Super Fruit and Active Innovation

Apr 1, 2020 10:00:00 AM / by Toroso Investments posted in ETF Industry, client alignment


Over the past few weeks, we covered the discounts in Bond ETFs and the Fire Sale in all Assets. This week, we return to more traditional ETF research. ETFGI noted that active ETFs in the US celebrated a 12th anniversary last week:

With ETF innovation like active ETFs in mind, we are offering a preview of the introduction to our upcoming white paper by ETF Think Tank contributor, Dan Weiskopf (@ETFprofessor on Twitter).

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Fire Sale: All Assets Must Go

Mar 23, 2020 9:00:00 PM / by Toroso Investments posted in ETF Industry, volatility


We hope all of you are healthy and safe and implore you to follow the guidance of the local, state and federal authorities. We urge you to stay calm despite a 15% drop in the S&P 500 last week while the number of Coronavirus cases continues to climb. Last week, we covered, “Bad Bond Discounts” while this week we look into the discounts in almost everything.   

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Credit is on Sale!

Mar 18, 2020 2:00:00 PM / by Toroso Investments


Credit is on sale! Bad Bond Discounts

The claims that ETF fixed income provides efficient market access are being tested during this period of disruption while equity ETFs are trading mostly seamlessly. There are multiple reasons for this. Perhaps the main reason is due to the fact that not all bonds trade every day, so pricing services are relied upon to provide quotes. Therefore, fixed income ETFs are arguably a secondary source of price discovery. The primary source would be large, direct institutional buyers. However, given the nature of the thousands of bond CUSIP numbers available, and the fact that most bonds are owned and not traded, this price discovery is simply not as active as in equities. This means that pricing may be impaired right now and investors should be looking closely. Clearly, risk of credit impairment exists, but how to price that risk is still in question. In certain cases, prices are now back to 2009 levels despite the positive trends in lower interest rates. Most importantly, investors will look to confidence in credit as an indication of overall market stability.     

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Another Article About Coronavirus?

Mar 11, 2020 9:30:00 AM / by Toroso Investments


Our View on the Market Impact of Covid-19, Welcome Michael Gayed

Our ETF Think Tank members have been peppered by emails about the virus and the volatile market impact.  We will provide some of our insight but first, we want to welcome Michael Gayed and his Rotation strategy to Toroso, and as a contributor to the ETF Think Tank.  His strategy employs an award-winning approach that utilizes ETFs to navigate the markets with risk-on/risk-off signals.  The strategy signals went to risk-off on January 27th.  To learn more please see the press release or register for our conference call being held March 12th.

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From FAANG to MAGA: The Acronym Soup Decade of US Large Cap Growth-ish Tech-ish Stocks

Feb 20, 2020 8:00:00 AM / by Toroso Investments


The Acronym Soup Decade of US Large Cap Growth-ish Tech-ish Stocks

US markets have experienced one of the greatest periods of performance relative to most broad asset classes over the last decade. Growth names that mostly reside in the top 100 US stocks (as they’ve road the momentum train all the way up the market cap list over the last 10 years) continue to push higher in a market that feels expensive but by traditional ratios is just slightly above normal levels. What are we missing? We are missing any real sense of expected growth over the next 3 to 5 years. More on that to come.

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Active ETF Revenues Surpass 6%

Feb 14, 2020 7:17:00 AM / by Toroso Investments


ETF Think Tank KPI Report

US ETF Asset Growth

Market sentiment is generally positive, and it is clear that the ETF evolution will gather trillions of dollars much faster than in the last decade. Having said that, Assets Under Management in January closed at $4.44 trillion - flat from year-end December 31, 2019.    

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Florida was Infested with ANTs (Active Non-Transparent ETFs)

Feb 6, 2020 7:37:00 AM / by Toroso Investments


The ETF Think Tank team just returned from a week in South Florida after attending #InsideETFs and visiting multiple family offices to promote ETF education. Usually, we do a recap of the event, but this time we want to focus on a subject that permeated many of the panels and our discussions with family offices: Active Non-Transparent ETFs or “ANTs.” 

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ESG’s Growth: The SMART BETA on the Benefits of Transparency

Jan 23, 2020 7:00:00 AM / by Toroso Investments


Bring your own assets “BYOA” and help define an ETF category? ESG AUM topped $16.145 billion in 2019, up from $5.817 billion in 2018 and just $2.982 billion in 2017. As a sponsor, Blackrock ­­iShares leads the category with $9.2 billion or 60% of the AUM. However, the category now has 65 choices with the top 10 and 20 ETFs representing 77% and 88% of the AUM. This is an exciting trend in the ETF market because, unlike many ETF categories, this trend has the potential to expand choices across asset classes. And yes, factors play a “smart” role in driving “alpha”, but the definition of principal and principles has an equally significant role. For this reason, it is possible that the number of choices in this category may grow exponentially over the next decade, but investors will really need to look under the hood to make sure that their principal and principles are properly aligned with their personal mission. (See ETF Edge Report for further insights about the debate around purity of process.)  

  • The evolution of ESG ETFs will be defined by transparency of decision making around principles
  • Portfolio Access may redefine the “A or a” in SMART BETa
  • Education around the definition remains in the early stages

BYOA, Define a Philosophy and Inspire Investors by Example

I don’t know the story behind the decision made by Ilmarinen, the $10 billion Finnish pension firm, that seeded two ETFs with $3 billion in 2019, but I would encourage people to visit their website to understand why they did what they did. Simply put, a pension fund, with the responsibility of managing 600,000 people’s retirement money, made the decision to put their money where their mouth was by empowering capital that aligned with their stated mission

The website states:

“Ilmarinen’s strategy for 2019–2021 highlights responsibility, customer focus and personnel experience. Our basic task is to ensure the earnings-related pension cover of our customers. We want to be the most attractive working life partner – responsibly, for you.

In the strategy, our long-term goals are to be one of Finland’s best places to work, offer the best customer experience in the sector and grow profitably and faster than the market. In terms of the ratio of operating expenses to expense loading components and solvency, our goal is to be better than the sector average.

To reach our goals, we will succeed together and boldly reinvent ourselves, we will operate with a focus on customers and promote work ability, grow profitably together with our customers, digitalize customer paths and processes and invest profitably, securely and responsibly.

To achieve our goals, we operate in line with our values: openness, responsibility and co-operation.”

Leading by example and committed capital, I think this institution is stepping up and educating all of us on what they see as “right”. However, that does not mean that ESG has been defined or is consistent with other investor’s definitions. In fact, investors may find the methodology confusing and different from what they think the literal definition is. Neverthless, this is a natural extension of the evolution of the benefits inherent in the transparent nature of the ETF wrapper. Ironically, this could be part of the AUM solution for “Semi-Transparent ETFs” and the direction of how the ETF wrapper, as a technology,  could lead to asset management disruption.

The Ironic Opportunity for Semi-Transparent ETFs

The Semi-Transparent or Non-Transparent ETF wrapper could benefit from other pension and/or insurance companies bringing their own AUM (BYOA) and making statements when they sell a company.  The decision to sell stock because the company is no longer meeting a specific philosophical standard makes a large statement to millions of holders of that pension or insurance company. 

With some irony about the definition of SMART BETa I think this could be part of the evolution of a new meaning of SMART BETa. Rather than SMART BETa being defined by a “Smart Bet on alpha,” enterprises may take it  to a new level and define it as “Companies, if you want access to our capital, be aligned with our mission and philosophy.”   (WOW – talk about confusion!!!)

The statement made by the Ilmarin pension is meaningful in the context of their 13-F disclosed holdings, as these two ETFs represent their largest position. Splitting the two holdings up between two different issuers also makes sense since it may have helped on the fee. I suspect that the fee was less of an issue, but from a fiduciary standpoint it is clear that Deutsche Bank’s fee at 10 Bps is the same as the SPY, 5 Bps and 5 to 10 Bps less than the two iShares ETFs (SUSL and DSI). The holdings overlapping between the two ETFs is 100%, but the weighting methodology slightly differs across the 320 stocks, which may lead to some dispersion and slight diversification of returns.  Again, while skeptics may wonder why certain companies are owned, looking deeper under the hood may expose the more interesting fact about what is NOT owned. The universe of choice could have begun with benchmarks like Vanguard Total Stock Market (VTI with 1,592 stocks) S&P 500 (SPY/IVV/VO with 506 stocks), the iShares MSCI KLD 400 Social ETF (402).  

The Deutsche Xtracker ETF (USSG) was launched on May 10, 2019 and from a performance standpoint is off to a slow start versus the iShares ETF (SUSL). But regardless, alpha was generated over similar large cap or S&P type ETFs, and more importantly, the “A or a” in SMART BETa has helped to break new ground in providing access for investors to their cultural philosophy of investing. Thank you, Finnish people, for your leadership. With your transparent mission, ESG will grow and social activism will flourish.

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Our 2019 year-end ETF industry KPIs report

Jan 15, 2020 10:00:00 AM / by Toroso Investments


U.S. ETF Asset Growth

In 2019, the year-to-date 31% U.S. ETF AUM growth rate symbolically came close to matching the index performance of the S&P 500 index (technically 30.67% vs. 31.49%). What a fitting way to conclude the last decade of evolutionary growth in the ETF industry. Investors have clearly bought into the evolution which, at the conclusion of the year also surprised many with inflows into fixed income at $135.4 billion exceeding $130.2 billion in equities. Aggregate inflows totaled $326.3 billion, second only to the $476.1 billion in 2017.


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Our 2019 Recap: Everything is Up!

Dec 31, 2019 8:00:00 AM / by Toroso Investments


2019: Everything is Up!!!

For the advisors and investors in the ETF Think Tank, 2019 was generally a prosperous year. We experienced equity markets returning 20% to 30%, commodities and crypto currencies having upside volatility, and even fixed income rallying across the board.

2020: Our First Webinar 

In our final ETF Think Tank research note of 2019, we chose to focus on fixed income, with a concept we will be covering on a webinar in mid-January: Are Bond Benchmarks Bad?


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