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Dave Nadig
3:12
By that HUGE definition, all hedge funds, mutual funds, ETFs, etc are derivatives.
3:13
The common usage, however, doesn't generally get applied to anything that's just a wrapper.  So an ETF like SPY or EEM, for instance, is just a fund that holds securities, just like Fidelity Magellan is, so most folks dont call them derivatives.
Things like futures, options and swaps are what most people mean when they talk about derivatives.  They don't "own" anything -- they're contracts based on external values.
3:14
Certainly many ETFs *own* derivatives, and exchange traded notes are themselves derivatives by this usage.
Rick Trednick
3:14
Do you believe Brexit will have a major impact on European ETFs? How would you recommend investing given the shifting political climate?
Dave Nadig
3:14
OOf.  Well, the market has already priced in whatever probability of a hard/soft/non-Brexit it collectively believes.  So any shift you make from market weights is a bet that the market is somehow wrong.
3:15
That's a high bar to cross, in my opinion.  You need to have a *reason* to think you dont want to be in.  A reason beyond "brexit is still a thing"
3:16
For example: choosing a fund like FRDM for emerging markets exposure is a very active bet, because your saying "I don't care how big China is, the market is underpricing the value of various kinds of freedom"
If you believe the market is underpricing the impact of Brexit, then sure, just avoid it.  There are a dozen Eurozone ETFs that skip the UK.
My personal belief is that local politics in the EU is much more important.  It's getting pretty chaotic.
Jake Johnston
3:16
What are some your recommendations for those of use just getting into ETFs? Should we avoid zero fee ETFs?
Dave Nadig
3:17
Hi Jake.  I wouldn't say "avoid all free/beyond free ETFs" just out of hand -- just make sure they're REALLY the exposure you want, because its only a handful of basis points more to buy giant established funds in the same asset classes.
3:18
For truly novice investors, theres no shame in a very simple, broad and cheap asset allocation.  Even something as simple as VTI - which just owns all the stocks in the developed world.
I think sometimes new investors think they need complex portfolios.
When in fact, 2-3 funds can get you an enormous amount of global diversification across asset classes.
3:19
So, K.I.S.S. is probably the be4st answer.
Derek
3:19
Hello David.  I would like you to explain us briefly about how UCITS funds/etfs work?  I noticed that both Vanguard and Blackrock offer these investment vehicles in Europe but not in USA or Canada.  Why is that?
Dave Nadig
3:19
Hi Derek - simple reason:  UCITS is the EU equivalent of the 1940 Act structure in the U.S. -- its a specific regulatory regime for launching and managing funds.
3:20
So in the U.S. we'd say "this is a 40 act mutual fund" or "this ETF is a 40 Act ETF"
In the EU, youd say "UCITS"
and bluntly: they can't buy ours, and we can't buy theirs.
while the two regimes are largely similar, there are quite large differences that would make it difficult to really access.
3:21
there are ways around it, but not easy ones, and honestly, virtually any exposure you can get in one wrapper, you can get here.
some narrow differences, but mostly, the hassle of trying to expatriate your assets isn't worth it.
Anonymous
3:21
Why are mutual fund fees so much higher than ETF fees on average?
Dave Nadig
3:22
While ETFs are generally cheaper, only a small piece of this is structural.  If you're running an index mutual fund and an index ETF side by side, the Mutual Fund has a few things going against it.
It's got to buy and sell securities (instead of using creation and redemption to handle flows).  It has to do shareholder servicing and keep track of who you are, and so on.
3:23
the ETf skips all that, but in a large fund, that doesn't roll up to a HUGE difference.  Maybe a few basis points for a big fund, tops.
Hence, you can actually get cheap, vanilla index funds from Schwab, Fidelity, Vanguard and others that are just about as cheap as their ETF brethren.
The big difference for the headline numbers for ETFs vs Mutual Funds is simply what the firms choose to charge for (often active) management.
3:24
If the fund manager wants 1%, well, then thats what they'll charge to pay their rent, fund their active team, etc..
thats true in an ETF wrapper as well, of course, should we see more traditional active enter.
Phil Harrisonn
3:25
Is there growth in the AI/automation sector of ETFs?
Dave Nadig
3:25
For sure, although things get conflated.
Here's the tag for it in our system:
And we've seen both decent assets and product launches in the niche in the past few years.
3:26
So funds like ROBO and BOTZ are direct plays on the companies fueling AI/Robotics.
The confusion happens when we talk about using AI to RUN a fund, regardless of what it holds
Even in our own list there, you'll find AIEQ:
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