[Editor's note: ETF.com Live Chat! with Managing Director Dave Nadig happens Thursdays at 3:00 p.m. ET.]
Dave Nadig: Good afternoon and welcome to ETF.com Live!
As always, you can enter your questions in the box below. I’ll get to as many as I can in the next 30 minutes or so.
Fair warning, my hands are really cold so I may type a bit slower than usual, but I'll do my best!
After we’re done, we'll post a transcript at this same address, in case you missed something.
With that, let's get to the questions!
I'll bundle the pot ones together here:
anthony: Any cannabis ETFs ?
Todd Rosenbluth - CFRA Research: Hi Dave. Now that pot is legal in Canada, do you expect we'll see a competing ETF to MJ, perhaps an equal-weighted approach?
Dave Nadig: So, the single pot ETF is MJ right now
To Todd's question: The issue is really whether any of the mainstream ETF servicing companies are willing to play ball.
MJ had to change its custodian and transfer agent to two firms that have (to my knowledge) never touched an ETF before, because of the legal issues around it.
I think that climate is changing (particularly now because of Canada).
But in the near term, I don't think we'll see a mainstream ETF company like BlackRock wade in until there's more legal clarity.
Chris Kucich: Hi Dave, What's the BEST investing tip you'd give (or have ever gotten) besides, you know, "don't bet on Rico in the 5th"?
Dave Nadig: What a great question. I will tell you the best investing advice I've ever gotten, and it's in two parts:
Both of these came from my grandfather, who was a broker.
1: Paying interest on debt is the dumbest thing you can do.
His point was that worrying about your portfolio while you're paying off a 20% credit card is stupid.
Obviously, some debt is useful (mortgages and so on), but I think the general point, especially for younger investors, holds.
2: You are dumber than you think you are.
Now, he may have said this because he knew me personally (grin).
But I think this point is also true: We all have massive bias about our own ability to game the system, time the market, pick the right products and so on.
We suffer from both confirmation and hindsight bias, all the time.
Riley: Is there a difference how you make money off of ETFs (compared to stocks/bonds/mutual funds)? Is it dividends, or interest, or ...?
Dave Nadig: Hi Riley -- not really. You "make money" on an ETF because either its value goes up or you collect a distribution of some sort.
Whether those two things happens is entirely dependent on what the ETF holds.
If the ETF holds a lot of bonds, well, you'll probably get regular distributions from the ETF that generate income, just like you held the underlying bonds.
If you hold an ETF that owns, say, gold bars in a vault, the value of the ETF will go up with the price of gold, etc.
ETFs are just wrappers for other investments in the end -- just like a mutual fund.
Jayme T.: I saw in your Hot Reads today ... https://www.etf.com/sections/daily-hot-reads/wed-hot-reads-etfs-rewrit... ... an article about how the midterm elections will impact stocks & bonds. Will those impact ETFs similarly?
Dave Nadig: Pretty much the same answer despite the question being very different -- since ETFs are just the wrapper, they'll respond exactly like what they own.
So for example, if you're in a tech-stock ETF, like XLK, well, you had a really bad week last week, just like everyone who owned tech stocks individually.
However the markets react to the midterms will just roll right through. If, for instance, there's a huge November rally in U.S. equities, SPY will go up along with the stocks it owns.
If the bond market continues to decline, well, the price of the bonds will just be reflected in the price of the bond ETFs, and so on.
Guest: I miss the old conference calls you use to have.
Dave Nadig: I do too! We used to do a daily public call you could dial int o with our friends at FactSet, covering new launches and so on.
It became a bit too much of a daily chore, to be honest. We've tried to cover the same content in our daily ETF Watch, which you can also get as a newsletter in your email box.
And if you miss our dulcet tones, we're on the weekly ETF Prime podcast as well.
Larkin Piedmont: Hi Dave, I'm wondering what in your opinion may be the best benchmark for trend following? Thanks
Dave Nadig: So, bit of a broad question. Trend following means a lot of things to a lot of people.
In ETF-land, we don't have a true managed-futures trend-following strategy.
But for the broader version, there are a number of ETFs that implement things like a traditional 200-day moving average trend strategy.
Pacer's comes to mind: https://www.etf.com/PTLC
The correct BENCHMARK for any strategy like that is always "whatever it's timing against."
In Pacer's case, that's a self-run index of large-cap stocks, but it's essentially an S&P 500 proxy, I believe.
Of note: Those types of strategies haven't done all that well in the past few years, because what downturns we've had have been too short to trigger, or in the case of the winter one, they messed up most trend-following math by recovering so quickly.
TJ: What's your favorite new launch of the year?
Dave Nadig: But I love all my darlings. I kid. I do have an odd one for you:
The Cambria Trinity fund.
It's possibly the most boring fund launched this year -- it's essentially Cambria's answer to the problem of "but I just wanna buy the one thing."
It charges nothing, but just invests in a bunch of other ETFs (a lot of them also run by Cambria, not for free).
But it's a basic asset allocation.
It's probably unlikely it will get BILLIONS of dollars, but I think it's a very solid answer to that question I get a lot, which is the "can I just buy one thing and forget about it?"
It's super tempting, honestly, and I think Cambria is a good shop.
Dulcet Tones: Can you point me to those podcasts that take the place of those conference calls? Tx
Dave Nadig: One sec for the link:
You can also just put "ETF Prime" in iTunes of wherever you grab your podcasts.
Anon: Thoughts on the new esSorts ETF from VanEck?
Dave Nadig: Ooooh so many ...
ESPO, which just launched today, hits on a favorite topic. I'm a big gamer, so I was very excited to see this launch.
I think esSorts is a real thing, and I follow a bunch of them.
So I'm glad to see the product launch.
My big problem with it, however, is that I think the portfolio is just not pure enough.
It's not REALLY an eSports play -- it's a very broad gaming play.
If you look at the holdings, for instance, it has Nintendo way at the top.
That's obviously relevant for broad gaming exposure, but completely irrelevant for eSports -- Nintendo has literally zero presence there.
At the same time, there are HUGE misses.
HUYA, to pick one firm, is the largest streaming platform for eSports outside the U.S. -- it makes hundreds of millions a year, and trades here as an ADR.
It's probably the single most obvious holding, and it's completely absent.
I'm quite sure it's because of methodology/liquidity constraints, which is legit. But I worry it says "ESPO" in the ticker and isn't QUITE delivering.
We covered the launch here: https://www.etf.com/sections/daily-etf-watch/first-esports-etf-debuts
Mark Kinman: Hello Dave. Enjoying this forum. I was wondering, is what distinguishes ETFs from mutual funds the way that they trade, or any potential tax implications?
Dave Nadig: Hi Mark!
So big question, I'll answer it, but also, check out our guides section: https://www.etf.com/etf-education-ce.html
So most ETFs are in fact just mutual funds under the hood.
But they get permission to do two key things: trade on an exchange, and change how money comes in and out of the fund.
The latter part is called "creation & redemption," and it means that big firms on Wall St can make blocks of new ETF shares (or get rid of them) by moving baskets of securities in and out of the fund, unlike a mutual fund, where we lowly investors just send cash to Fidelity or whomever.
When you dig in, that gives all sorts of benefits: lower costs, the ability to delay taxes, transparency, and so on.
But again - under the hood, most ETFs are just funds.
Jim Taggert: Has the fact that the Fed's raised interest rates 3 times recently impacted ETFs at all; could it going forward if they keep increasing?
Dave Nadig: Hi Jim.
Well, the impact is exactly what the impact on bonds overall has been.
So if you take the iShares 20 Year Treasury ETF for instance:
you can see the impact -- it's down substantially!
As rates go up, bond prices go down.
It's one of the only inexorable truths to investing.
So again, it's just about what the ETFs hold.
The broader question (and I've skipped a few of these questions) is whether the slow climb of Fed target rates is going to have a big economic impact and spread out from bond prices into other asset prices.
My basic answer is "probably not."
The economy is doing well by almost all measures -- it has been for years, and we're just continuing that path.
So the Fed is doing precisely what it's supposed to do: normalize interest rates.
What's normal? Depends who you ask. We probably have another percent and change to get there though.
OK, that’s going to do it for today. We’ll have a transcript up shortly.
Next week we should be back to our normal Thursday 3 p.m. routine.
Also, for the advisors in the room, I'm hosting an interesting webinar on Oct. 30 ...
... with Style Analytics. They have some pretty cool tools for factor analysis of ETFs we're going to walk through.
Definitely appealed to my nerdier due diligence tendencies.
Thanks everyone. See you next week!