Get Ready for Darwinian Struggle for ETF Survival

(Bloomberg Opinion) -- Few people are as knowledgeable about the plumbing underlying how exchange-traded funds are assembled and maintained as David Nadig, this week's guest on Masters in Business. He helped to design some of the first ETFs; as co-founder of Cerulli Associates, he conducted some of the earliest research on fee-only financial advisers and the rise of indexing; and he now is managing director of Cboe Global Markets Inc.’s ETF.com.

During our interview we discuss the odd legal structure of ETFGs -- ETFs tied to global indexes -- and that in order to even exist they require a special waiver from the Securities Exchange Commission. The SEC is expected to change these rules in order to make the creation of ETFs less expensive and more predictable. ETFs will retain the advantages they hold over mutual funds, namely, a tax structure that doesn't create phantom capital gains the way mutual funds can.

Nadig also discussed why three companies -- BlackRock Inc., Vanguard Group Inc. and State Street Corp. -- dominate the ETF universe. There now are more than 2,300 ETFs, and a Darwinian battle for survival is brewing for many of them.

His favorite books are here.

You can stream/download the full conversation, including the podcast extras on iTunesBloombergOvercast and Stitcher. Our earlier podcasts can all be found at iTunesStitcherOvercast and Bloomberg.

Next week, we speak with David Hunt, chief executive officer of PGIM Inc., the asset-management arm of Prudential Financial.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Barry Ritholtz is a Bloomberg Opinion columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He is the author of “Bailout Nation.”

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