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Monday, March 31, 2014

On the Impact of Word Games

News summary by MFWire's editors

The 20th Century philosopher Ludwig Wittgenstein devoted a lot of time to the subject of intention in linguistics, for example the relation between what a person actually intends to say, and what the person actually says.

If he were alive today, he'd probably get a hernia pondering the linguistic challenges afflicting this industry today.

Case-in-point, low cost fund giant Vanguard disavowed today to Barron's comments attributed to CEO Bill McNabb in a CNBC article yesterday that he was reportedly mulling moves into "smart beta."

This follows another brouhaha earlier this month, regarding a Reuters article alleging that Pimco co-founder Bill Gross claimed to be monitoring Mohamed El-Erian's calls, which Pimco quickly denied.

Honest mistakes or misunderstandings? Dissemblance on the part of anyone? Maybe no one is certain exactly what it is they are saying.

There is an awful lot of semantics, some might call it word games, going on in this industry.

Take "smart beta," for instance. Does smart beta involve indexes on steroids with heavily bulked math underlying it. Is "smart beta" something that might include active management to some degree, like the gradual creep into active managed ETFs.?

When it comes to "smart beta," Vanguard views it "not beta but a bet" instead.

Excuse me, what?

Ditto for alternatives. Ask 100 people for a definition on alternatives and you'll get 110 answers. One famous response to an MFWire staffer on the subject defined alternatives as "a synonym for miscellaneous." Analysts are scrambling to come up with systems of knowledge to judge these things. Firms are spending fortunes hiring knowledgable people to explain these things. Meanwhile, regulators are flipping out, peppering industry players with questions to get a clue as to what is going on.

How about debates over style boxes? Enough said there.

Note the way that Vanguard articulated its vision for moving into actively managed ETFs, i.e. "active and passive can work together".

When you consider that retail marketing is all about having a "story," a "message," and "language" devoted to developing a value proposition for investors to buy into, all of this cloudiness is downright disturbing.

Many of you probably grew you watching the John Cusack movie, Say Anything. Maybe it's time to start ignoring that advice.  

Edited by: Amy Xie

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