“The saddest aspect of life right now is that science gathers knowledge faster than society gathers wisdom.” ― Isaac Asimov
It’s been awhile so we are doing another edition of Blogger Wisdom this week on Abnormal Returns. As we have done in previous years we have asked an esteemed group of finance bloggers a series of (hopefully) provocative questions. Blogger answers are unedited and the author’s name, blog name and Twitter handles follow. We hope you enjoy these posts as much as we do putting them together. You can read yesterday’s blogger wisdom post on lessons learned from the financial crisis.
Question: What ETF, if it were launched tomorrow, would you invest in with little (or no) hesitation? Said another way what asset class or strategy is not currently (effectively) available in an ETF wrapper? (Answers in no particular order.)
I don’t know that I would invest with no hesitation but something that offered access to crypto currencies beyond Bitcoin would keep money in the brokerage firm realm as opposed to people sending money to unregulated (yet?) financial companies which opens the door to investors exposing their money to institutional risk. Not that the cryptos themselves can’t go poof but the risk of holding an ETP at Schwab or Fidelity is much less than a crypto-only shop that’s only been open for a year.
There are two ideas that come to mind here. The benefits of barbell strategies, such as low volatility paired with momentum, have been noted by some (including me), and I think that is one that would have a lot of merit, not just with domestic stocks, but also in foreign stocks. Secondly, buyback strategies have been proven to outperform in the U.S. and abroad, but, to my knowledge, there is a dearth of ETFs that track these specific strategies in markets like Japan and EM. Those happen to be markets where I am not convinced passive index investing is the best way to go, so a strategy that focuses on buybacks would appeal to me quite a bit.
I’m quite happy with my family’s portfolio as it is. It would be refreshing to have a day without another ETF launch!
Frankly, there isn’t one. We arguably have a bubble in ETFs, indexing in general, and even in smart beta.
The World Fund. Comprehensive allocation to every asset class weighted by that country’s share of global GDP. At 3 bps or less, please.
A short duration NY municipal bond ETF, similar to a money market fund.
Seed stage startups in fintech.
An ETF that shorted a diversified basket of levered inverse funds and maybe rebalanced once a year.
That’s tough! There’s been some really innovative products launched as ETFs that on face look great but often disappoint in delivering, so I don’t think there’s anything I’d invest with little or no hesitation when it first launches. But I’m stoked for what’s to come in the future in the ETF arena – they are no doubt the future for investing and I have high hopes for becomes tradable in the next 3-5 years.
A long-short equity ETF focused on retail names, co-managed by the data science teams at Amazon and Google Trends.
Failing that, a 1,000 stock, globally-diversified equity ETF consisting only of names in the bottom quartile of two year forward P/E ratios (or some other, similar, measure), the top quartile of quality (measured by a mix of gross/operating margins, low debt, a high RoE, and clean accounting), the top quartile for intermediate term (8-12 months) relative performance, and the bottom quartile for consensus recommendations (but a subset of those that are not experiencing increasing short interest).
A tax-efficient, leverage-efficient, trend/carry managed futures ETF. One problem: impossible to create in an ETF wrapper because of SEC 1256 and ’40 Act.
I have no idea. There are too many already. The industry machine is at work cranking them out.
There is no ETF that, if launched tomorrow, I’d invest in with “little or no hesitation”. In fact, if you look at the record of many recent ETF launches, you’ll find a string of once-“hot” ETF themes that quickly turned cold a few months after their market debuts. These ETFs are often launched during periods of peak investor interest and demand, but soon decline in price after the early enthusiasm wears off. As a trend-based trader, I’d like to see any ETF trade for a while first, then see if sufficient liquidity and upward (or downward) momentum materialize before taking a position.
A factor rotation strategy that works reasonably well.
Nothing. The ETF market is becoming saturated. Most of the new strategies are gimmicky nonsense being sold to people who think they need something they don’t.
There are some excellent short-term trading strategies that are not tax efficient. This is a legitimate area for ETF development. An example would be a Pairs Trading strategy. Not trading ETF pairs, but an ETF that traded pairs. This is just an example.
While it may seem like there is nothing new under the sun in ETF land, there is one glaring hole when it comes to product development and that is an ETF that capitalizes on the most consistently accurate contrarian indicator known to mankind – Dennis Gartman.
The Inverse Gartman ETF (Proposed Ticker: WRNG) would provide investors a transparent, rules-based way to take the opposite bet of whatever Gartman is bullish or bearish on that week on CNBC.
Nothing comes to mind. Then again, my investment choices are quite vanilla.
Nothing. I’m content.
I don’t typically do anything in life “without hesitation,” but maybe if Jim Simons of Renaissance Technologies created a “Medallion Fund” vehicle I’d take a look at it.
I’d jump on an ETF version of DFA Global Equity Portfolio (DGEIX), which provides globally diversified stock exposure with factor tilts.
I’d love to see ETFs based on some famous “black box” investors like Swenson or Simons. Even if you couldn’t replicate 100%, you might be able to get close. Also for some famous “big talk” investors who never seem to have audited returns.
I hope everyone would have some hesitation before investing money. I think that there are very few international momentum ETFs available and would be intrigued by one that had enough size/assets.
None. New ETFs are generally marginal. Imitation may be the sincerest form of flattery, but with investing, imitation is a substitute for thought, and you need thought to avoid hucksters. Always analyze the underlying investments before buying an ETF.
Thanks to everyone for their time and effort. Stay tuned for a new Blogger Wisdom question tomorrow.