Inside the World’s Largest ETF Conference
A behind-the-scenes look at Inside ETFs 2017
By Christian Magoon, Founder and CEO of Amplify ETFs
Inside ETFs 2017 just concluded in South Florida, and this year’s event was the largest and perhaps most memorable ever. The 2017 conference not only marked the tenth anniversary of the world’s largest ETF event, it also coincided with the Dow Jones Industrial Average finally hitting the 20,000 mark. The 2,000 plus attendees at this year’s conference were upbeat, and Amplify was pleased to once again speak and exhibit at the conference.
Here are some key conference takeaways.
1) New faces
The exhibit halls and panels were packed with many new firms involved in the ETF ecosystem. From new ETF sponsors to index providers to service providers, the number of new players was substantial. While new to ETFs, many of these new faces are not new to the asset management ecosystem. Several mutual fund brands, for example, have transitioned to offering ETFs and were active at the conference. The ETF tent is enlarging, and the selection of “pure play” ETF sponsors seems to be falling behind mutual fund affiliated ETF sponsors.
2) Index evolution
The universe of index providers is also growing in terms of new firms and the solutions they are offering. Most notable was the amount of index providers pitching dynamic indexes – indexes that shift allocations quickly based on market dynamics in order to maximize alpha or reduce risk. These types of indexes should fare well being tracked by ETFs due to the tax efficiency of the ETF structure.
3) Lights, camera, action
A variety of financial publications – from TV to print – covered the conference. In years past coverage was dominated by ETF industry media outlets, but the ETF industry recently has become of interest to mainstream investors. Several news stories broke at the conference, including AmplifyETFs announcing a new investment structure designed to incubate ETFs.
4) Trump factor
You can’t watch a segment of financial television or read an investing periodical without hearing about the Trump effect on markets. Inside ETFs 2017 was no exception. Speakers and panels constantly addressed the Trump factor. Clearly the investment crowd is still trying to figure out Trump policy and its potential winners and losers. The Federal Reserve interest rate policy in 2017 also seemed to be a popular topic.
5) Price cuts
As usual, the continued march downward of ETF price points was discussed in several panels. It is now possible to build a fairly diversified equity and bond portfolio via ETFs with expense ratios in the 20bps or less range. Broad based equity and fixed income exposure (not alpha) is becoming cheaper each year. That is a great trend for investors and likely to continue until these type of ETFs have an expense ratio that equals zero.
6) ETF Bubble
After attending this conference, one has to ask the larger question: Have ETFs hit a bubble?
Historically I have answered that question by comparing the ETF industry to the mutual fund industry in terms of number of product companies and funds being offered. By that comparison, the ETF industry is still well behind the mutual fund industry.
However, I am concerned by anecdotal evidence I see at conferences like Inside ETFs that the ETF industry is attracting sponsors without a strong commitment to the space. Case in point, the ETF sponsor booth across from the Amplify ETFs booth was a very large multi-billion-dollar traditional asset manager, which now has ETFs. The booth was mostly unmanned throughout the conference and had little to no marketing support in terms of materials and signage. Were they just at Inside ETFs to check a box? Are they really committed to growing their ETF business?
These questions may seem elementary, but large mutual fund or 401k-centric companies are under pressure to provide an ETF plan. A variety have launched ETFs, but several examples seem to point to these launches either being done for show or lacking a strategic plan. As an ETF market participant for more than ten years, I am worried by the rise of these types of ETF franchises. One can easily look back at the very public failures of Russell Investments and Northern Trust’s initial ETF lineups to see that there are no guarantees of success in the ETF business.
Inside ETFs 2018 is already being planned, and no doubt about it, the conference will have more professional ETF investors and ETF sponsors than ever before. The future of the ETF vehicle looks bright as asset managers and index providers continue to build out a set of tools for the growing user base of ETFs. While markets will be uncertain in 2017, there will be many ETF solutions available to protect against or harness the trends moving stocks, bonds and commodities.
WHY ETF TRANSPARENCY MATTERS NOW
An important ETF characteristic during market volatility
By Christian Magoon
Whenever increased market uncertainty occurs, ETF investors should utilize a feature most ETFs offer: portfolio transparency. The majority of ETFs reveal their exact portfolio holdings on a daily basis via their official website. This real time portfolio transparency allows investors to better understand and address portfolio specific risks. While important during times of market volatility, portfolio transparency is just as valuable to any investor seeking to diversify and follow a long-term asset allocation plan.
A transparent portfolio provides the foundation on which to build both proper portfolio diversification and asset allocation. Proper diversification helps to reduce the concentration risk of an investment portfolio. When an investor seeks to diversify, it is important to know exactly what is owned inside that portfolio. Constant portfolio transparency allows for more accurate portfolio data and decisions. In another related effort to address portfolio risk, asset allocation is a method that tailors a portfolio to best fit an investor’s risk tolerance and time horizon. Predictably the more frequent the transparency of the portfolio, the more precise the asset allocation can be.
Accurately implementing and monitoring a portfolio’s asset allocation and diversification is important in all types of market environments. The portfolio transparency of ETFs provides investors with current and complete information to base crucial decisions on. Should market volatility – or risk - increase in 2016, ETF transparency will only matter more to investors as they seek to understand, position and monitor portfolios in light of marketplace risks.
Opinions expressed are subject to change at any time, are not guaranteed and should not be considered investment advice. Diversification does not assure a profit or protect against a loss in a declining market.
Alpha is a measure of investment performance against a market index used as a benchmark.
The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. One cannot invest directly in an index.
Past performance does not guarantee future results.