The ETF landscape has been undergoing significant change in recent years. Although the lowest fee products and the largest providers continue to dominate, several new trends have the potential to shake things up in the coming years. Proponents of things like ESG think they will change the ETF space in major ways. And supporters of Direct Indexing think it has the potential to upend the ETF industry as a whole. But there have been many… Read More
The number of defunct ETFs hit 1,000 this year and should be considered “healthy and natural in a thriving—albeit brutal—market.” This according to a recent Bloomberg article. “On the practical side,” the article explains, “the victims are often thinly traded products that tend to have wider spreads.” More broadly, however the ETF market has evolved into a meritocracy– in contrast to mutual funds, “many of which have props to help them grow assets: distribution fees,… Read More
By Jack Forehand, CFA (@practicalquant) Earlier this year, I wrote about the mechanics of value investing and the many decisions that go into building value portfolios. Many investors believe that all value-based strategies will produce similar performance. But in reality, the many portfolio construction decisions that value managers make, which I highlighted in the article, can lead to major differences both in their performance and in the ability of investors to stick with their strategies.… Read More
In August, assets in U.S. index-based equity funds and ETFs topped those in active stock funds for the first time. This according to an article in Bloomberg. “Stock picking isn’t dead,” the article reports, “But the development marks the official end of money managers’ position as the guiding force in the American stocks market—and the seemingly inexorable rise of low-cost index-driven investing.” If the shift keeps gaining steam, it adds, the implications for both industry… Read More
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
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
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
“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
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
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