokerages publish economic research and model portfolios that include ETFs already, so again, just edge cases here.
Heather Smithson
3:27
What are K1 fees and why are they a bad thing?
Dave Nadig
3:27
Hi Heather - so a bit of confusion here.  When we talk about "K1s" what we're talking about is a form you get from a limited partnership that reports your partnership income, which you have to send to the IRS as part of your taxes.
Connecting…