Insights From the Inside ETF Conference

Last Weekend I was able to attend the Inside ETF Conference in Boca Raton Florida put on by Index Publications, LLC.  While we were there, Wiser Wealth Management’s president, Casey Smith was a moderator on a panel covering advisors using ETFs.

Among the conference speakers were many presidents from ETF and index companies and many of the leading thinkers within the industry.  In this post I wanted to highlight some of the things talked about at the conference.

The conference was very interesting because during 2008, ETFs accounted for up to 40% of trading volume.  This means that large institutions have completely accepted and are using ETFs.

Leveraged and inverse ETFs were among the main topics to everyone.  During 2008 short and leveraged funds became very popular.  However, the math behind short and leveraged ETFs is not simple when held longer than one day.  Companies who issue these products are extremely forthcoming about this and do not intend their product for the average person and repeatedly state that their objective is to give 2x long or short the DAILY value of the underlying index.  Over the long run, the funds can get very far away from 2x long or short.  Explaining the math may come in a latter post.

Option strategies using ETFs were covered heavily.  Using options with ETFs is a little different since a stock may very well go to zero when a company goes bankrupt but it is extremely unlikely that a broad index represented by an ETF would go to zero and so would complicated options strategies can be used to hedge risk.  The strategy discussed at the conference was the vertical spread with a fully collateralized at the money put.  This strategy has been named, insulated beta and is used to hedge against moderate downside and capping extreme upside.  I would like to do more research on this strategy and write a post about it in the future.

Also, addressed at the conference were the hedge fund like portfolios one can build with ETFs, especially using currency and commodity ETNs.

By Published On: January 16, 2009

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