Martin, Managing Director, ETF Trading Solutions, WallachBeth Capital. Tey spoke about how investor relations (IR) professionals can tailor their approaches to engage ETF investors. Grancio worked for 20 years at Blackrock and has been in and around the ETF business for 30 years. She also spent a couple years as CEO of Engine No. 1, which was later sold to TCW. At TCW, she leads the global client franchise and heads the ETF business. Martin worked at Citigroup in 2007-2009 and
went on to join WallachBeth Capital, a provider of institutional execution services across ETFs and other equity products. Davidson asked the panelists to define ETFs and
how they work. “Think of an ETF as a technology in an SEC
‘wrapper,’” Grancio said. “An ETF is simply taking a mutual fund and wrapping it into a security so that it has a second life. You can watch it trade and
What Is an Exchange-Traded Fund?
According to Investopedia, an exchange-traded fund (ETF) is a pooled investment security that can be bought and sold like an individual stock. ETFs can be structured to track anything from the price of a commodity to a large and diverse collection of securi- ties. Some ETFs track an index of stocks, creating a broad portfo- lio, while others target specific industries.
ETFs can even be designed to track specific investment strate-
gies. Various types of ETFs are available to investors for income generation, speculation, and price increases, and to hedge or partly offset risk in an investor’s portfolio. The first ETF was the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index. It was launched by State Street Global Advisors in January 1993. Investopedia also notes these key takeaways: • An exchange-traded fund (ETF) is a basket of securities that trades on an exchange just like a stock does.
• ETF share prices fluctuate all day as the ETF is bought and sold; this is different from mutual funds, which only trade once a day after the market closes.
• Index ETFs offer low expense ratios and fewer broker commis- sions than buying the stocks individually.
Source:
www.investopedia.com/terms/e/
etf.asp
price throughout the trading day. Also, with current regulations, the ETF makes it much easier for good managers to optimize tax in the fund structure.” Martin added, “An ETF still buys and sells the underlying securities like a mutual fund. But it’s an in-kind transaction that does not create a taxable event. ETFs have been used effectively through the years to defer taxes.” “So is it inevitable that if you’re a smart, wise money
manager, you’re going to take your mutual fund and convert it to an ETF at some point?” Davidson asked. “Te ETF wrapper is being used now for active
management, so we’ve converted some funds in recent months,” Grancio said. “But it’s important to understand the different ways the market views and uses mutual funds versus ETFs. For retirement accounts, the market likes mutual funds. So if you’re a traditional manager, like we are at TCW, we have mutual funds that represent very high percentages in retirement accounts. Tere, we will continue to use mutual funds. But in the taxable space, we’ve seen new money aggressively come into the ETF wrapper because of the benefits over mutual funds. So if something is not primarily a retirement strategy, many managers are looking at converting to ETFs, and you can work with the SEC and take a set of mutual funds and get permission to convert them into ETFs.” “I think that’s a great point,” Martin said. “In the
institutional space I think we’re going to see the most growth with traditional active managers who are coming in with their own products.” Grancio added, “Meanwhile, on index ETFs, there
is an opportunity for IR professionals to understand more about how index funds and rebalances work because there are equities going in and out of index funds. Investors want to meet with CEOs, CFOs and IR teams, and at TCW, we are doing that very actively.” Martin explained, “You have to know the index
providers and understand their methodology, includ- ing why and how your company stock is in there. Many ETF issuers are just replicating an index and applying that into an ETF. So again, it’s just a wrapper. “On the active side, if you are calling on the fun-
damental managers— even if they have a fund in an ETF wrapper—just view it the same as though you are talking with the mutual fund company. If they’re
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