It’s not just me that’s back in action but the markets:
You’ll note that the dips are getting deeper but the time to recovery seems to be constant. We have V shapes that are only being stretched vertically. I’m a bit surprised that VIX hasn’t dropped back below 15. No forecasts from me now. After hurricanes, subway bombings and credit crunches, this global market has shown resilience that makes me think we’re well into the area where behavioral finance takes over. Kind of has that late 90’s feel (I’ll comment again on this below).
I have not submitted a blog entry since June 21st, nearly three and a half months ago. Is it me, or has it been relatively quiet in ETF land? Not to say that there haven’t been new products launched, there have been … some good and some not so good. But my feeling is that the conveyor belt has not only eased up on its acceleration rate but may have actually decelerated. If this is not true, someone please let me know. But if I’m right, then let’s all give a collective sigh. This pause in product launches should give investors of all types the time to reconfigure their processes to determine their investable universe and even tighten up their actual potential short list.
But don’t be mistaken. This pause is temporary. Although I may have been silent online, I have been in contact with many in the industry. We are going to see more from the big 3 (BGI, SSGA, Vanguard) although I’m thinking that PowerShares should be included in this group soon. However, the more interesting developments will come from the new entrants … some of them you have already heard of and others you likely haven’t. Some will provide exposures “with a twist” to asset classes already covered. Some will provide exposure to new areas of the capital markets.
It is the arrival of many smaller new entrants into this space that will provide what some will call innovation or differentiation while others might simply call (in aggregate) crap. I mentioned before about the feeling of the 90’s. If the new ETFs coming out focus on new ideas … there’s way too many to list so I might go over them one-by-one in future postings … then wouldn’t this new chapter in the ETF story be similar to the dot-coms? It’s simply the transfer of capital to new ideas, some that will work and some that won’t. Most of these new entrants have the backing of VC firms. You have to make your way to them to understand why they think their story is unique (i.e. why they have skin in the game). It’s pretty much the same idea on the hedge fund side. Except the manager doesn’t usually have the backing of a VC firm although they may be involved in some way (distribution). But the hedge fund is also about an idea. Unlike the ETF that provides (hopefully) a new or significantly meaningful market exposure, the hedge fund’s idea is about some new actively managed opportunity. I personally don’t see that significant a comparison with the dot com craze. The anti-ETF crowd surely sees it differently.
In this tough environment where getting paid for risk premium is suspect, it’s no surprise that we continue to hear about the growth of both ETFs and hedge funds. Hat tip to AllAboutAlpha for the latest commentary on this subject from InvestmentNews. Having now passed the half trillion dollar mark, you just have to wonder if the real asset growth of ETFs will be in the tried/true SPY-type behemoths or will the smaller players and new entrants be able to gain significant market share.
An interesting development is the cross border (or in most cases cross-ocean) movement of firms and operations. For example, SPA who is based in Europe have recently set up operations in the US. For those interested in the fundamental indexing approach from the likes of WisdomTree and PowerShares (via Research Affiliates), you’ll want to check out SPA and their fundamentally driven ETFs which are advised by MarketGrader who are based out of the US. I’d like to see this type of development (international operations) continue and the trend lead to more fluid trading of instruments. A good start would be to have NYSE-Euronext allow for a full ETF menu for US and European domiciled funds to be easily traded on a convenient online platform. We must be already headed that way.
I’ll find out additional information on these little tidbits and more in a few weeks at the “World Series of Exchange Traded Funds -West” conference in Scottsdale Arizona. From what I can tell, this should have a similar feel and scale as IMN’s similar event in Miami back in March. However, it won’t be as big as the upcoming “Superbowl of Indexing” which is also in Scottsdale and has more of an institutional investor bent.
For those of you who know me or have communicated with me in the past few months, you’ll know that I focused my attention on finding a new role for myself. My consulting work from earlier this year was meant to be a transition for me as was the blogging. One of the potential avenues open to me is writing. I have been given suggestions by several people about starting up a paid newsletter focused on ETFs. I remain cautious on this as there are a lot of these types of newsletters and there will surely be many more. In New York, I have spoken with a group that is interested in institutional level research of course with an ETF focus. Think I-bank but with an adamant spotlight on independence. One individual suggested that I have a 3-tiered service: free blog; low fee newsletter and top shelf institutional service. I just don’t know if I see myself in the online media business as all I’ve focused on in the past 12 years or so is the management of portfolios. It would be nice to do both (hence the blog), but you can only spread yourself so thin.
So, I have been speaking with a small number regarding possibly joining their organization. Some small, some large. This is where I have focused myself over the past couple of months. The upcoming busy conference schedule over the next few months helps in the networking so we’ll see how it goes. Like Yasser Anwar and various other bloggers who have spent far more resources than I have on their site (with surely more impressive results such as number of visits … mine is certainly a bare bones blog), I have found that as much as I enjoy blogging, the opportunity to turn this into a business is possible but likely not my path. The 3-tiered online service is something I have been thinking about for a while and I now have some potential partners to work on this with. But deep inside, I feel like that that would be a nice place for me to be AFTER I decide to stop managing money.
Let’s face it: This has got to be one of the most interesting times ever to manage portfolios. It’s a low yield world where it’s also harder to find alpha. This has forced sophisticated investors to explore new asset classes and strategies. This kind of thinking is making many market participants attempt to emulate others who are ahead of the pack … have you noticed how so many people online and in the mainstream press are talking about Yale’s endowment? We could certainly be in a point right now where the next ten years will have negative annual average returns.
For me, despite my focus on ETFs on this blog, I’m interested in the broader asset allocation problem. Writing about this just isn’t as much fun to me as compared to actually managing the money. So for now, I’ll put up the occasional blog posting here but hopefully I’ll be notifying you soon about where my career path takes me.