Structure Matters: Elephant in the Room Series

The Elephant in The Room:  Cultures Collide ETFs vs Mutual Funds

When we wrote the article we thought we were being smart in highlighting the access that Precidian would be offering to advisors in wrapping active management. Again, we think the 90 day minimum transparency should not be the issue people focus on when they look at ActiveShares. All things be equal, the question will remain  whether active will outperform  passive on an after tax basis?  It is for this reason,  we highlight the most important issue for ActiveShares  in our Elephant in the Room series.  Our point is to call out the asset manager who are licencing the ActiveShares  wrapper and launch  their best PM alpha generating strategies in ETFs. We want  their  “Hot Dots” in an ETF! Understandably, this may mean some internal cultural clashes, but  if the firm’s launching clone ETFs imply be use the ETF wrapper to stem outflows in marginally generating alpha strategies advisors will not be excited. To that point, we highlight Heather Bell’s ETF article “Challenge Facing Advisors: Growth” Peter Mallouk’s firm Creative Planning is one of the country’s largest RIA with $42 Billion and for years has been an early adopter of ETFs.. It is for this reason we take notice when when Heather asks him the question “What appeals to you about ETFs, and what are you usually looking for in an ETF for a portfolio?” Again, great article so read the whole thing, but the bullet point his answer.

  • Favors passive over active, Enjoys the benefits of tax efficiency and lower cost
  • Customization around lower cost concentrated large portfolios.
  •  In “specialized” ETFs, Peter may be highlighting that he is in support of the ETF Entrepreneur (ETFe) providing  thematic ETFs that provide access to trends, solutions and disruptive technologies.

As an early adopter myself of ETFs I read Peter’s comments on Linkedin all the time. His vision for Blockchain interests me, but in this area he seems to enjoy choosing large cap stocks. The pursuit of active management in this space is challenging and requires a dynamic  understanding of what is both truly disruptive and meaningful to industries, markets and to the businesses themselves. I look forward to Peter’s comments as always and someday hope to share our own.   

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