WEBVTT - Samara Cohen on Managing ETFs (Podcast) 0:00:02.040 --> 0:00:07.160 This is mesters in Business with Very renaults on Bloomberg Radio. 0:00:08.240 --> 0:00:13.480 This weekend on the podcast, I have yet another special guest. 0:00:13.680 --> 0:00:18.200 Extra special guest, Samarica Cohne is the chief investment officer 0:00:18.360 --> 0:00:21.720 at Black Rocks, where she manages E t f s 0:00:21.800 --> 0:00:26.800 and index investing. Black Rock is ten trillion dollars their 0:00:26.840 --> 0:00:31.480 E t F businesses over three trillion their index businesses 0:00:31.520 --> 0:00:37.760 also over three trillion UH. Samara is consistently on everybody's 0:00:37.800 --> 0:00:42.720 list of most influential women in finance. But that's not 0:00:42.800 --> 0:00:44.280 why you want to listen to this. You want to 0:00:44.320 --> 0:00:47.440 listen to this because there really are very few people 0:00:47.440 --> 0:00:52.199 in the world more knowledgeable about managing e t f s, 0:00:52.320 --> 0:00:57.800 managing indexes. What passive really means, how people should be 0:00:57.880 --> 0:01:03.480 thinking about the actual engineering of products if you want 0:01:03.520 --> 0:01:08.840 to have broad market exposure or specific types of beta. Really, 0:01:09.440 --> 0:01:13.200 I'm gonna stop talking and just say, with no further ado, 0:01:13.680 --> 0:01:20.520 my conversation with Samaricane, this is mesters in Business with 0:01:20.680 --> 0:01:25.880 Very Results on Bloomberg Radio. My extra special guest this 0:01:25.920 --> 0:01:30.600 week is Samaricane. She is Black Rocks chief investment officer 0:01:30.760 --> 0:01:34.920 for E t F s and index investments. Black Rock 0:01:35.000 --> 0:01:39.120 manages about ten trillion dollars. The E t F business 0:01:39.280 --> 0:01:44.200 is about three point to seven trillion. Uh. Samaricane, Welcome 0:01:44.440 --> 0:01:47.440 to Bloomberg. Thank you so much, Barry. I'm happy to 0:01:47.440 --> 0:01:49.480 be here. I'm happy to have you here. I have 0:01:49.520 --> 0:01:52.480 so many questions to ask you, but I have to 0:01:52.600 --> 0:01:56.200 start out with your education, which we usually skimp over. 0:01:56.680 --> 0:02:00.240 So you graduated you pen with a b us in 0:02:00.400 --> 0:02:05.560 economics and finance at Wharton, but you also had a 0:02:05.720 --> 0:02:09.600 b a in theater arts. How has theater training helped 0:02:10.040 --> 0:02:13.799 in your financial career? First, Barry, when you hear theater, 0:02:14.240 --> 0:02:16.960 a lot of people might think that I was an actor, 0:02:17.040 --> 0:02:18.720 So I feel like I need to start with the 0:02:18.760 --> 0:02:22.840 fact that I was decidedly a backstage kid. My love 0:02:22.880 --> 0:02:27.359 of theater was very much on the production design, directing, uh, 0:02:27.520 --> 0:02:30.560 you know, behind the scenes side, and that has definitely 0:02:30.639 --> 0:02:33.480 helped me um across the course of my career. But 0:02:33.520 --> 0:02:36.600 I have to tell you, I came to the University 0:02:36.600 --> 0:02:39.400 of Pennsylvania to be a theater major, and I left 0:02:39.440 --> 0:02:42.400 with the dual degree in finance and theater. So finance 0:02:42.480 --> 0:02:45.519 was something I discovered because I knew I was good 0:02:45.520 --> 0:02:48.600 at math. In fact, when I started college, I didn't 0:02:48.600 --> 0:02:50.520 really need to take any math classes because I had 0:02:50.560 --> 0:02:52.760 all of this credit and I missed it, And so 0:02:52.800 --> 0:02:56.000 I discovered markets and economics and it felt like math 0:02:56.040 --> 0:02:59.720 with a purpose. So and I got to combine the 0:02:59.720 --> 0:03:02.000 fin angel degree with the theater degree, which made my 0:03:02.120 --> 0:03:04.519 parents much more comfortable with the fact that I was 0:03:04.560 --> 0:03:08.360 spending all of my summers working for regional theater companies basically, 0:03:09.080 --> 0:03:11.360 but it was a big part of learning who I 0:03:11.400 --> 0:03:15.080 am and today in my role, I often remember being 0:03:15.120 --> 0:03:20.480 told that um casting is of directing and putting the 0:03:20.600 --> 0:03:22.800 right person in the right seat is a lot about 0:03:22.919 --> 0:03:26.400 leading any business. So it definitely has played a part throughout. 0:03:27.360 --> 0:03:30.680 Really interesting, So you you end up in turning your 0:03:30.760 --> 0:03:33.800 Goldman sacks on the trading floor pretty early in your career. 0:03:34.320 --> 0:03:38.840 Tell us what that was like and how theatrical was that. Well, 0:03:38.880 --> 0:03:42.800 actually I came to Goldman out of business school. I well, 0:03:42.800 --> 0:03:45.240 my first job was actually a black Rock. That's where 0:03:45.280 --> 0:03:46.920 I came out of college. I was a black Rock 0:03:46.960 --> 0:03:50.400 for four years, went to business school, and part of 0:03:50.440 --> 0:03:52.960 why I went back to school after black Rock was 0:03:53.040 --> 0:03:56.520 in my head I thought maybe I could further combine 0:03:56.600 --> 0:03:59.200 this love of finance and love of theater and how 0:03:59.320 --> 0:04:01.200 might I do it? And I loved the idea of 0:04:01.200 --> 0:04:03.840 going back to school. I'm kind of a voracious learner 0:04:03.920 --> 0:04:06.200 and I'd worked hard, and I liked the idea of 0:04:06.240 --> 0:04:08.720 meeting other people and seeing what was out there after 0:04:08.960 --> 0:04:13.680 four years of working. And in that summer and actually 0:04:13.680 --> 0:04:15.520 in the process of figuring out where I wanted to 0:04:15.560 --> 0:04:18.400 work for the summer, I visited a trading floor and 0:04:18.480 --> 0:04:21.480 I walked onto the trading floor and I thought, this 0:04:21.640 --> 0:04:24.800 is it. It's a lot like theater. It's a lot 0:04:24.880 --> 0:04:29.480 like that, like multitasking, high energy, collaborative environment where lots 0:04:29.480 --> 0:04:32.240 of things are happening at the same time, and I 0:04:32.320 --> 0:04:36.640 thrive in that. And so actually the theater, the trading 0:04:36.680 --> 0:04:40.920 floor I found pretty theatrical and that really worked for me. Yeah, 0:04:40.920 --> 0:04:43.479 there's a there's a buzz, there's an electricity on a 0:04:43.560 --> 0:04:46.680 big trading floor, which I think is one of the 0:04:46.720 --> 0:04:50.440 things that's lost from old Wall Street. You can replace 0:04:50.520 --> 0:04:54.200 it with more efficient algorithms and technology, but man, when 0:04:54.240 --> 0:04:56.920 you walk onto a big floor, you just feel that 0:04:57.000 --> 0:05:00.240 there's nothing like that, and ever have a des ire 0:05:00.360 --> 0:05:03.400 to become a trader? Was that did that ever appealed 0:05:03.400 --> 0:05:07.440 to you until I walked onto the trading floor. Um, 0:05:07.480 --> 0:05:09.719 the idea really scared me. And you know what, I 0:05:09.800 --> 0:05:12.040 actually I don't think I've ever told anybody this. I 0:05:12.120 --> 0:05:16.960 did not proactively send my resume to the securities division. 0:05:17.080 --> 0:05:19.440 They reached out to me as part of a diversity 0:05:19.520 --> 0:05:22.360 hiring effort to get more women onto the trading floor. 0:05:22.520 --> 0:05:24.360 And the reason I didn't send my resume was it 0:05:24.400 --> 0:05:26.760 sounded really intimidating to me. And so I think that's 0:05:26.800 --> 0:05:30.680 just an important thing to note, is that sometimes if 0:05:30.720 --> 0:05:33.839 something's interesting, even if it's intimidating, it's worth checking out. 0:05:33.839 --> 0:05:35.719 Because I knew, and yes, there weren't a lot of 0:05:35.720 --> 0:05:37.919 women on the floor when I walked out there, but 0:05:37.960 --> 0:05:40.640 it was really clear to me that I would. You know, 0:05:40.680 --> 0:05:43.000 once I got my bearings and learned to speak the language. 0:05:43.000 --> 0:05:45.240 It can be an intimidating place at first, but but 0:05:45.320 --> 0:05:46.800 I knew it would be a great fit for me. 0:05:47.120 --> 0:05:50.120 So let me make sure I understand the chronology of 0:05:50.160 --> 0:05:53.599 your career. So you intern at black Rock, then you 0:05:53.720 --> 0:05:57.760 work at Goldman for like sixteen years something like that, 0:05:58.120 --> 0:06:01.840 and then you boomerang back it's a black Rock. Did 0:06:01.880 --> 0:06:04.520 I did I get that right, Yeah, pretty much. I 0:06:04.560 --> 0:06:07.240 went to black Rock out of college, and then business 0:06:07.240 --> 0:06:10.919 school from black Rock, and then Goldman from business school, 0:06:11.000 --> 0:06:14.440 and then back to black Rock. M that's really really interesting. 0:06:15.080 --> 0:06:18.200 I heard the phrase black Rock boomerangs. Is this a thing? 0:06:18.279 --> 0:06:20.840 Do people like work at black Rock leave and then 0:06:21.320 --> 0:06:24.560 you know, magnetically get drawn back? What's that about? In 0:06:24.600 --> 0:06:27.280 my case, it was definitely a thing. I don't know 0:06:27.400 --> 0:06:30.000 the like what the total stats are, but it's definitely 0:06:30.080 --> 0:06:33.960 true for other people. I mean, people's careers are marathons 0:06:34.040 --> 0:06:36.520 and and not sprints and and you know, part of 0:06:36.560 --> 0:06:39.479 my marathon, an important part of my marathon actually was 0:06:39.560 --> 0:06:42.320 that sixteen years in Goldman. I think had it not 0:06:42.520 --> 0:06:45.320 been for that, I wouldn't have the seat I currently 0:06:45.360 --> 0:06:48.680 occupy a black Rock. So I'm pretty grateful for it, um. 0:06:48.720 --> 0:06:51.479 But also I think my my history with black Rock 0:06:51.640 --> 0:06:55.400 and my passion for the firm and its purpose did 0:06:55.520 --> 0:06:58.200 draw me back as well. So let's talk about that 0:06:58.279 --> 0:07:01.839 seat you have at black Rock. You recently were promoted 0:07:01.880 --> 0:07:05.120 to chief Investment Officer of E t F s and 0:07:05.240 --> 0:07:09.760 Index Investments. That sounds like a pretty serious job, especially 0:07:09.760 --> 0:07:12.640 when we consider at black Rock. You know, it's well 0:07:12.680 --> 0:07:15.800 over three trillion dollars in assets. Tell us a little 0:07:15.840 --> 0:07:20.440 bit about your new job responsibilities. I'm really excited about 0:07:20.440 --> 0:07:23.000 the new job and and even more than than me 0:07:23.080 --> 0:07:25.920 being in the job, I'm excited about the fact that 0:07:25.960 --> 0:07:28.920 we have a chief investment officer role for E t 0:07:29.080 --> 0:07:31.800 F S and index and it actually is broader than 0:07:31.840 --> 0:07:34.400 the e t F book. It's our whole indexing book 0:07:35.120 --> 0:07:38.920 and in the and what it means in short, is 0:07:38.960 --> 0:07:42.560 that I'm accountable for for investment performance in our E 0:07:42.680 --> 0:07:45.480 t F and index book, which I love telling people 0:07:45.480 --> 0:07:47.440 because sometimes they look at me and they say, well, 0:07:47.520 --> 0:07:51.040 I don't really understand that is an investment performance the 0:07:51.160 --> 0:07:54.080 out performance of the benchmark. And aren't you Smarrow at 0:07:54.080 --> 0:07:57.720 E t F and index person the benchmark? So what 0:07:57.920 --> 0:08:01.080 is investment performance? And we done a lot of work, 0:08:01.280 --> 0:08:05.040 um really in partnership with our clients and articulating what 0:08:05.240 --> 0:08:07.560 that is. And in the case of E t F 0:08:07.600 --> 0:08:10.640 S and index, it's two things. It's first what we 0:08:10.800 --> 0:08:13.720 call market quality. What do you expect in an E 0:08:13.840 --> 0:08:16.240 t F That's how it trades in the market, secondary 0:08:16.280 --> 0:08:20.920 market volumes, market quality in stressed scenarios, premium discount behavior. 0:08:21.000 --> 0:08:24.400 There's a bunch of metrics that we monitor with respect 0:08:24.480 --> 0:08:27.760 to E t F market quality. Part of my job 0:08:27.880 --> 0:08:30.800 is to be accountable for performing on those and the 0:08:30.840 --> 0:08:34.400 other part is delivering on those index outcomes, which in 0:08:34.440 --> 0:08:38.679 a world where what we can index is evolving as 0:08:38.760 --> 0:08:43.280 more markets and more strategies are indexed. UM is also 0:08:43.360 --> 0:08:46.400 important that we deliver to investors what they have signed 0:08:46.400 --> 0:08:50.520 on for with that index objective. And so that's what 0:08:50.559 --> 0:08:52.360 it means to be the CIO of an E t 0:08:52.520 --> 0:08:56.600 F and index book. So you mentioned UM market quality 0:08:56.800 --> 0:09:01.280 and performing within the market. You know, was only m 0:09:01.920 --> 0:09:04.320 less than two years ago. We had the big COVID 0:09:04.360 --> 0:09:08.439 sell off in March, and people were concerned that e 0:09:08.600 --> 0:09:11.040 t f s were not going to be able to 0:09:11.360 --> 0:09:14.560 manage the pressure. They wouldn't be able to deal with 0:09:14.600 --> 0:09:17.559 all of the stress, you know, all the usual criticisms 0:09:17.559 --> 0:09:21.920 of indexing plus additional criticisms of e t F s. 0:09:22.720 --> 0:09:28.600 How did ETFs perform during that collapse from February to April. 0:09:30.520 --> 0:09:34.160 The people who were concerned before the COVID bout of 0:09:34.240 --> 0:09:38.000 volatility had a huge and rich set of data to 0:09:38.120 --> 0:09:42.559 draw from. UH when we emerged from those volatile markets. 0:09:42.600 --> 0:09:47.400 That showed that actually ets have really supported stressed markets, 0:09:47.520 --> 0:09:51.920 added liquidity, added transparency, and that was on a full 0:09:52.000 --> 0:09:56.400 display over the COVID volatility period, particularly in the bond market, 0:09:56.800 --> 0:10:00.320 where if you think about what was happening across the world, 0:10:00.480 --> 0:10:03.520 there were traders who were, you know, setting up their 0:10:03.640 --> 0:10:07.160 their home desks there at their home, you know, uh, 0:10:07.400 --> 0:10:09.720 you know, hundreds of that one trading floor that we 0:10:09.760 --> 0:10:13.559 talked about became thousands and thousands of home office trading floors. 0:10:14.120 --> 0:10:17.920 And the bond market in particular still has largely operated 0:10:17.960 --> 0:10:20.800 in an over the counter bilateral basis, and the bond 0:10:20.880 --> 0:10:23.040 market for for that reason and a whole lot of 0:10:23.080 --> 0:10:25.679 other reasons, you know, in the treasury market in particular, 0:10:26.160 --> 0:10:29.400 became very hard to access, while e t s you 0:10:29.400 --> 0:10:32.240 could see on your phone, they were transparent, they were trading. 0:10:32.800 --> 0:10:34.760 One of the stats that I love to quote that 0:10:34.800 --> 0:10:37.040 I think is quite indicative of what was happening over 0:10:37.120 --> 0:10:39.760 that period is, you know, we had an investment grade 0:10:39.760 --> 0:10:43.040 ETF that traded on one of those volatile days in 0:10:43.120 --> 0:10:47.120 March March nine thousand times on exchange, and of course, 0:10:47.160 --> 0:10:50.079 every time something prints on an exchange is price formation. 0:10:50.760 --> 0:10:55.520 Whereas it's underlying bonds. The top holdings of that underlying 0:10:55.559 --> 0:11:01.880 bond portfolio traded on average thirty times, so N versus thirty. 0:11:02.240 --> 0:11:05.960 There just wasn't um price formation happening in the bond market, 0:11:06.000 --> 0:11:08.080 but it was happening in the E t F market 0:11:08.440 --> 0:11:11.800 with buyers and sellers meeting on exchange, which meant that 0:11:11.840 --> 0:11:13.840 there wasn't a whole lot that needed to happen in 0:11:13.840 --> 0:11:17.360 the underlying bond market to to support that. And so 0:11:17.559 --> 0:11:20.680 really uh and what's interesting is you can see a 0:11:20.720 --> 0:11:23.520 whole lot has been written by policymakers around the world 0:11:23.520 --> 0:11:27.120 about this supportive role that ets have effectively played in 0:11:27.360 --> 0:11:30.559 in stressed markets. The you know, SEC has written about it, 0:11:30.679 --> 0:11:35.040 the BOE aiasco UM. So it's been exciting to have 0:11:35.160 --> 0:11:38.120 this really rich data set to drawn looking back at 0:11:38.160 --> 0:11:42.400 that period, the bond discussion is really interesting. And I 0:11:42.440 --> 0:11:45.160 was referring to equities, but we'll circle back to that. 0:11:45.679 --> 0:11:48.920 You know a lot of people have complains that bond 0:11:48.960 --> 0:11:52.360 markets are thin. You know, you have a few thousand stocks, 0:11:52.360 --> 0:11:56.600 but there are just countless, countless numbers of bonds, many 0:11:56.600 --> 0:11:59.960 many more times of bonds, and there are stocks. It's 0:12:00.040 --> 0:12:05.320 seems like the bondy t F universe handled the crash 0:12:05.440 --> 0:12:07.839 or plunge maybe use a more accurate word because we're 0:12:07.840 --> 0:12:11.800 so short, handled it pretty well. Everybody. We saw a 0:12:11.800 --> 0:12:14.400 lot of money rotate out of stocks into bonds as 0:12:14.400 --> 0:12:16.720 a safe harbor. Didn't seem like there were a lot 0:12:16.760 --> 0:12:21.000 of dislocations or wild price anomalies or an inability to 0:12:21.040 --> 0:12:24.680 get an execution. The bondy t F universe seemed to 0:12:24.720 --> 0:12:28.600 behave really well. The bondy t F universe behaved well, 0:12:28.679 --> 0:12:32.360 and as a result, the bond market behaved better. And 0:12:32.400 --> 0:12:34.520 that's one of the things that I get really excited 0:12:34.559 --> 0:12:38.640 about because the fact is I'm really a lifelong um 0:12:38.880 --> 0:12:42.040 markets reformer. That's a passion that I have. I've spent 0:12:42.120 --> 0:12:45.440 my entire career in the markets, and and my desire 0:12:45.480 --> 0:12:48.880 at this point is to contribute to making them better, 0:12:48.960 --> 0:12:52.559 making them safer, more efficient, more transparent. And we can 0:12:52.600 --> 0:12:56.200 measure how bondy tfs actually did that in the bond market. 0:12:56.320 --> 0:13:00.000 And in fact, interestingly, as a result of the demand 0:13:00.040 --> 0:13:02.040 and for bondy t fs that came out of the 0:13:02.080 --> 0:13:06.439 COVID period, we have seen the bond market uh start 0:13:06.520 --> 0:13:10.240 to trade uh more electronically big pieces of the bond 0:13:10.280 --> 0:13:13.920 market portfolios. In the bond market, bond dealers have started 0:13:13.960 --> 0:13:18.400 to really invest in algorithmic pricing, which creates more transparency, 0:13:18.920 --> 0:13:22.320 more trading, and more liquidity. So we've written about and 0:13:22.320 --> 0:13:25.559 we've observed this what we call a real virtuous cycle 0:13:25.679 --> 0:13:28.080 of how e t f s have been integrated into 0:13:28.160 --> 0:13:31.000 the fabric of of capital markets across the board. And 0:13:31.040 --> 0:13:33.880 we can definitely talk about equities, but how in the 0:13:33.920 --> 0:13:36.840 bond market it has been good for bondy tfs and 0:13:36.880 --> 0:13:39.600 also good for bonds. So when we had the Great 0:13:39.600 --> 0:13:42.440 Financial Crisis into oh eight oh nine, I thought that 0:13:42.520 --> 0:13:45.840 was pretty much the end of the argument that indexing 0:13:46.040 --> 0:13:49.520 is problematic for markets or ETFs aren't going to be 0:13:49.559 --> 0:13:51.599 able to handle pressure, that that should have been the 0:13:51.720 --> 0:13:54.160 last word in that. I was kind of surprised to 0:13:54.240 --> 0:13:57.960 see those same arguments still hanging around. And then March 0:13:59.480 --> 0:14:02.280 uh the execution seemed to go off without a problem. 0:14:02.600 --> 0:14:05.160 There were a handful of individual stocks that sort of 0:14:05.160 --> 0:14:09.559 their pricing get a little wacky. But is this the 0:14:09.880 --> 0:14:13.160 end of the passive is destroying the markets and E 0:14:13.320 --> 0:14:16.080 t F or dangerous argument? Or is there are they 0:14:16.160 --> 0:14:18.760 just going to trot this out every time there's um 0:14:19.240 --> 0:14:23.120 something else to complain about. I'd love your thoughts on that, 0:14:23.240 --> 0:14:26.760 Barry Um. I would hope that it's uh, it's it's 0:14:26.840 --> 0:14:29.320 closer to the end where we where we can kind 0:14:29.320 --> 0:14:32.520 of look forward to two numerous things that can improve 0:14:32.600 --> 0:14:35.320 the markets. But look, you make an excellent point. I mean, 0:14:35.440 --> 0:14:38.280 to be fair, In two thousand and eight, I was 0:14:39.640 --> 0:14:42.640 I was on the bond trading floor actually at Goldman 0:14:42.960 --> 0:14:44.880 and I didn't know what an e t F was 0:14:45.040 --> 0:14:47.560 like in two thousand eight, you know, in the fixed 0:14:47.600 --> 0:14:50.720 income markets, you didn't you know, we weren't talking about 0:14:50.720 --> 0:14:53.280 what e t f s were. But to your point, 0:14:53.800 --> 0:14:55.840 it is true if we look back at the data 0:14:56.280 --> 0:14:59.920 during those weeks and months when what was so value 0:15:00.080 --> 0:15:03.040 by investors was transparency and it was so feared was 0:15:03.160 --> 0:15:05.880 the lack of transparency when all this information was coming 0:15:05.920 --> 0:15:08.320 out about bank balance sheets and what was on balance sheets. 0:15:08.640 --> 0:15:10.560 We did see a real pick up in volume and 0:15:10.680 --> 0:15:13.040 velocity of et F trading in two thousand and eight 0:15:13.120 --> 0:15:16.800 and in two thousand nine, and we have repeated stressed 0:15:16.880 --> 0:15:19.600 market events like the big energy sell off that happened 0:15:19.600 --> 0:15:22.040 at the end of twenty fifteen, the you know what 0:15:22.160 --> 0:15:25.960 we call the vulpocalypse that happened in February of eighteen, 0:15:26.440 --> 0:15:29.640 where we have repeatedly seen E t F performed well 0:15:29.800 --> 0:15:33.920 under pressure and actually adds support to high velocity markets. 0:15:34.400 --> 0:15:36.960 And yet this still you know, comes out from time 0:15:37.040 --> 0:15:39.760 to time, which feels like kind of the language that 0:15:39.880 --> 0:15:42.960 comes out around any sort of disruptive technology. But I 0:15:43.080 --> 0:15:46.960 do think, like we talked about, the data is pretty clear, 0:15:48.920 --> 0:15:54.440 you are definitely responsible for a lot of capital. And 0:15:54.760 --> 0:15:56.960 that leads me to a quote of yours that I 0:15:57.280 --> 0:16:01.040 need an explanation on. At Black Rocks. Is absolutely nothing 0:16:01.240 --> 0:16:06.560 passive about index investing, explain. I am on a mission 0:16:06.760 --> 0:16:10.480 Ferry to replace the word passive with the word index 0:16:10.640 --> 0:16:13.520 when people talk about E T S and index investing, 0:16:14.040 --> 0:16:19.200 because how we manage our portfolios is extremely active. And 0:16:19.280 --> 0:16:21.520 it goes back to that conversation we had about what 0:16:21.720 --> 0:16:24.400 investment performance is in the context of an E T 0:16:24.600 --> 0:16:29.920 F and index investment book, it is delivering the index outcomes, 0:16:30.440 --> 0:16:33.960 which the reason E T s and and index monthes 0:16:34.040 --> 0:16:38.960 exist is that indexes aren't often easily investible. They could 0:16:39.000 --> 0:16:41.640 have thousands and thousands of securities in them, and so 0:16:41.840 --> 0:16:44.640 depending on how much you you you know, are investing. 0:16:45.080 --> 0:16:48.240 You can't perfectly replicate the index, and so you need 0:16:48.360 --> 0:16:53.080 to optimize to deliver that index outcome with as little 0:16:53.200 --> 0:16:57.200 friction as possible. So that's delivering the index outcomes. And 0:16:57.280 --> 0:17:00.240 then there is that huge dimension of eat e F 0:17:00.400 --> 0:17:03.920 market quality ensuring that the e t f s tracked 0:17:03.960 --> 0:17:07.600 the underlying portfolios with you know, we call it premium 0:17:07.680 --> 0:17:13.119 discount behavior, ensuring that they're strong secondary market quality, transparency 0:17:13.240 --> 0:17:15.639 and liquidity in the e t F s. So we 0:17:15.760 --> 0:17:19.000 have teams of people, not robots, but actual people and 0:17:19.080 --> 0:17:21.200 a lot of them, by the way, or women around 0:17:21.280 --> 0:17:26.520 the world, who are actively managing our market quality and 0:17:26.640 --> 0:17:29.320 investment performance in our et F and index book. So 0:17:29.400 --> 0:17:33.080 that's why there is absolutely nothing passive about it. Huh. 0:17:33.240 --> 0:17:37.879 Really interesting. We've gone through these periods where there are 0:17:37.960 --> 0:17:44.400 these spasms of anti indexing um sentiment, and it goes 0:17:44.440 --> 0:17:47.119 all the way back to Jack Bogel and the early 0:17:47.280 --> 0:17:52.399 days of indexing in the nineties seventies. Indexing is an 0:17:52.440 --> 0:17:56.280 American it's we've heard people call it Marxist. It's going 0:17:56.359 --> 0:18:02.400 to lead to market crashes. Um. What what's your perspective 0:18:02.480 --> 0:18:05.680 when you hear these things crop up. By the way, 0:18:05.720 --> 0:18:09.639 the latest one is it's anti competitive and it's going 0:18:09.720 --> 0:18:12.280 to lead to price fixing and a lack of lack 0:18:12.359 --> 0:18:15.680 of competition due to all this ownership. How do you 0:18:15.760 --> 0:18:20.639 respond to those sort of backwater law review silliness? I 0:18:21.320 --> 0:18:25.680 begin with and we've written on this uh this year 0:18:25.840 --> 0:18:29.040 in in something we call the Investor Progress Report, But 0:18:29.200 --> 0:18:32.040 we estimate that there's about a hundred and twenty million 0:18:32.200 --> 0:18:34.800 people around the world who are accessing our e t 0:18:34.960 --> 0:18:40.320 F and index capabilities. UM. There are more people accessing 0:18:40.400 --> 0:18:43.520 the markets and investing in the markets and participating in 0:18:43.640 --> 0:18:48.080 economic growth on their terms than ever before in history. 0:18:48.800 --> 0:18:52.320 And from my perspective, there's really nothing that's more American 0:18:52.680 --> 0:18:57.080 than that. UM. So that's how I think about it. 0:18:57.160 --> 0:19:00.320 I think ETF spring markets. They bring market out access, 0:19:00.400 --> 0:19:05.119 they bring transparency, and increasingly they bring choice to lots 0:19:05.240 --> 0:19:09.920 of individual investors who are saving for retirement and thinking 0:19:10.000 --> 0:19:13.440 about their financial futures with the help of ets in 0:19:13.560 --> 0:19:15.920 ways that they couldn't before. And a lot of the 0:19:16.320 --> 0:19:18.000 you know, one of the pieces that we that we 0:19:18.119 --> 0:19:20.480 put out recently points out to the fact that a 0:19:20.560 --> 0:19:23.440 lot of the households who own e t s in 0:19:23.520 --> 0:19:27.440 the United States have have media and incomes of AD dollars. 0:19:27.520 --> 0:19:31.240 So you're talking about investors who simply didn't have market 0:19:31.400 --> 0:19:34.520 access before, who, as a result of e t f 0:19:34.600 --> 0:19:39.880 s and indexation can can get diversified strategies so manage 0:19:39.920 --> 0:19:44.159 their risks the way more sophisticated institutional investors have and 0:19:44.320 --> 0:19:47.399 participate in the markets. So let's talk a little bit 0:19:47.440 --> 0:19:50.280 about product engineering. What tell us a little bit about 0:19:50.320 --> 0:19:54.520 what that means. What sort of projects are these teams 0:19:54.600 --> 0:19:59.520 working on. It's one of those phrases that definitely resonates. 0:20:00.960 --> 0:20:03.040 I'm glad that it resonates. It's something that we've been 0:20:03.119 --> 0:20:06.320 using for for a few years now. And that team, 0:20:06.840 --> 0:20:10.680 which is global UM. There are product engineers in really 0:20:10.800 --> 0:20:15.080 every major region in the world, and they do two things. First, 0:20:15.280 --> 0:20:18.880 they helped design the operating models and the investment process 0:20:19.040 --> 0:20:22.040 for for new e t F s. UM how will 0:20:22.200 --> 0:20:26.000 creation redemption work, What are the characteristics of the index 0:20:26.160 --> 0:20:30.120 what you know? How will the index rebalance those types 0:20:30.160 --> 0:20:32.000 of things when it comes to new E t s. 0:20:32.480 --> 0:20:35.480 And the second piece of what they do, which is 0:20:35.520 --> 0:20:39.920 actually really critical, is they continue to manage the structure 0:20:39.960 --> 0:20:43.760 of the product over its lifetime. So sometimes we will 0:20:43.880 --> 0:20:47.520 identify something in one of those market quality statistics that 0:20:47.800 --> 0:20:49.920 you know, let's say it seems to be trading a 0:20:50.000 --> 0:20:52.240 little bit wide in the secondary market, and we'll go 0:20:52.320 --> 0:20:54.800 out and we'll talk to market makers and ask what's happening, 0:20:54.840 --> 0:20:57.480 and they'll say, well, it's a little tricky to hedge 0:20:57.600 --> 0:21:00.480 because of X, Y and z. And sometimes we can 0:21:01.040 --> 0:21:04.480 change something structurally and how the market interacts with the 0:21:04.560 --> 0:21:08.320 e t F to improve its investment performance and market quality. 0:21:08.440 --> 0:21:12.320 And that's the purview of our product engineering groups. So 0:21:12.840 --> 0:21:16.360 I tell all of our teams, you know, I want 0:21:16.400 --> 0:21:18.639 all of our teams to be able to explain how 0:21:18.800 --> 0:21:21.800 they contribute to the active management of our e t 0:21:22.000 --> 0:21:24.520 F and index book. And that's how the product engineering 0:21:24.600 --> 0:21:29.160 does by by identifying the operating model and by continuously 0:21:29.280 --> 0:21:33.280 assessing and improving it. So let's talk about the rest 0:21:33.400 --> 0:21:39.359 of your team. You have portfolio engineers, risk managers, platform architects, 0:21:40.040 --> 0:21:46.960 market structure developers, and products operating model designers. That sounds 0:21:47.040 --> 0:21:51.359 like some very intriguing job descriptions. Tell us about what 0:21:51.560 --> 0:21:55.320 a market structure developer does or some of those other 0:21:55.880 --> 0:22:00.159 really interesting titles. I think they're all exciting jobs, and 0:22:00.280 --> 0:22:03.119 I do have to make a plug for for anybody 0:22:03.200 --> 0:22:07.600 who is is considering going into investing. It's never a 0:22:07.720 --> 0:22:10.639 dumb question to ask what is the job? Because there 0:22:10.680 --> 0:22:13.080 are so many different jobs. And I remember when I 0:22:13.200 --> 0:22:15.720 was in college, I was almost scared to ask that. 0:22:15.880 --> 0:22:18.680 But but as you just pointed out, and it's it's, 0:22:18.800 --> 0:22:20.359 you know, fun for me to kind of hear you 0:22:20.720 --> 0:22:23.520 walk through it. There are so many different types of 0:22:23.600 --> 0:22:27.080 ways to be an investor and to participate in an 0:22:27.119 --> 0:22:31.680 investment platform. So really we do three things. Number one, 0:22:31.840 --> 0:22:34.560 we manage day in and day out. We are responsible 0:22:34.640 --> 0:22:37.520 for the investment performance of our funds, how we're managing 0:22:37.560 --> 0:22:42.439 the portfolios through rebalances, through corporate actions UM, and how 0:22:42.480 --> 0:22:46.600 we're managing et F market quality. That's number one. Number 0:22:46.640 --> 0:22:51.879 two is we are continuously improving our platform and the 0:22:52.119 --> 0:22:55.800 Aladdin technology that we use to manage our portfolios to 0:22:56.400 --> 0:22:59.200 make things that can be lower touch, lower touch, to 0:22:59.240 --> 0:23:02.720 give us capath city to spend more time on you know, 0:23:02.840 --> 0:23:07.120 new markets and new strategies. So that platform architecture piece 0:23:07.160 --> 0:23:09.560 how we create scale. That's kind of bucket too of 0:23:09.640 --> 0:23:13.080 what we do. And the third part is ecosystem leadership, 0:23:13.200 --> 0:23:16.119 and you talked about um. You know, we talked about 0:23:16.240 --> 0:23:21.520 how we engage with liquidity providers with stock exchanges. Earlier 0:23:21.640 --> 0:23:25.280 you talked about the COVID volatility, and I think it's 0:23:25.320 --> 0:23:28.639 really important and with a really interesting case study in 0:23:28.720 --> 0:23:32.920 the US that a lot of the volatility guard rails 0:23:33.000 --> 0:23:34.920 that had been put in place by the u S 0:23:35.000 --> 0:23:39.359 stock exchanges over the five years preceding March twenty twenty, 0:23:39.800 --> 0:23:42.720 market wide circuit breakers limit up, limit down, like the 0:23:42.760 --> 0:23:45.600 whole limit up limit down framework was really only ten 0:23:45.680 --> 0:23:48.240