WEBVTT - Jennifer Grancio Talks ETF Business

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio News. You know, Molly, one

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<v Speaker 1>of the most amazing stories to me in financial services

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<v Speaker 1>over the last decade or so has been the growth

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<v Speaker 1>of ETFs. Huge Just how amazed at the fun flows

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<v Speaker 1>to ETFs and it makes a lot of sense. Unfortunately,

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<v Speaker 1>we have people like Eric Paul Junis at Bloomberg Intelligence

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<v Speaker 1>who keeps us update on what's going on there. But

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<v Speaker 1>we wanted to talk to one of the practitioners in

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<v Speaker 1>the business. Jennifer Grancio joins us. She's global head of

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<v Speaker 1>distribution at TCW. Little firm on the West Coast, huge

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<v Speaker 1>firm on the West Country, and they're into the ETF business. Jennifer,

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<v Speaker 1>thanks for joining us here in our studio. What is

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<v Speaker 1>the TCW ETF business? Tell us kind of how you

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<v Speaker 1>guys are in that business.

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<v Speaker 2>Happy to you, great to be here. So from a

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<v Speaker 2>TCW perspective, a lot of people think of us as

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<v Speaker 2>you know, the core of the fixed income portfolio, which

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<v Speaker 2>we are for many investors with the TCW or met

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<v Speaker 2>West funds, and now we're growing the equity business as well,

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<v Speaker 2>so a lot of that will be ETFs and we

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<v Speaker 2>also were going to do ETFs in the fixed income space.

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<v Speaker 3>When you say you do ETFs, are you the one

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<v Speaker 3>so that you're like deciding what goes into each one

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<v Speaker 3>or like tell us what your role is in this marketplace?

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<v Speaker 2>Yeah, for sure. So from an equity perspective at TCW,

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<v Speaker 2>we have some great core strategies we run in mutual

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<v Speaker 2>funds and SMAs through the end to number one acquisition,

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<v Speaker 2>and then also we're converting a couple of legacy TCW

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<v Speaker 2>active mutual funds. We're going to have a very impressive

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<v Speaker 2>range of megatrend thematic products for clients. And if you

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<v Speaker 2>think about why and what's the role and why does

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<v Speaker 2>the world need that. There's a lot of index ETF

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<v Speaker 2>option out there. A lot of people are very indexed

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<v Speaker 2>in their portfolios, which has this real concentration bias now

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<v Speaker 2>in large tech, and so we're offering the market a

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<v Speaker 2>range of ETFs on energy and power transformation, reshoring of

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<v Speaker 2>supply chains, artificial intelligence that let you take some money

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<v Speaker 2>out of the core and really go after outperformance in

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<v Speaker 2>alpha in portfolio.

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<v Speaker 1>So by definition are those active ETFs.

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<v Speaker 2>They are very concentrated portfolios and active and if you

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<v Speaker 2>think about the markets, money's not free anymore rates are

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<v Speaker 2>much higher. So we think the next ten to twenty

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<v Speaker 2>years are our great market for active managers that can outperform.

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<v Speaker 2>So all of these ETFs on the thematic side will

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<v Speaker 2>be active. Yeah, So let's talk about some of those themes.

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<v Speaker 2>I mean you had mentioned, you know, related to energy

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<v Speaker 2>transition supply chains. What are some of the ones that

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<v Speaker 2>you guys are really paying a lot of attention to

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<v Speaker 2>right now. Yeah, I mean, those are two big ones,

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<v Speaker 2>and they're not small, tactical, narrow trends. They're huge. They're

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<v Speaker 2>going to be here for many decades. And so one

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<v Speaker 2>of the ETFs is net Z and ETZ and that's

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<v Speaker 2>about energy and power transformation. And so if you think

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<v Speaker 2>about that, we are going to need to more than

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<v Speaker 2>double our power and energy in the next twenty years.

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<v Speaker 2>So think about that, more than double. And so companies

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<v Speaker 2>that are at the forefront of how we service the

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<v Speaker 2>need and demand and kind of months or demand we

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<v Speaker 2>have for power, as well as companies that are more

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<v Speaker 2>efficient have a huge opportunity to outperform. And so that's

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<v Speaker 2>a big theme. And now in that theme, we own

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<v Speaker 2>companies that are energy better energy producers. We own Vertive,

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<v Speaker 2>which cools, data centers. We own waste and garbage companies

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<v Speaker 2>that are finding ways to create natural gas and energy

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<v Speaker 2>out of landfill. So it's a very diverse portfolio and

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<v Speaker 2>very complementary and different than what you might hold in

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<v Speaker 2>an index fund.

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<v Speaker 1>When I started my equity research business way way back

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<v Speaker 1>in a day, it starts within eight back in the eighties,

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<v Speaker 1>it covered railroads.

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<v Speaker 3>Really.

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<v Speaker 1>We wrote the first research report on Consolidata Railroad, which

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<v Speaker 1>the company which the government US government was privatizing via

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<v Speaker 1>an IPO. We wrote about a two hundre page report

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<v Speaker 1>on that owned that stock.

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<v Speaker 3>For you, you want to give us a nice summary of

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<v Speaker 3>that right now?

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<v Speaker 1>Yeah, it was a great cost cutting thing. Taking railroad

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<v Speaker 1>crews from five to two, tripled your margins.

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<v Speaker 2>And that's and the other big trend is supply supply chain.

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<v Speaker 2>That's it.

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<v Speaker 1>So I know you've got an ETF on railroads. That's

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<v Speaker 1>why I bring it up. Is that again, I think

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<v Speaker 1>about the roads and supply chain. I guess we all

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<v Speaker 1>got really smart about supply change and the delicate nature

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<v Speaker 1>of supply change during the pandemic. How do you guys

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<v Speaker 1>think about that?

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<v Speaker 2>Yeah, so the sort of restoring of supply chains and

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<v Speaker 2>manufacturing to America and North America is again it's a

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<v Speaker 2>monster trend. It started during COVID. So if I'm deer

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<v Speaker 2>and I'm trying to make it tractor and my bolt

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<v Speaker 2>is made in Asia, I couldn't get my bolt. It

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<v Speaker 2>was really bad for business. So we're seeing that trend

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<v Speaker 2>already having started. And then on top of that, we've

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<v Speaker 2>now got geopolitical issues that make us more nervous about

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<v Speaker 2>doing things like semiconductors outside of the US. So again huge,

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<v Speaker 2>very broad, multi sector trend. And what we own in

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<v Speaker 2>sup or the reshoring of supply chain ETF is all

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<v Speaker 2>the way from railroads, So how are we going to

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<v Speaker 2>transport things if we're manufacturing all over North America. It's

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<v Speaker 2>fantastic for railroads and they've been undervalued. So that's a

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<v Speaker 2>big performance opportunity. And early in the cycle where I

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<v Speaker 2>think we have three trillion of committed projects of new manufacturing,

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<v Speaker 2>more than we've ever had in the US. Early in

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<v Speaker 2>the cycle, we invest a lot in what we call

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<v Speaker 2>picks and shovels, so Martin Marrietta Vulcan companies that make materials.

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<v Speaker 2>So as we build all of these factors, factories, pardon me.

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<v Speaker 2>And then we own a lot of semiconductor names as well,

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<v Speaker 2>because all of these factors are going to have AI

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<v Speaker 2>and robots and they have much higher demand for content

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<v Speaker 2>from a semiconductor perspective.

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<v Speaker 3>I wanted to ask you about the AI theme next.

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<v Speaker 3>That's certainly got to be a big one of these

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<v Speaker 3>thematic trends that you're focusing on. So how are you

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<v Speaker 3>positioning around AI right now?

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<v Speaker 2>Yeah, So in the case of AI, it's in those

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<v Speaker 2>two portfolios to some extent. And then we have a

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<v Speaker 2>mutual fund at TCW which we're converting to an ETF,

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<v Speaker 2>so watch the space for that.

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<v Speaker 3>And the advantage of that is it just like you know,

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<v Speaker 3>I guess, because ETFs tend to be a bit cheaper

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<v Speaker 3>for like a more consumer friendly product. Is that the idea?

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<v Speaker 2>Yeah, in this case, it's an active fund, so it's

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<v Speaker 2>not a sort of a cheap index fund. But the argument,

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<v Speaker 2>and what I think you see a lot of active

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<v Speaker 2>manager converting where it makes sense, is that the market

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<v Speaker 2>likes ETFs. It likes the ability to click through and

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<v Speaker 2>see the underlying holdings on the website, it likes the

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<v Speaker 2>tax advantages of an ETF, and so in the case

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<v Speaker 2>of these mega trends, we see the market in general

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<v Speaker 2>buying ETFs, not funds. So we have a very long

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<v Speaker 2>track record on the TCW Artificial Intelligence Fund, and we're

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<v Speaker 2>converting it to an ETF and a little bit like

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<v Speaker 2>what we talked about in the case of net Z

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<v Speaker 2>and sub, the AI fund has an ability to invest

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<v Speaker 2>in different things as we move through time. So it's

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<v Speaker 2>not all big tech. It's also systems and enablers and

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<v Speaker 2>hardware that is going to grow aggressively as all these

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<v Speaker 2>companies are doing more in AI.

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<v Speaker 1>So it's safe to say, you, guys at tc there'll

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<v Speaker 1>be a big believers in AI. We are okay, because

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<v Speaker 1>I guess my skeptical self sient analysts nature is like,

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<v Speaker 1>where did this come from? Is this just big data

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<v Speaker 1>from three or four years ago? Is this just big

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<v Speaker 1>tech growing as a percentage a GDP of twenty years ago?

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<v Speaker 1>What's new about AI?

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<v Speaker 2>We're in the We're in the next evolution of training

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<v Speaker 2>systems asking systems questions with all these models and natural

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<v Speaker 2>language models asking questions in a way that we just

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<v Speaker 2>get faster and faster and better output. And so that's

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<v Speaker 2>really that's good for everyone and so it'll start slowly,

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<v Speaker 2>but as more people learn to get that leverage, I

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<v Speaker 2>think we're going to see is you're going to see

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<v Speaker 2>it boom.

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<v Speaker 1>Yep, and it's you know. We hear every company in

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<v Speaker 1>the S and pat on with it on their conference

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<v Speaker 1>call talking about you know uh ai and how it's

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<v Speaker 1>getting to be critical to their business. Jennifer Grantcio, thanks

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<v Speaker 1>so much for joining us. Jennifer is a global head

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<v Speaker 1>of Distribution for TCW. We appreciate our coming into our

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<v Speaker 1>Bloomberg Interactor Broker studio in New York City.