Many hedge fund traders are unhappy about the current near monopoly enjoyed by the top three ETF issuers, Black Rock, State Street, and Vanguard, which control 80% of the market. At last count, 590 index ETFs alone were capitalized at more than $1.5 trillion.
The result has been grasping management fees, exorbitant expense ratios, and poor structural designs, which create massive tracking errors.
The good news is that new entrants are flooding into the ETF space, and the heightened competition they are bringing will help curtail the worst of these abuses. This development will accelerate the demise of the bloated and arthritic mutual fund industry, whose end has been a long time in coming.
Not only will management fees and expense ratios plunge, there will also be a far broader range of offerings, as new funds are launched from a diverse range of institutions coming from differing areas of expertise. Failure to enter the newly lucrative ETF market by the remaining giants sitting on the sidelines means that their existing mutual fund businesses will be cannibalized.
Look no further than bond giant PIMCO, which came out with a plethora of fixed income related funds, Van Eck’s expanding list of ETFs for commodities, and the even growing list of inverse and leveraged inverse ETFs presented by ProShares. The bottom line will be that lower costs and tighter spreads will leave more profits on the table for the rest of us.
The Mutual Fund Industry is Getting Cannibalized
https://www.madhedgefundtrader.com/wp-content/uploads/2013/03/Hannibal-Lecter.jpg275243Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-03-16 09:04:182023-03-16 11:20:32Investors Will Win the ETF Price War
A few years ago, I went to a charity fundraiser at San Francisco’s priciest jewelry store, Shreve & Co., where the well-heeled men bid for dates with the local high society beauties, dripping in diamonds and Channel No. 5.
Well fueled with champagne, I jumped into a spirited bidding war over one of the Bay Area’s premier hotties, who shall remain nameless. Suffice it to say, she has a sports stadium named after her and is now married to a venture capital titan.
The bids soared to $36,000, $37,000, $38,000. After all, it was for a good cause. But when it hit $39,000, I suddenly developed a lockjaw. Later, the sheepish winner with a severe case of buyer’s remorse came to me and offered his date back to me for $38,000. I said “no thanks.” $37,000, $36,000, $35,000? I passed.
The current altitude of the stock market reminds me of that evening. When people ask me what I do for a living, I answer, “Convincing people not to sell at market bottoms.” This is one of those times.
I realize that many of you are not hedge fund managers and that running a prop desk, mutual fund, 401k, pension fund, or day trading account has its own demands. But let me quote what my favorite Chinese general, Deng Xiaoping, once told me: “There is a time to fish, and a time to hang your nets out to dry.”
At least then, I’ll have plenty of dry powder for when the window of opportunity reopens for business. While I’m mending my nets, I’ll be building new lists of trades for you to strap on when the sun, moon, and stars align once again.
And no, I never did find out how that very expensive date went.
Time to Mend the Nets
https://www.madhedgefundtrader.com/wp-content/uploads/2017/12/mending-nets-e1678978402971.jpg450318Arthur Henryhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngArthur Henry2023-03-16 09:02:442023-03-16 11:35:28Bidding for the Stars
The uncertain digital advertising environment has been a thorn in the side of legacy media giants for quite some time.
Companies from Comcast (CMCSA) to Warner Bros. Discovery (WBD) are feeling the pressure as profitability struggles pile up.
Unfavorable macroeconomic headwinds coupled with decreased ad budgets amid a decline in linear TV and digital search trends put the ad market through the wringer in 2022.
Recent ad market softness comes as media giants like Disney (DIS) and Netflix (NFLX) have embraced ad-supported streaming alternatives as the race for eyeballs escalate.
Disney's direct-to-consumer division lost an eye-popping $4 billion-plus in 2022.
Warner Bros Discovery is now targeting $4 billion in cost savings over the next two years.
Advertising revenue within NBCUniversal's media division increased by 4% in Q4 because of a boost from the incremental revenue from the FIFA World Cup.
Looking ahead, the lack of brand name events in 2023 such as the World Cup, Olympics, or U.S. midterm elections, will likely be a drag on ad spend in 2023.
Those events greatly aided the battered industry with the domestic ad market totaling $318 billion last year — an increase of 8% compared to 2021.
Similarly, Spotify (SPOT) CFO Paul Vogel told investors during the latest earnings call: "Advertising in Q4, overall, it's definitely continued to be very up and down."
Spotify's Q4 ad-supported revenue, boosted by podcasting, grew 14% on a year-over-year basis to €449 million — accounting for 14% of total revenue.
Disney and Netflix rolled out their ad tier products at a time when the ad market is in flux, but the move seems to have been a lucrative one.
At the time of the debut, the company said over 100 advertisers bought inventory for the launch — bucking the trend of a global ad spend slowdown.
Similar to Disney, Netflix is playing the long game when it comes to its recently launched ad-supported tier, which officially debuted in November.
In its latest shareholder letter, Netflix said engagement for ad-supported subscribers "is consistent with members on comparable ad-free plans, is better than what we had expected, and we believe the lower price point is driving incremental membership growth."
Investors should run to higher grounds to avoid the upcoming slaughter in legacy media.
The cord cutter phenomenon is real and the pivot to work-from-home culture has really stuck the fork in many traditional services that used to be part of American culture.
Legacy media is one of the big losers – nobody watches analog television anymore.
Investors will need to seek attractive properties such as NFLX to buy the dip.
They benefit from the first mover advantage, but Disney is also finding their way after firing former CEO Bob Chapek and replacing him with the guy before him - Bob Iger. It’s not a pure streaming play which is also an issue for the likes of Amazon and I do think Roku is a little too growth based at this point in the business cycle.
The overall message is to avoid unproven tech assets for the time being with bank turmoil and interest rate tumult.
The only exceptions are active traders who use volatility in their favor and play from the long and short side. Traders usually don’t discriminate and can jump in and out of these sharp movements.
If traders want to get into streaming or social media stocks, that is fine, but stick with the brand names and shun the exotic names for now.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2023-03-15 16:02:242023-03-30 16:22:37The Unknown in the Digital Ad Space
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.Read more
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When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.Read more
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When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.Read more
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When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.Read more
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When I visited the local Safeway over the weekend, I was snared by some green uniformed pre-teens, backed by beaming mothers behind a card table selling Girl Scout cookies. I was a pushover. I walked away with a bag of Thin Mints, Lemon Chalet Creams, Do-Si-Dos, and Tagalongs.
I have to confess a lifetime addiction to Girl Scout cookies. During the early eighties, one of the managing directors at Morgan Stanley's equity trading desk had a daughter in this national youth organization. One day, she pitched to all 200 traders on the floor, going from desk to desk with sheets of paper taking orders.
I used to buy two of everything she offered, as some clients preferred a few boxes of these delectable treats over lunch at the Four Seasons any day. Others ordered hundreds. I later heard that the girl was the top performing scout in the greater New York area two years running.
But this year, when I got home and opened a box, I was shocked. While the price was the same, the number of cookies had shrunk considerably. I knew it was not my waistline the scouts were concerned about. I was seeing the dastardly hand of 'stealth inflation' at work.
In this highly inflationary environment, companies loathe to raise prices. Food companies are especially hard hit, with many commodities like wheat, corn, sugar, soybeans, and coffee up 50%-300% in a year. Any attempt to pass these costs on to consumers is punished severely. So, companies cut costs, quantity, and quality, instead, by shrinking the size.
I think you are seeing stealth inflation breaking out everywhere. It is not just in food. Many products seem to be undergoing a miniaturization process while prices remain unchanged. It also extends to services, where a dollar buys you less and less. This is how the consumer prices index is staying in the high single digits.
Meet the Ugly Face of Stealth Inflation
https://www.madhedgefundtrader.com/wp-content/uploads/2018/08/stealth-inflation.jpg450450MHFTRhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTR2023-03-15 08:04:102023-03-15 09:07:57Taking a Bite Out of Stealth Inflation
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