#56 - Dave Nadig - “This is a Big Year for ETFs"

58 minutes

In Episode 56, we welcome Meb's good friend, and CEO of ETF.com, Dave Nadig. Per usual, we start with some background information. Dave tells us about his early days in the investment industry, starting a consulting firm that was working on a then-new idea: fee-only financial advising. His first client was a little shop that went on to become none other than BlackRock. After some professional twists and turns, including running money for a while, Dave ended up at ETF.com.

Meb then dives in by referencing an article Dave wrote toward the end of last year, called "Outlook for ETFs in 2017." There were several key points in the article which Meb thinks can help provide a general, 30-thousand-foot overview of the ETF space. The first point - ETF flows.

Dave tells us "this is a big year for ETFs." He then takes us through a quick recap of the evolution of ETFs, going from a purely institutional product back in its early days, to something embraced by investment advisors, to an investment vehicle for retail investors. And here we are now, somewhat full circle, with ETFs even more embraced by institutions (think endowments), only now, they're no longer held as fringe investments, but as core holdings. 

Meb asks at what point ETF assets will surpass mutual fund assets. Meb had predicted within about 10 years back in 2013. Dave tells us there will always be a demand for mutual funds - that said, he believes the cross will happen around 2025, with asset levels around $14 trillion. 

Meb asks if the evolution in the ETF space today is primarily a movement from higher fee to lower fee. David believes this is the case. Most of the new flows are going toward low-cost vanilla products. Dave thinks the whole active/passive debate misses the point - it's really about cost. This dovetails into another business/investment idea Meb has that he's offering to any listener willing to pursue it.

Next, Meb brings us back to Dave's 2017 Outlook piece, this time bringing up "ESG."(This stands for "environmental, social and governance" for anyone unaware.). Dave believes that we're near/in the greatest intergenerational wealth transfer in history. And the 40-year-olds that are inheriting, say, a $5M portfolio from their 70-80-year-old parents have different desires about what to do with that money. Dave tells us that this younger generation wants their money to do something - and this usually gets labeled ESG. So Dave believes we'll see more funds targeting this wealth transfer. 

After some conversation about industry regulatory issues and Bitcoin, the guys jump into Dave's recent visit to "The Money Show" – a place Meb describes as the "Wild West" of individual investors. One of the biggest things attendees of the show were asking Dave about was ETF liquidity. Is there reason for concern? How illiquid can you go? Dave gives us the key takeaways: 1) remember good trading hygiene. In essence, don't be an idiot. Use limit orders, assess fair value if you can, and so on. 2) In responding to "how illiquid is too illiquid" Dave says it's not that simple, because liquidity is a moving target. He tells us about "the liquidity barbell." If you're worried about this topic, you'll want to be sure to listen to this section. 

Meb then asks about a fear the media loves to play up: "Will ETFs bring about stock market Armageddon?" Meb goes on to say how a USA Today article blames ETFs for exacerbating bad investing habits. 

Dave says you can't blame ETFs for bad investor timing. That's just how we're wired. But he goes on to say that many of the arguments against ETFs can be traced back to the old guard - people who are trying to defend active management shops that are underperforming, or defend the lack of transparency in their investing process. But their main argument is worth understanding - namely, the indexing problem; the idea is that if everyone owned index funds, then price discovery would be impossible. But Dave says we're a long way from having this problem. 

As usual, there's plenty more in the episode: exchange traded notes... the regulatory change Dave would like to see... buying ETFs at NAV... Dave's one piece of advice offered to help listeners the most... and Dave's answer to a new question: since Dave is a big "game" lover, Meb asks which three games are his top 3 of all time.

What are they? Find out in Episode 56.

More episodes from The Meb Faber Show

#198 - Rabi Gupta and Satwick Saxena - EvaBot Is…A Gifting Assistant…It Makes It Easy For Businesses to Send Gifts

In episode 198 we welcome our guests, Rabi Gupta and Satwick Saxena. Rabi and Satwick walk through the early days of EvaBot and how the pair started the company accidentally as a way to …

#197 - Rick Rule - In Resources You Are Either A Contrarian Or You Are Going To Be A Victim

In episode 197 we welcome our guest, Rick Rule. Rick and Meb start with Rick’s background in natural resource investing and Rick getting into his …

#196 - Minnie Ingersoll - I Do Believe That Innovation In Our Country Is The Huge Bright Spot

In episode 196 we welcome our guest, Minnie Ingersoll. Minnie and Meb start the conversation by getting into venture capital investing and the nature …

The Best Investment Writing Volume 3: Selected Writing from Prominent Investors and Authors

Last year when we published The Best Investment Writing Volume 2, we offered authors the opportunity to record an audio version of their chapter to …

#195 - Top Podcasts 2019 - Replay: Bill Smead, Cam Harvey, Raoul Pal

Episode 195 is a replay of The Meb Faber Show’s top podcasts of 2019. Guests include Bill Smead, Cam Harvey, and Raoul Pal

Hear Bill Smead discuss …

The Best Investment Writing Volume 3: Frazer Rice – Preparing For The Hurricane Of Wealth

Last year when we published The Best Investment Writing Volume 2, we offered authors the opportunity to record an audio version of their chapter to …

How you can listen to this podcast

You can listen to episodes right here on the website, or if you prefer, in a podcast app. Listening in an app makes it easier to keep track of what you’ve already heard, listen without using your data plan and many other conveniences.

Recommended apps
Start listening to #125 - Tom Barton - The Biggest Problem Investors Have is Things Change...and They Don't Change
1:24:56
Start listening to #125 - Tom Barton - The Biggest Problem Investors Have is Things Change...and They Don't Change
1:24:56