A few months ago, Eric Balchunas was on DeFi channel talking about ETFs

Here are some of the points that Eric mentions in the interview:

  • Leads the research dept on ETFs in BBG
  • ETF - Mutual Funds with Benefits
  • Most people are not experts on individual stocks. ETFs fit people who are looking for top down investing
  • Vanguard expense ratio 3 bps - Expense ratio and Turnover ratio are two things that are to be kept in mind
  • Cheap beta
  • Compounding on a low fee fund is the key
  • People want to put hot sauce on the top of cheap core
  • Lot of issuers coming in and creating the sauce to be overlaid on
  • Rise of passive has made core cheaper and hence we have not active ETFs , smart betas, leverage betas
  • Weighing methodology
    • Most ETFs are market cap weighted
    • Equal weighing
    • QQQE - Equal weighted outperforming QQQ
    • Market cap weight - has momentum baked in to it
    • Some are suited for equal weighing
    • Equal weighted is correlated with Mid cap ETFs
    • Weighed based on fundamental attributes
    • Pick one of the factors for screening and weigh based on other factors
  • In an environment like this equal weighted makes more sense. In a rougher environment, you will not have a run away stocks.
  • RSP Invesco S&P 500 Eql Wght ETF has outperformed SP500
  • Smart Beta has about 2T usd as of [2023-04-08 Sat]
  • ETFs have shifted active back to the retail but the active is at a broader level
  • Alpha via Beta
  • Model portfolios construction via ETF is easy
  • You can own an ETF that helps you buy call options on NASDAQ
  • You can plug in whatever you want to plug in as a retail investor
  • In the blockchain ETF space, may be active ETF works
  • Leveraged ETFs
    • TQQQ ProShares UltraPro QQQ has about 14 Billion USD as of [2023-04-08 Sat]
    • SQQQ ProShares UltraPro Short QQQ has about 0.5 Billion USD as of [2023-04-08 Sat]
    • One of the most traded securities
    • It will guarantee the leverage only for the day
    • If the path is nice and smooth, you hit a jackpot. If there is vol, it corrodes the returns
  • If an ETF uses leverage and futures, then the investment is very dangerous
  • Market makers exchange shares of underlying stocks with ETF units and there is a chance to wash out gains from the portfolio
  • Cash like ETFs like JPST, SHY, MINT
  • JP Morgan is the biggest active etf fund manager
  • SHY is from Blackrock
  • TERA is the new TINA - There is a reasonable alternative to There is no alternative
  • Move from leverage ETF to inverse long leveraged ETF
  • Buy the dip trade is petered out
  • Look at holdings and exposure - Xray in to the ETF
    • Do you know the holdings?
    • How the holdings are weighted ?
    • Cost - anymore greater than 20 bps for core is expensive
    • You can get a fully diversified portfolio of 10 bps