Taking Exchange Traded Funds (ETFs) “Mainstream”
At the NAOI, we believe Exchange Traded Funds (ETFs) to be one of the most significant developments in the world of investing since index mutual funds were introduced in the 1970’s. They have all of the diversity benefits of Mutual Funds but are easier to trade and have significantly lower expenses. And there exists an ETF that tracks just about every asset type and area of the market.
Yet ETFs are massively under-used today. Most people who begin NAOI investor education classes have never hear of them. This is because of two reasons. First, financial advisors are more highly compensated for selling Mutual Funds than ETFs. Second, virtually all portfolios created today use an approach called Modern Portfolio Theory (MPT) that embraces a buy-and-hold portfolio management strategy. As such, these portfolios do not take full advantage of one of the most significant benefits of ETFs, that being “ease-of-trading”. As a result of these factors and others, ETFs are not seen by the public as a mainstream investment today.
This is about to change. The unique benefits of ETFs are fully exploited by Dynamic Investment Theory (DIT), which, as you have learned embraces a dynamic, buy-and-sell management strategy. With the introduction of DIT and Dynamic Investments, the use of ETFs will explode and they will finally attain the mainstream status they deserve. With this change, a world of revenue generation opportunities, in addition to significantly higher sales, will open for ETF Developers. On this page I describe just a few.
Uncovering Hidden Value - Monetizing ETF Combinations
As you have learned on previous pages of this presentation, Dynamic Investments are created by combining existing ETFs into an intelligent and dynamic structure that can produce far higher returns than standalone ETFs as illustrated on this page. As a result, DIs enable ETF developers to uncover massive value that is currently lying dormant and hidden in their current ETF product lines. By “monetizing” the combination of existing ETFs in a Dynamic Investment product, this value is uncovered and it is massive.
Below is just one simple, generic example of the creation of new value in an existing ETF product line works.
You saw the components of Dynamic Investments on this page. A DI designer places multiple ETF in the Dynamic Equity Pool (DEP) which is Reviewed periodically and ranked based on the price trend of each. Only the ONE ETF that is moving up in price most strongly at a Review event is purchased (or retained if already owned) and held until the next Review event.
For this example I will include only two ETFs in the DI’s DEP, one that tracks a Stock index and one that tracks a Bond index. I will use the following generic names and indexes they follow. Note that these are real ETFs but I will not reveal their symbols in this demonstration.
Stock ETF - Russell 2000 Stock Index
Bond ETF - Long-Term Treasury Bonds
The table below shows the performance of each of these ETFs for the period from 2008 to 2017, inclusive, along with an NAOI Dynamic Investment that combines them in its Dynamic Equity Pool. Note that the Sharpe Ratio is a measure of how much return is achieved for each unit of risk taken - the higher the better.
You can see that the performance of the DI is amazing and virtually impossible using MPT methods.
In this example I have taken two existing ETFs and combined them in a very simple, high-return, low-risk Dynamic Investment. Now I have three investment products instead of two. And the Dynamic Investment delivered performance that is significantly higher than either of its ETF components. This example illustrates how Dynamic Investments unleash the value of ETF combinations. This is value that is currently lying dormant in existing ETF product lines.
Opening a Vast New World of ETF-Based Product Development
The above example shows how easy it is to create Dynamic Investments by simply combining existing ETFs in the DI’s dynamic structure. Of course not all combinations of ETFs will work. Some training by the NAOI is needed to learn the art and science of creating optimal DIs as discussed at this link. And there are an unlimited number of DIs that can be created for virtually any investing goal.
Creating the best Dynamic Investments possible using existing ETFs is a vast and virgin field of research that can produce ROIs that are off the charts. And the creation of very powerful new products requires far less time, effort and expense than the creation of new ETFs or Mutual Funds.
Rapid Product Line Expansion
By focusing R&D resources on creating new Dynamic Investments, ETF developers can expand their product lines exponentially without the need to create a single new ETF. The diagram below shows a new Dynamic Investment product line that will increase product revenues exponentially.
The ability to create new, powerful products by simply combining existing products into a dynamic format is a major breakthrough in how we invest today. ETF developers who embrace this opportunity first will benefit the most.
Opening New Markets
The inclusion of DIs in a product line opens significant new markets for ETF developers. Because each DI is a comprehensive investment "product" with built-in management rules, DIs can be sold directly to the public in conjunction with NAOI educational resources that show individuals how to easily implement and manage them. ETF developers will also sell DIs directly to newly formed Dynamic Investment Designers who will be trained by the NAOI to transform standalone ETFs into powerful Dynamic Investment products resale. The advantage of independent DI Designers will be that they will be able to combine ETFs from multiple developers.
Presented below is a diagram that shows the entities and product flows in the current and future ETF marketplace. The black lines and letters in the diagram show what exists now. The red lines and letters show the new markets, products and new sales channels that will be available to ETF developers in the near future.
The fact that Dynamic Investments enable ETF Developers to sell their products directly to investors represents a huge opportunity for sales growth!
Note that in the diagram Hybrid Portfolios are portfolios that use MPT methods with Dynamic Investments included as portfolio building blocks as discussed on this page.
These are just a few of the reasons why ETF developers should embrace Dynamic Investments with open arms. There are others that the NAOI can share ETF developers via training classes and consulting agreements. The ROI of such working with the NAOI will be off-the-charts high. NAOI Dynamic Investment support resources are discussed on this page of the presentation.