Five Questions: An Inside Look at ETFs with Chris Hempstead

By Jack Forehand (@practicalquant) — ETFs are both the present and the future of asset management. The combination of lower fees relative to mutual funds, tax efficiency, transparency, and intraday liquidity that they offer has led to rapid growth in the space. Although ETF assets still pale in comparison to mutual funds, it is hard to argue that they aren’t on their way to surpassing fund assets in the future. Despite the popularity of ETFs,… Read More

New ETFs Face Nasty, Brutish and Short Lives

An article from Bloomberg columnist Barry Ritholtz shares insights he gathered from industry professionals at the Inside ETFs conference held in February. “New exchange-traded funds must endure a brutal Darwinian struggle for attention and assets,” he wrote, adding, “To attract enough capital to survive amid the competition, new ETFs need a good investment idea and a catchy marketing approach.” Ritholtz shares Bloomberg Intelligence data showing that, over the past five years, 1,050 ETFs have launched… Read More

How ETFs Work – And Why All Investors are the Beneficiaries

By Jack Forehand (@practicalquant) — Wall Street has a reputation for enhancing itself at the expense of the individual investor. And that reputation is well deserved. It has been very common throughout history for firms on Wall Street to develop products whose primary goal is to make money rather than adding value for the investors who purchase them. So if you are looking for someone to defend the practices of Wall Street, I am not… Read More

Passive Investing Could Cause Market Trouble

“A fundamental shift in market structure towards rules-based, passive investing over the past decade means a lot of trading is no longer based on fundamentals” and the shift could lead to a global market downturn, according to a recent article in the Financial Times. The concern has risen to the Fed, who will address the topic at this year’s economic symposium in Jackson Hole. Passive investments ignore fundamentals, the article says, citing the example of… Read More

Quants Find Profit in ETF Anomaly

Quant strategists at Deutsche Bank have found that investors can “beat equity benchmarks by building portfolios out of stocks that get whipped around the most when exchange-traded funds rebalance.” This according to a recent article in Bloomberg. According to the article, the strategists recommend: “Bet against the ones they buy and buy the ones they sell.” It adds, “If all you did was go long stocks with the most negative ETF flows over the last 12… Read More

The Devil is Often in the Details in Investing

By Jack Forehand (@practicalquant) —  When you look up a word in the dictionary, you expect to get a pretty clear definition of what it means. There obviously is gray area with some terms and some have multiple definitions, but in general a word’s definition will give you a pretty clear understanding of it. When it comes to investing, it is common to take that mentality and assume it also holds. The reality, however, is that… Read More

BlackRock’s New Suite of Funds to be Led by Robots

Blackrock Inc., the world’s largest asset manager, is “turning to robots to drive its latest push into active exchange-traded funds,” according to a recent article in Bloomberg. The article reports that, according to a recent statement by the firm, the funds (under the brand “iShares Evolved”) will choose holdings in industries such as technology, innovative health care and media entertainment based on machine learning and natural language processing. According to Jeff Shen, co-head of investments… Read More

Investing Insights Regarding Smart Beta Strategies

At this month’s 2017 Morningstar ETF Conference, Alex Bryan interviewed Chris Brightman, the chief investment officer of Research Affiliates, to discuss concerns regarding smart beta products. Here are some highlights: Bryan points out that while data provided by Research Affiliates shows strong back-tested performance for some smart-beta strategies, the “live” record of many of these products has been weak. Brightman clarified that his findings are not restricted to smart-beta strategies. “If we look across the… Read More

Morningstar Study Analyzes Strategic-Beta Fund Performance

A study conducted by Morningstar, summarized in a recent article by the firm’s Alex Bryan, CFA, attempts to determine whether investors can duplicate strategic-beta fund performance with a combination of market cap-weighted indexes. The study compares the performance of a group of strategic beta funds to a “replicating portfolio of six style benchmarks for its relevant universe.” The purpose of the study, writes Bryan, is not necessarily to suggest that investors should replace strategic beta… Read More

Vanguard’s McNabb Says Data Doesn’t Support ETF Bubble Fears

Although the shift to ETFs over the past ten years has been dramatic—since the start of 2008, the industry has attracted nearly $2.8 trillion in investment dollars (according to the Investment Company Institute)—Vanguard chief executive Bill McNabb told The Financial Times that he doesn’t see this as a “systemic” trajectory indicative of a market bubble. In the interview, McNabb argues that index tracking funds represent less than 15 percent of the equity market capitalization around… Read More