By Jim Wiandt
Matt Hougan - has the snow started up in Maine? It must have, because it's obviously getting into your head and onto your blog.
I had this great idea about talking about our Inside ETFs conference (which starts tomorrow here in Boca Raton - where there IS no snow to get into my head) and the big picture for the ETF industry. But another of your more ridiculous blogs mandates my response.
Matt - don't get me wrong, you have done some great work on this site and in our publications. I'm just trying to keep things honest and make sure you don't slip into one of your sleepwalking repetitions of conventional wisdom or some insufficiently grounded allegation.
Look, I am not the one who put the ETF and mutual funds inflows data side by side and said, "Hey guys, how about THIS!" That was you, and that has been the ETF industry. And talk about insane doublespeak to pull out (as you've done repeatedly) your proud recollection of the spreads story from the glory days of your ETF reporting some months ago. Now THAT story WAS flying in the face of conventional wisdom. THIS one was merely rebroadcasting it unthinkingly. So, no, Matt, I beg to differ, up is NOT down.
OK - I've had enough fun with Matt this morning. Let's talk about the conference. It seemed like we had a lot to cover this year. But the raw brutality of the market has battered the sandy tranquility of the ETF world, and exposed some jagged rocks beneath. ETFs and ETNs, like much of the rest of the market, has had a nice opportunity to get stress tested. And the issues relating to that are some of the most interesting. Here are a few of those:
- Credit risk. Don't say we didn't try to warn you. I think it is safe to say that we brought this issue to the fore in our discussion of ETNs. But even we had no idea that the real meaning of "credit risk" would become so apparent so quickly in the ETF world. This is probably the biggest recent story in our business in terms of laying out an education.
- The wild world of leveraged funds. Again, we beat the drums on these products (as in you'd better think twice if you think you're going to buy and hold these products). But again, we could not even have imagined that the level of volatility could lead to a situation where, say a double leveraged fund might be down 80% and it's double inversed cousin could be down 60%.
- Taxes - again some of the fun was around leveraged products with hard to imagine distributions. But even more importantly, most ETFs have performed extremely well in this respect in a highly volatile market.
- Bonds. At the eye of the storm, the bond world was absolutely a loony-bin late in the year, and the ETFs trying to track those markets reflected that. Pricing issues in bond markets laid bare with incredibly wide spreads that made you question whether "NAV" had any meaning. And at the same time, people started frantically looking for where to put "safe" money, questioning the banking system to such a degree that they poured money into U.S. Treasuries that were yielding zero, and issued by a country running up record deficits.
What a year, what a mess, and what sweet, fertile terrain for discussion at our 2009 Inside ETFs Conference. I'm excited about it, about getting things going again, and about seeing all of you here.