The Institutional ETF Toolbox E-Book

Eric Balchunas

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Bloomberg Professional
• Sprache: Englisch

Seitenzahl: 548

Veröffentlichungsjahr: 2016

Beschreibung

Get up to speed on the booming innovation surrounding institutional ETF usage. The Institutional ETF Toolbox is the institutional investor's guide to utilizing exchange-traded funds and taking full advantage of the innovative new products in their expanding repertoire. The ETF toolbox is expanding rapidly with nearly one new ETF launching every day this decade so far. As with any financial innovation, this phenomenon brings both opportunity and concerns, as well as a dire need for clarity and strong due diligence skills. This book is both reference and resource, providing data-driven explanations backed by real-world market examples--alongside valuable insight from leading practitioners. Coverage includes an examination of the advantages and growth of ETFs as well as current and future uses of ETFs, emerging markets, and the strategic and tactical perspectives you need to effectively use ETFs to optimal effect. The major concerns surrounding ETFs are addressed in full to give you the background you need to formulate a better ETF strategy. ETF allocations are expected to keep growing rapidly across all institutional types, and new and emerging products are becoming more and more liquid allowing easier expression of investment opinion. This book shows you how any investors can utilize these tools to strengthen your portfolio and safely expand into particularly appealing areas. * Understand how the ETF ticks and the how to take advantage of all the myriad of advantages * Learn how to perform effective due diligence using exposure, cost, liquidity, risk and structure * Utilize ETFs for cash equitization, portfolio rebalancing, liquidity management, and more * Learn how ETFs are expanding into equities, fixed income, emerging markets, and alternatives * Learn how to avoid unwanted costs, liquidity issues and hidden complexities ETF usage is climbing with assets growing by about 25 percent per year, and those who use them expect to expand their usage quickly. The Institutional ETF Toolbox provides the actionable information institutions need to identify and adopt the most suitable approach.

Leseprobe

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THE INSTITUTIONAL ETF TOOLBOX

How Institutions Can Understand and Utilize the Fast-Growing World of ETFs

Eric Balchunas

Cover image: 3d blue stock chart © Maxphotograph/iStockphoto; Red toolbox © John Solie/iStockphoto; Digital font © lekkyjustdoit/iStockphoto; Dark gray abstract background © Kritchanut/iStockphoto Cover design: Wiley

Copyright © 2016 by Eric Balchunas. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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ISBN 9781119093862 (Hardcover) ISBN 9781119094104 (ePDF) ISBN 9781119094241 (ePub)

Limit of Liability/Disclaimer of Warranty: The publisher and the author make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation warranties of fitness for a particular purpose. No warranty may be created or extended by sales or promotional materials. The advice and strategies contained herein may not be suitable for every situation. This work is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If professional assistance is required, the services of a competent professional person should be sought. Neither the publisher nor the author shall be liable for damages arising herefrom. The fact that an organization or web site is referred to in this work as a citation and/or a potential source of further information does not mean that the author or the publisher endorses the information the organization or web site may provide or recommendations it may make. Further, readers should be aware that Internet web sites listed in this work may have changed or disappeared between when this work was written and when it is read.

The information provided to you herein should be viewed as informational and represents the opinions of each individual, not associated company, and is not intended to be considered a recommendation to participate in any particular trading strategy, or deemed to be an offer or sale of any investment product, and it should not be relied on as such.

For Trang, Gabriel, Elliott, and Mom and Dad.

Contents

Acknowledgments

Introduction: Institutions and ETFs

SECTION I THE ETF PHENOMENON

CHAPTER 1 Why Are ETFs So Popular?

Low Cost

Liquidity

Tax Efficiency

Transparency

Diversification

Easy Asset Allocation

Standardization

Democratic

No Emotion

Passive Investing

Flexibility

Anonymity

Price Discovery

Fiduciary Vehicles

Battle Proven

Convenience

Notes

CHAPTER 2 ETF Growth

Asset Growth

ETF Assets in Perspective

Trading Growth

Product Growth

Notes

CHAPTER 3 ETF Mechanics

The Story of the ETF

The Creation/Redemption Process

AMEX Wasn’t Alone

Finally Ready for Launch

Notes

CHAPTER 4 Institutional Usages

Cash Equitization

Manager Transitions

Portfolio Rebalancing

Portfolio Completion

Liquidity Sleeves

Shorting/Hedging

Long and Lend

Tactical Moves

In-Kind Creation/Redemption

Bespoke ETFs

Tax-Loss Harvesting

Long-Term Allocation

Personal Usage

Notes

CHAPTER 5 ETF Due Diligence

Exposure

Cost

Liquidity

Risk

Regulatory Structure

ETF Issuers

ETF Ratings

Notes

SECTION II THE ETF TOOLBOX

CHAPTER 6 U.S. Stock ETFs

Large Caps

Mid Caps

Small Caps

Broad Market

IPOs

Sector and Industry ETFs

The Tech Sector

Industries

Thematic ETFs

Notes

CHAPTER 7 Smart Beta

Controversy

Smart Beta versus Active Management

Growth and Value

Fundamentally Weighted ETFs

Single Factors

Notes

CHAPTER 8 International/Global ETFs

International Developed Markets

Global

Emerging Markets

The First Movers

Second-Generation EM

Next-Generation EM ETFs

Currency-Hedged ETFs

Single-Country ETFs

China

Notes

CHAPTER 9 Fixed Income

Regulations

Aggregate Bond ETFs

Treasuries

Mortgage-Backed Securities

Municipals

Corporates

Senior Loans

Interest Rate–Hedged ETFs

Multi-Asset Income ETFs

International Debt

Notes

CHAPTER 10 Alternatives

Hedge Fund Strategies (aka “Liquid Alts”)

Commodity ETFs

Physically Backed Commodity ETFs

Futures-Based Commodity ETFs

Notes

CHAPTER 11 Leveraged, Inverse, and VIX

Leveraged ETFs

The VIX

Notes

CHAPTER 12 Actively Managed ETFs

Fixed Income

Equity

Notes

Conclusion: Five Takeaways

Note

About the Author

Index

EULA

List of Tables

Introduction

Table I.1

Chapter 1

Table 1.1

Table 1.2

Table 1.3

Table 1.4

Table 1.5

Table 1.6

Table 1.7

Chapter 2

Table 2.1

Table 2.2

Chapter 4

Table 4.1

Table 4.2

Table 4.3

Chapter 5

Table 5.1

Table 5.2

Table 5.3

Table 5.4

Chapter 6

Table 6.1

Table 6.2

Table 6.3

Table 6.4

Table 6.5

Chapter 7

Table 7.1

Chapter 8

Table 8.1

Table 8.2

Table 8.3

Table 8.4

Table 8.5

Table 8.6

Chapter 10

Table 10.1

Chapter 11

Table 11.1

Table 11.2

Table 11.3

List of Illustrations

Chapter 1

Figure 1.1

ETFs Show Their Holdings Every Day

Figure 1.2

TAN’s Holdings Each Week during October 2014

Figure 1.3

Total Analyst Recommendations for Large U.S. Stocks

Figure 1.4

The Largest Trades for HEDJ from March 19, 2015, to June 19, 2015

Figure 1.5

EGPT’s Price and NAV Graph with Flows at Bottom

Chapter 2

Figure 2.1

Twenty-First-Century Disruptive Forces: The Internet and ETFs

Figure 2.2

ETFs vs Stocks Percent Volume on Exchange

Figure 2.3

Breakdown of Dollar Volume of ETFs by Country

Figure 2.4

New ETF Launches by Year, as of June 30, 2015

Chapter 3

Figure 3.1

SEC Lays out Idea for Market Basket Instrument in a 1988 Paper

Figure 3.2

The Crucial Role of the ETF Ecosystem

Figure 3.3

SPY’s Daily Volume January–June 1993

Figure 3.4

SPY’s Yearly Assets 1993–2014

Chapter 4

Figure 4.1

Varying Costs of Rolling S&P 500 Futures

Figure 4.2

How an Institution Would Compare Mid-Cap Futures versus an ETF

Figure 4.3

AGG’s Yearly Flows Since Inception

Figure 4.4

New York Life Group’s Historical Ownership of FM

Figure 4.5

ETFs Ranked by Highest Percentage of Shares Shorted

Figure 4.6

Holder of IWM Ranked by Size of Position

Figure 4.7

Windhaven’s 13F Filing as of 3/31/2015

Figure 4.8

JNK’s Daily Flows in 2012

Figure 4.9

Arizona’s 13F from December 31, 2014

Figure 4.10

ETNs Sorted by Assets Highlighting Four Fisher-Created ETNs

Figure 4.11

The Most Correlated ETFs to Schlumberger Limited

Figure 4.12

Holding Periods of Pensions, Endowments, and Insurance Companies of EFA

Figure 4.13

Bridgewater’s ETF-Heavy 13F Filing as of March 31, 2015

Chapter 5

Figure 5.1

ETF<GO>

Figure 5.2

Total Return of Two Frontier-Market ETFs, September 11, 2012, to December 31, 2014

Figure 5.3

Index Weighting Methodology

Figure 5.4

XOP’s Equal Weighting Gives It Extra Volatility

Figure 5.5

Some Serious Dispersion of P/E Ratios among China ETFs

Figure 5.6

Fundamental Breakdown of the Holdings of SPY

Figure 5.7

Largest Holders of EEM as of June 30, 2015

Figure 5.8

EEM’s Tracking Difference for 2014

Figure 5.9

ETF Issuers Underestimate Tracking

Figure 5.10

VTI’s Tracking Difference Is Less than Its Expense Ratio

Figure 5.11

PRF’s Quote Monitor Shows an 8 Cent Spread

Figure 5.12

Pricing History for the Past Four Years for ANGL

Figure 5.13

Dispersion of Creation Fees among the Very Largest ETFs

Figure 5.14

IWM’s Daily Premium/Discount (aka “Arbitrage Band”) for the Past 12 Months

Figure 5.15

EWZ’s Arbitrage Band Dropped after a Tax Was Lifted on Foreign Investment

Figure 5.16

HYG’s Arbitrage Band Since Inception

Figure 5.17

An ETF Can Pay Both Long-Term and Short-Term Capital Gains

Figure 5.18

ETF by Exchange Volume Showing the Haves and the Have-Nots

Figure 5.19

ETF Exchange Volume Inequality

Figure 5.20

A Thinly Traded ETF with Plenty of Implied Liquidity

Figure 5.21

Health Care ETFs Volume Compared to Their Implied Liquidity

Figure 5.22

A Look Inside the Implied Liquidity of an ETF

Figure 5.23

HEWG’s Assets Doubled on a Large Creation

Figure 5.24

The Smaller the ETF, the More Likely Trading Is Off-Exchange

Figure 5.25

ICOL Is an Example of Low Volume and Low Implied Liquidity

Figure 5.26

Market Makers with the Most Reported Volume in XLF

Figure 5.27

ETFs by Regulatory Structure

Figure 5.28

Breakdown of ETN Assets

Chapter 6

Figure 6.1

Largest U.S. Large-Cap ETFs by Assets

Figure 6.2

VOO Has Lowest Fee and Highest Return, but Barely

Figure 6.3

RSP Beating SPY Since Inception

Figure 6.4

SPY (Port) and RSP (Bmrk) Have Weighting Differences

Figure 6.5

IWB’s Dip into Mid Caps Gives It Slightly More Volatility than SPY

Figure 6.6

Are the QQQs an Equity Large-Cap ETF or a Tech Play?

Figure 6.7

IWM Is King of the Small-Cap Category

Figure 6.8

IWM Has Had the Best Liquidity but Not the Best Performance

Figure 6.9

VB’s Positive Tracking Error Is a Thing of Beauty

Figure 6.10

Months and Months of Inflows for VTI

Figure 6.11

An ETF Tracking IPOs Has Destroyed Large- and Small-Cap ETFs

Figure 6.12

Covered Call ETFs Offer Yield but Give Up the Upside

Figure 6.13

A Wide Range of Tech Sector ETFs as of End of June 2015

Figure 6.14

Return Dispersion among the Big Three’s Tech ETFs

Figure 6.15

A Look at the Institutional Owners of XLK

Figure 6.16

Top Holdings for TDIV

Figure 6.17

TDIV Held Up Well During a Tech Sell-off of Early 2013

Figure 6.18

PSCT Is a Mixed Bag of Returns in First Half of 2015

Figure 6.19

HACK Has Been Crushing the Largest Tech-Sector ETF Since Inception

Figure 6.20

Hedge Fund Owners of GDX

Figure 6.21

AMLPs Big Tracking Difference Due to Tax Treatment

Figure 6.22

GURU’s Performance Attribution in 2013 versus S&P 500

Figure 6.23

MOAT’s History of Holdings for Two Years as of June 30, 2015

Figure 6.24

NASH’s Grand Ole Outperformance of the S&P

Figure 6.25

NASH Has Large Weightings in Health Care Service Companies

Chapter 7

Figure 7.1

Smart-Beta ETFs Growing in Market Share

Figure 7.2

Application of Smart-Beta ETFs by Institutions

Figure 7.3

VTV and RPV versus SPY over the Past Two Years

Figure 7.4

Contribution to Total Return for PRF versus SPY

Figure 7.5

SPLV versus SPX Since Its Inception Four Years Ago

Chapter 8

Figure 8.1

ETFs Tracking Some Form of the Popular MSCI EAFE

Figure 8.2

A Look at EFA’s Allocations

Figure 8.3

EFA (Port) versus VEA (Bmrk) Shows South Korea as Biggest Difference

Figure 8.4

VT Serves up the Entire World in One Shot

Figure 8.5

ACWV (Port) Keeps Fairly Close Adherence to the Allocations of ACWI (Bmrk)

Figure 8.6

VWO’s Assets Passing EEM’s Assets in 2011

Figure 8.7

EEM (Port) versus VWO (Bmrk) Shows South Korea Difference

Figure 8.8

Unnecessarily Costly BRIC ETFs

Figure 8.9

DEM’s 18 Percent Russia Exposure Contributed –9 Percent of Return in 2014

Figure 8.10

Since Launching in 2010, ECON Has Utterly Destroyed EEM

Figure 8.11

PIE’s Historical Country Allocations Are Literally All Over the Map

Figure 8.12

CAFRX’s ETF Holdings

Figure 8.13

DXJ Performance (Top) and Flows (Bottom) All Changed When Abe Was Elected

Figure 8.14

Performance of Hedged DXJ versus Unhedged EWJ Since Abe’s Election

Figure 8.15

DXJ’s Institutional Ownership Includes Pensions, Endowments, Insurance Companies, and Hedge Funds Alike

Figure 8.16

The Largest Single-Country ETFs by Assets

Figure 8.17

Implied Liquidity Is Important Consideration for Single-Country ETFs

Figure 8.18

State of Tennessee’s DIY Single-Country ETF Portfolio as of June 30, 2015

Figure 8.19

Israel Is Down Near the Bottom of the Weightings in the EAFE Index

Figure 8.20

Single-Country EM Seeing More Flows Relative to the Regional EM through April 2015

Figure 8.21

CNXT Quick Start Since Inception

Figure 8.22

CN’s Lackluster Assets Contrasts the Value-Add of the ETF

Chapter 9

Figure 9.1

Asset Growth of Fixed-Income ETFs

Figure 9.2

Ownership of Corporate Bonds

Figure 9.3

HYG’s Daily Premium/Discount Since 2007

Figure 9.4

Why Institutions Don’t Use Fixed-Income ETFs

Figure 9.5

Cross-Section of AGG’s Bonds

Figure 9.6

AGG and BND’s Total Return from May 17, 2010, to June 29, 2015

Figure 9.7

TLT’s Compared to Other Diversifiers in 2008 When the S&P 500 Was Down 36 Percent

Figure 9.8

SHV’s Price Barely Changed Over Five Years

Figure 9.9

ZROZ and EDV’s Volatile Historical Returns Contrasted to IEF, a More Typical Treasury Bond ETF

Figure 9.10

BAB’s Duration Gives It Extra Volatility

Figure 9.11

ANGL Outpacing HYG Since Inception

Figure 9.12

Target Date Bond ETFs Sorted by Assets

Figure 9.13

Greenwich Survey Shows Investors Most Concerned with Interest Rates

Figure 9.14

LQDH Beat LQD in February 2015 When Interest Rates Rose

Figure 9.15

A Small Army of Rate-Hedged ETFs Is Waiting for Their Moment in the Sun

Figure 9.16

A Partial Look at PCY’s Country Allocation Shows It Going to All Corners of the World to Fetch Bonds

Chapter 10

Figure 10.1

QAI Holds Other ETFs to Replicate the Risk and Return of a Multi- Strategy Hedge Fund

Figure 10.2

The HFR Merger Arbitrage Index Getting Beat by Riskier MNA

Figure 10.3

Institutional Holders of GLD

Figure 10.4

Assets Since 2003 for SPY and GLD

Figure 10.5

Despite the Tough Times, GLD Still Outperforming SPY Since Inception

Figure 10.6

IAU versus GLD Since Inception

Figure 10.7

USO Return versus WTI Crude Oil Spot Price Since Inception

Figure 10.8

USO’s Heavy Hedge Fund User Base

Figure 10.9

Energy ETFs and ETNs Have Different Tax Treatments and Forms

Figure 10.10

USCI Return Since Inception versus DBC and DJP

Chapter 11

Figure 11.1

YINN versus Its Index April 9, 2015 to April 16 2015

Figure 11.2

Leveraged Long and Short Financials Were Both Down during Financial Crisis

Figure 11.3

YINN versus Its Index March 31, 2015, to April 8, 2015

Figure 11.4

UWTI and DWTI Both Down Big in First Half of 2015

Figure 11.5

VXX Total Return Since Inception versus the VIX

Figure 11.6

TVIX’s History of Premiums and Discounts Shows Just How Wild Things Got

Figure 11.7

The Field We Created Because of the TVIX Situation

Figure 11.8

XIV Destroying Everyone Since Inception

Chapter 12

Figure 12.1

Active ETFs Assets versus Smart Beta and Passive

Figure 12.2

BOND’s Performance Since Gross’s Departure

Figure 12.3

HYLD’s Dramatic Rise and Fall Compared to the Bellwether JNK and HYG

Figure 12.4

GVT’s Past Three Years versus the S&P 500 Value Index

Figure 12.5

HDGE Can Do Better Than Inverse ETFs During Long Market Declines

Guide

Cover

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Acknowledgments

I realize I’m not winning an Oscar here, but I feel some people need a shout-out. This book wouldn’t have been written without both direct and indirect help from the following people.

In terms of direct help, I owe a huge thanks to Suzanne Woolley, my amazing editor at Bloomberg. She not only taught me a lot about writing, but also connected me to Stephen Isaacs of Bloomberg Press. If not for Suzanne’s stamp of approval—and Stephen’s guidance—this book would not exist. Second, I would like to thank Matt Kelly and Doug Kenney in Bloomberg Global Data. They have been supportive of me for years now—not only in this book project but also encouraging me to take opportunities necessary to turn my job into a career.

In terms of the book itself, Sara Prager and Ryan Kreger deserve the biggest thanks. They were the only two people (poor souls) who read the entire first draft, which was double the length it is now. This was crucial in figuring out what to chop out and what to expand on

I also got great feedback on sections of the book from my Bloomberg colleagues James Seyffart and Michael Baradas. I also have to thank our wonderful interns Madeleine Hart and Kayla Glenn, who did some serious data crunches for the book and elevated the formatting for the tables and figures.

Many people from the ETF industry helped me immensely. There are too many to list, but special thanks should go to Wes Gray, Daniel Gamba, Brendan Ahern, Kathryn Bernhardt, Mike Eschmann, Paris Smith, Stephen Bloom, Howard Kramer, and Robbie Ross. I interviewed over 60 people for this book and all of them were very helpful as well. While you may see two to three quotes from each person, they were drawn from an hour-plus interview. And what I didn’t quote was highly useful background material that seeped into the overall content in some shape or form. So, big thanks to all of them.

I also have to give a special thanks to David Abner, who is a friend and a mentor within the industry. Dave has written two books on ETFs, which I’ve read multiple times. While this book is largely a different topic, his work and his attitude has influenced me and inspired me in subtle ways.

This book also would not exist if not for some folks in Bloomberg’s media operation, namely, Catherine Cowdery of Bloomberg Radio, as well as the folks over at Bloomberg TV—namely, Ted Fine and Jonah Davis who first let me on the air to talk ETFs. Every Friday for five years now I’ve traveled up to New York City to do a weekly segment on ETFs for radio and TV. This consistent deadline was a huge motivating force for me; it sent me into every nook and cranny of the ETF world. All told, I’ve done over 500 segments, and all of the notes from those deep dives provided a solid resource for me in writing this book—especially in the “toolbox” half of the book.

Like any writer, I have influences. My biggest influences come from my favorite ETF trade publications, starting with Dave Nadig and Matt Hougan of ETF.com. When I was first developing myself as an analyst, their articles and podcasts were a major source of knowledge and inspiration. If ETF analysis has a cutting edge, it’s those guys. I’ve also found enlightenment from fellow ETF analysts such as Todd Shriber, Victor Reklaitis, Chris Dieterich, Brendan Conway, Michael Rawson, Tom Lydon and Deborah Fuhr.

Every book I read, the author inevitably apologizes to his family for being so pre-occupied with writing their book. Now I know what they mean. It really does demand a lot of precious time. So to my wife and kids, thank you so much for all your support and patience during this book writing process. Daddy is as happy to be done writing it as you are!