Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you
Speaker 1: along with my co host Lisa Brahma Waits. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money. Whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Well, US equity indices are very
Speaker 1: close to reattaining the all time high levels as global
Speaker 1: trade tensions received, at least temporarily. To get a sense
Speaker 1: of where we move to next or we go to
Speaker 1: next with the markets, we welcome Christina Hooper. Christina is
Speaker 1: chief Global market strategist for invest Goo. She joins us
Speaker 1: live from the Phoenix Convention Center at the b n
Speaker 1: Y Melon Pershing Insight Conference. Christina, thanks so much for
Speaker 1: being with us. It really does appear that certainly one
Speaker 1: of the main drivers for investors sentiment is trade. Is
Speaker 1: that your sense absolutely and what I would say, more
Speaker 1: specifically economic policy on certainty created by the current tariff
Speaker 1: situation and the threats of more tariffs. So right now
Speaker 1: we're looking at markets that are broadly expecting rate cuts
Speaker 1: that I put that in plural. Before the end of
Speaker 1: this year, PIMCO came out and so that there could
Speaker 1: be a fifty basis point rate cut in July if
Speaker 1: economic conditions deteriorate. Do you agree with that assessment. I
Speaker 1: think that is extremely unlikely. I think the FED wants
Speaker 1: to certainly be very careful and thoughtful about any rate
Speaker 1: cuts it makes, and so what we're more likely to
Speaker 1: see is communication around standing ready to ease. But I
Speaker 1: would be very, very surprised to see a fifty basis
Speaker 1: point rate cut in one fell swoop. So I guess Christina,
Speaker 1: one of the things that Lisa and I discussed back
Speaker 1: and forth is you know, what does or what do
Speaker 1: multiple rate cuts tell us? Does it really suggest that
Speaker 1: this economy perhaps is weaker than maybe the markets are discounting? Well,
Speaker 1: it really all depends on how the FED frames this,
Speaker 1: because keep in mind, we've heard a lot of chatter
Speaker 1: from FED members over the last several months around inflation
Speaker 1: targeting and the idea that we could potentially see the
Speaker 1: FED changing its inflation target raising it so to speak.
Speaker 1: Um that would mean that essentially the FED could cut
Speaker 1: rates without any changing economic conditions and it would be
Speaker 1: a really easy way to ease without causing alarm. So
Speaker 1: if the Fed does not cut rates, what happens to
Speaker 1: equity markets? If the Fed does not cut rates, It's
Speaker 1: all about the language. It's all about what we see
Speaker 1: in the announcement. If they take out the patient language,
Speaker 1: I think that will matter a lot to markets and
Speaker 1: won't cause any kind of sell off because I don't
Speaker 1: know if we're going to see any rate cut in June.
Speaker 1: But it's all about the language and perhaps what we
Speaker 1: see in the dot plot. But I mean, for example,
Speaker 1: because right now markets, if you look at FED funds
Speaker 1: futures contracts, they are except pricing in two and a
Speaker 1: half rate cuts by December. Let's say the Federal Reserve
Speaker 1: signals or just doesn't cut rates at all, or cuts
Speaker 1: rates once. I mean, does that does that's for a
Speaker 1: big sell off. It all depends on how this plays out, right,
Speaker 1: because we can see FED funds futures change quite rapidly,
Speaker 1: and so expectations might change by the end of the year.
Speaker 1: But let's assume in that scenario that Fed funds expectations
Speaker 1: remain the same um FED funds futures remain the same
Speaker 1: in that kind of kind of environment, we would likely
Speaker 1: see disappointment in markets, at least temporarily. So, Christina, one
Speaker 1: thing that I guess that Lisa and I are hearing
Speaker 1: more and more from economists and from strategists that that
Speaker 1: appear on our show is the you know, the expectation
Speaker 1: that maybe mid quite likely to see a recession. Is
Speaker 1: that something you think is reasonable? Well, we're certainly following
Speaker 1: it closely, but from our perspective where we stand today,
Speaker 1: we don't think, um that a recession is the base
Speaker 1: case for now. A lot can happen between now and then,
Speaker 1: and some of it is certainly dependent upon UH trade
Speaker 1: policy and where that goes. But it seems as though
Speaker 1: major central banks stand ready to provide accommodation. We've already
Speaker 1: seen financial conditions ease in just the last few weeks,
Speaker 1: and I would suggest that this is going to be
Speaker 1: an environment where once again UH central banks step in
Speaker 1: and save the day. UH. We could certainly see a
Speaker 1: deceleration in growth, but at this stage it seems unlikely
Speaker 1: that we actually see a recession by mid Christina, are
Speaker 1: you seeing your clients making big allocation shifts at this point?
Speaker 1: We are not, um clients understand, and what we stress
Speaker 1: is taking that long term perspective. Now, that doesn't mean
Speaker 1: there aren't small tactical shifts, and I certainly think that
Speaker 1: what we're likely to see going forward is continued to
Speaker 1: focus on a growth tilt within US equities, and I'm
Speaker 1: hoping that will also see something of a tilt towards
Speaker 1: more income producing asset classes, given that we're likely to
Speaker 1: be in a lower for longer environment. We're talking high
Speaker 1: old bonds, well, not necessarily high yeld bonds specifically, but
Speaker 1: an array of higher yielding asset classes that would include
Speaker 1: high yield bonds, um munis, including higher yielding munis, but
Speaker 1: also convertible bonds as well as dividend paying stocks. Sometimes
Speaker 1: they get overlooked, and I think many of them have
Speaker 1: been overlooked in the recent rally. So, Christina, we are
Speaker 1: more than ten years into this economic cycle. So as
Speaker 1: you think about where you're allocating money in the equity markets,
Speaker 1: are there certain sectors that, just given where we are
Speaker 1: in the cycle, appeal more to you than some others. Well,
Speaker 1: we see this cycle continuing, although of course decelerating, and
Speaker 1: so that would suggest uh and overweighting towards the growth
Speaker 1: style in this kind of environment, and so I would
Speaker 1: favor technology and to a certain extent, healthcare names as
Speaker 1: being quite attractive. Now. Of course, that doesn't mean there
Speaker 1: aren't headwind for those sectors. In particular, tech is likely
Speaker 1: to face more regulation. But this is more of um uh,
Speaker 1: you know, two year to three year outlook, um, And
Speaker 1: right now tech looks attractive despite some of the head
Speaker 1: winds we could see. So I just I'm curious, given
Speaker 1: the fact that you're bullish on risk assets over the
Speaker 1: near to long term or certainly the even the near term,
Speaker 1: do you think that treasury yields are too low? Tenure
Speaker 1: yields right now two point one per cent, and if so,
Speaker 1: how much could they rise? Well, treasury yields UM are
Speaker 1: definitely low relative to where they have been, but that
Speaker 1: doesn't mean that that's going to change. And what it
Speaker 1: does mean, though, is that it makes equities look more attractive.
Speaker 1: It makes dividend paying stocks look more attractive. So I
Speaker 1: think we could continue in this situation for a while, UM,
Speaker 1: because I think the bond market is accurately reflecting the
Speaker 1: fear in the market that we're not seeing being reflected
Speaker 1: in stocks. Christina has the global trade tensions. I guess
Speaker 1: the escalation of some trade tensions is that caused you
Speaker 1: guys to rethink maybe your allocation to emerging markets. Is
Speaker 1: it just too risky to to maybe be a little
Speaker 1: bit too aggressive there. Well, what it's encouraging us to
Speaker 1: do and what we've what we've been advocating for some
Speaker 1: times to be very discerning and emerging markets. There's no
Speaker 1: reason to change your overall waiting to emerging markets, but
Speaker 1: it's important to be selective within emerging markets, focusing on
Speaker 1: those areas that are actually benefiting UM from what's going
Speaker 1: on in in uh the larger macro environment, including trade wars,
Speaker 1: as well as the FED turning more accommodative. UH. So
Speaker 1: I would favor in general Asia e M in this environment.
Speaker 1: Christina Hooper, thank you so much as always for being
Speaker 1: with us. We love getting your insights. Christina Hooper is
Speaker 1: chief Global Market Strategistic invest Go, which overseas nearly a
Speaker 1: trillion dollars. Facebook uncovered emails that may indicate the chief
Speaker 1: executive officer Mark Zuckeenberg. Zuckenberg knew of quote questionable privacy practices.
Speaker 1: That comes as scrutiny continues to mount with respect to
Speaker 1: big tech and their privacy as well as just UH
Speaker 1: their size issues, their dominance of different markets. This is
Speaker 1: definitely one of the focuses here at the b n
Speaker 1: Y Mel and Pershing Insight Conference, especially given the fact
Speaker 1: that big tech has accounted for a good proportion of
Speaker 1: the incredible rally that we've seen in US equities over
Speaker 1: the past few years. Joining me here on site, Phil Orlando,
Speaker 1: chief equity market strategist and head of Client portfolio Management
Speaker 1: that Federated Investors overseeing about five billion dollars in assets.
Speaker 1: You are going to be on a panel delayed gratification?
Speaker 1: Are we going to see delayed gratification for all of
Speaker 1: the naysayers of big tech? How much do these rising
Speaker 1: issues of regulation around big tech cloud your view or
Speaker 1: affect your view when it comes to how to allocate
Speaker 1: two tech shares? I think we could have some chopped
Speaker 1: this summer, and certainly this technology issue that has just
Speaker 1: popped up on the wires could certainly contribute to that.
Speaker 1: You look at UH sort of the political environment that's
Speaker 1: going on in Washington right now. You're hearing a lot
Speaker 1: of populism in terms of technology is getting too big.
Speaker 1: It's unregulated. We need to break them up, put some
Speaker 1: more laws in place. UH. And then you think about
Speaker 1: the fact that we've got the democratic primaries coming up,
Speaker 1: I think the right at the end of this month,
Speaker 1: I'm absolutely positive this will be a topic of discussion
Speaker 1: in terms of the Q and A with the candidates
Speaker 1: and the and the moderators. So the the noise, the fewer,
Speaker 1: the headline risk associated with this issue is likely to
Speaker 1: get bigger rather than smaller over the next couple of months.
Speaker 1: Our view is maybe the you know, the market UH
Speaker 1: could could have some chop over the over the summer months,
Speaker 1: and and you know, the technology issue could certainly be
Speaker 1: one of the issues that contributes to that chop. So, Phil,
Speaker 1: one of the things that's clearly been UH, you know,
Speaker 1: impacting markets over the last several months is trade concerns,
Speaker 1: first with China UH and then with Mexico, and of
Speaker 1: course the Mexico trade issues very tightly tied to immigration
Speaker 1: UH and how that should evolve. I know you recently
Speaker 1: put out a note on how you think UH immigration
Speaker 1: UM rules should be amended. Give us your thoughts on that.
Speaker 1: So the immigration issue is has been a hot button
Speaker 1: issue for me for a couple of years now. And
Speaker 1: and uh, the note that I just put out this week,
Speaker 1: uh looks at a couple of the big macro issues.
Speaker 1: On the one hand, you just got the Jolts report
Speaker 1: on Monday, the JULTU reports pretty good, seven and a
Speaker 1: half million new jobs. We've got more new jobs that
Speaker 1: we're creating in this country then we've got them ployed
Speaker 1: people on the sidelines that could possibly fill them, all right,
Speaker 1: So that's a good thing and a bad thing. On
Speaker 1: the other hand, our for our organic fertility in this
Speaker 1: country is at a cyclical trough. Are are women are
Speaker 1: only having an average of one point seven children per woman?
Speaker 1: That that's half of what the rate of fertility was
Speaker 1: when I was born in the fifties. I love the
Speaker 1: clinical terms for this, the organic fertility rates people having
Speaker 1: babies go on. Yeah, And and we understand what's going on.
Speaker 1: Women are focused more in their careers and their education,
Speaker 1: and and with a trillion and a half dollars of
Speaker 1: student loan dead couples, I think are making a conscious
Speaker 1: decision to have smaller families rather than larger families. It's expensive.
Speaker 1: I know, my kids, my youngest as a junior at
Speaker 1: Penn State right now. So I'm well, exactly exactly. So,
Speaker 1: So the point is that that we're we're producing less kids,
Speaker 1: and yet the labor market is strong enough that we
Speaker 1: need more workers. The solution, the way to bridge that
Speaker 1: gap is have an intelligent immigration policy, and and intelligence
Speaker 1: is sort of the key word here. That is an
Speaker 1: oxymoron when when referring to our leaders in Washington right now,
Speaker 1: they can't get out of their way. There's like the
Speaker 1: Keystone Cops trying to solve what should be a slam
Speaker 1: dunk issue in terms of making sure that we've got
Speaker 1: enough qualified workers coming in from from outside of the
Speaker 1: country in order to fill these jobs. So I think
Speaker 1: it's a legitimate question. It's one that that's been bothering me.
Speaker 1: I I so much so that I probably read about
Speaker 1: it every six months, you know. So it uh and
Speaker 1: so I wrote about it this week. So aside from
Speaker 1: fertility issues, and this is actually a very important one.
Speaker 1: I don't mean to diminish it. I mean it's one
Speaker 1: of the major drivers that people point to in Japan
Speaker 1: and why that abum. But I want to shift to
Speaker 1: one other area that's stagnant, and that is a US inflation.
Speaker 1: It does not appear to be going up, and we
Speaker 1: are seeing up markets price in increasingly. The Federal Reserve
Speaker 1: will cut rates next week and certainly thereafter. Do you
Speaker 1: think that's the right call? Inflation is benign? There's no question.
Speaker 1: The core Personal Consumption Expenditure Index, which is the FEDS
Speaker 1: preferred measure of inflation, is sitting at one point six
Speaker 1: percent as of the latest reading. Then we got a
Speaker 1: CPI number this morning. I think the core PC, the
Speaker 1: core c p I year a year, came down two
Speaker 1: percent even, Is that right, Lisa, Yeah, so it was
Speaker 1: core I'll look it up. I think it was two percent. Now,
Speaker 1: the spread the relationship between the PC and the CPI
Speaker 1: tends to be about a half percent. So that's consistent
Speaker 1: with Okay, that's consistent with the one point six pc
Speaker 1: numbers we are now. The market, I think, has built
Speaker 1: up in its mind that that inflation is too low
Speaker 1: and that the Fed is going to ride to the
Speaker 1: rescue at next week's f O m C meeting and
Speaker 1: start a rate cutting cycle. We disagree with that, and
Speaker 1: I think if, if, if we're right, that the Fed
Speaker 1: is not going to start cutting rates next week. That
Speaker 1: could represent some disappointment for the market, because the market
Speaker 1: has rallied pretty strongly here over the a couple of weeks.
Speaker 1: And there are a couple of issues. So issue number
Speaker 1: one is that inflation. I don't think it's a problem.
Speaker 1: I think it's benign, but I don't think we're risking
Speaker 1: a deflation or disinflationary sort of the environment. Point number two,
Speaker 1: We've got the G twenty meeting coming up in Osaka, Japan,
Speaker 1: at the end of the month. That's a very important
Speaker 1: meeting because we're expecting that she and Trump are gonna
Speaker 1: get together, uh and and you know, shake hands and
Speaker 1: and have a nice conversation, much like they did in
Speaker 1: Buenos Aires last year. And what that will do is
Speaker 1: not create a deal, but allow the the the beginning
Speaker 1: of a series of conversations between our minions and their
Speaker 1: minions too. I think get a trade deal back on track,
Speaker 1: let's say by Thanksgiving. Uh. And then the third issue
Speaker 1: is that that I wrote about this last week. The
Speaker 1: job's number we saw last Friday was terrible, and everyone's
Speaker 1: freaking out that we're going into recession. And I don't
Speaker 1: think that's the case. I think we had a bad number.
Speaker 1: I think it's an aberrant number, and I think the
Speaker 1: FED would be prudent to wait for another job's report
Speaker 1: or who before they they change policy dramatically. So my
Speaker 1: best guess is a cut from the FED, maybe at
Speaker 1: the July thirty one meeting at the earliest, and I
Speaker 1: think the market may be disappointed next week. What FED
Speaker 1: should do next week is take the dot off the
Speaker 1: board and then give us some happy talk about needing
Speaker 1: to come in, wanting to come in if they need
Speaker 1: to later in the cycle. Very good, Phil Orlando, Thank
Speaker 1: you so much for joining us. Phil Orlando, chief equity
Speaker 1: market strategist ahead of client portfolio management from Federated Investors. Well,
Speaker 1: the prospect of the U s slapping tariffs on Mexican
Speaker 1: goods is off the table for now, but it does
Speaker 1: appear that President Trump's patients with Mexico hinges on what
Speaker 1: may be an undeliverable promise, and that is to reduce
Speaker 1: some of the stream of immigration UH that the US
Speaker 1: is seeing at its southern border. Here to explain more
Speaker 1: about this is Josh wind Grove, a White House reporter
Speaker 1: joining us from Washington, d C. Josh, can you give
Speaker 1: us a sense of how much President Trump is sort
Speaker 1: of watching the flow of migration at the border in
Speaker 1: order to gauge whether or not to ramp up the
Speaker 1: rhetoric here with Mexico. I mean, he he has indicated
Speaker 1: that it is all about that, and that if those
Speaker 1: numbers don't go down it was a hundred and thirty
Speaker 1: three thousand apprehensions in May at the US Mexico border,
Speaker 1: then he's going to reserve the right to essentially do more,
Speaker 1: including maybe unsuspend those tariff threats. And we seem primed
Speaker 1: to kind of come to a head on it again,
Speaker 1: because of course there's a lot of reasons that the
Speaker 1: number is so high, and even those close to the
Speaker 1: presidents say that it's not there's no way that Mexico
Speaker 1: can do it on its own. Is a mix of factors,
Speaker 1: and Trump supporters would say that does include the need
Speaker 1: for changes in Congress. Refugee advocates would say it also
Speaker 1: includes addressing the root causes of the unrest in Central
Speaker 1: America that's sending these migrants on the road in the
Speaker 1: first place. So, Josh, is there any expectation that the
Speaker 1: plans that Mexico has initiated in terms of sending troops
Speaker 1: to its southern border. Can meaningfully have an effect. Yeah,
Speaker 1: I think most people think it would meaningful have an effect.
Speaker 1: I spoke yesterday with Barack Obama's former ambassador to Mexico,
Speaker 1: who thought it was a good framework. You know, everyone thinks,
Speaker 1: I think that this might be a good step. It's
Speaker 1: a question more of is it enough to really cut
Speaker 1: down that number? A hundred thirty three thousand is more
Speaker 1: than triple the same month a year ago. And I
Speaker 1: guess time will tell. One wrinkle on this though, is
Speaker 1: these numbers normally fall in the summertime. It's hot. People
Speaker 1: don't want to be, you know, walking a long distance
Speaker 1: in the United States as much. So if we do
Speaker 1: see those numbers drop, it could simply be be because
Speaker 1: as a seasonality. And then the question is, does take
Speaker 1: credit for that and you know, call his plan to
Speaker 1: win and move on? Uh? And even if he does
Speaker 1: do that, when they start rising again traditionally in the fall,
Speaker 1: as one would expect, does he get angry? Does he
Speaker 1: call it Mexicogan and say you're not doing enough? So, Josh,
Speaker 1: the reason why markets are so focused on that, and
Speaker 1: that's certainly one of the questions here at the b
Speaker 1: N Y Melon Pershing's inside conference point N team, where
Speaker 1: we are in Phoenix. The reason why people are focused
Speaker 1: on this is because US trade with Mexico is so
Speaker 1: fundamental to certain industries, in particularly the auto industry. I'm
Speaker 1: just wondering how companies can even make plans right now.
Speaker 1: I mean, basically, given that this all kind of hinges
Speaker 1: on a flow of migration here, what are the prospects
Speaker 1: for the U. S m c A to get past
Speaker 1: and some sort of longer lasting deal to give people
Speaker 1: conviction at this point? Yeah, I mean you raise a
Speaker 1: great point. Let me try to do with one point one.
Speaker 1: The scale of this is really difficult to overstate. Aside
Speaker 1: from China, the US buys more goods from Mexico than
Speaker 1: any the country. A five percent tariff across the board
Speaker 1: would affect a ton of stuff, and it would also
Speaker 1: affect a ton of stuff that crosses the border a
Speaker 1: bunch of times, like an auto production as you mentioned,
Speaker 1: So that tariff could compound pretty quickly in some of
Speaker 1: these companies to get into the weeds a bit a bit.
Speaker 1: Don't even have systems set up like the way they
Speaker 1: collect tariffs as his own you know, the whole gauntlet
Speaker 1: to run, you can imagine. And so if you've never
Speaker 1: been paying any you you you don't even know where
Speaker 1: to begin. So the potential headache for exporters, importers the
Speaker 1: economy is difficult to overstate. On the other side of
Speaker 1: the President simply likes tariffs. He believes that they are
Speaker 1: both an effective tool in negotiation and he believes that
Speaker 1: they're an effective thing generally. So I don't think you
Speaker 1: would ever rule out the chance that he would do it.
Speaker 1: He does want that U. S m C a trade deal.
Speaker 1: A lot of analysts think it's very difficult to imagine
Speaker 1: the Mexican government ratifying that deal. Is they still have
Speaker 1: to do. Of course, Congress also needs to ratify it
Speaker 1: if those tariffs are in place, So maybe we'll see
Speaker 1: if Congress can move on in the summer. So, Josh,
Speaker 1: you mentioned that hundred thirty thousand number of crossings recently.
Speaker 1: Is there a number that the Trump administration would find acceptable? Um,
Speaker 1: is there something we should be looking for? Well, yeah,
Speaker 1: it's a good question. I mean, they were we were
Speaker 1: down sort of the fifty thousand range just at the
Speaker 1: beginning of the year. I think if they got it
Speaker 1: back there, they'd be happy to claim victory. It's also
Speaker 1: noteworthy to say that this isn't the highest it's ever been.
Speaker 1: Diane fine Scene, a Democrat from California's noted this in
Speaker 1: a hearing yesterday. Was around one point six million coming
Speaker 1: around across the border annually, uh in and around two
Speaker 1: thousand Right now, we're on pace or nine hundred thousand,
Speaker 1: maybe a million, so a high number, higher than in
Speaker 1: recent years, much higher than in recent years, still fairly
Speaker 1: well below the highs that the US has scene in
Speaker 1: the past. So I guess that I'm wondering what are
Speaker 1: we looking for going forward in terms of some kind
Speaker 1: of guidance of the progress being made here. I think
Speaker 1: all I should be in July on that June number.
Speaker 1: Uh The US releases CDP releases annual or sort of
Speaker 1: monthly excuse me, monthly numbers of apprehensions at the border.
Speaker 1: If that June number is, you know, fair a bit
Speaker 1: lower than one thirties three, that's probably a good sign.
Speaker 1: If it is higher than, you know, I think all
Speaker 1: eyes will be on the President to react. And if
Speaker 1: it is lower and we get through a summer and
Speaker 1: we don't hear much about this again, investors might want
Speaker 1: to look again back and if that number starts rising
Speaker 1: in the fall, Traditionally, as I said, fall the weather
Speaker 1: gets a little more reasonable people, those numbers tend to
Speaker 1: rise again. Regardless of these measures, those numbers could rise again,
Speaker 1: in which case we could be back to square one.
Speaker 1: Josh Wyn Grove, thank you so much. Josh wyn Grove
Speaker 1: is a White House reporter for Bloomberg News, reporting from Washington,
Speaker 1: d C. It is going to reach more than a
Speaker 1: hundred and five degrees where we are, which is the
Speaker 1: Phoenix Convention Center at b and Y Melon Pershing Insights
Speaker 1: Conference for nineteen and one. Area of focus is the
Speaker 1: ongoing debate man versus machine, at least that's how it's
Speaker 1: been cast, the rise of E t f S, the
Speaker 1: cannibalization of the active management industry. Joining us now to
Speaker 1: sort of give us some real talk on where we
Speaker 1: are in this evolution is Jeff McCarthy, chief executive officer
Speaker 1: of E t F S Exchange Traded Funds at BNY Melon,
Speaker 1: here with us at the Phoenix Convention Center. So, Jeff,
Speaker 1: let's start with just sort of a state of play.
Speaker 1: How much has money flowed out of active into passive
Speaker 1: into e t f s. How far are we in
Speaker 1: this evolution? Yeah, thanks Lisa. So I think when you
Speaker 1: look at active funds, we've seen a continuous outflow over
Speaker 1: the last ten years of these funds. Now, the trick
Speaker 1: is you've seen the active fund market grow largely because
Speaker 1: of capital appreciation, but they've had negative inflows. On the inverse,
Speaker 1: E t s have a positive inflows year after year.
Speaker 1: This year year today, for the first four months of
Speaker 1: two thousand nineteen, we've seen eighty six billion flow into
Speaker 1: these products in the US. Last year two thousand seventeen
Speaker 1: over four hundred. So it's definitely an asset class or
Speaker 1: a structure I should say, I don't want to call
Speaker 1: it an asset class that's gaining momentum and gaining investor flows. So, Jeff,
Speaker 1: is there any end in sight to this trend? From
Speaker 1: your perspective, I think it's going to continue. And one
Speaker 1: of the things to look at is how big is
Speaker 1: the mutual fund market in the US. It's an over
Speaker 1: It's over twenty trillion in assets, and the E t
Speaker 1: F market is just at four trillion, So there's a
Speaker 1: lot of room to grow. There's a lot of aspects
Speaker 1: that are uncovered, especially when you look at the defined
Speaker 1: benefit to find contribution the four oh one k universe
Speaker 1: that's largely not penetrated by e t f s, And
Speaker 1: when e t f s make more headways into that area,
Speaker 1: I think you're going to see an asset growth pop
Speaker 1: in the e t F industry. So my impression is
Speaker 1: that in US equities, e t f s have already
Speaker 1: gotten a substantial share. Is that is that correct? I mean,
Speaker 1: do ETFs count for a significant proportion of retail investments
Speaker 1: and say the s yeah, I mean e t F
Speaker 1: today the market is seventy eight percent held in equity
Speaker 1: products sixtent and fixed income right, and then the list
Speaker 1: goes down, so they're largely held as equities strategies. But
Speaker 1: I don't think you know the end is in sight.
Speaker 1: I think you know ETFs continue to be, especially on
Speaker 1: the passive strategy, a product of choice. I mean institutional
Speaker 1: investors and retail investors use these products, and I think
Speaker 1: that's key to having a healthy investor access market. And
Speaker 1: seventy eight percent of investors by Greenwich Associates say that
Speaker 1: e t f s are their preferred vehicle for index strategies,
Speaker 1: and and Jeff, is it what to what extent? Is
Speaker 1: it just the lower fees that are driving e t
Speaker 1: f s? What's from your perspective some of the key
Speaker 1: drivers share? Well, I think low fees is the number one, right,
Speaker 1: all investors, institutional, retail, they're all price sensitive, right. And
Speaker 1: if you look at the flows into these products, of
Speaker 1: the flows going to products with expense ratios at twenty
Speaker 1: basis points or less, but then sixty of those are
Speaker 1: products at nine basis points and less. So there's really
Speaker 1: no reason why an investor should pay more than single
Speaker 1: digit from an expense ratio for product to get broad
Speaker 1: exposure into the US market. Because e t s are liquid, liquid,
Speaker 1: they are available, and they're transparent vehicles. Okay, So when
Speaker 1: you're talking to prospective investors in e t f s,
Speaker 1: is the low fee kind of the key aspect Because
Speaker 1: we've seen Fidelity, for example, have a negative a negative
Speaker 1: fee type of fund right that's been introduced to try
Speaker 1: to lure people in. We've seen cut fees cut to
Speaker 1: zero and at a certain point, uh, you have to
Speaker 1: wonder the viability of some of these of these companies
Speaker 1: of fund manager companies and where they're actually getting their money.
Speaker 1: Are people paying in other ways? I mean they are
Speaker 1: paying other ways. Now, I'm never gonna say, you know,
Speaker 1: Fidelity isn't gonna be viable, right, It's a it's a
Speaker 1: powerhouse asset manager. And I think if you look at
Speaker 1: Fidelity strategy, they have so much to offer investors, and
Speaker 1: so they'll offer investors products at zero, right. But to
Speaker 1: customers of Fidelity, why because they bring them into the
Speaker 1: Fidelity family, They leverage and they cross sell other products
Speaker 1: that are necessary for those investors. You have seen some
Speaker 1: ETFs come to market this year at zero or negative right,
Speaker 1: pain investors to invest. But you have to look at
Speaker 1: the fine details of those products. Right. They have disclosures,
Speaker 1: meaning they're waving their fee for the first year or
Speaker 1: until the fund gets to a hundred million in assets,
Speaker 1: and then the expense ratio goes up to nine team
Speaker 1: basis points. So it's not necessarily free. And I think
Speaker 1: you know the broad lesson of the best things in
Speaker 1: life are never free. You should apply that to investing.
Speaker 1: And I think you have to look at the product,
Speaker 1: the characteristics, What is the investment objective, what is the
Speaker 1: components of the index versus just the cost. But going
Speaker 1: back to my previous set statement, investors are price sensitive
Speaker 1: and cost is a large factor into asset allocation selection.
Speaker 1: Jeff McCarthy, thank you so much. Jeff as the chief
Speaker 1: executive officer of exchange traded Funds at b n Y Melon.
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
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Speaker 1: Twitter at pt Sweeney. I'm Lisa abram Woyds. I'm on
Speaker 1: Twitter at Lisa A. Bram wits one. Before the podcast,
Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio.