WEBVTT - ‘VOO and chill’—Inside Vanguard’s powerhouse ETF 0:00:03.320 --> 0:00:06.400 Cura and welcome to Shared Lunch, brought to you by Chase's. 0:00:06.640 --> 0:00:09.440 My name is Helen Madison, and today we talk about 0:00:09.440 --> 0:00:12.520 the US markets. But don't worry, this episode is not 0:00:12.720 --> 0:00:16.400 all about the election. In particular, we'll discuss the Vanguard 0:00:16.560 --> 0:00:21.400 S and P five hundred ETF index from near Philadelphia. 0:00:21.400 --> 0:00:24.000 I'm joined by David Sharp, who is a senior ETF 0:00:24.079 --> 0:00:27.760 capital market specialist at Vanguard, Vanguard being one of the 0:00:27.840 --> 0:00:31.160 largest and probably most well known fund managers in the world. 0:00:31.640 --> 0:00:34.400 But before we get started, here's some important information. 0:00:34.600 --> 0:00:37.199 Investing involves the risk you might lose the money you 0:00:37.240 --> 0:00:40.519 start with. We recommend talking to a licensed financial advisor. 0:00:41.240 --> 0:00:45.040 We also recommend reading product disclosure documents before deciding to invest. 0:00:45.320 --> 0:00:47.680 Everything you're about to see and here is current at 0:00:47.720 --> 0:00:48.440 the time of recording. 0:00:48.479 --> 0:00:52.879 So good evening, David, thanks for being with us. It's 0:00:53.080 --> 0:00:55.120 you're just out of Philadelphia, is that right. 0:00:55.320 --> 0:00:57.440 Yeah, that's right, Allen, Thanks for having me. Yeah, we 0:00:57.480 --> 0:01:00.240 are just west of Philadelphia, about forty five minuts. It's 0:01:00.280 --> 0:01:03.320 worse in Pennsylvania in terms of elections. 0:01:03.720 --> 0:01:07.080 Typically, when I ask commentators about whether or not they 0:01:07.160 --> 0:01:10.240 move markets, they pretty much say, look, they've factored it 0:01:10.280 --> 0:01:13.160 all in. But I do wonder if this one is 0:01:13.160 --> 0:01:15.200 a bit different because we've had a few kind of 0:01:15.200 --> 0:01:18.520 things to think about. For example, I know, Robin Hood, 0:01:18.600 --> 0:01:22.920 the US trading platform in the US has given the 0:01:22.959 --> 0:01:26.320 opportunity for people to buy event derivatives where you can 0:01:26.560 --> 0:01:30.080 bet each way on which who will win. You've also 0:01:30.120 --> 0:01:34.760 had Donald Trump's social media platform go sky high in 0:01:34.840 --> 0:01:37.360 terms of its value. And also have seen that with 0:01:37.760 --> 0:01:40.679 the markets, crypto and some of the small cap sort 0:01:40.720 --> 0:01:44.280 of stocks have supposedly done well because we have this 0:01:44.360 --> 0:01:47.320 election fever. But I was keen to get your perspective 0:01:47.520 --> 0:01:50.559 working in the capital markets in the US, to see 0:01:50.560 --> 0:01:53.120 whether or not you've noticed anything different. 0:01:54.280 --> 0:01:55.800 Yeah, I mean, I would say again, I mean, it 0:01:55.840 --> 0:01:59.720 has been a noisy election season. But what we look 0:01:59.760 --> 0:02:02.240 out through our investment strategy research group, where we look 0:02:02.240 --> 0:02:05.800 at just researching over you know, time period as h 0:02:06.040 --> 0:02:11.080 as different administrations are in in office, we find that 0:02:11.160 --> 0:02:14.880 presidential elections can be, although hugely consequential on the direction 0:02:14.919 --> 0:02:18.399 of public policies, you know, they often aren't a good 0:02:18.440 --> 0:02:22.520 guide for you know, dictating your investment decisions. You know, certainly, 0:02:22.720 --> 0:02:26.480 as you mentioned, there is you know sometimes particular sectors 0:02:26.480 --> 0:02:29.600 that could outperform others. We did see uh, you know, 0:02:30.080 --> 0:02:32.520 solar energy trading at a higher amount today in the 0:02:32.639 --> 0:02:35.680 US market on Monday. That could be an indication that 0:02:35.760 --> 0:02:38.480 maybe the market is seeing, you know, a potential for 0:02:38.480 --> 0:02:41.440 for Harris victory. But last week we saw you know, 0:02:41.480 --> 0:02:44.600 Bitcoin hitting new highs, which were you know, I think 0:02:44.720 --> 0:02:47.760 generated somewhat by some of what the Trump administration has 0:02:47.760 --> 0:02:51.440 said that they potential Trump administration has said that they 0:02:51.480 --> 0:02:54.280 would look to do in that space. So it's really 0:02:54.320 --> 0:02:57.120 going back and forth. It is, you know, a tight market, 0:02:57.160 --> 0:02:59.560 and when we look back to research dating back to 0:03:00.160 --> 0:03:02.400 all the way back to eighteen sixty, we really find 0:03:02.440 --> 0:03:06.120 no statistical relationship between the performance of a sixty forty 0:03:06.160 --> 0:03:10.480 portfolio in presidential election or non election years. So, you 0:03:10.480 --> 0:03:13.000 know what we've really encouraged clients over the last couple 0:03:13.000 --> 0:03:15.240 of weeks as we build up to this election is 0:03:15.280 --> 0:03:17.639 to really just try to tune out some of that noise, 0:03:17.960 --> 0:03:20.640 really stick to your long term investment plan, and not 0:03:20.760 --> 0:03:24.799 make big changes based on policy proposals or election results 0:03:25.040 --> 0:03:27.399 because we just don't know. What we know for sure 0:03:27.480 --> 0:03:29.200 is the market will go up, and the market will 0:03:29.240 --> 0:03:31.880 go down. But outside of that, you know, all the 0:03:31.919 --> 0:03:33.600 rest is purely speculation. 0:03:34.000 --> 0:03:36.840 So that portfolio that you're talking about over that long 0:03:36.920 --> 0:03:40.000 period from eighteen sixty I think to about twenty twenty two, 0:03:40.040 --> 0:03:42.760 because I did read that article put out by Vanguard, 0:03:43.240 --> 0:03:46.880 was that a portfolio with it sixty percent shares forty 0:03:46.920 --> 0:03:48.400 percent bonds? Was that right? 0:03:48.920 --> 0:03:50.400 That's right? Yep, correct? 0:03:50.600 --> 0:03:55.760 Okay, So is that more typical for now though? Something 0:03:55.800 --> 0:03:58.280 like that? Was it sort of more traditionally what people 0:03:58.280 --> 0:03:59.800 would have had as a portfolio. 0:04:00.600 --> 0:04:03.720 So we still think that the sixty forty portfolio has 0:04:03.760 --> 0:04:06.840 has value for the right investor. You know, certainly it 0:04:06.880 --> 0:04:09.880 has to be you know, kind of related to what 0:04:09.960 --> 0:04:13.640 your investment needs are, what your risk tolerance is, where 0:04:13.640 --> 0:04:17.039 you are in your investment journey. For younger folks that 0:04:17.080 --> 0:04:19.960 are just getting started in their retirement plan, then forty 0:04:19.960 --> 0:04:23.520 percent bond allocation would certainly be too much in our viewpoint. 0:04:24.120 --> 0:04:26.200 But the sixty forty ends up being kind of a 0:04:26.279 --> 0:04:31.279 good dictation for where institutions can find the right balance, 0:04:31.880 --> 0:04:34.640 even more so than retail And it just tends to be, 0:04:34.800 --> 0:04:38.880 you know, a portfolio that gives you a little bit 0:04:38.880 --> 0:04:43.080 more neutral risk relative to you know, maybe somewhat muted 0:04:43.120 --> 0:04:46.600 performance by having that bond allocation we've seen in most 0:04:46.680 --> 0:04:50.560 year sixty forty ends up being a pretty productive portfolio 0:04:50.600 --> 0:04:53.120 to have. There are some years that that is off. 0:04:53.200 --> 0:04:56.279 Twenty twenty two, with the raising rate environment, we did 0:04:56.279 --> 0:04:59.880 see stocks be depressed in value and bonds get depressed 0:04:59.880 --> 0:05:03.200 in value the same year, which is rare. Usually see 0:05:03.200 --> 0:05:07.359 those correlated in opposite directions. So for that to occur 0:05:07.440 --> 0:05:10.160 in twenty twenty two was kind of more anomalists that 0:05:10.279 --> 0:05:12.679 it was, you know, what we'd expect for the future, 0:05:13.200 --> 0:05:15.720 and it really just was the speed of the rates 0:05:15.760 --> 0:05:18.760 that were taking place that affected both sides of the 0:05:19.760 --> 0:05:20.920 investment landscape. 0:05:21.000 --> 0:05:24.080 So, David, let's roll back to what Van Guard does. 0:05:24.160 --> 0:05:27.840 I think it was established back in nineteen seventy five, 0:05:27.920 --> 0:05:31.080 so nearly fifty years. You're sort of known as a 0:05:31.160 --> 0:05:36.480 passive index manager, low cost being a big part of that. 0:05:37.000 --> 0:05:39.719 Give us some idea of what you're doing today in 0:05:39.800 --> 0:05:41.839 and has that changed over that period. 0:05:42.960 --> 0:05:45.960 Yeah, they were exactly right. We're found in nineteen seventy five. 0:05:46.000 --> 0:05:48.680 So we're coming up on our fifty year anniversary next May, 0:05:48.960 --> 0:05:51.800 which we're looking forward to. We actually just passed in 0:05:51.839 --> 0:05:56.240 September our fifty years of incorporation, so our official incorporation 0:05:56.480 --> 0:06:00.279 before we launched that following May. But you know, the 0:06:00.320 --> 0:06:02.560 way that you know, we often will describe ourselves is 0:06:02.600 --> 0:06:05.159 just you know, one of the world's you know, largest 0:06:05.160 --> 0:06:08.919 and hopefully most respected investment management companies. You know, we 0:06:09.040 --> 0:06:13.960 offered a lot of different investments, advice, retirement services, insights 0:06:13.960 --> 0:06:19.039 to individuals, institutions and financial professionals through thought leadership, through 0:06:19.080 --> 0:06:24.320 other research avenues, and we we really are a worldwide firm. 0:06:24.360 --> 0:06:27.600 Obviously we're known for our US presence, but we do 0:06:27.720 --> 0:06:31.920 manage over ten trillion dollars ten trillion US dollars assets 0:06:32.000 --> 0:06:35.240 under management, and we have more than fifty million clients, 0:06:35.279 --> 0:06:38.960 and it's really all around the world. Even our ETF specifically, 0:06:39.000 --> 0:06:43.000 we have domiciled in the US, in Canada, in Mexico, 0:06:43.720 --> 0:06:48.600 in Europe and Australia. So even in our ETF realm specifically, 0:06:48.680 --> 0:06:51.880 we are you know, broadly diversified. And I think, as 0:06:51.880 --> 0:06:54.200 you mentioned, we are known to be an index shop. 0:06:54.320 --> 0:06:57.279 That is what we're most famous for, launching the first 0:06:57.320 --> 0:07:01.280 retail UH investment fund that follow on an index, which 0:07:01.279 --> 0:07:03.320 we're certainly going to talk more about in the next 0:07:03.760 --> 0:07:06.440 you know, half hour to an hour year. But you 0:07:06.440 --> 0:07:08.039 know what I think is surprising to a lot of 0:07:08.080 --> 0:07:10.520 folks is we still we have one point eight trillion 0:07:10.560 --> 0:07:14.200 dollars in active management as well. We do see ourselves 0:07:14.240 --> 0:07:18.040 as having an active prowess, and we do subadvise a 0:07:18.080 --> 0:07:22.640 lot of our equity to active managers, but we do 0:07:22.760 --> 0:07:25.920 in house fixed income active management, and we are really 0:07:25.960 --> 0:07:28.520 proud of that active franchise that we have within fixed 0:07:28.520 --> 0:07:32.040 income because it is, you know, a bit unique, and 0:07:32.080 --> 0:07:36.600 that that unique investor owned structure that we have where 0:07:36.640 --> 0:07:38.920 our clients own our funds and the funds own the 0:07:38.960 --> 0:07:42.720 company allow us to really operate at cost and keep 0:07:42.800 --> 0:07:46.960 our costs very low. In our ETF lineup in the US, 0:07:47.160 --> 0:07:50.120 no product has an expensory issue over twenty two basis points, 0:07:50.560 --> 0:07:53.480 and you know they're as low as for our five 0:07:53.560 --> 0:07:56.880 hundred index fund VOO or we affectionately call VOO on 0:07:56.960 --> 0:07:59.960 the desk, we are down to just three basis points 0:08:00.120 --> 0:08:00.920 for that product. 0:08:01.160 --> 0:08:05.320 Let's peg what the vote is for a stat because 0:08:05.360 --> 0:08:07.760 if we're tracking that index and it being I think 0:08:07.800 --> 0:08:10.720 one of your most famous what's it all about? 0:08:11.000 --> 0:08:13.480 It's a great question and you know, I think when 0:08:13.520 --> 0:08:15.200 we look at the five hundred index that we have 0:08:15.320 --> 0:08:18.520 in our ETF FOO or VU as I mentioned earlier, 0:08:19.240 --> 0:08:22.320 it really dates back to August thirty first in nineteen 0:08:22.400 --> 0:08:25.600 seventy six in the mutual fund wrapper or that open 0:08:25.720 --> 0:08:29.960 ended wrapper. So that ETF really is a share class 0:08:30.080 --> 0:08:33.400 of that portfolio that is almost fifty years old now 0:08:33.720 --> 0:08:36.800 that tracks the S and P five hundred index and 0:08:36.880 --> 0:08:39.640 buys all the five hundred companies within the S and 0:08:39.679 --> 0:08:42.880 P five hundred at the weights within the index. So 0:08:42.960 --> 0:08:45.560 that fund from nineteen seventy six all the way to 0:08:45.559 --> 0:08:49.520 twenty ten was just a open ended fund and index 0:08:49.600 --> 0:08:53.280 fund mutual fund that you couldn't buy on exchange. On 0:08:53.400 --> 0:08:57.040 September seventh of twenty ten, we launched a share class 0:08:57.040 --> 0:08:59.960 of that five hundred index and that was our ETF. 0:09:00.760 --> 0:09:03.800 So that is a unique style that we have at Vanguard. 0:09:04.160 --> 0:09:06.640 That is a patented approach that we had with our 0:09:06.640 --> 0:09:09.960 first ETF we launched our Total stock market ETF in 0:09:10.000 --> 0:09:15.559 two thousand and one that we actually had patented and 0:09:15.559 --> 0:09:18.559 no one else could do this multi share class strategy 0:09:18.600 --> 0:09:22.360 in ETFs until our patent expired last May, and it 0:09:22.480 --> 0:09:26.240 still is awaiting other approvals. So what the great advantage 0:09:26.280 --> 0:09:28.720 that that actually provides us to have an ETF share 0:09:28.760 --> 0:09:31.680 class is that we got instant scale in that product. 0:09:31.960 --> 0:09:34.320 The economies of scale that allows us to keep our 0:09:34.440 --> 0:09:37.040 costs very low, and it allows us to keep our 0:09:37.120 --> 0:09:40.440 tracking are very low as well. Because the fund is 0:09:40.480 --> 0:09:44.520 so large across all share classes, over a trillion dollars 0:09:44.559 --> 0:09:47.640 in this fund in total assets, that the ETF was 0:09:47.720 --> 0:09:53.120 able to basically get that history of getting exposure there 0:09:53.320 --> 0:09:56.559 in that fund at a really cheap cost with low tracking, 0:09:56.679 --> 0:09:59.360 right out of the gate in twenty ten. So what 0:09:59.400 --> 0:10:02.280 we've seen that time period since that launch now about 0:10:02.320 --> 0:10:05.120 fourteen years ago, is just incredible growth on the product, 0:10:05.280 --> 0:10:08.800 especially over the last few years the cash flows that 0:10:08.840 --> 0:10:12.400 have entered that product as the megacap and large cap 0:10:12.400 --> 0:10:15.640 companies have performed so well. In the US, we've seen 0:10:15.720 --> 0:10:20.640 Voo actually lead flows this year with close to almost 0:10:20.679 --> 0:10:24.240 eighty six billion dollars in flows so far this year, 0:10:24.280 --> 0:10:27.640 which is put us up as the close to the 0:10:27.720 --> 0:10:31.480 second largest ETF in the world, now only behind SPY 0:10:32.400 --> 0:10:34.600 and you know we are you know, it's certainly not 0:10:34.679 --> 0:10:37.520 focused on flows, but we're proud to see that adoption 0:10:37.640 --> 0:10:40.640 of our products really, you know, showing a testament to 0:10:40.679 --> 0:10:44.520 that low cost that we try to create within that product. 0:10:44.800 --> 0:10:47.520 One thing must be said though about any market, but 0:10:47.640 --> 0:10:51.400 particularly the US markets in recent times, is the volatility. 0:10:51.480 --> 0:10:54.000 There's there's a fear bit. It seems to happen pretty 0:10:54.080 --> 0:10:57.800 much all the time. So I suppose from Vesta's thinking 0:10:57.880 --> 0:11:01.320 about the vou if you like, they would really have 0:11:01.400 --> 0:11:05.160 to be able to stomach volatility as it were. 0:11:05.520 --> 0:11:08.520 Yeah, I mean certainly, you know, as as the S 0:11:08.559 --> 0:11:11.640 and P goes, this product will go. So you know, 0:11:11.720 --> 0:11:14.840 there's certainly been you know, some level of volatility in 0:11:14.880 --> 0:11:17.080 the market. You know that has ramped up a little 0:11:17.120 --> 0:11:20.320 bit as we go into this election cycle that we 0:11:20.440 --> 0:11:23.960 spoke about earlier. You know, the the good news is 0:11:24.040 --> 0:11:27.000 again though it even though it's just five hundred companies 0:11:27.080 --> 0:11:29.680 of around thirty seven hundred public companies in the US, 0:11:29.880 --> 0:11:32.360 it is the five hundred largest, and you know, there 0:11:32.440 --> 0:11:35.400 is some level stability that does come with that, I 0:11:35.440 --> 0:11:39.480 believe relative to some of the lower market capitalizations that 0:11:39.559 --> 0:11:42.960 naturally have a little bit higher volatility profile, It's still 0:11:43.000 --> 0:11:45.800 something that exists. It is still the stock market. The 0:11:45.840 --> 0:11:48.320 stock market still will go up and go down and 0:11:48.360 --> 0:11:52.200 the five hundred index no different. So there is absolutely 0:11:52.280 --> 0:11:55.960 that you know, potential of volatility in the market and 0:11:56.080 --> 0:11:59.480 especially during times of you know of stress in the markets, 0:11:59.520 --> 0:12:02.600 which hopefully we don't see in the near term. 0:12:02.840 --> 0:12:05.080 What it's the wasting at the moment for the vo 0:12:05.559 --> 0:12:09.160 around about for the tech stocks as it used to 0:12:09.160 --> 0:12:12.720 be almost up to a shood with things like the 0:12:12.800 --> 0:12:17.520 Magnificent seven. So we're talking like Alphabet Tesla, Microsoft and 0:12:17.559 --> 0:12:17.960 the like. 0:12:18.640 --> 0:12:22.080 Yeah, it is. The portfolio is about thirty one point 0:12:22.120 --> 0:12:25.400 seven percent technology at this point, and it is driven 0:12:25.440 --> 0:12:27.920 by those mag seven. When you look at the Mag 0:12:28.040 --> 0:12:31.360 seven alone, they make up you know, a very large 0:12:31.360 --> 0:12:34.280 percentage of the portfolio, about twenty eight percent of the 0:12:34.360 --> 0:12:37.240 S and P five hundred is actually in those Mag seven. 0:12:37.280 --> 0:12:39.959 That's how strong their performance has been over the last 0:12:40.760 --> 0:12:43.760 you know, close to two years now, driven heavily by 0:12:44.000 --> 0:12:46.280 you know, DA Video as the leader there as that's 0:12:46.360 --> 0:12:49.280 come up that that that board. So you know, when 0:12:49.280 --> 0:12:52.200 we look at it, the second largest you know holding 0:12:52.240 --> 0:12:54.520 there is still financials, but it's all the way to 0:12:54.559 --> 0:12:57.720 twelve point nine percent. So you know, one argument that 0:12:57.840 --> 0:13:00.600 could be mean to your point is that although it's 0:13:00.600 --> 0:13:04.040 diversified across all the major sectors. It is heavily weighted 0:13:04.080 --> 0:13:05.760 to technology at this time. 0:13:06.000 --> 0:13:07.960 I mean in some of the other big sectors would 0:13:08.000 --> 0:13:13.360 be banking, and is healthcare perhaps another I'm just trying 0:13:13.400 --> 0:13:16.960 to think, Yes, it has diversified as five hundred companies, 0:13:17.000 --> 0:13:20.160 but actually there's all sorts of good and bad in there. 0:13:20.200 --> 0:13:23.719 Is there in terms of depending on your value when 0:13:24.040 --> 0:13:25.199 when you're investing. 0:13:25.320 --> 0:13:27.560 Yeah, I mean, certainly, you know, it's broadly the five 0:13:27.640 --> 0:13:30.880 hundred you know, largest market cap companies in the in 0:13:30.960 --> 0:13:34.520 the US. Sometimes there is you know, naturally some additions 0:13:34.520 --> 0:13:37.880 and deletions around the the the bottom of that, but 0:13:38.559 --> 0:13:40.840 you know, for the most part it is that so 0:13:40.920 --> 0:13:44.000 you do get you know, over seventy nine percent of 0:13:44.040 --> 0:13:47.320 the portfolio has a market cap that's greater than you know, 0:13:47.480 --> 0:13:51.920 seventy two you know, billions, So you know, you're you're 0:13:51.960 --> 0:13:55.480 there's some really large companies in that portfolio. But the 0:13:55.520 --> 0:13:59.679 diversification does change across sectors as certain sentiment comes into 0:13:59.720 --> 0:14:02.840 the market. It at times, you know, we look at 0:14:02.920 --> 0:14:05.520 last year and energy was actually one of the leading 0:14:05.559 --> 0:14:08.319 sectors last year, but it still makes up only about 0:14:08.320 --> 0:14:11.839 three point three percent of the portfolio, but it actually 0:14:11.920 --> 0:14:14.000 had a really good year last year, close through a 0:14:14.040 --> 0:14:17.120 thirty five percent return. So you really have when you 0:14:17.480 --> 0:14:20.120 map it out over time that what sector bubbles up 0:14:20.160 --> 0:14:23.720 to the top tends to rotate at some level of frequency. 0:14:23.880 --> 0:14:26.440 It's just been a strong couple of years for technology. Frankly, 0:14:26.920 --> 0:14:27.400 one thing. 0:14:27.280 --> 0:14:30.920 I wandered with Vanguard earlier in the year, you said 0:14:31.000 --> 0:14:34.560 you wouldn't be doing cryptocurrencies. I think that was when 0:14:35.120 --> 0:14:40.360 the Securities Exchange Commission approved bitcoin as ETFs. There was 0:14:40.440 --> 0:14:42.800 a lot of interest in that, and you know, we've 0:14:42.800 --> 0:14:45.680 seen markets sort of go up even with this election fever. 0:14:45.760 --> 0:14:49.080 As I said before, is that still something that you 0:14:49.400 --> 0:14:52.320 are not going to be going into or you're thinking 0:14:52.360 --> 0:14:56.760 more about it as perhaps it becomes more if you 0:14:56.920 --> 0:14:58.120 like mainstream. 0:14:58.080 --> 0:15:01.320 Yeah, I would say, you know, wouldn't speculate too much on, 0:15:01.480 --> 0:15:04.360 you know, if the future would change our view, just 0:15:04.360 --> 0:15:07.800 because changing market conditions can certainly, you know, change our position. 0:15:07.880 --> 0:15:10.680 But at the current time it still stays stable in 0:15:10.720 --> 0:15:14.000 the fact that we don't plan to launch a bitcoin ETF, 0:15:14.120 --> 0:15:17.800 and it's really just related directly to our viewpoint on 0:15:17.920 --> 0:15:22.320 the importance of intrinsic value in a security. And and 0:15:22.360 --> 0:15:25.600 our fear that that might be you know, a tougher 0:15:25.640 --> 0:15:30.760 to determine within bitcoin or cryptocurrencies relative to high quality 0:15:30.800 --> 0:15:34.520 stocks or you know, or the bond market, you know, 0:15:34.640 --> 0:15:37.080 quality within the bond market. So that's one of the 0:15:37.680 --> 0:15:40.000 challenges when we look at that asset class. The other 0:15:40.000 --> 0:15:43.160 one is just the volatility that is naturally inherent there 0:15:43.400 --> 0:15:46.440 is much greater We have a retail focused client base 0:15:46.520 --> 0:15:48.360 that we want to make sure is thoughtful for long 0:15:48.480 --> 0:15:52.240 term investing and is you know, considering you know, where 0:15:52.640 --> 0:15:55.560 their their goals are for the long term is paramount 0:15:55.600 --> 0:15:57.440 to us, and we just you know, do have some 0:15:57.520 --> 0:16:01.240 fear that the volatility inherent in that product could send 0:16:01.280 --> 0:16:03.520 some of our clients kind of off of that trail. 0:16:03.880 --> 0:16:06.280 So we are a little bit tepid and you know, 0:16:06.400 --> 0:16:08.480 relative to sell of our issuer partners to bring a 0:16:08.480 --> 0:16:11.600 product to market for those reasons. But I am not 0:16:11.720 --> 0:16:13.680 in the case to say, you know, I would I 0:16:13.720 --> 0:16:16.240 would definitely say never, say never, but you know, it 0:16:16.360 --> 0:16:19.400 is something that isn't high on our list at the 0:16:19.400 --> 0:16:19.920 current time. 0:16:22.520 --> 0:16:26.400 A lot of Cheesy's investors tend to hold their et ifs, 0:16:26.480 --> 0:16:28.720 but there is a number two who like to buy 0:16:28.720 --> 0:16:32.400 and sell. Have you got any kind of sort of 0:16:32.440 --> 0:16:36.480 tips I suppose you'd say for thinking about timing with 0:16:36.720 --> 0:16:39.760 et ifs, because obviously they're quite different to manage fund 0:16:39.760 --> 0:16:40.160 as such. 0:16:41.200 --> 0:16:42.920 Yeah, I would say, I mean, we are, you know, 0:16:43.040 --> 0:16:46.040 certainly believe the buy and hold strategy is really important 0:16:46.200 --> 0:16:51.360 because any sales and subsequent buys. Besides the difficulty of 0:16:51.400 --> 0:16:55.280 actually market timing, which we've proven, you know, over time, 0:16:55.360 --> 0:16:57.160 it's just if you do try to market time that 0:16:57.600 --> 0:17:01.280 the challenge to do that is great. You know. What 0:17:01.280 --> 0:17:03.800 we tend to see is, you know, low cost long 0:17:03.920 --> 0:17:07.919 term investing usually will have a better payoff than then 0:17:08.320 --> 0:17:12.840 more frequent changes in different market conditions. The other part 0:17:12.840 --> 0:17:15.919 of that is just the cost that you incur the 0:17:15.960 --> 0:17:18.119 more you rebalance, the more you have to pay that 0:17:18.160 --> 0:17:21.160 spread to be able to buy and sell the security 0:17:21.200 --> 0:17:25.000 that will distract from some of your returns and make 0:17:25.359 --> 0:17:28.359 some of those returns harder to accomplish the you know, 0:17:28.400 --> 0:17:30.080 the same way you would in a buy and hold. 0:17:30.160 --> 0:17:33.479 So we really you know, preach the idea of having large, 0:17:33.520 --> 0:17:37.080 diversified portfolios that give you exposure to many parts in 0:17:37.119 --> 0:17:39.760 the market and then holding on to those for a 0:17:39.800 --> 0:17:43.240 longer period of time and and you know, be thoughtful 0:17:43.240 --> 0:17:45.800 of costs. That's thoughtful of cost when it relates to expense. 0:17:45.880 --> 0:17:49.920 Ratios is very explicit how much you pay. Our founder 0:17:49.920 --> 0:17:53.240 has a great quote, Jack Bogol that says, in investing, 0:17:53.280 --> 0:17:56.399 you get exactly what you don't pay for. So you know, 0:17:56.560 --> 0:17:59.520 that is, you know, really at the heart of our 0:17:59.560 --> 0:18:03.000 strategy to give you. If you have one hundred basis 0:18:03.000 --> 0:18:04.879 points of return in the s and P. Five hundred, 0:18:04.920 --> 0:18:07.400 if we only charge you three basis points, you keep 0:18:07.480 --> 0:18:11.320 ninety seven basis points of that and that compounds over time. 0:18:11.760 --> 0:18:14.000 We think that's really important for clients to achieve their 0:18:14.000 --> 0:18:15.680 investment success over the long run. 0:18:15.840 --> 0:18:19.880 What about in terms of sort of assessing your portfolio, 0:18:20.080 --> 0:18:24.119 I mean, yes, to hold seit and forget if you like, 0:18:25.000 --> 0:18:27.880 over a period of time. I mean, how often would 0:18:27.920 --> 0:18:32.280 you suggest people need to have a look about maybe rebalancing. 0:18:33.440 --> 0:18:36.840 Yeah, rebalancing is still important for sure. You know what 0:18:36.960 --> 0:18:40.119 is what your target allocation is, and determining that target 0:18:40.160 --> 0:18:43.960 allocation up front allows you to ensure that you're rebalancing 0:18:44.040 --> 0:18:47.360 back to that target allocation. So we do say that, 0:18:47.480 --> 0:18:50.080 you know, quarterly is a good opportunity to kind of 0:18:50.119 --> 0:18:53.240 take a look and see how much your how far 0:18:53.280 --> 0:18:55.960 away you are from your target allocation. If it's only 0:18:56.000 --> 0:18:58.359 a percentage or two, that could quickly go back the 0:18:58.400 --> 0:19:01.600 other way. What we really like to see before you 0:19:01.640 --> 0:19:06.160 would spend the potential transaction costs to rebalance that would 0:19:06.200 --> 0:19:08.560 be to start to stray about five percent away from 0:19:08.560 --> 0:19:12.199 your target allocation at that point, which if you're reviewing 0:19:12.240 --> 0:19:15.120 on a quarterly basis, allows you to tie that back 0:19:15.160 --> 0:19:17.760 in and ensure that if equities have the run they 0:19:17.760 --> 0:19:20.240 have this year relative to bonds being a bit flat, 0:19:20.359 --> 0:19:23.160 and now your equity position is greater than your target allocation, 0:19:23.600 --> 0:19:25.760 then it is a good idea to rebalance that back 0:19:25.800 --> 0:19:29.199 and stay focused on that long term strategic allocation that 0:19:29.280 --> 0:19:30.680 you hope to have in your portfolio. 0:19:30.960 --> 0:19:34.160 One of the criticisms often leveled at the US markets 0:19:34.200 --> 0:19:37.280 is that they're topping out. They're just keeping on going, 0:19:37.320 --> 0:19:38.480 and all of a sudden there's going to be a 0:19:38.480 --> 0:19:40.760 crash and people are going to burn as a result. 0:19:41.200 --> 0:19:43.280 I mean, what do you sort of say to investors 0:19:43.280 --> 0:19:47.120 in terms of keeping that longer term view, knowing that markets, 0:19:47.160 --> 0:19:49.200 as you said before, go up and go down. 0:19:50.320 --> 0:19:52.680 Yeah, it's important to just think of that long term 0:19:52.720 --> 0:19:55.720 time horizon. If we look at twenty twenty two, the 0:19:55.800 --> 0:19:58.399 sixty to forty portfolio we mentioned earlier had one of 0:19:58.440 --> 0:20:03.560 its worst years and since nineteen thirties because both stocks 0:20:03.560 --> 0:20:06.840 and bonds were down together, which is rare. So you know, 0:20:06.880 --> 0:20:09.240 that was a clear example of a time where people 0:20:09.240 --> 0:20:10.800 were feeling a little bit of the pain of the 0:20:10.840 --> 0:20:14.159 market and having that drawl down. But those that stayed 0:20:14.160 --> 0:20:17.040 in it, that return we've seen since twenty twenty two 0:20:17.359 --> 0:20:19.639 is almost forty five percent in the S and P 0:20:19.800 --> 0:20:22.400 five hundred, and it is sixty to forty portfolio would 0:20:22.440 --> 0:20:24.679 be muted a bit to that, but it's still you know, 0:20:24.760 --> 0:20:27.320 that growth that you've had in that time period by 0:20:27.359 --> 0:20:29.920 just staying the course and staying focused on your long 0:20:30.000 --> 0:20:33.200 term plan and not reacting to short term market events 0:20:33.280 --> 0:20:36.560 even if they aren't you know, it's not easy to 0:20:36.600 --> 0:20:39.119 see on your portfolio when the number goes down, but 0:20:39.200 --> 0:20:43.320 it's really important, and we've showcased over time this. You 0:20:43.359 --> 0:20:45.359 know what happens when you get out of the market 0:20:45.440 --> 0:20:47.640 when the time is in stress and you miss that 0:20:48.040 --> 0:20:51.080 you know, return to positive returns. What that does with 0:20:51.240 --> 0:20:54.400 the long term investment because of the impact of compounding 0:20:54.640 --> 0:20:57.399 is quite great, So we really try to reinforce to 0:20:57.720 --> 0:21:00.840 tune out the noise that's in the market and really 0:21:00.880 --> 0:21:03.400 just be focused on if your plan is twenty years 0:21:03.400 --> 0:21:07.000 from now, your portfolio doesn't need a lot of change 0:21:07.080 --> 0:21:09.679 right now to be able to achieve the goals that 0:21:09.720 --> 0:21:11.800 you have for your long term investment returns. 0:21:12.320 --> 0:21:14.919 What would you say to New Zealand investors who are 0:21:14.960 --> 0:21:18.520 thinking for the first time to invest in the US market. 0:21:18.560 --> 0:21:21.080 So might have played around a little bit with individual stocks, 0:21:21.160 --> 0:21:24.800 but perhaps now they're thinking exchange traded funds is probably 0:21:25.560 --> 0:21:28.520 an easier, cheaper, maybe safer way to go. 0:21:28.960 --> 0:21:31.439 Yeah, I mean, I think that's we do. You know, 0:21:31.480 --> 0:21:34.840