Displaying items by tag: ETFs

(New York)

Everyone is trying to figure out how to protect their own and clients’ portfolios from a trade war. “Which sectors will be the hardest hit”, “and by how much” are common questions. Well, a small Virginia based ETF provider has just come to the market with a new fund that is designed to protect investors from that very issue. The new ETF, TWAR, is designed to track 120 companies who are likely to outperform the market during a trade war because of “government patronage”, or special contracts or subsidies which insulate them.

FINSUM: There is some skepticism in the market about this approach, but it does stand to reason that companies who are less exposed to global trade will suffer less than the market.

(New York)

ETFs are obviously the biggest financial product of the decade, and have been very broadly adopted by advisors. However, how advisors actually use them varies greatly, partly due to the diversity of the asset class. There are around 2,200 ETFs covering a seemingly endless variety of niches. But within that cornucopia of offerings, which can be dizzying, lays the opportunity to personalize. Specifically, the large variety of highly specialized approaches allows advisors to be very tactical with portfolios without the need to buy specific stocks. Further, since ETFs are replicating a benchmark, they do not suffer from “style drift” like mutual funds do. In that way, the sectors/niches they track are more reliable and can be depended on for the role they play in a portfolio.

FINSUM: This might be obvious to some, but there are many out there who still only use ETFs are ultra-cheap trackers. Some of the new offerings provide really interesting exposure to specific areas—part of the reason they have been heavily adopted by hedge funds.

(New York)

Bond ETFs ae set to break a landmark record this year—$1 tn in AUM. The number is a big deal for bond ETFs, which got off to a slower start than their equity counterparts. In recent years, though, bond ETFs have seen huge inflows as they allow investors a more liquid option for both strategic and longer-term allocations. The market is also seeing a good deal of innovation, with more nuanced approaches spreading much like they have in equities.

FINSUM: Overall this is excellent news for investors. More AUM means more liquidity, more options, and lower costs. There are still some fears about a liquidity mismatch between the ETF and the underlying blowing up during a crisis, but those have never materialized.

(New York)

Barron’s has interviewed some of the top financial advisors in the country to figure out how they incorporate ETFs into their portfolios. We thought our readers might be curious. Raj Sharma, from ML, said that he thinks ETFs are just a tool and that active management still has a big role to play, especially in emerging markets and small caps. One top advisor, for whom ETFs comprise 50% of their business, says they use options bets against ETFs, something you can’t do with active funds. Another top advisor from ML, Peter Rohr, summarized ETFs nicely, saying: “ETFs allow us to control the controllable. We can control fees, we can control taxes, and we can control risk level”.

FINSUM: ETFs are a very flexible, and largely inexpensive product, facts which explain their explosive growth. However, that flexibility also means it takes strategy to put them to their best use.

(New York)

Any investor in ETFs will have noticed the marked rise of “factors” over the last few years. These are technical or conceptual overlays that managers use to create a theme for a fund. They are generally predicated on some type of data, like “quality” or “momentum”, both of which are well-studied. However, lately there has been an explosion of new factors which are being employed in funds. The problem is that many of these are not being observed on a long enough timeline to see if they are relevant. In practice, this means that a lot of funds are predicated around strategies that do not have any proof of concept.

FINSUM: So we have mixed feelings about this. On the one hand, some factors seem clearly frivolous, while others which may also be quite new, seem to be a good angle on the current market environment. The key is to be very discerning in choosing these types of funds.