Whether you are traveling to Florida for the Inside ETFs conference, which kicks off on Jan. 26, or not, we decided to provide a preview of the key panels, likely topics being discussed and asset managers to watch. In addition to providing our own take, we enlisted some other ETF experts.
Shana Sissel is director of Investment Due Diligence and a senior portfolio manager for Orion Advisor Solutions. Dave Nadig is chief investment officer and director of research of ETF Trends. Eric Balchunas is a senior ETF analyst with Bloomberg Intelligence. Nadig and Balchunas will be on stage with CFRA debating the Best New ETF of 2020.
The responses were provided independently and, as such, there’s some overlap and, not surprisingly, some disagreement found below.
What panels (other than one you are a part of) do you think advisors attending Inside ETFs should check out?
Rosenbluth: After 2019 boasted the secon- largest net ETF inflows overall, and a record year for bond ETFs, I think advisors will benefit from attending the Future Forward: The Next Wave of ETF Investing panel that features senior leaders from top ETF providers DWS, Invesco and State Street Global Advisors, the up-and-coming American Century, and two index providers. The panel is likely to tackle what white space exists for product development, the pending nontransparent active ETFs, the fee war and more from an insider’s perspective.
Among the breakout sessions, I think a session geared toward advisors titled “How You Really Should Get Paid” will be interesting. The session—moderated by Nate Geraci, president of the ETF Store, and including Josh Brown, CEO of Ritholtz Wealth Management; Nina O’Neal, a partner at Archer Investment Management; and Casey Smith, president of Wiser Wealth Management—is expected to cover how advisors can build their unique value proposition and how to be fairly compensated for the services they provide. This is not an ETF session but given how many advisors are using ETFs to support their clients’ objectives, it fits in well in the agenda.
Sissel: “Factor Due Diligence: How to Get It Right”: This panel is really a must for advisors. The focus of the panel is to help advisors better understand how to build factor portfolios but, more importantly, how to choose the right ETFs as the building blocks. Too often I think advisors choose the largest most liquid ETFs and not necessarily those that give them the exposure they really want and thus expose themselves to unintended risk.
The “Non-transparent ETF Revolution & the Inevitable Adoption”: Non-transparent ETFs are new to the market and could provide advisors with unique opportunities for their clients but understanding how they work and what to expect is important.
Nadig: I'm excited for Josh Brown and Howard Lindzon [Managing Director of Social Leverage] on Wednesday morning during the “Inside the Mind of a Serial Investor” session. These are two of the most straight-shootin', zero BS people in business, and I expect them to surface some highly provocative ideas. I have no idea what they'll be, but I wouldn't miss it.
I'm also intrigued by the Monday track session on Emerging Markets, mostly because it's a pretty great crew up there. Perth Tolle, founder of Life + Liberty indexes that is behind Alpha Architect Freedom 100 Emerging Markets ETF (FRDM), has a unique take on the space, and Linda Zhang, founder of Purview Investments, has done some great work in thinking about ESG in emerging markets. Dodd Kittsley, National Director at Davis Advisors, the firm behind Davis Select International ETF (DINT), and David Garff, president of Accuvest Global Advisors, both have great global perspectives. It's a corner of the market investors have been ignoring the past year or so, and I think that's going to change.
Balchunas: Matt Hougan [chairman of Inside ETFs] & Dave Nadig’s State of the Union is the one thing I never miss. Not only is it thought-provoking and full of great data but their Power Point game is amazing as is their showmanship, which contrasts from the run-of-the-mill snoozefests you tend to see at financial conferences.
I’m also looking forward to the active nontransparent and smart-beta panels, which to me are both vying for the same non-beta real estate in portfolios. I’m also interested in Nate Geraci’s panel on advisor fees, a third-rail topic. I’m also planning to attend the liquid alt panel that has someone from AGFiQ US Market Neutral Anti-Beta ETF (BTAL) on it, an ETF fave of Master Users and one that I think could be a breakout hit if and when the Everything Up Era changes to the Everything Down Era. I’ll also probably hit some ESG panels and ask some sobering questions.
At the conference, what do you think will be the one or two big themes discussed by participants in the ETF industry?
Rosenbluth: The different nontransparent ETF structures and the large asset managers, such as American Century, Fidelity, JPMorgan, T Rowe Price and more, that aim to launch active ETFs in 2020. These pending products could be game changing in the industry over the next few years following recent regulatory approvals to allow asset managers to avoid daily disclosure of equity holdings.
A second big theme will be ESG ETFs, which experienced sharp asset growth off a low base in 2019 aided by demand for new funds like iShares ESG MSCI ESA Leaders (USSL). I think discussion will center around the use case for these funds and what criteria is utilized to build these index-based products.
Sissel: Direct Indexing and Non-Transparent ETFs.
Nadig: Distribution. Some great recent survey work suggesting that the only thing advisors hate more than wholesalers is Nickelback. I think a lot of discussion in the corners, if not on stage, is going to be about how the distribution and marketing model has to advance, become more Internet focused and more targeted. There are implications for advisors here, as in many ways they become "the product"—data about their activities, preferences, model usage, etc. It all ties in.
Alternatives but not the way you’d think. There will be a lot of discussion of how to get noncorrelated exposure in almost every corner of the market, whether that's "liquid alts" or bitcoin or uncorrelated theme funds or risk parity or multiasset solutions. Everyone's hunting for a noncorrelated solution to deal with the hyper correlation we seem to be headed for.
Balchunas: The coming wave of active nontransparent ETFs, or as we call it, the “ANT Invasion” is probably going to be the most popular topic. And with good reason- there are trillions of dollars backing these new funds. Will that help them survive in a Terrordome created by cost-obsessed advisors? We will soon find out. Other big topics I’m anticipating are BlackRock’s recent splash with ESG initiatives along with the evergreen “Is indexing getting too big?” thing.
What do you think people should talk about more at the conference but will be under the radar?
Rosenbluth: The need to focus less on past performance and fees and more on what’s inside the ETF. CFRA will be conducting a session on this topic during the ETF University on Sunday, but most of the sessions will bring asset managers/index providers of similar products on stage together talking about the theme at a high level. As fees are trending lower, advisors need to understand what the drivers of future returns will be.
Sissel: ETF selection largely because I don’t think most people spend enough time evaluating ETFs the way they do mutual funds or other investment vehicles. Another is the innovation and technology used to improve business management/portfolio management and cost.
Nadig: People will just be tired of talking about smart beta and ESG. They're still two incredibly important trends in the business that are driving significant changes in investor portfolios, asset management businesses and advisor practices. But we're all real tired of the discussion, so I imagine it will get dismissed.
Balchunas: I think the global expansion (or lack thereof) of ETFs is probably underserved as well as M&A activity and how ETFs can get to lower-income individuals so they too can benefit from what’s basically free exposure to markets.
What is one ETF provider that you think will make its presence known at the conference and why?
Rosenbluth: State Street Global Advisors, which is the third-largest ETF provider, announced in December it plans to change the index for some of its cheapest U.S. equity ETFs to S&P benchmarks. The changes are going into effect just before Inside ETFs. For example, SPDR Portfolio Large Cap ETF (SPLG) will move from an in-house index to the S&P 500 Index. This is the same index as SPDR S&P 500 (SPY), the largest and more liquid of the ETFs, but SPLG will continue to charge a 0.03% fee, much lower than the 0.09% for SPY and in line with Vanguard 500 Index ETF (VOO). We expect State Street to use the conference to build awareness for its low-cost ETF suite.
Sissel: AGF, this is a lesser known firm that has developed a unique suite of factor-based alternative ETFs that offer really interesting ways for investors to gain specific factor exposures while also providing differentiated diversification benefits. I think we are getting to the point in the cycle where they really make sense and there seems to be a growing interest in these types of products.
Nadig: ActiveShares and American Century. I wouldn't be surprised to get some hard news about nontransparent ETFs tied to the conference dates. I don't KNOW anything, but we're right on the cusp, so why not at the event!
Balchunas: I’m going to go with American Century. I have a gut feeling they are going to announce the launch date of the first active nontransparent ETF at the conference.
Todd Rosenbluth is the director of ETF and mutual fund research at CFRA. Learn more about CFRA's ETF research here.