4 Things I Learned At Inside ETFs

It’s very easy for those of us who breathe ETFs every day to think we know everything there is to know. But there’s something about the magic of having 1,900 people in one place that created opportunities to learn new things. As I make my way home from Florida today, these are the four things I’m most struck by.

1. ETFs Are Kind Of A Big Deal

OK, that may sound both self-serving and obvious, but it’s true.

Despite the fact that ETF assets are at $2 trillion and heading to exceed mutual funds in a decade, it’s easy to forget how transformative they’ve been in the lives of advisors. I shook hands with and heard the stories of, literally, hundreds of advisors this week, and the overarching theme was that bringing ETFs into their client portfolios have dramatically improved their practices.

They’ve solved tax problems, lowered costs and perhaps most important, made it easier to communicate with their clients about what they’re invested in and why.

I generally think of ETFs as an investment technology. But maybe what they really are, for an advisor, is a communication technology.

2. Robo Advisors Are A Polarizing Force

One of the high spots in the conference was a showdown between Wealthfront Chief Executive Officer Adam Nash and famed advisor Ric Edelman. The session itself was lively and full of banter about how technology was going to disrupt the traditional asset-allocation-based advisory practice.

But what was so interesting was seeing the absolute mob after the session. Huge crowds congealed around both speakers wanting to hear more. And my discussions with advisors afterwards suggested that they are taking the automated investment services business very, very seriously. Whether they’re embracing it, or are genuinely scared, has more to do with their existing practices than who’s right or who’s wrong.

3. 2015 Is All About Fixed Income

The investment community is often full of group-think. Everyone “knows” something for a while, until it turns out to be wrong, and then whichever talking head was being contrarian at just the right time gets heralded as the new oracle—until the next time.

There were many sessions on fixed income this year, highlighted by a stellar presentation by DoubleLine’s Jeff Gundlach. While Jeff was generally bullish on bonds for 2015, even he presented an incredibly nuanced picture of the bond market.

Perhaps no decision is more important than deciding where to be in both credit and duration this year. Advisors I talked to were far more worried about this than any other asset class, including gold.

4. Like It Or Not, ‘Smart Beta’ Is Here To Stay

This year’s Inside ETFs featured no fewer than three panels on smart-beta products, all of which were well attended. Each day, as I made my way through the exhibit hall, I was impressed with the traffic at the booths of all of the various purveyors of niche smart-beta products.

Whether the assets flow into these products—or whether this was just the year where advisors start paying attention—remains to be seen, but the interest was definitely there.

Hearteningly, my conversations with attendees suggest they’re really kicking the tires on smart beta before investing. I met one advisor who is running his own regression analysis on various products to test for true statistically significant alpha, and another who was collecting contact information from an issuer for large institutional clients of their factor products.

That’s real due diligence, and makes me feel like the best products will be the ultimate winners.

Until Next Year

Inside ETFs is always the highlight of my year, because it’s an opportunity to really connect with the advisors who are at the face of the coal mine, working with their clients and parsing issuer claims.

With more advisors at the conference than ever, the amount of knowledge-sharing going on between erstwhile competitors was refreshing and inspiring.

I eavesdropped on two advisors from Texas comparing their referral strategies before getting into a friendly argument about gold miners. I saw lunch tables full of issuer-wholesalers comparing notes on how they approach wirehouse broker-dealers.

That kind of openness is a sign that ETF revolution, for all its success so far, is really still in the early innings.

See you next year.

Contact the author at [email protected] or follow him on Twitter @DaveNadig.