Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

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Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by Rick Ferri » Thu Nov 07, 2019 10:37 pm

Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Episode 015: Eric Balchunas, host Rick Ferri

Eric writes research reports, articles, and feature stories about ETFs for the Bloomberg terminal and Bloomberg.com. He is a frequent speaker on ETF topics at industry conferences and appears in a weekly on-air segment for Bloomberg TV and Radio called "Exchange-Traded Friday" in which he discusses different ETFs and the way investors can utilize them. Eric is also the author of The Institutional ETF Toolbox, which was published by Wiley. The book is a primer on ETFs that both novices and professionals can understand as well as a guide to doing proper due diligence on the fast-growing world of ETF

We discuss the latest innovations in the ETF space and surmise about what might work and what might not.

Enjoy!

Rick Ferri
Podcast Host
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by JAZZISCOOL » Fri Nov 08, 2019 10:06 pm

Thanks Rick!

• Rick Ferri interviews Eric Balchunas, Bloomberg Senior ETF Analyst, Nov. 7, 2019
• Very interesting conversation for BH/investment geeks.
• The podcast gives a good historical back-drop of ETF’s and discusses the evolution over time since the 1987 market crash.
• Mentions “The ETF Story”– 6-part podcast documentary which begins on Black Monday and goes through the Smart Beta evolution. Eric also authored a book.
https://www.bloomberg.com/podcasts/the_etf_story
• Discusses the operational mechanics of ETF’s (e.g. creation/redemption, premium/discount, bid/ask spread, securities lending).
• Pros and cons of mutual funds vs. ETF’s for long-term investors (e.g. taxes on capital gains).
• Active non-transparent ETF’s are set to launch next year (2020).
• Overall there are 2,369 ETF’s in the US (8,529 globally); ~70% of the ETF’s assets are in the US and 85% of the trading volume is in the US.
• 25% of ETF’s have closed in the US (you may get hit with a tax bill if there are gains in a closed ETF).
• 50% of ETF’s have less than $100 million in assets.
• $30-$50 million is probably the break-even for an ETF.
• Most of the innovation in investments is found in the ETF market.
• May want to use a “limit” order with a smaller ETF.
• Discusses demand for balanced ETF’s, especially for “do-it-yourself” investors.
• Investors are “obsessed” with fees; any fee cuts can affect ETF flows.
• $100 billion in in-flows in active fixed income MF’s in 2019.
• There are a couple different models of the new active ETF’s that will launch in 2020; the SEC has approved the first model.
• The industry hopes that active equity managers will be able to stop some of the outflows with new active ETF launches.
• ESG investing; $15 billion in AUM this year; growing quickly in 2019 but still a small percentage of the market share.
• Vanguard launched an ESG ETF at a low fee.

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by Rick Ferri » Sat Nov 09, 2019 8:24 am

Thanks for outlining the main topics we discussed. :)

Rick
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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by JAZZISCOOL » Sat Nov 09, 2019 8:50 am

Rick Ferri wrote:
Sat Nov 09, 2019 8:24 am
Thanks for outlining the main topics we discussed. :)

Rick
Sure thing but I would still recommend everyone listen to your podcast as well since there is a lot more nuance and detail to hear in the discussion. :)

I've started to listen to The ETF Story (Bloomberg) podcast as well! Interesting.

It would be interesting to see a chart of AUM in mutual funds vs. ETF's over time to see how it has shifted. I'm sure Bloomberg, Morningstar and other firms follow this closely. I remember the days when the (paper) WSJ has around 3 pages filled with active mutual fund performance which has shrunk dramatically today, replaced with a small mutual fund section and a growing ETF section!

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by stan1 » Sat Nov 09, 2019 9:00 am

Rick Ferri wrote:
Thu Nov 07, 2019 10:37 pm
Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.
Rick one topic you weren't able to get to with Eric is the future shift of 401Ks from mutual funds to ETFs. I read a few years ago it was inevitable within a few years, but it hasn't happened. Do you have any thoughts on the current barriers?

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by JAZZISCOOL » Sat Nov 09, 2019 9:19 am

stan1 wrote:
Sat Nov 09, 2019 9:00 am
Rick Ferri wrote:
Thu Nov 07, 2019 10:37 pm
Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.
Rick one topic you weren't able to get to with Eric is the future shift of 401Ks from mutual funds to ETFs. I read a few years ago it was inevitable within a few years, but it hasn't happened. Do you have any thoughts on the current barriers?
Currently, some (usually) larger employers offer ETF's through a brokerage window/self-directed brokerage account. I have a self-directed brokerage account at Schwab through a 401(k) of a former employer. From my understanding, one of the issues is that 401(k) record-keepers only price participant accounts on a daily basis and there are a number of operational hurdles with ETF's. However, it will be interesting to see how this evolves as plan sponsors/employees demand more ETF's. In this case, there are still ERISA protections with the Schwab account. I'm sure Rick has greater insight.

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by Artsdoctor » Sat Nov 09, 2019 9:20 am

It's a great interview. Extremely thorough.

There is another thread here which recently discussed Vanguard's perceived preference for ETFs when designing a model portfolio for clients. I was a bit surprised at this because Vanguard has publicly been very neutral and even has a "pro/con" page outlining the differences. There was a point made on the thread which postulated that it's cheaper for Vanguard to run ETFs than mutual funds so that might be behind the recommendations. The interview with Balchunas put this in perspective as well. For most investors who are really long-term holders (many years, Boglehead-style), ETFs do not offer any significant advantage (there will be exceptions). In a way, it was a little disheartening to think that Vanguard might be making recommendations on what's better for them as opposed to clients, but it's a business after all.

There were a lot of advantages of ETFs discussed in the interview but the thing I found most interesting was the acknowledgement that, at least for now, it's all about advisors. They are the ones that are using ETFs far more than individuals, and it may be that that is why you're not seeing balanced ETFs. It's an interesting hypothesis: balanced ETFs don't exist because it would be counterproductive to advisors who shuffle money around and make themselves seem worthwhile as the statements roll in. These are the things that are really rarely talked about but are so important to discuss in order to put things in perspective when having the "ETF versus mutual fund" arguments.

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by Forester » Sat Nov 09, 2019 12:31 pm

Most telling comment was Mr Balchunas suggesting why advisors dislike all-in-one ETFs. They earn their fee by decrying active stock picking but then go to town on the "factor soup".

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by JAZZISCOOL » Sat Nov 09, 2019 1:10 pm

Forester wrote:
Sat Nov 09, 2019 12:31 pm
Most telling comment was Mr Balchunas suggesting why advisors dislike all-in-one ETFs. They earn their fee by decrying active stock picking but then go to town on the "factor soup".
Yes, I also thought that was interesting. I think "career preservation" is a common motivation for people in many industries. :?

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by columbia » Mon Nov 11, 2019 10:12 am

Mr. Bogle turning down the idea of an ETF for Vanguard 500...and then telling the gentleman how to improve the concept of ETFs was great!

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by geniekid » Mon Nov 11, 2019 2:40 pm

Quality podcast, as usual.

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by Rick Ferri » Wed Nov 13, 2019 1:39 pm

JAZZISCOOL wrote:
Sat Nov 09, 2019 1:10 pm
Forester wrote:
Sat Nov 09, 2019 12:31 pm
Most telling comment was Mr Balchunas suggesting why advisors dislike all-in-one ETFs. They earn their fee by decrying active stock picking but then go to town on the "factor soup".
Yes, I also thought that was interesting. I think "career preservation" is a common motivation for people in many industries. :?

Advisers who charge ongoing assets under management (AUM) fees need to keep clients a little confused. Make it simple and clients learn they don't need an adviser, or at least not one that charges ongoing fees.

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by Dave55 » Wed Nov 13, 2019 5:38 pm

Excellent podcast Rick, very informative.
Thanks!

Dave

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by Horton » Wed Nov 13, 2019 8:25 pm

Very good discussion! I came away with a much better understanding of the creation/redemption process. The “tax risk” associated with small ETF closures was a good segment too.
🏃 since 2005

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by JAZZISCOOL » Wed Nov 13, 2019 8:47 pm

Rick Ferri wrote:
Wed Nov 13, 2019 1:39 pm
JAZZISCOOL wrote:
Sat Nov 09, 2019 1:10 pm
Forester wrote:
Sat Nov 09, 2019 12:31 pm
Most telling comment was Mr Balchunas suggesting why advisors dislike all-in-one ETFs. They earn their fee by decrying active stock picking but then go to town on the "factor soup".
Yes, I also thought that was interesting. I think "career preservation" is a common motivation for people in many industries. :?

Advisers who charge ongoing assets under management (AUM) fees need to keep clients a little confused. Make it simple and clients learn they don't need an adviser, or at least not one that charges ongoing fees.

Rick Ferri
I have no doubt and I find this highly disturbing. Where is their sense of fiduciary duty and ethics? I know the DOL proposed fiduciary rule did not pass which is very unfortunate.

As widely reported in the press, the original DOL fiduciary rule, "requiring all professionals offering advice on retirement accounts to place clients’ interests ahead of their own, infamously died..... "

https://www.forbes.com/sites/brianmenic ... 2a8f926fa1

In terms of CFP's, I believe there was some negative news recently about their organization's Board failing to monitor some of the CFP's in terms of past regulatory violations. I believe Allan Roth has had at least one article about enforcing the fiduciary standard.

CODE OF ETHICS

A CFP® professional must:
1. Act with honesty, integrity, competence, and diligence.
2. Act in the client’s best interests.
3. Exercise due care.
4. Avoid or disclose and manage conflicts of interest.
5. Maintain the confidentiality and protect the privacy of client information.
6. Act in a manner that reflects positively on the financial planning profession and CFP® certification.

:confused

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by Silence Dogood » Thu Nov 14, 2019 6:23 pm

Rick Ferri wrote:
Wed Nov 13, 2019 1:39 pm
JAZZISCOOL wrote:
Sat Nov 09, 2019 1:10 pm
Forester wrote:
Sat Nov 09, 2019 12:31 pm
Most telling comment was Mr Balchunas suggesting why advisors dislike all-in-one ETFs. They earn their fee by decrying active stock picking but then go to town on the "factor soup".
Yes, I also thought that was interesting. I think "career preservation" is a common motivation for people in many industries. :?

Advisers who charge ongoing assets under management (AUM) fees need to keep clients a little confused. Make it simple and clients learn they don't need an adviser, or at least not one that charges ongoing fees.

Rick Ferri
Rick, do you think Vanguard will be reluctant to lower the costs of their all-in-one funds (LifeStrategy/Target Retirement) given their recent push for VPAS?

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by Rick Ferri » Thu Nov 14, 2019 7:48 pm

I don’t know the answer. Sorry.
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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by WoodSpinner » Thu Nov 14, 2019 9:17 pm

Rick,

Just want to say THANKS....

Really enjoy the Podcasts and this one provided some great history and insight.

WoodSpinner

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Re: Eric Balchunas, Senior ETF Analyst at Bloomberg is my guest on this "Bogleheads on Investing" podcast.

Post by Silence Dogood » Fri Nov 15, 2019 5:20 pm

Rick Ferri wrote:
Thu Nov 14, 2019 7:48 pm
I don’t know the answer. Sorry.
Well, I suppose time will tell.

Thanks for the great podcasts!

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