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Speaker 1: And now we want to bring in somebody to talk

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Speaker 1: about our very special show today and a guy who's

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Speaker 1: probably got a thing or two to say about bonds

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Speaker 1: and what they're doing right now. We're very happy to

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Speaker 1: welcome Frank LaSala. Now he is here for our very

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Speaker 1: special show today at b M Y Melons et F

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Speaker 1: Exchange sixteen Conference Ideas, Innovation Interaction. Frank is CEO of

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Speaker 1: Global Structured Products and Alternative Investment Services at b M

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Speaker 1: Y Melon. Welcome. So, Uh, first of all, let's because

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Speaker 1: we were talking about the bond market. You tell me

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Speaker 1: you're the expert. Uh, Have we seen a correction in

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Speaker 1: yields and prices or is just a little reversal and

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Speaker 1: yells are gonna keep rising again? You know, Kathleen, it's

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Speaker 1: hard to tell, only because my senses. Every time we

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Speaker 1: see new loads on the yield um, it feels like

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Speaker 1: we've really bottomed. But when you look at this enormous

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Speaker 1: amount of liquidity coming in from him just mentioned several

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Speaker 1: central banks, Clearly Europe is going to be in continued

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Speaker 1: ease mode. Bank of Japan is going to be very

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Speaker 1: very accommodative. It's very hard to see how rates can

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Speaker 1: really move with any sort of Even even if the

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Speaker 1: FED raises rates before the end of the year, it's

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Speaker 1: hard to see with all the liquidity, where else is

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Speaker 1: it going to go. So I think it's really hard

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Speaker 1: to make a case for higher interest rates. UM. I

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Speaker 1: think they're just gonna stay in this very tight range.

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Speaker 1: What's the theme this year? Because you're talking about a

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Speaker 1: low interest rate environment, many people missed the bond market rally.

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Speaker 1: They thought that rates were gonna go higher. They haven't yet,

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Speaker 1: as you just described. So what's the big theme? What's

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Speaker 1: the big concern? Because we're here with I don't tell

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Speaker 1: us how many we've got pro shares, we've got reality shares,

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Speaker 1: We've got a whole group of et F sponsors here.

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Speaker 1: What's the theme? Well, well, the theme is real. Well

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Speaker 1: there's a couple of things for the three hundred participants

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Speaker 1: that are here with us for this conference. It really

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Speaker 1: is around where do we t f s play a

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Speaker 1: part in the portfolio? But do you have brought a

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Speaker 1: question about what is the theme in the markets? To me,

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Speaker 1: it's still uncertainty. It's not knowing UM the Fed. The

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Speaker 1: thinking about the FED and what the Fed's next action

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Speaker 1: just seems to take all the oxygen out of out

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Speaker 1: of everything else, UM fundamentals seem to be okay. I

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Speaker 1: think the story is in earnings that we've gotten mixed

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Speaker 1: messages type of economic growth. So until we get the

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Speaker 1: Feds speak, if you will, out of the way, it's

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Speaker 1: hard to see the markets really react with any sort

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Speaker 1: of connection. So it's been volatility but really not going

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Speaker 1: anywhere fast. What we see, what we're hearing at the

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Speaker 1: conference today is around There's there's two big themes for

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Speaker 1: ETF issues and for investors and e t f s.

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Speaker 1: One is the d O L. White Deal of Fiduciary

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Speaker 1: Standard Department of Labor, the new fiduciary standards for registered

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Speaker 1: investment advisors. Yes, and and basically advisors and wealth managers

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Speaker 1: now have to really act in the client's best interest,

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Speaker 1: which I think a lot have done in the past,

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Speaker 1: but it's now been codified. But what that means is

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Speaker 1: UM they really have to look at not only put

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Speaker 1: portfolio performance risk, but also cost for continuing our very

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Speaker 1: special live broadcast here in Data Point, California or at

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Speaker 1: the Monarch Beach Resource for B and Y Melons et

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Speaker 1: F Exchange sixteen looking at ideas innovation interaction in this

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Speaker 1: growing doesn't the right word. I think it's kind of

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Speaker 1: an exploding industry. Our guest is Frank las Sala. Frank,

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Speaker 1: of course, is CEO of Global Structured Products and Alternative

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Speaker 1: Investment Services at b n Y Melon So Frank regarding

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Speaker 1: UH the markets, uncertainty, volatility, central banks, you know, speak,

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Speaker 1: don't speak, move, don't move. It's really it's it's a

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Speaker 1: it's a tough environment for a lot of people trying

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Speaker 1: to make money. So what are people What do you think?

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Speaker 1: Was one of the some of the important important questions

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Speaker 1: here at this conference about the kinds of e T

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Speaker 1: s that are out there, how they can be used

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Speaker 1: to make money to protect money at a time like this. Well, Kathleen,

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Speaker 1: I mean, fundamentals still count right, and we are now

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Speaker 1: in this seven or eight year of this almost zero

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Speaker 1: interest rate environment, and as we've talked about many times,

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Speaker 1: investors need to get returned, and so they're looking at

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Speaker 1: different alternatives. And one of the things we've talked about

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Speaker 1: here and at the conferences, what do ETFs provide investors

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Speaker 1: as an alternative to straight equity purchase debt debt instruments

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Speaker 1: which are really not giving them a return. And what

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Speaker 1: the industry is trying to do with the e t

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Speaker 1: F industry is trying to do is developed products, capability

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Speaker 1: solutions that investors can go into and get a better

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Speaker 1: UH risk adjusted return. And e t f s, by

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Speaker 1: their inherent nature do provide some benefits. Ay, you get

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Speaker 1: daily liquidity, which is very very important for many investors.

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Speaker 1: They just want that ability to get in and out

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Speaker 1: when they need to. It is relatively more tax efficient

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Speaker 1: because of the way e t f s create and redeem,

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Speaker 1: So most investors don't even realize that, but there is

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Speaker 1: a tax benefit to being in an e t F.

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Speaker 1: Two other assets quite futral fund, right, I mean, like

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Speaker 1: of a mutual fund. Even if you're still invested in

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Speaker 1: the mutual fund and you've selld you've sold no shares,

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Speaker 1: you're gonna end up with a tax liability. If the

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Speaker 1: mutual fund has a tax liability, that's that's not the

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Speaker 1: same with the t F. You're in control of when

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Speaker 1: that tax event happens. And that helps investors, you know,

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Speaker 1: on an after tax return, which is obviously important. Um

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Speaker 1: And and the other thing is, as we said, what

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Speaker 1: the big theme that we're really talking about is this

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Speaker 1: whole department of labor him as you mentioned earlier, this

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Speaker 1: department of labor fiduciary rule, where we think more advisors

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Speaker 1: will look into e t F as an alternative for

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Speaker 1: their end investor. The way we see the e t

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Speaker 1: F market right now, it's roughly a three point one

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Speaker 1: trillion a global market. Most of that two thirds of

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Speaker 1: it is here in the United States, about five billions

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Speaker 1: in Europe, and there's in Canada and Japan makeup the

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Speaker 1: majority of the rest. We think that will grow, and

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Speaker 1: our current data is suggesting that that could grow as

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Speaker 1: much as to ten trillion dollars in the next five years.

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Speaker 1: So in terms of asset class growth, e t f

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Speaker 1: s will certainly become a bigger part of the overall

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Speaker 1: investor portfolio. And what that will do is probably induce

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Speaker 1: many of the issues that are here to think about

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Speaker 1: more creative ways how they can issue ETFs that are

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Speaker 1: contoured tour investor interest. So uh speaking to investor interest

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Speaker 1: in this this market, I mean that if we had

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Speaker 1: if this for TV we get to occur, the growth

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Speaker 1: is just so almost straight up right for a lot

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Speaker 1: of e t s and spreading around the world as

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Speaker 1: you said, where where are the mark what kind of

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Speaker 1: e t F concentrations exists? What are the we're just

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Speaker 1: saying like or how do you break it down for

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Speaker 1: is like we're the majority of money as in e

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Speaker 1: t F s and what are some of the new

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Speaker 1: ones that are small now where you see possible growth. Well,

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Speaker 1: as we talked about this morning, um, the biggest concentration

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Speaker 1: of e t F investment is in the passive low

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Speaker 1: cost indexes. So you buy an SMPI index at Dow

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Speaker 1: thirty index to q q Q is one. As you

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Speaker 1: looking at nastack get the attack of a lot of

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Speaker 1: investors are going for a very low cost, safe play,

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Speaker 1: and that's been like that for a while. What we

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Speaker 1: many of the issues that I hear at all at

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Speaker 1: our conference are really more in you know, the hybrid ETF.

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Speaker 1: So it's more like smart beta. It's not exactly linked,

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Speaker 1: although it's correlated to indexes, it's actively managed in the

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Speaker 1: in the to anticipate better returns for investors. So we

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Speaker 1: think that although right now, particularly just after the Department

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Speaker 1: of Labors fiduciary standards have changed, we've seen a lot

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Speaker 1: of flow into passive, passive low cost we think as

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Speaker 1: investors and advisors get more comfortable with the array of

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Speaker 1: et F products, we will begin to see a shift

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Speaker 1: more toward the hybrid or smart beta type ETF products.

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Speaker 1: I just want to challenge a little bit on this

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Speaker 1: idea that you know, when you talk about let's say

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Speaker 1: a plain vanilla exchange traded fund like the Triple Q

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Speaker 1: or you know that is long equities that may be

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Speaker 1: diversive hide within equities, But if that's all you've got

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Speaker 1: in your portfolio, you're not diversified. Your exposed to the

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Speaker 1: volatility in stocks. Yes, that's exactly right, I mean, and

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Speaker 1: so that's what you're trying to deal with. But a

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Speaker 1: good advisor knows that and construct an overall portfolio of

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Speaker 1: which that particular et F like you've mentioned UH is

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Speaker 1: part of it. But you've got to look at the

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Speaker 1: whole portfolio. And that doesn't mean you get out of

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Speaker 1: government bonds. It doesn't mean you maybe get out of equities,

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Speaker 1: you know, straight equity purchases. But it's got to be

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Speaker 1: constructed holistically, and you have to be educated, right because

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Speaker 1: if you may end up with an e t F

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Speaker 1: that all it really does is mitigate the risk that

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Speaker 1: you have in something else but doesn't produce great returns,

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Speaker 1: but that's not what it's designed to do in the portfolio.

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Speaker 1: That's exactly right. And and and we see more interest

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Speaker 1: in the advisor community to really look into e t

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Speaker 1: F s and to get educated, as you say, because

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Speaker 1: the end investor needs to be educated, and until he

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Speaker 1: or she is, it's hard for them to comfortable to

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Speaker 1: see it in their portfolio. But the general attributes of

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Speaker 1: the of e t F s um I think are

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Speaker 1: enough and in many cases superior, so that investors should

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Speaker 1: really consider them well done. All right, Well, we've got

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Speaker 1: a lot to learn here at the e t F Symposium,

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Speaker 1: the b n Y Melan et F Symposium. I want

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Speaker 1: to thank you very much. Frankly sala He is the

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Speaker 1: chief executive of Global Structured Products Alternative Investment Services at

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Speaker 1: b n Y Melon. I'm PIM Fox, my co host

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Speaker 1: Kathleen Hayes coming up more on the world of exchange

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Speaker 1: traded funds. And you know what we'll define smart beta.

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Speaker 1: This is Bloomberg