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Dave Nadig
2:59
Hey folks!  Welcome to this weeks ETF.com Live chat!
3:00
As always you can toss your questions in the box at the bottom, anonymously or for attribution, and we'll get to as many as we can.
We'll also post a transcript of this at the end of the day so if you have to hop, don't panic.
Last, don't miss the weekly podcast at ETFPrime.com, we're having a lot of fun contributing to the great work they do over there.
With that, let's jump into our first question.
Danny from NY
3:01
Dave,why we don't have ETF that invests in preferred shares issued by Closed-end funds ?? (not CEF-s that invests in preferred stocks but preferred shares issued by CEF-s to obtain leverage)
Dave Nadig
3:01
So this is pretty deep end of the pool stuff. But for those playing the home game: closed end funds will sometimes issued preferred shares as a way of raising capital to use leverage in their portfolios.
3:02
These prefereds are essentially bonds and can often pay pretty high yields.  I won't claim to be an expert on the scope and breadth of that market (it's a corner of a corner of the market) but my understanding is that the actual floats here tend to be pretty small, and that can be a problem for an ETF tracking the space.
A lot of the preferred ETFs require ratings, and I think (could be wrong) a lot of the CEF Prefereds aren't rated. Not all of them for sure, but the big ones.
3:03
I know that the Van Eck ex-financials ETF (PFXF) goes pretty far afield, but I don't think it goes into preffereds issued by CEFs.  That said, I don't even recognize half the issuers on a quick look, so it's certainly possible some of those holdings are CEF issued. I kind of doubt it for the size reasons above.
3:04
In general, it strikes me as perhaps "a niche too far" given there are only about a dozen prefered ETFs as it is. I think this remains a place where advisors actually often ad some real value - cherry picking individual yield vehicles for yield sensitive clients.
It's a bit like managing personal bond ladders: a service that never really goes away.
Great question though.
Sean R
3:04
When trading low-volume ETFs with somewhat wide spreads, how should I be analyzing my execution?  Which benchmarks should I be looking at for comparisons?
Dave Nadig
3:05
There's a whole industry -- at the institutional level -- on measuring and reporting execution quality.
3:06
It's a bit more art then science when it comes to less liquid securities.  A short answer: if the spread is say, 50 cents wide, and doesn't trade much all day, and you can get executed inside the spread, well, thats obviously swell (and often you can, if your patient).
The second thing to look at is fair value.  If the ETF your trading happens to have an intraday NAV (INAV, or Indication of Portfolio Value, IOPV) that's live, (meaning, the thing your trading has US underlying that is itself liquid) then you can check your execution price vs. that INAV.
3:07
that's really the best thing you could hope for -- a trade right near the fair value.  If it's both illiquid, and the underlying is either illiquid (or international) then you're going to inevitably be a bit in the dark.
3:08
If your an advisor or trader of reasonable size, you can actually call the capital markets desk of the issuer and ask for their analysis as well -- if your big enough.
Wish there was a universal better answer here though - the T in ETF is a real thing.
P. Northfield
3:08
I just saw that the Winklevoss twins patented cryptocurrency ETFs. What does this mean for bitcoin ETFs going forward?
Dave Nadig
3:08
OOOh boy.
3:09
Man, that patent is DIZZYING.  I read it through this morning and I think I need to scrub out my brain.
Hold for a link:
It's being reported as some sort of "aha" patent that prevents anyone else from launching a bitcoin ETF (if the SEC lets them) but I interpret it a bit differently.
(And please, to be clear, the thing is MAMMOTH so this is just a first glance. )
3:10
I think what's novel here and is really the subject of the patent is the custody system, where the presentation of bitcoin for shares and vice versa from the AP is done in a particular way.
3:11
What they propose isolates the existing assets from the transactions by moving the coins in and out of cold-storage wallets in an automated system.
I think this an attempt to address security concerns from the SEC, but boy, its getting deep in the weeds.
The most interesting part to me is seeing Kathleen Moriarty on the filing -- she's the original lawyer behind SPY, who I know has been working with the twins on their filings.
I'd love to hear them explain what pieces of this they think are novel in plain english.
3:12
But I think that's the important bit.  Does it create a block? Seems unlikely. Most big financial process patents turn out to be reasonably easy to get around.  (Vanguard's patent on ETF share classes not withstanding)
I'm gonna answer this one, even though I have a feeling it was tongue in cheek:
Barry
3:13
Whats an ETF ?
Dave Nadig
3:13
All kidding aside - believe it or not this is a BIG question!
BlackRock has proposed a whole taxonomic system on this front
3:14
And it's actually something the SEC has taken under advisement.  The cold hard reality is that what we call "an ETF" is actually an exchange-traded SOMETHING - where the something can be a traditional 40 act mutual fund, a 33 act commodity pool, a piece of debt, a grantor trust, an unit investment trust, etc etc...
3:15
there are actually a lot of structural nuances, and the industry has sort of decided just to call them all "funds" and use "ETF" to cover them all.  I mean, after all, it's our darned URL!
But I suspect as we look out a long ways - maybe 5 - 10 years -- and have a true ETF Rule come from the SEC, we might actually see the term get regulated, where certain things end up in, and certain things end up out.
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