Speaker 1: Welcome to Trillions.
Speaker 2: I'm Joel Webber and I'm Eric Belchernas.
Speaker 1: Eric, there's a new survey that you were really excited
Speaker 1: to bring into this week's episode. What's it about.
Speaker 2: Yeah, it's a BBH survey of a variety of investors.
Speaker 2: I love ETF surveys, Joel, I really do, because I
Speaker 2: get all the flow data and volume data and priced
Speaker 2: data and holdings dad. You know, the terminal is full
Speaker 2: of all kinds of data. It's like a giant candy store.
Speaker 2: But we don't have survey data, not like this, and
Speaker 2: I love looking through it because it helps you sort
Speaker 2: of align the hard data with the anecdotal data. This
Speaker 2: is why I go to conferences and hang in the hallways.
Speaker 2: I want to hear from people. What are you thinking
Speaker 2: and doing to me? That's half of our job. So
Speaker 2: this survey, especially this one, I look through it and
Speaker 2: I got two notes out of it and some interesting
Speaker 2: data points here, some stuff I expect, some stuff I didn't,
Speaker 2: but I thought be cool to ask about some of
Speaker 2: the particulars in this really really thorough survey about how
Speaker 2: people feel about ETFs, what they're planning, different categories. There's
Speaker 2: a lot to chew on here.
Speaker 1: So to help us chew on that and these responses,
Speaker 1: we're going to be joined by Sean McNinch. He's the
Speaker 1: global head of ETFs at Brown Brothers Harriman. This survey
Speaker 1: is called Exchange Thoughts. It's the tenth annual global ETF
Speaker 1: Investor survey, this time on trillions. Survey says Sean, Welcome
Speaker 1: to jrillians, thanks for having me. Okay, so ten annual surveys,
Speaker 1: A little bit's changed in that time. What's the big
Speaker 1: high level takeaway from what's changed over that decade of
Speaker 1: the survey.
Speaker 3: I think it's just the evolution of the ETF market overall.
Speaker 3: You know, if you think about ETFs, you know they
Speaker 3: are really now or at the center of a lot
Speaker 3: of the investors allocation strategy. You know, more and more
Speaker 3: usage of ETFs, more asset classes, more structures. You know,
Speaker 3: if you look at some of the results of survey,
Speaker 3: you know, sixty percent of the investors we pulled are
Speaker 3: planning to increase their usage of ETFs. And it's no
Speaker 3: longer just a passive product, right, It's it's really moving
Speaker 3: into active, moving into new asset classes such as fixed income,
Speaker 3: and so there's there's just more and more usage of
Speaker 3: ETFs in the marketplace than, you know, than than there
Speaker 3: was ever before. You know, since we started this survey
Speaker 3: ten years.
Speaker 1: Ago and there's three hundred and twenty five global respondents
Speaker 1: to this. They're managing more than forty percent or managing
Speaker 1: more than a billion in assets. So this is also
Speaker 1: kind of an institutional crowd, right, and you've broken them
Speaker 1: down by the US, Europe, and then Greater China. When
Speaker 1: you when you kind of think about that that global distribution,
Speaker 1: what were the takeaways for the US audience that that
Speaker 1: you thought we're particularly interesting?
Speaker 3: Yeah, No, I think it's you know, the asset classes
Speaker 3: that they're using and the more and more demand. You know,
Speaker 3: if you look at some of those surveys results for
Speaker 3: the US investors in about forty six percent of those
Speaker 3: investors are planning to increase their usage of fixed income ets, right,
Speaker 3: And that's relatively a newer asset class than the ETF wrapper.
Speaker 4: There's there's less products out there.
Speaker 3: More and more of the new products that are coming
Speaker 3: out have a fixed income bent to them, and that's
Speaker 3: obviously of interest to investors as they are looking at
Speaker 3: rising interest rates and how do we kind of diversify
Speaker 3: the risk from equity to fixed income and other asset classes.
Speaker 1: Yeah, that fixed income bit came out in the surveys.
Speaker 1: The ESG responses pop to me, which I know Eric's
Speaker 1: gonna want to say something about what. What did you
Speaker 1: write your Bloomberg Intelligence notes about Eric?
Speaker 2: Yeah, the first note I wrote was the early in
Speaker 2: this survey guide. I guess you call it twenty five pages.
Speaker 2: Here's the question, what is the most important factor when
Speaker 2: selecting an ETF? This all the surveys have this. I
Speaker 2: love seeing where this ends. Number one expense ratio, number
Speaker 2: two etf issuer. Now last year issue was one expense
Speaker 2: ratio two. What does that tell you? Those two things
Speaker 2: are joined at the hip, and when we think about
Speaker 2: flows every year, you know it's now become the big
Speaker 2: two Vanguard Blackrock, Yet there's definitely a plenty of money
Speaker 2: for everybody else. It's a big tent that said, you
Speaker 2: have to just acknowledge how big they're. So my note
Speaker 2: was sort of equating Blackrock and Vanguard ETFs to ibm'stock
Speaker 2: in the eighties where an advisor would be like, you
Speaker 2: can't get fired for buying IBM, Like, who could really,
Speaker 2: you know, diss you for that or get upset if
Speaker 2: you're a client. It'd be hard to really get mad
Speaker 2: at an advisor or fire them if they put you
Speaker 2: in black Rock or Vanguard ETFs. It's a career risk
Speaker 2: motivated move as long as a low cost move. And
Speaker 2: so because some people say, well why do they they
Speaker 2: get all the assets and the flows when everybody has
Speaker 2: cheap ETFs, I'm like, well, the brand matters too, and
Speaker 2: so I guess Sean, you know that those response responses
Speaker 2: kind of I think tune in or connect with the
Speaker 2: flows or did you see something different there?
Speaker 4: No, I think that that's obviously right.
Speaker 3: And obviously the big three with with Vanguard, black Rock
Speaker 3: and SSGA, you know, having the line share the market share.
Speaker 3: You know, that's definitely the case. As people are looking
Speaker 3: to buy passive products and as you're looking at you know,
Speaker 3: where flows are going and more and more entrance coming
Speaker 3: in here. That may change as we look to the
Speaker 3: active ETF space, right and it's still relatively small fertile ground,
Speaker 3: and you know it's only about five percent of the
Speaker 3: total assets are made up of active ETFs. But I
Speaker 3: completely agree with you on the pass side. More and
Speaker 3: more investors are really looking at expense ratio in the
Speaker 3: brand when selecting passive vehicles. But that could change as
Speaker 3: we get into different types of you know, ETFs.
Speaker 2: And the Blackrock and Vanguard ETFs are also becoming some
Speaker 2: of the most liquid once these puppies are cheap broad
Speaker 2: liquid like is liquid is like a trading over a
Speaker 2: billion a day look out. I mean, these things are
Speaker 2: going to rule the land for twenty thirty years. One
Speaker 2: other interesting part to this is trading spreads and volume
Speaker 2: were low. Volume in particular was the third most important reason,
Speaker 2: and it dropped to like eight or nine. And is
Speaker 2: that a sign that investors are getting a little better
Speaker 2: about looking at the holdings and ETF implied liquidity or
Speaker 2: is there some other explanation for that? Now?
Speaker 3: I think that's that's kind of the evolution of the
Speaker 3: ETFs and the maturation of the ETF product, right. I
Speaker 3: think early on, you know, people were really concerned about volume,
Speaker 3: you know, making sure these products traded well, making sure
Speaker 3: there were tight spreads. I almost think especially with the
Speaker 3: most liquid ets in looking at different ETFs that trade,
Speaker 3: it's almost a given that there is tight spreads and
Speaker 3: there's you know, investors can come in and now of
Speaker 3: these products and you know, in a cost effective way.
Speaker 3: So I think that's that's the kind of the evolution
Speaker 3: of the e TF market, as how investors are looking
Speaker 3: at different selection criteria that it's almost a given that
Speaker 3: that there's liquidity in the market, there's volume to support that.
Speaker 1: So what do you make of the fact that what
Speaker 1: Eric is referring to as an answer to this question,
Speaker 1: the question was what is the most important factor when
Speaker 1: selecting an ETF? Expense ratio rinks number one in the US,
Speaker 1: but that is like a distant fifth in Europe, and
Speaker 1: it's a it's in sixth place in Greater China. Europe
Speaker 1: puts tax efficiency first, trading spread second. Greater China has
Speaker 1: index methodology first, trading volume second. I'm sort of surprised
Speaker 1: that regionally there seems to be a difference in what
Speaker 1: you're looking for in ETFs. But what about what about
Speaker 1: Europe for instance?
Speaker 3: Yeah, I think because you know, the US market is
Speaker 3: the most liquid when you're comparing the different regions and
Speaker 3: the ETF market, that investors have gotten by that in
Speaker 3: the US market and that they see that there is
Speaker 3: liquidity in that market. I think as you move over
Speaker 3: to Europe and into Asia, there's still questions about liquidity
Speaker 3: and making sure that there is enough volume on the
Speaker 3: local exchanges to support those ETFs.
Speaker 1: You know, it's like almost like there's still a couple
Speaker 1: of years back from where completely.
Speaker 3: But you also have the fragmentation of the market over
Speaker 3: in Europe too, you know, so if you think about
Speaker 3: there's fragmentation of across the different exchanges across the you know,
Speaker 3: twenty eight different exchanges in the European marketplace, so you know,
Speaker 3: whereas in the US you have centralized liquidity on a
Speaker 3: few exchanges, so you're fracturing that as you're going into Europe.
Speaker 3: So investors are more keen on looking at trading volumes,
Speaker 3: looking at spreads as they're making making investment decisions.
Speaker 1: By the way, what is greater China in the survey's.
Speaker 3: Twan, Hong Kong and mainland China.
Speaker 2: That fragmentation is a huge issue. Every time I go
Speaker 2: to Europe, they always talk about the consolidated tape. They
Speaker 2: want to put it all on one so that the
Speaker 2: volume looks more realistic. But it's very difficult when you
Speaker 2: have all these different countries. It's harder as a data
Speaker 2: person as a research channalyst, I feel for Rebecca and
Speaker 2: Henry who cover those areas for US US is so
Speaker 2: we're spoiled. It's just one country, one currency, and is
Speaker 2: really good.
Speaker 3: And Eric, I would also add that over in Europe
Speaker 3: it's a huge OTC market too, right, So yeah, a
Speaker 3: lot of the trading volume is done off exchange, right,
Speaker 3: so you don't have that liquidity of those prints on
Speaker 3: exchange as you would do here in the US market
Speaker 3: as well.
Speaker 2: Uh, for sure, that's one of the headwinds over there.
Speaker 2: I also I want to actually add another thesis or
Speaker 2: theory to your questions role, which is that I feel
Speaker 2: like if you look at where fees and the flows
Speaker 2: travel south the quickest, it's in countries where the government
Speaker 2: has pushed the people to like plan their own retirement,
Speaker 2: so they got to be like a a little more
Speaker 2: like heads up, whereas in other in many other countries,
Speaker 2: a lot of people just like the government's got me.
Speaker 2: I don't really need to care that much, but once
Speaker 2: this is your money. I think, uh, defined contribution plans
Speaker 2: in particular pushed Americans to become a little more savvy,
Speaker 2: and also the move to the fiduciary advisor. Once the
Speaker 2: advisor gets a percent of the assets instead of paid
Speaker 2: off by the mutual fund company, they're going to put
Speaker 2: the expens ory issue much higher because now it's coming
Speaker 2: out of their pot too. Would you agree with that,
Speaker 2: Sean most definitely.
Speaker 3: You know, the financial advisory market here in the US
Speaker 3: is so much more evolved than in the versus in
Speaker 3: the European market and Asian market as well, So that's
Speaker 3: definitely an area of potential growth in those markets.
Speaker 4: As the financial.
Speaker 3: Advisory committee or community starts to grow in those geographies,
Speaker 3: that that could be a good you know, Taal went
Speaker 3: for the ETF market.
Speaker 2: So the other note I wrote about this servidual was
Speaker 2: that BBH is predicting that global ETFs we'll hit thirty
Speaker 2: trillion dollars.
Speaker 1: I was gonna ask about this.
Speaker 2: Yeah, I mean right now they're at nine. Okay, that's
Speaker 2: a lot of trillions, and we should name the podcast
Speaker 2: after this says something like.
Speaker 1: That hindsight, the trillions thing looks really good.
Speaker 2: I know that was your idea.
Speaker 1: Okay, So thirty trillion is a lot of trillions. Is
Speaker 1: bluebrig intelligence north of that or south of that?
Speaker 2: So the note said that bbh's thirty trillion dollar call
Speaker 2: will in parentheses eventually come true. I just don't know
Speaker 2: if ten years might take longer. Here's why, Sean. The
Speaker 2: main reason is market appreciation. We just came from a
Speaker 2: decade where this stock market went up like twenty percent
Speaker 2: a year and it was just so so much above average.
Speaker 2: This reversion to the mean of historical returns could mean
Speaker 2: a lot of years where it's not up or down.
Speaker 2: And if you don't have that market appreciation, I don't
Speaker 2: think flows get you there. The other thing is what
Speaker 2: I said earlier, where I think some of these countries
Speaker 2: and their mindset and plumbing is so ingrained and it
Speaker 2: might even take twenty thirty years for some of that
Speaker 2: plumbing to loosen up so that the all the ETFs
Speaker 2: are on a level playing field with other types of structures.
Speaker 4: Yeah.
Speaker 3: So if you look at the thirty trillion number, they
Speaker 3: would have to grow at about a fourteen percent annual rate.
Speaker 3: And I think what we factored in in there is
Speaker 3: this conversion from mutual funds into ets and that could
Speaker 3: help springboard some of that growth rate. And if you
Speaker 3: just look at netflows, you know, like looking at last
Speaker 3: year's netflows ets were up about eight hundred and sixty billion.
Speaker 3: Mutua funds had net outflows about eight hundred and twenty
Speaker 3: billion of assets as well. So we're really looking at
Speaker 3: this more shift from mutual funds into ETFs, right, and
Speaker 3: whether that's through mutual fund to ETF conversions or more
Speaker 3: and more investors selling mutual funds to buy ets, which
Speaker 3: we've seen as a trend in our surveys results as well.
Speaker 1: So conversions have come up a couple times already. Let's
Speaker 1: just talk about what the survey indicated on that we've
Speaker 1: talked about conversions a lot. This is mutual fund conversions
Speaker 1: to ETFs. What did the survey reveal.
Speaker 3: We didn't have any particular questions on the mutual funded
Speaker 3: ETF conversions, but what we did see, you know, looking
Speaker 3: at just the number of conversions that have happened and
Speaker 3: just the number that are in the pipeline, they're going
Speaker 3: to be major mutu fund managers doing conversions into muture
Speaker 3: funds into ETFs. And if you also just look at
Speaker 3: the number of active ETFs come in to market last year,
Speaker 3: that represented you know, about a thirty percent increase in
Speaker 3: a number of active ETFs. So these traditional muta fund
Speaker 3: managers that said, hey, we're never going to launch an
Speaker 3: ETF are now launching ets because they know they need
Speaker 3: to have that product in their in their product lineup.
Speaker 3: So I think that's where we're seeing potential opportunities, not
Speaker 3: only obviously market appreciation, but also that just that pure
Speaker 3: number of new entrants coming in this space and basically
Speaker 3: taking away from the mutual land market.
Speaker 1: Yeah.
Speaker 2: And I will say I actually used that in my
Speaker 2: I was just on a Canada tour and one of
Speaker 2: the points I made was that BBH has thirty trillion.
Speaker 2: JP Morgan preicted the US market to hit fifteen trillion
Speaker 2: in the next five years, and Bank of America two
Speaker 2: years ago predicted fifty trillion global by twenty twenty nine.
Speaker 2: My point wasn't are they going to all come true?
Speaker 2: My point was a they're directionally correct. I think we
Speaker 2: can agree. But here's some real inside Wall Street firms
Speaker 2: now making these predictions and putting out product. Morgan Stanley
Speaker 2: jumped in, this is big boy money, right. So to
Speaker 2: Sean's point, if you get a lot of those clientele,
Speaker 2: a lot of those fas, plus the blob of money
Speaker 2: that's in mutual funds. Let's say half of it comes over,
Speaker 2: you could get close even without a lot of market appreciation.
Speaker 2: But again, last year was in twenty twenty one, the
Speaker 2: flows were nine hundred billion and that was a record. Well,
Speaker 2: in order to get to thirty trillion from you know,
Speaker 2: you would need more than that every year. So that's
Speaker 2: the only reason I'm most slightly cautious. But I'm certainly
Speaker 2: with you in spirit, and I think you'll eventually see
Speaker 2: thirty trillion, no doubt.
Speaker 1: So what about commodity ETFs. Because we've talked about fixed
Speaker 1: income ETFs a con on the program, like and they've
Speaker 1: become more and more prevalent, but we haven't spent as much,
Speaker 1: quite as much time talking about commodity ETFs. And I
Speaker 1: think just with the overall economic environment that we're in
Speaker 1: right now, there's increasing interest. So what do this survey
Speaker 1: reveal about commodity ETFs.
Speaker 3: Well, if you look at the commodity ETFs last year,
Speaker 3: I think seven on the top ten perform and ETFs
Speaker 3: were commodity based, right, And I think that's that's kind
Speaker 3: of a typical move to when there's volatility in the market,
Speaker 3: you know, uh, investors moving to different asset classes like commodities.
Speaker 3: You know, I think if you look at the investor results,
Speaker 3: you know, sixty nine percent plan to maintain or increase
Speaker 3: their allocations to commodity to atfs the next twelve months,
Speaker 3: with about you know, about half of those, so thirty
Speaker 3: three percent saying they're going to increase their allocation to
Speaker 3: commodity ETFs. So I think that, you know, that kind
Speaker 3: of bodes well for continuing uh, you know, assets coming
Speaker 3: into commodity space, and especially with you know, volatility in
Speaker 3: the marketplace, I think those those commodity ets, we'll gather
Speaker 3: some assets.
Speaker 2: Okay, let's turn to thematic ETFs. Themes were really big
Speaker 2: back in the low rate era, you know, like themes
Speaker 2: like ARC and innovation, clean tech and all that. Now
Speaker 2: everything's flipped. So you do have natural resources doing well
Speaker 2: because they are full of values thoughts, but it does
Speaker 2: seem like the thematic play tends to be more with growth.
Speaker 2: So I was surprised to this result, which is that
Speaker 2: you have respondents saying that in three years, what percentage
Speaker 2: of your portfolio will be in thematic ETFs in the
Speaker 2: US about forty three percent, say over eleven percent. That
Speaker 2: seems a little high for me. And then the other
Speaker 2: one is in China it's over eighty percent. Like they
Speaker 2: must they love their themes over there, I guess. But
Speaker 2: those both those numbers seem a little high relative to
Speaker 2: flows and anecdotal not saying that's crazy high, But what
Speaker 2: what's your thought there?
Speaker 3: We Well, first of all, all the investors that participate
Speaker 3: in survey are users of ETFs, right, so if they
Speaker 3: are not users of ets, we've we're not including them.
Speaker 3: So right out of the gates, there's there's that population
Speaker 3: that aren't investing in ets today, you know. So this increase,
Speaker 3: you know, typically inflates the numbers here a little bit.
Speaker 3: But I do think thematic ets, especially last year, had
Speaker 3: a little bit of a dip in market appreciation. But
Speaker 3: I think as more and more UH investors are coming into,
Speaker 3: you know, to this year, they'll be looking for different
Speaker 3: ways to invest their their assets into into new different
Speaker 3: asset classes, and I think thematic.
Speaker 4: Et s is one area where you.
Speaker 3: Know, investors looking to diversify away from market capital type
Speaker 3: of products they'll be moving into into more thematic ETFs.
Speaker 1: Also thought it was interesting what some of the strategies
Speaker 1: in the thematic ETFs that resonate. Obviously, Internet and technology
Speaker 1: are a big one, but artificial intelligence came up as
Speaker 1: one that would be particularly interesting in the US and
Speaker 1: in Greater China. What did you make of that?
Speaker 3: Well, I think that's that's obviously a huge growth area
Speaker 3: across you know, just not even financial services, but across
Speaker 3: how different firms are using AI to improve their you know,
Speaker 3: back office operations. So I think, you know, investors are
Speaker 3: trying to figure out ways to capitalize on that growth
Speaker 3: into the AI community and that that that obviously will
Speaker 3: kind of bode well for those types of products in
Speaker 3: the future.
Speaker 1: And how why do you think the Americans are so
Speaker 1: much more bullish on cannabis than everybody else? That was
Speaker 1: another one that jumped out at me.
Speaker 3: I think it's just you know, the evolution of the
Speaker 3: ETF market, right, there's a lot more cannabis type of
Speaker 3: ETFs here in the US market. And once again, that's
Speaker 3: another you know, asset class that investors are looking you know,
Speaker 3: some some investors are looking to get some exposure to
Speaker 3: whereas over in in you know, Europe, you know, there's
Speaker 3: a few products there, but I don't believe there's any
Speaker 3: over in in Asia.
Speaker 2: Yet, all right, let's move to ESG, my favorite topic.
Speaker 1: What what surprised you here?
Speaker 4: It does?
Speaker 2: It doesn't surprise me when I see surveys way over
Speaker 2: optim being way over optimistic on ESG. And I'll tell
Speaker 2: you why, Sean. It's not your fault. Nobody filling out
Speaker 2: a survey wants to be judged. That's typically why political
Speaker 2: polls can be off. You don't really want to share
Speaker 2: that you're voting for this one person. So in this case,
Speaker 2: you have forty five percent of US investors say they
Speaker 2: want to increase their exposure to ESG. That's a lot
Speaker 2: of money. I know Europe is good, but Europe's almost fake.
Speaker 2: They're just relabeled at ESG and the government it pushes
Speaker 2: everybody there, and it's a it's not natural. US is
Speaker 2: a natural market, and last year US esgtfs accounted for
Speaker 2: one percent of flows. This year there's outflows. Why they're underperforming.
Speaker 2: I think the underperformance because they tend to be overweight
Speaker 2: tech and growth, which is not is you know now
Speaker 2: value and energy had such a good run. I think
Speaker 2: that underperformance, just like we saw of currency, HGTFS is
Speaker 2: going to have a lot of once bitten twice shy
Speaker 2: going on. In other words, even if ESG has another
Speaker 2: run where tech and growth outperform and they look good,
Speaker 2: I think the tourists are shaken out for good. I
Speaker 2: think you might have a small niche of two three
Speaker 2: percent market share of true believers. I've stood by this
Speaker 2: call for six seven years, even before it was cool.
Speaker 2: Now some more people have been somewhat critical of ESG,
Speaker 2: but that's my theory. So I'm not surprised these are
Speaker 2: the results. And I'm not saying this is wrong. I
Speaker 2: just think people are going to generally say yeah, because
Speaker 2: they don't want their name attached to somebody who doesn't
Speaker 2: like ESG, because it's to be like, what you don't
Speaker 2: like this stuff? Are you a bad person?
Speaker 4: Yeah?
Speaker 1: There's a lot to react to.
Speaker 3: Yeah, No, Eric, I think this is definitely one of
Speaker 3: probably the surprising results from the survey, you know, because
Speaker 3: I I don't know if investors are putting, you know,
Speaker 3: taking action, or putting money where their mouth is as
Speaker 3: it relates to this response.
Speaker 4: You know.
Speaker 3: However, to your earlier point, it's definitely a different world
Speaker 3: over in Europe. If you look at flows into Europe,
Speaker 3: about sixty five percent of flows last year, we're you know,
Speaker 3: titled ESG ETFs and they have about nineteen percent of
Speaker 3: the market share over there. So I think that's that's
Speaker 3: an area that is you know, obviously embracing ESG type
Speaker 3: of products. I think there's definitely been a you know,
Speaker 3: a pullback in the US market, especially in this this
Speaker 3: first half of the year, with concerns around greenwashing.
Speaker 4: Uh.
Speaker 3: You know, index providers reclassifying some of their indices that
Speaker 3: were previously ESG that are no longer ESG. And then
Speaker 3: you know some large jitutional investors kind of you know
Speaker 3: pulling back on their investments into ESG products. So I
Speaker 3: completely agree with you on that one.
Speaker 1: Okay, so time for one of my favorite big takeaways,
Speaker 1: which was the use of robo advisors has tripled in
Speaker 1: the last year, that kind of from from ten percent
Speaker 1: to twenty nine percent. I thought that was phenomenal, Sean,
Speaker 1: and I wondered why you thought that happened. Obviously this
Speaker 1: has been around for a second, but like, why all
Speaker 1: of a sudden has the robo advisors seems to be
Speaker 1: gaining appeal.
Speaker 3: I think it's just you know, with more and more
Speaker 3: you know, self directed investors you know, managing their money.
Speaker 3: You know, robo advisors, you know, they're they're a cheap
Speaker 3: way to kind of, you know, have some professional advice.
Speaker 3: And I think ets obviously play a role in that
Speaker 3: with just the underlying assets and the robo advisors, and
Speaker 3: so I think that's what's really driving that is more
Speaker 3: of maybe the younger investors that are coming in look
Speaker 3: looking for advice, embracing more robo advisor platforms.
Speaker 2: All right, let's turn to active ETFs. This is section
Speaker 2: which lines up with the flows perfectly. So the question
Speaker 2: is do you plan to increase your allocation to active
Speaker 2: ETFs this year? In the US thirty nine percent say increase, well, Joel,
Speaker 2: this year, active ETFs have captured about thirty three percent
Speaker 2: of the flows. That's pretty close. Last year they captured
Speaker 2: fourteen percent of the flows. That's big numbers for something
Speaker 2: that only makes up five percent of the assets. So
Speaker 2: active ETFs finally having their day. I have a theory
Speaker 2: on this, Sean. I'd like to get your theory on
Speaker 2: why active is finally taking off, because remember you've been
Speaker 2: in this industry for a while. It was supposed to
Speaker 2: be the year of active, like ten times in a
Speaker 2: row it. Finally it happened, and I think here's I
Speaker 2: think two things. One, the regime change fundamentals mattered, and
Speaker 2: active tends to be more fundamentally weighted and interested in fundamentals,
Speaker 2: so they did a little better. Number Two, these big
Speaker 2: firms like JP Morgan, Evantist DFA came into the industry
Speaker 2: and came out with low cost back. And if we
Speaker 2: did a study, we looked at the active share, which
Speaker 2: is how different it is from the benchmark. The more
Speaker 2: the less active share it has, the lower the fee is.
Speaker 2: In other words, these funds are being priced in a
Speaker 2: beta adjusted way so that you're really only paying for
Speaker 2: the active, not the beta, which can now be gotten
Speaker 2: for free. And I think this was the problem for
Speaker 2: a lot of the entrance up until now, they were
Speaker 2: charging you for the beta too, and I think advisors
Speaker 2: didn't really they weren't responding to that.
Speaker 3: What do you think, Yeah, no, I think you're one
Speaker 3: hundred percent right on. With some of these these large
Speaker 3: mutual fund managers coming in this space, creating these active ets,
Speaker 3: it's creating more you demand in the marketplace, and you
Speaker 3: know they are being priced lower than their mutual fund brethren.
Speaker 3: You know, so I think that's all, you know, what's
Speaker 3: driving some of this growth and just a pure number
Speaker 3: of launches that we're seeing. Right, So the number of
Speaker 3: active etss that came out last year increased by thirty
Speaker 3: percent of just new products coming to market. And so
Speaker 3: these mutua fund managers they you know, they see the
Speaker 3: outflows into the muta funds, and they know they need
Speaker 3: to have an ETF, you know, to be competitive for
Speaker 3: a certain type of investor type, which is growing.
Speaker 2: Okay, let's have a little fun. I know, there's this
Speaker 2: interesting relationship between advisors and the wholesalers. So you actually
Speaker 2: had this section here, which I wasn't expecting. It was
Speaker 2: kind of cool. There's a zoom boom going on, Joel.
Speaker 2: They don't want to do they don't want to see
Speaker 2: you anymore if you're a if you're a wholesaler, they
Speaker 2: want you to just zoom them.
Speaker 1: Maybe emailing.
Speaker 2: Yeah, it seems like a lot of in person stuff.
Speaker 2: Maybe it's just because the COVID or because there's so
Speaker 2: many issuers they get inundated. What's your take on why
Speaker 2: that has grown so much versus the in person wholesale
Speaker 2: kind of meeting.
Speaker 3: Well, I think you know, we are, we're going to
Speaker 3: be living in this hybrid world, you know, going forward, right,
Speaker 3: And I think just like financial advisors, you know, they
Speaker 3: like to get in and get out of meetings, and
Speaker 3: this is a very efficient way to do that. I
Speaker 3: think when you're thinking about from a wholesaler perspective, it
Speaker 3: can be you know, less time on planes and having
Speaker 3: more fruitful meetings with advisors. However, there's a cost to that,
Speaker 3: So how do you build up those relationships and so
Speaker 3: you know, I think they're still going to be made
Speaker 3: for that in person relationship to kind of really move
Speaker 3: the needle. But I do think this hybrid world that
Speaker 3: we're in that more and more wholesalers will be connecting
Speaker 3: with advisors through the use of zoom.
Speaker 2: Yeah, but do you get the golf balls? If it's
Speaker 2: over zoom, you don't get the golf balls, do you?
Speaker 4: Well, you still have mail, you can still mail those out.
Speaker 2: That's the best of both worlds. Look, you had ten
Speaker 2: minutes on zoom, just mail me the provy ones.
Speaker 1: So Sean lots of surveys. You've done lots of surveys.
Speaker 1: I've done lots of surveys. Eric Wishes, He's done lots
Speaker 1: of surveys. The thing with the survey is that you
Speaker 1: get the results back in your life, like what popped?
Speaker 1: What surprises me? So I'm curious when you got these
Speaker 1: results in what was the thing that surprised you most?
Speaker 3: You know, I still think one of the things that
Speaker 3: surprised me is, you know, nearly half of the investors
Speaker 3: still planned to add cryptocurrency and digital assets into their
Speaker 3: into their portfolios, right, And I think that is a
Speaker 3: shocking you know number, you know, just given you know
Speaker 3: the volatility and that that asset class, right, and.
Speaker 1: So wasn't it so that they could short it? Though?
Speaker 2: Maybe that's what it is that does seem high.
Speaker 1: I was surprised to see that as well. But do
Speaker 1: you think they wanted to come off of like, oh,
Speaker 1: if it was you know, something I could more easily short,
Speaker 1: that would be great.
Speaker 2: Yeah, that is that it. I don't know what do
Speaker 2: you make of that?
Speaker 1: Truly? I think part of it was that. But it's
Speaker 1: also like, look like after something gets this beaten down,
Speaker 1: this gets to the whole thing that we talk about
Speaker 1: a lot, where you have a lot of things that
Speaker 1: are so safe and predictable. It's like, where's the hot
Speaker 1: sauce and like maybe if somebody got lucky and had
Speaker 1: some hot sauce shiny object.
Speaker 2: Right, yeah, I mean crypto it's just had such a
Speaker 2: bad year performance wise with SBF, but you know, it
Speaker 2: went up again. I mean it's like a cockroach. You
Speaker 2: cannot kill it like.
Speaker 1: It's just but you can't easily treat it either.
Speaker 2: I know. And it does tend to have you know,
Speaker 2: the correlation is could be valuable to I get it.
Speaker 2: I'm just surprised with.
Speaker 1: This audience.
Speaker 2: Well, right, this isn't like, well, Sean, here here's a theory.
Speaker 2: Because you're interviewing people who use dtfs, you're probably you're
Speaker 2: probably actually tilting towards younger people and early adopter types
Speaker 2: who probably are more interested in crypto than if you
Speaker 2: interviewed a bunch of I don't know, people who hold
Speaker 2: mutual funds or something.
Speaker 4: I mean that could be too.
Speaker 3: But we also have a number of institutional investors that
Speaker 3: are looking to increase their exposure to crypto as well. Right,
Speaker 3: And I do think it is you know, not for
Speaker 3: the faint of heart, but certain investor types that are
Speaker 3: looking as a diversification away from you know, a new
Speaker 3: asset class that they that potentially could create some returns, right,
Speaker 3: and you know to your earlier point, you know, bitcoin
Speaker 3: was at fifteen thousand, and you know it's at thirty
Speaker 3: thousand or so today, So it's some real returns in
Speaker 3: in in the first half of the year.
Speaker 2: So, Sean, we actually touched on two things that my
Speaker 2: team and I we nerd out on this question. It's
Speaker 2: like a it's like, this is what ETF NERD comedy
Speaker 2: is like in our persistent chat. What do you think
Speaker 2: will happen first the consolidated tape in Europe or a
Speaker 2: spot bitcoin ETF in the US.
Speaker 4: Wow, that's that's a tough question there.
Speaker 1: That was Wow.
Speaker 2: How isn't this the mescificity of that arsle from the
Speaker 2: nerd vault.
Speaker 3: Yeah, we've had to go to the consolidated tape in Europe.
Speaker 2: All right, Good, at least you gave an answer. I
Speaker 2: think I think a spot ETF. I think if Gendler
Speaker 2: moves on, I think it opens the door probably a
Speaker 2: little more.
Speaker 1: But you may be right, okay, Sean. Final question one
Speaker 1: that we often ask on trillions favorite ETF ticker other
Speaker 1: than anything that Brown Brothers Harriman is affiliated with.
Speaker 4: Well, that's a tough, tough question there.
Speaker 3: You know, I think tok is kind of an interesting,
Speaker 3: uh interesting.
Speaker 1: Bring the cannabis answer. Yeah, I like that.
Speaker 4: Yeah.
Speaker 2: By the way, did you you know what the expense
Speaker 2: ratio in toke is.
Speaker 4: I don't know it off hand.
Speaker 2: No, it's forty two basis points. But on the Bloomberg
Speaker 2: DS page it goes to three decimals, so it's four two. Oh,
Speaker 2: that's meant favor. You got to love that sort of
Speaker 2: artistry that was embedded into the ECF. I love that.
Speaker 1: Not a coincidence, uh, Sean McNinch, thanks so much for
Speaker 1: joining us on Trillions.
Speaker 5: Thanks for having me, Thanks for listening to Trillions until
Speaker 5: next time. You can find us on the Bloomberg terminal,
Speaker 5: Bloomberg dot com, Apple Podcasts, Spotify.
Speaker 1: And wherever else you like to listen. We'd love to
Speaker 1: hear from you. We're on Twitter.
Speaker 5: I'm at Joel Webber Show, He's at Eric Paulchnis. This
Speaker 5: episode of Trillions was produced by Magnus