Predict the next technology in equity investing after low-fee index ETFs?

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lazynovice
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by lazynovice »

anon_investor wrote: Sat Nov 27, 2021 9:19 am
sycamore wrote: Sat Nov 27, 2021 8:58 am
anon_investor wrote: Fri Nov 26, 2021 7:42 pm
WoodSpinner wrote: Fri Nov 26, 2021 7:40 pm OP,

Wondering if a reduction in Settlement Times to hours will be in the cards?

Good thought question!

WoodSpinner
Why does ETFs need to take 2 days to settle anyway? Fidelity usually pulls the money from my bank account the same day I make a purchase.
Because SEC regulation and industry standards say so.

Do you mean why don't they change it from T+2 to T+1 (mutual fund settlement is already T+1).
I'm no expert but it requires effort & cooperation among various industry participants to make it happen. I'm sure an industry insider could share the gory details.
I know the regs require this, but they did change it from T+3 to T+2 a while back; and they have to technical ability to handle T+1, and maybe even just T (EoD settlement?). So maybe just a wish list item, but maybe in the future.
They’re working on it-

https://www.dtcc.com/dtcc-connection/ar ... settlement
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anon_investor
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by anon_investor »

lazynovice wrote: Sat Nov 27, 2021 10:35 am
anon_investor wrote: Sat Nov 27, 2021 9:19 am
sycamore wrote: Sat Nov 27, 2021 8:58 am
anon_investor wrote: Fri Nov 26, 2021 7:42 pm
WoodSpinner wrote: Fri Nov 26, 2021 7:40 pm OP,

Wondering if a reduction in Settlement Times to hours will be in the cards?

Good thought question!

WoodSpinner
Why does ETFs need to take 2 days to settle anyway? Fidelity usually pulls the money from my bank account the same day I make a purchase.
Because SEC regulation and industry standards say so.

Do you mean why don't they change it from T+2 to T+1 (mutual fund settlement is already T+1).
I'm no expert but it requires effort & cooperation among various industry participants to make it happen. I'm sure an industry insider could share the gory details.
I know the regs require this, but they did change it from T+3 to T+2 a while back; and they have to technical ability to handle T+1, and maybe even just T (EoD settlement?). So maybe just a wish list item, but maybe in the future.
They’re working on it-

https://www.dtcc.com/dtcc-connection/ar ... settlement
Cool, T+1 would bring ETFs one step closer to MFs.
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nedsaid
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by nedsaid »

Now that we have actively managed ETFs, you can now get active management for a whole lot cheaper, that is if you want it.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by Nathan Drake »

nedsaid wrote: Sat Nov 27, 2021 5:04 pm Now that we have actively managed ETFs, you can now get active management for a whole lot cheaper, that is if you want it.
+1 for Avantis. Smart, cheap active
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by 000 »

Nathan Drake wrote: Sat Nov 27, 2021 12:13 am
000 wrote: Fri Nov 26, 2021 7:55 pm I think we are going to see pushback on index funds due to their negative externalities, especially on corporate oversight.

Imagine a new kind of stock that is disallowed to be included in index funds, perhaps due to a corporate charter prohibiting it, with the blessing of exchanges and regulators.

Or, semi-public equities with which you will interface like a brokerage platform, but be subject to various restrictions like the above.

Something to stop the beta suck.
There’s too much pressure to be included in the indexes due to an automatic premium assigned to that
I'm thinking about the long term as index fund mismanagement increasingly destroys shareholder value. Short-term thinking (like the automatic bump you're referring to) eventually burns itself out.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by 000 »

runninginvestor wrote: Sat Nov 27, 2021 8:00 am How much cost do you think this would add? (Ie 1 basis point, none, more?)

Id be curious how this would ever be implemented for fractional shares. And what are the odds that I hold 10 shares of AAPL but they are actually 20 half shares that the company pieces together from other fractional traders? Would I not get a vote since I don't actually hold a single share in the company?
Not sure, but there is already a well established computerized proxy voting system (proxyvote.com).

It would all be proportional. If there is a certain proposal, the percentage of fund investors who vote a certain way (directly or indirectly via delegation) will be applied proportionally to all the shares owned by the fund. The rounding error will be at most part of one single share.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by shess »

runninginvestor wrote: Sat Nov 27, 2021 8:57 am
anon_investor wrote: Sat Nov 27, 2021 8:27 am
runninginvestor wrote: Sat Nov 27, 2021 8:00 am
000 wrote: Fri Nov 26, 2021 11:27 pm
shess wrote: Fri Nov 26, 2021 11:25 pm

I think it would be interesting to have a proxy layer where you can elect your shares to be voted by a third party. The obvious level would be with individual stocks, but once implemented you could reasonably extend this to vote the shares within an ETF or mutual fund.
Agreed.
How much cost do you think this would add? (Ie 1 basis point, none, more?)

Id be curious how this would ever be implemented for fractional shares. And what are the odds that I hold 10 shares of AAPL but they are actually 20 half shares that the company pieces together from other fractional traders? Would I not get a vote since I don't actually hold a single share in the company?
Don't you still own whole share, it is just fractional for tax lot purposes?
That's what I don't know how it works for voting. I'm actually curious, not trying to be contrarian or anything. If cumulatively I own intX shares but they are all individually a fractional share, are you allowed to vote as if you owned 1 share outright? I know generally fractional shares don't allow you to vote, but that's when they come by splits/dividends where you presumably initially bought in whole shares.
I actually don't know how fractional shares work, since I've not had them. My understanding is that fractional shares may not have voting rights, depending on how your broker firm handles them. Which makes sense, because fractional shares are most likely just a bookkeeping notation your brokerage keeps (I mean, your brokerage has netted together fractional shares and records them against a real shareholding in street name).

I think this kind of proxy assignment could actually work better than the status quo for fractional shares. My assumption would be that various providers would have to register their ability to vote, then you would assign your shares, then that would aggregate at the brokerage level. So if a bunch of holders of fractional shares at Etrade selected the same proxy strategy, that could sum up to full shares electing that strategy, rather than being lost in the noise. Likewise with ETFs, the number of proxies would likely be smaller than the number of shareholders, so the resulting groupings would likely aggregate into bigger chunks.

As far as cost, I guess that's a concern. I don't think it would add much overhead at the brokerage level compared to the existing ability to hold shares in street name and still map notices and votes to shareholders. But funds would obviously have an additional cost of mapping things. 1bp seems a bit much to me, though, since it would only work if automated into their accounting system. They'd have the cost of building the automation, but the ongoing cost shouldn't be that high (maybe even cheaper, because you have offloaded the need to even evaluate the issues being voted on). And you could just put it on "the blockchain" and then it's all pixie dust and unicorn farts from there on out.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by rgs92 »

Negative expense ratios on index funds as loss leaders, maybe for the first $100K (or more) of investments just to get you in the door.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by VaR »

I'd like to see real-time NAV and basis calculation for ETFs.

Also, it would be kind of nice to be able to trade the most liquid ETFs after hours on a when-and-if basis with automatic conversion.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by nisiprius »

We've already seen the next technology in equity investing after low-fee index ETFs. It was high-fee active ETFs.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by HomerJ »

blueberrypi wrote: Sat Nov 27, 2021 7:42 am Liquid markets that trade at all hours.
I'm surprised this isn't a thing already.

But jeeze the free-falling and soar threads would get even more action.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by 000 »

HomerJ wrote: Sat Nov 27, 2021 9:19 pm
blueberrypi wrote: Sat Nov 27, 2021 7:42 am Liquid markets that trade at all hours.
I'm surprised this isn't a thing already.

But jeeze the free-falling and soar threads would get even more action.
One reason it may not be a thing is a desire to avoid having material information releases (like earnings) happen while the security is trading.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by Parkinglotracer »

I think in the future technology you will be able to call up Vanguard and someone will answer the phone and address you by name. Radical.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by stan1 »

Parkinglotracer wrote: Sat Nov 27, 2021 9:26 pm I think in the future technology you will be able to call up Vanguard and someone will answer the phone and address you by name. Radical.
Nope, it will be an AI enabled customer service bot you are talking to not "someone".
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by Nathan Drake »

000 wrote: Sat Nov 27, 2021 5:32 pm
Nathan Drake wrote: Sat Nov 27, 2021 12:13 am
000 wrote: Fri Nov 26, 2021 7:55 pm I think we are going to see pushback on index funds due to their negative externalities, especially on corporate oversight.

Imagine a new kind of stock that is disallowed to be included in index funds, perhaps due to a corporate charter prohibiting it, with the blessing of exchanges and regulators.

Or, semi-public equities with which you will interface like a brokerage platform, but be subject to various restrictions like the above.

Something to stop the beta suck.
There’s too much pressure to be included in the indexes due to an automatic premium assigned to that
I'm thinking about the long term as index fund mismanagement increasingly destroys shareholder value. Short-term thinking (like the automatic bump you're referring to) eventually burns itself out.
How are index funds causing short term thinking or destruction of shareholder value?

Introduction into the major indexes causes a premium that is long lasting if they stay in the indexes

As far as I know, some of the major passive index funds aren’t particularly active, but are looking to actually change management behavior to think more about the long term
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by danaht »

I'd like to see some type of way the ETF (and mutual fund) owners could vote for the underlying stock proxy votes - instead of the fund managers. This would allow the actual stock owners to vote for their underlying shares of Apple, Exxon, Tesla, etc. Why should Blackrock, Vanguard, and Fidelity be voting for these stocks (especially in index funds) - when they are not the ones taking the risks of ownership?
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by shess »

stan1 wrote: Sat Nov 27, 2021 9:43 pm
Parkinglotracer wrote: Sat Nov 27, 2021 9:26 pm I think in the future technology you will be able to call up Vanguard and someone will answer the phone and address you by name. Radical.
Nope, it will be an AI enabled customer service bot you are talking to not "someone".
And it will immediately ask if you'd like to take a survey about your experience.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by anon_investor »

shess wrote: Sat Nov 27, 2021 10:13 pm
stan1 wrote: Sat Nov 27, 2021 9:43 pm
Parkinglotracer wrote: Sat Nov 27, 2021 9:26 pm I think in the future technology you will be able to call up Vanguard and someone will answer the phone and address you by name. Radical.
Nope, it will be an AI enabled customer service bot you are talking to not "someone".
And it will immediately ask if you'd like to take a survey about your experience.
In the future you will have to mail Vanguard all correspondence to El Paso, TX. They got rid of secure messaging, phones service next!
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by etfan »

This may seem completely unworkable and I already see many problems with it and haven't really thought it through but .... :D

How about a mutual fund that spans multiple accounts, in order to optimize its tax efficiency and simplify your investment needs? That way, you invest in a single fund, but it handles the business of putting all the bonds in your tax-sheltered account and stocks in the taxable account and takes care of the rebalancing.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by David Jay »

KlangFool wrote: Fri Nov 26, 2021 7:46 pm OP,

ETF version of balanced fund and Vanguard Life Strategy Funds. Then, they would be available to all investors all over the world.

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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by anon_investor »

David Jay wrote: Sat Nov 27, 2021 10:30 pm
KlangFool wrote: Fri Nov 26, 2021 7:46 pm OP,

ETF version of balanced fund and Vanguard Life Strategy Funds. Then, they would be available to all investors all over the world.

KlangFool
iShares Core Allocation ETFs, now .15 ER:
AOK (30/70)
AOM (40/60)
AOR (60/40)
AOA (80/20)
Too bads these aren't all that tax efficient. I guess the rebalancing creates capital gains distributions. Maybe if these ETFs had larger inflows, they could rebalance with new money.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by lazynovice »

anon_investor wrote: Sat Nov 27, 2021 10:32 pm
David Jay wrote: Sat Nov 27, 2021 10:30 pm
KlangFool wrote: Fri Nov 26, 2021 7:46 pm OP,

ETF version of balanced fund and Vanguard Life Strategy Funds. Then, they would be available to all investors all over the world.

KlangFool
iShares Core Allocation ETFs, now .15 ER:
AOK (30/70)
AOM (40/60)
AOR (60/40)
AOA (80/20)
Too bads these aren't all that tax efficient. I guess the rebalancing creates capital gains distributions. Maybe if these ETFs had larger inflows, they could rebalance with new money.
Or a mutual fund as another share class to use the exchange process ala Vanguard.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by make_a_better_world »

DeFi: Besides reduced operational costs and increased efficiency, a natural extension will be 24/7 markets worldwide instead of only during banker's hours.

AI/Robo investing:

AI can function as a financial advisor for the novice investor after asking questions about timelines and goals, and include auto-balancing among your different types of accounts taking into account tax efficiency.

AI can carry out investment/business instructions based on your own language. Example: "Start a revocable trust in the state of Texas called X with me as trustee. Open a new trust investment account inside Vanguard. Transfer my Vanguard brokerage account assets to this trust account."
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by nedsaid »

HomerJ wrote: Sat Nov 27, 2021 9:19 pm
blueberrypi wrote: Sat Nov 27, 2021 7:42 am Liquid markets that trade at all hours.
I'm surprised this isn't a thing already.

But jeeze the free-falling and soar threads would get even more action.
This raises the question of the day: is it freefall, free fall or free-fall? Inquiring minds want to know.

The thread got changed from freefall to free fall, it was a change of tradition and I am still sore over that. :wink:
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by 000 »

Nathan Drake wrote: Sat Nov 27, 2021 10:05 pm How are index funds causing [...] destruction of shareholder value?
Bureaucratic behemoths owning 10,000+ stocks worldwide cannot effectively exercise oversight of management nor are they strongly incentivized to do so as their products will always track the index.

Once you add in political rackets pressuring indexing firms to vote a certain way contrary to shareholder value, it's a double whammy.

Good luck trying to claw back control from Vanguard, Blackrock, State Street, and the like.

It turns out there really is no such thing as a free lunch.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by phxjcc »

rgs92 wrote: Sat Nov 27, 2021 8:21 pm Negative expense ratios on index funds as loss leaders, maybe for the first $100K (or more) of investments just to get you in the door.
If credit cards can offer rewards, why not fund companies?
This.

They still make money on the float.

With T+1 settlement, one day's interest on a bazillion dollars is a gazillion dollars.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by Nathan Drake »

000 wrote: Sun Nov 28, 2021 12:05 am
Nathan Drake wrote: Sat Nov 27, 2021 10:05 pm How are index funds causing [...] destruction of shareholder value?
Bureaucratic behemoths owning 10,000+ stocks worldwide cannot effectively exercise oversight of management nor are they strongly incentivized to do so as their products will always track the index.

Once you add in political rackets pressuring indexing firms to vote a certain way contrary to shareholder value, it's a double whammy.

Good luck trying to claw back control from Vanguard, Blackrock, State Street, and the like.

It turns out there really is no such thing as a free lunch.
The alternative is having a larger amount of many individual or smaller voters, which is likely more ineffectual

The vanguards and black rocks are getting used to this new power of index fund voting representation. Given how large it is, it’s way more likely to affect positive change if they wield it appropriately
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by 000 »

Nathan Drake wrote: Sun Nov 28, 2021 12:41 am The alternative is having a smaller amount of many voters, which is likely more ineffectual

The vanguards and black rocks are getting used to this new power of index fund voting representation. Given how large it is, it’s way more likely to affect positive change if they wield it appropriately
Central planning doesn't work well, especially when undertaken by captured institutions not subject to oversight by a legitimate authority.
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by vanbogle59 »

nedsaid wrote: Sat Nov 27, 2021 10:47 pm
HomerJ wrote: Sat Nov 27, 2021 9:19 pm
blueberrypi wrote: Sat Nov 27, 2021 7:42 am Liquid markets that trade at all hours.
I'm surprised this isn't a thing already.

But jeeze the free-falling and soar threads would get even more action.
This raises the question of the day: is it freefall, free fall or free-fall? Inquiring minds want to know.

The thread got changed from freefall to free fall, it was a change of tradition and I am still sore over that. :wink:
On Friday stock freefell??? free-falled??? shall have been free-fallen....
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Re: Predict the next technology in equity investing after low-fee index ETFs?

Post by MBB_Boy »

danaht wrote: Sat Nov 27, 2021 10:12 pm I'd like to see some type of way the ETF (and mutual fund) owners could vote for the underlying stock proxy votes - instead of the fund managers. This would allow the actual stock owners to vote for their underlying shares of Apple, Exxon, Tesla, etc. Why should Blackrock, Vanguard, and Fidelity be voting for these stocks (especially in index funds) - when they are not the ones taking the risks of ownership?
I didn't think they were - I seem to recall some criticism from activists on this matter
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Re: Predict the next technology in equity investing after low-fee index ETFs?

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