Even the booming exchange-traded fund industry isn’t immune from the current market turmoil.
While ETFs had a banner year in 2015 in asset growth—taking in more money than mutual funds and hedge funds combined—a raft of worries took center stage at the ninth annual Inside ETFs conference in Hollywood, Fla., hosted by ETF.com.
While the more than 2,000 attendees spent most of the time soaking in useful information during breakout sessions on specific ETF topics, such as smart-beta strategies, fixed income tools, liquid alternatives, and ETF-trading techniques, the main stage featured the biggest and boldest speakers—many of whom voiced concerns about everything from the Federal Reserve and the global economy to issues overhanging the ETF industry.
Here are five colorful quotes from some of the more notable speakers, plus some accompanying snapshots of presenters' slides, that are representative of the somewhat darker tone emitting from the conference this year.
'What Are These People Doing?'
As said by Jeffrey Gundlach, chief executive officer of Doubleline Capital, in reference to the Fed, which he repeatedly criticized during a presentation called "Tick, Tick, Tick." Gundlach, the manager of last year’s most successful new ETF launch, bashed the central bank for hiking benchmark interest rates in December.
He called the Fed “pathetic” and “frozen in their thinking” for not seeing how fragile the economy still is. Gundlach compared Yellen’s rate hike with Seattle Seahawks coach Pete Carroll’s call in Super Bowl XLIX to pass the ball at the end of the game–a move widely regarded as the worst call in Super Bowl history. In fact, the Fed was a common theme–and punching bag–at the conference.
'Don’t Let Them Push Us Back Into the Darkness'
Dave Nadig, director of ETFs at FactSet Research Systems, on the recent rule proposals put forth by the U.S. Securities and Exchange Commission that could have a major effect on some ETFs. In a presentation called “The Battle for the Soul of the ETF Revolution,” Nadig–and Matt Hougan, CEO of conference organizer ETF.com–voiced concern over the recent SEC rule proposals on bond fund liquidity and derivatives use by funds.
Nadig, who may be the only human being to have actually read the proposals cover to cover (more than 1,000 pages), argued that the SEC may be well-intentioned, but its rules will nevertheless have unintended consequences for ETFs, such as stripping investors of some of their favorite tools and pushing them back into the darkness (darkness, at an ETF conference, meaning mutual funds). He also noted the irony that some of the most legitimately dangerous products, such as leveraged exchange-traded notes, would not actually be affected by the rules and could still harm unsuspecting investors.
'We Really Are an Old Industry, Second Only to Wal-Mart Greeters'
Josh Brown, CEO of Ritholtz Wealth Management, in reference to financial advisers, whose average age is 50.9. Many advisers—who make up a large chunk of the conference attendees—are worried about the $30 trillion or so that will be passed down to robo-adviser-loving millennials from their parents. Brown pointed to a study that found 66 percent of millennials plan to leave their parent’s financial adviser when they inherit their wealth.
To address these worries, Brown gave a colorful presentation–complete with references to the Wu-Tang Clan and One Direction–on how he uses social media and his blog to attract new investors and engage with a younger audience. He said the bulk of his firm’s new clients come in through what his team is writing on the blog and social media. Brown humorously pointed out that the financial industry has struggled with how to effectively utilize social media outlets such as Twitter.
'Everything Blows Up Every Seven Years'
Kevin O’Leary, featured on the ABC's Shark Tank, was not talking about asset classes but rather about active managers. Active manager-bashing is always a popular theme at Inside ETFs, or any ETF conference, for that matter. But it was especially effective given O’Leary was drawing on personal experience as he used to invest all his own money in a variety of active managers but found they "blew up" every seven years or so.
O’Leary has been slowly switching all his money out of active management and into what he calls “hard-core, rules-based, emotionless investing.” He has turned these investing rules into a smart-beta ETF product line called O’Shares. O’Leary is also representative of the growing number of smaller shops entering the ETF industry, as well as the increasing number of celebrities joining the field.
'A Pool Full of Beer May Be the Only Answer'
Marc Faber, publisher of the The Gloom, Boom & Doom Report and a big fan of gold ETFs, said he might fill a newly installed swimming pool with beer instead of water to deal with an economic outlook he describes as “so depressing.” He went so far as to say he doesn’t expect to see another bull market in his lifetime, adding that a massive increase in global debt via central bank policies will “contain” growth for years and years to come.
He spoke on the last day of the event and brought things full circle by going on a Gundlach-ian tirade against the Fed–and central bankers in general–referring to them as “people who have never worked a day in their lives.” Faber closed by saying he was going to leave the conference to get back to his beer pool and hang out with his new friend.
If the ETF conference is an indicator of the year to come, buckle up–it’s going to be a bumpy ride.
Eric Balchunas is an exchange-traded-fund analyst at Bloomberg. This piece was edited by Bloomberg News.