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Dave Nadig

3:12

But calling it an "expense" seems wrong. It's not like Innovator is pocketing that. They're just investing in something different than stocks.

But yes, you should consider it.

Matthew Vazquez

3:12

Did you see First Trust filed to launch two buffer ETFs in April? Will this impact Innovator’s chances for success with their Defined Outcome series?

Dave Nadig

3:12

I did see that thanks to our intrepid filing monitor, Heather Bell! And boy, it really does just look like a straight copy.

3:13

History would suggest second movers in a narrow niche like this have a hard time getting much share. Who knows when the FT funds launch, but it's not inconceivable that the INnovator series could have a full cycle -- a year -- behind them to talk about before they get out the door.

in which case, I can't see a huge upside -- unless it's really targeted at internal distribution.

3:14

FT is a monster when it comes to distribution management, so I wouldn't count them out. In fact, it's probably likely they're filing because of demand, not just to play me-too.

but yeah, I think first mover here wins, overall.

That's the story on the new filings

https://www.etf.com/sections/daily-etf-watch/new-filing-buffered-etfs

ETF Bro

3:14

What percentage of active fixed income ETFs actually create and redeem in-kind vs cash baskets?

Dave Nadig

3:15

Nerdy question. Love it. I would say the majority of active bond ETFs do cash create/redeems -- which is easy to say because it's the default for PIMCO, which is the biggest player in active bond funds.

I also expect this could change when the ETF rule finally goes into effect, because the ideal situation (from the fund's perspective) is cash creates/in kind redemptions.

3:16

that lets them manage tax lots, but still trust their own desk for buying bonds, which is mostly what they want.

3:17

It's one of the two reasons bond funds tend to be slightly less tax efficient than equity etfs -- this, plus "forced selling" in index funds as bonds get too short-duration.

A few industry questions i'll bolt together:

A. Twellman

3:17

How will/are managers dealing with race to zero?

Jesse

3:17

Hi dave, following up on the question above. ETFs only made 7 billion in revenue for assets that are in trillions...This can't be good news for small/new entrants in the industry. Will the giants just gobble up the small fish? Will consolidation happen a lot sooner than normal?

Dave Nadig

3:18

The reality of the ETF business is that a lot of it is pretty low margin. So how do big firms deal with that? Well, we've seen some layoffs in a few firms ... although from what I see, that's mostly not from the indexed parts of their businesses.

3:19

But the flip side is: index-ETFs are enormously scalable. It doesnt take much more labor to run a 50B fund than it does to run a 5B fund.

Small players have to have some sort of an edge.

it can be a product edge (like, say Innovator we were just talking about).

It can be a distribution edge (which is usually because they are a big firm, with a small ETF business)

or it can be even something like a content marketing edge.

3:20

That's how I see firms like Cambria, for instance.

Quentin

3:20

how does a DIY investor rebalance or is that even necessary on a modest account. Mr. Bogle always said forget about it and dont touch it, right?

Dave Nadig

3:20

I quentin, great question.

3:21

Of course the answer is "it depends." For example, if you have a dirt simple 2 fund portfolio, say ITOT - ishares total market, for all the equity, and, I dunno, WBND, vanguards world bond fund.

And you have them set 60/40. The question is what you do when we have a BIG move.

So say this time next year, bonds have tanked, and stocks globally took off.

Now your sitting on a 70/30 portfolio. Are you still comfortable with that?