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Dave Nadig
3:25
AMZA in particular uses the "C-corp" structure, which means unlike almost every other ETF, it has to actually pay its own internal taxes before passing any profits/distributions on to you, the investor.
3:26
BUT, the core investments - MLPs that are midstream gatekeepers in the movement of oil and gas, pipeline providers and such -- are just monster income generators.
They're tollkeepers.  So people get attracted to the massive yields -- 20% in the case of AMZA.
The challenge, of course, is that the value of the underlying, fairly illiquid MLPs themselves can go up and down a lot too.
So consider it a very very narrow Energy Infrastructure play, with all the associated risks.
3:27
Here's the easiest question ever:
Darcy Jacobs
3:27
Exactly how do hedge funds provide a smoother ride for investors than ETFs?
Dave Nadig
3:27
They don't.
Hedge Funds is just a phrase we use to cover private investment pools.  Those pools can do everything from just holding cash (pretty smooth!) to making monstrously leveraged bets on small cap companies on the verge of death (Bumpy!!!).
3:28
There are literally thousands of "Hedge Funds" and they have enormously different strategies.
THe same of course is true of ETFs.  You can get cash-like exposure, or you can insanely leveraged speculative bets on almost any asset class.
As always: look under the hood and know what your buying and why!!!  THats more important than the structure, almost always.
Larry
3:29
Thanks for providing some great articles on ETF investing.  I recently ran into an article that I did not completely understand I was wondering if you can clarify.   See article "bond-etfs-vs-bonds-which-are-better?" Bond ETF drawback - You aren't guaranteed to get your money back.  Although that statement is true, isn't this a bit misleading because I can always sell the Bond ETF and get my money back based on the bonds that are in the ETF minus trading costs?  So in theory I should get back my money from the value of the bonds based on the current interest rate - which is basically no different if I held a bond and sold it before maturity.
Dave Nadig
3:29
Long question here.  let me parse ...
So, I think that's fair, but the article in question:
basically points that out too.
So maybe a poor word choice with "guarantee" -- but the core point here is this:
when you buy a fund thats holding, say, 20 year treasuries, it's constantly buying and selling to maintain that 20 year exposure.
3:31
Between now and 20 years from now, it will incur expense doing that, and if rates skyrocket, it will plummet.  Because thats how bonds work.
If instead you just bought one 20 year treasury bond, well, next year its a 19 year bond, and eventually, you just get the par value back, without having to do anything
thats why some folks like buying individual bonds.
3:32
you know what you'll get back.
with any bond fund, you can't say that/.
but fair point on the subhead there.
ok one or two more.
Lyssa Neilssen
3:32
How will this Brexit debacle affect European ETFs?
Dave Nadig
3:32
Badly, mostly.  I don't think there are any winners from Brexit, personally.  And the EU has its own issues.
3:33
Germany in particular is almost entirely an export economy.  It has the largest trade surplus in the world by % of GDP last time i checked.
So it's a bit of a canary int he coalmine for global recession ... and it's not looking all that pretty.
Brexit - hard or soft -- only makes this worse, in my opinion.
Last question (sorry if I didn't get to yours! Come back!)
Trine
3:33
What’s “bid/ask” in ETFs? Does that apply to other financial instruments too?
Dave Nadig
3:34
So, when you buy pretty much anything, there's the price you pay, and that's almost always higher than the price you'd get if you turned around and sold it immediately.
So when you buy a stock or an ETF, you might be asked to cough up 101 dollars to buy it, but at the exact same moment, you could only get 100 for selling it.
3:35
the difference between the two is the "spread" and you "pay" it in the sense that you should expect your experience to include selling for a bit less than you bought, all else equal.
that spread is how market makers eat.
Or house flippers, or used car salesmen.
3:36
Pretty much all financial instruments that trade openly have a spread.
There are some narrow exceptions.  When you buy or sell a mutual fund, you pay/receive Net Asset Value.
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