Advisors miss out without market makers

The ins and outs of ETF market making and the next generation of smart beta were up for debate on Day One of the ETF Forum in Toronto April 19.

Advisor was there live-tweeting the details; join us on Twitter for more live updates today, or click on #ETFforum to see all the tweets from the conference.

If you missed yesterday’s coverage, don’t fear, we’ve compiled the most interesting parts for you below.

Read: Active ETFs gaining momentum

Smart Beta: The Investing Buzzword that won’t — and needn’t die

This panel, moderated by the pithy Andrew Dorrington, partner of 21st Avenue Partners, featured Paul Domjan, Head of Research Products @RoubiniGlobal; Tom Goodwin, SVP of research at @FTSERussell and Stephen Hoffman, VP of ETFs at @rbcgamnews.

Latest #smartbeta funds are more sophisticated than before, and have blurred the line between active and passive investing, says the panel.

Passive indexes reward companies for yesterday’s performance, says Hoffman. #smartbeta allows investors to seek future returns. The next #ETF wave includes multi-factor investing and other strategies that will woo #investors from active managers, says Goodwin. Now, #advisors are incorporating #smartbeta into active portfolios, to respond to investors, he says.

Passive indexes reward companies for yesterday’s performance, says Hoffman. #smartbeta allows investors to seek future returns.

Next big thing: #smartbeta fixed-income products, says panel. Expect in early 2017.

Read: How institutional investors use smart beta

Panel 2 – Behind an ETF trade: The role of a market maker

This talk featured Camilo Gil, executive director of Institutional ETF services at @CIBC Capital Markets, Alex Perel, director of ETF trading at @TD_Canada and Anita Rausch, director of capital markets @WisdomTreeETFs.

Market makers can help #advisors get #ETFs at better spreads, but most #advisors don’t know they can ask for help, says Perel. Most big firms have a #ETF market maker on hand, or at least a relationship with an independent one they can call up.

#Advisors: Don’t be afraid to talk to your trading desk, says Rausch. And check an #ETF’s implied liquidity on Bloomberg: it’s how much you can trade in one day without having a price impact. With #ETFs, forget bid-ask spread, look at spread between the net asset value (NAV) of the underlying securities and bids or asks on the market, say experts.

Market makers need to manage risk, so if you have a big order, it’s best to call them, instead of placing an order on the open market; they’ll be more willing to trade big blocks, says Perel.

Read: Price setting of ETFs