Inside ETFs: Live Blog

February 10, 2019

Wednesday, Feb. 13, 2019

And that's a wrap for our Inside ETFs 2019 Live Blog! Thank you for reading, and we'll see you next time!

12:30 Swedroe starts taking audience questions. "How do you discuss near-term struggles of strategies with clients?" is the first one. Swedroe says he starts with the fact that every strategy has periods of underperformance, even stocks. So it goes with, say, reinsurance.

Another question is about how to invest in liquid alternatives at the retail level. He mentions that there are several alternatives ETFs from Goldman and others, and there are a handful of managed futures ETFs.

12:20 Where should you take this allocation to alternatives from: bonds or equities? They both have their impact on the Sharpe ratio. If you take it from bonds, you increase volatility, but essentially eliminate your inflation risk. If you take it from stocks, you might dampen your returns, but the volatility is less. 

"We recommend that if you're a high equity allocation, take it from stocks. If you're a low equity allocation, consider taking it from bonds, because you'll only increase volatility slightly but you'll increase returns a lot," says Swedroe. Of course, that increased risk isn't for everybody, he adds.

12:15 "The investment world is getting flatter," says Swedroe. A big mistake people make, he says, is they assume diversification benefits aren't there. That's just wrong. However, correlations between asset classes are on the rise, and they collapse toward 1 in times of crisis. That's why alternative sources of risk are worth looking at.

Some of the alternative sources of risk he suggests include reinsurance, alternative lending, the variance risk premium, the long/short alternative style premium and managed futures. Managed futures aren't his favorite, he adds, but he says history shows you can get tail-risk protection, and he has no problem with others who might want to use it as a defensive tool in a portfolio.

12:10 Swedroe shows a chart of the performance of different factors over 1-, 3-, 5-, 10- and 20-year time horizons from 1927-2017. The longer the horizon, the lower the odds of underperformance for each factor, he says. Second, no matter how long the horizon, each of the individual factors experienced some period of underperformance. 

How should you think about expected returns? asks Swedroe. He lands on a theoretical 6% expected return. But "most people make the error of thinking about that 6% in a deterministic way," he adds. They think they WILL earn 6%, instead of that they COULD earn 6%. So the only right way to think about expected return is to realize that expected return isn't a single point, but a bell curve. "Don't focus on the mean," he adds.

12:05 Swedroe walks through two example 60/40 portfolios, one with vanilla exposure and another with a lowered exposure to market beta. They have similar returns and volatility, though the one with lowered exposure performed marginally better (8.1% versus 7.8%), with lower standard deviation (7.7 to 9.0).

The key is, during 2008, the worst calendar year, the lower-beta portfolio lost much less than the vanilla one. In 2008, the lower-beta one lost 8.9%, compared with the regular 60/40, which lost 19.5%. 

12:00 As he promised/warned, Swedroe has broken out the math. He finds that a typical 60/40 portfolio has a percentage equity risk [does math] of 86%.

A 60/40 portfolio from 1928-2017 returned 8.5%. But between 1982-2017, the so-called Golden Era returned 10.4%. There were a lot of tail winds that made those years' returns higher: rising equity valuations, falling Treasury yields and doubling corporate after-tax profits. Those days are over. Investors face harsh realities now: lower expected returns, increased longevity, an increased need for long-term care, and risks to Social Security.

11:55 Closing out the conference is a keynote from Larry Swedroe, director of research for Buckingham Strategic Wealth, on "The Science of Investing: Creating Efficient Portfolios To Avoid Black Swans."

Swedroe starts with laying out his investment philosophy at Buckingham. He believes that: 1) markets are highly efficient; 2) all risky assets should have similar risk-adjusted returns; and 3) portfolios should be broadly diversified across unique sources of risks. However, the problem is that the traditional 60/40 portfolio is typically not diversified enough by risk.

11:50 Kovarsky asks, "How do new ETF ideas get on your radar?" It starts with the asset class, says Janocko, whether the product will fit into our portfolio or not.  

Carter says ETFs come in two flavors: marketing people run the firm, and investment people run the firm. So they're interested in investment firm ETFs, and not me too style products. "At the end of the day, we're kind of nerdy: We always look at the intellectual reasoning behind it."

Fell, who prefers active managers, points out consistency is key. "Before we go into it, we have to understand how they should perform in what markets." Simplistic managers can be the best, in fact. "If you don't understand what you're investing in, you shouldn't be investing in it."

11:45 "Does the creation of the ETF change the price of the underlying?" asks Carter. Did GLD make the underlying price of gold go up? Same with oil ETFs and crude. And if the creation of ETFs is in fact driving the price of the underlying, "Well, that *is* a big idea."

"There's such a proliferation of ETFs that it's been hard to keep up," adds Janocko. "It's a challenge and an opportunity. Every day there's new launches, new asset classes."

11:40. Kovarsky notes a WSJ article finding that 92% of active managers underperform their benchmarks over five and 10 years. Kovarsky asks Fell if he's found that 8%. Fell points out the experience varies from asset class to asset class: In U.S. large-caps alone, there are 800-900 managers, of which they pick two or three.

Carter comes to Fell's defense, saying that Fell's picking outside-the-box names out of those 800 names. Janocko also mentions that Fell has 40% in alternatives, while Carter offers that he invests 20% in alternatives, all of which is indexed.

11:35 We pick up with "Institutional Asset Owners & ETFs: Still In The Future?" moderated by Paul Kovarsky, director of institutional relationships at the CFA Institute. He asks the panelists about risks facing the ETF industry.

As the ETF platform gets broader and into more esoteric ideas, "I'd hate to see some sort of trading blowup or mismatch cast a negative light on something that is good," says David Carter, CIO of Lenox Wealth Advisors. Joseph Janocko, senior portfolio strategist at Florida Blue, adds that we haven't seen a complete meltdown in ETFs. Case Fell, CIO of NYSNA Pension Plan & Benefits Fund, says  ETFs can be a momentum play, in that ultimately in a downmarket, a passive benchmark will be a price-taker. Active management has the advantage of not needing to be that price-taker in a downmarket.

10:50 Seymour acknowledges there are issues with liquidity, valuations and banking in the public marijuana industry today. You have to be careful, he says: "I think cannabis companies are better priced in the private markets right now." Companies don't feel the need to run to the public markets in Canada, and indeed, going public has carried a bit of a stigma.

The bottom line, though, is that this asset class is changing rapidly. The things people were investing in in 2018 are not the things they're investing in in 2019. In fact, the cannabis market can and assuredly will go through its own bear market.

Things investors should consider when investing in Cannabis 3.0:  What sector am I investing in? Is the company asset-heavy or asset-light? Are they an experienced operator? Am I invested in a single state or globally focused firm? Consider the balance sheet, what exchange the firm trades on, its liquidity. "This space is changing so rapidly, you want to be active," he adds.

10:45 The science behind the plant is "nothing short of extraordinary," says Seymour. Efficacy exists now. There are dozens of ailments, from asthma to pain management, that cannabis has been proven to help treat.

Hemp legalization, as part of last year's Farm Bill, paved the way for cannabis-related medical firms to enter the space and "hang their shingle." But it's not just medical firms: He also predicts that at some point, Coca-Cola, Starbucks, Procter & Gamble will all enter the cannabis market.

10:40: The U.S. is clearly the biggest cannabis market in the world, with a $14 billion market, compared with a total $18 billion globally. California alone dwarfs the entire Canadian market. "I think it's greater than $300 billion market globally in 10 years," says Seymour.

On a chart, Seymour shows that 35 million people use marijuana monthly, another 20 million use it yearly. Another 78 million have tried it but don't currently use. A full 115 million adults have never tried marijuana. That's a huge untapped market, says Seymour.

10:35 Last year was a watershed year for cannabis, says Seymour, with Canadian legalization and more than 30 states legalizing some form of it. Politically, marijuana is a bipartisan issue, especially in context of the rising awareness of the opioid crisis. For example, states where cannabis is legal are seeing 10-12% lower health care costs for pain management.

There is also a social-awareness-component issue to legalization of marijuana, in terms of people being jailed for marijuana-related crimes. Democrat, Republican, Libertarian—they have "strong, strong support for cannabis."

10:30 We're back this morning with the "Big Ideas Talk: Lighting Up: The Cannabis Revolution" with Seymour Asset Management CIO and marijuana investing expert Tim Seymour, who will explain why cannabis investing is "for the masses and not for the stoners."

"Cannabis to me is just like investing in emerging markets," he says. Marijuana as an investment theme isn't about where you line up socially or recreationally, he adds. What's more, there's been a complete perception shift over a fairly short time: "Like some people remember where they were when JFK got shot, I remember where I was when I heard John Boehner had joined the board of a cannabis company."

Tuesday, Feb. 12, 2019

2:20 Issakainen says SPIVA is potentially misleading in that the indexes are not the best comparison for performance. Rather, active funds should be compared to passive funds because sometimes the bond index funds (he uses a high-yield example) can lag their benchmark significantly. He says that in the vast majority of fixed-income asset classes, his firm can find opportunity to add value. 

2:00 In "Active Fixed-Income ETFs: For Real?" moderated by Elisabeth Kashner, Ryan Issakainen of First Trust advises looking at sectors when looking for inefficiencies in fixed income, and notes that the assymetry of returns can be well worth the extra effort made by credit analysts. Jason Bloom of Invesco advises doing rigorous due diligence with active managers. He says an active manager can add value in an over-the-counter traded market like fixed income if they're opportunistic. He notes it's virtually impossible to build an index that's rules-based and opportunistic. Bloom says market value weighting isn't problematic. He points out that ETF holders are not hit by panic selling the way mutual fund shareholders are. 

12:20 Tannuzzo advises staying diversified in 2019, and that shortening duration is not the best idea right now. Housey says the Fed is paused now and CEOs are waiting for trade deals to be finalized. When they are, it will look similar to a stimulus. Arone warns against taking equitylike risk in your fixed-income portfolio and suggests staying defensive. Singer says to optimize liquidity, be defensive in 2019 and not be afraid. Also, own some level of rate risk and don't shun credit (but do be mindful that we are late in the cycle).

12:10 Kosoff says fixed-income indexes can be more precise now. Housey says active is a better prospect than the Agg right now. Gene Tannuzzo of Columbia Threadneedle points out that the Agg is hardly aggregate, and suggests widening the opportunity set and implementing quality controls. Singer says benchmarks are not flawed—it just depends on what you want. Kosoff adds that smart beta is widening the choices in fixed income and that there is a spectrum of choices in terms of levels of deviation from the benchmark. 

12:00 In "Fixed Income ETFs: Analyzing the Growing Demand," moderated by Tom Lydon, a question about unexpected events in the fixed-income space in 2018, Michael Arone of State Street says long-term interest rates didn't go up as much as expected, while Goldman Sach's Jason Singer says "cash is king," with the lesson being to optimize your liquidity and your cash. Jayni Kosoff of FTSE Russell notes that 2018 left clients needing to reposition their fixed-income portfolios. Bill Housey of First Trust was shocked by how the fear narrative took hold specifically in December. His funds had to build up liquidity buffers in case of redemptions during the turmoil. Arone notes bond investors turned to fixed-income ETFs in search of liquidity, despite many predicting investors would bail on such funds during market volatility. Singer says it's about making sure you have a plan—thinking about liquidity daily as a bond manager even when the market is good. 

11:45 In "It’s All About the Experience: Insights From Joe Duran," one of the founding partners of United Capital, the speaker notes there are four pillars of client service: 1) Understanding—understanding what your client cares about; 2) Personal and Interactive—being accessible and in touch on their phones; 3) Predictable and Consistent—providing a uniform experience whenever they interact with your firm such that they know what they are going to get; 4) Instant Gratification—In a sleepy and boring industry, talk about the client's immediate life, not their future state.

10:35 Ed Rosenberg of American Century Investments says multifactor ETFs are the most interesting of the factor products because there are so many ways they can be designed. Investors should understand how their products are put together and whether they align with their view of the market. 

10:25 In "Figuring Out Factors: Strategies for Implementation," moderated by Mark Carver of MSCI, Fran Kinniry of Vanguard says selecting a factor exposure comes down to what your preference is. If you have no preference, you can use multifactor. He reminds investors that you can consider fixed income from a factor perspective. 

 

Monday, Feb. 11, 2019

3:25 Zhang brings up the fact that EM fixed-income products are rare, but a few good ones do exist. Jonathan Shelon of KraneShares observes a record number of China bonds denominated in U.S. dollars were issued in 2018. He notes that such bonds are good sources of yield. Pelosky says that emerging market debt at this time is very compelling, and his firm believes emerging markets are on the verge of an easing environment. 

3:10 In "How To Distinguish Value Play & Value Trap: Emerging Markets," moderated by Linda Zhang of Purview Investments, two issuers and two strategists discuss how to dig deeper when making emerging market investments. Jonathan Shelon of KraneShares says there's a 10-year runway for countries like China to reach internet saturation. Joe Barrato of Arrow Funds notes that technology that is needed in emerging markets originates there but migrates to developed markets, uses Uber, which began in Africa, as an example. Jay Pelosky of TPW Investment Management says China is setting up for a structural bull market, in his opinion. He also notes Latin America is the only region in the world where growth is supposed to be higher in 2019 than in 2018, and higher in 2020 than in 2019. David Garff of Accuvest says in Latin America, investors should watch for events like regime change when considering investment. 

3:00 Geraci asks how many people in the room currently use alternative strategies. About half the hands in the room go up. Geraci then asks Alistair Lowe, managing director and senior portfolio manager for quantitate beta strategies at J.P. Morgan Asset Management, how advisors should consider ETF due diligence. Lowe says you need to understand: 1) how strategies are diversified; 2) the strength and experience of the team behind them; and 3) where performance is coming from.

2:50 First up in the "How To Use Alternative ETF Strategies," moderator Nate Geraci of The ETF Store asks his panelists, "What makes an alternative ETF?" Nancy Davis, CIO of Quadratic Capital Management, says that alternatives are about versatility, about getting away from the exposures of a pure 60/40 stock/bond portfolio. "I'd caution investors to make sure an alternative ETF really is something that is different, and not just the same old thing with a different label." 

10:55 Hougan suggests advisors can't compete with the likes of WealthFront and Schwab, and mass customization is the next multibillion-dollar opportunity for advisors. Nadig says the Great Unwrapping is inevitable: "If you can't figure out how you fit in that world, we can guarantee you someone else will."

10:50 Dave notes that mass customization is everywhere, and investors will be able to tweak portfolios according to what matters to them: who you work for, what sectors you're concentrated in as a family, etc. 

10:45 Most of the barriers to direct indexing are simply software problems, Nadig says. Hougan points out the firm of Just Invest as an exaample of a firm creating personalized indexes that allows investors to fine-tune their exposures, including ESG and tax-loss harvesting. 

10:40 Direct indexing has been around for a while, with Parametric's core strategy topping $100 billion. There is more money in Eaton Vance's Parametric unit than in the rest of Eaton Vance. 

10:35 Making two big changes to their charts. Nadig says peak ETFs was in 2017, and that ETF assets will outnumber mutual fund assets by 2024, instead of 2025. Hougan says funds are just a technology for delivering securities to you. ETFs are not the end of fund evolution after closed-end funds were supplanted by mutual funds were supplanted by ETFs. Nadig points out ETFs aren't perfect for everyone due to values, personal circumstances, structure restrictions, etc. Hougan mentions The Great Unwrapping that will rely on direct indexing, with a personal index for investors.   

10:30 Dave Nadig and Matt Hougan present the "The State of the ETF Union 2019: The Dawn of Mass Personalization." According to Nadig, that state is "really, really, really good." Mutual funds lost $92 billion since 2009, while ETFs gained $2.3 trillion, averaging more than $908 million in inflows every day. Hougan says if it's a good time to be an ETF issuer, it's even better to be an investor. His World's Cheapest ETF Portfolio is now down to 5 bps in cost. 

10:15 Wigglesworth asks, "What will be 'the next thing' along the lines of bitcoin in 2018"? Rory Tobin says the gap between how ESG is viewed in the U.S. and Europe is most striking to him, with U.S. investors wondering more about what they're giving up in an ESG strategy. Farmer agrees ESG is a major conversation, but also points out factors and options-based strategies.

10:00 Farmer calls ETFs an "elegant construct." 

9:45  Advisors are now able to have better asset allocation models because of ETFs, and that is a benefit of the immense amount of choices they bring to the market. Advisors and fiduciaries can help their clients make those choices, says David Gedeon of Nasdaq Information Services. Vanguard's Comegys notes that the vast majority of assets are flowing into traditional cap-weghted ETFs and that ETFs fit perfectly into a good financial plan. 

Why is fixed income a barren wasteland in the ETF space? Wigglesworth asks. Gedeon notes that active management still shows some outperformance in fixed income, but says it will take time. Rory Tobin points out that fixed income ETFs are fixed income in an equity wrapper, so there was a learning curve. Trading desks are becoming more integrated, he notes and liquidity for fixed income ETFs has greatly improved, with more evolution yet to come.

9:35 In "The Business Leaders" panel, moderated by Robin Wigglesworth of the Financial Times, Sanjay Arya of Morningstar says that ETFs offer a much better alignment of costs with what the product delivers, whereas active mutual funds have failed to deliver on returns, have higher costs and are associated with various scandals. Jamie Farmer of S&P Dow Jones Indices says the growth of ETFs and index funds is underpinned by decades of research indicating active managers underperform, and adds that active management has become more difficult with changes in market structure and new regulations.   

9:25 In active fixed income, costs erode manager alpha entirely in intermediate government bonds and significantly in corporate bonds, Davis says, illustrated via bar graphs. Smart risk-taking is key in active management, as well as knowing when to step back. If you're considering active management, carefully examine how the manager intends to generate added returns, he says. "Everyone feels like a genius during a bull market," Davis notes.

9:20 Just because volatility is normal doesn't mean your clients are comfortable with it. Advisors can add 150 bps in value by coaching clients to stick with their plans, Davis says. With equities expected to deliver more muted returns for the next 10 years, now is the time to evaluate the role of bonds in your clients' portfolios. They provide ballast and returns. Cash is projected to become more valuable.

9:15 Greg Davis, CIO of Vanguard, says in his keynote that one of the top question he gets is what's driving the volatility in the market, and also, how did we find ourselves near a bear market in the fourth quarter of 2018? He says the principles of good investing still hold, adding that the uncertainty in the markets enhances the value that advisors provide. Global growth projections growth in the U.S. will slow to 2%, to 1% in Europe and 6% in China. Vanguard says there is a 35% chance of recession in 2019 and above 40% in 2020. We are unlikely to see any steep rises in inflation during the year. Interest rates likely to go up in June in the U.S., but unlikely to rise in Japan or Europe. 

 

Sunday, Feb. 10, 2019

5:30 Edelman ends with a question from the audience about how long the planet can survive. "I feel, you might as well be optimistic about this, because the alternative is ..." He shrugs.

5:25 "Disruption destroys companies," says Edelman. Nothing new about this: The horse and buggy was killed by the Model T. So advisors must decide: Are they selling horse and buggies, or Model Ts? And are they selling Model T's in the era of space shuttles?

At risk of disruption from these technology innovations, says Edelman, are: annuity marketers, disability insurers, long-term care insurers, auto insurance, the auto industry, the automobile crash economy, municipal bonds, colleges and universities, the energy sector, banks and brokerages, real estate... "It's hard to tell when the dominoes stop falling."

There are opportunities, however, says Edelman. By 2030, the world GDP will be $122 trillion—and the U.S. will be the biggest beneficiary. Advisors need to position their clients' portfolios for the world that will be, not the world that their parents and grandparents lived in.

5:20 Retirement was a 20th-century innovation: didn't exist in the 1800s, won't exist in the 2100s. The "linear lifeline" is dead, replaced by the "cyclical lifeline," where you go to school, get a job, go back to school to get retrained, then get a new job, ad infinitum. Financial goals will change as a result of this cycle. "It's all about lifelong learning," says Edelman.

However, by 2035, 47% of current jobs won't exist, due to technology. So clients are going to want to work longer, but technology will wipe out the jobs. Edelman says that today, "college planning" is the No. 1 focus in his practice; but it won't be an issue in the future, because in the future, college will be free or paid for by employers. As a result, financial advisors need to think about their clients' "career planning," not "college planning."

5:15 "We have to recognize radical changes in almost every aspect of life on the planet," says Edelman. He's talking about nanotech, sequencing the human genome, CRISPR technology, vastly higher human longevity and eradication of common diseases like diabetes, heart disease, cancer, addiction, all by the year 2030. Why? "Because it has huge implications for personal finance," says Edelman. "If your clients live to be 120, will their money last?"

5:00 Ric Edelman, founder and chairman of Edelman Financial Engines, starts off his keynote "Building A Planning Practice For The 21st Century" by saying we're in a transformational moment in time, where advisors must change how they run their practices. "What got you here is not what will get you there." That's why branding and marketing is so important, says Edelman. He puts up some stats, including: Only 10% of advisors have a marketing plan, 93% of advisors won't be able to sell their practices, and that in the next five years, half of advisors will be gone. You can hear a pin drop in the room.

4:50 U.S. ETF issuers looking to expand overseas should come to Europe first, then go over to Hong Kong, says Brian Higgins, partner of asset management and investment funds for Dillon Eustace. Roberts adds that "the domicile of the fund doesn't really matter"; that in Asia, they just want investors to have ETF options.

4:45 In "Global ETF Expansion: Successful Strategies For Launching Across Europe & Asia," moderator Malik Sarwar, CEO of K2 Leaders, asks Brian Roberts, senior vice president and head of ETPs for the Hong Kong Exchange, about the ETF opportunities in Asia. "I think the next frontier for ETFs is Asia," says Roberts. Currently, Asia is largely an institutional market for ETFs, but it remains tiny. "The train's still in the station; we're just boarding people."

Asian ETF adoption will follow the same pattern as the U.S. market did: It'll start in the institutions, then trickle down into retail channels. But Asia is an opportunity that "as an issuer, everybody should be salivating about." European issuers, says Roberts, are likely best to handle the challenge, because they deal with fragmentation on a daily basis, and the Asian market is very fragmented, lacking a common currency and standards. 

4:30 Question from the audience, "Have earnings peaked yet?" Handle says this is a question he gets all the time. He turns to manufacturing data; historically, earnings growth tends to lag manufacturing growth by six months. By this indicator, he says, it looks like earnings growth is about to slow down.

Robust earnings in 2018 were likely due to the corporate tax reform, but even without that, you still had the best earnings growth since 2011. So, Handle's answer is: Maybe: "25% earnings growth will be tough to beat," he added; even if earnings have peaked, "it doesn't necessarily mean the end of the cycle." Also, he's not particularly concerned about the impact of the Trump administration's tariffs.

4:15 In "Anatomy Of A Recession: Recognizing & Preparing For Risk," portfolio specialist and VP Corey Handle of ClearBridge Investments gives his 12 indicators that historically have signaled an impending recession. The overall theme is "You can't look at any of these in insolation."

First indicator? The yield-curve spread. Yield-curve inversion is "very misunderstood" by investors. "Where people go wrong is they see this as the final buzzer before the end of a basketball game," said Handle. Instead, investors should think of it as a "shot clock."

3:30 Michael Cronan says explainer videos are great content to drive marketing for complex funds in particular, to put the explanation in a video and tie all the marketing content to it.

Summing up: Edward Baer advises newcomers to the industry to come to Inside ETFs. Charles Ragauss says it's important to get the right people and find the right partners. Michael Cronan says having a unique product you believe in is key. Stacy Fuller advises "hire a good lawyer."

3:15 What should an RIA be prepared to spend? Going your own route is more expensive, but gives the RIA more power, while the white-label route involves ceding some power and day-to-day control to another firm. Fuller disputes that it must be more expensive to go your own way. Michael Cronan mentions that many newcomers don't include marketing as a separate upfront cost. White label allows firms to outsource the marketing and PR, he says. Fuller notes that white label has gone through some evolution wherein white labels now give clients more control and allow them to take successful funds with them. Cronan says his firm has spun off several funds. 

3:00 Charles Ragauss notes that it can take three to five years for a fund to find firm footing, but it's not the "end-all, be-all." Chris Sullivan asks if there is a "BYOA" (bring your own assets) blueprint. Stacy Fuller says it can be through firms bringing their own following; in other words, firms favored by institutions, or by leveraging existing platforms. Charles Ragauss says smaller firms can leverage their thought leadership. 

2:50 Mike Cronan says it's important to have a lead salesperson to be the public face of the fund. Stacy Fuller responds to Chris Sullivan's question about why more mutual funds don't get repackaged as ETFs, noting that active managers don't really want to share their "secret sauce," but adds that we may see such products more after the implementation of the ETF rule. 

2:40 "So You Want To Launch An ETF?", moderated by MacMillan Communications' Chris Sullivan, kicked off with a discussion of the ETF rule, with Edward Baer of Ropes & Gray and Stacey Fuller of K&L Gates discussing the importance of lining up investors and assets as early as possible. Charles Ragnauss of Exponential ETFs notes the ETF rule doesn't nullify the importance of white-label firms, which have the relationships, experience and procedural/legal knowledge of the ETF space necessary for a successful launch. Baer points out the importance of having a person with capital markets expertise for a launch.

2:35 Melissa Gainor says comments indicated a lot of general agreement on the need and parameters for an ETF rule. 

2:30 The proposed interactive calculator would allow an investor to customize the bid/ask spread for their situation. Jane Heinrichs notes there wasn't a lot of support among issuers for such a calculator. Michael Mundt proposes the SEC maintain such a calculator on its own website for purposes of standardization.

2:25 ETFs with basket flexibility—as in they were allowed to rely on custom baskets—saw reduced costs for investors and weathered periods of market stress significantly better, according to Jane Heinrichs of the Investment Company Institute.

Melissa Gainor highlights a new Q&A section that explains the impact of trading costs in ETF prospectuses. The questions address bid/ask spread concerns on a $10,000 investment. Michael Mundt of Stradley Ronon notes that issuers objected, in particular, to the level of specificity requiring a median bid/ask spread as it could add significant costs to get the necessary data. 

2:15 In the session titled "The ETF Rule," Melissa Gainor of the SEC's Division of Investment Management notes that many commenters were opposed to the proposal that portfolio holdings be required to be disclosed before market open, as they believed it would interfere with T-1 settlement. The SEC is considering those objections. 

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