ETF Transparency - Who Owns What?

Jun 18, 2019 1:46:17 PM / by Toroso Investments


In last week’s ETF Think Tank research note, we structured our information as ETF Nerd Trivia, which included 5 questions designed to challenge your intellect, pique your curiosity, and illustrate the value of ETFs beyond their purpose as investment vehicles. 

This week, we dig deeper into the trivia question that stirred some controversy and expand on it by investigating the most widely held equities of a well-known robo-advisor. And here again, we find ourselves talking about transparency.

You May Adjust Your Score

Here’s the question from last week’s ETF Nerd Trivia that sparked some interesting conversations:

Question 5
What equity is held by the greatest number of ETFs?
b. SPG
c. VZ
d. PG
The answer (as of March 31, 2019) is PG, because it is held in low vol, value, and dividend focused ETFs. All the buzz over this question motivated us to update the data to June 16, 2019.

We discovered that, according to the more recent data, VZ is the most widely held equity by ETFs, but for similar reasons to PG. So, for all the over-achiever ETF Nerds that selected answer “C” last week (VZ), you may adjust your score.

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ETF Nerd Trivia

Jun 11, 2019 1:25:29 PM / by Toroso Investments posted in Insider


In last week’s ETF Think Tank research note, we covered the importance of ETF advisors having an IPS to drive portfolio management and allow a focus on growth.


This week we lighten things up a bit with ETF Nerd trivia. We cover 5 distinct questions intended to  inspire and educate our readers and challenge our ambitious ETF Nerds to test their knowledge. Take the pop quiz below and learn about ETF ownership influence, individual equity ownership, and active share. Questions at the top, answers and commentary as you scroll down. 



Question 1


Which Equity ETF has the most unique active share; meaning has the least overlap to any other ETF?

  1. JETS
  2. IPKW
  3. RSXJ
  4. BJK

Question 2

Which US Equity ETF is the most concentrated by holdings, sector, and market cap?

  1. SEA
  2. IYZ
  3. ORG
  4. PGAL

Question 3

Which US Equity ETF has the most influence on the underlying stocks in the fund when experiencing significant flows?

  1. XSHD
  2. ROOF
  3. CALF
  4. KBWY

Question 4

How many US Listed ETFs own BP ADR?

  1. 4
  2. 8
  3. 104
  4. 108

Question 5

What equity is held by the greatest number of ETFs?

  1. AAPL
  2. SPG
  3. VZ
  4. PG

Alright ETF Nerds, write down your answers and prepare to be graded. We will offer a bonus question at the end as part of the answer to number 5. Remember, great research, content, and tools for answering questions like these are always available at


Answer - Question 1

Which Equity ETF has the most unique active share, meaning has the least overlap to any other ETF?


C - RSXJ VanEck Vectors Russia Small


RSXJ only has 3.7% overlap to any other ETF; surprisingly, that 3.7% overlap is to XBUY Amplify International Online Retail. We used the ETF Think Tank Comparison Tool to find this unique ETF. 

As we look forward through the top ten highest active share ETFs below, most are single country ETFs without competitors. IPKW and BJK are interesting because they span multiple geographies but remain distinct.

Answer - Question 2

Which US Equity ETF is the most concentrated by holdings, sector, and market cap?


B - IYZ iShares Dow Jones Telecom


Using the ETF Think Tank Concentration Tool, we reviewed 1303 equity ETFs and using the Hirschman Herfindahl index score to measure position, sector, and market cap concentration. IYZ scored a whopping 139 for our concentration formula. To put that in context, 99% of ETFs score below 100 and SPY comes in at 19. 

Bonus Fact: TLTD FlexShares Mngstr Developed Mkts ex-US Factor Tilt scored 6.51, making it the most diversified US listed ETF. 

Answer - Question 3

Which US Equity ETF has the most influence on the underlying stocks in the fund when experiencing significant flows?


A - XSHD PowerShares S&P Small Cap High Div Low Volatility


The ETF Think Tank defines ETF influence based on the percentage of the market cap of the underlying holdings owned by ETFs. In every ETF Think Tank research note, we share our ETF Industry KPIs including the ETF ownership influence average for all ETFs, which is currently at 6.9%. This means that, on average, ETFs own 6.9% of the market of every US stock.


When it comes XSHD, on average, the underlying holdings are 20.3% owned by ETFs. This implies large flows will have more influence on the valuation and prices of the underlying holdings. The ETF Think Tank Ownership Influence Tool allows advisors to see the percent of the market cap of any equity owned by ETFs.


As we look below at the top 10 greatest ETF ownership scores, a commonality arises with small caps, high dividends, and REITs. 

Answer - Question 4

How many US Listed ETFs own BP ADR?


A - 4


Ok, so this one was tricky; BP is actually held by 108 ETFs. Based on holdings data, 4 ETFs hold the “ADR” and an additional 104 ETFs own the ordinary shares trading in London. The lesson here, when looking under the hood, advisors need to be precise. Many international equities are held in different share types and mixing ETFs can create unforeseen concentrations. Also, something as clear cut as BP, a large cap energy company, can be a top position in some surprising themes. BP is actually a top position in CVY and many other yield focused ETFs as well as KOIN, an ETF focused on Blockchain. 

Answer - Question 5

What equity is held by the greatest number of ETFs?


D - PG Procter & Gamble


PG is held by 197 ETFs representing 6.14% of its market cap. PG has a high yield and low volatility making popular with two key factors, but also finds a home in most value-oriented ETFs. 


Bonus Question

What equity is held by the greatest number of Mutual Funds?



MSFT Microsoft


Microsoft is held by 846 Mutual Funds, representing 20.63% of its market cap.  In contrast, MSFT is owned by 188 ETFs, representing 6.16% of its market cap.  We believe the mutual fund number is skewed by MSFT, being often considered both a growth and value stock as well as high ESG scores.


Did You Pass?


Can you stump us with an ETF Nerd question?

In thinking through these questions, we hope you contact us to register for the ETF Think Tank where you will gain free access these tools and apply them to meet your needs. Our mission is to help investors easily evaluate and navigate the shifts in the growing ETF Industry. 


TETF.Index Performance 

Returns as of June 10, 2019.

Inception Date: April 4, 2017.

Index performance is for informational purposes only and does not represent the ETF. Indexes are unmanaged and one cannot invest directly in an index. Past performance is NOT indicative of future results, which can vary.  


TETF.Index Performance vs. Leading Financial Indexes

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Articulate Your Value Prop with an IPS

Jun 5, 2019 2:46:47 PM / by Toroso Investments posted in Insider


This week, we explore outsourced portfolio construction, make a case for the IPS as a tool for transparency, and offer an IPS template we developed specifically for ETF managers.


A Policy for Growth

We’ve been talking a lot about transparency as one of the key factors in client alignment. In our experience, advisors who embrace transparency in their practices are likely to set policies and procedures that clearly state the value proposition of using ETF portfolios for growing client assets. With that in mind, we would like to offer a template for these guidelines, designed to help advisors build unique and intelligent ETF portfolios. The first step is to create an Investment Policy Statement (IPS). 

Self-Driving vs. a Road Map

for ETF Portfolios

An IPS can be a powerful road map, allowing advisors to deliver successful ETF portfolios to clients. That said, Crystal Kim noted in Baron’s on June 1, 2019 that many advisors choose a simpler self-driving approach:


Some 12% of the 350,000 financial advisors in the U.S. are fully outsourcing portfolio construction to model portfolios from the likes of Blackrock, Goldman Sachs, Charles Schwab, Vanguard, State Street, Merrill Lynch, and Morgan Stanley. That suggests $2.5 trillion in assets...


As asset managers focused on ETFs for decades, we at the ETF Think Tank urge advisors to avoid this approach by asking these 4 key questions:

  1. Can advisors truly be fiduciaries when accepting “free” models from conflicted sources?
  2. Will clients continue to see value in advisors that offer models dominated by one issuer’s branded products?
  3. Can advisors justify a value proposition above robo-advisors with simplistic monochromatic portfolios?
  4. Is a firm model portable?

If you answered ‘no’ to all 4, we agree. Although we like the concept of using ETF models to streamline an advisory practice, allowing the team to focus on growth, complete outsourcing of portfolio management can be dangerous, especially when it is “free.”


We believe advisors will achieve more sustainable growth with a core/satellite approach, with an internal or outsourced CIO, or simply by properly aligning with a model provider; all of which are methods that can be outlined in an IPS.


Ok, So What is an IPS?

Good luck searching for a definition of an ETF portfolio IPS. There appears to be very little interest in setting a format for ETF portfolios and most investors seem to rely on traditional asset allocations with the largest and cheapest ETFs. Investopedia broadly defines an IPS like this:


An investment policy statement (IPS) is a document drafted between a portfolio manager and a client that outlines general rules for the manager. This statement provides the general investment goals and objectives of a client and describes the strategies that the manager should employ to meet these objectives. Specific information on matters such as asset allocation, risk tolerance and liquidity requirements are included in an investment policy statement.


This definition is great starting point, in that it outlines goals, objectives, risk tolerance and certain constraints. Below we extend and enhance this IPS concept and apply it to ETF portfolios:



  1. Background
  2. Definition of Duties
  3. Constraints
  4. Asset Allocation
  5. Benchmark
  6. Security Selection
  7. Review Process

Background, Definition of Duties & Constraints (items 1-3)

The first three components of an ETF portfolio IPS provide context and establish the primary rules governing the strategy. The background is mainly there to explain why a portfolio is being created. Advisors should document the objective of the portfolios, the history and culture of the advisor and value proposition offered by the strategist. Definition of duties allows for describing the team, roles and outside resources like an OCIO or research subscription. Within this section the frequency of formal meetings should be defined. Finally, constraints, which are both acknowledgement of regulation and/or custodial firm policies like proxy voting.  Additionally, this section should deem self-imposed rules like liquidity requirements or types of securities available for consideration. The purpose of the first three sections of the outline is to create parameters that allow for clear portfolio management without rehashing the fundamental concepts. This is, at its core, the structure that matters. 


Asset Allocation & Benchmarks (items 4-5)

Although these two concepts are similar, the asset allocation and benchmarks serve very distinct roles in the ETF portfolio IPS. First, the asset allocation section should define the number of strategies or variations based on time horizon or risk tolerance. The asset allocation should also define the dynamics of the portfolio as tactical, strategic or some hybrid variation.  This information can then be used to establish benchmarks. We tend to recommend two versions of a benchmark for each strategy; an internal blended benchmark that aligns with the geographic and market cap designation of the portfolio, and a straightforward external benchmark for marketing that aligns simply with the asset breakdown of bonds to equities. An example is provided below:



  1. 35% S&P 1500
  2. 13% MSCI EAFE
  3. 2% MSCI Emerging
  4. 20% Barclays Agg Bond
  5. 30% Barclays Gov’t 1-3 Year


  1. 55% MSCI World
  2. 45% Barclays Gov’t 1-3 Year 

Benchmarks are used in the portfolio management process to measure the choices made in asset allocation and security selection. They can also serve as a great indicator of future risk. In the example below, we compare the returns and fundamentals of a hypothetical moderate model to an internal and external benchmark. The 5-year return column is outlined in black to convey the use of two benchmarks as way to illustrate the return contribution from asset allocation versus security selection.

Security Selection Process 
(item 6)

Within this section of an IPS, advisors should define a buy discipline and a sell discipline. This is where having a common language for describing and researching ETFs is paramount. In prior ETF Think Tank Weekly Research communications, we noted the importance of naming conventions for understanding and researching ETFs. And here we identify another reason. In The ETF Think Tank Security Master, we use the underlying holdings of an ETF as the basis for this common nomenclature.


The security selection process should start with outlining a hierarchy of attributes that could initiate a purchase, like exposure, fees, sponsor or concentration. The tools in the are designed to help evaluate these types of attributes. Once a position is chosen, a benchmark should be established for each position before purchase. The benchmark for each position is the key to monitoring and triggering the sell discipline that could be performance based, trend based, or fundamental. Below we provide a hypothetical example of US-focused ETFs benchmarked to the S&P 1500.

The Review Process (item 7)

Once all the processes, benchmarks and securities are established as a portfolio, it is important to establish a formal review schedule. We recommend reviewing asset allocation and security selection at least once a month. A more formal investment committee should be established at least annually to review all the aspects of your IPS.


So, I have an IPS, Now What?

Advisors who have established and maintained an IPS for their ETF portfolios should be able to articulate the unique value proposition offered to investment clients. That value should be clear, offered as a fiduciary, portable and provide concise differentiation. The IPS is not an auto pilot but rather a road map defining the value and process advisors deliver to clients. Following this road map can reduce the amount of time advisors spend reviewing similar ideas, help prevent mistakes, and allow time to focus on growth. The ETF IPS can also be the basis for an advisor’s website or in other marketing collateral.

The ETF Think Tank is a community of advisors growing with use of ETFs, and the ETF IPS is a road map that can assist with that growth.


TETF.Index Performance 

Returns as of June 3, 2019.

Inception Date: April 4, 2017.

Index performance is for informational purposes only and does not represent the ETF. Indexes are unmanaged and one cannot invest directly in an index. Past performance is NOT indicative of future results, which can vary.  


TETF.Index Performance vs. Leading Financial Indexes

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Outcome-Based ETF Portfolios to Meet Clients’ Investment Goals

May 23, 2019 8:22:00 PM / by Toroso Investments posted in Insider


Financial advisors who are looking for customized ETF portfolios in the separate accounts space can turn to ETF model portfolios designed by ETF strategists.

“Toroso Investments was designed to be an ETF research firm, and when we build our ETF models, it’s all about security selection for us. That’s really the niche that we really play is knowing under the hood what’s really in an ETF,” Mike Venuto, CIO, Toroso Investments, said at Inside ETFs 2019.

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Putting things into perspective

May 21, 2019 8:19:00 PM / by Toroso Investments posted in Insider


This week we reflect on the subtle and not-so-subtle effects of the 10 year bull market. Read on to get our perspective on what makes an economy grow, an interesting thought from man who won capitalism, Ray Dalio and the usual ETF launches, TETF.Index performance and ETF Think Tank In the News.

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Drilling Deep on Economics and China

May 14, 2019 4:29:00 PM / by Toroso Investments posted in Insider


Special events are a benefit to membership in the ETF Think Tank, and last week,  hosted a special dinner for key investors to meet with Dr. Hong Liang, the Chief Economist and Head of Research from China International Capital Corp (CICC). Her perspective about the trade negotiations with China was constructive and timely given her background and mainland view. She joined CICC in 2008, but previously was the Managing Director, Chief China Economist, and Co-head of Asian Pacific Economic Research over 2003-08. Prior, she worked at the IMF as an economist from 1998-2003.  Dr. Liang obtained her Ph.D. in Economics from Georgetown University in 1998, and her B.A. in International Relations from Peking University in 1991.

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Tackling Themes

May 8, 2019 4:29:00 PM / by Toroso Investments posted in Insider


Last week, we dissected sectors, and this week tackle themes. Within the ETF Security Master that powers the tools of the ETF Think Tank, we include themes in the sector search function. Many themes will be the sectors of the future that advisors need to access and provide value to clients. Let’s start by looking at how themes compare to sectors.

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Dissecting Sector ETFs

Apr 30, 2019 4:21:00 PM / by Toroso Investments posted in Insider


In this week’s ETF Think Tank research note, we continue our journey through ETF nomenclature. Over the past few weeks, we covered asset categories, corporate structure, and investment approach. Today, we move to specific exposures provided through ETFs by looking at Sectors.

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Smart Beta is the Walking Dead

Apr 23, 2019 4:42:00 PM / by Toroso Investments posted in Insider


Client Alignment and Growth

Advisors who believe in ETFs and believe that implementing portfolios of ETFs helps achieve client alignment and growth are at the core of The ETF Think Tank!  As we think about ETFs and advisor growth, we have highlighted four primary client alignment growth factors: lower cost, transparency, liquidity and tax efficiency.  In our ETF Think Tank Security Master, built by advisors for advisors, we embrace the growth factor of transparency to help categorize and research ETFs in way that truly defines ETFs by their underlying holdings.  To that end, we first covered the type of securities held in ETFs to define the asset category.  Then we reviewed ETF corporate structure and the impact on tax efficiency.  Today, we take the next step and evaluate the investment approach of active versus passive and beyond.

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ETF Innovations and Tax Implications

Apr 16, 2019 4:20:00 PM / by Toroso Investments


When is Transparency Not Transparent?


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