NEWS MONEY SPORTS Icahn’s criticism of ETFs spurs backlash LIFE AUTOS TRAVEL
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USA TODAY - L awrence J ournal -W orld MONDAY, JULY 20, 2015
Investor doesn’t understand them at a ‘basic level,’ experts say Kaja Whitehouse @kajawhitehouse USA TODAY
Billionaire investor Carl Icahn tossed a small hand grenade into a fellow Wall Street titan’s lap Wednesday when he offhandedly called BlackRock — the manager of a massive $4.7 trillion for pension funds and other investors — “an extremely dangerous company.” Icahn, a well-known activist investor, was referring to risks in exchange-traded funds (ETFs) — a $2.1 trillion market dominated by BlackRock. ETFs give inves-
tors exposure to baskets of securities through shares that can be traded like stocks. Specifically, Icahn is worried about high-yield ETFs in an environment of rising interest rates. If the junk bond bubble bursts, mom-and-pop investors who have swarmed to high-yield bond ETFs for juicier returns could suddenly find themselves trapped, Icahn said. Icahn’s remarks were provocative in part because he made them while sitting next to Larry Fink, BlackRock’s CEO, at the CNBC Institutional Investor Delivering Alpha Conference. At one point, Icahn described a
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Billionaire Carl Icahn
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Larry Fink of BlackRock
scene in which Fink and Federal Reserve Chair Janet Yellen push a party bus off a cliff into “a black rock.” But experts agree with Fink that Icahn is “just dead wrong” in
singling out ETFs. “If there’s a high-yield bond crash, it doesn’t matter if you own them in a high-yield bond fund or an ETF,” said Joshua Brown, a financial adviser at Ritholtz Wealth Management. Everyone will get hurt, Brown said. Plus, ETFs make up a minuscule part of the $1.54 trillion junk bond market, or just 2.2%, according to Morningstar. Mutual funds, by contrast, make up 17% of the junk bond pie. “I think (Icahn’s) comments were indicative of the fact that he fundamentally doesn’t fully comprehend how ETFs work at the very basic level,” said Ben Johnson, director of global ETF research at Morningstar. ETFs are
“this space ship that has landed in Carl Icahn’s backyard, and he doesn’t know what to do with it, so he is throwing rocks at it in hopes that it will go away,” he said. Where ETFs differ from mutual funds is that investors expect to be able to buy and sell on a dime and watch their shares move accordingly. Mutual fund sales, by contrast, are tabulated once at the end of the day. This has led to criticisms that ETFs could be more susceptible to intra-day panic selling, especially since they are primarily owned by retail investors. But the idea that retail investors will sell at the same time on the same day is unrealistic, said Jeff Tjornehoj of Lipper.
MONEYLINE INTERVIEW
GOOGLE LOGS 14TH CRASH Google’s self-driving cars have been the recipients of several rear-end accidents, the most recent earlier this month. On July 1, a motorist smashed into a Google vehicle at 17 mph, causing the offending car’s front bumper to fall off. The Lexus SUV had stopped at an intersection in Mountain View, Calif., as had other drivers, because traffic had backed up. It’s the 14th time that Google’s fleet has been in an accident since the search giant began its autonomous vehicle project, and 11 have been rearenders.
‘BATMAN’ SAVES THE DAY “Batman: Arkham Knight” helped lead the video game industry to increased sales of 18% in the month of June, according to The NPD Group’s latest industry report. Sales tracked by NPD totaled $869 million, with sales of game software up 21%, sales of game systems up 8% and video game accessories up 34%, compared to June 2014. “Arkham Knight,” released on June 23, posted high enough sales to give it the second-best launch (first one-month of sales) of all games released in 2015. “With a strong lineup of games for the remainder of the year,” said NPD’s Liam Callahan, “there is the potential for a positive growth in the second half of the year as well.” FRIDAY MARKETS INDEX
Dow Jones industrials Dow for the week Nasdaq composite S&P 500 T-bond, 30-year yield T-note, 10-year yield Gold, oz. Comex Oil, light sweet crude Euro (dollars per euro) Yen per dollar
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CHG
18,086.45 y 33.80 x 326.04 5210.14 x 46.96 2126.64 x 2.35 3.08% y 0.03 2.35% unch. $1133.00 y 10.90 $50.83 y 0.08 $1.0848 y 0.0027 124.08 y 0.06
SOURCES USA TODAY RESEARCH, MARKETWATCH.COM
USA SNAPSHOTS©
Waiting for second offer Percentage of home sellers who took first offer dropped to
46% since last year, below 50% for the first time since the recession of 2008.
Source Coldwell Banker survey of 1,545 home sellers JAE YANG AND PAUL TRAP, USA TODAY
For CEO of AthenaHealth, connectivity a major goal Health care was one of the few industries that saw job creation in the month of June because of a revolution going on in the industry. We are living longer, getting in front of disease and monitoring everything from our fluids and heart rate to our digital records. All of this as premiums are going up and the Supreme Court rules the Affordable Care Act will stay the law of the land. I caught up with one of the leaders in this new marriage between health care and technology: AthenaHealth CEO Jonathan Bush, right, who is providing cloud-based services for electronic health records, revenue management, and other point-of-care apps that are changing the way we approach health care. I also asked him about his first cousin who is hoping to occupy the White House in 2017. Our interview follows, edited for clarity and length. ONE ON ONE
JACK GRUBER, USA TODAY
Maria Bartiromo Special for USA TODAY
Q: What is the state of business today? A: AthenaHealth is tapping into a very wide frustration among doctors and their patients in the country that nothing is connected. You go one place and you are given a clipboard, which is annoying and takes a while. And then somebody talks to you about it. And then you go somewhere else and you have to start all over again. And so everyone’s ready for that to end. And Athena’s the only company that’s got a sustainable business model to make that happen. Q: So in other words, really digital health? A: That’s right. A basic information backbone. When I think of the health care Internet, I think of a chunk of the Internet, much the way Amazon took a chunk of the Internet and made it secure enough, reliable enough and connected enough to the offline world for mainstream Americans to trust with their credit cards and shopping choices. We are trying to create a chunk of the Internet that is safe enough, reliable enough and connected enough to the offline health care world that doctors and their patients will trust in the same way. Q: The big question, of course, is the privacy of data. A: There’s no such thing as perfect protection that’s useful. You can make something perfectly protected in a way that no one
can see it. Obviously there are always mistakes, ... but the risk-reward trade for doctors and consumers is so vast. The lives that are lost, and the humiliations that take place, and the waste, the financial burden in people’s lives is created by duplicated isolated health care information. It is so vast that the majority of us are happy to make the trade. In fact, if you look at the companies that were recently very publicly hacked, their stock price didn’t move much. And their market share moved not an inch. Because most people, while they’re mad about it, know it’s still the trade that is worth making. Q: So how does the Supreme Court decision on Obamacare change health care? A: I am and will always be against Obamacare. I wish it didn’t happen. But it did happen. And I’d like to be working within the framework that we have to make things better. And free market people can do that within Obamacare. Very few people changed roles within Obamacare. We still have the plurality of lives in the hands of commercial employers that have to pay for their employees’ insurance just like before. We need to start working on getting that product more consumer-facing. Q: In the midst of this, we’ve seen this major consumerism going on within health care. You could select a Rite Aid. Or go into a HealthSpot and speak to a doctor on an iPad. You can get your blood taken by a Theranos, in a Rite Aid or in CVS. What’s happening in terms of the consumer space within health care? A: It’s a great point because the
demand curve is very broken in health care and it’s getting fixed with the rise of consumer responsibility for these high-deductible health plans. The retail clinics did a wonderful job of creating a supply and demand that wasn’t price and share but convenience and share. So — the rise of consumer of convenient care, whether it’s through the retail clinics you mentioned or urgent-care chains. There are hundreds of millions of dollars of private equity investing that has been put into dozens of multi-state chains of urgent-care centers that compete with emergency rooms. They’re a lot cheaper, but they primarily compete on convenience. They have a five-
I think the rise of the convenient care movement here in the country is probably one of the most important developments that we’ve seen this decade so far, and not just about the convenience aspect for the consumer, but the impact that they will have on the demand curve of the whole system. Q: So how do you see the world changing in the next 5 or 10 years? A: The most important thing that I think about health care over the next five years is that this Internet thing is going to be big. Every other industry has gone to the cloud. ... The pace of innovation is strong. The level of connectivity is almost instanta-
“You go one place and you are given a clipboard, which is annoying and takes a while. ... And then you go somewhere else and you have to start all over again. (E)veryone’s ready for that to end.” minute wait instead of a five-hour wait. And they can do 70% and 80% of what an emergency room can do. And once that happens, and consumers say, “Gee, there are brands that I can learn to trust the way I can in other aspects of my life. They’re going to take care of me,” we will see a lot more collapsing of the information silos. Because when the local hospital says to Target corporation, “Hey, I want you to get onto my computer systems,” Target says, “Hell no. You will connect to us. I’m Target. I’m nationwide.”
neous all the time. Q: Lastly, how does it feel to have a famous first cousin? Can you tell us something about Jeb Bush that we may not know? A: Jeb doesn’t have an entitled bone in his body. Not even his pinky. His journey is one of genuine passion to serve. Maria Bartiromo is the anchor of Mornings with Maria on the Fox Business Network, broadcast live from 6 a.m.-9 a.m. ET. Follow her on Twitter @mariabartiromo @MorningsMaria @SundayFutures