1) New Robo-Adviser to Collect Management Fees Only When It Beats The Market InvestmentNews | 10/5/2018
Because… Similar to performance-based fees that Peter Kraus has been advocating, SGIM’s pricing structure only allows the firm to charge a fee if a client portfolio beats the market by at least 0.25% per quarter. In a OneAmerica survey published two weeks ago, 43% of respondents reported that the concern about being unable to afford fees is the top roadblock for working with a financial advisor. SGIM’s unique business model could relieve worries for such fee-conscious investors. However, another research study sponsored by CFA Institute and FINRA found that “innovations in investment products and services currently hold limited appeal for millennials,” which suggests that SGIM may not get off to a fast start as most investors will initially take a wait-and-see approach.
2) Investors Yank Record Cash Out of Stock, Real Estate, and Muni ETFs Bloomberg | 10/9/2018
Because… U.S. Equity ETFs gathered $67.0 billion this year through August, according to Morningstar data, which was down 9.2% from the first eight months of 2017. The Dow Jones Industrial Average plunged 832 points on Wednesday, October 10th, and the VIX, the so-called fear gauge, exploded to 24, the third highest level of the year. The sudden return of the market volatility, the interest rate hikes, the concerns about quarter-end corporate earnings, and the fear of a major market correction could send investors into panic mode. If investor worries prevail over calm, large cap stock ETFs could be victimized and experience further losses.
3) Behind A Disruptive Index Provider ETF.com | 10/10/2018
Because… It takes a lot of courage to be an index provider in a field where well-known brands dominate. It has to be innovative enough to develop indexes that are not already in existence. While an index boutique has the flexibility of customizing products to meet specific client needs and a quick turnaround helps ETF sponsors bring novel ideas to the market in a timely fashion, offering niche indexes carries its own risks. First, thematic indexes can be hit-or-miss. Second, indexes created by small shops can be costlier due to the lack of scale. In EQM’s case, it outsources the operations to a third party. Third, the self-indexing trend could reduce licensing opportunities.