ETF Weekender: Reddit Army Rocks Quants and the Indexing War Rages
(Bloomberg) -- Welcome to the ETF Weekender, your round-up of the biggest and most interesting stories from one of hottest corners of global markets.
In this week’s edition: A new theory on how capital flows move stocks is picking up fans on Wall Street and beyond. A quant giant fires a fresh shot in the custom indexing battle. And a riskier CLO ETF may be on the way.
These are the stories you need to read.
What happened: A new theory about how waves of money move stocks is gaining traction after Reddit chat boards showed what can happen when new investors pour in.
Why it matters: For decades, financial theory has been built on the idea that a share price reflects everything known at any moment about a company’s value. This new theory explains how the amount of capital sloshing into markets can have an outsize and lasting impact on share prices regardless of fundamental factors like earnings, revenue and growth. It sounds intuitive, but it’s a game-changer in many circles.
What happened: Dimensional Fund Advisors slashed the minimum needed to access its lineup of separately managed accounts to just $500,000.
Why it matters: That’s a huge cut from the typical threshold of more than $20 million. It’s the latest shot fired in the increasingly fierce battle to meet booming demand in the SMA and custom indexing business. Morgan Stanley spent $7 billion on Eaton Vance Corp. last year attracted to the latter’s ownership of Parametric Portfolio Associates -- one of the heavyweights in direct indexing. That was quickly followed by BlackRock Inc.’s $1 billion purchase of Aperio, a creator of tailored index strategies.
What happened: Janus Henderson has filed for a CLO ETF that will invest at least 80% of its assets in securities rated from BBB+ to B-.
Why it matters: When the first ETFs tracking collateralized loan obligations arrived, worries about easing access to these complex securities were assuaged by the fact the funds targeted only the highest-rated debt. Just over a year later the market is making a big shift down the credit-ratings ladder. In theory it means that any investor, from mom and pop to the Reddit crowd, can have access to packages of leveraged loans issued to riskier U.S. companies.
Want more? Bonus weekend reading
- T. Rowe Expands ETF Business With Actively Managed Bond Funds.
- Loomis Sayles Teams Up With State Street for a Rare ETF Foray.
- Vanguard ETF Dethrones State Street for Biggest Annual Inflow.
- Nuveen Cuts Fees on $4.3 Billion of ETFs, Launches Two New Funds.
- Betting. Alcohol. Drugs. New B.A.D. ETF Will Live Up to Its Name.
Good Intel: TIP Top
A glimpse at the Bloomberg Intelligence analysis available on the terminal.
Intensifying price pressures in the supply-chain turmoil are driving billions in ETFs across assets. The inflation-protected bonds category we track has recorded net inflows every month since May 2020, with the monthly inflow average is 2.8x greater in 2021 than in 2020. Meanwhile, the 18 ETFs with "inflation" in their description have seen average monthly inflows of roughly $2.6 billion a month since May 2020 versus $207 million from 2019 through February 2020.
This fund started trading last year and unbelievably has never registered an outflow. The asset it targets is a hot topic, largely trades in Europe and is heavily tied to the ESG boom. September was its best month for flows yet.
That’s the answer. The question identifying this fund will appear in the next edition. Last week’s question: What is the Quadratic Interest Rate Volatility and Inflation Hedge ETF, ticker IVOL?
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