Index investing has long had a bit of an awkward relationship with trading. Good index fund management has always been to some degree about controlling trading costs, be they commissions, spreads or market impact costs. After all, the point of good index fund management is to minimize friction, and trading is the primary friction between an index investor and obtaining the performance of an index.
ETFs—and now ETNs, ETCs and other ETPs—have complicated that equation even more. ETFs are, as the acronym suggests, exchange-traded funds, bringing index funds into tradable units. Add to that the myriad new ways to trade—through electronic trading networks, exchanges, off the floor and around the back—and you’ve got a complex mix that any investor who wants to preserve something approaching market returns has to figure out.
We’re excited about this issue because we’ve got some top-notch articles covering an array of trading issues—with the balance tilted toward Europe—where we’ll be hosting our first Inside ETFs Europe event, in Amsterdam on April 12-13. If trading is complicated in the U.S., it’s a thicket of briars at midnight in Europe, where only a small percentage of trading happens publicly.
Leading with the U.S. part of the trading issue are Paul Daley, Phil Dorencz and Dan Bargerstock, with a very strong submission that looks at the rather complicated issue of understanding how liquid an ETF really is (hint—the daily trading volume in the ETF is not your best metric).
Next, Bart Lijnse and Christiaan Scholtes weigh in from across the pond with an outstanding analysis of some of the complications of the fragmented European markets. They are followed by Keshava Shastry’s column asserting that the European ETF industry might be just about to turn the corner to find an ocean of trading liquidity. Wrapping up the trading and liquidity portion of this issue, Leonard Welter offers a window on the fascinating world of share lending in Europe.
Rounding out the lineup are David Blitzer with a sharply insightful piece on bubbles; David Blanchett on alpha-generating indexes; Gary Gastineau with his final installment on fund evaluation methods; two retirement/target date pieces—one from Grant Gardner and Mary Fjelstad, and the other from Navaid Abidi and Dirk Quayle; and Dave Nadig with a zany take on where the ETF industry is headed.
Like it or not, trading and indexes are forever married. You can remain in denial, or find yourself a good counselor. This month the Journal of Indexes is board-certified to help you work things out.
Jim Wiandt
Editor
|
