This week’s newsletter brings you an interview with Pacer’s Sean O’Hara who details the firm’s growth as an ETF issuer to USD7.5 billion in assets over six years, on the back of a range of ETFs which have rules at their heart.
Pacer is focused on the fact that investment rules have changed over the years. O’Hara explains that in 1975, 87 per cent of the assets in the S&P 500 were tangible. “We were still a manufacturing society which meant I could go out to a plant or count someone’s inventory, but today, at the end of 2020, it’s now 90 per cent intangible, with only 10 per cent tangible. We are a consumption services, technology, healthcare services and consumer discretionary brand-based economy today and you can’t measure those names on a price to book basis.”
Instead, Pacer’s successful Cash Cows range is based on free cash flow and yield to identify stocks that are cheap.
Relatively new to the ETF industry, and so maybe able to take a cool look at this most vibrant of financial sectors, is Robert W Baird & Co, whose Rich Lee, Head of Program Trading, explains that among his US institutional client base there is a lot of interest in ETFs, especially with the growth of different products.
“The first generation was typical passive index products which were very vanilla,” he says. “It was a question of take an index, follow it, try to minimise tracking error, watch your expense ratios and attract assets – hopefully,” he says. “We have become a little more sophisticated, bringing in commodity-based ETFs and then products like smart beta and the VIX and then the natural extension is traditional active money management.”
Semi-transparent active funds are attracting the attention of his asset manager clients and he believes that the rise of active ETFs and even funds converting to active ETFs is down to the world of instant gratification that we live in now. “Some of the growth of the meme stock trading is down to instantaneous transactions,” he says. “Cost effectiveness and the real time component in active ETFs versus having to wait to the end of the day is so well geared towards where we are within our society.”
The rise of the internet in the emerging markets is the focus for Kevin Carter’s EMQQ ETF and this week we talked to him about his June rebalance of the ETF’s portfolio. “These e-commerce and internet companies are evolving in ways that they haven’t done in the US, a combination of video games, e-commerce and payments,” Carter says. The ride-hailing apps, such as Didi, the stock that has had quite the ride on its own account this week, represent, in the emerging markets, a different phenomenon to just getting you safely home as we see in more developed countries. Read his interview for more insight into this fascinating portfolio.
It’s all change at the top and the bottom in trackinsight’s data to 2nd July, with crypto assets coming back up to the top and shipping and ETFs focused on China having a tough time, in reaction to latest news.
If you would like to receive this weekly newsletter, please register here:
Beverly Chandler, managing editor, ETF Express
Companies in this issue
Dimensional Fund Advisors
Innovator Capital Management
Robert W Baird & Co