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Dave Nadig
3:00
Good afternoon, and welcome to ETF.com Live!
3:01
As always, you can enter your questions in the box below, and I'll get to as many as I can in the next 30 minutes or so, and post a video shortly thereafter with something I think that's juicy.
We'll also post a transcript right here.
With that, let's get rolling.
Jamie T.
3:01
I know fee wars have been ratcheting up for a couple years now. But is that only on ETFs, or other investment vehicles (mutual funds …)? Tx.
Dave Nadig
3:01
So the short answer here is YES, there's pressure all over financial services.
Even insurance products.
I think that pressure is predominately because of ETFs, honestly.  ETFs, while being cheaper, are more importantly transparent.
3:02
People have now been trained to expect to be able to find out things like how much they're paying.
I think that rise in transparency has actually been across the economy.
Even buying a car is a more transparent (if not actually more enjoyable) experience than it was a decade ago.
Morningstar actually just published a big new study on this too:
Lots of similar questions today, I'll bunch a few up:
Marcus Jeter
3:03
Has that “sell in May and go away” maxim been debunked?
Doug Idzell
3:03
Is summer ALWAYS a weak period for energy equities and crude oil? If so, do their corresponding ETFs slump then?
Dave Nadig
3:03
So, this is one of the great "maxims" of all time, and the problem is that it works, except when it really doesn't work.
3:04
If you run a simple experiment of doing the Sell in May, buy in October thing, and you run it back 30 years, it does indeed beat just holding forever.
but, there are a lot of caveats to that -- depends a lot on whether you reach far enough back to catch the 80s, or if you skip the 90s, and so on.
It has pretty decisively stopped working for the last decade or so.
3:05
at least since 2013 I believe its failed miserably.
And like any barbell strategy, its entirely dependent on outliers.  You miss one great June, or you catch one terrible november, and it all falls apart.
3:06
In general, my thinking on any of these non-market-data systems is they can only work if there's a kind of collective delusion.  If we ALL agree to never own stocks on Thursdays, well then of course, Thursdays will tank, week after week.
So the more market participants there are, the harder it is for these fairly silly systems to have any validity, which is part of why I think they've stopped working.
Too many people NOT playing the same game.
Todd Marronne
3:06
Hi Dave, What’s specifically a “separately managed account”?
Dave Nadig
3:07
So pretty simple: Your brokerage account is a separately managed account or SMA in finance speak.
Any time a big investor wants their money managed just a little differently, or has some contractual reason it's assets can't be comingled with other investors, they'll use an SMA>
3:08
Big investment managers (say, Blackrock) will stand up an SMA for pretty much any strategy you want, if you're large enough.
Back in the day, for instance, the precursor (Wells Fargo Nikko) to BGI/Blackrock used to run GIANT SMAs for the federal employee retirement system.
The reason NOT to use an SMA is to share costs across more assets.
Hence: mutual funds, etfs, and so on.
ETF Bro
3:08
Japan markets have been closed for some time.  How do APs facilitate creations/redemptions during periods when underlying markets are closed?  CIL?  Settlement dates adjusted?
Dave Nadig
3:09
So, its just a settlement timing issue.  Remember, when an AP leaps at a "too low" price for a Japan ETF, they're counting on being able to hedge that right now, somehow.
So they might buy at that "too low" price, and then hedge that with futures contracts on Tokyo, or even another ETF thats trading more fairly.
3:10
These are obviously imperfect hedges, and consequently, spreads tend to be larger for asynchronous markets.
3:11
So after they book the trade, using the imperfect hedge, they can decide if they're going to do a creation.  When they submit to do the creation.
(in this case they would have had to be selling at a "too high" price, but the math still works).
When they do the creation, they can then buy up the securities they need tonight (when japan opens).  But they'll have some slippage.
hence: the wider spreads, managing both the time delay, and the imperfect hedge.
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