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Dave Nadig
2:59
Good afternoon! And welcome to ETF.com Live!
3:00
As always, you can enter your questions below, and I'll get to as many as I can in the next 30 minutes or so.
We'll have a transcript (with a video!) up by the end of the day.
But we've got a bunch of fun questions cued up so let's get rolling.
BioTechGuy
3:00
OK, song of the week or whatever?
Dave Nadig
3:00
Sleater-Kinney dropped a new 3-song EP which I'm obsessed with.
Matt L.
3:01
Dave, as an ETF investor, do I really need to worry about whether I'm invested in something that's now considered a "crowded trade"?
Dave Nadig
3:01
Hi Matt - interesting question.  When people use the phrase "crowded trade" what they usually mean is "a lot of money is chasing this idea."
3:02
So for example, when we were at peak fervor over minvol or lowvol investing, lots of ink was spent talking about how "it would all collapse" when all this money left the lowvol stocks.
In academic terms, what people usually talk about is "capacity."
3:03
So for example, an academic might have a piece of research that says "hey if you buy stocks on thursdays between 10 and 11, when it's raining, you get outperformance."
Well, that's a pretty narrow place to play, and so they'd say this was a "low capacity anomoly"
Can ETFs be targeting low-capacity corners of the market? Sure.  People make this argument about various factors
they make it about things like high-yield munis and so on.
3:04
And in fact there have been narrow moments when ETFs have owned a rather large part of a market.  Junior gold miners, for instance.  There have been times when Van Eck has been a VERY big part of some of those companies
so you can say "it was crowded".
So its not insane to be worried about it.  But for most investing (outside niches) its not much of a concern.
J. Maldonado
3:04
Morning, Dave. I would’ve thought a rate cut would’ve boosted the market. Why did the opposite happen yesterday?
Dave Nadig
3:05
Well, the problem is always what the market expects.  It's a bit like seeing a company have a great earnings quarter and trade down.  Clearly that means the market, as a whole, expected EVEN MORE.
So in this case, the market expected not just a rate cut, but a strong signal that more was coming.
instead we got a rate cut and a lot of hand wringing.
3:06
Today's action is pricing in another rate cut (or more) even though the fed isn't saying that.
Of course, this is now extremely intertwined with the announcement of another wave of tarrifs which is killing various sectors.
But in short: expectations.  The market had already priced in more than one rate cut, it only got a signal for one, so it sold a bit off.
but mostly, i worry short termism here is noise.
Courtney
3:06
Hi could you explain the technical side of how dividends are reinvested into a etf?  What if the payout is lower than the share price...is it still reinvested?  Thank you.
Dave Nadig
3:07
Hi Courtney!  In the vast majority of cases in an ETF, dividends are not reinvested, they are actually paid out.
So if you own, say, SPY, every so often you'll get cash deposited in whatever account you own SPY in, as it pays out accumulated dividends.
3:08
THere are some quirks here: most funds take the cash from individual company dividends and "equitize" that cash by either buying more stock for a small period of time, or more often, a small position in a derivative instrument thatg will track the core index the fund is trackign as well.
That minimizes cash-drag from just sitting on cash in between distributions from the ETF to you, the investor.
3:09
A handful of ETFs (including SPY) are structured as unit investment trusts which makes it impossible for them to "equitize" the cash, so they tend to underperform a tiny amount in up markets, and overperform a tiny amount in down markets.
3:10
If you want to take the dividend stream from the ETf and reinvest it, you generally have to do that on your own.  This is a bit different from mutual funds, where your broker will often just automatically reinvest the dividends you receive.  You still get them, you just don't notice them until you get a tax bill at the end of the year.
Tate Markham
3:10
Did Schwab buy the entirety of USAA, or a portion? Either way, does this impact ETFs at all? (And are there any specific USAA ETFs?)
Dave Nadig
3:10
Hi Tate - talk about a confusing world.  So, USAA signalled some time ago they wanted out of the investments business.
But being a HUGE company, they have LOTS of investment businesses, not just one.
3:11
The big interesting chunk - the mutual fund and ETF businesses, were already sold to Victory Capital.
I think that closed a few months ago?
So the USAA ETFs and so on are now all Victory Capital ETFs.
What Schwab bought was (I believe) their wealth management business, and their brokerage.
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