REVIEW IT FEELS LIKE A VERY UNIQUE MARKET SPACE THAN WHAT WE’VE EVER HAD. WE HAVE MORE POLITICAL TURMOIL THAT ADDS TO THE VOLATILITY... BUT YOU CAN ABSOLUTELY PLAY ANYTHING YOU WANT IN AN ETF.”
The first thing you have to think about is: if you’re the investor, what are you trying to accomplish? Let’s say you want to go into value investing. [W]ould you prefer a basic index? Do you want something that will beat the index—but you still want it to be passive, so the alternatively weighted strategies? Or do you really want the thoughts of an active manager in that space? And I think that is the first criteria. What you’re trying to accomplish leads you to what you need. If you look at the value space in more detail, there [are] ETFs that have a lower volatility, whether they’re in the name or not. There [are] ETFs that can have higher alpha in that area. It depends [on] what you’re trying to accomplish and that should be the first starting because when you sift, you’ve actually reduced the number dramatically to that point and you’ve gone from, let’s say, 2,500 ETFs to maybe 20, and the choices become much easier and much more clear.
I think you’re going to see is an evolution of the fixed income market. [Y]ou’re going to see more ETFs come out in that market that are taking advantage of what a portfolio manager can do. [I]f you think of just a basic index today, you can’t replicate it. Almost any fixed income index is almost impossible to replicate. So an index manager has to place active bets on what they can get their hands on. Why not just turn it over to somebody who’s active and let them put a portfolio together that makes sense... instead of trying to track something that they can’t, anyway?
What do you see for the continued growth of ETFs in 2019?
One thing we can glean from this conversation is that ETFs are only growing in choice and stature for the investor. Thank you so much.
I think the other thing you’re going to see is more active—transparent active—equity ETFs coming out. This year has been a bigger growth in the equity space for transparent active than any other year previously. I think you’re going to see more people looking for active managers in a way that they can get out.
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Q2 2019 | REVIEW ASSET TV | 5