Thematic ETFs (are Terrible Investments)
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- Опубліковано 3 тра 2022
- If you’re excited about an investment, it’s probably not a good investment.
Listen to the Rational Reminder Episode 185: Lighting your Money on Fire with Thematic ETFs where we do a deeper dive of the topic:
• RR #185 - Lighting you...
rationalreminder.ca/podcast/185
Referenced in this video:
Earnings Growth: The Two Percent Dilution: www.cfainstitute.org/en/resea...
The Big Market Delusion: Valuation and Investment Implications: www.tandfonline.com/doi/full/...
Overconfidence and Speculative Bubbles: chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/www.princeton.edu/~wxiong/pap...
Competition for Attention in the ETF Space: papers.ssrn.com/sol3/papers.c...
Betting against Quant: Examining the Factor Exposures of Thematic Indexes: jii.pm-research.com/content/1...
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Learned this lesson the hard way 🤣
Me too. Watched this video at least 12 months too late.
Right there with you.
Ben and Richard from the plain bagel restored my faith in finance professionals.
That's because they actually are finance professionals, the rest are just youtubers with no credentials.
@@someonesilence3731 You are right! UA-cam is filled with people cosplaying as financial advisors.
Yes! Ben, Richard, and Sven Carlin are my top three.
@@someonesilence3731 Yes! Ben, Richard, and Sven Carlin are my top three.
Amazing! Thanks again Ben for bringing us these videos! I do not know of any other youtuber who is at your level and can explain things to us in an easy to understand way. Please keep making more videos and helping us learn.
Ben has the uncanny ability to be able to take just about any investment topic, provide compelling arguments and research and present a very credible paper on the subject. I envy the Canadians having these skills available to tap into.
I've just found this channel, but it's really brilliant, thank you for producing these!
Great video as always! So glad I found this channel super early in my investing journey.
What I love about Ben is that his message is simple, consistent and he can continually provide evidence to support his claim! If you've watched one of his videos, or listened to one of his podcasts, you know what the message is!
I'm still in awe at the things you teach. Would have had no idea about any of this if not for you.
You actually did warn me, Ben! After reading The Black Swan, I decided the best way I could implement his advice was to invest about 10% of my portfolio into funds focusing on emerging technologies. But thanks to your last video on the subject, I realized that by the time these are investable for retail investor, it's too late to benefit from black swan effects, and I sold them all off to focus on a pure small cap value strategy for developed markets.
Thank you Ben. Simply Brilliant, as always.
Man, you do insanely thorough work. I work in a wealth management office where the advisors due diligence stocks by reading seeking alpha. Ugh.
😂 I hope you can find a better workplace. I started my career selling garbage mutual funds for commission. There is always hope.
@@BenFelixCSI haha that is reassuring! Keep shining that light.
He's a wealth manager, he literally does this for a living.
Really appreciate your work Ben. Thank you!
Thanks for being a serial debunker of myths and bad investments.
You're performing a valuable service.
Thx Ben. You warned us and I listened. Saved me a lot of money.
As a HF quant researcher, I must say I love your paper selection- best authors, very on point. You do a great job summarizing key points clearly.
Do you do any quant alpha research yourself btw at PWL?
Let's face it. Cathie Wood is brilliant.
Not as an investor, but as a carnival barker.
I don't think she's a bad person or a bad investor. But at 56 years old, I am not in any mood to wait a decade for her stocks to finally pay off. ARK is for 20-somethings, not older investors.
@@Duke_of_Prunes You missed the substance of the video if you think that.
And I paid to enter the fun house. Fortunately not a ton, but still. Ah well. I've lived. I've learned.
Ben, Thank you for your videos! I have learned a lot from you over the years and have become a rational investor because of it. Keep up the good work!
Great video as always! 🙏
I own some thematic ETFs, but in very small % of my portfolio now and with the same approach I use for individual stock (looking for industries with big barriers to new entry and for oversold period), basically I think they might have a role more for trading than investing on the long term.
Your work is very good! A strong emperical approach!
Needed this video!! Thanks Ben
Thank you Ben, great content and presentation as usual 👏
Love the content Ben!
Love the arkk dig at the end :D
Another outstanding video about investing. Thank you, Ben.
Excellent and educational! Thank you!
Discovered your channel a couple of weeks ago and I really enjoy your videos and what you are doing.
You open my eyes on many different aspects of investing.
I believe some sectors performs or will perform in the future.
Otherwise, how come my MSCI Water beats a FTSE All World or MSCI World ETF since its inception 17 years ago?
I guess the answer would be the classical "it depends" 😉
Keep up the good work! 😊
253k subscribers...I had the luck to find your channel (Cathy Wood didn't). Keep up the amazing work! Every time I watch one of your videos, I actually learn from facts, peppers, studies and articles.
Big thank you!
is there any data on long-term performance? on one hand i do know that AI stocks are overpriced, on the other - they still may go way higher when aiming at 20-30 years horizon (retirement).
This was very informative, thanks.
Ben, I would love to hear your thoughts on how to position portfolios for 2022 specifically in regards to the fixed income side. Many of us are near or in retirement and our “safe” assets are acting like anything but!
Hi Ben, do you have any research on the % of active funds or hedge funds that generate alpha? I've seen most of your videos and I am aware of the literature showing they underperform the market. But I'm trying to find the distribution of the outperformance in a "consistent" way, thanks.
There's so much hype and nonsense in finance. Thankfully there's Ben to guide us!
Jeez, you even made me questioning the SMH now...
"I tried to warn you guys!" I love it!
I love how Ben had to hold his laugh in a few times during this episode. The financial world can be really funny at times.
Hey Ben! I love your content! Do you have any reccomendations on finding finacial papers? I have never tried to locate them and I'm not sure where to start
Do you consider sector ETFs such as XLE (energy ETF), XBI (biotech ETF), and XAR (war ETF) to fall under what you discussed in this video or not?
Whats the fine line between sector indexes and thematic indexes? Are things like XLU, XLF, XLV considered "thematic?"
What about thematic ETF like XUT which focuses on Utilities?
A very good example is ARKK ETF. Over a one year period has gone down by 70%. Thanks for a great content Ben.
Still that wasn't the most representative example, because that fund's inception was way before its peak, even if most of the investors joined at the peak.
This channel should be in some YT golden hall of fame.
10:01 "... or even ARK" 😊 I knew it was only a matter of time before Cathie Wood and ARK* got mentioned. ARK is all of those things (feel good, thrill seeking, sense of belonging to the "in" crowd ...) as well as putting total faith in a charismatic financial guru are in play around ARK*.
Is your portfolio better than hers?
@@_VISION. Everyone's portfolio is better than hers. Did you watch the video?
Thanks again for keeping it real. Some people lose a lot of money they shouldn't spend trying to chase returns and hypes.
Ben, I have a question about dividend stocks. I watched your video about why dividends are irrelevant, but I'm still confused about a few things. It seems like dividends would be a more predictable way to extract value as a shareholder, because it is not tied to the market price. Sure, if earnings go down and that causes the price and dividend payments to go down, then that makes sense, but often prices plummet even when the dividend/earnings stay the same. For the investors relying on selling shares to extract value, this would force them to sell at an irrationally low price. They are at the mercy of whatever the market price is even if it doesn't accurately reflect the financial position of the company. On the other hand, dividend investors can count on consistent dividends regardless of share price (as long as the company is still financially sound).
Obviously, for a very long term outlook, price fluctuations are not a big deal, but for short to medium term investors who just want a reliable way to extract a percentage of their purchase amount, dividend stocks seem more rational.
Am I missing something? Thanks.
A company paying a dividend in a down market is similarly forgoing other investment opportunities with attractive expected returns or financing investment opportunities at a higher cost of capital.
I have another video coming soon on why dividend investing is a bad idea.
I agree 100% with your reasoning, AAA. Prices are influenced by investor sentiment and risk appetite, dividends are not.... it makes sense to me that dividends would be the better choice if you're taking a regular income. But I look forward to Ben's video as I'm sure there's more to the story :)
@@BenFelixCSI
I thought you believed in the investment and profitability factors though?
Don't dividend stocks automatically have high profitability and investment factors; since companies pay dividends out of profits, and profits that don't go into dividends tend to go into assets?
@@IamGrimalkin No, a dividend results in a proportionate decrease in share price. Dividends are irrelevant to overall return and are tax inefficient.
@@alankoslowski9473
Perhaps it does, but I believe Ben has mentioned the 'investment factor' and 'profitability factor' being real things.
The 'investment factor' says that stocks with slowly-increasing book value outperform those with quickly-increasing book value; the profitabily factor says stocks with high earnings outperform those with low earnings.
If a company has high earnings and those earnings not going into assets or debt paydown (both of which increase book value); where is it going?
Usually, dividend payouts.
Hi Ben. Love your videos. Would appreciate if you could touch on the expected US Fed interest rate hikes and how that would impact index funds and investing in general. Appreciate it.
Sticking with my portfolio of 100% iShares core MSCI world ETF. 10 year annualized returns of 12%.
I believe that investors not knowing about these pricing models or not believing in them based on "this time is different" could be the most important factor for unsophisticated investors.
I mean before these videos I was completely unaware that there was something like factors for stocks. Of course in hindsight it seems extremely logical, but beforehand I probably wouldn't have thought of it as risk factors.
Hi, keep up the great and meaningful work! Subscriber from Greece. Would you consider ESG ETFs in this category? Mostly their content is from banking/insurance sector and there is not such a hype around it, but is it a good idea afterall?
Also from Greece. Good to see that the right education is spread in my country as well.
I learned this lesson the hard way.. I will just wait and hope I can get some of my money back at least in the next 5 years..
You will wait with the underperforming stock?
@@MrWilson-zx9ixYes. I will just wait for a few years.
@@koraytugayYou'll have a better chance of getting your money back if you put it in a better-performing stock, like BRK-B or IWVL.L
Very high quality information.
Just a video idea, but I would love to see a video on Covered Call ETFs and/or Income Funds. I know you’ve touched base on financial products with downside protection before (I.e. low volatility ETFs) but given CC ETFs unique characteristics could be interesting.
What'd you think of it now that he finally made one?
The Plain Bagel made a video on Covered Call ETFs.
They tend to underperform because they miss out on the biggest bull runs, which are crucial to the returns of most index funds.
I needed this video a year ago :)
Ben, you should do a video on the buy-write ETFs that people are into these days, like JEPI, XYLD, NUSI, etc. they seem like they would be good in a regime where the market goes sideways or slowly downtrends for a few years, but shitty otherwise.
I want to thank you for your good work. Despite the market going down, I am still doing well because my investments are a basket of index funds tilted to the value side. I am grateful to find you and Paul Merriman at the beginning of my investment journey 🙏
Hi Ben! Could you do a video on your own personnal asset allocation and the rationale behind it? Thank you.
I largely did that already ua-cam.com/video/jKWbW7Wgm0w/v-deo.html
Thanks for the video! Could please make the charts/graphs full screen and not just a tiny thumbnail? Cannot see anything on the mobile devices.
Ben, i'm curious if you use any software? If so what's your go to?
Hi Ben
Thanks for a great content as always. What are your thoughts on XBAL ETF as the only fund in a retirement portfolio given a poor performance of bonds in the last year ?
Bonds look a whole lot better now than a year ago. Yields have gone up. That’s not bad news, it’s good news for long-term investors.
@@BenFelixCSI XBB is -11.2% YTD and also one ticket ETFs with a higher bond allocation have gone down more than the ones with a higher equity exposure. It’s very strange. Any idea why is that and what the future holds for investors. Maybe we should move to dividend ETFs ?
Fantastic. My wife and I have a goal, but I think if I had never found your material it would not be feasible. Keep up the truly great work 💪
Ben, what about... sector ETFs? For example... ETF for producers of semi-conductors.
So excluding those "hype sectors" should increase returns right?
Great video.
Thank you!
Would you include so-called 'ethical' environmental / socially responsible / well governed "ESG" focused indexes as thematic investing? For example XUSR, XCSR, and XDSR? Or the GEQT portfolio than contains them all?
It is tricky, because this skips the "excitement based investing" for some of us but... not entirely. They certainly market these as more ethical or sustainable investment that includes acceptance of a somewhat smaller return expectation.
It's a trendy theme but not a high fee thing.
Ben has posted a video on ESG funds
You raise a good point. ESG investors may get something other than financial benefits from owning ESG stocks. if enough investors have an ESG preference, the expected returns of ESG stocks can decrease. Discussed in detail here ua-cam.com/video/weVAN2HxXjk/v-deo.html
@@BenFelixCSI I didn't realize you had an entire video about it! Thank you, I'll watch it now.
Always love your content!
Also I would guess that most ESG indices probably represent a high enough % of the market to be sufficiently diversified, but they would bias towards certain themes such as clean energy etc. So at worst their underperformance due to these effects would be small.
"ESG" indices have also been plagued/compromised as of late for their lack of adherence to certain ESG principles that certain investors may find problematic (e.g. maintaining an average/above average exposure to fossil fuel exploration/extraction/transportation/refining while claiming the "ESG" label). Different value prop. compared to purely return/stability-based investors, and it shows that it's been co-opted w/o due diligence as to (retail) investor preferences.
Great Video!
so if your down big on arkk. what do you suggest? it already dropped 70%, is the bubble popped? cash in the loss? it would take ages for sp500 to recover that loss. or keep it in for a rebound?
Ben, how about a comparison between Vanguard stock index ETFs and DFA stock ETFs such as DFAU, DFAI and DFAE
Do you mind leaving a link to the podcast you mentioned at the end?
Will add it now. Thanks.
Would you say it is less risky to try stock picking clean energy stocks on your own, instead of buying a clean energy etf ?
So, what I'm hearing is 75% VGRO and 25% VFV. Right. Thanks.
I was going to buy some cyber security ETF. Then I remembered this video. Thanks Ben!
As I understand it, XUU is a fund-of-funds, but are they starting to hold the underlying assets directly? I ask this because it seems that the top 10 holdings is displaying stocks as well as the ETFs it holds. A few months back, the top 10 holdings only showed the underlying ETFs.
They are transitioning to direct holdings to improve index replication. They could not do it all at once due to the tax implications of selling the underlying ETFs.
@@BenFelixCSI appreciate the reply. Thank you.
I'm still waiting for the Psychedelic Bald Canadians Specialty fund.
Ben, what is your opinion on SVXY? Feels more like selling insurance and not so exciting... :)
Hi Ben! Do finacial advisors ever reccomend selling covered calls? I have heard it's a good stable investment strategy, but have never heard of it mentioned by the experts
Generally no. It is picking up pennies off of the freeway. Yes, you are making money, but you are taking a lot of risk for a comparatively small return.
I've heard selling covered calls is akin to picking up pennies in front of a steamroller. As long as the calls stay out of the money you're good, once they stop you get flattened. Up to you if you want to assume that risk.
I use covered calls on stocks I plan on selling anyway. Let me illustrate with an example of what I do in my own portfolio:
I do a core + satellite strategy where the core is a broad market diversified ETF and the satellites are just whatever random stocks I want to throw money at. I sell covered calls on those satellite holdings because I don't really plan on holding them long-term and I want to lock in any eventual profits.
In other words, if the satellite holding loses value or stays flat, I get a bit of money. If it goes up and my shares get assigned, then hey I just locked in my profits at a level I'm happy with since I'm not chasing crazy gains.
If your use case looks similar to mine, then hey go enjoy doing some covered calls!
So exciting stocks are like buying gold when you expect that gold is going to be mined more.
I've heald VHT for about a decade and was thinking about just dumping it into VTI, which is the majority of what I own. I originally bought it based on the thesis that the aging of the baby boomer population would drive outside profits in the broader healthcare industry. it's performed pretty well, if Im reading the data correctly outperforming VTI over the past 10 and 15 year periods. curious if you'd consider Healthcare in general a "hot" thematic chase. It feels much broader to me than some of the examples you gave, although from a composition perspective it seems to just be a concentrated large-cap value slanted fund.
Sectors are not priced risks in any case, even if they're not hot, so I would not generally recommend them. It's great that you had a good outcome. You should expect the future outcome to be dictated by a combination of the priced risks that VHT is exposed to, and randomness.
In his videos on factor investing, Ben talks about the value factor being a risk. Why is the value factor a risk? Similarly, why are high profitability, conservative investment, small cap, etc. risks?
It can be for a number or reasons. They might be in the midst of short-term disruptions, or industries the market is skeptical of even thought they're still highly profitable. Oil companies are an example. They're highly profitable, but share-prices are low probably due to expected decarbonization trends.
I'm not sure why profitability or conservative investing are risks; but I can get why value and small-cap are risks:
individual stocks in these categories are more likely to go bankrupt.
It's pretty well known that small companies are more likely to go bankrupt, and companies with very low P/B values are often like that because the market is pricing their bankruptcy risk in.
That means they are unattractive to someone making a six-stock portfolio; so someone with a large diversified portfolio can take advantage by buying many of them.
SMH or XLV, etc are thematic Etfs? What's the concept of thematic Etfs to diferenciate them from sector etfs? Or are they the same?
And ESG ETFs/funds... would you include them in this category?
Yeah.
Now that we are in a new hype cycle with a new technology unlocking massive returns, this video is once again incredibly relevant
The more I learn, the less I know. Your knowledge humbled me 🙏
I know u like small cap value ETF/Index. What is your opinion on magic formula investing from Joel Greenblatt. In a way it is small value investing with low pe and high ROIC. It should do well like small cap value?
Ben what are your thoughts on the recent comments from Elon and Cathie, about all the passive investing, and their reference to Jack Bogle?
Would you ever consider doing a deep dive on leveraged (2x/3x) funds? I’ve heard you briefly speak on SSO before but there’s a lot of conflicting (and not mathematical) opinions out there currently.
The Plain Bagel made a video about them.
They underperform because of their rebalancing process. When stock prices are high, their leverage decreases, so they borrow more money to buy more stock to maintain their leverage. Meanwhile, when stock prices are low, their leverage increases, so they sell some of their stock to pay off the debt. This buying high and selling low causes them to underperform.
added to my favourite video. Thank to @Mr RIP to land me here.
For Ben (and anyone else who may be interested): Do you consider ESG funds to count as thematic investments? I have strong views against carbon majors which I do not wish to invest in. Am I making a mistake by taking ESG index funds which often come with a slightly higher fee?
I would not include ESG in the trend chasing thematic group. I did a deeper dive on ESG a while ago. ua-cam.com/video/weVAN2HxXjk/v-deo.html
@@BenFelixCSI Thank you!
That smile in the thumbnail says, “I’m going to enjoy destroying you…”
Yupp...LERN (from Rize) burned me 50%.
I was wondering if "chasing" thematic ETFs with the momentum risk factor could deliver alpha. Can anyone help?
Ben touched on this at 7:56. You could look up the paper cited (Blizt 2021, "Betting against Quant ...") to see how Blitz broke down the various risk factors and how momentum played out. Based on what Ben said, I'd guess that any benefit from the momentum factor was overwhelmed by weak profitability and unrewarded idiosyncratic risk.
Try to check the IWMO vs IWDA performance and see for yourself. Total Market ETF will ALWAYS win on the long term
Ben you should invest in lighting. ;)
"I tried to warn you guys" heard around the world
Thanks Ben, Cathy Wood is the perfect prototype.
Keep them coming 👍
I'm going to create an ETF that only shorts other thematic ETFs on launch.
So Shiller was right and markets are subject to investor fad? Does this contradict the efficient market hypothesis? Can a trader / a quant somehow benefit from such novice investors? If so, then markets are not efficient, right?
To some extent, but such investors are probably a small minority. However, it's probably a good reason to have a value slant. Less sexy, cheap, highly profitable stocks will probably have higher returns than meme stocks.
5:32 i see what do did there! :-)
HELP PLEASE! What do the studies say about where you should you put your money in uncertain times like these with rising interest rates and inflation? Would love to get your take on it please.
Next video in two weeks.
@@BenFelixCSI Thanks so much Ben. I'm looking forward to seeing it.
Really don't expect this video will end with "I told you so"
Vc que é o Otávio Paranhos canadense?
so, you're saying I should NOT have invested in that video-rental store mutual fund? or that celluloid film production ETF?