My appearance in February on The ETF Store Show—a radio program produced by the ETF Store in Kansas City, Mo., on ESPN 1510, fulfilling my dream of following Mike & Mike on air.
For those (few) of you who follow my blog, it’s been quite a while since I’ve caught up on articles published elsewhere. So, this first post will just include links to some recent stories from Pensions & Investments and The Wall Street Journal.
Hot market, ETF popularity hurting securities lending (sub) - This article took a look at the somewhat controversial area of securities lending, including pension funds that moved into ETFs for the additional income from lending. As ETFs increased in both assets and liquidity, demand to borrow dropped and had some funds reconsidering. ETFs also lend their underlying securities, a topic I covered in 2011.
Institutions’ resistance to active ETFs may ease (sub) - During the 20th anniversary celebration for SPY, many people began to ask the next question…when will active ETFs take hold? To truly catch on, it will take institutional-level faith in the product and, perhaps, a less transparent vehicle. Money-market mutual fund reform, however, could turn institutions and corporations to ultra-short active ETFs (which I during the 2012 hearings).
Firms Try Varied Designs to Add ETFs - As asset managers look for more cost-efficient ways to offer their strategies across platforms, they have honed in on a few alternatives to launching entirely separate investment companies.
Qwafafew: Quants and Quaffs - On the lighter side, I worked with Rachel Louise Ensign on this amusing story about a group of quantitative analysts and their regular gatherings in New York and around the U.S.
In a recent piece for Pensions & Investments, I highlighted a $1.4 billion underlying-for-ETF trade made in 4 iShares ETFs. The trade was discussed by BlackRock CEO Larry Fink at a September conference and again by the head of iShares in October. This not so subtle signal was a call-out to large institutions that bond ETFs are the new dealers.
With dealer inventory down significantly since 2008, corporate debt investors will increasingly find that their path to liquidity is through an ETF (and, of course, its management fee.) In the article, I also point to a recent study by The TABB Group which concludes that price discovery and liquidity of corporate bonds through ETFs could hasten the shift to more transparent and electronic bond exchanges.
While I’m still keeping up ETFolution at Forbes, I’ve been tied up by a few big stories and other projects.
The first was a profile in Forbes magazine on Reggie Browne, the head of ETF trading at Knight Capital. Reggie has spent most of his career trading derivatives and now ETFs. At Knight, along with his business partners, he has built a business that surrounds ETFs and is looking to grow along with the success of the structure. While securities trading shrinks, Reggie’s expectation is that the market for ETFs will continue to grow. Despite recent fund closures, inflows into ETFs are on a record pace in 2012.
Next, I helped put together a feature and data package on ETFs for the Wall Street Journal. Trying to identify five trends that would rule the ETF market for the next five years was a tough assignment, but I think we’ve hit on some consensus. Read the story for details, but one aspect that I didn’t add was a mix of new entrants and consolidation of smaller firms. Financial services, over time, tend to consolidate as technology increases competition and reduces margin.
The ETF market is experiencing these phenomena in earnest right now.
In the media, we love to mark beginnings and endings. We are quick to make predictions and fast with “I told you so.” In between, not so much.
Ever since exchange-traded funds were introduced in 1993, media and finance types have been predicting the rise/fall of ETFs relative to mutual funds and even stocks. Telling the story of ETFs, and the struggles between/among providers, has been chalked up to “inside baseball,” as I’ve been told.
My latest article and infographic in the Wall Street Journal and a few recent stories in Barron’s and The Financial Times serve up a product market in transition. While there may be close to one thousand ETFs in the U.S. market that are not economically viable, such small products make up a tiny segment of all assets in ETFs. (28% of SPY by assets.)
But there’s no reason that any one of these thousand little guys can’t make it in its own right or stay afloat longer than the media would like for a good story.
The financial product market is in constant transition. Yesterday’s top hedge fund is today’s implosion and tomorrow’s genius. That the ETF market is one of whales and minnows is only a footnote to the macro trend.