<ul class="summary-list"><li> ARKX collected $536 million in its first five trading days, as reported by The Wall Street Journal.</li><li>This figure far surpasses the industry average of ETFs collecting $100 million in three years.</li><li>ARKX may be well on track to hit the $1 billion mark in merely months.</li></ul><p><keyword id="10473418" type="UNKNOWN" weightage="60" keywordseo="cathie-wood">Cathie Wood</keyword>'s newly launched exchange-traded fund focused on investments in <keyword id="41531" type="COMPANY" weightage="60" keywordseo="space">space</keyword> exploration is on its way to becoming one of the most successful fund launches in history.<br /><br /><a href="https://ark-funds.com/arkx" target="_blank" rel="noopener">Ark Space Exploration and Innovation ETF</a> took in $536.2 million in its first five days since it began trading on March 30, according to FactSet data, as reported by <a href="https://www.wsj.com/articles/cathie-wood-extends-hot-hand-with-ark-space-exploration-etf-11617787802">The Wall Street Journal</a>. This figure far surpasses the industry average of ETFs collecting $100 million in three years. <br /><br />At its current pace, the newest fund of <keyword id="1041631" type="CITY" weightage="60" keywordseo="ARK">Ark</keyword> Investment Management may be on track to hit the $1 billion mark in a few months. The fastest ETF to reach the $1 billion threshold was State Street's SPDR Gold Trust <a href="https://www.wsj.com/market-data/quotes/GLD?mod=chiclets"></a>fund in 2004, which <a href="https://www.businesswire.com/news/home/20191118005142/en/SPDR%C2%AE-Gold-Shares-the-First-US-Gold-backed-ETF-That-Changed-How-Investors-Access-Gold-Celebrates-15-Years">made this record in just three days</a>.</p><p>"I think in terms of metrics of volume and inflow, it would be hard to argue that it's anything but a successful launch," Andrew Chanin, ProcureAM CEO and co-founder, told Insider.</p><p>But Chanin, the man behind UFO, a passive space-themed ETF, noted that Wood's ETF affords her more wiggle room to invest in companies that do not necessarily generate their revenues from space. </p><p>The <a href="https://markets.businessinsider.com/news/stocks/cathie-wood-space-etf-ark-innovation-volume-trading-investing-stocks-2021-3-1030260593">top holding</a> of ARKX is <a href="https://markets.businessinsider.com/stocks/trmb-stock?utm_source=markets&amp;utm_medium=ingestgest" target="_blank" rel="noopener">Trimble</a>, a technology company that provides GPS, laser, and optical technologies. The California-based company has an 8.61% weight in the ETF. <a href="https://markets.businessinsider.com/stocks/ba-stock?utm_source=markets&amp;utm_medium=ingestgest" target="_blank" rel="noopener">Boeing</a>, <a href="https://markets.businessinsider.com/stocks/lmt-stock?utm_source=markets&amp;utm_medium=ingestgest" target="_blank" rel="noopener">Lockheed Martin</a>, and Ark's 3D printing <a href="https://markets.businessinsider.com/etfs/the-3d-printing-etf-us00214q5009?utm_source=markets&amp;utm_medium=ingestgest" target="_blank" rel="noopener">ETF</a> are also among the <a href="https://ark-funds.com/arkx">top 10 holdings</a>. </p><p>Wood's <a href="https://markets.businessinsider.com/news/stocks/cathie-wood-space-ark-etf-launch-first-fund-since-2019-2021-3-1030247159">last fund was launched two years ago</a>, with the debut of ARK Fintech Innovation ETF,  which focuses on financial technology innovation. <br /><br />The arrival of ARKX comes amid rising interest in space exploration among the broader public. <a href="https://markets.businessinsider.com/news/stocks/6-etfs-for-stock-market-zeitgeist-buzz-fomo-mvp-tickers-2021-3-1030229608?utm_source=markets&amp;utm_medium=ingestgest" target="_blank" rel="noopener">UFO</a> has seen a 14% gain year-to-date although it has lagged the S&amp;P 500 since its inception in 2019. UFO is the world's first pure-play space ETF and holds Loral Space, Viasat, and Gilat, among others.</p><p>"It's not being about creative and buying tangential plays on whether the company is affected by space," Chanin said, talking about his fund. "We are actually looking at companies that are generating revenue from space."</p><p>The space industry has become mainstream in the past years as more well-known companies including Elon Musk's SpaceX and Richard Branson's Virgin Galactic continue to make progress.</p><p>ARKX closed at $20.81 on Wednesday, down 1.37%.</p>

Cathie Wood's ARKX Space ETF on track for one of most successful fund launches ever

<p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><img src="https://static-ssl.businessinsider.com/image/5d97a594ec72bd16fa58b387-1000/screen shot 2019-10-04 at 40039 pm.png" border="0" alt="Shalin Madan" data-mce-source="Shalin Madan/Bodhi Tree Asset Management" /><p class="source"><span>Shalin Madan/Bodhi Tree Asset Management</span></p></div><p></p></div></div></p><ul class="summary-list"><li>Shalin Madan, founder and chief investment officer of Bodhi Tree Asset Management, is getting defensive amidst a stock market levels he calls "completely unjustified."</li><li>In an exclusive interview with Business Insider, Madan shares how he's positioning his probabilistic, quantitative portfolio to profit.</li><li><a href="https://www.businessinsider.com/prime">Click here for more BI Prime stories</a>.</li></ul><p>There are generally two schools of thought when stocks are nearing all time highs: (1) Now's the time to bet the farm and (2) now's the time to run for the hills. </p><p><a href="https://twitter.com/bodhitreecio?lang=en">Shalin Madan</a>, founder and CIO of <a href="https://www.btam.co/">Bodhi Tree Asset Management</a>, is firmly siding with the latter.</p><p>"This year, what you're actually finding is that you have no earnings growth in equities and very high PEs [price-to-earnings ratios]," he said in an exclusive interview with Business Insider. "An 18-times PE for a market that's not growing - and an economy that looks primed for <a href="https://www.businessinsider.com/category/recession">recession</a> - we don't think that's a very good combination."</p><p>"It's completely unjustified," he added.</p><p>For evidence of that, look no further than marketwide earnings growth. It's shrunk in 2019 while prices have remained relatively stable. Normally, you'd expect prices to contract in order to reflect the absence of earnings. But the opposite has been true - and the <a href="https://markets.businessinsider.com/index/s&amp;p_500">S&amp;P 500</a> is has rallied roughly 18% year-to-date.</p><p>Madan takes a probabilistic, quantitative approach to investing. He looks at the current market cycle, and tries to combine that with the macroeconomic cycle. Once he's got that dialed in, he relies on a few key indicators to help him separate a viable buy/sell signal from the noise.</p><p><em><strong>Read more</strong>: <a href="https://www.businessinsider.com/stock-market-investing-advice-under-the-radar-picks-chris-mayer-2019-10" target="_blank" rel="noopener">The man who wrote the book on how to make 100 times your money with a single stock outlines the core principles of his investing approach - and shares his 2 top under-the-radar picks</a></em></p><p>Some of his favorites are: the ratio of copper/gold, global credit spreads, levels of volatility, and the ratio of cyclicals/defensives. These indicators help either confirm or deny potential trends and inflection points that he can use to trade.</p><p>Thanks to this strategy, when stocks plummeted in the forth-quarter of 2018, he was raking in the profits. When markets were zigging, Madan was zagging. Now he thinks a slight headwind could spell disaster for a frothy market.</p><p>"It wouldn't take much to - we think - set off what we think is a bit of capitulation trade, which is a historical precedent that marks every macro-market cycle bottom," he said. "The current environmental conditions are ripe for a Black Swan."</p><p>Today, his model is tells him the portfolio needs to be tilted towards the bearish side of the spectrum. Here's a list of positions, matched with an exchange-traded fund that can help the average investor follow suit:</p><ul><li>Long-duration US fixed income (<a href="https://markets.businessinsider.com/etfs/ishares-20+-year-treasury-bond-etf" target="_blank" rel="noopener">iShares 20+ Year Treasury Bond ETF</a>)</li><li>Gold (<a href="https://markets.businessinsider.com/etfs/spdr-gold-shares" target="_blank" rel="noopener">SPDR Gold Shares</a>)</li><li>US real estate investment trusts (<a href="https://markets.businessinsider.com/etfs/spdr-dow-jones-reit-etf" target="_blank" rel="noopener">SPDR Dow Jones REIT ETF</a>)</li></ul><p>In addition, Madan is short <a href="https://markets.businessinsider.com/index/nyse-bitcoin-index">Bitcoin</a>. He views the controversial cryptocurrency as a risk appetite indicator - and it's plummeted over $4,500 since late June, foreshadowing the move lower in equities.</p><p>"We think that it's an extremely dangerous period right now," he concluded. "It's a very fragile environment."</p><p class="tagline">Get the latest Gold price<a href="http://markets.businessinsider.com/commodities/gold-price"> here.</a></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="https://www.businessinsider.com/escape-sinking-car-survival-skills-2017-4">Here's how to escape a flooding vehicle</a></h3>        <div>            <iframe class="bijwplayerclass" data-player="jwplayer" src="https://content.jwplatform.com/players/zp3YtZE8-CEZHWCBG.html" width="100%" height="100%" frameborder="0" scrolling="auto" style="margin:0px;" allowfullscreen=""></iframe><script>function receiveMessage(event){ console.log(event.data.fullscreen); Android.fullscreen(event.data.fullscreen); }window.addEventListener("message", receiveMessage, false);</script>        </div>    </div>

A Wall Street investment chief says stock market levels are 'completely unjustified' - and shares how he's positioning his portfolio in an economy that looks 'primed for recession'

<ul class="summary-list"><li>An exchange-traded fund (ETF) is a basket of securities that's traded on a <keyword id="6368159" type="UNKNOWN" weightage="60" keywordseo="stock">stock</keyword> exchange. </li><li>There are two types of ETFs: Index-based ETFs and actively managed ETFs.</li><li>Most ETFs are index-based ETFs, which are passively managed and track an index like the S&amp;P 500.</li></ul><p>First created in the 1990s, exchange-traded funds (ETFs) have become a popular and important investment product. You may be able to use ETFs as a low-cost and convenient way to diversify your portfolio. However, you'll also want to understand the costs and risks that come with <keyword id="35175" type="ORGANIZATION" weightage="60" keywordseo="investing">investing</keyword> in ETFs. </p><h2>What is an exchange-traded fund (ETF)?<strong> </strong></h2><p>An exchange-traded fund (ETF) is a basket of securities that's sold on stock market exchanges through brokerage firms. That means an ETF could hold thousands of underlying stocks. When you purchase a share of the ETF, you become a partial owner of the fund. Your investment could increase or decrease in value as the price of the underlying stocks changes.  </p><p>And ETFs are traded during the day, much like stocks. "Exchange-traded refers to the fund being able to be bought and sold during the trading day," says Curtis Bailey, a CFA charterholder and financial advisor at <a href="https://quietwealth.net/" target="_blank" rel="nofollow noopener sponsored">Quiet Wealth Management</a>. "A fund is an ownership structure that allows an investor to own a portion of an underlying basket of securities."</p><h2>How do ETFs work?</h2><p>An ETF is created when an ETF manager files a plan with the Securities and Exchange Commission (SEC), later forming an agreement with an authorized participant (typically large broker-dealers) who will create ETF shares. The authorized participant will essentially borrow shares of stocks and bundle them into a trust to form what's called ETF creation units, which are then bought and sold by investors just like regular stock. You can even purchase ETFs on <a href="https://www.businessinsider.com/what-is-margin-trading-how-it-works" target="_blank" rel="noopener">margin</a> and place limit orders.</p><p>Like stocks, you may have to pay a transaction fee to your brokerage for each trade. Additionally, ETFs have a fixed fee like mutual funds - an <a href="https://www.businessinsider.com/what-is-expense-ratio" target="_blank" rel="noopener">expense ratio</a>. "The largest ETFs often have really low fees," says Bailey. "[But] some ETFs have higher expense ratios than actively managed mutual funds."</p><p>However, it's important to note that tracking errors could lead to a discrepancy between the ETF's price and value of the underlying assets in some cases.</p><p>There could also be a difference between the price that people are willing to buy and sell shares of the ETF. The bid-ask spread - which is the difference between offer/sell (ask) price and the purchase/buy (bid) price of a security - may be more common for thinly traded ETFs. "This spread may represent an additional hidden cost as an investor pays more to buy the shares and receives less to sell the shares," says Bailey.</p><p><strong>Quick tip:</strong> A tracking error is the difference between the return of an investment portfolio and the return fluctuations of a chosen benchmark.</p><h3>ETFs vs. mutual funds vs. index funds</h3><p>An <a href="https://www.businessinsider.com/what-is-an-index-fund" target="_blank" rel="noopener">index fund</a> is a general term for a fund that tracks an index. Both ETFs and mutual funds could be index funds. </p><p><a href="https://www.businessinsider.com/mutual-funds" target="_blank" rel="noopener">Mutual funds</a> also hold a basket of securities. However, unlike ETFs, mutual funds may have higher initial minimum investment requirements and they're only traded once per day after the markets close. There are other <a href="https://www.businessinsider.com/etf-vs-mutual-fund" target="_blank" rel="noopener">important differences</a> for investors to consider as well. </p><p>"The fund structure dictates what it can hold and how it can invest," says Bailey. "It's important to understand the fund's underlying investments, strategy, and costs." </p><h2>Different types of ETFs </h2><p>Broadly speaking, there are two types of ETFs: Index-based ETFs and actively managed ETFs. Index-basedETFs are <a href="https://www.businessinsider.com/passive-investing" target="_blank" rel="noopener">passively managed</a> and track a <a href="https://www.businessinsider.com/what-is-a-stock-market-index" target="_blank" rel="noopener">stock market index</a> - a grouping of individual stocks that share a common feature. For example, the <a href="https://www.businessinsider.com/what-is-the-sp-500" target="_blank" rel="noopener">Standard &amp; Poor's (S&amp;P) 500</a> is an index of the 500 largest public companies in the US. Most ETFs are passively managed.</p><p>The different types of index-based ETFs often refer to the type of index the ETF tracks:</p><ul><li><strong>Equity ETFs </strong>often track a specific index of stocks. The index may be based on the companies' size, region, industry, or other commonalities. </li><li><strong>Bond or fixed-income ETFs</strong> track a portfolio of <a href="https://www.businessinsider.com/what-is-a-bond" target="_blank" rel="noopener">bonds</a>, such as corporate and government debt.</li><li><strong>International ETFs </strong>track companies from a specific country or region. </li><li><strong>Sector or industry ETFs </strong>track companies within a sector, such as energy or real estate. </li><li><strong>Socially responsible ETFs </strong>may track an index of <a href="https://www.businessinsider.com/esg-investing" target="_blank" rel="noopener">socially conscious companies</a>.  </li><li><strong>Commodity ETFs</strong> track the price of raw materials, such as gold or oil. </li><li><strong>Currency ETFs </strong>track one or more currencies, such as the Euro or a <a href="https://www.businessinsider.com/what-is-cryptocurrency" target="_blank" rel="noopener">cryptocurrency</a>. </li></ul><p>Then there are actively managed ETFs, which aren't based on an index. Instead, they often have a benchmark index and a fund manager or team tries to outperform the benchmark. Generally, you'll pay higher fees for an actively managed ETF.</p><p><strong>Quick tip: </strong>The cost and risk associated with ETFs can vary depending on the type of ETF and management style.</p><h2><strong>Examples of real ETFs</strong></h2><p>With the different types of ETFs in mind, here are a few examples of real ETFs:</p><ul><li><a href="https://markets.businessinsider.com/etfs/spdr-sp-500-etf-trust-us78462f1030" target="_blank" rel="noopener"><strong>SPDR S&amp;P 500 ETF Trust (SPY)</strong></a> is one of the first and most popular equity ETFs. It tracks the S&amp;P 500.</li><li><a href="https://markets.businessinsider.com/etfs/invesco-qqq-trust-us46090e1038" target="_blank" rel="noopener"><strong>Invesco QQQ Trust (QQQ)</strong></a> is another popular equity ETF. It tracks the Nasdaq-100 Index, which is made up of the largest non-financial companies on the <a href="https://www.businessinsider.com/what-is-nasdaq">Nasdaq stock exchange</a>. </li><li><a href="https://markets.businessinsider.com/etfs/vanguard-total-international-stock-index-fund-etf-shares-us9219097683" target="_blank" rel="noopener"><strong>Vanguard Total International Stock Index Fund ETF Shares (VXUS)</strong></a> is an international equity ETF that tracks the FTSE Global All Cap ex US Index, an index of every public company outside the US. </li><li><a href="https://markets.businessinsider.com/etfs/ishares-global-clean-energy-etf-us4642882249" target="_blank" rel="noopener"><strong>iShares Global Clean Energy ETF (ICLN)</strong></a> is a sector and socially responsible ETF that tracks the S&amp;P Global Clean Energy Index.</li><li><a href="https://markets.businessinsider.com/etfs/ark-innovation-etf-us00214q1040"><strong>ARK Innovation ETF (ARKK)</strong></a> is a large, actively managed ETF that primarily invests in companies that create and use innovative technology.</li></ul><h2><strong>Pros and cons of investing in ETFs</strong></h2><p>ETFs can be an important part of your portfolios in that it can diversify your investing portfolio. But consider the pros and cons of ETFs in general and of the specific ETF you're considering investing in. </p><table style="border-collapse: collapse; width: 100%;" border="1"><tbody><tr><td style="width: 50%;">Pros</td><td style="width: 50%;">Cons</td></tr><tr><td style="width: 50%;"><ul><li>There are many types of ETFs, including funds that track broad and niche indexes. </li><li>You can trade ETFs like stocks. </li><li>Many ETFs have lower expense ratios than actively managed mutual funds. </li><li>Investing in ETFs could lead to tax savings compared to holding a mutual fund. </li></ul></td><td style="width: 50%;"><ul><li>Narrow-focused ETFs don't necessarily offer diversification. </li><li>You may have to pay brokerage fees to trade ETFs.</li><li>Some ETFs can be hard to understand or have high expense ratios. </li><li>An ETF could wind up costing more than the underlying assets.</li></ul></td></tr></tbody></table><h2><strong>The financial takeaway</strong></h2><p>You can buy and sell ETFs like stocks, and they can provide a low-cost option for quickly investing in a large basket of securities. </p><p>"Every investor should consider ETFs," says Bailey. "They are typically more tax-efficient and lower cost than mutual funds and offer diversification that would be hard to mimic through individual positions." </p><p>However, there are also complex and high-risk ETFs available. Before making an investment decision, consider how the particular ETF could impact your portfolio and how it compares to other types of funds.</p><a data-type="600ad776dc0b8e1a3837e3ad">A brokerage account is the first step to becoming an investor, allowing you to buy stocks, bonds, and other securities</a><a data-type="603d0928507cd77b043e1cac">How many stocks should you own in your portfolio? Why there's no single 'right' answer</a><a data-type="5fac1720bf96b9125f748159">How to diversify your portfolio to limit losses and guard against risk</a><a data-type="60f98edda27a1f47a4057ae3">How stock quotes can better inform your investing decisions</a>

How to use ETFs to diversify your portfolio, trade more frequently, and invest safer

<p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><img src="https://static-ssl.businessinsider.com/image/52af26e369bedd4b1943dd64-1427/screen shot 2013-12-16 at 111155 am.png" border="0" alt="David Rosenberg" data-mce-source="Screenshot via Bloomberg TV" /><p class="source"><span>Screenshot via Bloomberg TV</span></p></div><p></p></div></div></p><ul class="summary-list"><li>David Rosenberg, chief economist and strategist at Gluskin Sheff, sounds the alarm on a Federal Reserve-induced bubble he sees expanding within the US economy. </li><li>He points to inflated corporate balance sheets and looming debt servicing payments in order to bolster the case for a recession.</li><li><a href="https://www.businessinsider.com/prime">Click here for more BI Prime stories.</a></li></ul><p>It's hard to find a word in the English language that conjures a more visceral reaction from investors than "<a href="https://www.businessinsider.com/category/bubble">bubble</a>."</p><p>This market phenomenon has been associated with every boom-and-bust cycle throughout history, and has consistently preyed on the overzealous, get-rich-quick participants. After all, envy has an uncanny way of upending sound logic.</p><p>But not all are fooled by the market's irrational exuberance - and one prominent economist thinks the latest bubble is right before our eyes. </p><p><span style="font-weight: 400;">"I always say after a Fed easing cycle: follow the bubble," said <a href="https://www.gluskinsheff.com/People">David Rosenberg</a> - chief economist and strategist at <a href="https://www.gluskinsheff.com/Home">Gluskin Sheff</a> - on <a href="https://podcasts.apple.com/us/podcast/behind-the-markets-podcast/id1194707802">Behind the Markets</a>, an investing podcast hosted by Jeremy D. Schwartz. "The bubble this time around was on corporate balance sheets."</span></p><p><span style="font-weight: 400;">Considering that corporate debt hasn't been the direct culprit in any of the most recent recessions, this is a relatively unique take. And while it's an argument that's been <a href="https://www.businessinsider.com/corporate-debt-bubble-bbb-rated-bonds-market-threat-recession-implications-2019-5" target="_blank" rel="noopener">espoused by other experts</a>, it's anyone's guess how the collapse will play out when it inevitably does.</span></p><p>Rosenberg's logic behind his thesis works like this: <a href="https://www.businessinsider.com/category/federal-reserve" target="_blank" rel="noopener">Federal Reserve</a> rate cuts bolster and incentivize capital spending. In turn, corporations pile on debt, taking advantage of ultra-cheap capital while they have the opportunity, and deploying it as they see fit.</p><p><em><span style="font-weight: 400;"><strong>Read more</strong>: <a href="https://www.businessinsider.com/why-david-einhorn-just-started-shorting-us-corporate-credit-economy-2019-8" target="_blank" rel="noopener">Billionaire investor David Einhorn breaks down why he just started shorting the US credit market</a></span></em></p><p>But when companies borrow too much, debt servicing becomes an issue. And, currently, <a href="https://www.businessinsider.com/category/corporate-debt">corporate debt</a> levels are at all time highs.</p><p>Rosenberg thinks this notion will hinder corporate spending going forward, as debt servicing becomes an increasing priority amidst an economic slowdown.</p><p><span style="font-weight: 400;">"My thesis all along has been that this will be a capital spending-led recession," he stated. </span><span style="font-weight: 400;">"We're going to be finding a lot of the cash flows being diverted to debt service - even under this low interest rate environment - and away from capital spending."</span></p><p><span style="font-weight: 400;">Corporations need to invest in new projects, employees, and technology. But when precious capital is diverted to debt servicing, they find themselves hamstrung and unable to invest in the areas that will conjure growth. And a vicious cycle ensues.</span></p><p><span style="font-weight: 400;">To further his point, Rosenberg also notes geopolitical uncertainty - both political and economic - for additional reasons why companies will have a hard time splurging on expenditures. And, w</span><span style="font-weight: 400;">ith trade war escalations, Brexit, and upcoming election uncertainty looming, it's no wonder why he's sounding the alarm.</span></p><p><span style="font-weight: 400;">Although this isn't the rosiest of outlooks, Rosenberg says one asset has performed well as the going has gotten tougher: <a href="https://markets.businessinsider.com/commodities/gold-price">gold</a>.</span></p><p><span style="font-weight: 400;">"Gold has been rallying in every single currency term," he stated. </span><span style="font-weight: 400;">"When gold is firming up against all the currencies, that is the hallmark of a full-fledged bull market."</span></p><p><span style="font-weight: 400;">For those interested in obtaining long exposure to gold, the <a href="https://markets.businessinsider.com/etfs/spdr-gold-shares" target="_blank" rel="noopener">SPDR Gold Trust</a> is the most popular vehicle. Having absorbed a net $38 billion of assets over time, it's one of the easiest and most liquid ways to transact the resource.</span></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="https://www.businessinsider.com/amazon-ceo-jeff-bezos-richest-person-net-worth-billions-2018-12">Jeff Bezos is worth over $160 billion - here's how the world's richest man makes and spends his money</a></h3>        <div>            <iframe class="bijwplayerclass" data-player="jwplayer" src="https://content.jwplatform.com/players/p1XfM0qb-CEZHWCBG.html" width="100%" height="100%" frameborder="0" scrolling="auto" style="margin:0px;" allowfullscreen=""></iframe><script>function receiveMessage(event){ console.log(event.data.fullscreen); Android.fullscreen(event.data.fullscreen); }window.addEventListener("message", receiveMessage, false);</script>        </div>    </div>

'Follow the bubble': Famed investor David Rosenberg breaks down the unique way he thinks the next US recession will unfold

<img src="https://static-ssl.businessinsider.com/image/5e04f08c855cc24c57331682-2400/rtxdlf3.jpg" alt="new york stock exchange trader cash money" /><ul class="summary-list"><li>Chris Brightman, chief investment officer at Research Affiliates, thinks this current prolonged period of low inflation and interest rates will not go on in perpetuity. </li><li>He says this period "isn't normal" and details three specific areas for investors to allocate to when inflation and interest rates start to creep higher.</li><li><a href="https://www.businessinsider.com/prime">Click here for more BI Prime stories.</a></li></ul><p>With the unemployment rate at 50-year lows, consumer confidence at a <a href="https://markets.businessinsider.com/news/stocks/consumers-expect-slowest-five-year-inflation-since-1970s-umichigan-report-2019-12-1028779630">seven-month</a> high, and an accommodative monetary policy from the <a href="https://www.businessinsider.com/category/federal-reserve">Federal Reserve</a>, one would expect inflation - a sustained increase in prices - within the US economy to be running rampant. After all, in theory, a tight labor market and healthy consumer should push prices higher.</p><p>But the opposite has been true. According to Bloomberg data, the Federal Reserve's favorite inflationary gauge has averaged just 1.5% in the past decade, running well below its targeted 2% benchmark. </p><p>Chris Brightman, chief investment officer at <a href="https://www.researchaffiliates.com/">Research Affiliates</a>, doesn't think this trend will continue indefinitely. </p><p>"We've been in this huge disinflationary environment that has greatly flattered the returns of traditional stocks and bonds," he said on "<a href="https://mebfaber.com/podcast/">The Meb Faber Show</a>," an investing podcast. "It's very, very difficult for most people to imagine that what has been normal during their entire professional career - isn't normal."</p><p>Brightman noted that since he began his investment career in 1982, inflation and interest rates have slowly and steadily trended lower. However, he said he's positive that this type of phenomenon "is not a perpetual environment." At some point, inflation and interest rates will rise - and investors who aren't adequately prepared for the increase will feel the full brunt of impact.</p><p>For bond investors, this spells bad news. Inflation chips away at investment returns and purchasing power. Equities behave slightly differently. Although stocks have historically fared better than bonds in inflationary periods, they're still susceptible to shorter-term unexpected rises.</p><p><a href="https://www.businessinsider.com/next-market-crash-portfolio-safe-haven-overlooked-inflation-risk-blackrock-2019-12">Tony DeSpirito</a>, chief investment officer for fundamental US active equities at BlackRock, recently echoed Brightman's concerns when he called inflation "the hidden risk longer-term."</p><p>Still, there are ways to protect against inflation's insidious effects - and Brightman has identified three places that investors should allocate to in order to preserve their purchasing power.</p><p>"When this reverses - and I'm sure it will reverse - you won't want to be in the sort of instruments that did so well during the disinflationary boom," he said. "There are a number of traditional inflation-protecting asset classes."</p><p>Here are Brightman's three favorites.</p><p><strong>1. Treasury Inflation-Protected Securities (TIPS)</strong></p><p>"Perhaps the most obvious and least risky would be TIPS," he said.</p><p>Treasury Inflation-Protected Securities are a type of Treasury bond that is indexed to the consumer price index. When inflation rises, the principal value of TIPS increases and provides real-time protection.</p><p>An investor looking to employ this strategy could do so by purchasing the <a href="https://markets.businessinsider.com/etfs/spdr-portfolio-tips-etf">SPDR Portfolio TIPS ETF</a>. </p><p><strong>2. Real Estate Investment Trusts (REITs)</strong></p><p>"REITs also offer a nice liquid, tradable, real-asset," he said. "In the short run they're highly correlated with the US stock market, and for that reason they're probably pretty pricey in today's environment."</p><p>For the uninitiated, a real estate investment trust, or REIT, is a company that owns income-generating real estate.</p><p>The thesis behind the suggestion is simple: Real estate rents and values generally increase along with an aggregate increase in prices. Therefore, REITs provide a solid return in the face of increasing inflationary forces.</p><p>An investor looking to utilize Brightman's suggestion could purchase the <a href="https://markets.businessinsider.com/etfs/vanguard-real-estate-index-fund;etf">Vanguard Real Estate Index Fund ETF</a>. </p><p><strong>3. Commodities </strong></p><p>"And then lastly I would probably say commodities as another liquid, publicly traded asset class that provides a measure of inflation protection," he said. </p><p>Commonly traded commodities include oil, gold, corn, soybeans, wheat, sugar, silver, and coffee. </p><p>Similar to real estate rents and values, commodity prices generally rise when inflation heats up.</p><p>In order to benefit from Brightman's suggestion, an investor could allocate a portion of their portfolio to the <a href="https://markets.businessinsider.com/etfs/invesco-db-commodity-index-tracking-fund">Invesco DB Commodity Index Tracking Fund</a>.  The fund focuses heavily on consumables, and is composed of futures contracts on 14 physical commodities.</p>

'I'm sure it will reverse': A prominent CIO shares the 3 perfect places to put your money once inflation rears its ugly head

<p><div class="KonaFilter image-container display-table"><div><div class="image on-image"><img src="https://static-ssl.businessinsider.com/image/5d2ebdf9699e5c15ff39dbe2-2400/2019-07-17t061918z2lynxnpef6g0crrtroptp4crypto-currencies-algos.jpg" border="0" alt="FILE PHOTO: A copy of bitcoin standing on PC motherboard is seen in this illustration picture, October 26, 2017. REUTERS/Dado Ruvic/File Photo" data-mce-source="Reuters" data-mce-caption="FILE PHOTO: A copy of bitcoin standing on PC motherboard is seen in this illustration picture" /><p class="source"><span>Reuters</span></p><p class="caption">"Given the channel we're focused on, we think it'll be a gradual process - institutions will take their time to evaluate," said Ed Lopez, VanEck's head of ETF product.</p></div><p></p></div></div></p><ul class="summary-list"><li>Two asset managers are making crypto-related plays: one is launching a bitcoin fund open only to big investors, and the other is offering a money-market fund with a blockchain twist.</li><li>The SEC hasn't budged on approving bitcoin-backed exchange-traded funds, which would be open to investors large and small. <strong>The ETF field is hyper-competitive, with firms constantly looking for a new niche to lure assets. </strong></li><li>Franklin Templeton is hoping blockchain can help with fund transparency and offer other benefits. And VanEck has teamed up with SolidX to create what could be a predecessor to a bitcoin ETF. </li><li><a href="https://www.businessinsider.com/prime">Click here for more BI Prime stories</a>.</li></ul><p>Asset managers haven't been able to persuade the SEC to greenlight bitcoin exchange-traded funds. Now they're turning to putting a crypto spin on other kinds of products. </p><p>The field is crowded with ETFs tracking benchmarks like stock and bond indexes, and firms are constantly looking for a new niche to lure assets. Intense competition has prompted a race to, <a href="https://www.businessinsider.com/salt-financial-etf-pays-investors-to-hold-etf-2019-3">and even below</a>, zero for fees on some more basic funds. </p><p>$50 billion asset manager VanEck for years has been pursuing approval for an ETF that holds bitcoin. Another firm's attempt to launch ETFs with bitcoin futures instead was a non-starter - in February, <a href="https://www.sec.gov/Archives/edgar/data/1573496/000114420419006643/tv513274_aw.htm">Reality Shares</a> withdrew a filing for an actively-managed <a href="https://www.sec.gov/Archives/edgar/data/1573496/000114420419005966/tv512882_485apos.htm">currency and bitcoin futures portfolio.</a></p><p>VanEck this week <a href="https://www.vaneck.com/vaneck-solidx-bitcoin-trust-issues-144a-shares-for-qualified-institutional-buyers/">said</a> it's teamed with fintech partner SolidX on a bitcoin fund with the same behind-the-scenes plumbing as an ETF. But the new fund is not registered like an ETF, and it's off-limits to individual investors. </p><p>And Franklin Templeton is putting a blockchain twist on the staid money fund realm. It already has a suite of money market funds, but said in a statement the new product is aimed at a "different and unique customer base."</p><p>The Franklin Blockchain Enabled US Government Money Fund keeps a traditional record of share ownership as well as a record on the blockchain technology that underpins bitcoin. It does not hold any crypto.</p><p><strong><em>Read more: </em></strong><em><a href="https://www.businessinsider.com/salt-financial-etf-pays-investors-to-hold-etf-2019-3">A new ETF is actually paying investors to hold it and it's the latest sign in how insane the fee war has gotten</a></em></p><h2>A gradual process</h2><p>The Franklin fund is "an interesting pilot," said Ben Johnson, Morningstar's director of global ETF research. Firms' margins are getting squeezed  as <a href="https://www.businessinsider.com/morningstar-october-fund-flows-2018-11">investors flee active management</a> in favor of low-cost passive funds.</p><p> "Asset manager fees are under greater pressure than they've ever been," Johnson said, leaving "no stone unturned" when it comes to their own expenses.</p><p>In 2017, Vanguard said it would <a href="https://pressroom.vanguard.com/news/Press-Release-Vanguard-Using-Blockchain-Technology-To-Improve-Index-Data-Distribution-121217.html">work with two other groups</a> to share index data using blockchain with the aim of improving benchmark tracking.</p><p>While the Franklin Templeton fund may in the future be maintained solely on blockchain, the $710 billion asset manager said in a <a href="https://www.sec.gov/Archives/edgar/data/1786958/000113743919000429/fttn1a092019.htm">filing</a> there's "no guarantee" that will happen. Blockchain is "a ripe development platform," a firm spokesperson said.</p><p>Morningstar's Johnson said the VanEck bitcoin trust helps investors avoid the "headaches" of bitcoin custody, but noted "it's awfully hard to predict" demand.</p><p>Grayscale Investments offers crypto for big investors via periodic private placements. Its bitcoin trust <a href="https://grayscale.co/bitcoin-trust/">charges a 2% fee</a>, the asset manager's website says, and collected $2.4 billion since its 2013 launch. </p><p>"Given the channel we're focused on, we think it'll be a gradual process - institutions will take their time to evaluate," said Ed Lopez, VanEck's head of ETF product.</p><p>For perspective, SPDR Gold Shares, State Street's physical gold ETF with an expense ratio of 0.4%, has picked up nearly $44 billion since its 2004 listing. </p><p><em><strong>Read more: </strong></em><a href="https://www.businessinsider.com/a-new-etf-structure-could-help-money-losing-active-managers-2019-6"><em>Asset managers losing billions are hoping a new kind of fund can turn their business around.</em> </a></p><h2>Volatile ride</h2><p>Providers pushing to lock down ETF approval could risk crypto falling out of favor in the meantime.  SEC Commissioner Hester Peirce <a href="https://www.sec.gov/news/speech/speech-peirce-052119">said</a> in May it may be a long time before a bitcoin ETF gets green-lighted.</p><p>Todd Rosenbluth, head of ETF and mutual fund research at CFRA, highlighted the inherent uncertainty around new <a href="https://markets.businessinsider.com/currencies/btc-usd">crypto</a> products. </p><p>"While the security's price has partially recovered from lows in early 2019, it has been a volatile ride and demand remains uncertain," he said. </p><p>Only investors with over $100 million in assets can buy VanEck SolidX Bitcoin Trust shares. If the SEC ever does allow a mainstream ETF, institutions' shares could roll over into that product, Lopez said. Fees are 2% to the fund sponsor, plus a 0.9% insurance fee to cover bitcoin theft, VanEck's website says. </p><p>Institutional investors lack the framework, including central clearing and brokerage accounts set up for crypto, to hold bitcoin, Lopez said. </p><p>"What we're hoping this does for them is it wraps all that stuff together and makes a tradeable product," Lopez said. </p><p>BNY Mellon is the VanEck fund accountant and administrator. </p><p><em><strong>Read more:</strong> <a href="https://www.businessinsider.com/cantors-browne-says-bitcoin-etfs-arent-likely-2018-11">The 'godfather' of a $4.7 trillion market says a bitcoin ETF will be approved 'no time soon'</a></em></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="https://www.businessinsider.com/webinar-headset-ceo-walks-through-successful-series-a-pitch-deck-2019-9">WATCH: The founder of buzzy cannabis-tech startup Headset walked us through the pitch deck that helped him raise $12 million and ink deals with Nielsen and Deloitte</a></h3>        <div>            <iframe class="bijwplayerclass" data-player="jwplayer" src="https://content.jwplatform.com/players/pv3zDQUZ-CEZHWCBG.html" width="100%" height="100%" frameborder="0" scrolling="auto" style="margin:0px;" allowfullscreen=""></iframe><script>function receiveMessage(event){ console.log(event.data.fullscreen); Android.fullscreen(event.data.fullscreen); }window.addEventListener("message", receiveMessage, false);</script>        </div>    </div>

The SEC won't play ball on bitcoin ETFs. Here's how Franklin Templeton and others are launching funds with crypto and blockchain twists.

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><img src="https://static-ssl.businessinsider.com/image/55d229eeecad04933d8b456e-1200-924/usc-students-3.jpg" border="0" alt="USC students"><p class="source"><span><a href="https://www.flickr.com/photos/nasa-jpl/14605245271/">Flickr/nasa-jpl</a></span></p><p class="caption">USC students.</p></img></div><p></p></div></div><em><strong>FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.</strong></em></p><p><strong><a href="http://www.fa-mag.com/news/most-americans-cannot-pass-the-529-test-22800.html">Most Americans don't know about the 529 education savings plan</a> (Financial Advisor)</strong></p><p>An Edward Jones study suggests two-thirds of Americans still haven't heard of the 529 education savings plan despite it being around for 20 years. According to Financial Advisor, just 34% of Americans were able to identify the plan in a multiple choice question that listed four possible answers. This, despite 83% of Americans saying college was unaffordable. "Despite headlines focused on the increasingly high costs of college, we still see a significant number of Americans who aren't aware of one of the most important long-term savings vehicles that can help minimize the impact that the cost of education has on families," added Steve Seifert, principal at Edward Jones.</p><p><strong><a href="http://www.businessinsider.com/druckenmiller-buys-gld-shares-2015-8">Stanley Druckenmiller made a big bet on gold</a> (Business Insider)</strong></p><p>Hedge fund manager Stanley Druckenmiller has made a big bet on gold, according to his latest 13F filing. Druckenmiller bought 2.88 million SPDR Gold Trust shares in the second quarter, amassing a $300.3 million position in the ETF, before its 5.5% drop to start the third quarter. The gold position is Druckenmiller's largest, but the 13F also showed he initiated holdings in Freeport McMoRan, Halliburton and Wells Fargo while upping his stake in Facebook. </p><p><strong><a href="http://wire.kapitall.com/investment-idea/get-ready-spend-money-breakfast/">Breakfast is getting more expensive</a> (Kapitall) </strong></p><p>The cost of breakfast is going up. Pork belly prices have jumped 174% from their five-year low in April and are now at $1.70 per pound. This comes at a time when egg prices have soared to as much as $2.81 per dozen, the highest on record, because of a nasty case of bird flu in the US. Kapitall highlights McDonald's, Restaurant Brands International and Yum Brands as those who could be impacted by the jump in prices. </p><p><strong><a href="http://www.bloomberg.com/news/articles/2015-08-13/borrowers-fall-further-behind-on-1-3-trillion-in-student-loans">Student loan borrowers are falling further behind</a> (Bloomberg)</strong></p><p>Data released by the Federal Reserve Bank of New York shows student loan borrowers are falling further behind on their payments. According to the data, 11.5% of borrowers were at least 90 days delinquent at the end of June, up from 11.1% at the end of the previous quarter. Bloomberg reports the problem might be worse than suggested "because half the loans are in programs, such as deferment, that allow borrowers to put off payments."</p><p><strong><a href="http://www.thinkadvisor.com/2015/08/14/massachusetts-distributes-3-million-to-14000-swind?t=legal-compliance?ref=channel-more-news">Swindled investors in Massachusetts are receiving $3 million</a> (Think Advisor)</strong></p><p>The state of Massachusetts has distributed nearly $3 million to residents who were victims of TelexFREE, an illegal pyramid scheme that targeted the state's Brazilian community. Think Advisor reports each victim has received a first distribution check for $205.52 and while the check doesn't make the victims whole, it recovers at least a portion of the $289 or $1,375 they initially invested. Think Advisor says investors were promised a return of at least $681 on a $289 investment or $3,675 on a $1,375 investment.<strong>   </strong></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/us-government-secret-airline-janet-2015-7">There is a secret US government airline that flies out of commercial airports </a></h3>        <div>            <div>    <script src="http://player.ooyala.com/v3/6e12e8b3387a44daacfb73afba25a76e"></script>    <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="5uYWc3djp_WwFcNEae4eW__Ya2XMybSQ" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>    <script>    if (typeof RunFunctions === 'undefined') { var RunFunctions = []; }     RunFunctions.push(function()    {         var ooyalapopvideo = OO.Player.create('ooyalaplayer_popvideo', '5uYWc3djp_WwFcNEae4eW__Ya2XMybSQ',{ autoplay: 'false' });     });    </script>    <noscript><div>Please enable Javascript to watch this video</div></noscript></div>        </div>        <script>(function() { function createPlayer() { OO.ready(function() { RunFunctions.forEach(function(ooyalaFunction) { ooyalaFunction(); }); RunFunctions = [];}); } createPlayer(); }()); </script>    </div>

Most Americans have no idea about the plan that helps them save for college

<p><div class="image-container float_right click-to-enlarge"><div class="image"><a title_source="BofA/ML" title_caption="" class="zoomin" href="http://static1.businessinsider.com/image/51e8fc2169bedd8641000053-960/screen%20shot%202013-07-19%20at%204.39.24%20am.png"><span class="click-to-enlarge-icon" title="Click to enlarge"></span><a href="http://www.businessinsider.com/us-sees-largest-weekly-equity-inflow-since-june-2008-2013-7"><img src="http://static1.businessinsider.com/image/51e8fc2169bedd8641000053-764-443/screen%20shot%202013-07-19%20at%204.39.24%20am.png?maxX=480" border="0" alt="Screen Shot 2013 07 19 at 4.39.24 AM" width="480" /></a></a><p class="source">BofA/ML</p></div></div>Many observers were taken aback by the record inflows into stock market mutual funds and ETFs in January.</p>
<p>The outsized flows sparked a lot of chatter about a "<keyword id="1746271" type="UNKNOWN" weightage="60" keywordseo="Great-Rotation">Great Rotation</keyword>" out of bonds and into equities, a concept that implied the reversal of a major trend that has seen hundreds of billions of investor dollars flow out of equity funds and into bond funds over the past five years.</p>
<p>Since January, flows into equity funds have been robust, but nowhere near the levels we were seeing in the first few weeks of 2013.</p>
<p>That is, until now. So far, statistics we have for flows into equity funds in July are blowing away those in January.</p>
<p>"Over the first 12 trading days of July (all data here from <a href="http://www.xtf.com/" target="_blank">www.xtf.com</a>, through <span class="aBn" data-term="goog_953093286"><span class="aQJ">Wednesday</span></span>) investors have added $24.4 billion in fresh money to ETFs which track various U.S. stock indices," writes Nick Colas, chief market strategist at ConvergEx Group, in a note to clients. "This is a run rate of just over $2 billion/day, almost four times the pace of money flows into U.S. stocks for the first half of 2013."</p>
<p>Nearly half of that $24.4 billion has gone into a single ETF: the SPDR S&amp;P 500 ETF.</p>
<p>In other words, investors have been putting $1 billion a day into the S&amp;P 500 since the start of July.</p>
<p><span>"Our contacts in the industry tell us that these inflows are 'Smooth' and not the result of a few chunky reallocations of capital by a handful of accounts," says Colas.</span></p>
<p><span>In his note, Colas also highlights the losers:</span></p>
<ul>
<li>Commodity funds are down $1.1 billion in assets from redemption thus far in the month.<span style="line-height: 1.5em;"> All of these outflows – and more, really – can be explained with one ETF: the SPDR Gold Trust (GLD), which is down $1.3 billion in assets from “Redeem” transactions.</span></li>
<li>Real Estate ETFs have seen $428.9 million in redemptions.</li>
<li>Emerging markets ETFs have seen $207.7 million in redemptions month to date.</li>
<li>ETFs which invest in preferred stocks have also had a tough time in the new quarter, losing $203.0 million in assets.</li>
<li>Leveraged and inverse products are also net losers in the month, with redemptions of $458 million and $443 million respectively.</li>
<li>While most industry sector ETFs are getting healthy inflows, products which focus on Consumer non-Cyclical stocks lost $358 million in assets from redemptions over this July-to-date.</li>
</ul>
<p><span>The S&amp;P 500 is up 5.1% so far this month.</span></p>

July Has Been The Great Rotation On Steroids For Stock Market Funds

<p>As the exchange-traded world continues to expand, many investors find themselves asking the same questions about how these products work. Of course, not everyone is as vocal about their curiosities, leaving a number of unanswered questions in the space. In an ongoing effort to keep you educated about the ETF world, we mapped out ten questions you may have been too afraid to ask [see also <a href="http://etfdb.com/wp-content/uploads/2012/04/Free-Report-3.pdf">How To Pick The Right ETF Every Time</a>].</p>
<h3>1. What Is An ETF?</h3>
<p>It seems basic, but as <keyword id="46594" type="PERSON" weightage="60" keywordseo="ETFs">ETFs</keyword> continue to grow in popularity, more and more investors find themselves <a href="http://etfdb.com/2012/what-is-an-etf/">asking this question</a>. An ETF is basically an ownership stake in a pool of assets. When an investor buys an ETF share, he or she is buying a small percentage ownership of a large portfolio of stocks, bonds or other assets. ETFs allow a large number of investors to basically “share” in a larger, more diversified portfolio than they could assemble on their own.</p>
<h3>2. What’s the Difference Between ETFs and ETNs?</h3>
<p>While both are prominent structures for exchange-traded products, there are several differences between ETFs and ETNs that investors should know before investing. First off, ETNs are debt instruments and are at the credit risk of their issuer, whereas ETFs do not face this issue. While it is rare for an ETN to suffer from credit risk, it is worth noting that Lehman Brothers had several ETNs at the time of their demise in 2008.</p>
<p>Next comes taxes. ETNs will always issue a 1099, as will most ETFs. But certain ETFs, like those that hold futures, will issue a pesky K-1 come tax time. Also, ETNs are <a href="http://etfdb.com/2011/when-etns-are-better-than-etfs/">always taxed</a> at 15% for long-term capital gains and 35% for short-term capital gains; this figure often varies for ETFs. It is also worth noting that ETFs can exhibit tracking error, while ETNs will never incur this issue. Finally, as a debt instrument, ETNs will mature one day and liquidate, by design, back to shareholders. The <a href="http://etfdb.com/2011/when-structure-matters-etf-etn-or-other/">structure of a product</a> has a huge impact on its exposure.</p>
<h3>3. What is Tracking Error?</h3>
<p>Tracking error, simply put, is the delta between the performance of an ETF and the change in the underlying index. Perhaps the simplest source of tracking error is the expense ratio of an ETF; funds operating at full efficiency can be expected to trail their underlying index by a margin equal to the bottom line fees charged. Indexes are hypothetical measures of performance that are not directly investable–there is no associated management fee or other expense components.</p>
<p>Sometimes the culprit is thin trading volume, as some products can go days without trading, which does not allow their price to accurately reflect the index at the current time. Other times a rebalancing of the underlying index may mean that the fund does not have enough time to catch up. Read more on <a href="http://etfdb.com/2011/why-etf-tracking-error-occurs-and-how-to-avoid-it/">how tracking error is caused</a> and how to beat it.</p>
<h3>4. What Happens When an ETF Shuts Down?</h3>
<p>As more and more ETFs hit the market, it is inevitable that some will be forced to close their doors. It costs money to run an ETF and after a certain point it becomes too expensive for an issuer to keep the product open. An ETF closing is not cause for panic; you’ll have the opportunity to either sell your shares prior to the delisting or to receive your share of cash proceeds. That may be less than optimal; the sale may trigger some tax liabilities, and there are costs associated with redeploying capital. But overall, an ETF closure isn’t really a big deal. Read more about how to <a href="http://etfdb.com/2011/how-to-deal-with-etf-closures-qa-with-paul-weisbruch/">handle closures</a>.</p>
<p>google.load('visualization', '1', {packages: ['corechart']}); function drawVisualization() { // Create and populate the data table. var data = google.visualization.arrayToDataTable([ ['Year', 'Launches', 'Closures', ], ['2009', 137, 56, ], ['2010', 231, 49, ], ['2011', 310, 38, ], ['2012', 177, 104, ], ]); // Create and draw the visualization. new google.visualization.ColumnChart(document.getElementById('visualization74221')). draw(data, {title:"ETF Launches and Closures By Year", width:600, height:400, hAxis: {title: "Year"}} ); } google.setOnLoadCallback(drawVisualization);</p>
<h3>5. What’s Up With Leveraged ETFs?</h3>
<p>Leveraged ETFs and ETNs have been the subject of much debate over the past few years. Many will look at the long-term performance of a leveraged product versus its underlying index, and be left scratching their heads when the returns do not exactly line up with the leverage the fund presented. It is all based on the reset frequency of the product, and most leveraged funds reset daily. This means that the fund is only designed to provide its levered exposure for one trading session, not over a long period of time.</p>
<p>There are some monthly resetting products and some that never reset, but daily leverage is the most popular option currently available. <a href="http://etfdb.com/2011/lessons-from-the-leveraged-silver-etf-agq/">This article</a> takes an in-depth look at reset frequencies and why these trading products are so misunderstood.</p>
<h3>6. Does Weighting Methodology Really Matter?</h3>
<p>Absolutely. There are many different strategies that encompass the ETF space: equal, RAFI, earnings, revenue, dividend and AlphaDEX are just a few of the methodologies that have struck a chord with investors. The weighting of your fund makes a fundamental difference to the performance of the fund. Take the S&amp;P 500 for example; below we compare the performance of several different funds that all put a different spin on the popular index.</p>
<table id="portfolioreturn" align="center">
<tbody>
<tr><th colspan="3">Alternative Weighting At a Glance</th></tr>
<tr>
<td><strong>ETF</strong></td>
<td><strong>Weighting</strong></td>
<td><strong>2012 Return</strong></td>
</tr>
<tr>
<td style="text-align: left;">SPDR S&amp;P 500 (<a href="http://etfdb.com/etf/spy/">SPY</a>)</td>
<td>Market Cap</td>
<td style="text-align: center;">15.99%</td>
</tr>
<tr>
<td style="text-align: left;">Large Cap Fund (<a href="http://etfdb.com/etf/RWL/">RWL</a>)</td>
<td>Revenue</td>
<td style="text-align: center;">17.91%</td>
</tr>
<tr>
<td style="text-align: left;">Earnings 500 Fund (<a href="http://etfdb.com/etf/EPS/">EPS</a>)</td>
<td>Earnings</td>
<td style="text-align: center;">14.58%</td>
</tr>
<tr>
<td style="text-align: center;">LargeCap Dividend Fund (<a href="http://etfdb.com/etf/DLN/">DLN</a>)</td>
<td>Dividend</td>
<td style="text-align: center;">12.74%</td>
</tr>
<tr>
<td style="text-align: left;">FTSE RAFI US 1000 (<a href="http://etfdb.com/etf/PRF/">PRF</a>)</td>
<td>RAFI</td>
<td style="text-align: center;">16.80%</td>
</tr>
<tr>
<td style="text-align: left;">S&amp;P Equal Weight ETF (<a href="http://etfdb.com/etf/RSP/">RSP</a>)</td>
<td>Equal</td>
<td style="text-align: center;">17.16%</td>
</tr>
<tr>
<td style="text-align: left;">Equal Sector Weight ETF (<a href="http://etfdb.com/etf/EQL/">EQL</a>)</td>
<td>Equal Sector</td>
<td style="text-align: center;">14.43%</td>
</tr>
</tbody>
</table>
<p>As is clearly evidenced above, though these funds all track the same parent index, the way they slice and dice the holdings makes a big difference on bottom line returns. Check out a more in-depth explanation of the <a href="http://etfdb.com/wp-content/uploads/2011/12/Alternative-Weighting-Methodologies-Webinar.pdf">various alternative weighting methodologies</a>.</p>
<h3>7. Does a Slight Difference in Fees Matter?</h3>
<p>While it may seem like a minute difference, a couple of basis points over time can be a big deal. The ETF industry seems to pride itself on offering the most competitive prices for investors, as a battle of cost-cutting has ensued in the past few years. As a result, some funds, like VWO, have been able to outdo competitors that track similar holdings. One popular comparison comes between two physical gold ETFs, the iShares COMEX Trust (<a href="http://etfdb.com/etf/IAU/">IAU</a>) and SPDR Gold Trust (<a href="http://etfdb.com/etf/gld/">GLD</a>); the former charges 0.25% and the latter 0.40%.</p>
<p>Consider two different million dollar portfolios, one which is wholly invested in GLD and the other doing the same for IAU (obviously a diversification nightmare, but stick with us). The GLD portfolio will incur annual expenses of $4,000, while its competitor will shell out only $2,500. That $1,500 difference seems minuscule for just one year, but drag it out over a 30-year investment and the difference between fees amounts to $45,000, or 4.5% of your original investment. Saving yourself a quick 4.5% could have been as simple as buying IAU over GLD. Read more about this <a href="http://etfdb.com/2011/cost-competition-inflows-surge-for-cheap-etfs/">cost battle</a>.</p>
<h3>8. How Are ETFs Treated Come Tax Season?</h3>
<p>The answer to this question depends entirely on the underlying exposure of the fund. Some products, like physical precious metals funds, are taxed as collectibles at 28%. Others are given the normal 15/35 treatment, and still others are subject to other rates. Investors will also want to note that structure will often dictate whether or not they are issued a K-1 or 1099 come tax time. Our <a href="http://etfdb.com/etfdb-category/large-cap-blend-equities/taxes/">comprehensive database</a> provides you will all of the tax information you will need to make an informed decision.</p>
<table align="center">
<tbody>
<tr><th colspan="3">ETFs That Issue A K-1</th></tr>
<tr>
<td><em><strong>Ticker</strong></em></td>
<td><em><strong>ETF</strong></em></td>
<td style="text-align: center;"><em><strong>Expense Ratio</strong></em></td>
</tr>
<tr>
<td style="text-align: left;"> <a href="http://etfdb.com/etf/AGQ/">AGQ</a></td>
<td style="text-align: left;">Ultra Silver</td>
<td style="text-align: center;"> 0.95%</td>
</tr>
<tr>
<td style="text-align: left;"> <a href="http://etfdb.com/etf/BNO/">BNO</a></td>
<td>United States Brent Oil Fund</td>
<td style="text-align: center;"> 0.75%</td>
</tr>
<tr>
<td style="text-align: left;"> <a href="http://etfdb.com/etf/BOIL/">BOIL</a></td>
<td>Ultra DJ-UBS Natural Gas</td>
<td style="text-align: center;"> 0.95%</td>
</tr>
<tr>
<td style="text-align: left;"> <a href="http://etfdb.com/etf/CANE/">CANE</a></td>
<td>Sugar Fund</td>
<td style="text-align: center;"> 1.00%</td>
</tr>
<tr>
<td style="text-align: left;"> <a href="http://etfdb.com/etf/CMD/">CMD</a></td>
<td>UltraShort DJ-UBS Commodity</td>
<td style="text-align: center;"> 0.95%</td>
</tr>
<tr>
<td style="text-align: left;"> <a href="http://etfdb.com/etf/CORN/">CORN</a></td>
<td>Corn Fund</td>
<td style="text-align: center;"> 1.42%</td>
</tr>
<tr>
<td colspan="3"><a href="http://etfdb.com/2012/etf-tax-tutorial-complete-list-of-etfs-that-issue-a-k-1/"><em>See the full list here</em></a></td>
</tr>
</tbody>
</table>
<h3>9. Why Invest in an Index?</h3>
<p>Gone are the days when active management was the best decision for investors. Actively-managed mutual funds consistently fail to beat the market; nearly 86% of the time when expenses are factored in. Index funds provide investors with a better long-term exposure and at a much lower cost to boot. While there certainly are individuals who can beat the market, studies have proven over and over that index funds outperform their competitors the vast majority of the time.</p>
<h3>10. Are ETFs Better Than Mutual Funds?</h3>
<p>Better is not the right term to use in this situation, despite how frequently this question is asked. Every product is different depending on your objectives, but there are a number of factors that set ETFs apart from their mutual fund counterparts. ETFs are cheaper, more transparent, allow for margin buying and short selling, and offer more control over capital gains, for starters. The list of differences goes on and on, but at the end of the day the only person who can decide which product is better is you. Take a look through some of the <a href="etfdb.com/2009/etfs-vs-mutual-funds-five-trends-show-that-etfs-are-winning/">key differences between these two investment vehicles</a>.</p>
<p>[For more ETF analysis, make sure to sign up for our <a href="http://etfdb.com/newsletter/">free ETF newsletter</a> or try a <a href="http://etfdb.com/pro/">free seven day trial to ETFdb Pro</a>]</p>
<p><em>Disclosure: No positions at time of writing.</em></p>
<p><a href="http://etfdb.com/2013/10-questions-about-etfs-youve-been-too-afraid-to-ask/">Click here to read the original article on ETFdb.com.</a></p>
<p> </p>
<p><strong>Read more posts on <a href="http://etfdb.com">ETF Database »</a></strong></p>

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