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Speaker 1: Welcome to Trillions.

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Speaker 2: I'm Joel Webber and I'm Eric Belchernas.

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Speaker 1: Eric, there's a new survey that you were really excited

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Speaker 1: to bring into this week's episode. What's it about.

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Speaker 2: Yeah, it's a BBH survey of a variety of investors.

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Speaker 2: I love ETF surveys, Joel, I really do, because I

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Speaker 2: get all the flow data and volume data and priced

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Speaker 2: data and holdings dad. You know, the terminal is full

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Speaker 2: of all kinds of data. It's like a giant candy store.

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Speaker 2: But we don't have survey data, not like this, and

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Speaker 2: I love looking through it because it helps you sort

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Speaker 2: of align the hard data with the anecdotal data. This

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Speaker 2: is why I go to conferences and hang in the hallways.

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Speaker 2: I want to hear from people. What are you thinking

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Speaker 2: and doing to me? That's half of our job. So

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Speaker 2: this survey, especially this one, I look through it and

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Speaker 2: I got two notes out of it and some interesting

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Speaker 2: data points here, some stuff I expect, some stuff I didn't,

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Speaker 2: but I thought be cool to ask about some of

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Speaker 2: the particulars in this really really thorough survey about how

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Speaker 2: people feel about ETFs, what they're planning, different categories. There's

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Speaker 2: a lot to chew on here.

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Speaker 1: So to help us chew on that and these responses,

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Speaker 1: we're going to be joined by Sean McNinch. He's the

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Speaker 1: global head of ETFs at Brown Brothers Harriman. This survey

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Speaker 1: is called Exchange Thoughts. It's the tenth annual global ETF

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Speaker 1: Investor survey, this time on trillions. Survey says Sean, Welcome

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Speaker 1: to jrillians, thanks for having me. Okay, so ten annual surveys,

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Speaker 1: A little bit's changed in that time. What's the big

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Speaker 1: high level takeaway from what's changed over that decade of

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Speaker 1: the survey.

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Speaker 3: I think it's just the evolution of the ETF market overall.

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Speaker 3: You know, if you think about ETFs, you know they

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Speaker 3: are really now or at the center of a lot

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Speaker 3: of the investors allocation strategy. You know, more and more

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Speaker 3: usage of ETFs, more asset classes, more structures. You know,

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Speaker 3: if you look at some of the results of survey,

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Speaker 3: you know, sixty percent of the investors we pulled are

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Speaker 3: planning to increase their usage of ETFs. And it's no

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Speaker 3: longer just a passive product, right, It's it's really moving

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Speaker 3: into active, moving into new asset classes such as fixed income,

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Speaker 3: and so there's there's just more and more usage of

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Speaker 3: ETFs in the marketplace than, you know, than than there

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Speaker 3: was ever before. You know, since we started this survey

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Speaker 3: ten years.

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Speaker 1: Ago and there's three hundred and twenty five global respondents

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Speaker 1: to this. They're managing more than forty percent or managing

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Speaker 1: more than a billion in assets. So this is also

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Speaker 1: kind of an institutional crowd, right, and you've broken them

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Speaker 1: down by the US, Europe, and then Greater China. When

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Speaker 1: you when you kind of think about that that global distribution,

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Speaker 1: what were the takeaways for the US audience that that

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Speaker 1: you thought we're particularly interesting?

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Speaker 3: Yeah, No, I think it's you know, the asset classes

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Speaker 3: that they're using and the more and more demand. You know,

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Speaker 3: if you look at some of those surveys results for

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Speaker 3: the US investors in about forty six percent of those

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Speaker 3: investors are planning to increase their usage of fixed income ets, right,

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Speaker 3: And that's relatively a newer asset class than the ETF wrapper.

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Speaker 4: There's there's less products out there.

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Speaker 3: More and more of the new products that are coming

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Speaker 3: out have a fixed income bent to them, and that's

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Speaker 3: obviously of interest to investors as they are looking at

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Speaker 3: rising interest rates and how do we kind of diversify

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Speaker 3: the risk from equity to fixed income and other asset classes.

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Speaker 1: Yeah, that fixed income bit came out in the surveys.

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Speaker 1: The ESG responses pop to me, which I know Eric's

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Speaker 1: gonna want to say something about what. What did you

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Speaker 1: write your Bloomberg Intelligence notes about Eric?

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Speaker 2: Yeah, the first note I wrote was the early in

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Speaker 2: this survey guide. I guess you call it twenty five pages.

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Speaker 2: Here's the question, what is the most important factor when

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Speaker 2: selecting an ETF? This all the surveys have this. I

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Speaker 2: love seeing where this ends. Number one expense ratio, number

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Speaker 2: two etf issuer. Now last year issue was one expense

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Speaker 2: ratio two. What does that tell you? Those two things

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Speaker 2: are joined at the hip, and when we think about

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Speaker 2: flows every year, you know it's now become the big

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Speaker 2: two Vanguard Blackrock, Yet there's definitely a plenty of money

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Speaker 2: for everybody else. It's a big tent that said, you

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Speaker 2: have to just acknowledge how big they're. So my note

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Speaker 2: was sort of equating Blackrock and Vanguard ETFs to ibm'stock

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Speaker 2: in the eighties where an advisor would be like, you

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Speaker 2: can't get fired for buying IBM, Like, who could really,

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Speaker 2: you know, diss you for that or get upset if

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Speaker 2: you're a client. It'd be hard to really get mad

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Speaker 2: at an advisor or fire them if they put you

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Speaker 2: in black Rock or Vanguard ETFs. It's a career risk

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Speaker 2: motivated move as long as a low cost move. And

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Speaker 2: so because some people say, well why do they they

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Speaker 2: get all the assets and the flows when everybody has

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Speaker 2: cheap ETFs, I'm like, well, the brand matters too, and

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Speaker 2: so I guess Sean, you know that those response responses

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Speaker 2: kind of I think tune in or connect with the

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Speaker 2: flows or did you see something different there?

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Speaker 4: No, I think that that's obviously right.

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Speaker 3: And obviously the big three with with Vanguard, black Rock

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Speaker 3: and SSGA, you know, having the line share the market share.

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Speaker 3: You know, that's definitely the case. As people are looking

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Speaker 3: to buy passive products and as you're looking at you know,

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Speaker 3: where flows are going and more and more entrance coming

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Speaker 3: in here. That may change as we look to the

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Speaker 3: active ETF space, right and it's still relatively small fertile ground,

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Speaker 3: and you know it's only about five percent of the

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Speaker 3: total assets are made up of active ETFs. But I

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Speaker 3: completely agree with you on the pass side. More and

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Speaker 3: more investors are really looking at expense ratio in the

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Speaker 3: brand when selecting passive vehicles. But that could change as

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Speaker 3: we get into different types of you know, ETFs.

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Speaker 2: And the Blackrock and Vanguard ETFs are also becoming some

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Speaker 2: of the most liquid once these puppies are cheap broad

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Speaker 2: liquid like is liquid is like a trading over a

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Speaker 2: billion a day look out. I mean, these things are

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Speaker 2: going to rule the land for twenty thirty years. One

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Speaker 2: other interesting part to this is trading spreads and volume

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Speaker 2: were low. Volume in particular was the third most important reason,

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Speaker 2: and it dropped to like eight or nine. And is

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Speaker 2: that a sign that investors are getting a little better

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Speaker 2: about looking at the holdings and ETF implied liquidity or

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Speaker 2: is there some other explanation for that? Now?

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Speaker 3: I think that's that's kind of the evolution of the

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Speaker 3: ETFs and the maturation of the ETF product, right. I

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Speaker 3: think early on, you know, people were really concerned about volume,

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Speaker 3: you know, making sure these products traded well, making sure

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Speaker 3: there were tight spreads. I almost think especially with the

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Speaker 3: most liquid ets in looking at different ETFs that trade,

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Speaker 3: it's almost a given that there is tight spreads and

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Speaker 3: there's you know, investors can come in and now of

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Speaker 3: these products and you know, in a cost effective way.

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Speaker 3: So I think that's that's the kind of the evolution

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Speaker 3: of the e TF market, as how investors are looking

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Speaker 3: at different selection criteria that it's almost a given that

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Speaker 3: that there's liquidity in the market, there's volume to support that.

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Speaker 1: So what do you make of the fact that what

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Speaker 1: Eric is referring to as an answer to this question,

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Speaker 1: the question was what is the most important factor when

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Speaker 1: selecting an ETF? Expense ratio rinks number one in the US,

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Speaker 1: but that is like a distant fifth in Europe, and

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Speaker 1: it's a it's in sixth place in Greater China. Europe

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Speaker 1: puts tax efficiency first, trading spread second. Greater China has

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Speaker 1: index methodology first, trading volume second. I'm sort of surprised

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Speaker 1: that regionally there seems to be a difference in what

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Speaker 1: you're looking for in ETFs. But what about what about

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Speaker 1: Europe for instance?

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Speaker 3: Yeah, I think because you know, the US market is

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Speaker 3: the most liquid when you're comparing the different regions and

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Speaker 3: the ETF market, that investors have gotten by that in

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Speaker 3: the US market and that they see that there is

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Speaker 3: liquidity in that market. I think as you move over

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Speaker 3: to Europe and into Asia, there's still questions about liquidity

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Speaker 3: and making sure that there is enough volume on the

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Speaker 3: local exchanges to support those ETFs.

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Speaker 1: You know, it's like almost like there's still a couple

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Speaker 1: of years back from where completely.

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Speaker 3: But you also have the fragmentation of the market over

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Speaker 3: in Europe too, you know, so if you think about

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Speaker 3: there's fragmentation of across the different exchanges across the you know,

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Speaker 3: twenty eight different exchanges in the European marketplace, so you know,

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Speaker 3: whereas in the US you have centralized liquidity on a

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Speaker 3: few exchanges, so you're fracturing that as you're going into Europe.

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Speaker 3: So investors are more keen on looking at trading volumes,

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Speaker 3: looking at spreads as they're making making investment decisions.

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Speaker 1: By the way, what is greater China in the survey's.

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Speaker 3: Twan, Hong Kong and mainland China.

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Speaker 2: That fragmentation is a huge issue. Every time I go

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Speaker 2: to Europe, they always talk about the consolidated tape. They

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Speaker 2: want to put it all on one so that the

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Speaker 2: volume looks more realistic. But it's very difficult when you

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Speaker 2: have all these different countries. It's harder as a data

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Speaker 2: person as a research channalyst, I feel for Rebecca and

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Speaker 2: Henry who cover those areas for US US is so

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Speaker 2: we're spoiled. It's just one country, one currency, and is

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Speaker 2: really good.

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Speaker 3: And Eric, I would also add that over in Europe

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Speaker 3: it's a huge OTC market too, right, So yeah, a

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Speaker 3: lot of the trading volume is done off exchange, right,

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Speaker 3: so you don't have that liquidity of those prints on

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Speaker 3: exchange as you would do here in the US market

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Speaker 3: as well.

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Speaker 2: Uh, for sure, that's one of the headwinds over there.

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Speaker 2: I also I want to actually add another thesis or

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Speaker 2: theory to your questions role, which is that I feel

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Speaker 2: like if you look at where fees and the flows

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Speaker 2: travel south the quickest, it's in countries where the government

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Speaker 2: has pushed the people to like plan their own retirement,

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Speaker 2: so they got to be like a a little more

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Speaker 2: like heads up, whereas in other in many other countries,

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Speaker 2: a lot of people just like the government's got me.

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Speaker 2: I don't really need to care that much, but once

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Speaker 2: this is your money. I think, uh, defined contribution plans

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Speaker 2: in particular pushed Americans to become a little more savvy,

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Speaker 2: and also the move to the fiduciary advisor. Once the

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Speaker 2: advisor gets a percent of the assets instead of paid

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Speaker 2: off by the mutual fund company, they're going to put

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Speaker 2: the expens ory issue much higher because now it's coming

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Speaker 2: out of their pot too. Would you agree with that,

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Speaker 2: Sean most definitely.

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Speaker 3: You know, the financial advisory market here in the US

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Speaker 3: is so much more evolved than in the versus in

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Speaker 3: the European market and Asian market as well, So that's

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Speaker 3: definitely an area of potential growth in those markets.

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Speaker 4: As the financial.

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Speaker 3: Advisory committee or community starts to grow in those geographies,

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Speaker 3: that that could be a good you know, Taal went

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Speaker 3: for the ETF market.

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Speaker 2: So the other note I wrote about this servidual was

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Speaker 2: that BBH is predicting that global ETFs we'll hit thirty

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Speaker 2: trillion dollars.

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Speaker 1: I was gonna ask about this.

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Speaker 2: Yeah, I mean right now they're at nine. Okay, that's

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Speaker 2: a lot of trillions, and we should name the podcast

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Speaker 2: after this says something like.

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Speaker 1: That hindsight, the trillions thing looks really good.

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Speaker 2: I know that was your idea.

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Speaker 1: Okay, So thirty trillion is a lot of trillions. Is

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Speaker 1: bluebrig intelligence north of that or south of that?

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Speaker 2: So the note said that bbh's thirty trillion dollar call

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Speaker 2: will in parentheses eventually come true. I just don't know

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Speaker 2: if ten years might take longer. Here's why, Sean. The

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Speaker 2: main reason is market appreciation. We just came from a

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Speaker 2: decade where this stock market went up like twenty percent

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Speaker 2: a year and it was just so so much above average.

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Speaker 2: This reversion to the mean of historical returns could mean

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Speaker 2: a lot of years where it's not up or down.

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Speaker 2: And if you don't have that market appreciation, I don't

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Speaker 2: think flows get you there. The other thing is what

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Speaker 2: I said earlier, where I think some of these countries

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Speaker 2: and their mindset and plumbing is so ingrained and it

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Speaker 2: might even take twenty thirty years for some of that

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Speaker 2: plumbing to loosen up so that the all the ETFs

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Speaker 2: are on a level playing field with other types of structures.

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Speaker 4: Yeah.

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Speaker 3: So if you look at the thirty trillion number, they

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Speaker 3: would have to grow at about a fourteen percent annual rate.

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Speaker 3: And I think what we factored in in there is

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Speaker 3: this conversion from mutual funds into ets and that could

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Speaker 3: help springboard some of that growth rate. And if you

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Speaker 3: just look at netflows, you know, like looking at last

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Speaker 3: year's netflows ets were up about eight hundred and sixty billion.

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Speaker 3: Mutua funds had net outflows about eight hundred and twenty

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Speaker 3: billion of assets as well. So we're really looking at

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Speaker 3: this more shift from mutual funds into ETFs, right, and

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Speaker 3: whether that's through mutual fund to ETF conversions or more

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Speaker 3: and more investors selling mutual funds to buy ets, which

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Speaker 3: we've seen as a trend in our surveys results as well.

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Speaker 1: So conversions have come up a couple times already. Let's

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Speaker 1: just talk about what the survey indicated on that we've

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Speaker 1: talked about conversions a lot. This is mutual fund conversions

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Speaker 1: to ETFs. What did the survey reveal.

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Speaker 3: We didn't have any particular questions on the mutual funded

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Speaker 3: ETF conversions, but what we did see, you know, looking

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Speaker 3: at just the number of conversions that have happened and

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Speaker 3: just the number that are in the pipeline, they're going

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Speaker 3: to be major mutu fund managers doing conversions into muture

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Speaker 3: funds into ETFs. And if you also just look at

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Speaker 3: the number of active ETFs come in to market last year,

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Speaker 3: that represented you know, about a thirty percent increase in

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Speaker 3: a number of active ETFs. So these traditional muta fund

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Speaker 3: managers that said, hey, we're never going to launch an

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Speaker 3: ETF are now launching ets because they know they need

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Speaker 3: to have that product in their in their product lineup.

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Speaker 3: So I think that's where we're seeing potential opportunities, not

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Speaker 3: only obviously market appreciation, but also that just that pure

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Speaker 3: number of new entrants coming in this space and basically

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Speaker 3: taking away from the mutual land market.

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Speaker 1: Yeah.

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Speaker 2: And I will say I actually used that in my

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Speaker 2: I was just on a Canada tour and one of

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Speaker 2: the points I made was that BBH has thirty trillion.

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Speaker 2: JP Morgan preicted the US market to hit fifteen trillion

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Speaker 2: in the next five years, and Bank of America two

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Speaker 2: years ago predicted fifty trillion global by twenty twenty nine.

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Speaker 2: My point wasn't are they going to all come true?

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Speaker 2: My point was a they're directionally correct. I think we

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Speaker 2: can agree. But here's some real inside Wall Street firms

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Speaker 2: now making these predictions and putting out product. Morgan Stanley

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Speaker 2: jumped in, this is big boy money, right. So to

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Speaker 2: Sean's point, if you get a lot of those clientele,

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Speaker 2: a lot of those fas, plus the blob of money

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Speaker 2: that's in mutual funds. Let's say half of it comes over,

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Speaker 2: you could get close even without a lot of market appreciation.

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Speaker 2: But again, last year was in twenty twenty one, the

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Speaker 2: flows were nine hundred billion and that was a record. Well,

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Speaker 2: in order to get to thirty trillion from you know,

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Speaker 2: you would need more than that every year. So that's

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Speaker 2: the only reason I'm most slightly cautious. But I'm certainly

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Speaker 2: with you in spirit, and I think you'll eventually see

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Speaker 2: thirty trillion, no doubt.

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Speaker 1: So what about commodity ETFs. Because we've talked about fixed

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Speaker 1: income ETFs a con on the program, like and they've

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Speaker 1: become more and more prevalent, but we haven't spent as much,

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Speaker 1: quite as much time talking about commodity ETFs. And I

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Speaker 1: think just with the overall economic environment that we're in

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Speaker 1: right now, there's increasing interest. So what do this survey

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Speaker 1: reveal about commodity ETFs.

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Speaker 3: Well, if you look at the commodity ETFs last year,

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Speaker 3: I think seven on the top ten perform and ETFs

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Speaker 3: were commodity based, right, And I think that's that's kind

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Speaker 3: of a typical move to when there's volatility in the market,

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Speaker 3: you know, uh, investors moving to different asset classes like commodities.

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Speaker 3: You know, I think if you look at the investor results,

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Speaker 3: you know, sixty nine percent plan to maintain or increase

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Speaker 3: their allocations to commodity to atfs the next twelve months,

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Speaker 3: with about you know, about half of those, so thirty

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Speaker 3: three percent saying they're going to increase their allocation to

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Speaker 3: commodity ETFs. So I think that, you know, that kind

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Speaker 3: of bodes well for continuing uh, you know, assets coming

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Speaker 3: into commodity space, and especially with you know, volatility in

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Speaker 3: the marketplace, I think those those commodity ets, we'll gather

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Speaker 3: some assets.

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Speaker 2: Okay, let's turn to thematic ETFs. Themes were really big

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Speaker 2: back in the low rate era, you know, like themes

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Speaker 2: like ARC and innovation, clean tech and all that. Now

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Speaker 2: everything's flipped. So you do have natural resources doing well

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Speaker 2: because they are full of values thoughts, but it does

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Speaker 2: seem like the thematic play tends to be more with growth.

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Speaker 2: So I was surprised to this result, which is that

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Speaker 2: you have respondents saying that in three years, what percentage

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Speaker 2: of your portfolio will be in thematic ETFs in the

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Speaker 2: US about forty three percent, say over eleven percent. That

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Speaker 2: seems a little high for me. And then the other

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Speaker 2: one is in China it's over eighty percent. Like they

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Speaker 2: must they love their themes over there, I guess. But

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Speaker 2: those both those numbers seem a little high relative to

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Speaker 2: flows and anecdotal not saying that's crazy high, But what

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Speaker 2: what's your thought there?

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Speaker 3: We Well, first of all, all the investors that participate

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Speaker 3: in survey are users of ETFs, right, so if they

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Speaker 3: are not users of ets, we've we're not including them.

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Speaker 3: So right out of the gates, there's there's that population

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Speaker 3: that aren't investing in ets today, you know. So this increase,

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Speaker 3: you know, typically inflates the numbers here a little bit.

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Speaker 3: But I do think thematic ets, especially last year, had

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Speaker 3: a little bit of a dip in market appreciation. But

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Speaker 3: I think as more and more UH investors are coming into,

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Speaker 3: you know, to this year, they'll be looking for different

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Speaker 3: ways to invest their their assets into into new different

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Speaker 3: asset classes, and I think thematic.

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Speaker 4: Et s is one area where you.

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Speaker 3: Know, investors looking to diversify away from market capital type

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Speaker 3: of products they'll be moving into into more thematic ETFs.

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Speaker 1: Also thought it was interesting what some of the strategies

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Speaker 1: in the thematic ETFs that resonate. Obviously, Internet and technology

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Speaker 1: are a big one, but artificial intelligence came up as

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Speaker 1: one that would be particularly interesting in the US and

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Speaker 1: in Greater China. What did you make of that?

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Speaker 3: Well, I think that's that's obviously a huge growth area

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Speaker 3: across you know, just not even financial services, but across

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Speaker 3: how different firms are using AI to improve their you know,

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Speaker 3: back office operations. So I think, you know, investors are

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Speaker 3: trying to figure out ways to capitalize on that growth

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Speaker 3: into the AI community and that that that obviously will

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Speaker 3: kind of bode well for those types of products in

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Speaker 3: the future.

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Speaker 1: And how why do you think the Americans are so

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Speaker 1: much more bullish on cannabis than everybody else? That was

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Speaker 1: another one that jumped out at me.

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Speaker 3: I think it's just you know, the evolution of the

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Speaker 3: ETF market, right, there's a lot more cannabis type of

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Speaker 3: ETFs here in the US market. And once again, that's

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Speaker 3: another you know, asset class that investors are looking you know,

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Speaker 3: some some investors are looking to get some exposure to

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Speaker 3: whereas over in in you know, Europe, you know, there's

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Speaker 3: a few products there, but I don't believe there's any

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Speaker 3: over in in Asia.

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Speaker 2: Yet, all right, let's move to ESG, my favorite topic.

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Speaker 1: What what surprised you here?

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Speaker 4: It does?

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Speaker 2: It doesn't surprise me when I see surveys way over

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Speaker 2: optim being way over optimistic on ESG. And I'll tell

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Speaker 2: you why, Sean. It's not your fault. Nobody filling out

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Speaker 2: a survey wants to be judged. That's typically why political

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Speaker 2: polls can be off. You don't really want to share

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Speaker 2: that you're voting for this one person. So in this case,

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Speaker 2: you have forty five percent of US investors say they

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Speaker 2: want to increase their exposure to ESG. That's a lot

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Speaker 2: of money. I know Europe is good, but Europe's almost fake.

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Speaker 2: They're just relabeled at ESG and the government it pushes

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Speaker 2: everybody there, and it's a it's not natural. US is

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Speaker 2: a natural market, and last year US esgtfs accounted for

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Speaker 2: one percent of flows. This year there's outflows. Why they're underperforming.

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Speaker 2: I think the underperformance because they tend to be overweight

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Speaker 2: tech and growth, which is not is you know now

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Speaker 2: value and energy had such a good run. I think

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Speaker 2: that underperformance, just like we saw of currency, HGTFS is

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Speaker 2: going to have a lot of once bitten twice shy

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Speaker 2: going on. In other words, even if ESG has another

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Speaker 2: run where tech and growth outperform and they look good,

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Speaker 2: I think the tourists are shaken out for good. I

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Speaker 2: think you might have a small niche of two three

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Speaker 2: percent market share of true believers. I've stood by this

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Speaker 2: call for six seven years, even before it was cool.

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Speaker 2: Now some more people have been somewhat critical of ESG,

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Speaker 2: but that's my theory. So I'm not surprised these are

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Speaker 2: the results. And I'm not saying this is wrong. I

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Speaker 2: just think people are going to generally say yeah, because

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Speaker 2: they don't want their name attached to somebody who doesn't

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Speaker 2: like ESG, because it's to be like, what you don't

399
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Speaker 2: like this stuff? Are you a bad person?

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Speaker 4: Yeah?

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Speaker 1: There's a lot to react to.

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Speaker 3: Yeah, No, Eric, I think this is definitely one of

403
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Speaker 3: probably the surprising results from the survey, you know, because

404
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Speaker 3: I I don't know if investors are putting, you know,

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Speaker 3: taking action, or putting money where their mouth is as

406
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Speaker 3: it relates to this response.

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Speaker 4: You know.

408
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Speaker 3: However, to your earlier point, it's definitely a different world

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Speaker 3: over in Europe. If you look at flows into Europe,

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Speaker 3: about sixty five percent of flows last year, we're you know,

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Speaker 3: titled ESG ETFs and they have about nineteen percent of

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Speaker 3: the market share over there. So I think that's that's

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Speaker 3: an area that is you know, obviously embracing ESG type

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Speaker 3: of products. I think there's definitely been a you know,

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Speaker 3: a pullback in the US market, especially in this this

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Speaker 3: first half of the year, with concerns around greenwashing.

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Speaker 4: Uh.

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Speaker 3: You know, index providers reclassifying some of their indices that

419
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Speaker 3: were previously ESG that are no longer ESG. And then

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Speaker 3: you know some large jitutional investors kind of you know

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Speaker 3: pulling back on their investments into ESG products. So I

422
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Speaker 3: completely agree with you on that one.

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Speaker 1: Okay, so time for one of my favorite big takeaways,

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Speaker 1: which was the use of robo advisors has tripled in

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Speaker 1: the last year, that kind of from from ten percent

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Speaker 1: to twenty nine percent. I thought that was phenomenal, Sean,

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Speaker 1: and I wondered why you thought that happened. Obviously this

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Speaker 1: has been around for a second, but like, why all

429
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Speaker 1: of a sudden has the robo advisors seems to be

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Speaker 1: gaining appeal.

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Speaker 3: I think it's just you know, with more and more

432
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Speaker 3: you know, self directed investors you know, managing their money.

433
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Speaker 3: You know, robo advisors, you know, they're they're a cheap

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Speaker 3: way to kind of, you know, have some professional advice.

435
00:22:48,680 --> 00:22:50,679
Speaker 3: And I think ets obviously play a role in that

436
00:22:50,800 --> 00:22:53,760
Speaker 3: with just the underlying assets and the robo advisors, and

437
00:22:53,840 --> 00:22:56,760
Speaker 3: so I think that's what's really driving that is more

438
00:22:56,960 --> 00:22:59,960
Speaker 3: of maybe the younger investors that are coming in look

439
00:23:00,000 --> 00:23:04,000
Speaker 3: looking for advice, embracing more robo advisor platforms.

440
00:23:05,600 --> 00:23:08,320
Speaker 2: All right, let's turn to active ETFs. This is section

441
00:23:08,400 --> 00:23:10,600
Speaker 2: which lines up with the flows perfectly. So the question

442
00:23:10,680 --> 00:23:12,480
Speaker 2: is do you plan to increase your allocation to active

443
00:23:12,520 --> 00:23:17,080
Speaker 2: ETFs this year? In the US thirty nine percent say increase, well, Joel,

444
00:23:17,160 --> 00:23:20,359
Speaker 2: this year, active ETFs have captured about thirty three percent

445
00:23:20,359 --> 00:23:23,280
Speaker 2: of the flows. That's pretty close. Last year they captured

446
00:23:23,280 --> 00:23:25,520
Speaker 2: fourteen percent of the flows. That's big numbers for something

447
00:23:25,520 --> 00:23:27,640
Speaker 2: that only makes up five percent of the assets. So

448
00:23:27,720 --> 00:23:31,200
Speaker 2: active ETFs finally having their day. I have a theory

449
00:23:31,200 --> 00:23:32,680
Speaker 2: on this, Sean. I'd like to get your theory on

450
00:23:32,720 --> 00:23:36,320
Speaker 2: why active is finally taking off, because remember you've been

451
00:23:36,320 --> 00:23:38,399
Speaker 2: in this industry for a while. It was supposed to

452
00:23:38,400 --> 00:23:40,040
Speaker 2: be the year of active, like ten times in a

453
00:23:40,119 --> 00:23:44,000
Speaker 2: row it. Finally it happened, and I think here's I

454
00:23:44,000 --> 00:23:47,919
Speaker 2: think two things. One, the regime change fundamentals mattered, and

455
00:23:48,000 --> 00:23:51,399
Speaker 2: active tends to be more fundamentally weighted and interested in fundamentals,

456
00:23:51,400 --> 00:23:54,639
Speaker 2: so they did a little better. Number Two, these big

457
00:23:54,720 --> 00:23:58,240
Speaker 2: firms like JP Morgan, Evantist DFA came into the industry

458
00:23:58,560 --> 00:24:01,439
Speaker 2: and came out with low cost back. And if we

459
00:24:01,480 --> 00:24:03,360
Speaker 2: did a study, we looked at the active share, which

460
00:24:03,400 --> 00:24:05,600
Speaker 2: is how different it is from the benchmark. The more

461
00:24:05,800 --> 00:24:08,600
Speaker 2: the less active share it has, the lower the fee is.

462
00:24:09,240 --> 00:24:12,639
Speaker 2: In other words, these funds are being priced in a

463
00:24:12,680 --> 00:24:15,600
Speaker 2: beta adjusted way so that you're really only paying for

464
00:24:15,640 --> 00:24:18,440
Speaker 2: the active, not the beta, which can now be gotten

465
00:24:18,480 --> 00:24:20,960
Speaker 2: for free. And I think this was the problem for

466
00:24:21,160 --> 00:24:23,840
Speaker 2: a lot of the entrance up until now, they were

467
00:24:24,040 --> 00:24:26,919
Speaker 2: charging you for the beta too, and I think advisors

468
00:24:26,920 --> 00:24:28,639
Speaker 2: didn't really they weren't responding to that.

469
00:24:28,680 --> 00:24:31,679
Speaker 3: What do you think, Yeah, no, I think you're one

470
00:24:31,720 --> 00:24:35,399
Speaker 3: hundred percent right on. With some of these these large

471
00:24:35,640 --> 00:24:38,880
Speaker 3: mutual fund managers coming in this space, creating these active ets,

472
00:24:38,920 --> 00:24:43,119
Speaker 3: it's creating more you demand in the marketplace, and you

473
00:24:43,160 --> 00:24:46,960
Speaker 3: know they are being priced lower than their mutual fund brethren.

474
00:24:47,240 --> 00:24:49,480
Speaker 3: You know, so I think that's all, you know, what's

475
00:24:49,520 --> 00:24:52,040
Speaker 3: driving some of this growth and just a pure number

476
00:24:52,119 --> 00:24:54,760
Speaker 3: of launches that we're seeing. Right, So the number of

477
00:24:54,800 --> 00:24:57,440
Speaker 3: active etss that came out last year increased by thirty

478
00:24:57,440 --> 00:25:00,720
Speaker 3: percent of just new products coming to market. And so

479
00:25:00,840 --> 00:25:02,960
Speaker 3: these mutua fund managers they you know, they see the

480
00:25:03,000 --> 00:25:05,880
Speaker 3: outflows into the muta funds, and they know they need

481
00:25:05,920 --> 00:25:09,520
Speaker 3: to have an ETF, you know, to be competitive for

482
00:25:09,640 --> 00:25:12,200
Speaker 3: a certain type of investor type, which is growing.

483
00:25:19,080 --> 00:25:21,639
Speaker 2: Okay, let's have a little fun. I know, there's this

484
00:25:21,720 --> 00:25:25,879
Speaker 2: interesting relationship between advisors and the wholesalers. So you actually

485
00:25:25,880 --> 00:25:28,600
Speaker 2: had this section here, which I wasn't expecting. It was

486
00:25:28,640 --> 00:25:31,320
Speaker 2: kind of cool. There's a zoom boom going on, Joel.

487
00:25:32,200 --> 00:25:33,760
Speaker 2: They don't want to do they don't want to see

488
00:25:33,800 --> 00:25:36,400
Speaker 2: you anymore if you're a if you're a wholesaler, they

489
00:25:36,400 --> 00:25:37,679
Speaker 2: want you to just zoom them.

490
00:25:37,960 --> 00:25:38,720
Speaker 1: Maybe emailing.

491
00:25:39,200 --> 00:25:42,320
Speaker 2: Yeah, it seems like a lot of in person stuff.

492
00:25:43,320 --> 00:25:45,919
Speaker 2: Maybe it's just because the COVID or because there's so

493
00:25:45,920 --> 00:25:48,480
Speaker 2: many issuers they get inundated. What's your take on why

494
00:25:48,960 --> 00:25:52,199
Speaker 2: that has grown so much versus the in person wholesale

495
00:25:52,359 --> 00:25:53,000
Speaker 2: kind of meeting.

496
00:25:53,760 --> 00:25:55,439
Speaker 3: Well, I think you know, we are, we're going to

497
00:25:55,440 --> 00:25:58,400
Speaker 3: be living in this hybrid world, you know, going forward, right,

498
00:25:58,400 --> 00:26:02,679
Speaker 3: And I think just like financial advisors, you know, they

499
00:26:02,840 --> 00:26:04,800
Speaker 3: like to get in and get out of meetings, and

500
00:26:05,240 --> 00:26:07,560
Speaker 3: this is a very efficient way to do that. I

501
00:26:07,560 --> 00:26:10,040
Speaker 3: think when you're thinking about from a wholesaler perspective, it

502
00:26:10,080 --> 00:26:12,760
Speaker 3: can be you know, less time on planes and having

503
00:26:12,800 --> 00:26:17,280
Speaker 3: more fruitful meetings with advisors. However, there's a cost to that,

504
00:26:17,359 --> 00:26:19,919
Speaker 3: So how do you build up those relationships and so

505
00:26:20,920 --> 00:26:23,120
Speaker 3: you know, I think they're still going to be made

506
00:26:23,160 --> 00:26:26,200
Speaker 3: for that in person relationship to kind of really move

507
00:26:26,240 --> 00:26:28,840
Speaker 3: the needle. But I do think this hybrid world that

508
00:26:28,880 --> 00:26:32,200
Speaker 3: we're in that more and more wholesalers will be connecting

509
00:26:32,280 --> 00:26:35,000
Speaker 3: with advisors through the use of zoom.

510
00:26:35,119 --> 00:26:37,400
Speaker 2: Yeah, but do you get the golf balls? If it's

511
00:26:37,440 --> 00:26:39,159
Speaker 2: over zoom, you don't get the golf balls, do you?

512
00:26:39,280 --> 00:26:41,440
Speaker 4: Well, you still have mail, you can still mail those out.

513
00:26:42,840 --> 00:26:45,280
Speaker 2: That's the best of both worlds. Look, you had ten

514
00:26:45,280 --> 00:26:47,200
Speaker 2: minutes on zoom, just mail me the provy ones.

515
00:26:49,520 --> 00:26:53,800
Speaker 1: So Sean lots of surveys. You've done lots of surveys.

516
00:26:54,240 --> 00:26:56,520
Speaker 1: I've done lots of surveys. Eric Wishes, He's done lots

517
00:26:56,560 --> 00:26:58,840
Speaker 1: of surveys. The thing with the survey is that you

518
00:26:58,840 --> 00:27:01,080
Speaker 1: get the results back in your life, like what popped?

519
00:27:01,240 --> 00:27:04,680
Speaker 1: What surprises me? So I'm curious when you got these

520
00:27:04,720 --> 00:27:07,560
Speaker 1: results in what was the thing that surprised you most?

521
00:27:08,160 --> 00:27:10,000
Speaker 3: You know, I still think one of the things that

522
00:27:10,119 --> 00:27:13,960
Speaker 3: surprised me is, you know, nearly half of the investors

523
00:27:13,960 --> 00:27:17,160
Speaker 3: still planned to add cryptocurrency and digital assets into their

524
00:27:17,640 --> 00:27:20,720
Speaker 3: into their portfolios, right, And I think that is a

525
00:27:20,760 --> 00:27:24,080
Speaker 3: shocking you know number, you know, just given you know

526
00:27:24,119 --> 00:27:26,280
Speaker 3: the volatility and that that asset class, right, and.

527
00:27:26,280 --> 00:27:28,040
Speaker 1: So wasn't it so that they could short it? Though?

528
00:27:28,200 --> 00:27:31,199
Speaker 2: Maybe that's what it is that does seem high.

529
00:27:31,359 --> 00:27:33,000
Speaker 1: I was surprised to see that as well. But do

530
00:27:33,080 --> 00:27:34,680
Speaker 1: you think they wanted to come off of like, oh,

531
00:27:34,880 --> 00:27:37,399
Speaker 1: if it was you know, something I could more easily short,

532
00:27:37,480 --> 00:27:38,160
Speaker 1: that would be great.

533
00:27:38,960 --> 00:27:41,080
Speaker 2: Yeah, that is that it. I don't know what do

534
00:27:41,119 --> 00:27:41,520
Speaker 2: you make of that?

535
00:27:42,400 --> 00:27:44,000
Speaker 1: Truly? I think part of it was that. But it's

536
00:27:44,040 --> 00:27:47,080
Speaker 1: also like, look like after something gets this beaten down,

537
00:27:47,640 --> 00:27:49,640
Speaker 1: this gets to the whole thing that we talk about

538
00:27:49,640 --> 00:27:52,320
Speaker 1: a lot, where you have a lot of things that

539
00:27:52,560 --> 00:27:55,960
Speaker 1: are so safe and predictable. It's like, where's the hot

540
00:27:55,960 --> 00:27:58,680
Speaker 1: sauce and like maybe if somebody got lucky and had

541
00:27:58,680 --> 00:28:01,120
Speaker 1: some hot sauce shiny object.

542
00:28:01,200 --> 00:28:04,880
Speaker 2: Right, yeah, I mean crypto it's just had such a

543
00:28:04,960 --> 00:28:09,879
Speaker 2: bad year performance wise with SBF, but you know, it

544
00:28:10,119 --> 00:28:12,080
Speaker 2: went up again. I mean it's like a cockroach. You

545
00:28:12,080 --> 00:28:13,040
Speaker 2: cannot kill it like.

546
00:28:12,960 --> 00:28:15,240
Speaker 1: It's just but you can't easily treat it either.

547
00:28:15,080 --> 00:28:17,399
Speaker 2: I know. And it does tend to have you know,

548
00:28:17,480 --> 00:28:19,840
Speaker 2: the correlation is could be valuable to I get it.

549
00:28:20,160 --> 00:28:21,120
Speaker 2: I'm just surprised with.

550
00:28:22,560 --> 00:28:23,160
Speaker 1: This audience.

551
00:28:23,240 --> 00:28:25,680
Speaker 2: Well, right, this isn't like, well, Sean, here here's a theory.

552
00:28:25,960 --> 00:28:30,160
Speaker 2: Because you're interviewing people who use dtfs, you're probably you're

553
00:28:30,200 --> 00:28:35,439
Speaker 2: probably actually tilting towards younger people and early adopter types

554
00:28:35,840 --> 00:28:39,120
Speaker 2: who probably are more interested in crypto than if you

555
00:28:39,320 --> 00:28:41,160
Speaker 2: interviewed a bunch of I don't know, people who hold

556
00:28:41,200 --> 00:28:42,080
Speaker 2: mutual funds or something.

557
00:28:42,800 --> 00:28:43,800
Speaker 4: I mean that could be too.

558
00:28:43,880 --> 00:28:45,960
Speaker 3: But we also have a number of institutional investors that

559
00:28:45,960 --> 00:28:49,200
Speaker 3: are looking to increase their exposure to crypto as well. Right,

560
00:28:49,400 --> 00:28:53,320
Speaker 3: And I do think it is you know, not for

561
00:28:53,360 --> 00:28:55,560
Speaker 3: the faint of heart, but certain investor types that are

562
00:28:55,600 --> 00:28:59,200
Speaker 3: looking as a diversification away from you know, a new

563
00:28:59,280 --> 00:29:03,000
Speaker 3: asset class that they that potentially could create some returns, right,

564
00:29:03,080 --> 00:29:05,680
Speaker 3: and you know to your earlier point, you know, bitcoin

565
00:29:05,800 --> 00:29:08,160
Speaker 3: was at fifteen thousand, and you know it's at thirty

566
00:29:08,200 --> 00:29:12,120
Speaker 3: thousand or so today, So it's some real returns in

567
00:29:12,120 --> 00:29:13,600
Speaker 3: in in the first half of the year.

568
00:29:14,720 --> 00:29:16,840
Speaker 2: So, Sean, we actually touched on two things that my

569
00:29:16,920 --> 00:29:19,680
Speaker 2: team and I we nerd out on this question. It's

570
00:29:19,720 --> 00:29:21,760
Speaker 2: like a it's like, this is what ETF NERD comedy

571
00:29:21,800 --> 00:29:24,120
Speaker 2: is like in our persistent chat. What do you think

572
00:29:24,160 --> 00:29:26,840
Speaker 2: will happen first the consolidated tape in Europe or a

573
00:29:26,880 --> 00:29:28,640
Speaker 2: spot bitcoin ETF in the US.

574
00:29:29,200 --> 00:29:31,080
Speaker 4: Wow, that's that's a tough question there.

575
00:29:31,160 --> 00:29:31,880
Speaker 1: That was Wow.

576
00:29:32,080 --> 00:29:35,320
Speaker 2: How isn't this the mescificity of that arsle from the

577
00:29:35,320 --> 00:29:35,840
Speaker 2: nerd vault.

578
00:29:35,920 --> 00:29:38,600
Speaker 3: Yeah, we've had to go to the consolidated tape in Europe.

579
00:29:40,240 --> 00:29:43,959
Speaker 2: All right, Good, at least you gave an answer. I

580
00:29:44,000 --> 00:29:46,720
Speaker 2: think I think a spot ETF. I think if Gendler

581
00:29:46,760 --> 00:29:48,760
Speaker 2: moves on, I think it opens the door probably a

582
00:29:48,760 --> 00:29:49,160
Speaker 2: little more.

583
00:29:49,160 --> 00:29:52,320
Speaker 1: But you may be right, okay, Sean. Final question one

584
00:29:52,320 --> 00:29:55,880
Speaker 1: that we often ask on trillions favorite ETF ticker other

585
00:29:55,960 --> 00:29:59,400
Speaker 1: than anything that Brown Brothers Harriman is affiliated with.

586
00:30:00,720 --> 00:30:02,840
Speaker 4: Well, that's a tough, tough question there.

587
00:30:06,040 --> 00:30:09,000
Speaker 3: You know, I think tok is kind of an interesting,

588
00:30:09,120 --> 00:30:10,840
Speaker 3: uh interesting.

589
00:30:10,520 --> 00:30:12,600
Speaker 1: Bring the cannabis answer. Yeah, I like that.

590
00:30:12,720 --> 00:30:13,160
Speaker 4: Yeah.

591
00:30:13,200 --> 00:30:15,240
Speaker 2: By the way, did you you know what the expense

592
00:30:15,320 --> 00:30:16,120
Speaker 2: ratio in toke is.

593
00:30:16,640 --> 00:30:17,840
Speaker 4: I don't know it off hand.

594
00:30:17,880 --> 00:30:21,160
Speaker 2: No, it's forty two basis points. But on the Bloomberg

595
00:30:21,240 --> 00:30:24,840
Speaker 2: DS page it goes to three decimals, so it's four two. Oh,

596
00:30:25,440 --> 00:30:27,400
Speaker 2: that's meant favor. You got to love that sort of

597
00:30:27,480 --> 00:30:29,960
Speaker 2: artistry that was embedded into the ECF. I love that.

598
00:30:30,280 --> 00:30:33,320
Speaker 1: Not a coincidence, uh, Sean McNinch, thanks so much for

599
00:30:33,360 --> 00:30:34,240
Speaker 1: joining us on Trillions.

600
00:30:34,720 --> 00:30:44,480
Speaker 5: Thanks for having me, Thanks for listening to Trillions until

601
00:30:44,480 --> 00:30:46,320
Speaker 5: next time. You can find us on the Bloomberg terminal,

602
00:30:46,480 --> 00:30:50,080
Speaker 5: Bloomberg dot com, Apple Podcasts, Spotify.

603
00:30:49,600 --> 00:30:51,920
Speaker 1: And wherever else you like to listen. We'd love to

604
00:30:51,920 --> 00:30:53,320
Speaker 1: hear from you. We're on Twitter.

605
00:30:53,600 --> 00:30:57,720
Speaker 5: I'm at Joel Webber Show, He's at Eric Paulchnis. This

606
00:30:57,800 --> 00:31:01,480
Speaker 5: episode of Trillions was produced by Magnus