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Homework Required for ETF Bets, Says ETF Expert

Stock Markets Nov 21, 2020 07:26AM ET
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By Christiana Sciaudone

Investing.com -- When it comes to ETFs, buyer beware. 

"Don't judge a book by its cover," said Jillian DelSignore, principal at Lakefront Advisory in Chicago. "Just because it's called a certain thing, doesn't mean it is a certain thing."

Exchange traded funds are all the rage, with about $1 trillion in assets added over the past year to the market, for a total of almost $5 trillion. More and more traditional asset managers are moving into the space and with so many offerings on the table, it can be confusing to figure out what's what. 

As an example, DelSignore pointed to iShares MSCI USA Min Vol Factor ETF (NYSE:USMV and Invesco S&P 500 Low Volatility ETF (NYSE:SPLV)) which promise low volatility but have very different constructions.  

USMV uses an algorithm and is focused on particular sectors, and is overweight in defensive names. Meanwhile, SPLV includes about 100 S&P 500 stocks with the lowest daily volatility over the past year. The difference matters. Year-to-date, USMV is down 4.5% and SPLV is down 9%.

"Understanding what you're getting and popping the hood is really important," DelSignore said in a phone interview. DelSignore has been in financial services for some 20 years, about 12 of them focused on ETFs. Prior to joining Lakefront this year, she was head of ETF distribution at JPMorgan (NYSE:JPM).

ETFs are generally understood to be passive, but active ETFs are gaining steam, DelSignore said, including those considered "non-transparent," which simply means they don't reveal holdings on a daily basis. That's attracting large traditional mutual fund managers into the space -- they're highly likely to have been seeing assets flow out and into ETFs --  since they don't have to worry about being copied because they report monthly or quarterly. The move could potentially reverse the outbound trend. 

Not that anything is guaranteed, with active ETFs still in early stages.  

"The jury is definitely still out on what the success will look like of these products because they don't have a track record," DelSignore said. "They are going to want to see positive performance."                

Ultimately, investors need to focus on what they want to achieve, where they want to anchor themselves. DelSignore highly suggests working with a financial advisor amid the noise. 

 

Homework Required for ETF Bets, Says ETF Expert
 

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Comments (4)
Nyi Naing
Nyi Naing Nov 21, 2020 11:42AM ET
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N t m u.
Aim Yemz
Aim Yemz Nov 21, 2020 10:39AM ET
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yes sanyi hello nice to meet u
Kaveh Sun
Kaveh Sun Nov 21, 2020 10:37AM ET
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Buy etfs mirror index. Over 90% managers underperform indexes. The stocks inside these etfs (in the article) r picked my managers;they hide under etfs for their poor performance.
Oromttiti Sanyii Rayyaa
Oromttiti Sanyii Rayyaa Nov 21, 2020 10:34AM ET
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