Abnormal Returns is on hiatus this week. However that does not mean that we are content-free. As we did last year, and the year before, we asked a panel of independent finance bloggers a series of (hopefully) provocative questions. We hope you enjoy these posts as much as we do putting them together. Check out answers to yesterday’s question on the advisability of a mandatory retirement savings program. Feel free to jump in the comments with your own answers to the questions.
Question: If ETFs were the last big financial innovation, what is the next one (including any relevant company names)? (Answers in no particular order.)
Tom Brakke, tjb research, @researchpuzzler: I think of innovation in terms of organizations and methods, since that is what I work on, rather than products. Most asset managers differ very little from each other and most investment advisors differ very little from each other. (As a test, take the materials of ten of each and see how similar they are.) Differentiation will be the key for all in the next leg of industry development. In terms of a product or service, I’d be working on new kinds of retirement solutions that break the mold of traditional plans.
Jared Woodard, Condor Options, @condoroptions: Crowd funding is still a goofy, unstructured mess, but the main idea is sound and with a little more poise and professionalization, it could become a real threat. Individual investors with expertise in some area have basically been shut out from the best investments in many industries: secondary markets are crowded, there are no IPOs, and VCs jump all over anything with a pulse. So for long-term investments for individuals, crowd funding could become a way to get into something good at an early stage. The VC counter-argument about guidance and expertise is persuasive to me, but there’s probably room for both.
Wesley R. Gray, Ph.D., TurnkeyAnalyst & Empiritrage, @turnkeyanalyst & @empiritrage: Its tough to make predictions, especially about the future–so I’ll pass on this. However, I do think ETFs are yet to run their full course and have not been embraced by the marketplace. When mutual funds no longer exists, we will know that the marketplace finally understands ETFS. We work with large family offices and high-net-worth individuals that focus on alpha, but put a lot more effort into minimizing fees and taxes. ETFs are truly a holy grail on both of these aspects (fees & tax)– dominating the mutual fund structure, limited partnership structure, and the separately managed account structure.
Josh Brown, The Reformed Broker, @reformedbroker: Portfolios custom-tailored to life expectancies and health outcomes that are derived from genome research into our personal risk factors, not just general actuarial tables. It will be a crock of sh*t but someone’s going to develop the concept and make a billion bucks. I predict Tadas and I will mockingly blog about it.
Brian Lund, bclund, @bclund: I will talk my own book here, but it will be true democratization of retail trading, i.e. the ability for people to take part in the actual trade, not copying, cloning, or mirroring, but in the actual block trade of a seasoned trader or money manager, all while retaining total transparency and control. The (only) company that is doing this is Ditto Trade (www.DittoTrade.com).
Bill Luby, VIX and More, @VIXandMore: I wish I knew what the next big thing will be in terms of financial products. I am a strong believer that the ETP space makes it relatively easy for companies to shrink-wrap products from alternative asset classes and the customized product space in such a way as to make these available to retail investors. A recent example that points to how far this innovation has already extended is ProShares filing for credit default swap ETPs. Within the ETP space retail investors can now access managed futures, private equity, volatility products, a wide range of commodities and much more. With credit default swaps just around the corner, what might be next? Personally, I’d like to see more options products in a shrink-wrapped package. For example, why are there not straddles or vertical spreads on the SPX in an ETP wrapper?
David Merkel, Aleph Blog, @alephblog: A gold-based currency that works for small purchases. Some nation will bite the bullet, and link their nation to gold, despite a recession as their economy adjusts. Other nations will join them.
Jeff Carter, Points and Figures, @pointsnfigures: Hedging of all kinds of expenses that companies have zero idea on impact. For example, marketing budgets, advertising budgets. Financial derivatives surrounding the hedging on risk of ad spend.
Thanks to everyone for their participation. Stay tuned for another question tomorrow.