WELCOME TO THE JUNGLE THE FUTURE OF ETFS
- Slides: 66
WELCOME TO THE JUNGLE THE FUTURE OF ETFS Eric Balchunas Senior ETF Analyst, Bloomberg Intelligence March 2018
MY CRITICAL THEMES 1. The Internet Theory 2. WMDs, Bubbles and Marxism 3. The Great Cost Migration 4. The Fall (and Rise) of Active 5. The Spaghetti Cannon 6. The Smart Beta Spectrum 7. Nasty Surprises
The Internet Theory
THE INTERNET THEORY: AUM VS INTERNET USERS 4
THE HOCKEY STICK
ETFS COMPETE AGAINST EVERYTHING MFs Futures ETFs SMAs Single Securities 6
CATALYSTS FOR FUTURE GROWTH • • Regulations Robos Millennials Institutions Governments Innovation Smart-Beta Fee War
ETF ASSETS EXPECTED TO DOUBLE Projected growth rates of ETFs across globe… 8
$25 TRILLION BY 2025!?
THE MEDIA TIPPING POINT 2000: Bloggers, Academic Papers, Conferences 2005: Index Universe, ETFdb, Morningstar 2010: Barron’s, Bloomberg, FT, WSJ 2015: Time Magazine, USA TODAY 10
WMDs, Bubbles and Marxism
TOP 10 ETF ATTACKS OF 2017: 1. Weapons of mass destruction 2. Fault line for the next earthquake 3. Causing stock market bubble 4. Worse then Marxism 5. Worse than the misuse of antibiotics 6. Distorting fundamentals 7. Making market dumb 8. Destructive to growth creation 9. Hurting the economy 10. They’re hideous
ARE ETFS CAUSING A BUBBLE? They only own about 6% of stock market… 13
STILL, ETFS OWN LESS THANK YOU THINK Not exactly the tail wagging the dog… ETF’S PERCENTAGE OWNERSHIP OF THE ASSET CLASS THEY TRACK TOTAL MARKET CAP ETF ASSETS % ETF OWNERSHIP U. S. EQUITIES $ 28 TRILLION $ 1. 9 TRILLION 6 -7% U. S. BONDS $ 39 TRILLION $ 520 BILLION 1 -2% GOLD $ 7. 5 TRILLION $ 35 BILLION 0. 5% ASSET CLASS Source: Bloomberg, World Gold Council, SIFMA 14
FROM CLOSET INDEXING TO ACTUAL INDEXING Owning the same stocks, just in a different format… 15
WILL PASSIVE LEAD TO MARXISM?
VANGUARD’S CORP GOVERNANCE
ARE PASSIVE FUNDS BETTER OWNERS?
PASSIVE OWNERSHIP BY SECTOR 19
STOCKS WITH MOST PASSIVE OWNERSHIP 20
STOCKS WITH LEAST PASSIVE OWNERSHIP 21
BERNSTEIN JOINS COMMUNIST PARTY 22
ETFS: 10 BILLION SERVED
WHEN GOING GETS TOUGH, ETFS GET GOING
LEGIT WORRY: VAMPIRING
LEGIT WORRY: OVER-TRADING “The average turnover for an ETF is 400 percent a year. And SPDR is 3, 000 percent. And here you are talking to a guy who thinks 3 percent turnover is pushing the envelope. ” --John Bogle, Vanguard “I think the temptation to trade—whethere are ETFs in the world or not—is going to be there. There are people that are always going to want to twiddle the knobs. It doesn’t really matter if you provide the product, they will find it. They will find currencies. They’ll find futures. They’ll find a sports book. ” --Josh Brown, Ritholtz Wealth Management 26
LEGIT WORRY: ETF ABUSE 27
SOME ETFS ARE TRADED, OTHERS ARE NOT 28
The Great Cost Migration (aka “The Vanguard Effect”)
THE GREAT COST MIGRATION
CHEAP BETA IS A SMASH HIT
VANGUARD, BLACKROCK & EVERYONE ELSE…
VANGUARD FLOWS ARE “BOGLE-PROOF”
ASSETS IN VANGUARD’S PERSONAL ADVISOR SERVICE…
The Fall (and Rise) of Active Management
#1: DO NOTHING 36
. . AND DON’T ROOT FOR A SELLOFF! 37
#2: BE A BOND MANAGER 38
#3: LOWER FEES 39
#4: ADOPT A ‘BABE RUTH’ MENTALITY 40
#5: ALPHA THROUGH BETA 41
#6: ADVISOR TAKE ROLE OF ACTIVE MGR 42
#7: PASSIVE PORT MANAGEMENT gles
#8: MAKE A SMART-BETA INDEX 44
The Spaghetti Cannon
LAUNCHES AND CLOSURES
TAKES TIME TO ‘GROW’ AN ETF
ETFS RANKED BY REVENUE GENERATED
ISSUERS RANKED BY ‘DIAMONDS’
BREAKING OUT OF OBLIVION
PARTY STILL ROCKING BUT IT’S “BYOA” 51
The Smart-Beta Spectrum
RISE OF THE MACHINES: SMART-BETA 53
THE BEST SELLING SMART-BETA ETFS 54
SOME ETFS MORE VALUE-Y THAN OTHERS
THE SMART-BETA SPECTRUM
Nasty Surprises
XIV IS FREE FALLIN’
DO ETFS NEED LABELS OR RATINGS?
ADVANCED INFO OF POTENTIAL SURPRISES
THE ETF TRAFFIC LIGHT SYSTEM
ETF<GO> = DUE DILIGENCE
BI <GO> BI ETF<GO>
NEW TV SHOW & PODCAST
AVAILABLE ON BOOK<GO> OR AMAZON. COM Please forgive my shameless promotion… 65
THANK YOU Newsletter: ebalchunas@bloomberg. net Twitter: @Eric. Balchunas On Bloomberg: BI ETF<GO>
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