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Speaker 1: Welcome to ask fear and greed. Maybe take your questions

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Speaker 1: and do our best to answer them. I'm Michael Thompson

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Speaker 1: and hello Sean Aylm.

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Speaker 2: Hello Michael.

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Speaker 1: You sound apprehensive, Sean, I do you need not be apprehensive.

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Speaker 1: Today's question is a great one. It is from Joe

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Speaker 1: who has sent this in via LinkedIn, And you can

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Speaker 1: go to fearangreed dot com, dot au or LinkedIn or

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Speaker 1: Instagram or Facebook, any platform which I can send you

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Speaker 1: a question in. And Joe says, last week recently you

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Speaker 1: told us that ETFs are at an all time high

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Speaker 1: and exchange traded funds are set to have more than

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Speaker 1: three hundred billion dollars in funds under management by the

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Speaker 1: end of twenty twenty five. Joe has clearly been listening,

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Speaker 1: listening like Joe, Thank you, Joe. Then she goes on

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Speaker 1: to say, ETFs look like they are here to stay.

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Speaker 1: How will the growing number of ETF products influence the

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Speaker 1: landscape of stock markets globally and what will be the

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Speaker 1: long term effects of this? But wait, there is more.

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Speaker 1: Will there be downsides and risks associated with this shift

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Speaker 1: throughout the economy and reflected in investor returned? So maybe

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Speaker 1: you were right to be apprehensive because there's actually a lot.

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Speaker 2: In it as long as a piece of string. Yes,

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Speaker 2: is the short answered Joe. But I'll go into a

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Speaker 2: bit more. So what do we talk we're talking about ETF.

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Speaker 2: So ETF is a managed fund. You can buy and

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Speaker 2: sell it on an exchange like the AX. When you

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Speaker 2: invest in an ETF, you're not actually buying the stock,

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Speaker 2: you're actually buying a unit in the fund, so they

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Speaker 2: keep that in mind. You can have passively managed ets,

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Speaker 2: so most Australian ETFs are passively managed. They don't try

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Speaker 2: and outperform the market. They just say, let's mirror the

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Speaker 2: ASEX two hundred, let's mirror tech stocks something like that.

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Speaker 2: You'll also have active ETFs in hedge funds there basically

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Speaker 2: act of actively managed investments, so they try and outperform

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Speaker 2: the market. So that's what we're talking about ETFs. The

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Speaker 2: pros and cons. So the diversification is a great thing.

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Speaker 2: So people often want to invest in banks in Australia.

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Speaker 2: Great investment. Let's invest in banks. Do I invest in

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Speaker 2: Commonwealth or Westpac or National Australia Bank, or A and

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Speaker 2: Z or Bendigo you know, and and ETF solves that

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Speaker 2: for you. You just like banks, so you're buying all

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Speaker 2: the banks. Diversification is good, it's pretty transparent. So you're

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Speaker 2: buying this you know, you buy in this unit, you

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Speaker 2: get it priced every day, relatively low costs. So if

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Speaker 2: you went and bought all those banks yourselves, just buying

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Speaker 2: an ETF is probably cheaper and buying all those banks

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Speaker 2: easier to trade. You can buy and sell. The flip side,

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Speaker 2: there are cons to it is that they call it

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Speaker 2: tracking error, and so what your ETF is supposed to

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Speaker 2: be tracking, it may be a bit late, a bit delayed,

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Speaker 2: and you can actually lose money that. If you're buying

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Speaker 2: international assets, there's all sorts of currency risk. Sometimes they're

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Speaker 2: not as easy to buy and sell as you might

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Speaker 2: think because they might have invested in really unusual things,

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Speaker 2: so there's liquidity risk, et cetera. So the question is

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Speaker 2: what does this mean they're growing.

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Speaker 1: I love that you've just completely just I could step

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Speaker 1: out of this, out of the studio right now and

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Speaker 1: now you're just asking yourself questions.

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Speaker 2: When I am because I'm trying to think of the answer.

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Speaker 2: But as that I have to go back to kind

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Speaker 2: of the basics of what they are. Yeah, so you

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Speaker 2: know what they are. Just the fact that more people

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Speaker 2: are investing in ets suggests then that they're taking a

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Speaker 2: pool of money away from investing in common off bank

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Speaker 2: directly or investing in bonds directly or whatever. Okay, so

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Speaker 2: they will have a more influential impact. The flip side,

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Speaker 2: of course, is because we all pay eleven twelve percent superannuation,

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Speaker 2: there's so much money going into the market that there's

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Speaker 2: sort of plenty of money for everything.

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Speaker 1: It may not matter that much because there's enough to

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Speaker 1: go around.

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Speaker 2: Yes, what does what it does sort of mean is

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Speaker 2: that if something hits a sector, so interestrates hit banks,

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Speaker 2: then all the banks get a bit hit the same

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Speaker 2: so and ETF makes a sector a little bit more generic. Okay,

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Speaker 2: we have a better term because people people aren't buying

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Speaker 2: Comme Wealth Bank, they're buying the banks, So if they're

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Speaker 2: buying or selling, it's all of them, it's not just one.

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Speaker 2: So certainly long term, so that in a sense is

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Speaker 2: either good or bad depending on what you think. Long term,

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Speaker 2: if we keep having this flood of money into ETFs,

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Speaker 2: then they will have greater power over the market. So

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Speaker 2: you know, whoever holds the owner of the ETF, whichever

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Speaker 2: company has it, become kind of powerful in terms of

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Speaker 2: what they're going to do. Now, there's a difference here

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Speaker 2: where we talk about passive in active ETF. A passive

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Speaker 2: ETF just follows the market and active ETF does more

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Speaker 2: than that. And so if someone owns it, So let's

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Speaker 2: say it's a company ABC, I invest in ABC because

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Speaker 2: they have this ETF, they will become more powerful the

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Speaker 2: bigger their ETF is. Okay, so there's a bit of that.

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Speaker 1: Could there be a scenario as well when there is

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Speaker 1: as much or more money invested in an ETF that

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Speaker 1: is tracking a particular sector than there is in the

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Speaker 1: sector itself. And it may not be the case in

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Speaker 1: say banks, because those companies are very large, Commwealth Bank

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Speaker 1: obviously the biggest company, But you get to some of

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Speaker 1: the smaller sectors on the AX and could there actually

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Speaker 1: be more money invested in the ETF that is tracking

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Speaker 1: that sector than there is in the sector itself.

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Speaker 2: Now, because I think I think the ETF is a

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Speaker 2: subset of the total investment in.

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Speaker 1: So it's always going to just be counted as part

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Speaker 1: of it.

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Speaker 2: But your point is still the proportion of money could

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Speaker 2: go from five percent to eighty percent, and then something

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Speaker 2: you get regulatory change, or you get Donald Trump saying something.

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Speaker 2: Everyone says, oh we hate gold all of a sudden,

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Speaker 2: and so they're selling out ets. It could have a

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Speaker 2: really big influence that way.

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Speaker 1: Okay, have we answered all of jo there's a multipartes

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Speaker 1: as well.

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Speaker 2: Really not very well.

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Speaker 1: What we've talked about downsience. Yes, we've talked about the risks,

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Speaker 1: perhaps a disproportionate effect if there are changes, yes, and

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Speaker 1: the fact that it's making the perhaps sectors more generic

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Speaker 1: and perhaps that actually absorbs some of the risk.

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Speaker 2: Yes, I mean it does when ETFs are used in

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Speaker 2: portfolio management to generate outcomes that different from the broader market. Sometimes,

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Speaker 2: so when people are training for every buyer there's a seller.

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Speaker 2: So the net effect is and so will the ETFs outperform?

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Speaker 2: How do actively ETFs? They'll have more sway generally than

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Speaker 2: they do now because they're getting bigger. But there's a

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Speaker 2: lot of money out there, you know, like as super

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Speaker 2: fund is always going to be bigger than an ETAR fund.

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Speaker 2: He says, yeah, I think that's probably true.

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Speaker 1: Well, yeah, and they're getting bigger constantly.

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Speaker 2: Yeah, yeah, I don't know they've really done much of

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Speaker 2: a job. I mean, I kind of think we've got

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Speaker 2: the concepts there. I think we have to wait and

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Speaker 2: see long term how it plays. But ETFs will certainly

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Speaker 2: be more influential in markets.

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Speaker 1: Okay, So what I might do is I might mark

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Speaker 1: on the calendar so we will come back and revisit

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Speaker 1: this ask Fair and Greed in five years excellent and

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Speaker 1: see whether things have changed.

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Speaker 2: Going to be an end of February twenty thirty, yep,

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Speaker 2: will still be here. Not a chance.

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Speaker 1: All right, Look, I'm more optim Dick. I think we will, right, Joe,

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Speaker 1: thank you for your for your question, and thank you

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Speaker 1: Sean for discussing it.

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Speaker 2: Discussing Thank you, Thanks Joe. Thanks Michael.

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Speaker 1: Remember, if you've got something that you would like to know,

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Speaker 1: then please send through your question on LinkedIn like Joe did,

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Speaker 1: or Instagram, Facebook, or a fearangreed dot com dot A.

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Speaker 1: You are Michael Thompson and this ask Fear and Greed