On this week’s “ETF Prime,” host Nate Geraci looked back on some of his favorite segments so far this year, including discussions with Dave Nadig, financial futurist at VettaFi; Lara Crigger, editor-in-chief at VettaFi; Meb Faber, co-founder and CIO at Cambria Investment Management; Rich Powers, head of ETF and index product management at Vanguard; Ben Slavin, global head of ETFs and asset servicing at BNY Mellon; and Dave LaValle, global head of ETFs at Grayscale Investments.
Geraci opened with a discussion with Meb Faber from back in January, during which he gave caution regarding markets despite their outperformance of 2021. Valuations for the S&P 500 were near historic highs, with the kind of performance that had been mirrored back in 1999 and 2000.
“We looked globally and we said, ‘What happens, historically, when you have those high valuations?’ And historically speaking — and most people think this has only happened in one or two countries, but it’s happened in dozens — the historical future returns for the next decade, real returns, are zero on average,” Faber said.
Faber went on to discuss P/E ratios, valuations around the dotcom bubble, and advisor strategies for investing for the predicted downturn in the U.S.
Russian ETF Suspensions
Another favorite segment — which Geraci said was most likely his ETF story of the year — was with Dave Nadig, who was on to discuss Russia’s closure of the Moscow Stock Exchange and the halting of Russian ETFs after the invasion of Ukraine.
“When you look back at examples where things like this have happened before, you really have to look at things like Cuba or Iran in the ’70s, where in those cases it’s not that those stock markets didn’t reopen — those companies ceased to exist, they were nationalized,” Nadig said.
Nadig and Geraci went on to discuss the individual ETF impacts, from suspending creations, to trading at premiums, to the exchanges halting trading entirely of Russian securities and ETFs.
The FINRA Effect
Another big potential shakeup in the ETF world made Geraci’s list of favorite segments, with Lara Crigger on to discuss the FINRA proposal regarding complex products that would set testing requirements for brokerages and brokers before allowing an investor access to “complex” funds.
“FINRA wants to define complex products, and the way they’ve done it, the net that their proposal is casting, is extending so far and wide that pretty much every ETF that isn’t a pure market beta indexed product would potentially fall into this net,” Crigger explained.
Crigger went on to discuss the potential overreach this would cause for retail investors which FINRA should not have oversight of, and the potential slippery slope of such a regulation.
The Vanguard Patent Expiration
Geraci also included the conversation with Vanguard’s Rich Powers regarding the expiration of the Vanguard patent of a multi-shareclass product in 2023. Any potential firm wanting to attempt engaging with this type of product will have to go through a rigorous process with the SEC to get approval, Powers explained. Ben Slavin was also on a separate segment to discuss the Vanguard patent.
“We’ll probably see more bitcoin ETF filings still pending versus these filings for shareclasses. Really, once this patent expires, other firms will no longer need to deal with Vanguard, but they will need to deal with the SEC, and that’s where the concern lies,” Slavin said.
Spot Bitcoin ETF Approval
The final conversation Nadig pulled was with Dave LaValle and concerned Grayscale’s filing with the SEC to convert its bitcoin trust fund into an ETF. Grayscale has currently garnered over 3,000 comments for the filing from the public to the SEC.
“The SEC has to pay attention to those comment letters and has to address what has been brought up in those comment letters,” LaValle said.
The conversation covered potential routes to a spot bitcoin ETF approval, what happens for investors if the Grayscale fund is approved and converts over, the impacts of other bitcoin products on Grayscale’s bitcoin fund, and Grayscale’s challenge to the SEC regarding a spot bitcoin approval.
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