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Dave Nadig
3:00
Good afternoon! And welcome to ETF.com LIve!
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.
3:01
Today there is sadly no soundtrack, as I am in a coworking space and forgot my headphones, so whatever gets you jazzed to close out the week.
Let's get to the questions:
Tactical Allocator
3:01
Any thoughts on two new allocation ETFs, LGH & QQH, that Heather Bell reported on today?  How hard is it for a new ETF issuer that is tactical and expensive to gain traction with investors?
Dave Nadig
3:01
So, these are two new funds from Howard that I classify as "flippers" - in that they use signals to get in or out of the market.
3:02
While I'm always rooting for new players, I have to say, this strikes me as a set of pretty tough launches.
They charge 1.36%.  There's no way to look at that and not pause a bit.
3:03
That's an extraordinarily high expense ratio for an ETF.  And a very high hurdle for their strategy to beat.  I suspect (and for their sake, hope) that they believe they already have distribution lined up.
3:04
Most funds coming to market like this (relatively unknown, relatively expensive) have been able to gain some traction by leaning on existing relationships.  Perhaps there are institutional clients or advisors who are already in a similar strategy through SMAs or mutual funds that will migrate.
So, while I respect anyone's ability to charge what they think their intellectual property is worth, I have to say, this seems like a BIG hurdle to overcome.
ETF Bro
3:04
Not sure if you've read through the ETF Rule yet, but was wondering if there were any less obvious effects on industry/issuers/etc.
Dave Nadig
3:05
Great question.  I have indeed read through it several times, and perhaps the biggest news here is that there really *weren't* any big surprises.  I see the biggest impacts (for investors) coming from a few angles.
3:06
1: Custom baskets.  This is just leveling the playing field, letting new entrants do what the older firms have always done - use the creation redemption process to maximize tax efficiency and minimize tracking error.  It's an unfettered good.
2: It's now *marginally* cheaper for a newcomer to come to market.  Whether this is good or bad depends on if you think there are already too many ETFs.
3: Some additional disclosure around trading costs.  THis is good, and will help standardize things.
3:07
That's really pretty much it for investors.  For issuers, it's mostly cleanup.
But it gets a lot of the legal "cruft" out of the way, and that's just generally positive.
Bill Donahue
3:07
I hope things are well, Dave.  There have been a number of papers written lately related to mutual funds converting to ETFs. The SEC has not approved any such conversions to date. What you are thoughts on the potential opportunity of mutual funds converting to ETFs?
Dave Nadig
3:08
Hi Bill!  I think the BIGGEST opportunity here would be around semi/non-transparent active funds (with the ActiveShares model from Precidian being currently the only approved structure).
Obviously there are some small operational hurdles (how you deal with fractional shares, or with fund holders who have a direct relationship with the fund company).  But none of those seem insurmountable.
3:09
I wouldn't be surprised at all to see a few conversions in 2020 using the Precidian model.  It would provide immediate scale (and potentially liquidity) for a firm coming in with a traditional active equity approach.  Frankly I really hope we see it.
A few questions on bitcoin here:
Cardiff
3:09
What do you think it’s going to take for an exchange to make the SEC comfortable that it can prevent market manipulation or illicit activities so that a bitcoin ETF will finally be approved?
Aisla
3:09
Hi Dave, Just like the world once scoffed at digital currency firmly taking hold, is it also just an inevitability that the SEC will eventually approve a bitcoin ETF?
Todd Rosenbluth - CFRA Research
3:09
With the latest rejection of a bitcoin ETF, do you think this increases the likelihood of Matt Hougan returning to his ETF analytical/commentary roots?  Or will he remain a part time player like Deion Sanders did in baseball.
Dave Nadig
3:10
(OK, the last one made me laugh).
So, in case you missed it, the SEC rejected Bitwise's proposed ETF last night on the grounds that they were uncomfortable with the underlying.
3:11
That's an important nuance, as I read it.  I don't think they were objecting to the IDEA of a crypto ETF, they were simply saying "we're worried the underlying crypto markets are too susceptible to manipulation."
So that puts the ball back in the Crypto court.
3:12
To your question Todd: I think Matt (and the other good folks at the several firms pursuing this) take this as a challenge, and an interesting intellectual one at that.  How do you PROVE that your market isn't manipulatable.
So I suspect we see a LOT of interesting underlying research on the plumbing side of things, including transaction and event analysis, that's going to be a blast to read.
3:13
I suspect this maybe pushes things out 6 months to a year, but not indefinitely.  Perhaps past the election, but not a LOT further out than that.
Phoebe W.
3:13
Do ESG funds cost more than traditional ETFs?
Dave Nadig
3:13
In general yes.  I think you can think of ETF fees as being on a spectrum, where broadly speaking, the more "boring" the exposure, the cheaper you should expect.
3:14
"Boring" ETFs are generally under 10bps by and large.
I'd put straightforward ESG exposure in the "slightly more interesting camp" and thus you see most of them pricing aroudn 25-50 bps.  That seems completely fair to me. Your dollars are going to license a lot more than just a list of stocks by cap weight.  THere's real work and expense under the hood.
3:15
At the higher end, you get more "smart beta" like ESG approaches, and they tend to be closer to 75 bps.  And again, they're more expensive because they're doing more work.  Whether that's valuable to you at that price you'll need to decide.
but it's reasonable to expect to pay more for, say, SUSA, than SPY.
ETF Guy
3:16
Does the SEC rule have any impact on the typical 75 day window from filing date to launch date for an ETF?
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