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Dave Nadig
3:00
Good afternoon, and welcome back to ETF.com Live!
3:01
As always, you can enter your questions below, and I'll get to as many as I can in the next half hour.
So fire them questions in, and I'll get started here.
First off: soundtrack - no link today, but I've been jamming on Father John Misty.
John
3:01
Why are these buffer ETFs tied to months of the year... do they expire?  I don't understand why I can't buy a buffer fund without  a certain month associated with it
Dave Nadig
3:02
So, we're talking here about the Innovator Defined Outcome ETfs, like BOCT.
The reason that they are tied to a year is that on a specific day (the launch day) the exposure is essentially fixed at the "headline" level, and the fund uses flex options tied to a one-year holding period to achieve it's buffers.
3:03
So for example, in the case of BOCT
3:04
It has insulation from the first 9% of downturn, but in return, a cap of 15% (if Im remembering right) on your upside.
Thats true on the DAY in october it resets.
as soon as the next day happens, while the "end date" remains the same, some amount of the upside cap or downside buffer gets "used" because the market moves.
3:05
So for instance, right NOW if you buy BOCT, which just reset on october 1st
You have a buffer of 9.34%, and a cap of 12.47%
You can always check buy going to the innovator website:
Hope that helps.
Todd Rosenbluth - CFRA Research
3:05
Hi Dave. Another month nearly complete and fixed income ETF demand remains strong. Do you think the popularity continues in 2020 or is this specific to Fed actions in 2019?
Dave Nadig
3:06
Well, certainly being in a declining rate environment is good for people who are already in a bond fund of almost any kind.
Because the principal value will go up to offset the new, lower rate offered by competing bonds.
3:07
But I also think fixed income ETFs have come out of the shadows a little bit.  Certainly commission free trading helps there, for rebalances or "parking" in shorter duration funds.
So I don't really expect much to be different in 2020.  I mean, its just crystal ball time.  I can paint a story of "actually the data isnt so bad, no recession, pile into stocks!"
3:08
and I can also see exactly the opposite.  Sooooo many unknowns right now.
But I think the more time passes, the more comfortable people get with ETFs, period.  Fixed Income came on slowly in ETFs, and it's sort of finally at "appropriate" flow levels I think.
Axel R.
3:08
Any downsides regarding target date funds?
Dave Nadig
3:08
Well, aside from the fact there now aren't any target date ETFs!
3:09
But all kidding aside, I think target date funds are FANTASTIC for certain uses.  It's my default recommendation to younger folks just getting into a 401(k) for instance.
And while many of them are a bit too expensive, they're all better than not being invested at all, or being stuck on one end of the barbell (leaving it in cash, sticking it all in the S&P 500, which may folks end up doing).
3:10
Until the advent of commission free trading, dollar cost averaging schemes (like 401ks) were really a terrible fit for ETFs.  But I think that's changing.
Which leads to this question:
Freeloader
3:10
So... everything trades free, and now with fractional shares.  Does this have any real impact on the ETF market?
Dave Nadig
3:11
For 25 years, the big advantage traditional mutual funds have had over ETFs has been twofold: fractional shares and the friction of trading.
The recent moves by brokers (Schwab in particular) are eroding that very very quickly.
So if Free&Fractional becomes the industry default (which I suspect it will), then there's really not much advantage left in being in a traditional fund.
THey won't just disappear, but I think it just further accelerates ETF adoption.
3:12
(add in the introduction of non-transparent, well known active managers later this year, and I think we're in for a growth spike!)
Tom
3:12
What are the mechanics behind the steady massive short interest in the retail ETF XRT?  How can there always be more shares shorted than outstanding?
Dave Nadig
3:12
SUPER nerdy question.  Here's my understanding (and please, if you read this, and know better, email me please!)
3:13
But what I've been told is that when reg SHO passed (which prohibited naked shorting by anyone other than market makers actually making markets)...
There was a grandfathering of some existing short positions.  Those positions have effectively bounced around from firm to firm, as they seek locates on the shares.  So the short positions do in fact exist, they are likely just hedged out on various peoples books.
3:14
Perhaps because it's cheaper to hold a short, and a hedge, then it is to unwind the position.
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