ETF Prime: Rosenbluth on VettaFi Polling and More

Geraci first asked Rosenbluth to weigh in on Fidelity’s reported plan to charge a $100 servicing fee on ETFs issued by nine different firms. Rosenbluth recalled that commission-free trading was far more limited for companies like Fidelity, Charles Schwab, and others. Rosenbluth suggested that Fidelity may head back towards those days, where commission-free trading would be offered to assets managers willing to pay. While investors would have to foot the bill for asset managers that refuse.

“I wish this was not the case, but distribution success is not for free. This is a for-profit business within the ETF industry. And this is how the world works,” Rosenbluth stated, noting his lack of surprise over the development. Geraci and Rosenbluth both noted their disappointment over the news, as it hampers the idea that ETFs offer democratized investing.

Geraci and Rosenbluth moved on to the findings from VettaFi’s Equity Symposium, which surveyed advisors on a variety of topics. To begin, Geraci noted that the polling found that the majority of advisors believe growth and quality are the most appealing factors in the current investment environment. Rosenbluth was not surprised to see growth top the list. Why? Because mega-cap stocks have led the market in 2023 and early 2024. Quality remaining a top factor was “encouraging” to Rosenbluth, as he touted the importance of strong balance sheets, consistent earnings records, and the chance of free cash flow generation. Rosenbluth then highlighted a few funds that focus on both quality and growth, such as the American Century U.S. Quality Growth ETF (QGRO B-) and the VictoryShares Free Cash Flow ETF (VFLO ).

Moving on, Geraci asked Rosenbluth what he thought about VettaFi’s recent poll. It showed that nearly 32% of advisors reported that half of their client’s portfolios were in active strategies. Rosenbluth recalled being surprised at the number – he was not expecting as high an interest in actively managed strategies. He noted that the poll doesn’t specify whether the active strategies lie in ETFs or mutual funds. However, Rosenbluth nonetheless is encouraged by the investor enthusiasm.

“I am excited about what this means for the ETF industry. As you know, active ETFs have been punching above their weight. They did so in 2022, they did so in 2023. To start this year in 2024, they’ve been popular as well, both active equity and active fixed income,” Rosenbluth noted. Geraci shared Rosenbluth’s enthusiasm, noting that more “major players” are getting involved in the active ETF space.

Geraci pivoted to thematic ETFs, noting the VettaFi polling that showed advisors aren’t seeing much client enthusiasm for thematic funds. He then asked Rosenbluth if there’s too much focus from ETF issuers on the thematic space. Rosenbluth agreed that there are too many thematic ETFs available right now, noting that “here’s a lot of asset managers going after a small subset of the asset base that’s available, because they can’t compete with the S&P 500 base products.” That being said, Rosenbluth said there are still a number of thematic ETFs that present interesting offers, naming the Amplify Online Retail ETF (IBUY C+) and the ProShares Online Retail ETF (ONLN B) in particular.

Moving on, Geraci brought in Troop co-founder and CEO Felix Dubarry to discuss how his company is helping others enable custom proxy shareholder votes. Dubarry noted that proxy advisory coordinates with fund managers to help asset managers make fast and well-informed decisions when it comes to proxy votes. He said “our technology enables them to, in simple conversational English, generate a proxy voting policy, that they can then seamlessly apply to vote on their behalf at all annual shareholder meetings for all the stocks in their portfolio.” Dubarry also noted that he’s satisfied to see large firms provide investors with input on proxy votes.

To close out this week’s episode, Geraci was joined by Alpha Architect vice president Jess Bost. Geraci asked Bost to break down her unique method for portfolio construction that incorporates her background in physical fitness. Bost noted that while financial terminology can be confusing, fitness analogies can help make investing concepts more palatable. As an example, Bost explained that comparisons can be drawn between specific portfolio allocations and exercises. She also mentioned that both financial planning and physical fitness are highly goal-oriented, making palatable comparisons easier to draw.

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