Crazy ETF Ideas

June 27, 2008

Funny you should mention active ETFs Matt. They were a hot topic of debate today.

I find myself in Washington D.C., I'm reasonably sure, after trips to New York and most recently, Chicago, where I was at the Morningstar conference today. On the ETF panel with Noel Archard and Rick Ferri, I was shocked to find myself on the other side of a tiff, with the generally reasonable Noel Archard from BGI (formerly Vanguard). And it was RIGHT along the lines of your money, money, money blog, Matt.

Rick and Noel were contending that the big obstacle for a large shift in the actively managed mutual fund industry to the ETF structure is the problem with portfolio transparency. I basically said that if it were clearly financially advantageous for the big firms to be there, that problem would have been solved years ago. To me, it's ALL about distribution. And the big active fund companies are quite happy with the current status quo, thank you very much. They've got enormous captive 401(k) and other retirement investor money that are like a gigantic annuity for them (billions and billions as Carl Sagan would say). Add to that the fact that there is little incentive for those big guys to move their captive investors whom they can market to by mail, email and phone, to the secondary market, and you've got remarkable DISincentives for a big move.

Noel then kind of briefly painted me as a sort of wild-eyed kook, when, of course, I couldn't be more right. He then sort of clarified by saying that the other obstacles about investing in the alternative distribution infrastructure, etc., were more the issue.

I also pointed out (correctly again) that fund companies are run to make money, and NOT in the investor's interest. The investor's interest is only served to the degree that being competitive with other funds attracts assets, but the core goal is revenue for the fund company, not returns for the investor. It's a tough, brutal, undeniable fact. And when assets are sticky, there's VERY little incentive to back down fees.

Anyway - that was kind of fun. And the panels (yeah, 2 times in a row at 2 then at 3, a very Groundhog Day experience) were fun ... with a knowledgeable crowd as well.

I also had breakfast with Jason Zweig and Bill Bernstein. Man, there's got to be almost nothing as fun or stimulating as sitting down with those two guys and just shooting the breeze. You've got to love a good dose of pure reason for breakfast.

And on TV today (Fox Financial News - click here for the link to view - it's currently the last one at the bottom of Current, and is also on the Morningstar link if that disappears), Dagen McDowell hit me with a "What's the craziest ETF you've seen launched?" question that I managed to successfully elude. We were on for CNBC too, but they cancelled us when they knew we were going Fox. I think Matt tapes on CNBC tomorrow for July 4 playback? So you can compare/contrast the Spaniard and the goateed marathoner.

 

 

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