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ETF.com Live Chat!
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Dave Nadig
2:59
Howdy folks, welcome to the ETF.com Live Chat!
3:00
You can ask questions in the box below, and we'll post a transcript later this afternoon if you have to hop off for some reason.
Last: don't miss the weekly podcast at etfprime.com, where we also cover some hot topics each week in a live format.
3:01
So, housekeeping done, let's get to the questions!
Ben F.
3:01
Hi Dave. What do you think of liquidity as a factor? Not sure I'm buying it.
Dave Nadig
3:01
Starting off with a nerdy one!  Love it.
3:02
So, MSCI has been tracking Liquidity as a factor for about a decade if I recall right -- and to sum up, it's the risk associated with how well something does or doesn't trade.
They've published research showing that more liquid stocks tend to perform better than less liquid stocks, particularly in strongly upward trending markets.
3:03
So it's reasonable to ask the question: is this really a "factor" on it's own, or is in fact "liquidity" just giving us a kind of blended proxy of momentum and size.
That's probably why you're "not sure you're buying it" and to be honest, I'm kind of right there with you.
I haven't seen the study yet (it may exist, and I just haven't read it) that proves to me that liquidity is really it's own effect.
3:04
I believe it more in inherently illiquid markets (like bonds) but that's not what we're talking about here.
ALl that said: it's not a part of any big ETF or index yet where we can point to a live track record and say "see!" one way or another.
3:05
But it is one of the factors in the MSCI FaCS suite of analytics (which we'll be featuring at ETF.com in the fall) -- so it will be interesting to see how different fund's measure up.
Alex L.
3:05
Dave Nadig
3:05
I think that's our first multimedia question!
3:06
So, when you see a fund like this, it means one thing -- buyers and sellers are essentially matched.  THere's just not enough momentum -- good or bad -- for one side of the trading pool to overwhelm the other.
You need that kind of "swamping" one side of the book in order to create a big enough price differential to trigger creation/redemption activity.
3:07
that gap needs to be bigger for something like IEMG than it does for something like, say, SPY, precisely because so many of it's holdings are either not trading in the same time as the U.S. markets, or because they're less liquid.
So - lots of trading keeping spreads tight naturally, not a huge exogenous pressure from momentum = low arbitrage opportunities = no creation/redemption activity.
3:08
One other BIG factor.
the creation unit size of IEMG is ENORMOUS - it may be  the largest, period.
it;s 600,000 shares.
3:09
That means you need a dollar balance of $30 million to do a create.  Thats a BIG chunk.
So that means you need not just an arbitrage opportunity, but a huge, sustained arbitrage opportunity.
great question.
Bailey Ferguson
3:10
How can some "gurus" be so pro blockchain and others be diametrically opposed to it?
Dave Nadig
3:10
Heh.  Great question.  I think Drew Voros pointed out to me the other day that the 52 week spread on bitcoin was roughly $1000-$20,000
3:11
and its currently around, what, $6,000
When you see that kind of uncertainty about what something is worth, it's absolutely inevitable that you  end up with just as wide speculation from pundits.
3:12
By definition, SOME of them will be right, and then you'll just end up with a survivor bias problem.  We'll only remember the ones who made the "call" for it to go to 50K or crash to $50.
but they'll get to be geniuses for a little while.
That's bitcoin.  Not blockchain (a key distinction).
But a lot of the smarter discussion is around using blockchain as a ledgering technology totally removed from the cryptocurrency stuff.
3:13
ANd I tend to personally be in the "not a big bull on bitcoin, but think blockchain is interesting" camp
which I will admit, is a bit of the cowards camp.  The easy answer.
Roger Barnum
3:13
Is there a difference between factor investing and smart beta investing> Or just semantics?
Dave Nadig
3:13
I think this is mostly semantics -- there's no good definition of "smart beta"
3:14
Rob Arnott from Research Affiliates says Smart Beta is anything that breaks the link between weight/presence in an index, and the securities price.
which means that (for example) equal weighting is smart beta, but momentum is not.
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