WEBVTT - What’s the Deal With ESG ETFs? 0:00:06.040 --> 0:00:08.920 Welcome a trillions. I'm Joel Webber and I'm Eric bel 0:00:08.960 --> 0:00:14.160 Tunis Eric. This time on Trillions, we're gonna talk about 0:00:14.200 --> 0:00:18.159 E s G. What is E s G. Yeah, A 0:00:18.160 --> 0:00:20.840 lot of people don't know which I think that's part 0:00:20.880 --> 0:00:23.119 of the hurdle of people getting more interested is just 0:00:23.239 --> 0:00:26.920 knowing what that acronym is. It stands for Environmental, Social 0:00:26.960 --> 0:00:29.400 and Governance, which is sort of like the three pillars 0:00:30.040 --> 0:00:32.920 that generally are used as screens to find out which 0:00:32.920 --> 0:00:36.000 companies are, you know, sort of progressing in the world 0:00:36.600 --> 0:00:38.800 in terms of how to behave And it's sort of 0:00:38.800 --> 0:00:41.880 a way to grade companies um on things that aren't 0:00:41.920 --> 0:00:44.440 just profit right, it's sort of the other side of 0:00:44.440 --> 0:00:47.519 the equation besides just making money. And it's become much 0:00:47.560 --> 0:00:51.199 more popular in recent years and and there there's a 0:00:51.200 --> 0:00:53.920 lot of speculation that this could be a massive opportunity 0:00:54.320 --> 0:00:58.320 as an investing thesis going forward. The hype is unbelievable. 0:00:58.520 --> 0:01:00.520 E s G articles are plant of full, They get 0:01:00.520 --> 0:01:03.840 a lot of great press. People seem to be into it. 0:01:04.080 --> 0:01:07.479 I mean, who who wouldn't be into Its really good? Right? Yeah, 0:01:07.680 --> 0:01:10.520 there's dozens and dozens of E t s being launched 0:01:10.560 --> 0:01:13.039 every year that are in the E s G themes, 0:01:13.080 --> 0:01:16.160 So there's plenty of product. However, the app assets are 0:01:16.200 --> 0:01:19.280 kind of lacking. They have it looks like six point 0:01:19.319 --> 0:01:22.160 eight billion, right, so that's not a lot. Okay, that's 0:01:22.200 --> 0:01:26.280 some Yeah, the Banguard takes that in a week, all right. 0:01:26.360 --> 0:01:28.760 So there's a little bit of a gap between the 0:01:28.840 --> 0:01:31.360 hype and assets, which I think is really what we 0:01:31.360 --> 0:01:33.560 want to explot to day and also practically how you 0:01:33.640 --> 0:01:35.480 use them. This is one of those topics that I've 0:01:35.480 --> 0:01:38.640 been picked on Twitter about. People do want us to 0:01:38.680 --> 0:01:40.720 do an E s G episode. So here we are, 0:01:40.760 --> 0:01:43.119 we are and joining us to help us make sense 0:01:43.120 --> 0:01:45.080 of this is someone that you brought in and you 0:01:45.120 --> 0:01:47.000 guys are up in Boston today, I'm in New York. 0:01:47.080 --> 0:01:48.880 Who do you have with you? Here with us are 0:01:48.920 --> 0:01:50.880 two experts from the E s G field, but in 0:01:50.960 --> 0:01:55.360 different ways. Graham Sinclair, who I know on Twitter and 0:01:55.400 --> 0:01:57.880 actually met through a friend a long time ago, who 0:01:57.960 --> 0:02:00.800 is the at E s G architect, So he's he's 0:02:00.840 --> 0:02:04.000 literally that's his whole life. He isn't a consultant to 0:02:04.120 --> 0:02:05.840 companies about E s G. He'll go over that in 0:02:05.880 --> 0:02:09.519 a minute. And Matt Bartolini from State Street. He has 0:02:09.560 --> 0:02:11.400 to take E. S G and make a product out 0:02:11.440 --> 0:02:13.120 of it and then try to get the products sold. 0:02:13.160 --> 0:02:16.080 So I think we have, you know, the two sides 0:02:16.120 --> 0:02:18.200 of the equation in terms of trying to figure out 0:02:18.520 --> 0:02:20.200 what's going on with S G T S and how 0:02:20.200 --> 0:02:24.760 to use them. This man, trillians, what's the deal with E? 0:02:25.000 --> 0:02:29.280 S G, E T S. Matt Graham, thanks for joining 0:02:29.360 --> 0:02:31.600 us on the show. Graham, you actually didn't come alone, 0:02:31.680 --> 0:02:34.040 did you. You brought someone with you who'd you No, 0:02:34.200 --> 0:02:37.440 We've got a fairly aggressive intern program at Sincoe s 0:02:37.560 --> 0:02:39.799 same of S and consulting it. I came in with 0:02:39.840 --> 0:02:44.600 my daughter. Friday's a geogik and daddy days alright, child labor. 0:02:44.760 --> 0:02:47.119 We have a couple of questions we'd like to ask her. Uh, yeah, 0:02:47.160 --> 0:02:49.799 that'd be great, and to be clear, not childly, but 0:02:49.960 --> 0:02:55.400 it's extreme millennial. By the way, what generation would she be? 0:02:55.880 --> 0:02:57.440 Is she z or is it? Are we beyond that? 0:02:57.560 --> 0:03:01.760 With her? Well, I'm pitching it's it's double A. I 0:03:01.800 --> 0:03:04.680 will say she's the youngest guest we've had on this podcast, 0:03:04.720 --> 0:03:07.280 and potentially the youngest guest in the studio. I could 0:03:07.320 --> 0:03:09.640 tell from the looks we were getting from a lot 0:03:09.680 --> 0:03:12.240 of people talk about a lot of people talk about 0:03:12.240 --> 0:03:14.200 E s G as the future. So let's actually talk 0:03:14.280 --> 0:03:17.800 to someone who's rooted in the future. What what does 0:03:17.840 --> 0:03:27.520 your daddy do? Spinning? Spinning? It's pretty instructed, he's he's um, 0:03:27.840 --> 0:03:29.959 he's an expert at E s G. Do you like 0:03:30.120 --> 0:03:36.600 E s G? You haven't been there yet. It's it's 0:03:36.600 --> 0:03:38.760 a pretty it's an interesting place to visit. Well, you 0:03:38.880 --> 0:03:47.560 like clean water, right? And trees? Trees? Can you tell um, 0:03:47.840 --> 0:03:53.320 Mr Eric, are you watching puffin rock? Right? And do 0:03:53.440 --> 0:03:58.160 they like to swim in the clean ocean or the ocean? All? Right? 0:03:58.160 --> 0:04:02.360 I think I think she's on word, Graham. Once you 0:04:02.400 --> 0:04:04.840 get someone sold on clean ocean and water, you're pretty 0:04:04.920 --> 0:04:07.440 much halfway there with the s G pitch. It's interesting 0:04:07.560 --> 0:04:10.080 she said E s G as a place. Um, you know, 0:04:10.320 --> 0:04:12.200 I think my kids probably think E T F is 0:04:12.240 --> 0:04:15.600 a place and I live Daddy lived there. You guys 0:04:15.600 --> 0:04:18.039 have done the dad episode. You gotta do the kid episode. 0:04:18.480 --> 0:04:25.240 That okay, So Graham, Matt, let's let's have a better 0:04:25.279 --> 0:04:27.520 sense of what what you guys do and how you 0:04:27.600 --> 0:04:30.920 got into this space. Joel, I got into retirement funds 0:04:31.360 --> 0:04:34.760 Investments out of law school back in South Africa, rolled 0:04:34.839 --> 0:04:37.360 up through a various shops, ended up at SCI Investments, 0:04:37.400 --> 0:04:39.360 which explains how I ended up in the U S. 0:04:39.440 --> 0:04:42.320 I didn't mean to be. I was abducted by a beautiful, 0:04:42.360 --> 0:04:45.640 brilliant woman. I am an E. S. G architect, which 0:04:45.720 --> 0:04:49.000 means I take an investment problem and I integrate environment, 0:04:49.080 --> 0:04:52.560 social governance factors into solving that problem, into the management 0:04:52.640 --> 0:04:55.720 systems and the processes, the manufacturing, the marketing. And the 0:04:55.800 --> 0:04:59.640 other way we come at it is if if there's 0:04:59.640 --> 0:05:02.080 an issue that we need to develop the investment thesis 0:05:02.160 --> 0:05:04.840 for the investment case. An example would be how designed 0:05:04.839 --> 0:05:07.560 the access to nutrition index? And the other question came 0:05:07.600 --> 0:05:10.840 from the Gates Foundation Foundation a couple of lines to 0:05:10.920 --> 0:05:13.760 improve nutrition UH, And the question was how do we 0:05:13.839 --> 0:05:17.800 make nutrition a serious investment issue? To Wolf Street UH. 0:05:17.880 --> 0:05:20.320 And that's how we developed the investment case. And Matt, 0:05:20.360 --> 0:05:21.520 can you talk a little bit about what you do 0:05:21.600 --> 0:05:24.640 at State Street? Yeah? Sure, So within State Street and 0:05:24.720 --> 0:05:27.160 the Spider Et f business and the head of research 0:05:27.320 --> 0:05:31.440 for for that area and sitting within a broader asset 0:05:31.520 --> 0:05:34.320 management firm, one of our goals is to solve clients 0:05:34.360 --> 0:05:37.839 issues and one of those is how to align financial 0:05:37.920 --> 0:05:40.440 goals to also social goals and that's where E s 0:05:40.480 --> 0:05:43.279 G naturally fits in. So how do you be able 0:05:43.279 --> 0:05:47.040 to provide you know, long term diversified returns, but do 0:05:47.160 --> 0:05:49.239 it in a way that matches how you feel about 0:05:49.520 --> 0:05:53.440 you know, your carbon footprint or about gender diversity and 0:05:53.640 --> 0:05:55.680 you know, that's really what the solutions that we have 0:05:55.880 --> 0:05:57.560 within our firm we're trying to do. And then it 0:05:57.640 --> 0:06:00.320 just comes down to just portfolio construction. And that's a 0:06:00.360 --> 0:06:02.880 big part of my role is taking all of these 0:06:02.920 --> 0:06:05.800 different et s, not even just from ourselves, but other 0:06:05.839 --> 0:06:08.719 actual wars and their neutual funds and different other managed accounts, 0:06:09.200 --> 0:06:11.440 and what happens when you blend them all together? Do 0:06:11.520 --> 0:06:14.840 you start to have overcrowding risk and enter into something 0:06:14.920 --> 0:06:18.080 that you maybe not want it? Just let's just define 0:06:18.120 --> 0:06:19.920 E s G. I've been on panels where it takes 0:06:20.000 --> 0:06:22.840 thirty five minutes. Can you guys give me the one 0:06:22.920 --> 0:06:26.520 minute definition of E s G dumbed down? Um, and 0:06:26.640 --> 0:06:28.480 each of you do it that way people can just 0:06:28.600 --> 0:06:32.040 get their handle around what exactly it is. Gham. The 0:06:32.200 --> 0:06:36.680 investment case summarizes the forward looking business case for put 0:06:36.760 --> 0:06:40.480 photo companies. At any point in time, all factors matter 0:06:40.640 --> 0:06:43.560 to doing business in the twenty one century, all factors, 0:06:43.720 --> 0:06:47.119 including environment, social, and governance factors. They're on the side 0:06:47.360 --> 0:06:50.360 onto corner on something you plug in later. If you 0:06:50.520 --> 0:06:54.080 are building a business on investing on planet Earth, using 0:06:54.279 --> 0:06:57.240 humans to move money or do things or buy things, 0:06:57.680 --> 0:07:00.280 and you rely on the rule of law to make 0:07:00.320 --> 0:07:03.440 sure stuff ends up what it's meant to end up 0:07:03.480 --> 0:07:06.520 and you get your money back. This environment, social, governance 0:07:06.520 --> 0:07:09.520 and every investment decision, the biggest question has to be 0:07:10.040 --> 0:07:14.240 why hasn't this always been profiles proactively managed about the 0:07:14.320 --> 0:07:17.600 investment industry. It's getting better. It's coming from a long 0:07:17.640 --> 0:07:21.800 way back. There was like five lines what's yeah. I mean, 0:07:21.840 --> 0:07:24.200 I think it's it's a it's a problem to label it, 0:07:24.440 --> 0:07:27.080 and I think it's it's really hard because even if 0:07:27.120 --> 0:07:29.240 you look at the US listed E t F industry, 0:07:29.680 --> 0:07:32.000 and we look at the funds that are classified as 0:07:32.200 --> 0:07:35.600 e s G by data providers anyone focused on the US, 0:07:35.640 --> 0:07:37.840 there's sort of dispersed amount of returns last year. It's 0:07:38.640 --> 0:07:40.960 difference between the best performing and worst performing e s 0:07:41.040 --> 0:07:44.000 G fund So classification is one of these problems that 0:07:44.280 --> 0:07:46.920 as an asset management firm and someone deeply engaged in 0:07:47.000 --> 0:07:49.000 E t f s, that's really hard for to do, 0:07:49.800 --> 0:07:52.440 and I think that's why you do to Eric's point earlier, 0:07:52.640 --> 0:07:54.400 you don't see that big of asset growth because you 0:07:54.440 --> 0:07:58.600 needed it's a very personal decision. What is the most 0:07:58.680 --> 0:08:01.440 E s G fund? Does it not invest in any oil? 0:08:01.600 --> 0:08:03.480 Or do is invest in some oil? And I think 0:08:03.520 --> 0:08:06.360 that's one of the biggest problems of creating a deep 0:08:06.440 --> 0:08:09.560 rooted classification system. It also feels like it's become hot 0:08:10.040 --> 0:08:15.080 relatively recently. But that naive perspective is it how much 0:08:15.280 --> 0:08:17.360 data is actually out there so that we can make 0:08:17.440 --> 0:08:20.680 informed decisions here? Well, if you check your Google search 0:08:20.720 --> 0:08:23.160 as you'll see it, it goes ballistic. Even even on 0:08:23.240 --> 0:08:28.120 analysis of studies of the impact of environment, social governance factors, 0:08:28.480 --> 0:08:32.160 the studies themselves from early seventies, almost nothing from nineteen seventy, 0:08:32.200 --> 0:08:34.800 when Milton Freeman has had this classic business of business 0:08:34.840 --> 0:08:40.080 as business misunderstanding through the fifteen it's just basically it's 0:08:40.080 --> 0:08:44.240 a hockey stick. So even studies of studies of what's 0:08:44.280 --> 0:08:48.239 happening in the investment units universe has ramped up. Absolutely 0:08:48.400 --> 0:08:50.920 there's a lot of hubris. There's there's a lot of hype, 0:08:51.160 --> 0:08:54.760 there's a lot of greenwashing. There's there's situations where companies 0:08:54.760 --> 0:08:57.000 claim to do things and they don't. I mean, how 0:08:57.040 --> 0:08:59.839 many of you believe those towels that you hang back 0:09:00.000 --> 0:09:02.880 in the rack is because the hotel company is trying 0:09:02.920 --> 0:09:06.599 to be sustainable, you're supposed to hang him back on 0:09:06.640 --> 0:09:09.280 the rack. You leave them on the floor to get 0:09:09.320 --> 0:09:11.480 it a clown one. Let's just think about an E 0:09:11.679 --> 0:09:16.720 S G approach, right, are you screening out for things 0:09:16.960 --> 0:09:20.000 or are you going and trying to track companies that 0:09:20.200 --> 0:09:24.480 are literally making solar panels? What's the method that's really 0:09:24.600 --> 0:09:27.640 the the best way to do it? So, working with 0:09:27.720 --> 0:09:31.439 the institutional investor a house, he's making these decisions. It 0:09:31.520 --> 0:09:33.959 starts with how you view the world, what do you believe? 0:09:34.080 --> 0:09:39.000 So in Kelpus rebuilt the whole investment process earlier this decade. 0:09:39.320 --> 0:09:41.280 They started with what I believes, how do we see 0:09:41.360 --> 0:09:43.760 the world? What is our That rolls into what is 0:09:43.760 --> 0:09:46.520 our investment philosophy? And then you work through the various 0:09:46.559 --> 0:09:48.600 elements of what are your processes? Were the people you're 0:09:48.600 --> 0:09:50.640 gonna put in place, how you're going to build these portfolios. 0:09:50.720 --> 0:09:52.880 How are you going to attract the impact and the performance. 0:09:53.360 --> 0:09:56.000 So E s G is really a systems level issue. 0:09:56.040 --> 0:09:58.400 That's why I came to the Monica at s G 0:09:58.520 --> 0:10:02.199 architect the same way that investment today relies on digital 0:10:02.360 --> 0:10:05.880 on software to execute and make things happen and inform 0:10:06.120 --> 0:10:08.800 making it better. So too with the E s G. 0:10:08.960 --> 0:10:12.680 E s G sits across the investment life cycle. Yeah, 0:10:12.679 --> 0:10:15.439 and I think there's there's different levels of E s G. 0:10:15.720 --> 0:10:17.959 Same with smart data. You can have something that's like 0:10:18.000 --> 0:10:20.280 a factor tilt that invests in every stock in the 0:10:20.400 --> 0:10:23.280 SP or you can just do high octane the fifty 0:10:23.360 --> 0:10:25.599 cheapest stocks for a value screen. E s G is 0:10:25.720 --> 0:10:28.960 somewhat similar. You can do something where you just divest 0:10:29.120 --> 0:10:32.920 from energy companies that have proven fossil fuel reserves, or 0:10:33.080 --> 0:10:35.840 you can take the m s C I ACQUI optimize 0:10:35.880 --> 0:10:38.120 it to have the lowest carbon footprint for a level 0:10:38.160 --> 0:10:40.640 of tracking error. And there's sort of those two spectrums 0:10:40.679 --> 0:10:45.240 of purity versus something that will give you a benchmark 0:10:45.320 --> 0:10:47.679 like return, but in a more E s G framework. 0:10:47.960 --> 0:10:50.160 I'd like to just jump on Eric please if we could, 0:10:50.280 --> 0:10:53.960 on your awesome podcasts. Could we walk away from using 0:10:54.040 --> 0:10:59.920 language like doing good, soul, feelings, values, personal, This is 0:11:00.160 --> 0:11:03.720 this is just the way investment will be in future 0:11:03.960 --> 0:11:06.400 on one planet, using humans, using a rule of law. 0:11:06.480 --> 0:11:09.600 There's there's no extra earth, there's no extra water, there's 0:11:09.640 --> 0:11:12.920 no extra clean air. Right, so part of this is 0:11:13.679 --> 0:11:15.800 and your your fingers curled up every time you watch 0:11:15.880 --> 0:11:18.800 these interviews. It takes about three questions and then the 0:11:18.880 --> 0:11:22.439 talking head is gonna ask the investment specialists, so can 0:11:22.520 --> 0:11:25.319 this match your values? You know almost here that the 0:11:25.400 --> 0:11:29.640 change in the chan technical this is architecture. Well this 0:11:29.760 --> 0:11:31.520 brings up one thing I hear on Twitter a lot 0:11:31.600 --> 0:11:33.640 when I point out, like when Vanguard launched the s 0:11:33.720 --> 0:11:35.880 G and it was cheap, I was like, well, now 0:11:35.960 --> 0:11:38.319 we finally got dirt cheap e s G. Now we 0:11:38.679 --> 0:11:41.280 now we know whether it was, you know, a cheap 0:11:41.360 --> 0:11:42.800 thing or just an E s G issue. And a 0:11:42.800 --> 0:11:44.920 lot of people replied with it doesn't matter what the 0:11:45.000 --> 0:11:48.640 cost is. It's too subjective. Vanguard thinks you're supposed to 0:11:48.679 --> 0:11:52.560 screen out alcohol, tobacco, this, that, and the other. Actually 0:11:52.600 --> 0:11:54.440 only think three of those things are important, those other 0:11:54.480 --> 0:11:57.880 two are fine, and so subjectivity of what's important to you. 0:11:58.679 --> 0:12:01.760 I've heard makes people is sort of stop from applying 0:12:01.800 --> 0:12:04.280 it to investment and maybe do it in their own way, 0:12:04.400 --> 0:12:08.920 in their own like personal life. But the idea that 0:12:09.040 --> 0:12:12.199 your state street going to decide for me what is 0:12:12.240 --> 0:12:14.800 E s G and what isn't. Yeah, And that's one 0:12:14.840 --> 0:12:16.839 of the problems that you do run into is that 0:12:16.920 --> 0:12:18.960 it goes back to that personal decision. So I've had 0:12:19.000 --> 0:12:22.720 conversations with investors and advisors of all walks of life, 0:12:23.280 --> 0:12:25.080 and I was talking to one of them and they say, well, 0:12:25.120 --> 0:12:28.880 we invest in a separately managed account focused on animal welfare, 0:12:29.400 --> 0:12:33.320 so companies that have really strong animal welfare programs. That's 0:12:33.400 --> 0:12:36.199 really hard to package into an e t F because 0:12:36.280 --> 0:12:39.559 the impetus for an e TF was to offer democratized 0:12:39.600 --> 0:12:42.679 access to an area, and you want to make that 0:12:42.800 --> 0:12:46.000 broad and appealing to a pretty wide swath of investors, 0:12:46.480 --> 0:12:48.800 and something like animal welfare that might not be as 0:12:48.840 --> 0:12:52.520 applicable to something that is maybe just you know, uh, 0:12:52.640 --> 0:12:55.880 fossil of your reserves free, something that's broader. And that's 0:12:55.960 --> 0:12:58.640 one of the adoption challenges within E s G is 0:12:58.679 --> 0:13:02.199 that to your point, everyone has a different classification. What 0:13:02.320 --> 0:13:04.079 it means to me. I don't want to own anyone 0:13:04.120 --> 0:13:07.440 that ever interacts with oil. That's a that's a harder 0:13:07.840 --> 0:13:10.000 broad exposure to give someone because there might not be 0:13:10.440 --> 0:13:20.679 that many people out there for that. Let's just talk 0:13:20.679 --> 0:13:22.760 about oil for a minute. I always find this to 0:13:22.800 --> 0:13:25.920 be somewhat hypocritical. I think the term is slacktivism. You know, 0:13:26.000 --> 0:13:27.520 you tweet something and all of a sudden you're a 0:13:27.559 --> 0:13:31.800 good person. Um, you know investing in a say s 0:13:31.840 --> 0:13:33.439 P y X, which is yours, which is the S 0:13:33.480 --> 0:13:35.920 and P five hundred x fossil FUELU. So you carve 0:13:35.960 --> 0:13:39.000 out a lot of oil uh producers in their oil 0:13:39.040 --> 0:13:42.760 companies Exon and such. But a lot of people still 0:13:43.280 --> 0:13:47.199 use oil, right, so they are actually not investing in 0:13:47.280 --> 0:13:50.640 a company they helped make profitable. So isn't the real 0:13:50.679 --> 0:13:54.319 answer to just get an electric car and then not 0:13:54.520 --> 0:13:56.920 invest in it? Because if your goal is to have 0:13:57.000 --> 0:13:58.880 a portfolio that makes money and you're not willing to 0:13:58.960 --> 0:14:01.200 not use oil in your day all life, what would 0:14:01.200 --> 0:14:03.760 be the point of not investing in that company? Yeah, 0:14:03.800 --> 0:14:06.520 I mean that would be you know, you'd be hedged, right, 0:14:06.600 --> 0:14:07.920 So you want to make sure that you still have 0:14:08.080 --> 0:14:14.199 the oil upside beta. But you know, yeah, to your point, like, 0:14:14.240 --> 0:14:17.000 if you're going to invest in this way, you're likely 0:14:17.040 --> 0:14:18.880 going to be living this way. And if you're not there, 0:14:19.000 --> 0:14:23.400 that's a different of aligning your financial values to your 0:14:23.480 --> 0:14:27.080 social ones. You know that that just creates an asymmetric profile. 0:14:27.480 --> 0:14:29.240 And I think to your point about you know, how 0:14:29.320 --> 0:14:32.680 do you construct these exposures. There's to some extent people 0:14:32.800 --> 0:14:35.520 that would you want to have no exposure even to 0:14:35.720 --> 0:14:39.080 the oil refineries because they're still conducting in the business 0:14:39.120 --> 0:14:42.320 and supporting the oil industry. And you know, that's why, 0:14:42.520 --> 0:14:44.320 you know, if you look at firms that are really 0:14:44.360 --> 0:14:47.560 at the innovative state of renewable energy, you might want 0:14:47.600 --> 0:14:49.920 to look for those first. And in some instances they 0:14:49.920 --> 0:14:52.040 actually might be in the traditional energy sector, like a 0:14:52.120 --> 0:14:55.560 company like enter Bridge. They definitely run a lot of 0:14:55.640 --> 0:14:58.600 natural gas pipelines, but they also have a significant amount 0:14:58.600 --> 0:15:01.400 of wind farms across the United States in North End Canada, 0:15:01.920 --> 0:15:03.960 so there are This is where it goes to the 0:15:04.040 --> 0:15:06.280 environmental space where you want to actually look what these 0:15:06.360 --> 0:15:08.920 firms are doing and how they're actually organizing their business. 0:15:09.320 --> 0:15:13.280 Because climate change is real in companies interacting in fossil 0:15:13.320 --> 0:15:16.560 fuell understand that there's gonna be a natural shift towards renewables. 0:15:16.600 --> 0:15:19.360 We're definitely going to see that over the next ten 0:15:19.480 --> 0:15:22.400 twenty years where renewables take a bigger stage in terms 0:15:22.440 --> 0:15:26.800 of um energy production. And there's also regulation coming down 0:15:26.840 --> 0:15:30.120 the pike, which changes the whole model for portfolio companies. 0:15:30.160 --> 0:15:32.400 When regulation changes, then it doesn't become an issue of 0:15:32.680 --> 0:15:35.120 oh do I have a green investor brown investor. Then 0:15:35.120 --> 0:15:37.040 it's just I'm a company. I need to work in 0:15:37.080 --> 0:15:39.440 this environment. I need to upgrade the way I'm working. 0:15:39.800 --> 0:15:43.320 And the classic example is a circular economy and McDonald's 0:15:43.440 --> 0:15:48.320 or Starbucks in the UK following Blue Planet too horrific images. 0:15:48.400 --> 0:15:51.200 People realize this plastic floating around the world. Now they're 0:15:51.200 --> 0:15:54.960 going to say McDonald's, Starbucks about all that plastic and 0:15:55.160 --> 0:15:57.800 those cups that you you put into the trash. It's 0:15:57.920 --> 0:16:01.080 your problem, now go and solve it. Yeah, and these 0:16:01.520 --> 0:16:04.560 disasters definitely can can hurt a company. And you know, 0:16:04.880 --> 0:16:07.520 let's talk about this this sub brass tax of investing, right, 0:16:07.560 --> 0:16:10.160 So the biggest E C S G T F no 0:16:10.280 --> 0:16:13.280 offense MATT is from my shares, It's s U s A, 0:16:13.440 --> 0:16:15.640 it's the M S C I, E S G it's 0:16:15.680 --> 0:16:18.120 the only one over a billion, and it it to 0:16:18.240 --> 0:16:21.160 me it's kind of embodies a typical E. S G fund. 0:16:21.280 --> 0:16:24.280 It's a little overweight tech and it's a little underweight energy. 0:16:24.680 --> 0:16:27.800 So in the last twelve months, right those fang stocks, 0:16:27.880 --> 0:16:29.680 the tech stocks didn't do well, so this was down 0:16:29.800 --> 0:16:34.080 one percent more than the market. Talk about how someone 0:16:34.400 --> 0:16:37.120 might need to stomach under performance to go all the 0:16:37.160 --> 0:16:39.840 way with this, But obviously if tech does better and 0:16:40.000 --> 0:16:43.040 energy struggles, you might do a little better. So talk 0:16:43.080 --> 0:16:45.920 about the both you guys, the performance aspect and selling 0:16:46.000 --> 0:16:48.320 people on that regard. Yeah, I mean, part of it 0:16:48.400 --> 0:16:51.160 comes down to just index construction, right, So the ability 0:16:51.240 --> 0:16:55.320 to be craftsman in creating this exposure to not introduce 0:16:55.360 --> 0:17:00.880 any Indian syncratic risks. And you're talking about sector sector weightings. 0:17:01.000 --> 0:17:04.119 So obviously you know our phosilphy or reserves free spy X. 0:17:04.600 --> 0:17:07.800 We are naturally underwraight energy. So if the energy sector 0:17:07.880 --> 0:17:12.600 pops by because of for some catalysts, you will underperform. 0:17:13.040 --> 0:17:17.520 And having that level of intelligence while entering that product 0:17:18.119 --> 0:17:20.920 is important so you can understand what that client experience 0:17:20.960 --> 0:17:24.040 will be. The same thing was she we knew that 0:17:24.400 --> 0:17:26.200 we didn't want to just look at the firms with 0:17:26.359 --> 0:17:28.960 the best gender diversity and then just allocate to those 0:17:29.359 --> 0:17:32.080 because sector biases can play a huge role into it. 0:17:32.200 --> 0:17:34.600 So think about the close lower volatility strategies that become 0:17:34.680 --> 0:17:38.000 just utilities and reads funds. They become very highly correlated 0:17:38.040 --> 0:17:40.200 to whatever that sector is doing. So you want to 0:17:40.240 --> 0:17:44.520 really let that stock selection in the index construction drive returns. 0:17:44.720 --> 0:17:46.280 And that's what we have with SHE where you have 0:17:46.359 --> 0:17:48.800 more of a sector controlled bias. So it just comes 0:17:48.840 --> 0:17:51.800 down to understanding the index construction and being comfortable with 0:17:52.480 --> 0:17:55.280 the potential return path, knowing that yes, I'm going to 0:17:55.320 --> 0:17:58.639 be underwraight energy of energy is I'm going to underperform. 0:17:59.040 --> 0:18:02.080 But my viewpoint is that overall a long time frame 0:18:02.080 --> 0:18:05.080 when we talk about this shift more renewable energy, that 0:18:05.200 --> 0:18:09.159 firms that are embracing that renewable capability will lead to 0:18:09.840 --> 0:18:13.920 better performance. And you know, I understand that going into 0:18:13.960 --> 0:18:15.720 and that's that's the big problem, was just knowing what 0:18:15.800 --> 0:18:17.760 you own. I mean, that's the old Peter Peter Lynch 0:18:17.760 --> 0:18:21.680 adage and that applies to anything. Yeah, and and something 0:18:21.760 --> 0:18:24.920 we haven't touched on Eric enjol that you know I 0:18:25.080 --> 0:18:27.800 really follow trillions, and I really enjoyed what you guys do. 0:18:28.520 --> 0:18:31.600 That the technology, the method, the vessel, the vehicle that 0:18:31.680 --> 0:18:33.879 these investment opportunities come through, the same way. We love 0:18:34.000 --> 0:18:36.119 Jack Bogle for how you change the industry. That's a 0:18:36.160 --> 0:18:39.800 great shot you put up recently, Eric about the average 0:18:39.880 --> 0:18:43.760 cost of managing money through Vanguard or mutual fund business others. 0:18:44.359 --> 0:18:47.879 Is the availability through e t F. The E t 0:18:48.040 --> 0:18:50.600 F is the right structure. So what I don't prefer 0:18:50.720 --> 0:18:53.920 to see is fund manager ABC with you know, wood 0:18:54.000 --> 0:18:57.880 paneling and high end cappuccino machine talking to me about 0:18:57.920 --> 0:19:01.400 sustainability and the STU for moments in fact of their portfolio. 0:19:01.600 --> 0:19:03.800 But they're still delivering it in a sleeve with a 0:19:03.840 --> 0:19:06.560 big fat one two up to two and a half 0:19:06.640 --> 0:19:10.440 percent fee. It's got to be low priced and delivered 0:19:10.960 --> 0:19:12.879 delivering the Well, here's the follower that question, which is 0:19:13.520 --> 0:19:16.720 what would E s G be without E t S. 0:19:17.920 --> 0:19:20.520 I mean, so in mutual fund land, there's actually a 0:19:20.640 --> 0:19:24.200 sizeable portion of E s G products. There's actually more 0:19:24.280 --> 0:19:28.600 assets and more products in within mutual fund structures. However, 0:19:28.680 --> 0:19:31.720 the direction I travel is more launches within the et 0:19:31.840 --> 0:19:34.680 F structure, likely or a result of some of the 0:19:34.760 --> 0:19:36.879 benefits that E t F have relatives mutual funds. All 0:19:36.920 --> 0:19:39.359 the money is going there, Yeah, that it flows to that. 0:19:39.480 --> 0:19:42.680 And how many more E E s G E t 0:19:42.920 --> 0:19:45.600 F s do we expect to enter the market going forward. 0:19:46.240 --> 0:19:48.480 I think any fund, any strategy, is trying to do that. 0:19:48.520 --> 0:19:50.879 And a green Alpha advises the guys who co branded 0:19:50.960 --> 0:19:53.720 with the Sierra Club, they used to run a mutual fund, 0:19:53.720 --> 0:19:56.560 they shut it down, was unsuccessful. They've got a new strategy. 0:19:57.000 --> 0:19:59.880 The twenty nineteen toss list top of list roll out 0:19:59.880 --> 0:20:02.440 of E t F. I think every strategy and what 0:20:02.560 --> 0:20:05.000 I enjoy about the low fee structure and the ability 0:20:05.080 --> 0:20:07.800 to be tactical rolling out product into the E t 0:20:07.920 --> 0:20:10.879 F space is that it means you can cater for 0:20:11.080 --> 0:20:14.760 for nuance and for a variety of opportunity. So it's 0:20:14.800 --> 0:20:17.200 not just it's each it's E s G or not no, no, no, 0:20:17.359 --> 0:20:19.960 it's E S G. And it's got a tilt towards 0:20:20.040 --> 0:20:23.200 focused on how do we focus on people solving for water? 0:20:23.520 --> 0:20:25.240 It's got a tilt, how do we solve for people 0:20:25.320 --> 0:20:28.360 solving for dirty year? How do we tilt for diversity, 0:20:28.560 --> 0:20:31.000 you know, race, gender, and so on. So E t 0:20:31.119 --> 0:20:33.359 F gives you that opportunity. There's even a vegan e 0:20:33.480 --> 0:20:35.840 t F coming out soon which a claims to save 0:20:36.520 --> 0:20:39.680 seventeen animals per ten tho dollar invested in the e 0:20:39.760 --> 0:20:41.560 t F. So I do think we're going to get 0:20:41.560 --> 0:20:43.480 to these levels where they're actually going to post what 0:20:43.640 --> 0:20:46.760 you're doing with the purchase. Um. I want to ask 0:20:46.800 --> 0:20:50.040 just about one of the things about E s G 0:20:50.280 --> 0:20:53.640 that might be a limiting factor and also penalizes investors, 0:20:54.000 --> 0:20:56.680 is that it's a really tidy way for investment management 0:20:56.760 --> 0:20:59.119 companies to make a little bit more money, right because 0:20:59.119 --> 0:21:02.119 the feast can be high. Uh is that is that 0:21:02.200 --> 0:21:04.800