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According to Bloomberg the number of liquidated ETPs (exchange traded products) is on pace to hit 1000.  The growing graveyard of exchanged traded funds and notes is the result of the massive proliferation of this extremely low fee product whose expenses are paid almost entirely upon whether or not customers buy them.

ETFs lack the cushions and props that support mutual funds via front end loads, 12b-1 fees and other distribution payments.   Based upon ETF expense structure, how will the ETF industry survive in a prolonged down turn?

Many times I have commented the race to indexing has created a systemic risk onto itself.

The SEC ruled yesterday that many ETFs will no longer be permitted to own derivatives by the end of 2019.  I must write I know little details of this ruling as it was only a two paragraph news wire story, I do think such a pronouncement could be of significance given that in many instances an ETF does not own shares but rather derivatives and futures of shares.  How will such a ruling impact costs and fees?

Changing topics, led by FAANG the S & P 500 yesterday had an oversold advance.  Oil gained  the most in two months.  The media was attempting to make a horse race between MSFT and AAPL as to which will be the world’s most valuable company, a value around $812 billion.

In early October the media was filled with the next company that will eclipse $1 trillion. In early October AAPL was worth about $1 .1 trillion and MSFT was valued about $920 billion AMZN topped $1.05 trillion and is now worth $750 billion.


What will happen today?

Last night the foreign markets were down.  London was down 0.35%, Paris 0.37%  and Frankfurt 0.34%.  China down 0.17% was Japan up 0.64%  and Hang Sang down 0.04%.

The Dow should open nominally lower on trade concerns.  Trade rhetoric is expected to increase leading into the end of the week G-20 meeting.  The 10-year is unchanged at a 3.06% yield.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.