Podcast Summary
Real Estate Manager's Perspective on ETFs: Principal Asset Management combines local insights and global expertise to manage real estate investments. ETFs offer simpler, cost-effective solutions, but come with potential risks, sparking debates in the financial world.
Principal Asset Management, as a real estate manager, leverages a 360-degree perspective to deliver local insights and global expertise across various investment classes. Meanwhile, in the financial world, Exchange-Traded Funds (ETFs) continue to disrupt the industry, offering simpler and cost-effective investment solutions for average people. ETFs have sparked intense debates, with some praising their democratizing impact and others warning of potential risks. As editors and analysts specializing in ETFs at Bloomberg, Joel Weber and Eric Balchunis bring valuable insights to the table, shedding light on how ETFs are transforming the industry and what lies ahead for these innovative investment vehicles.
The Invention of ETFs: Simplifying Access to Asset Classes: ETFs offer convenient access to various asset classes, simplifying the investment process and making it more accessible to a wider audience.
The invention of Exchange-Traded Funds (ETFs) revolutionized investing by offering convenience and democratizing access to various asset classes. The speaker, who started covering ETFs after being assigned to them, realized their potential early on and has dedicated over a decade to the field. The launch of the GLD ETF, which tracks the price of gold, was a game-changer as it simplified the process of gaining exposure to gold, which previously required buying physical gold and dealing with storage issues. ETFs make investing more accessible and efficient by allowing investors to buy and sell like stocks, with everyone paying the same price. Despite SPY, the first ETF and largest one tracking the S&P 500, there are other competitors, making the market more diverse and competitive. Overall, ETFs have made investing more convenient and accessible to a wider audience.
Competition in the ETF industry leads to lower fees: ETF industry competition results in lower fees, attracting retail and advisor investments, while SPY ETF still appeals to traders and big institutions due to high volume and options market.
In the ETF industry, even though the S&P 500 index has seen significant gains this year, the flows into the SPY ETF have decreased due to lower fees offered by competitors like IVV and Vanguard. The ETF industry generates less revenue than hedge funds despite having fewer assets, leading to intense competition. Lower fees have attracted retail and advisor money away from SPY, which still appeals to hardcore traders and big institutions due to its massive trading volume and options market. The shift towards buying and holding ETFs as a long-term investment strategy is growing, as investors become more cost-conscious and focused on asset allocation. However, the temptation to trade intraday can offset the cost savings, so finding ways to avoid excessive trading is the next challenge. Principal Asset Management, as a leading real estate manager, leverages a 360-degree perspective to deliver local insights and global expertise across various investment strategies, giving clients an exclusive advantage. Investing involves risk, including possible loss of principal. Principal Asset Management SM is a trade name of Principal Global Investors LLC.
ETFs simplify complex investment strategies: ETFs allow average investors to easily invest in previously unreachable markets, such as gold or the S&P 500 index, with low fees and intraday trading.
Exchange Traded Funds (ETFs) have made once complicated investment strategies, such as tracking gold or the S&P 500 index, simple for average investors. Before the existence of ETFs, owning and storing gold or perfectly balancing an index of 500 stocks were nearly impossible tasks. The introduction of ETFs, which offer fee compression and the ability to trade intraday, has disrupted the financial industry and given retail investors access to previously unreachable markets. A recent phenomenon is the trading of volatility products, such as Exchange Traded Notes (ETNs) that track volatility itself, which has become a subject of fascination due to its "media proof" nature and the potential for betting on fear. However, it's important to note that while ETFs and ETNs offer convenience, they also come with risks and potential high fees, so investors should do their due diligence before diving in.
VIX ETFs: Leveraged Gains and High Risk: VIX ETFs like VXX and XIV offer significant returns during market volatility, but carry high risk and require a thorough understanding before investing.
The VIX ETFs, specifically VXX and XIV, can provide significant returns when the market experiences volatility. The VXX provides leveraged gains when the VIX increases, while the XIV provides inverse leveraged gains when the VIX decreases. The XIV, often referred to as the "magic money machine," has had exceptional performance since its inception in 2010, particularly during periods of low volatility. However, it carries a high level of risk and can experience significant losses when volatility spikes. Retail investors should exercise caution when considering these ETFs and thoroughly understand the risks involved before making an investment. Additionally, the ease of access to these ETFs allows for volatility betting strategies that were previously unattainable for the average investor.
ETF Industry's Evolution and Its Risks: The ETF industry advances with free investing and innovative indexes, but leveraged ETFs pose risks. Understand different types for informed decisions.
The ETF industry has come a long way since its early days, offering increasingly complex and innovative investment solutions to a wider audience. However, this democratization of access to once complicated financial instruments comes with risks, particularly in the area of leveraged ETFs. Looking ahead, the industry is set to evolve in two directions: a race to zero fees, making investing in the stock market almost free for individual investors, and the experimental, innovative side where anything from Wall Street and anyone's imagination can be packaged into an index, often with higher fees due to the potential for greater outperformance. As investors, it's crucial to understand the risks and benefits of these different types of ETFs to make informed decisions.
Research as ETFs: A New Trend: Financial institutions like Goldman Sachs and Bernstein are repackaging research as ETFs, following Vanguard and other low-cost index fund providers. MiFID 2's transparency rules may boost ETF and passive investing adoption.
Active research is being repackaged and offered as Exchange-Traded Funds (ETFs) by larger financial institutions, including Goldman Sachs and Bernstein, following the trend set by Vanguard and other low-cost index fund providers. This shift towards transparency and democratization of research is expected to accelerate with the implementation of MiFID 2 in Europe, which aims to make investment costs more transparent and may lead to a greater adoption of ETFs and passive investing. The irony of research firms, who have previously criticized passive investing, now entering the ETF market is not lost on some observers. However, the potential impact on current clients and the proprietary nature of sell-side research remains to be seen.
ETFs Continue to Grow Amidst Regulatory Changes and Debates on Corporate Governance: Regulations like MiFID 2 are driving the shift towards ETFs, which are expected to reach $25 trillion by 2026. Passive ownership through ETFs raises concerns about corporate governance, but its impact on capitalism is yet to be determined.
The shift towards Exchange-Traded Funds (ETFs) from traditional mutual funds is expected to continue due to cost transparency and efficiency brought about by regulations like MiFID 2. ETFs are growing rapidly, with estimates suggesting they could reach up to $25 trillion in the next 8 years. Some argue that the rise of passive investing through ETFs could potentially lead to significant ownership of companies, raising questions about corporate governance. However, with passive funds currently owning only 15% of the stock market, the impact on capitalism remains to be seen. Overall, ETFs represent a revolutionary technology in the financial industry, and their impact is far from complete.
New Bloomberg Podcast: Money Stuff with Matt Levine and Katie Greifeld: Matt Levine and Katie Greifeld launch a new finance podcast, Money Stuff, every Friday on Apple Podcasts, Spotify, and other platforms. Follow them and producer Sarah Patterson on Twitter for updates.
Matt Levine and Katie Greifeld are launching a new podcast called "Money Stuff" based on Levine's popular finance newsletter. Listeners can tune in every Friday to hear in-depth discussions on Wall Street finance and related topics. To keep up with the latest episodes, subscribe to Money Stuff on Apple Podcasts, Spotify, or wherever you get your podcasts. Don't miss out on this exciting new addition to the Bloomberg podcast lineup! Additionally, Joel Weber and Tracy Alloway, the cohosts of the Odd Lots podcast, mentioned their own podcast and encouraged listeners to follow them on Twitter. Tracy Alloway's handle is @TracyAlloway, Joel Weber's is @JoelWeberShow, and Sarah Patterson, the producer, is @SarahPat_2ts. So, whether you're interested in finance, economics, or just great conversations, there's a Bloomberg podcast for you. Stay tuned for more exciting announcements and episodes from your favorite Bloomberg podcasts!