The Jealousy List, ETF Edition

Episode Summary

Executive Summary: This Trillions episode uses Bloomberg Businessweek’s “jealousy list” to highlight standout financial journalism on ETFs, ETNs, volatility, oil, and retirement products. The hosts and guests debate market structure, investor protection, and how clever reporting can clarify complex products and flows while exposing risks in leveraged and opaque investment vehicles.

Main Topics: The yearly “jealousy list” and standout journalism (Priority: 5/5): The episode is framed around Businessweek’s tradition of identifying the best stories written by other outlets, then applying that exercise to ETF coverage. The hosts praise reporting that combines strong narrative framing with deep market understanding. Passive ownership concentration and “too big” ETFs (Priority: 5/5): Eric highlights Dave Nadig’s work questioning whether giant passive managers like Vanguard and BlackRock have become too influential because they own large stakes in public companies. The discussion stresses both legitimate concerns and the lack of easy policy fixes. Retail losses in complex ETNs and leveraged products (Priority: 5/5): Claire discusses a Wall Street Journal piece about retail investors who put retirement savings into ETNs and were wiped out during March volatility. The group contrasts ETFs with ETNs and notes the dangers of leveraged, hard-to-understand products. Volatility trading and institutional blowups (Priority: 4/5): Jakob cites a post-mortem on volatility trading that argues the March 2020 crash revealed how institutions, not just retail investors, were exposed to short-volatility strategies and structured notes. The episode treats this as a sequel to prior volatility product failures. USO, negative oil prices, and a teachable moment (Priority: 5/5): Katie and the hosts revisit the United States Oil Fund’s struggles during the oil price collapse, including exposure to front-month futures when oil briefly went negative. The episode emphasizes disclosure, investor expectations, and the role of retail speculation. Target-date funds and retirement fees (Priority: 4/5): Katie highlights a study finding that target-date fund sponsors charged substantial excess fees versus ETF replication. The discussion broadens into the under-covered mutual fund and retirement-plan market, where huge assets remain but less media attention is paid. Cathie Wood, ARK, and structured notes on innovation (Priority: 4/5): Eric praises reporting on Cathie Wood and an unusual JP Morgan note linked to ARK ETFs. The conversation reflects the market’s fascination with ARK and the creativity—and riskiness—of products built around hot funds.

Key Arguments: Good financial journalism can make complex market stories accessible by using strong framing, not just data dumps. Passive fund concentration is a real governance issue, but critics often overstate harms without proving them or offering workable solutions. ETNs and leveraged products can lure retail investors with high-return promises while magnifying losses dramatically in stress periods. March 2020 exposed how volatility strategies and structured products could fail across both retail and institutional channels. USO illustrated that even mainstream ETFs can produce unexpected outcomes when underlying markets break, and investors may not understand the product’s mechanics. Target-date funds may be expensive relative to ETF-based replication, suggesting meaningful retirement savings could be achieved with cheaper structures. Much of the biggest risk in ETFs and related products comes from opacity, investor misunderstanding, and the gap between product design and investor intent. The media has increasingly covered ETFs well, but mutual funds and retirement-plan products still deserve more scrutiny because of their scale and hidden costs.

Data Points: Average stock ownership by Vanguard and BlackRock: 8% each - Eric cites concerns about passive managers’ concentration in public equities. Target-date fund industry size: $1.4 trillion - Katie describes target-date funds as a massive retirement-products market. Excess fees charged by target-date fund sponsors in 2017: Nearly $2.5 billion - Based on the study Katie discussed comparing sponsor fees with ETF replication. Potential annual savings from ETF replication: About 1% per year - The study’s estimate of how much investors could save by using ETFs instead of target-date funds. Oil futures price: Negative $37 per barrel - Referenced as the shock event that hit USO’s front-month exposure in April 2020. Stock price move after Cathie Wood quote: Tesla up 56% since September - Eric references Claire’s story about ARK buying more Tesla after a dip. Assets in ARK: $17 billion - Eric notes ARK’s size as significant in influence even if not dominant in market share terms. LQD dislocation timing: March 2020 - Claire notes bond mutual fund dislocations during the crisis were under-covered. TVIX size in March: About $7 billion - Eric mentions the volatility ETN’s large March surge before its closure/reverse splits.

Pivotal Quotes: "How Big is Too Big" — Eric Balchunas: Referring to Dave Nadig’s piece questioning the scale and influence of passive fund managers. "Bankrupt in Just Two Weeks, Individual Investors Get Burned by Collapse of Complex Securities" — Claire Ballantyne: The Wall Street Journal article she chose about retail losses in ETNs. "How to Lose a Billion Dollars Without Really Trying" — Jakob Petersil: The Institutional Investor feature he praised on volatility trading losses.

Implications: The episode suggests investors should be skeptical of opaque, leveraged, or overly concentrated products, while journalists should keep probing retirement and mutual-fund markets where fees and risks remain large but less visible.