On the latest episode of “ETF Prime,” recorded live at Exchange, host Nate Geraci was joined by VettaFi’s editor-in-chief Lara Crigger, Financial Futurist Dave Nadig, and Bloomberg’s Eric Balchunas to recap highlights from the ETF event of the year.
Super Bowl Bets
To kick things off, Geraci, donned a Chief’s jersey, and Balchunas, sporting an Eagles jersey made a bet revolving around the Super Bowl. “30-14 Eagles,” Balchunas confidently predicted. “Andrew Reid is going to screw up the clock management, I know personally from 13-14 years of that.”
Geraci countered with “Chiefs 27-24.”
“The winner will be taking Lara Crigger and I to dinner at the loser’s expense,” Nadig joked as the crew hashed out the nature of the bet.
Exchange Vibes
The U.S. ETF industry turned 30 years old, and Geraci took a moment to acknowledge the tribute to Kathleen Moriarty and the general vibe of maturity permeating the industry and the conference. “It’s like ETFs have moved out of their parent’s basement,” Geraci said.
“It used to be when we first started covering this industry, it was a bit of the wild west,” Crigger added, continuing, “we’ve all gotten a little older, wiser.”
Nadig celebrated the breadth and scope of the industry, remarking that ETF conferences used to be chasing a specific trend or idea, but Exchange had a wide enough scope to cover everything from liquid alts to short-term bonds.
“It just feels a little more sober,” Balchunas contributed, with Geraci noting how stark the difference is to last year, which featured a ton of discussion about crypto.
Crypto’s Fall and the Rise of Advisors at Exchange
Nadig said, “we made a conscious decision to put a bunch more advisor-focused content onstage.” Last year’s Exchange was dominated by crypto, but the panel noted that there’s been a general pullback from thematics and crypto. “ETFs are a tool used by a group of people trying to do a specific job,” Nadig said.
Crigger pointed to Brian Portnoy’s Storytelling for Advisors panel, and Vance Barse’s session in the Be a Better Advisor slate of panels.
ETF’s Double Assets Every Five Year As Active Blooms
With many mutual fund conversions on the horizon, the ETF space could see tremendous growth in the next five years, lead by active management products.
“It feels like ETF issuers are trying to take advantage of the market environment,” Geraci said, with plain vanilla funds becoming less appealing in today’s anything-but-plain-vanilla markets.
According to Crigger, “I think what we’re seeing now is a tendency to use passive ETFs in really active ways.” Crigger also noted that alternatives are another asset class that can really step it up, pointing to the engagement increase on VettaFi’s platform around iMGP DBi Managed Futures Strategy ETF (DBMF).
Balchunas took a moment to discuss Daily Agribusiness Bear 3x Shares (COWZ). “ETFs provide equilibrium knobs,” noting that you can fine-tune your adjustments
“I do think that the pendulum does swing back and I think it will be extremely difficult to pick an active fund that overperforms for longer than a one year window.”
ESG
Given recent woes for ESG, Geraci took a moment to discuss the challenges in the ESG space.
“People are taking the best ideas out of the ESG umbrella, and starting to implement them in a thoughtful, strategic, tactical way,” Crigger said. Investors are building out diversified portfolios around the renewable energy transition. “Advisors are thinking about how to protect clients and keep clients exposed no matter what happens in the future.”
Nadig added, “ESG is a terrible phrase and covers up too many important parts of fund construction.”
ESG only took in 1.5% of all flows last year, according to Balchunas. “Bond ESG almost makes more sense,” he said after unpacking some of the problems with ESG equities.
Nadig noted that “raw divestment alone is just a horribly inefficient way to change anything.”
“Stewardship is a topic that’s here to stay,” Nadig said, “I think we can give Engine No. 1 a lot of credit for popularizing the topic.”
Crigger pointed out that Strive exists because Engine No. 1 exists. “Choice is a good thing.”
International Stock ETFs
Geraci lauded Ian Bremmer’s keynote and Dr. David Kelly’s talk. Given the international geopolitical tensions, it’s important to note that international ETFs have huge potential, but Geraci wondered if they have staying power.
“I’ve come closer to Bogle’s view on this – you just don’t need it,” Balchunas said. Though he noted it is “due” after being out of favor for so long, it could be worth rotating into international exposure.
Portfolios have become increasingly de-internationalized in recent years, according to Nadig. ETFs have been tilted toward safer domestic positioning, which could be unwinding. “What we’re really seeing is normalization,” Nadig proffered.
Crigger concurred, pointing to more interest coming back to international stocks. “Last year showed the importance of currency on returns,” she said.
Odds and Ends
Geraci observed that nobody was discussing ARK this year, despite Cathie Woods finally having a good performance month.
“ARK took in $1.8 billion last year,” Balchunas said, pointing out that it was still leading in the thematics space. He applauded her ability to say what she’s going to do and stick with it.
“It’s hope with receipts,” Nadig offered. “At the end of the day, the faithful are faithful there because they are selling hope.”
Asked what the big takeaways from the conference were, Crigger shared, “what I will take away from the conference is the sense of community.” She pointed to the beach clean-up and the Komen walk as exceptional events that allowed conference participants to give back. “I feel like that’s not a trend going away.”
Listen to the entire episode of ETF Prime with Crigger, Nadig, and Balchunas:
For more coverage of the Exchange conference, please visit VettaFi | ETF Trends.