Displaying items by tag: ETFs

(New York)

The FT ran an article today looking at the tech meltdown from an angle no one else is, and it is definitely worth paying attention to. Their worry is how ETF issuers are going to be able to offload shares of tech giants quickly enough to match benchmarks. For instance, Facebook lost $120 bn of market cap last week, and it will be difficult to source enough buyers to unload all that stock without roiling the market further. The overall point of the article is that trouble in tech might cause the dreaded “liquidity mismatch” issue in ETFs.

FINSUM: It seems like this problem is already rectified for last week’s fall, but the overarching argument is that any falls in FAANG stock prices are going to be exacerbated by large amounts of forced ETF selling. This could explain why the losses have been so steep.

(New York)

One of the market’s big worries over the last few years has been centered around the idea that ETFs may have some sort of implosion the next time there is a Crisis, or at least some major volatility. However, S&P has just come out with a report saying that won’t be the case. The piece cites the numerous instances of when major volatility hit markets, including this past February, and ETFs held up just fine. That said, ETFs do have the potential to be distortive, and they have been implicated in some major flare ups, such as that linked to the CBOE Volatility Index this winter. S&P concluded that “There’s not much cause for concern for systemic risk … But we have been able to quantify that there’s some minimal impact”.

FINSUM: Our feeling is that equity ETFs should be fine. However, for less liquid fixed income and other low liquidity areas, ETFs could theoretically have a “liquidity mismatch” which might cause some issues.

(New York)

Advisors will see it first hand, but it is still worth discussing the intensification of the current ETF price war. While the industry has been slashing fees for years, things have escalated significantly over the last few months. State Street has introduced a suite of ultra cheap funds, but more recently, BlackRock and Vanguard have made major moves. BlackRock cut fees on several stock and bond ETFs last month, and just last week, Vanguard announced that almost every ETF on its platform would be commission-free. The ETF market is supposed to grow to $10 tn in the next decade, and fees have fallen 30% in the last decade.

FINSUM: This is great news for investors, but it will certainly drive further consolidation in the ETF business as massive scale is needed to support these prices cuts. We ultimately worry about such imbalance in the market.

(New York)

There has been a lot of media attention over the last year about the rise of faith-based and politics-based investing. New ETFs and advisors are currently cropping up to cater to investors who would like to invest based on these principles. However, Barry Ritholtz thinks the concepts may not be a good mix. The author looks at the returns of a popular biblical-based fund and finds that its performance lags broader indices significantly. Ritholtz argues that investors need to check their emotions at the door when investing, which is why this kind of philosophical investing may not create good returns. Ritzholtz says “Do your civic duty on Election Day and vote, go to church on Sundays, but always bring a cool unemotional detachment to investing on Mondays”.

FINSUM: The fees on these types of funds also tend to be much higher, which means that you are losing on both ends. That said, the peace of mind people get from investing in things they feel morally comfortable with may be greater than the expense.

(New York)

The fee war on ETF trading continues, both for advisors and for retail. Trading platforms providers have been engaged in an ongoing struggle to attract assets by slashing the price of trading, and Vanguard just took a big step. While Vanguard used to charge retail investors a flat fee for trades depending on their AUM (trading Vanguard funds was always free), the company is now cutting transaction fees for aboutx 1,800 ETFs on its platform. No more trading fees at all. The move follows Fidelity’s recent addition of more fee-free ETFs. FINSUM: This is a big deal. 1,800 fee-free ETFs dwarfs the competition and we definitely think it will help Vanguard gather more assets, both retail and institutional.