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Interview with ETF Guru Eric Dutram

ETF Expert Eric Dutram

Andy Hagans sits down for an interview with Eric Dutram to discuss the ETF industry, emerging markets, and more.

ETF Reference editor in chief Andy Hagans recently interviewed Eric Dutram, the ETF strategist at Zacks.com, and author of ETF Trader. Mr. Dutram formerly worked as an analyst at ETF Database. (Note: ETF Database was originally launched by the co-founders of Poseidon Financial LLC; Poseidon Financial owns ETF Reference.) The interview with Mr. Dutram was completed over email, over several months of this year.

Andy Hagans: You’ve been covering the ETF beat for most of your career, and have published hundreds (thousands?) of articles under your byline. Do you have any particular articles, or articles series, of which you’re the most proud?

Eric Dutram: There are really so many over the last half decade or so, it is really hard to narrow down the list! One that definitely comes to mind though is an article I wrote for ETFdb a long time ago regarding emerging market exposure: 7 Things Every Investor Needs to Know About Emerging Market ETF Investing. I got some great feedback on this one from a CIO at one of the ETF issuers and I think it was a great piece on the ins and outs of emerging markets which at the time was a relatively new concept to most.

Another area of the market that was always grossly misunderstood was volatility ETP investing. For that reason, I was pleased with Why I Hate Volatility ETFs (and Why You Should Too) . Many investors use these products as long-term investments but that isn’t really how they are intended to be used. I looked to dispel some of these myths in the article and then talk about inverse volatility investing which can actually take advantage of some of the main issues that plague ‘regular’ volatility ETFs.

More recently, I took a quick look at a few of my favorite and most interesting new ETFs that came out in the first half of 2015. There were over a hundred launches in this time frame alone and I think most might get overwhelmed, but also miss out on a number of products that could be worth a look for certain investors.

Andy Hagans: The ETF industry can be unpredictable in terms of which funds gain traction (and which do not). Which ETFs have surprised you the most in terms of their AUM growth (or lack thereof)?

Eric Dutram: It can be a real shock sometimes when ETFs gain a ton of assets and when others fall by the wayside. Personally, I was quite surprised by the success of the hedged ETF trend which takes out currency exposure. While I thought these were great product ideas I was very surprised that they caught on as the concept seemed a little beyond what most investors might be used to. Plus, regular currency ETFs have always been of little interest to investors anyway. Beyond that, an old airline ETF, FAA, was shut down due to a lack of interest and this came right before airline stocks as a whole took off. We now have a new one in the space, JETS, but it was a real shame that the issuer didn’t stick around a tad longer with FAA as this could have been a popular one.

The biggest surprise of all is the lack of interest in Guggenheim’s ‘Pure’ growth and value lineup of products. While some of these have a decent level of interest, the fact that these aren’t the most popular is mindboggling. Unlike other funds in the value/growth worlds, these do not have any overlap between the value and growth styles for a given capitalization level. This is actually a huge problem for most growth and value ETFs out there as sometimes both the growth and value have hundreds of the same holdings! For more on this definitely compare RFV and RFG to MDYV and MDYG for example.

I can’t say I was surprised at all by the surge in interest for HACK though. The cyber security issue is always in the news and I felt this was a can’t-miss product. However, a $1 billion fund in less than eight months? That is pretty crazy for anyone and especially for an upstart company like PureFunds.

Andy Hagans: You’ve done quite a bit of globetrotting. Have you left any of your destinations convinced that the country has potential for major economic or stock market growth after experiencing the conditions on the ground? Have you left any places convinced that the economy or stock market is going to tank over the intermediate or long term?

Eric Dutram: While it was a bit of time ago now, I would definitely have to say that Southeast Asia — in particular Malaysia and Singapore — really impressed me. Everything is so clean, efficient, and relatively well-run (especially in Singapore)

On the other side of the coin, you have places like Spain and Italy, two economies which have long since seen their hayday.

Andy Hagans: Let’s talk about Central Planners for a moment. If you were grading the last three chief Central Planners in the U.S. — Mr. Greenspan, Mr. Bernanke, and Mrs. Yellen — what “letter grade” would you give to each, and why?

Eric Dutram: I’d grade them as follows: Greenspan- F, Bernanke- C+, and Yellen- I (incomplete).

Greenspan just completely missed the build up to the financial crisis and if anything is better remembered because he got out just before it blew up. So we should really be celebrating him for his incredible timing. Rates were clearly kept low for too long and banks were able to pretty much run wild. While this obviously isn’t all his fault, he was in a powerful position to limit some of the excess and take a bit of the fuel away from the fire, but didn’t.

Bernanke is a bit of a quandary for me. He was more or less thrust right into the financial crisis within his first year on the job, and I think part of the blame for the crisis still does lie with him. As for the extraordinary measures that took place after the crisis, it is still too early to say if it worked or not in my opinion. Rates are still at crisis levels so it appears as though we aren’t quite out of the woods just yet. I will say that I have been surprised as to how things have gone so far and the pace of at least the stock market bounce back. Clearly, the impact of QE has been strongly felt in this regard, but as for the regular economy, I think the verdict is still out.

Yellen is in the process of taking her first exam so to speak and I’d like to see her make a rate hike before giving a grade. We have been waiting for a Fed funds increase for quite sometime and I think we need to get at least one this year. So I guess this is kind of a cop-out answer, but currently I think it is unfair to judge her and that we need to see if she can get that rate hike first.

Andy Hagans: It seems like nearly every measure (yields, historical pricing trends) of nearly every asset class (stocks, bonds, alternatives) suggests overpricing. Have our Central Planners — with an assist from their global compadres — inflated a new, global asset bubble?

Eric Dutram: I think you could make an argument for a new global bubble. However, I am having a hard time believing it for stocks in many markets at least right now. While PEs are definitely elevated, they are nowhere near peaks here in the U.S. With that being said I think you can definitely make the case that we are seeing the bursting of a Chinese asset bubble and that the government’s attempts over there to stop this from happening will likely not end well.

Bonds also seem to be in a bubble, at least when looking at a 30-year chart. Prices have never been higher, and rates have never been lower, though this could change with some help from Yellen and the rest of the Federal Reserve. We have already started to see bonds slump (finally) and I think we could be in the process of a long, slow crash as rates get back to a more normal level over the next several years.

As far as I can tell though, there are still opportunities out there; you just have to know where to look for them and be ready to act quickly in what is increasingly a fast moving and dicey market.

About the Author: Andy Hagans

Andy Hagans is editor in chief for ETF Reference, and also serves as CEO of parent company Poseidon Financial. He is passionate about the “Bogleheads” school of investing, and is focused on helping investors achieve higher net returns via tax efficiency and fee minimization. He resides in southwest Michigan.


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