Dave Nadig - “This is a Big Year for ETFs" | #56

In Episode 56, we welcome Meb's good friend, and CEO of ETF.com, Dave Nadig. Per usual, we start with some background information. Dave tells us about his early days in the investment industry, starting a consulting firm that was working on a then-new idea: fee-only financial advising. His first client was a little shop that went on to become none other than BlackRock. After some professional twists and turns, including running money for a while, Dave ended up at ETF.com.

Meb then dives in by referencing an article Dave wrote toward the end of last year, called "Outlook for ETFs in 2017." There were several key points in the article which Meb thinks can help provide a general, 30-thousand-foot overview of the ETF space. The first point - ETF flows.

Dave tells us "this is a big year for ETFs." He then takes us through a quick recap of the evolution of ETFs, going from a purely institutional product back in its early days, to something embraced by investment advisors, to an investment vehicle for retail investors. And here we are now, somewhat full circle, with ETFs even more embraced by institutions (think endowments), only now, they're no longer held as fringe investments, but as core holdings. 

Meb asks at what point ETF assets will surpass mutual fund assets. Meb had predicted within about 10 years back in 2013. Dave tells us there will always be a demand for mutual funds - that said, he believes the cross will happen around 2025, with asset levels around $14 trillion. 

Meb asks if the evolution in the ETF space today is primarily a movement from higher fee to lower fee. David believes this is the case. Most of the new flows are going toward low-cost vanilla products. Dave thinks the whole active/passive debate misses the point - it's really about cost. This dovetails into another business/investment idea Meb has that he's offering to any listener willing to pursue it.

Next, Meb brings us back to Dave's 2017 Outlook piece, this time bringing up "ESG."(This stands for "environmental, social and governance" for anyone unaware.). Dave believes that we're near/in the greatest intergenerational wealth transfer in history. And the 40-year-olds that are inheriting, say, a $5M portfolio from their 70-80-year-old parents have different desires about what to do with that money. Dave tells us that this younger generation wants their money to do something - and this usually gets labeled ESG. So Dave believes we'll see more funds targeting this wealth transfer. 

As usual, there's plenty more in the episode: exchange traded notes... the regulatory change Dave would like to see... buying ETFs at NAV... Dave's one piece of advice offered to help listeners the most... and Dave's answer to a new question: since Dave is a big "game" lover, Meb asks which three games are his top 3 of all time.

What are they? Find out in Episode 56.

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