Felix Salmon

Why guru ETFs beat human gurus

November 21, 2013

Wall Street is no place for shrinking violets, but even by New York standards, Jason Ader has some serious chutzpah: he said today that “the proliferation of index funds and exchange traded funds” helps activist investors like himself make money.

Financial innovation of the day, Winklevii edition

July 2, 2013

You can see why they called it the Winklevoss Bitcoin Trust. Without their name in there somewhere, they would never have gotten a respectful thousand-word article in the NYT just for making a speculative SEC filing. To be clear: this thing is a really, really silly idea, from a pair of brothers whose main ambition, these days, is to be the biggest helminths in the bitcoinverse.

What’s driving the Total Return ETF?

July 18, 2012

When Pimco’s Total Return ETF launched earlier this year, it was clear what the biggest risk was:

Chart of the day, ETF size edition

January 23, 2012

I’m sorry I missed Devin Riley’s excellent post when I was writing about ETFs on Friday. Here’s his chart:

ETF datapoints of the day, market-share edition

January 20, 2012

Conceptually, it makes sense that ETFs would be a winner-takes-all phenomenon. Expenses rise much more slowly than assets, which means that the bigger a fund gets, the cheaper it can be. And given that ETFs compete first and foremost on expense ratio, money is likely to pour into the cheapest-and-biggest funds, which allows them to get even cheaper. And so on.

How to make ETFs less risky

October 25, 2011

Harold Bradley and Bob Litan made some very good points about ETFs in their Congressional testimony last week — testimony which Paul Amery today greets as “a mixed bag”. But it’s hard to argue with this:

The harm done by levered ETFs

May 1, 2011

Kid Dynamite and The Analyst have taken issue with my post about levered ETFs. We’re all in agreement that they shouldn’t be held for a period of longer than 1 day. But their argument is basically that the SEC can’t and shouldn’t protect people from their own stupidity. Here’s the Analyst:

Why the SEC should look at levered ETFs

April 30, 2011

TBT, the ProShares UltraShort 20+ Year US Treasury fund, is an ETF which returns double the daily decline in an index linked to long-dated government bonds. There are 173 million shares of TBT outstanding, which at a price of $35.65 apiece, means that more than $6 billion is tied up in TBT shares. But average daily volume is just 10.7 million shares — which means that the overwhelming majority of TBT shares are not traded on any given day.

ETFs jump the shark, FactorShares edition

February 24, 2011

Sometimes, financial innovations seem like a good idea at the time, and it’s only later, after everything has gone pear-shaped, that it becomes clear we would have been much better off without them. Other times, financial innovations are clearly a bad idea from the get-go: