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Dave Nadig
3:14
Which brings us to this question:
Quant22
3:14
How is there even a market for non-transparent active ETFs?
Dave Nadig
3:15
Well, we don't actually know there is a market for them.
But we know there are asset managers who really want in on the ETF action, but really don't want to show their hands.
3:16
Whether investors will care?  I'm skeptical.  Never say never, but unless one of the firms actually closes the mutual fund version, I don't see folks converting in droves from, say, a Growth Fund of America to a Growth ETF of America.
Conrad H.
3:16
Which are potentially more "dangerous": leveraged ETFs, or, ETNs?
Dave Nadig
3:16
Hi Conrad
So, the "danger" in an Exchange Traded Note -- I'd rather say the risk -- is from a few sources.
3:17
THe biggest is just your exposure -- if its an ETN tracking the S&P500 for instance, well, that's your biggest risk, the market
ETNs have really one unique risk though, and that's the risk of default.
Since they're just bonds at the core, like any bond, if the issuer goes out of business, you get in line with all the other bondholders.
3:18
I find it pretty unlikely folks like UBS or Citi or Credit Suisse are just going to spontaneously collapse, but hey, remember Lehman? They had some ETNs ...
So, ETFs don't have that risk (leveraged or not).
3:19
The risk of a levered ETF is again, just the risk of the exposure.  3X S&P 500 is amazing on some days, and terrible on others.
Darryn Thompson
3:19
"Authorized Participant" seems like a strange or generic term.. What do they actually do?
Dave Nadig
3:19
So the term comes from the legal language -- in a traditional mutual fund, you, the individual investor, can open an account with, say, Janus, send them a check, and they will create new shares of a fund for you.
3:20
Thats how new shares get made
in an ETF, individual investors can't do that.
only a special class of investor -- who signs a separate contract -- gets to make new shares.  They agree to participate in a whole process, that involves having direct relationships with the NSCC, and custodians, etc. etc..
3:21
So they are "authorized" by that contract, to "participate" in the process.
Not a particularly clever title, but it is actually descriptive.
Dan Matthias
3:21
What metrics (in order of importance?) should an investor consider when evaluating an ETF besides expense ratio?
Dave Nadig
3:21
Forced ranked!
OK, if I had to pick an order of operations for ETF due dilligence it would probably go:
3:22
1: Exposure - gotta know what you own and why your owning it.  Most important.
3:23
2: Tracking Difference - this is the measurement of how the fund does vs. its own index (if it's passively managed).  TD INCLUDES the effect of expense ratio, but also includes how well the fund is run, the impact of securities lending revenue, internal trading friction, and so on.
3: Tradability, measured by a combination of advertised on screen spreads and volume.
that would be my quick 1-2-3
Lyndon
3:23
HI Dave, 2 questions. Are there some specific ETPs for playing the rising interest rates right now ... Also, ditto for if a recession hits?
Dave Nadig
3:24
So, Lara Crigger wrote a whole piece on this a few months ago:
(one sec)
OK, it was more than a few months ago: but the list there still holds, and the arguments behind them.
3:25
Off the top of my head though, I like the Fidelity Rising Rate ETF (FDRR) ... its a very interesting take on the question
because it actually looks for stocks correlated with rising rates, as it's core methodlolgy.
It actually did quite well int he last few months compared to the S&P.
As for a recession -- well, that's really a fundamental asset allocation call.
3:26
I mean, if you think we're headed for a deep, meaningful economic recession, you'd look for classic safety plays.
whether thats value stocks, or just out of equities, etc...
(sorry, maybe not that helpful an answer)
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