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Dave Nadig
2:59
Howdy folks, welcome the mostly-weekly edition of ETF.com Live!
3:00
As always, you can ask questions in the box below, and I'll get to as many as I can in the next half hour.
So, let's get started -- we'll post a transcript up at the end of the session if you miss anything.
Todd Rosenbluth - CFRA Research
3:00
Dave Nadig
3:01
Hey Todd, thanks for using the stockfinder tool (you can see how to use it just with the URL Todd posted here).
The potential danger of a lot of these sub-sector or thematic funds is twofold.
both of which you're pointing out.
the first is accidental or unexpected exposure.
3:02
I think most folks think "telecom" and they just assume they're getting AT&T and so on.
but that would nearly be uninvestible, there just aren't enough of them out there.
So the definitions are necessarily often a bit broad, and you get up with potentially less-pure, or at least less-expected holdings in your fun.
3:03
It gets even worse when you get to something thats potentially open to interpretation, like, say internet funds.
The second issue is concentration - in many cases, these funds make some very big bets.
the most egregious example of this was the old Business to Business Holders (BBH I believe) which ended up having just one major holding
it got away with it because it's structure (now defunct) let it own more than 25% of a stock.
3:04
We won't end up there, but it's a real issue, and no, Todd, I imagine a lot of investors don't quite expect this from the headline.
Hank Seymour
3:04
So, Dave, what exchnage traded products do you hold?
Dave Nadig
3:04
Hi Hank, I get this one surprisingly often, and I've answered it in different forums.
3:05
the reality is I decided some years ago to NOT own ETFs, because my entire job was talking about them, and it would be too easy for it to look like favoritism.
So what DO I hold?  Well I have two main accounts (Schwab/Fido) and I own generally just their super low cost index mutual funds, in weights that look surprisingly boring and like the worlds cheapest portfolio.
Most of those funds are the same expense as ETFs.
3:06
TO be fair, I have had several folks tell me "I don't own ETFs" is too much of a cop out, but it does save me the headache of every having to add disclosure language to things I write!
Trace Jenkin
3:06
Good morning Dave, So, for some time, many have said commodities markets have been subject to maniuplation. Has this been the case for other investment instruments?
Dave Nadig
3:07
Well, I generally get nervous about "many say" arguments, but sure, folks have complained that commodities are manipulatable by the (tents fingers) evil speculators.
The reality, of course, is pretty complicated.
We have had some notable examples of manipulation in commodities over the years.
Most notably around Copper and Silver.
3:08
And of course, serious gold-followers often sit in chat rooms discussing who's manipulating global prices.
Ultimately, however, I think this tends to be short term trader driven noise.
Commodities are the single most supply and demand driven part of global investing
3:09
so fighting against that long term seems quite difficult, and requires enormous capital - like say, that of central banks buying and selling gold reserves.
As for "where else" - well, there are of course folks who worry about whether information in one market affects another disproportiantely
3:10
for instance, all the discussions about the 2010 flash crash, where finger pointing between derivatives and equity markets was the main end result of the investigations.
But for long term investors, I think that modern markets are now SO efficient that these kinds of things tend to happen -- and play out -- very quickly
Heidi T.
3:10
How would treating ETFs as a separate asset class from, say, equities, derivatives or fixed income improve execution quality?
Dave Nadig
3:10
Interesting question -- it's a bit hard for me to imagine exactly what that structure might look like.
3:11
THere have been various proposals to further embed the "hybrid" nature of ETFs into the market -- coming up with ways of doing NAV trading and so on.
but actually, taking non-equity asset classes and putting them in exchange tradable wrapper has improved execution quality SO dramatically I can't imagine going the other way.
3:12
Fixed income, currencies, commodities, you name it -- there are ETFs that trade MUCH better than those underlying markets, giving you the same exposures.
I mean just think abotu the spreads in individual junk bond names, or aggs for instance
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