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Dave Nadig
3:25
Maybe you're a schwab investor, and so you naturally gravitate to what they present to you.
3:26
Or you have a financial advisor, and they're your filter.
Or, you read ETF.com, and you use the ratings we have on the fund reports.
Certainly, we know theres a real risk that retail investors chase performance -- and institutions too, don't kid yourself there.
3:27
But I do think in the end, it all comes down to who the investors "trusted filter" is to separate the good choices from the bad ones.
At least with ETFs there are only 2100.  In mutual funds theres something like 8000.
!
Alex L.
3:27
I don't get duration when it comes to bond ETFs. Is it an average of all the bonds' durations? Is it a median? Does the ETF somehow have its own duration? How does this work?
Dave Nadig
3:27
OOooh very tricky question.
3:28
So, if you go back up to that link on methodology, you'll see the info on how the specific stats we report from FactSet are calculated -- like duration and key-rate-durations and so on.
3:29
and ultimately, yes, it's "rolled up" from the duration of the individual bonds.
BUT, there's another interesting angle here, which is deep end of the pool stuff.
3:30
The more interesting way to treat a bond portfolio is to actually take ALL the cash flows from EVERY holding and then create an aggregated cash flow -- essentially turning the ETF into one giant virtual bond.
Once you do that, you can plug it into any kind of analytics engine you want, and get duration, convexity and so on all from there.
3:31
this is, in fact, what the ETF industry has been doing specifically for the insurance industry, which needs ot be able to do this to consider a bond ETF a bond from a capital allocation perspective.
THe good news is - you don't get radically different answers, and the portfolio rollup durations you see are great guides for comparing funds.  Esp if your apples/apples using a single data provider (like, say, us/FactSet).
3:32
OK, time for one or two more:
Danny
3:32
Hello Dave, Why do you thin the rising dollar has't revived interest for currency-hedged ETFs?
Dave Nadig
3:32
You know, I think this is a bit of a puzzler, but here's my theory.
3:33
Currency hedged ETFs caught fire in the LAST run up in the dollar.
"Japan without the Yen" and all that jazz
3:34
but, then we had two-ish years of flatness, and then 2017's decline (at least on the Euro)
So I think some investors may have had their fingers burned a little bit, and thus aren't coming back.
3:35
At least, that's my theory.
Also, remember in the last runup, the distinctions were REALLY pronounced.
A. Munson
3:35
Dave, do you have an opinion on which is better: lump sum investing or dollar cost averaging?
Dave Nadig
3:36
Well, in general, investors are terrible at timing.
So certainly sitting on a large pile of cash, waiting for the perfect moment, has historically been a great way to not beat the market.
3:37
unless your specifically trading to trade -- speculating -- I think DCA is almost always going to lead to better outcomes for most types of investors.
I think that the payrol deduction defined contribution plan may be one of the worlds greatest financial innovations, frankly, because it does this for us all.
Dave P.
3:37
Hi Dave. Ben Johnson at Morningstar has a piece out on the overrated traits of ETFs. Among them, he says, liquidity, tradability and transparency. (https://www.morningstar.com/videos/881406/are-etfs-overrated.html). Do you think we pay too much attention to these things and miss the bigger picture?
Dave Nadig
3:38
Thanks for pointing this out -- Ben's a good friend, and I think hes spot on a bunch of this.
It's not that things like intraday liquidity and transparency are irrelevant, but I do think sometimes we make a lot of noise about them.
3:39
MOST investors arent going to trade every day, and shouldn't.
MOST investors aren't going to look up what their ETF holds every day, and so on.
but, these features create optionality and possiblities that otherwise don't exist.
3:40
things like selling short, or using margin, or plugging a bunch of ETFs into an optimizer to look for overlaps.
those are actually really valuable to certain classes of investors.  But folks should go watch the video there, hes got some great points.
Yes, I think we miss the big picture -- which in this case is exposure.  Exposure ultimately trumps absolutely everything else.
3:41
Being in a cheap, intraday trading, fully transparent fund is utterly meaningless if its the wrong exposure for your portfolio.
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