NIRI 2024 Annual Conference Chair Patrick Davidson of Oshkosh Corporation (left) moderated the panel discussion on ETFs with Jennifer Grancio of TCW (center) and Dana Martin of WallachBeth Capital (right).
doing fundamental analysis on your company, they’re going to put it in this vehicle.” Davidson conducted a poll of the audience and
found that fewer than 10% of IR professionals have spoken with an active ETF manager. “Tat’s about what I expected,” he said. “It’s a little
bit opaque. We’re used to talking with the mutual fund managers we’ve met over the years. Hopefully this will start to change. “Tere are a lot of advantages to ETFs. Are there
any disadvantages? Is this too good to be true? Are there things we should watch out for?” Grancio noted, “I think a downside of passive ETFs
is governance. Te biggest index funds in the world are associated with firms that are massive and own 5% to 8% of your companies, and they are extremely restricted in what they can do on governance. I think that is a problem for the big passive funds and is something you should talk to them about because it’s in your interest to have investors that want good governance and want CEOs to be incentivized properly.” Martin added, “Consider liquidity and tradability.
Some groups say all ‘our ETFs are liquid and you can buy and sell as much as you want,’ and that’s just not the case. Tink about the underlying securities in the wrapper that investors still need to access.
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“Tere are also some restrictions on investing.
Some ETFs are multi-billion-dollar products and others are smaller in the $50 to $200 million range. Tese smaller funds are great products, but their asset size is not large enough for many institutional inves- tors for regulatory reasons or their internal policies.” Davidson asked how often ETFs are updated
throughout the day. “With an active ETF, the fund manager has a
choice,” Grancio said. “Tey can tell you everything that’s in the fund every day, called ‘daily transparent.’ Or there are ways a manager can cloak the fund and occasionally show what’s in the fund. My own view is that the market is used to seeing what is in an ETF, so that’s preferred. If a fund changes something dur- ing the day, maybe you see it at the end of the day. In general, you can see your exact company stock position in the fund every day.” Davidson concluded by asking how companies
can determine if their stock is included in an index fund. Grancio and Martin recommended consulting S&P, Russell, or Morningstar, noting their method- ologies are similar.
Al Rickard, CAE, is Editor of IR Update;
arickard@associationvision.com.
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