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Speaker 1: Welcome a trillions. I'm Joel Webber and I'm Eric bel

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Speaker 1: Tunis Eric. This time on Trillions, we're gonna talk about

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Speaker 1: E s G. What is E s G. Yeah, A

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Speaker 1: lot of people don't know which I think that's part

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Speaker 1: of the hurdle of people getting more interested is just

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Speaker 1: knowing what that acronym is. It stands for Environmental, Social

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Speaker 1: and Governance, which is sort of like the three pillars

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Speaker 1: that generally are used as screens to find out which

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Speaker 1: companies are, you know, sort of progressing in the world

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Speaker 1: in terms of how to behave And it's sort of

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Speaker 1: a way to grade companies um on things that aren't

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Speaker 1: just profit right, it's sort of the other side of

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Speaker 1: the equation besides just making money. And it's become much

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Speaker 1: more popular in recent years and and there there's a

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Speaker 1: lot of speculation that this could be a massive opportunity

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Speaker 1: as an investing thesis going forward. The hype is unbelievable.

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Speaker 1: E s G articles are plant of full, They get

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Speaker 1: a lot of great press. People seem to be into it.

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Speaker 1: I mean, who who wouldn't be into Its really good? Right? Yeah,

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Speaker 1: there's dozens and dozens of E t s being launched

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Speaker 1: every year that are in the E s G themes,

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Speaker 1: So there's plenty of product. However, the app assets are

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Speaker 1: kind of lacking. They have it looks like six point

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Speaker 1: eight billion, right, so that's not a lot. Okay, that's

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Speaker 1: some Yeah, the Banguard takes that in a week, all right.

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Speaker 1: So there's a little bit of a gap between the

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Speaker 1: hype and assets, which I think is really what we

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Speaker 1: want to explot to day and also practically how you

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Speaker 1: use them. This is one of those topics that I've

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Speaker 1: been picked on Twitter about. People do want us to

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Speaker 1: do an E s G episode. So here we are,

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Speaker 1: we are and joining us to help us make sense

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Speaker 1: of this is someone that you brought in and you

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Speaker 1: guys are up in Boston today, I'm in New York.

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Speaker 1: Who do you have with you? Here with us are

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Speaker 1: two experts from the E s G field, but in

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Speaker 1: different ways. Graham Sinclair, who I know on Twitter and

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Speaker 1: actually met through a friend a long time ago, who

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Speaker 1: is the at E s G architect, So he's he's

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Speaker 1: literally that's his whole life. He isn't a consultant to

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Speaker 1: companies about E s G. He'll go over that in

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Speaker 1: a minute. And Matt Bartolini from State Street. He has

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Speaker 1: to take E. S G and make a product out

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Speaker 1: of it and then try to get the products sold.

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Speaker 1: So I think we have, you know, the two sides

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Speaker 1: of the equation in terms of trying to figure out

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Speaker 1: what's going on with S G T S and how

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Speaker 1: to use them. This man, trillians, what's the deal with E?

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Speaker 1: S G, E T S. Matt Graham, thanks for joining

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Speaker 1: us on the show. Graham, you actually didn't come alone,

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Speaker 1: did you. You brought someone with you who'd you No,

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Speaker 1: We've got a fairly aggressive intern program at Sincoe s

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Speaker 1: same of S and consulting it. I came in with

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Speaker 1: my daughter. Friday's a geogik and daddy days alright, child labor.

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Speaker 1: We have a couple of questions we'd like to ask her. Uh, yeah,

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Speaker 1: that'd be great, and to be clear, not childly, but

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Speaker 1: it's extreme millennial. By the way, what generation would she be?

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Speaker 1: Is she z or is it? Are we beyond that?

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Speaker 1: With her? Well, I'm pitching it's it's double A. I

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Speaker 1: will say she's the youngest guest we've had on this podcast,

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Speaker 1: and potentially the youngest guest in the studio. I could

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Speaker 1: tell from the looks we were getting from a lot

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Speaker 1: of people talk about a lot of people talk about

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Speaker 1: E s G as the future. So let's actually talk

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Speaker 1: to someone who's rooted in the future. What what does

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Speaker 1: your daddy do? Spinning? Spinning? It's pretty instructed, he's he's um,

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Speaker 1: he's an expert at E s G. Do you like

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Speaker 1: E s G? You haven't been there yet. It's it's

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Speaker 1: a pretty it's an interesting place to visit. Well, you

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Speaker 1: like clean water, right? And trees? Trees? Can you tell um,

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Speaker 1: Mr Eric, are you watching puffin rock? Right? And do

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Speaker 1: they like to swim in the clean ocean or the ocean? All? Right?

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Speaker 1: I think I think she's on word, Graham. Once you

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Speaker 1: get someone sold on clean ocean and water, you're pretty

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Speaker 1: much halfway there with the s G pitch. It's interesting

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Speaker 1: she said E s G as a place. Um, you know,

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Speaker 1: I think my kids probably think E T F is

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Speaker 1: a place and I live Daddy lived there. You guys

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Speaker 1: have done the dad episode. You gotta do the kid episode.

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Speaker 1: That okay, So Graham, Matt, let's let's have a better

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Speaker 1: sense of what what you guys do and how you

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Speaker 1: got into this space. Joel, I got into retirement funds

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Speaker 1: Investments out of law school back in South Africa, rolled

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Speaker 1: up through a various shops, ended up at SCI Investments,

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Speaker 1: which explains how I ended up in the U S.

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Speaker 1: I didn't mean to be. I was abducted by a beautiful,

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Speaker 1: brilliant woman. I am an E. S. G architect, which

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Speaker 1: means I take an investment problem and I integrate environment,

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Speaker 1: social governance factors into solving that problem, into the management

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Speaker 1: systems and the processes, the manufacturing, the marketing. And the

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Speaker 1: other way we come at it is if if there's

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Speaker 1: an issue that we need to develop the investment thesis

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Speaker 1: for the investment case. An example would be how designed

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Speaker 1: the access to nutrition index? And the other question came

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Speaker 1: from the Gates Foundation Foundation a couple of lines to

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Speaker 1: improve nutrition UH, And the question was how do we

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Speaker 1: make nutrition a serious investment issue? To Wolf Street UH.

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Speaker 1: And that's how we developed the investment case. And Matt,

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Speaker 1: can you talk a little bit about what you do

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Speaker 1: at State Street? Yeah? Sure, So within State Street and

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Speaker 1: the Spider Et f business and the head of research

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Speaker 1: for for that area and sitting within a broader asset

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Speaker 1: management firm, one of our goals is to solve clients

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Speaker 1: issues and one of those is how to align financial

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Speaker 1: goals to also social goals and that's where E s

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Speaker 1: G naturally fits in. So how do you be able

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Speaker 1: to provide you know, long term diversified returns, but do

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Speaker 1: it in a way that matches how you feel about

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Speaker 1: you know, your carbon footprint or about gender diversity and

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Speaker 1: you know, that's really what the solutions that we have

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Speaker 1: within our firm we're trying to do. And then it

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Speaker 1: just comes down to just portfolio construction. And that's a

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Speaker 1: big part of my role is taking all of these

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Speaker 1: different et s, not even just from ourselves, but other

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Speaker 1: actual wars and their neutual funds and different other managed accounts,

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Speaker 1: and what happens when you blend them all together? Do

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Speaker 1: you start to have overcrowding risk and enter into something

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Speaker 1: that you maybe not want it? Just let's just define

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Speaker 1: E s G. I've been on panels where it takes

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Speaker 1: thirty five minutes. Can you guys give me the one

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Speaker 1: minute definition of E s G dumbed down? Um, and

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Speaker 1: each of you do it that way people can just

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Speaker 1: get their handle around what exactly it is. Gham. The

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Speaker 1: investment case summarizes the forward looking business case for put

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Speaker 1: photo companies. At any point in time, all factors matter

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Speaker 1: to doing business in the twenty one century, all factors,

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Speaker 1: including environment, social, and governance factors. They're on the side

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Speaker 1: onto corner on something you plug in later. If you

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Speaker 1: are building a business on investing on planet Earth, using

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Speaker 1: humans to move money or do things or buy things,

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Speaker 1: and you rely on the rule of law to make

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Speaker 1: sure stuff ends up what it's meant to end up

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Speaker 1: and you get your money back. This environment, social, governance

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Speaker 1: and every investment decision, the biggest question has to be

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Speaker 1: why hasn't this always been profiles proactively managed about the

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Speaker 1: investment industry. It's getting better. It's coming from a long

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Speaker 1: way back. There was like five lines what's yeah. I mean,

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Speaker 1: I think it's it's a it's a problem to label it,

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Speaker 1: and I think it's it's really hard because even if

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Speaker 1: you look at the US listed E t F industry,

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Speaker 1: and we look at the funds that are classified as

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Speaker 1: e s G by data providers anyone focused on the US,

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Speaker 1: there's sort of dispersed amount of returns last year. It's

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Speaker 1: difference between the best performing and worst performing e s

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Speaker 1: G fund So classification is one of these problems that

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Speaker 1: as an asset management firm and someone deeply engaged in

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Speaker 1: E t f s, that's really hard for to do,

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Speaker 1: and I think that's why you do to Eric's point earlier,

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Speaker 1: you don't see that big of asset growth because you

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Speaker 1: needed it's a very personal decision. What is the most

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Speaker 1: E s G fund? Does it not invest in any oil?

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Speaker 1: Or do is invest in some oil? And I think

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Speaker 1: that's one of the biggest problems of creating a deep

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Speaker 1: rooted classification system. It also feels like it's become hot

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Speaker 1: relatively recently. But that naive perspective is it how much

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Speaker 1: data is actually out there so that we can make

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Speaker 1: informed decisions here? Well, if you check your Google search

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Speaker 1: as you'll see it, it goes ballistic. Even even on

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Speaker 1: analysis of studies of the impact of environment, social governance factors,

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Speaker 1: the studies themselves from early seventies, almost nothing from nineteen seventy,

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Speaker 1: when Milton Freeman has had this classic business of business

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Speaker 1: as business misunderstanding through the fifteen it's just basically it's

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Speaker 1: a hockey stick. So even studies of studies of what's

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Speaker 1: happening in the investment units universe has ramped up. Absolutely

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Speaker 1: there's a lot of hubris. There's there's a lot of hype,

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Speaker 1: there's a lot of greenwashing. There's there's situations where companies

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Speaker 1: claim to do things and they don't. I mean, how

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Speaker 1: many of you believe those towels that you hang back

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Speaker 1: in the rack is because the hotel company is trying

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Speaker 1: to be sustainable, you're supposed to hang him back on

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Speaker 1: the rack. You leave them on the floor to get

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Speaker 1: it a clown one. Let's just think about an E

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Speaker 1: S G approach, right, are you screening out for things

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Speaker 1: or are you going and trying to track companies that

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Speaker 1: are literally making solar panels? What's the method that's really

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Speaker 1: the the best way to do it? So, working with

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Speaker 1: the institutional investor a house, he's making these decisions. It

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Speaker 1: starts with how you view the world, what do you believe?

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Speaker 1: So in Kelpus rebuilt the whole investment process earlier this decade.

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Speaker 1: They started with what I believes, how do we see

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Speaker 1: the world? What is our That rolls into what is

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Speaker 1: our investment philosophy? And then you work through the various

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Speaker 1: elements of what are your processes? Were the people you're

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Speaker 1: gonna put in place, how you're going to build these portfolios.

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Speaker 1: How are you going to attract the impact and the performance.

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Speaker 1: So E s G is really a systems level issue.

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Speaker 1: That's why I came to the Monica at s G

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Speaker 1: architect the same way that investment today relies on digital

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Speaker 1: on software to execute and make things happen and inform

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Speaker 1: making it better. So too with the E s G.

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Speaker 1: E s G sits across the investment life cycle. Yeah,

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Speaker 1: and I think there's there's different levels of E s G.

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Speaker 1: Same with smart data. You can have something that's like

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Speaker 1: a factor tilt that invests in every stock in the

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Speaker 1: SP or you can just do high octane the fifty

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Speaker 1: cheapest stocks for a value screen. E s G is

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Speaker 1: somewhat similar. You can do something where you just divest

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Speaker 1: from energy companies that have proven fossil fuel reserves, or

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Speaker 1: you can take the m s C I ACQUI optimize

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Speaker 1: it to have the lowest carbon footprint for a level

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Speaker 1: of tracking error. And there's sort of those two spectrums

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Speaker 1: of purity versus something that will give you a benchmark

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Speaker 1: like return, but in a more E s G framework.

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Speaker 1: I'd like to just jump on Eric please if we could,

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Speaker 1: on your awesome podcasts. Could we walk away from using

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Speaker 1: language like doing good, soul, feelings, values, personal, This is

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Speaker 1: this is just the way investment will be in future

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Speaker 1: on one planet, using humans, using a rule of law.

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Speaker 1: There's there's no extra earth, there's no extra water, there's

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Speaker 1: no extra clean air. Right, so part of this is

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Speaker 1: and your your fingers curled up every time you watch

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Speaker 1: these interviews. It takes about three questions and then the

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Speaker 1: talking head is gonna ask the investment specialists, so can

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Speaker 1: this match your values? You know almost here that the

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Speaker 1: change in the chan technical this is architecture. Well this

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Speaker 1: brings up one thing I hear on Twitter a lot

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Speaker 1: when I point out, like when Vanguard launched the s

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Speaker 1: G and it was cheap, I was like, well, now

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Speaker 1: we finally got dirt cheap e s G. Now we

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Speaker 1: now we know whether it was, you know, a cheap

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Speaker 1: thing or just an E s G issue. And a

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Speaker 1: lot of people replied with it doesn't matter what the

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Speaker 1: cost is. It's too subjective. Vanguard thinks you're supposed to

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Speaker 1: screen out alcohol, tobacco, this, that, and the other. Actually

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Speaker 1: only think three of those things are important, those other

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Speaker 1: two are fine, and so subjectivity of what's important to you.

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Speaker 1: I've heard makes people is sort of stop from applying

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Speaker 1: it to investment and maybe do it in their own way,

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Speaker 1: in their own like personal life. But the idea that

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Speaker 1: your state street going to decide for me what is

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Speaker 1: E s G and what isn't. Yeah, And that's one

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Speaker 1: of the problems that you do run into is that

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Speaker 1: it goes back to that personal decision. So I've had

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Speaker 1: conversations with investors and advisors of all walks of life,

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Speaker 1: and I was talking to one of them and they say, well,

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Speaker 1: we invest in a separately managed account focused on animal welfare,

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Speaker 1: so companies that have really strong animal welfare programs. That's

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Speaker 1: really hard to package into an e t F because

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Speaker 1: the impetus for an e TF was to offer democratized

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Speaker 1: access to an area, and you want to make that

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Speaker 1: broad and appealing to a pretty wide swath of investors,

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Speaker 1: and something like animal welfare that might not be as

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Speaker 1: applicable to something that is maybe just you know, uh,

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Speaker 1: fossil of your reserves free, something that's broader. And that's

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Speaker 1: one of the adoption challenges within E s G is

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Speaker 1: that to your point, everyone has a different classification. What

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Speaker 1: it means to me. I don't want to own anyone

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Speaker 1: that ever interacts with oil. That's a that's a harder

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Speaker 1: broad exposure to give someone because there might not be

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Speaker 1: that many people out there for that. Let's just talk

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Speaker 1: about oil for a minute. I always find this to

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Speaker 1: be somewhat hypocritical. I think the term is slacktivism. You know,

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Speaker 1: you tweet something and all of a sudden you're a

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Speaker 1: good person. Um, you know investing in a say s

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Speaker 1: P y X, which is yours, which is the S

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Speaker 1: and P five hundred x fossil FUELU. So you carve

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Speaker 1: out a lot of oil uh producers in their oil

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Speaker 1: companies Exon and such. But a lot of people still

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Speaker 1: use oil, right, so they are actually not investing in

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Speaker 1: a company they helped make profitable. So isn't the real

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Speaker 1: answer to just get an electric car and then not

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Speaker 1: invest in it? Because if your goal is to have

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Speaker 1: a portfolio that makes money and you're not willing to

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Speaker 1: not use oil in your day all life, what would

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Speaker 1: be the point of not investing in that company? Yeah,

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Speaker 1: I mean that would be you know, you'd be hedged, right,

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Speaker 1: So you want to make sure that you still have

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Speaker 1: the oil upside beta. But you know, yeah, to your point, like,

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Speaker 1: if you're going to invest in this way, you're likely

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Speaker 1: going to be living this way. And if you're not there,

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Speaker 1: that's a different of aligning your financial values to your

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Speaker 1: social ones. You know that that just creates an asymmetric profile.

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Speaker 1: And I think to your point about you know, how

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Speaker 1: do you construct these exposures. There's to some extent people

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Speaker 1: that would you want to have no exposure even to

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Speaker 1: the oil refineries because they're still conducting in the business

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Speaker 1: and supporting the oil industry. And you know, that's why,

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Speaker 1: you know, if you look at firms that are really

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Speaker 1: at the innovative state of renewable energy, you might want

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Speaker 1: to look for those first. And in some instances they

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Speaker 1: actually might be in the traditional energy sector, like a

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Speaker 1: company like enter Bridge. They definitely run a lot of

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Speaker 1: natural gas pipelines, but they also have a significant amount

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Speaker 1: of wind farms across the United States in North End Canada,

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Speaker 1: so there are This is where it goes to the

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Speaker 1: environmental space where you want to actually look what these

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Speaker 1: firms are doing and how they're actually organizing their business.

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Speaker 1: Because climate change is real in companies interacting in fossil

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Speaker 1: fuell understand that there's gonna be a natural shift towards renewables.

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Speaker 1: We're definitely going to see that over the next ten

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Speaker 1: twenty years where renewables take a bigger stage in terms

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Speaker 1: of um energy production. And there's also regulation coming down

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Speaker 1: the pike, which changes the whole model for portfolio companies.

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Speaker 1: When regulation changes, then it doesn't become an issue of

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Speaker 1: oh do I have a green investor brown investor. Then

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Speaker 1: it's just I'm a company. I need to work in

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Speaker 1: this environment. I need to upgrade the way I'm working.

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Speaker 1: And the classic example is a circular economy and McDonald's

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Speaker 1: or Starbucks in the UK following Blue Planet too horrific images.

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Speaker 1: People realize this plastic floating around the world. Now they're

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Speaker 1: going to say McDonald's, Starbucks about all that plastic and

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Speaker 1: those cups that you you put into the trash. It's

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Speaker 1: your problem, now go and solve it. Yeah, and these

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Speaker 1: disasters definitely can can hurt a company. And you know,

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Speaker 1: let's talk about this this sub brass tax of investing, right,

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Speaker 1: So the biggest E C S G T F no

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Speaker 1: offense MATT is from my shares, It's s U s A,

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Speaker 1: it's the M S C I, E S G it's

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Speaker 1: the only one over a billion, and it it to

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Speaker 1: me it's kind of embodies a typical E. S G fund.

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Speaker 1: It's a little overweight tech and it's a little underweight energy.

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Speaker 1: So in the last twelve months, right those fang stocks,

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Speaker 1: the tech stocks didn't do well, so this was down

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Speaker 1: one percent more than the market. Talk about how someone

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Speaker 1: might need to stomach under performance to go all the

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Speaker 1: way with this, But obviously if tech does better and

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Speaker 1: energy struggles, you might do a little better. So talk

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Speaker 1: about the both you guys, the performance aspect and selling

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Speaker 1: people on that regard. Yeah, I mean, part of it

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Speaker 1: comes down to just index construction, right, So the ability

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Speaker 1: to be craftsman in creating this exposure to not introduce

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Speaker 1: any Indian syncratic risks. And you're talking about sector sector weightings.

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Speaker 1: So obviously you know our phosilphy or reserves free spy X.

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Speaker 1: We are naturally underwraight energy. So if the energy sector

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Speaker 1: pops by because of for some catalysts, you will underperform.

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Speaker 1: And having that level of intelligence while entering that product

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Speaker 1: is important so you can understand what that client experience

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Speaker 1: will be. The same thing was she we knew that

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Speaker 1: we didn't want to just look at the firms with

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Speaker 1: the best gender diversity and then just allocate to those

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Speaker 1: because sector biases can play a huge role into it.

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Speaker 1: So think about the close lower volatility strategies that become

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Speaker 1: just utilities and reads funds. They become very highly correlated

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Speaker 1: to whatever that sector is doing. So you want to

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Speaker 1: really let that stock selection in the index construction drive returns.

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Speaker 1: And that's what we have with SHE where you have

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Speaker 1: more of a sector controlled bias. So it just comes

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Speaker 1: down to understanding the index construction and being comfortable with

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Speaker 1: the potential return path, knowing that yes, I'm going to

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Speaker 1: be underwraight energy of energy is I'm going to underperform.

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Speaker 1: But my viewpoint is that overall a long time frame

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Speaker 1: when we talk about this shift more renewable energy, that

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Speaker 1: firms that are embracing that renewable capability will lead to

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Speaker 1: better performance. And you know, I understand that going into

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Speaker 1: and that's that's the big problem, was just knowing what

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Speaker 1: you own. I mean, that's the old Peter Peter Lynch

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Speaker 1: adage and that applies to anything. Yeah, and and something

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Speaker 1: we haven't touched on Eric enjol that you know I

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Speaker 1: really follow trillions, and I really enjoyed what you guys do.

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Speaker 1: That the technology, the method, the vessel, the vehicle that

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Speaker 1: these investment opportunities come through, the same way. We love

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Speaker 1: Jack Bogle for how you change the industry. That's a

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Speaker 1: great shot you put up recently, Eric about the average

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Speaker 1: cost of managing money through Vanguard or mutual fund business others.

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Speaker 1: Is the availability through e t F. The E t

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Speaker 1: F is the right structure. So what I don't prefer

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Speaker 1: to see is fund manager ABC with you know, wood

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Speaker 1: paneling and high end cappuccino machine talking to me about

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Speaker 1: sustainability and the STU for moments in fact of their portfolio.

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Speaker 1: But they're still delivering it in a sleeve with a

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Speaker 1: big fat one two up to two and a half

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Speaker 1: percent fee. It's got to be low priced and delivered

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Speaker 1: delivering the Well, here's the follower that question, which is

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Speaker 1: what would E s G be without E t S.

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Speaker 1: I mean, so in mutual fund land, there's actually a

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Speaker 1: sizeable portion of E s G products. There's actually more

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Speaker 1: assets and more products in within mutual fund structures. However,

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Speaker 1: the direction I travel is more launches within the et

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Speaker 1: F structure, likely or a result of some of the

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Speaker 1: benefits that E t F have relatives mutual funds. All

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Speaker 1: the money is going there, Yeah, that it flows to that.

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Speaker 1: And how many more E E s G E t

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Speaker 1: F s do we expect to enter the market going forward.

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Speaker 1: I think any fund, any strategy, is trying to do that.

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Speaker 1: And a green Alpha advises the guys who co branded

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Speaker 1: with the Sierra Club, they used to run a mutual fund,

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Speaker 1: they shut it down, was unsuccessful. They've got a new strategy.

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Speaker 1: The twenty nineteen toss list top of list roll out

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Speaker 1: of E t F. I think every strategy and what

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Speaker 1: I enjoy about the low fee structure and the ability

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Speaker 1: to be tactical rolling out product into the E t

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Speaker 1: F space is that it means you can cater for

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Speaker 1: for nuance and for a variety of opportunity. So it's

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Speaker 1: not just it's each it's E s G or not no, no, no,

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Speaker 1: it's E S G. And it's got a tilt towards

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Speaker 1: focused on how do we focus on people solving for water?

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Speaker 1: It's got a tilt, how do we solve for people

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Speaker 1: solving for dirty year? How do we tilt for diversity,

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Speaker 1: you know, race, gender, and so on. So E t

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Speaker 1: F gives you that opportunity. There's even a vegan e

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Speaker 1: t F coming out soon which a claims to save

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Speaker 1: seventeen animals per ten tho dollar invested in the e

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Speaker 1: t F. So I do think we're going to get

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Speaker 1: to these levels where they're actually going to post what

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Speaker 1: you're doing with the purchase. Um. I want to ask

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Speaker 1: just about one of the things about E s G

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Speaker 1: that might be a limiting factor and also penalizes investors,

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Speaker 1: is that it's a really tidy way for investment management

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Speaker 1: companies to make a little bit more money, right because

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Speaker 1: the feast can be high. Uh is that is that

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Speaker 1: gonna stick around? Or will the will that has to

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Speaker 1: be downward pressure to get the fees down. Well, I mean,

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Speaker 1: I think if you look at the average fee and

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Speaker 1: the anything classified as E s G, I thinks about

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Speaker 1: forty six basis points, which is roughly the average fee

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Speaker 1: of ETF. So they're kind of on par. I mean,

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Speaker 1: our philosophy is that if you're intending for I know

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Speaker 1: we said we don't want to use these terms earlier,

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Speaker 1: but if you're intending to do good in portfolios and

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Speaker 1: be good actors and try to enrich in the environment

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Speaker 1: or you know, the call for governance that we have

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Speaker 1: that you shouldn't have to pay a ton for it.

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Speaker 1: So we have a pricing philosophy around that. They're very

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Speaker 1: cost effective. And I think that that's going to be

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Speaker 1: the trend going forward, is that investors are to make

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Speaker 1: this decision. They don't want to be charged fees that

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Speaker 1: are you know, in the eighties and nineties. Well let

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Speaker 1: me just jump in here with this because I know

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Speaker 1: what she's saying. Um, thematic ETFs in particular, I think

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Speaker 1: are really where you see some of that sixty seventy

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Speaker 1: basis points, but most of these are twenty or below

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Speaker 1: point to percent or below. And listen, compared to what's

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Speaker 1: going on in the mutual fund area. I mean the

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Speaker 1: amount of money taken in these you know, four or

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Speaker 1: three B plans and the loads and the expenses, this

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Speaker 1: is nickel dime. I mean, this is not much fees

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Speaker 1: at all. Plus there's no capital gains distributions. Um. Look,

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Speaker 1: the e t F fishers have to live in a

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Speaker 1: virtual terror dom with where there's no revenue so that

430
00:22:24,200 --> 00:22:27,240
Speaker 1: investors can have like this paradise portfolio. So in general

431
00:22:27,359 --> 00:22:30,560
Speaker 1: I find that punching down is E T F S.

432
00:22:30,640 --> 00:22:33,399
Speaker 1: Punching up is two mutual funds. I don't find a

433
00:22:33,480 --> 00:22:36,320
Speaker 1: lot of slickness in terms of E t F E

434
00:22:36,520 --> 00:22:38,480
Speaker 1: S G E t F fees. I think some of

435
00:22:38,520 --> 00:22:41,080
Speaker 1: the early ones were fifty, but they've now been competed

436
00:22:41,119 --> 00:22:43,600
Speaker 1: out Goldman vanguards. They story have come in under twenty.

437
00:22:44,040 --> 00:22:46,879
Speaker 1: And I think every area has this fee pressure. Some

438
00:22:47,080 --> 00:22:49,439
Speaker 1: just take a little more longer to catch up than

439
00:22:49,480 --> 00:22:52,240
Speaker 1: the plane vanilla area. So let me jump on the

440
00:22:52,320 --> 00:22:55,320
Speaker 1: end there, Eric, So I agree, and E t F

441
00:22:55,520 --> 00:22:58,399
Speaker 1: is the onset to um acid gathering funny shop right

442
00:22:58,440 --> 00:23:00,919
Speaker 1: now and should be going full it. I also want

443
00:23:00,960 --> 00:23:05,520
Speaker 1: to investment professionals, So remember the basis of your question

444
00:23:05,560 --> 00:23:10,439
Speaker 1: there is, oh, we cannot consider environmental, social, and governance

445
00:23:10,520 --> 00:23:12,919
Speaker 1: factors when you make decisions about a company. And if

446
00:23:12,960 --> 00:23:15,560
Speaker 1: we put it in there, uh no, we're gonna charge

447
00:23:15,560 --> 00:23:19,080
Speaker 1: your extra fee. That is that is intellectually bankrupt. Like

448
00:23:19,160 --> 00:23:21,040
Speaker 1: I will laugh at someone who tries to make that

449
00:23:21,160 --> 00:23:23,320
Speaker 1: argument to me in a pitch deck or presentation on

450
00:23:23,400 --> 00:23:25,720
Speaker 1: It's like going to a restaurant and saying, uh, you

451
00:23:25,800 --> 00:23:28,000
Speaker 1: know you're gonna buy the food, You're gonna pay extra

452
00:23:28,119 --> 00:23:31,399
Speaker 1: for the fork, the plate and the air conditioning. E

453
00:23:31,600 --> 00:23:35,159
Speaker 1: s G is an every decision of planet Earth using humans,

454
00:23:35,240 --> 00:23:37,679
Speaker 1: using a rule of law. And just to the mutual

455
00:23:37,720 --> 00:23:39,320
Speaker 1: funds the track E s G. We looked at this.

456
00:23:39,400 --> 00:23:41,720
Speaker 1: The average fee is about one percent and they have

457
00:23:41,840 --> 00:23:45,399
Speaker 1: sixty billion, whereas the E t F average fees UM well,

458
00:23:45,440 --> 00:23:48,719
Speaker 1: if you asset weight at average is more like thirty um,

459
00:23:49,000 --> 00:23:51,600
Speaker 1: and so you know you're looking at a third of

460
00:23:51,640 --> 00:23:54,240
Speaker 1: the cost. So, if anything, the e s G E

461
00:23:54,359 --> 00:23:55,880
Speaker 1: t F would be a smart move for the people

462
00:23:55,920 --> 00:23:57,919
Speaker 1: in the E s G mutual fund. And a lot

463
00:23:57,960 --> 00:24:01,000
Speaker 1: of those mutual funds underperformed general benchmarks as well, so

464
00:24:01,640 --> 00:24:03,159
Speaker 1: I think a lot of that money is probably going

465
00:24:03,240 --> 00:24:05,719
Speaker 1: to come over eventually. The question is can you get

466
00:24:05,800 --> 00:24:09,359
Speaker 1: new audiences too? And there's guys who haven't talked much

467
00:24:09,359 --> 00:24:13,200
Speaker 1: about the alpha opportunities. Let's there's the best study that

468
00:24:13,359 --> 00:24:16,680
Speaker 1: the most the broadest study out in Twitter December twenty

469
00:24:16,760 --> 00:24:19,760
Speaker 1: fifteen by Germans. They're going to be pretty thorough right

470
00:24:19,800 --> 00:24:23,840
Speaker 1: if we're working uh stereotypes. Yet of the studies two thousand,

471
00:24:23,840 --> 00:24:27,720
Speaker 1: two hundred studies of performance and connections between portfolio performance

472
00:24:27,960 --> 00:24:31,560
Speaker 1: company performance in s G of studies found a non

473
00:24:31,680 --> 00:24:35,880
Speaker 1: negative relationship. Thirty five percent were positive, seven percent were negative.

474
00:24:36,440 --> 00:24:39,240
Speaker 1: Ms c I E s G Leaders Emerging Markets Index

475
00:24:39,320 --> 00:24:43,080
Speaker 1: one three and five year has outperformed the MSc I

476
00:24:43,440 --> 00:24:46,520
Speaker 1: Emerging Markets Index without an E s G tilt an

477
00:24:46,560 --> 00:24:49,679
Speaker 1: E s G filter to it. So it's there's an

478
00:24:49,680 --> 00:24:53,800
Speaker 1: alpha opportunity that we really haven't addressed yet. I think, guys,

479
00:24:53,880 --> 00:24:56,920
Speaker 1: we should come back and talk about the alpha opportunity.

480
00:24:57,000 --> 00:24:59,399
Speaker 1: I will always welcome the opportunity to talk about alpha.

481
00:25:00,200 --> 00:25:03,840
Speaker 1: Graham Matt, thanks for joining Central. You guys totally outperformed.

482
00:25:09,760 --> 00:25:11,280
Speaker 1: We also just want to take a moment and give

483
00:25:11,320 --> 00:25:14,520
Speaker 1: a shout out to Jack Bogel, the founder of Vanguard

484
00:25:14,600 --> 00:25:17,840
Speaker 1: who passed away last week. Yeah, I mean huge loss. Uh.

485
00:25:17,960 --> 00:25:21,000
Speaker 1: This is a guy who, in my opinion, will probably

486
00:25:21,040 --> 00:25:24,199
Speaker 1: have ended up having the biggest impact and the at

487
00:25:24,280 --> 00:25:26,520
Speaker 1: least the investment space, if not the whole financial industry

488
00:25:27,200 --> 00:25:30,760
Speaker 1: over a hundred years stretch. He is different. You know,

489
00:25:30,840 --> 00:25:34,879
Speaker 1: there's great people running money Warren Buffett, and that's not

490
00:25:35,240 --> 00:25:38,600
Speaker 1: He was about something completely different, and I think it

491
00:25:38,720 --> 00:25:41,000
Speaker 1: was interesting how he changed the system. But he was

492
00:25:41,040 --> 00:25:46,399
Speaker 1: invented the index fund. Millions and millions of people have

493
00:25:46,760 --> 00:25:49,560
Speaker 1: a retirement basically thanks to him. But the bigger deal

494
00:25:49,680 --> 00:25:52,480
Speaker 1: was the mutual ownership structure of Vanguard, you know, having

495
00:25:52,520 --> 00:25:56,080
Speaker 1: the fun investors own the company. Every time they had profit,

496
00:25:56,119 --> 00:25:57,840
Speaker 1: they would vote to lower the fees, not to pay

497
00:25:57,920 --> 00:26:01,160
Speaker 1: the managers more and or expand end and so over

498
00:26:01,280 --> 00:26:03,000
Speaker 1: the thirty years, if I showed you a chart of

499
00:26:03,080 --> 00:26:05,239
Speaker 1: Vanguard's average fee, it goes about sixty five and nine

500
00:26:06,359 --> 00:26:09,480
Speaker 1: and just slowly goes down to now it's average ten

501
00:26:09,560 --> 00:26:12,399
Speaker 1: basis points right. And they were lowering fees when no

502
00:26:12,440 --> 00:26:14,000
Speaker 1: one cared in the nineties, you didn't have to lower

503
00:26:14,000 --> 00:26:15,600
Speaker 1: your fees. People a buying mutual funds didn't know what

504
00:26:15,680 --> 00:26:18,840
Speaker 1: they cost. So he had to wait thirty years really

505
00:26:18,920 --> 00:26:21,760
Speaker 1: for his idea to catch fire. And you got to

506
00:26:21,880 --> 00:26:23,600
Speaker 1: take your hat off to the guy, and he sacrificed

507
00:26:23,640 --> 00:26:25,680
Speaker 1: some personal wealth. He was definitely wealthy at eighty million

508
00:26:25,800 --> 00:26:28,480
Speaker 1: net worth. But I think history is going to be

509
00:26:28,640 --> 00:26:31,280
Speaker 1: very very kind to him, especially as these new generations

510
00:26:31,359 --> 00:26:34,240
Speaker 1: come up and think more about incoming equality. He'll be

511
00:26:34,359 --> 00:26:37,000
Speaker 1: revered more and more and I only see his sort

512
00:26:37,040 --> 00:26:39,760
Speaker 1: of legend growing. So if you haven't checked out our

513
00:26:39,880 --> 00:26:42,760
Speaker 1: interview with him, we had him on the show over

514
00:26:42,840 --> 00:26:44,680
Speaker 1: the summer, and then he again makes an appearance on

515
00:26:44,720 --> 00:26:47,440
Speaker 1: our other show, The et F Story. I was really

516
00:26:47,520 --> 00:26:49,800
Speaker 1: happy we got that interview. Um, there's a lot we

517
00:26:49,960 --> 00:26:51,760
Speaker 1: can actually go into the file and I think bring

518
00:26:51,800 --> 00:26:54,120
Speaker 1: out and have a part two down the road. But man,

519
00:26:54,280 --> 00:26:56,920
Speaker 1: he riffed on everything, especially he spun it forward. He

520
00:26:57,000 --> 00:26:59,240
Speaker 1: talked about the future of the advice business, the future

521
00:26:59,280 --> 00:27:01,639
Speaker 1: of money management, and I loved he dropped a lot

522
00:27:01,680 --> 00:27:05,000
Speaker 1: of little pearls of wisdom Ben Franklin style. We got

523
00:27:05,680 --> 00:27:08,080
Speaker 1: just an incredible hour and a half with him and

524
00:27:08,960 --> 00:27:11,680
Speaker 1: in one of the last interviews. So Mr Bogel, thank you.

525
00:27:15,680 --> 00:27:18,280
Speaker 1: Thanks for listening to traits until next time. You can

526
00:27:18,280 --> 00:27:22,680
Speaker 1: find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcast, Spotify,

527
00:27:23,160 --> 00:27:25,560
Speaker 1: and wherever else you like to listen. We'd love to

528
00:27:25,600 --> 00:27:29,320
Speaker 1: hear from you. We're on Twitter, I'm at Joel Webber Show,

529
00:27:29,640 --> 00:27:34,200
Speaker 1: He's at Eric Ball Tunas. You can find Grahamson Claire

530
00:27:34,840 --> 00:27:38,160
Speaker 1: at E S. G Architect and you can find Matt

531
00:27:38,280 --> 00:27:45,600
Speaker 1: Bartolini at State Street E T S. Trillions is produced

532
00:27:45,640 --> 00:27:50,160
Speaker 1: by Magnus Hendrickson. Francesca Levy is the head of Bloomberg Podcast.

533
00:27:50,800 --> 00:27:51,040
Speaker 1: Bye