ETF Express newsletter 04.02.22

Balancing the books

Our New York-based writer Bailey McCann reported this week on Sida Li’s paper, entitled ‘Should Passive Investors Actively Manage Their Trades’ which argues that regular index rebalancing in ETFs is leading to front running and costing investors USD3.9 billion a year.
McCann quotes Herbert Blank, Senior Consultant at advisory firm Global Finesse, who notes that as other asset managers come into the ETF market either by issuing their own funds or converting mutual funds, the problem could become more widespread.
"The issue is doing basket trades in thinly traded stocks - that's harder to do effectively when you're fully transparent," he explains. She also found that the findings provide a new layer of support for semitransparent ETFs. When compared against fully transparent ETFs, Li's research shows that semitransparent funds have lower transaction costs because they don't disclose their trades in advance. Blue Tractor’s Terry Norman says: "Semitransparent doesn’t mean you have to create a full black box…I think the paper raises the question as to whether portfolio managers have an obligation to keep transaction costs low. Those costs are being passed on to the investor."
In other news this week, we bring you an interview with Lance McGray, Managing Director, Head of ETF Product at US firm Advisors Asset Management whose income generating products are enjoying some right place right time momentum. "It was certainly challenging in a low interest rate and growth market, but times have changed," McGray says. "Investors are now worried about rising rates, inflation risks and stretched equity valuations."
We have plenty of news stories this week celebrating the record year that was 2021 for the ETF industry – BMO reported from Canada on ETF growth in the country and Germany’s Deutsche Börse's ETF segment hit record highs last year, dominated by ESG and crypto.
Voting closes at 12.00 GMT on 4th February for our European ETF Awards. The winners will be announced on 25th March, post the Awards event in London on 24th March.
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Beverly Chandler, managing editor, ETF Express
Companies in this issue
Advisors Asset Management
BlackRock
Blue Tractor
21Shares
BMO
CI Galaxy
Deutsche Börse
Elemental Advisors
Evolve
EXOS
Global Finesse
Global Palladium
Grayscale
iMGP
Morgan Creek
Richard Bernstein Associates
Tabula
VanEck

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