A look into ETFs with Tadas Viskanta of Abnormal Returns

I’m a huge fan of Abnormal Returns so I was extremely pleased when Tadas Viskanta, founder of the site, agreed to do a segment on The Pete the Planner Radio Show. I wanted to pick his brain about ETFs. So I did. Unsurprisingly, Tadas had great insight into the topic. Check out the segment here or read the summary below:

Segment courtesy of WIBC.

As founder and editor of Abnormal Returns, Tadas is unique in that he’s never formally helped others invest. His site is solely based on his own experiences. It’s what gives his site, now about 10 years old, an edge.

The Exchange-Traded Fund’s (ETFs) space seem to be in favor with most investors these days, are the days of Closed-End Mutual Funds over? This is the question I posed to Tadas. He’s not convinced this is true. A look at all assets under management shows classical Open-End Mutual Funds are still far larger than the ETF space. But, what we are seeing is a lot of energy going into ETFs.

Is this all about fees? Sometimes ETFs can be a whole percentage point less for a diverse allocation. Tadas agrees, fees are a huge part of this conversation. It’s exactly why companies like Vanguard are blowing up right now. While ETFs have been around for 20 years or so, they started as a bit of a novelty. Traders liked being able to trade a fund during the day and they liked being able to short the S&P 500 on a short-term basis. 10-15 years ago there were Mutual Funds coming out on a monthly basis but only about 16,000 funds total. Now we are getting about 16,000 new ETFs a year. It’s nearly impossible to keep up with them.

With such a large number of ETFs it seems impossible that any one can distinguish itself. There is only so much you can do with 500 entities in a portfolio. This is why Tadas believes the more “vanilla” ETFs that cover a broad base of indexes and are covered by a lot of providers, are really fighting to be the lowest fee provider. It’s nearly stunning how low some of the fees have become.

Which to me, begs the question, have low ETF fees driven down the advisor fees that typically go on top of the ETF fees? Absolutely. The low ETF fees have created a cap on how much an advisor can charge in addition. This naturally leads us to robo-advisors, who are leading the way for low management fees.

Thanks again to Tadas for being on the show! You can check out Abnormal Returns here.

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