October 5, 2012

Morningstar ETF Invest Live Blog, Day 3: Pundits Pontificate on Future of ETFs

1:05 p.m. CDT, Oct. 5, Joyce Hanson here:

Goodbye to Morningstar ETF Invest 2012 -- see you next year.

Noon CDT, Oct. 5, Joyce Hanson here:

Price war in the ETF space?

“It’s been happening since Day One,” says Paul Justice, Morningstar’s director of research for passive funds, at a “Meet the Pundits” panel with IndexUniverse.com editorial head Matt Hougan and ETFtrends.com publisher Tom Lydon. “It happens every year. It’s not new, and it’s not going to stop.”

So that answers the price war question. Next question from panel moderator Jeff Benjamin, senior editor for InvestmentNews:

How low can fees go?

“At this point, it doesn’t matter,” says Hougan. “We’re getting down to the area where the differences in fees are minimal, 4bp or 6bp.”

Lydon notes that the game has extended from the ETF competitors into the index space. “The ETF providers are asking them to give a little bit,” he says. “The gloves are off, and they’re going to have to compete.”

More fun stuff from the pundits:

Paul Justice: “Breaking news everybody. Not everybody buying an ETF is using it as a mutual fund replacement.”

Matt Hougan: “Vanguard doesn’t make any money. That’s their point.” But seriously, folks, the lowest cost expense ratios catch advisors’ attention. “I don’t think for an advisor transferring to Schwab that the 2bp is what matters.”

Tom Lydon: There’s always buzz about what’s new and sexy in ETFs, but the reality is that most investment dollars pour into boring yet steady large funds. The future is in distribution: the Schwab-type companies have broader access than the smaller competitors.

Hougan: Of course funds are going to close. IndexUniverse has pinpointed 400 funds that will close. “It’s not a big deal. You get your money back.” There’s plenty of headline news about tiny fund closures that nobody’s invested in anyway.

P.S. from Hougan: “If you have Bill Gross working for you, it’s a good idea for him to actively manage an ETF. Write that down.”

Lydon: PIMCO’s move to open an ETF that tracks its Total Return Fund was “gutsy,” but a smart move. “There are no real personalities in the ETF space, and here comes Bill Gross, a big fund rock star.”

11:30 a.m. CDT, Oct. 5, Joyce Hanson here:

Good bye to Morningstar ETF Invest 2012. Exhibitors are breaking down their booths and ignoring advisors, so you know it’s over.

For hangers-on who just don’t want it to end, the closing general session is a lively one: “Meet the Pundits,” with Matt Hougan, Paul Justice and Tom Lydon talking about the state of all-things-ETF and where the industry is headed.

Watch this space for their thoughts…


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