Monday, November 13, 2017
David Herzig (Valparaiso) presents Structural Inequities of Exchange Traded Funds at Loyola-L.A. today as part of its Tax Policy Colloquium Series hosted by Katie Pratt and Ted Seto:
Exchange Trade Funds (ETFs) have almost as many assets under management as Mutual Funds. ETFs are often compared to Mutual Funds as a more efficient version of the same structure. The popular narrative espouses that these tax efficiencies account for the growth of the sector. This narrative is incomplete and misleading. These two structures have key differences other than tax efficiency. These structural differences have created an environment where aggressive bets against their performance, e.g. shorts, and high levels of internal leverage of the fund take place. Because of the vulnerabilities caused by the structural differences between ETFs and Mutual Funds, ETFs may not be the better structure but, rather, be the canary in the coal mine for the next market crash. This article proposes both tax and regulatory rules to rein in ETFs.
The commentator is Michael Desmond (Law Offices of Michael J. Desmond, Santa Barbara, CA).