This week ETF Stream attended the Inside ETFs show at the Diplomat Resort in sunny Hollywood, Florida. By far the biggest ETF show in the calendar, the four days of the conference and exhibition provided numerous talking points and here are the key takeaways from our writers who attended the show.
The Trump dividend
Strikingly, in a session about the prospects for income ETFs to outperform in the coming year, it was noted that the projected forecast for dividend yields from US corporates in the year ahead has been substantially revised upwards. In the wake of the corporate tax cut, the expectation is that the benefit will be passed on in part to shareholders in the form of increased regular and special dividends. It saw one panellist predict that instead of the previous 5% yield for 2018, they expected that to rise to 7%. This is a huge increase and provides an underpinning for more than just the income ETF sector. If there is a Trump bounce leading up to the mid-term elections in the US, look no further than this for one possible explanation. In general, we were very struck by the optimism among attendees on economic growth this year. The bullishness was partly due to the Trump tax cut and deregulation, and also due to the role played by synchronised growth around the world. But is that optimism, even euphoria, overdone?
We've known for a long time that Americans love tickers way more than us Brits. But we were still surprised by the strong emphasis on tickers whilst we were at the conference. It's not just that the tickers are so widely used in conversation, it's also that the ETF providers make big efforts to come up with funky tickers. For example, the Spirited Funds/ETFMG Whiskey & Spirits ETF has WSKY as its ticker while the Guggenheim Solar ETF has TAN. It all seems a bit silly but it's a fair guess that a 'clever' ticker can boost profile and the assets under management, so maybe it's worth doing.
Active ETFs are seen as the next big thing in ETFs. But there is one big issue holding back their growth: transparency. Many active equity fund managers are reluctant to reveal their latest share trades on a daily basis when daily disclosure is, of course, a requirement of the ETF structure. But things are moving on this front. A US firm called NextShares has launched Exchange Traded Managed Funds which are a hybrid between ETFs and traditional mutual funds that can be traded on stock markets. Several other firms are developing their own solutions and filing for approval from the SEC in the US. Watch this space.
Multi-factors are increasingly popular but there was no consensus at the conference about how to operate them. There's a debate about whether you should have only two factors or go for more. And there's another debate about 'top down' or 'bottom up' ETF portfolio construction. If you're running a value and momentum combined ETF, the top-down approach is to have value stocks comprising one half of the portfolio and momentum stocks the other half. The bottom-up approach is to run a value screen and then screen those value stocks for momentum. It's too early to say who will win this one.
Dizzy heights 1 - bitcoin
To an extent, bitcoin is the dog that didn't bark. The SEC intervention a matter of days before the conference started meant the sessions dedicated to the potential for bitcoin ETFs lost some of their impetus. But as was pointed out from the stage during one keynote session on the rise of cryptocurrencies, bitcoin wasn't even on the agenda last year. The excitement being generated by the dizzying crypto price rises was matched by the enthusiasm among the delegates to discuss the potential for, among other developments, blockchain ETFs. It might go against the grain of many to cast away their cloaks of crypto-scepticism, but it could be a smart move. The message from Inside ETFs is that the technology is here to stay.
Dizzy heights 2 - the US market
Using the Inside ETFs 2018 show as a benchmark, what is obvious from the size of the show - over 2,500 delegates - is the scale of the US ETF market. By all accounts, the show has grown exponentially in the past three years, matching the growth in the size of ETF assets under management. In the wide market, scale matters. It drives the fee compression that might see a zero-cost ETF launched soon enough. It brings innovation. It enthuses all involved. Europe can't match it at the moment but if it can catch anything of the slipstream, then the European future could be just as bright as the US present.