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Dave Nadig
2:59
Howdy folks, and welcome to ETF.com Live!
You can enter questions in the box below, and I'll jam out as many answers as I can in the next 30 minutes.
3:00
We'll have a transcript up shortly after.
So lets get rolling, some good ones in the hopper.  But first:
Anonymous
3:00
Soundtrack?
Dave Nadig
3:00
So my friend made a game called "earworm" which is basically Name That Tune as a party game.  The playlist has been on repeat.  It's awesome/horribly catchy tunes.
Todd Rosenbluth - CFRA Research
3:01
Hi Dave. Look forward to seeing you at Inside Smart Beta conference next week. Can you give us hint what you plan to highlight in your session?
Dave Nadig
3:01
So Inside SmartBeta/Active is next week monday and tuesday in boston, which is always fun, because we get to talk about the whackier stuff.
I'm doing a session on 10 "smart" ideas in 20 minutes, which is mostly me doing a little mythbusting and highlighting some of the great research that's been done in the space.
3:02
So for example: I get to use one of my favorite charts, showing how backtested indexes just "magically" stop producing most of their alpha once they become live products.
Stuff like that.  Should be quick, and fun.  I'll try and make an article out of it when were done.
joanna b
3:02
what is an EFT?    & What does anagram stand for
Dave Nadig
3:03
So, not as dumb a question as you think!  So ETF stands for "exchange traded funds"
its in contrast to mutual funds, which aren't traded on an exchange.
the industry has tried to change it to "exchange traded products" for years, or ETPs, and even I slip into that sometimes.  What's the difference?  Well technically some very big and popular "ETFs" like, say, VXX, aren't even "funds"
3:04
(VXX is an exchange traded note -- a piece of debt)
And there are a half dozen other "not really funds" categories that we all lump together.
But much like Kleenex, Xerox, and Smart Beta, were stuck with the term.
Tony
3:04
Day to day ETF performance isn't a huge risk to an issurer's financials, right? But what if we had a large bear market (say 40-50% downturn)--would many of these ultra-low-cost ETF issuers need to raise their fees? Such a market downturn would cut AUM by half itself and then further by risk-terrified investors moving to cash.
Dave Nadig
3:05
So for sure if the market goes down for an extended period of time, it hurts AUM in two ways.  One, stocks values go down, of course, but investors tend not to pile in when we have bear markets
so not only to the assets shrink, but less new money comes in.  That puts pressure on revenues for the ecosystem
3:06
In such a world, larger issuers can probably weather it fine without much consternation.  Smaller issuers have to find ways of cutting costs or getting revenue from somewhere else.
And since the ETF industry is preeeety thin margin already, I'd expect a true bear market to shake out some smaller players.
or at least, trigger another round of consolidation.
3:07
But importantly, these may be threats to those firms, but not to you, as a fund shareholder.  You own your fund, and your fund generally has a board that ensures each fund is covering its expenses and so on.
So even if a firm just went bankrupt, while it would be chaotic, the fund shareholders still own their holdings.
3:08
This isn't necessarily 100% true.  ETNs, for example, are promises to pay by a big bank.  If that BANK went spontaneously bankrupt, well, then your just a debt holder.
Not a huge counterparty issue, but non-zero.
Geoff Gourden
3:08
What is a reasonable annual fee for an index focused ETF? there are a lot to pick from, are there any tools that would useful? like Yahoo finance,etc?
Dave Nadig
3:09
Well, it's relatively easy to find the baseline: if you use our fund screener, you can sort anything by expense ratio, and that will give you a sense of the market for that given asset class.
Big plain vanilla funds: large cap us equity for instance, are generally under 10 basis points at the cheapest (0.10%)
Anything more interesting -- emerging markets, smart beta, esg, sectors -- tends to be a little expensive.
3:10
I think a rule of thumb is probably "if your paying more than 30 basis points, understand why what your buying is worth a little more."
And why would it be worth more? A strategy you believe in, a market thats hard to access, etc..
Mike Rawson
3:10
Hi Dave,  I know there are many definitions of Smart Beta, but how would one use Factset's ETF classification system to identify Smart Beta ETFs?  I am thinking "ETF Strategy Cluster" not equal to Vanilla.  Will that get me close?
Dave Nadig
3:11
Depends on your personal definition of Smart Beta, but in the broadest sense, yes, if you just exclude anything labelled "vanilla" in the screener, it will give you a very very large list.
It will include old factors like growth and value that some folks think of as smart beta, and some don't.  But its a good place to start.
John K.
3:11
Hi Dave - A recent article stated that ETFs are just derivatives. Do you think that is good description? Your thoughts on that statement!!
Dave Nadig
3:12
Technically, any security whose price is determined by the price of something else is a derivative -- its price is "derived"
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