Measuring the Wrong Thing
By Noah Hamman
I think we are measuring the wrong thing.
I have continued to notice a trend where there seems to be much focus on the asset flows into ETFs. The biggest ETFs, the ones that have the most rapid growth, the ones that have the most asset flow in and out, last week or even just yesterday. In my opinion the huge flows, and mega sized ETFs have nothing to do with investor success and everything to do with the success of the sponsor. I think that is the challenge with the ETF space today, still, 99% of the AUM is in low cost beta/index/made up index strategies. Granted, it appears investors are trading these ETFs in a frenzy in search of out-performance, but let’s just ignore that point for a moment. In an industry – specifically meaning ETFs, where it’s mostly about indexing and a race to zero fees, what else is there to focus on? I guess just the flows, because the next conversation starts to ask, are all of the indexes any good? By good, I mean delivered performance and better risk adjusted returns. That’s just not a conversation anyone seems to want to have, so let’s just talk about flows.
I do think this trend continues, and if I were to look in the future, I think investors will become frustrated with chasing alpha through macro decisions. I think it will come full circle and investors will want to invest with experts. Not just one, it just doesn’t work that way in life. Typically, the best results come from teams. I think investors will find that if they build an investment team with the same care and effort they put into building their fantasy football teams, they will see far better results.