Episode 71: Everything that you could ever know about ETFs with Dave Nadig

Today we welcome Dave Nadig onto the show, who joins us off the back of a brilliant presentation he gave at the Wealth Stack conference last month in Scottsdale. Dave is the founder of etf.com and has had key positions at FactSet, Barclays Global Investors, and Cerulli previously. Today Dave sits down to talk about the difference between ETFs and mutual funds, EFT product saturation, the coming of Direct Indexing and well as non-transparent active funds, and risk probabilities in different asset security options such as gold and stocks. He also debunks the myth that ETFs lead to a pricing bubble, highlighting 401(k)s as part of what might be creating this illusion of top-heaviness. He also has a brilliant perspective on trusting the junk bond through a seeming disconnect, which is really one of timing that actually creates opportunities for price discovery. Dave also spends some time on the subject of his belief that the science of investing is largely figured out. He believes therefore that human behaviour and decision making through a lifetime investment path is far more mysterious, and highlights the need for good financial advisors in this respect. Join us to take a deep dive into the world of ETFs with Dave today!

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Key Points From This Episode:

• Dave’s perspectives on content and education in improving investor outcomes. [0:01:58.2]
• ETFs as a vehicle for trading multiple stocks, or wrappers for holding securities. [0:03:36.9]
• Authorized participants are what makes ETFs different from mutual funds. [0:04:46.1]
• Why the timing disconnect in junk bonds creates a vector for price discovery. [0:09:33.0]
• Why 401(k)s have caused the belief that ETFs are causing a price bubble. [0:25:50.0]
• How we have figured out investing but not financial advising. [0:14:40.8]
• Different ETFs benefit the market by suiting different investor classes. [0:17:49.6]
• The relationship between ETF indexes and material yields. [0:19:38.6]
• ETF value systems and the benefit of sticking to one index provider. [0:22:49.4]
• A slowing in ETF spreads and the coming of non-transparent active funds.  [0:26:02.2]
• The evolution towards, and benefits of, direct indexing. [0:29:21.3]
• ETF as the most robust security short of stashing physical gold. [0:34:16.6]
• The value of financial advisors to investors who are more trustworthy nowadays. [0:38:10.2]
• Hourly financial advice rates work for those who don’t need advice long term. [0:41:07.2]
• The benefits of the AUM model as long as it is made transparent. [0:43:45.9]
• Charging for advice fees separately stops clients from asking for advice. [0:45:09.3]

Tweetables:

“Fundamentally, that’s all that ETFs are. They’re just this vehicle that you pile a bunch of clowns in and then you drive around the circus.” – @DaveNadig [0:04:25]

“The ETF is much more likely to give you a price discovery mechanism in a crisis than the underlying bonds. We’ve seen that over and over again whether it was Egypt in the Arab spring or junk bonds in 2010.” – @DaveNadig [0:10:54]

“I’m much more interested in the work of people like Dick Taylor, who really try to tug at behavioural issues in investing, than I am about folks that are finding factor number 27.” – @DaveNadig [0:17:19]

“You know, I genuinely believe that the stock market will remain easy to access and efficient for longer than say the Perth Mint’s gold share storage system, right? You know, the internet going out and not being able to get access to that seems much more likely than literally nobody showing up down in New York to trade.” – @DaveNadig [0:36:32]

Links From Today’s Episode:

Rational Reminder Website — https://rationalreminder.ca/

Dave Nadig — https://www.etf.com/contributors/dave-nadig

Dave Nadig on Twitter — https://twitter.com/davenadig

Dave Nadig on LinkedIn — https://www.linkedin.com/in/dave-nadig-9461/

Wealth Stack Conference — https://finance.knect365.com/wealth-stack/

ETF.com — https://www.etf.com/

FactSet — https://www.factset.com/

Global X SuperDividend (SDIV) – https://www.globalxetfs.com/funds/sdiv/

NOBL ProShares Dividend Aristocrats Fund – https://www.proshares.com/funds/nobl_index.html

Style Analytics — https://www.styleanalytics.com/

VT ETF — https://investor.vanguard.com/etf/profile/VT

Download the transcript of this episode here: Rational Reminder Podcast – EP. 71 – Transcript