WEBVTT - Northern Trust’s Abner on Distributing Ladders 0:00:14.320 --> 0:00:17.360 Welcome to Inside Active, a podcast about active managers that 0:00:17.400 --> 0:00:20.040 goes beyond sound bites and headlines and looks deeper into 0:00:20.040 --> 0:00:24.880 the processes, challenges, and philosophies insecurity selection. I'm David cone, I, 0:00:24.920 --> 0:00:28.480 lead Mutual fund and active Research at Bloomberg Intelligence. So 0:00:28.720 --> 0:00:31.159 we all know active ETFs are now one of the 0:00:31.160 --> 0:00:34.880 fastest growing segments in asset management, and with fixed income 0:00:34.920 --> 0:00:38.400 ETFs being a large part of that. In addition, ten 0:00:38.440 --> 0:00:42.199 thousand Americans are reaching retirement daily while trillions sit in 0:00:42.280 --> 0:00:46.480 retirement accounts, and we're also seeing growing demand for predictable 0:00:46.479 --> 0:00:51.239 income and outcome oriented solutions as retirement accelerates. So to 0:00:51.280 --> 0:00:54.240 help us unpack what this means for active management inside 0:00:54.280 --> 0:00:57.680 the ETF rapper, we're joined by Dave Abner, who's head 0:00:57.680 --> 0:01:01.000 of Global ETFs and Funds at Northern Trust Asset Management. 0:01:01.400 --> 0:01:03.960 Dave, thank you for joining us. Thank you so much 0:01:04.000 --> 0:01:05.840 for having me on. David, it's great to be here. 0:01:07.160 --> 0:01:09.000 Let's start with you know, so two years ago you 0:01:09.000 --> 0:01:11.720 stepped into a role that spans both mutual funds and 0:01:11.760 --> 0:01:15.200 active ETFs. How do you think about where active belongs 0:01:15.240 --> 0:01:18.479 in each rapper, especially given Northern Trust heritage as an 0:01:18.520 --> 0:01:19.640 institutional manager. 0:01:20.280 --> 0:01:24.240 Yeah, thanks, it's a great question. Actually, the role is 0:01:24.360 --> 0:01:26.520 very unique in the industry too. I think I'm one 0:01:26.520 --> 0:01:33.200 of the few ETF sort of legacy ETF people. I 0:01:33.200 --> 0:01:35.000 would say I was here from the very beginning or 0:01:35.120 --> 0:01:39.080 very early on, to be overseeing a mutual fund business 0:01:39.080 --> 0:01:41.080 as well right now. So it's in a way I've 0:01:41.160 --> 0:01:43.560 kind of gone back, Like I learned about mutual funds 0:01:43.760 --> 0:01:47.480 as an investor early on, but then I got very 0:01:47.520 --> 0:01:51.040 into ETFs, and everything I learned about mutual funds over 0:01:51.040 --> 0:01:54.080 the last few years was really through the lens of ETFs, 0:01:54.400 --> 0:01:58.080 and now I oversee both businesses. So it's really been 0:01:57.600 --> 0:02:01.240 it's been a great learning experience, and it's given me, 0:02:01.520 --> 0:02:05.480 you know, a lot of ability to think about where 0:02:06.400 --> 0:02:09.239 active belongs in each wrapper. And I really don't I'm 0:02:09.240 --> 0:02:12.920 sort of I'm kind of product or wrap. I like 0:02:12.960 --> 0:02:16.840 to say, I'm rapper agnostic. Right. When investors come to 0:02:17.000 --> 0:02:21.079 our set Northern, we first start and we think about 0:02:21.120 --> 0:02:24.440 like what are they trying to achieve? What outcome are 0:02:24.480 --> 0:02:28.519 they trying to you know, generate, and then we think 0:02:28.560 --> 0:02:32.720 about what is the most appropriate wrapper to achieve that outcome? Right, 0:02:32.720 --> 0:02:36.000 So that's that's so you know from my seat whether 0:02:36.040 --> 0:02:37.960 you want to buy a mutual funder a ETF. If 0:02:38.000 --> 0:02:40.440 we think it's the right investment vehicle for you to 0:02:40.480 --> 0:02:43.840 get that outcome in, we're happy to you know, deliver it. 0:02:43.919 --> 0:02:47.920 Right Then, when I go beyond that, if I do 0:02:48.000 --> 0:02:52.280 I think active belongs more appropriately in one wrapper or another. No, 0:02:52.440 --> 0:02:54.840 I don't, I really don't. I think I think you 0:02:54.960 --> 0:02:57.840 have to. It's less about the rapper and it's more 0:02:57.880 --> 0:03:01.359 about the requirements of the strategy itself, right, Like, you 0:03:01.360 --> 0:03:04.840 don't want the rapper to be a constraint if I 0:03:04.880 --> 0:03:08.880 think about ETFs, and most CTFs have a need for 0:03:08.960 --> 0:03:12.919 daily transparency, if that will constrain the strategy, we may 0:03:12.919 --> 0:03:15.120 be better off launching the strategy in a mutual fund. 0:03:15.360 --> 0:03:17.960 So there's sort of a list of things that I 0:03:18.040 --> 0:03:21.440 think about regarding rappers when we're thinking about which way 0:03:21.440 --> 0:03:25.160 to wrap people rap rap strategies. For the most part, nowadays, 0:03:25.160 --> 0:03:27.880 I mean people are coming to us and really asking 0:03:27.960 --> 0:03:32.240 for the ETF rapper investors, right advisors in particular, they 0:03:32.360 --> 0:03:35.600 just you know, ETFs have I think we're sort of 0:03:35.680 --> 0:03:37.840 hitting that hockey stick moment. I'm sure we'll talk about 0:03:37.840 --> 0:03:40.720 it and demand is like they're you know, they're they're 0:03:40.800 --> 0:03:44.480 sort of uh, they're the desired vehicle sometimes even if 0:03:44.520 --> 0:03:47.000 it's not the right rapper, but they still want an ETF. 0:03:48.200 --> 0:03:50.640 Now that makes sense. I was you know, you know, 0:03:50.680 --> 0:03:53.520 I've been covering ETFs forever too, and you know, with 0:03:53.600 --> 0:03:55.720 my role as a mutual fund analyst, you know, I 0:03:55.760 --> 0:03:58.040 have to cover active ETFs too, because I mean, that's 0:03:58.040 --> 0:04:00.680 where the future is when you look at kind of 0:04:00.720 --> 0:04:04.840 the core active products Northern Trust has historically offered. Yeah, 0:04:04.880 --> 0:04:08.320 I noticed you got the flex shares on the vest 0:04:08.400 --> 0:04:10.880 on and you know, the legacy funds like DU and 0:04:11.120 --> 0:04:14.240 R you know, what the lessons from their performance and 0:04:14.320 --> 0:04:18.000 you know, like investor reception kind of inform your active 0:04:18.040 --> 0:04:19.360 product roadmap today. 0:04:20.320 --> 0:04:23.440 Yeah, you know, it's it's a great question. So you're right, 0:04:23.480 --> 0:04:26.839 you meant so it's funny Northern Trust the ETF business 0:04:26.839 --> 0:04:29.000 actually going through a little bit of a transition. So 0:04:29.080 --> 0:04:32.000 we we were flex shares and we have been flex shares, 0:04:32.040 --> 0:04:34.320 and we have the Flexure suite of ETFs, and we 0:04:34.360 --> 0:04:39.680 also recently launched the Northern Trust ETFs and we've announced 0:04:39.720 --> 0:04:41.720 that this year, at some point later in the year, 0:04:41.760 --> 0:04:45.120 we'll be merging the Flexhair's brand into Northern Trust. We'll 0:04:45.200 --> 0:04:47.880 change any of the ETFs, but it'll be easier for 0:04:47.960 --> 0:04:50.560 us to have conversations like this because it'll be one brand. 0:04:50.600 --> 0:04:52.800 It will be the Northern Their Trust ETFs. I think 0:04:52.839 --> 0:04:56.640 we've changed the business has changed its view, partially because 0:04:56.680 --> 0:05:00.400 there's new new leadership meet coming in, but also partially 0:05:00.400 --> 0:05:04.239 because the industry changed dramatically, right, Like sixty eleven really 0:05:04.320 --> 0:05:10.320 changed everything for active ETFs. You really they really were 0:05:10.360 --> 0:05:14.680 not uh easy to do. We actually we actually have 0:05:15.000 --> 0:05:18.600 two active ETFs, R A v I and B n 0:05:18.680 --> 0:05:22.120 DC and those were launched under our flex Shares brand 0:05:22.200 --> 0:05:25.000 years ago. Those are the only active ETFs we have. Actually, 0:05:25.040 --> 0:05:30.920 Gunner is an index based ETF. But when we launched those, 0:05:31.000 --> 0:05:34.600 we were we were thinking the only way to bring 0:05:34.640 --> 0:05:40.560 these strategies to market in an ETF rapper was active, right. 0:05:40.839 --> 0:05:43.599 There was no way to really index size them. But 0:05:44.279 --> 0:05:48.279 now if you think about what sixty eleven did, it 0:05:48.520 --> 0:05:51.919 changed what you can really bring in the active rapper. 0:05:52.000 --> 0:05:54.960 So you see today and then we'll talk about some 0:05:55.000 --> 0:05:58.880 of our new funds and distributing ladders are active ETFs. 0:05:58.920 --> 0:06:03.400 In general, this this sort of renaissance of active. And 0:06:03.440 --> 0:06:06.839 you know this, like five or seven years ago, we 0:06:06.839 --> 0:06:09.919 were talking about the death of active, right, like active 0:06:10.000 --> 0:06:14.839 is dead, passive is growing, and now you're seeing and 0:06:14.960 --> 0:06:17.440 I think it's a result of sixty to eleven this 0:06:17.640 --> 0:06:20.560 sort of what people are calling the rebirth of the 0:06:20.600 --> 0:06:25.520 renaissance of active. And again it gets back to that 0:06:25.640 --> 0:06:30.400 sort of can you bring the strategy to market? And 0:06:30.480 --> 0:06:33.880 what are you trying to give to investors. I really 0:06:33.920 --> 0:06:37.760 think what you can do with active ETFs today is 0:06:38.680 --> 0:06:42.600 enabling this renaissance. But it's not the same active that 0:06:42.640 --> 0:06:46.600 we used to know. And to me, that's important, right, 0:06:46.680 --> 0:06:49.599 Like we used to talk about active and it was 0:06:49.800 --> 0:06:54.599 like Peter Lynch or you know, any of the legends 0:06:54.600 --> 0:07:00.440 of active investing. Today active means something very different. Like 0:07:00.520 --> 0:07:04.360 it's like, can we use the active rapper to bring 0:07:04.520 --> 0:07:09.320 a strategy to market for investors that maybe even sort 0:07:09.320 --> 0:07:11.600 of not active the way you think about it, but 0:07:11.680 --> 0:07:15.440 as not tracking an index, And that's that differentiating piece, 0:07:15.520 --> 0:07:18.840 Like it's it's really it's become complicated, I think for 0:07:18.960 --> 0:07:20.240 investors in a lot of ways. 0:07:22.120 --> 0:07:24.400 Yeah, that's a good segue into my next question. You know, 0:07:24.480 --> 0:07:27.840 you've highlighted obviously the big the biggest drivers of ets 0:07:27.880 --> 0:07:30.600 even going beyond before active kind of hit that renaissance 0:07:30.720 --> 0:07:34.480 was you know, the tax treatment, the structural advantages. But 0:07:34.800 --> 0:07:37.960 how do you think advisors should evaluate you know, true 0:07:38.040 --> 0:07:41.680 active value, you know beyond that, you know rapper efficiency. 0:07:41.920 --> 0:07:45.960 Do you want to actually evaluate true active value? Or 0:07:46.640 --> 0:07:51.960 are you really looking for what is providing you the 0:07:52.000 --> 0:07:59.240 best best risk adjusted post tax returns for the money 0:07:59.240 --> 0:08:02.160 that you're managing, right, and what are you trying to achieve? 0:08:02.760 --> 0:08:05.520 Like and I actually think that's that's a problem. Like 0:08:05.560 --> 0:08:08.840 I think today people still have buckets, right, they have 0:08:08.920 --> 0:08:12.440 their passive bucket and they have their active bucket. And 0:08:12.520 --> 0:08:16.320 even for you know, for Northern when we sell our 0:08:16.440 --> 0:08:21.360 quality low volatility strategy, for example, it's an index based product. 0:08:21.960 --> 0:08:25.600 But if we go to many of the gatekeepers on 0:08:25.640 --> 0:08:29.560 the street, even though it tracks an index, since it's 0:08:29.640 --> 0:08:33.240 not one of the poor indexes that they think of 0:08:33.280 --> 0:08:36.200 like an S and P or a Russell one, they 0:08:36.240 --> 0:08:40.400 think of it as active. Right, And there's been this 0:08:40.559 --> 0:08:44.080 debate going on forever and so, but you have advisors. 0:08:44.360 --> 0:08:46.520 So when you go to advisors and when you're trying 0:08:46.559 --> 0:08:49.000 to sell the product, some advisors say, oh, it's an 0:08:49.040 --> 0:08:52.240 index based product. I analyze it with my index funds, 0:08:52.679 --> 0:08:55.440 and it goes in bucket AY, and therefore it goes 0:08:55.480 --> 0:08:59.640 to this research aalysts and others will say, well, it's 0:08:59.679 --> 0:09:02.840 not it's not the rustle one. It's based on a 0:09:02.840 --> 0:09:07.720 proprietary index, quantitative index. It goes in bucket B and 0:09:07.760 --> 0:09:11.800 it goes to my active analyst. Right. I actually thinks 0:09:12.960 --> 0:09:15.760 that's sort of like creating confusion for no reason. Right. 0:09:16.679 --> 0:09:19.719 What we should be doing is, let's look at this strategy. 0:09:19.800 --> 0:09:23.120 Let's ignore this active passive because the lines have become 0:09:23.559 --> 0:09:26.800 so blurred, and let's see what the risk adjusted returns 0:09:26.880 --> 0:09:29.720 look like based on what we're trying to achieve, and 0:09:29.760 --> 0:09:32.439 what do they look like post tax, which is becoming 0:09:32.480 --> 0:09:34.840 more and more important and need to have structure. As 0:09:34.840 --> 0:09:38.560 you see sort of multiple strategies that look alike, they're 0:09:38.559 --> 0:09:42.400 doing the same things. The high income funds are important here, 0:09:42.800 --> 0:09:45.040 but they all have different you know, depending on how 0:09:45.080 --> 0:09:47.520 you trade the options or what you're doing, you're gonna 0:09:47.520 --> 0:09:49.720 have different tax treatment on the funds, so you need 0:09:49.760 --> 0:09:52.320 to think about that as well. So my view from 0:09:52.320 --> 0:09:54.360 here is like to get back to your question, like 0:09:54.760 --> 0:09:57.040 I think we should sort of decrease the value of 0:09:57.080 --> 0:10:00.760 this assessment of whether it's active and passive and elevate 0:10:01.320 --> 0:10:06.319 the importance of risk adjustion returns and post tax outcomes, 0:10:06.360 --> 0:10:08.959 like what's really being delivered. That's kind of the way 0:10:08.960 --> 0:10:09.520 I think about that. 0:10:10.520 --> 0:10:13.120 Yeah, you actually just answered my next question, you know, 0:10:14.040 --> 0:10:17.600 so good. You know, like obviously like that's an issue 0:10:17.600 --> 0:10:20.000 with advisors, but you know, my question was really like 0:10:20.040 --> 0:10:22.240 what mistakes you see managers making kind of you know, 0:10:22.320 --> 0:10:25.400 confusing beta with true active skill, and so you know, 0:10:25.760 --> 0:10:26.600 you just answered it. 0:10:26.640 --> 0:10:29.079 So it's really hard for them, right, Like, I mean, 0:10:29.080 --> 0:10:31.600 think about even the evolution of the last fifteen years 0:10:31.679 --> 0:10:34.600 or so I came into the industry, or when I 0:10:34.600 --> 0:10:37.320 started on the issuance side. Originally I was I was 0:10:37.360 --> 0:10:39.160 a trader and I was a market maker in details, 0:10:39.160 --> 0:10:41.240 and then I switched over to the issuance side and 0:10:41.280 --> 0:10:44.959 we were selling what we called smart beta. And I mean, 0:10:45.000 --> 0:10:48.120 what is smart beta. There's beta, and then there's now 0:10:48.240 --> 0:10:51.040 smart beta. It's better beta, right, Like it's a different 0:10:51.040 --> 0:10:54.200 way of indexing. It's really like many people think of 0:10:54.240 --> 0:10:56.800 it as an active overlay on a traditional index, right, 0:10:57.040 --> 0:11:02.439 And then we decided that smart beta was getting crowded, 0:11:03.040 --> 0:11:07.440 and we started calling it modern alpha, right, which which 0:11:07.520 --> 0:11:12.120 harkened back to the days of active managers generating real, 0:11:12.280 --> 0:11:14.760 true alpha, and we called it modern alpha because that's 0:11:14.800 --> 0:11:19.440 what systems are doing today. Like, it is really hard 0:11:19.520 --> 0:11:23.280 for advisors, you know, you want to try and sort 0:11:23.280 --> 0:11:28.920 of get past the marketing, right, That's that's where I 0:11:29.120 --> 0:11:30.840 go with that answer that I was giving you, is 0:11:30.840 --> 0:11:33.360 like you got to get past all the marketing, and 0:11:33.440 --> 0:11:38.480 even today like financial services, there are some some like 0:11:39.640 --> 0:11:45.120 leaders of marketing that have become big providers of money 0:11:45.160 --> 0:11:50.240 management services in financial services, right, and it is hard 0:11:50.320 --> 0:11:53.720 for advisors. Look, advisors are on board, they love it, 0:11:54.160 --> 0:11:56.800 but it's hard for them to really distinguish what's going 0:11:56.840 --> 0:12:00.440 on in the strategies that are underneath all this marketing. 0:12:00.880 --> 0:12:01.040 You know. 0:12:02.240 --> 0:12:04.240 Yeah, it's a lot. I you know, I come from 0:12:04.280 --> 0:12:07.160 a background starting in an RAA and so I get it, 0:12:07.200 --> 0:12:09.640 and so there's a lot to deal with. But I 0:12:09.679 --> 0:12:11.640 do want to kind of get into you know, what's 0:12:11.679 --> 0:12:14.400 what's especially new with Northern Trust. You kind of leaned 0:12:14.440 --> 0:12:19.320 into fixed income innovation, you know, with the distributing ladder strategies. 0:12:19.720 --> 0:12:23.680 What research or insight led you to believe the market 0:12:23.760 --> 0:12:27.319 needed this versus you know, say, traditional fixed income active products. 0:12:27.400 --> 0:12:31.520 Yeah, it's a great question. So what we're doing and 0:12:31.520 --> 0:12:34.880 what I believe. So there are always lots of questions like, 0:12:35.000 --> 0:12:38.760 aren't there so there's four thousand plus et apps, isn't 0:12:38.760 --> 0:12:41.400 it enough? Like we've been answering that same question for 0:12:41.440 --> 0:12:43.360 twenty years already. Right when there were one hundred and 0:12:43.400 --> 0:12:46.280 fifty et apps, people were like, was it one hundred enough? 0:12:46.520 --> 0:12:48.480 Why do we need one hundred and fifty? You know? 0:12:48.960 --> 0:12:52.240 And then all of these new things keep coming out, 0:12:52.400 --> 0:12:56.600 new ways to provide I think of ETFs as being 0:12:56.600 --> 0:13:02.040 able to even provide bespoke solutions forstors in all of 0:13:02.040 --> 0:13:05.400 these different ways that we couldn't do before. So when 0:13:05.480 --> 0:13:09.120 we think about distributing ladders to me, it goes a 0:13:09.160 --> 0:13:10.920 little bit back to my roots. Have you ever heard 0:13:10.960 --> 0:13:11.959 of the fire movement? 0:13:12.120 --> 0:13:16.120 I don't know if you, Oh, no, no, you know 0:13:16.640 --> 0:13:19.600 it's called financial independence retire early, right, So I've been 0:13:19.640 --> 0:13:23.320 a I am not retiring early by any means, but 0:13:23.360 --> 0:13:27.480 I've been a financial independence disciple for many years, right, 0:13:28.040 --> 0:13:32.040 And this community has been growing. 0:13:31.559 --> 0:13:35.600 And growing, and it coincides with what I think of 0:13:35.840 --> 0:13:39.560 as even the growth of individual investors, right, like the 0:13:39.600 --> 0:13:43.840 ability to almost replicate a Bloomberg or or you know, 0:13:44.200 --> 0:13:48.200 on your your own desktop and and get that information 0:13:48.280 --> 0:13:50.319 and get all the information and make your own investment 0:13:50.320 --> 0:13:53.320 decisions has grown rapidly. Right the markets have changed, so 0:13:53.720 --> 0:13:57.920 individual investors and all investors, even advisors, have so much 0:13:57.960 --> 0:14:03.120 more power around investing. So when you think about this 0:14:03.320 --> 0:14:06.960 concept of what I noticed with fire investors is one 0:14:06.960 --> 0:14:11.440 of the things they do is they use websites like 0:14:11.559 --> 0:14:14.720 tips ladders, for example, and they go out and they 0:14:15.200 --> 0:14:18.040 plug in what they want to achieve, and tips ladders 0:14:18.360 --> 0:14:21.040 spits out a list of say they want to twenty 0:14:21.240 --> 0:14:23.760 you know, they have a thirty year time horizon. They 0:14:23.760 --> 0:14:28.000 want a thirty year ladder. Tips ladders tip kicks out 0:14:28.040 --> 0:14:31.280 like a thirty different bonds or forty five different bonds 0:14:31.280 --> 0:14:33.680 that you'd have to buy to build this ladder. And 0:14:33.760 --> 0:14:36.360 there are some investors that are actually going out there 0:14:36.400 --> 0:14:41.040 and slogging through it. And I always thought, wow, this 0:14:41.120 --> 0:14:44.040 is a complicated way to manage money. And then I 0:14:44.040 --> 0:14:47.280 got to Northern and I learned about our wealth business 0:14:47.280 --> 0:14:50.000 and our wealth businesses something that I think of as 0:14:50.120 --> 0:14:54.080 unique in the industry, we practice something called goals based 0:14:54.120 --> 0:15:01.200 investing right where we take an investor and we don't 0:15:01.280 --> 0:15:03.840 start with Okay, you've got all this money, here's how 0:15:03.840 --> 0:15:06.280 we're going to invest it. We start with this concept 0:15:06.320 --> 0:15:09.640 of Okay, you've got all this money. Why did you 0:15:09.680 --> 0:15:11.600 go out and why did you get all this Why 0:15:11.600 --> 0:15:13.600 don'd you work so hard and generate all this money? 0:15:13.800 --> 0:15:15.640 What do you want to do with it? Right? What 0:15:15.720 --> 0:15:19.040 are your goals? And when you start to think about 0:15:19.160 --> 0:15:23.560 money in those terms, then you realize, well, I want 0:15:23.560 --> 0:15:27.400 to send my kids to college, and I have always 0:15:27.400 --> 0:15:30.040 wanted to give back, So I want to spend one 0:15:30.120 --> 0:15:33.600 hundred thousand dollars a year and give back to my 0:15:33.680 --> 0:15:36.840 favorite charity, you know, over the next ten years or 0:15:36.880 --> 0:15:39.320 something like that. And I looked at it, and we 0:15:40.040 --> 0:15:43.800 looked at that that sort of concept, and we married 0:15:43.840 --> 0:15:45.960 it to this idea that you can do lots of 0:15:46.000 --> 0:15:49.440 different things in active ETFs. Can't we bring it together 0:15:49.560 --> 0:15:53.560 and make it easier for investor to manage their money 0:15:53.560 --> 0:15:57.640 towards goals. That's exactly what distributing ladders are. So if 0:15:57.680 --> 0:16:01.840 you think about a traditional ladder, either when you build 0:16:01.880 --> 0:16:04.520 it on your own or when you build it in 0:16:04.560 --> 0:16:07.200 an ETF, it's perpetual. Generally, when you buy it in 0:16:07.200 --> 0:16:10.720 an ETF, it's perpetual. So you buy the ladder, the 0:16:10.800 --> 0:16:14.560 first year matures, and then they buy the next farthest 0:16:14.560 --> 0:16:17.040 out year, right, and the ladder just goes on forever. 0:16:17.400 --> 0:16:19.560 And if you want to use that money for something, 0:16:21.000 --> 0:16:22.840 you have to go make a sale, and that sale, 0:16:23.120 --> 0:16:26.480 depending on what's underneath and what's happening, you could generate 0:16:26.520 --> 0:16:29.440 a gain. It's complicated, you have to remember when to 0:16:29.480 --> 0:16:31.240 do it, you have to figure out what to do. 0:16:31.600 --> 0:16:33.040 And we looked at this and we were like, well, 0:16:33.040 --> 0:16:37.840 we can marry the flexibility of an active ETF structure 0:16:38.640 --> 0:16:43.600 with this concept that people don't just want their money 0:16:43.600 --> 0:16:46.720 invested forever. Sometimes they want to use it for their goals, 0:16:47.000 --> 0:16:49.280 and we could give it back to them in a 0:16:49.400 --> 0:16:53.800 tax efficient way. And this is not easy, right, Like, 0:16:53.880 --> 0:16:57.600 this is sort of blasphemy in the fund world that 0:16:57.720 --> 0:17:00.280 you want to launch a fund that actually wind up 0:17:00.280 --> 0:17:03.560 at some point in time. Right, our five year distributing 0:17:03.640 --> 0:17:06.280 ladder product will wind up in five years because we'll 0:17:06.280 --> 0:17:08.720 have given you all your money back, right, And that 0:17:08.800 --> 0:17:11.679 was that's a hard concept for some people to get around. 0:17:12.000 --> 0:17:14.760 But for investors, they're like, hey, wait a minute, that's 0:17:14.800 --> 0:17:18.119 exactly what I need. Hypothetically, if I have like a 0:17:18.160 --> 0:17:20.159 million dollars and I want to give away one hundred 0:17:20.200 --> 0:17:22.760 every year, you'll just give me my one hundred back, 0:17:23.280 --> 0:17:25.880 you know, and I invest a million over next ten years, 0:17:25.920 --> 0:17:28.160 You'll give me one hundred back each year. I don't 0:17:28.200 --> 0:17:31.119 have to do anything. I don't have to potentially create gains, 0:17:31.160 --> 0:17:33.320 I don't have to pay commissions on sales. Whatever it is. 0:17:33.640 --> 0:17:35.280 You give it back to me and as a return 0:17:35.320 --> 0:17:37.520 of capital, and I can use it for my goal. 0:17:37.560 --> 0:17:39.760 I can give it to my charity things like that. 0:17:40.080 --> 0:17:43.639 This was just sort of it just struck right, and 0:17:43.640 --> 0:17:48.080 it's actually it struck us as like why doesn't this exist? 0:17:48.520 --> 0:17:51.240 Why don't investors have this yet. It's it's been a 0:17:51.240 --> 0:17:54.960 little slower for investors to understand that, and they're really 0:17:55.000 --> 0:17:58.480 the pickup is the interest is really interesting, but it's 0:17:58.480 --> 0:18:00.280 hard for people to understand, you know, they have to 0:18:00.320 --> 0:18:02.600 get their heads around how it works. Sorry, that was 0:18:02.640 --> 0:18:04.520 a long answer, David, I apologize that. 0:18:04.720 --> 0:18:07.320 No, No, it's great. It's certainly a unique idea for 0:18:07.400 --> 0:18:10.800 retirement income and cash flow management. How do you think 0:18:10.840 --> 0:18:15.600 it balances with traditional active bond funds in a portfolio. 0:18:16.040 --> 0:18:19.199 Yeah, so let's go back to that sort of the 0:18:19.280 --> 0:18:21.199 concept of active and what are we trying to do 0:18:21.359 --> 0:18:24.240 in this case, right with the distributing ladder. What is 0:18:24.280 --> 0:18:27.160 our primary goal and what is the goal of the investor? Well, 0:18:27.160 --> 0:18:30.119 they want to use their capital for something, so first 0:18:30.160 --> 0:18:34.720 and foremost our primary goal is preserve their capital. Make 0:18:34.800 --> 0:18:38.359 sure that if you've invested a million dollars over for 0:18:38.440 --> 0:18:40.440 a ten year product or a twenty year product or 0:18:40.720 --> 0:18:43.880 thirty year product, you're getting a million dollars back, right. 0:18:44.280 --> 0:18:49.439 Is that is like our unwritten code of what the 0:18:49.520 --> 0:18:52.360 investor wants and what we want to deliver, and that's 0:18:52.400 --> 0:18:57.560 where we start. Then we use the active piece only 0:18:57.680 --> 0:19:01.200 in as much as we're trying to generate as much 0:19:01.840 --> 0:19:06.639 yield in each of the rungs that we can, again 0:19:06.760 --> 0:19:11.240 while not sacrificing at all that concept that our primary 0:19:11.640 --> 0:19:16.000 stewardship goal is returning a piece of the capital to investors, 0:19:16.000 --> 0:19:20.879 whatever ten are they are on each year. So for us, 0:19:21.320 --> 0:19:25.359 it's like the strategy is active because within each of 0:19:25.359 --> 0:19:28.560 the rungs, within the parameters that we set out of 0:19:28.600 --> 0:19:32.440 the bonds that we will invest in We have some flexibility, 0:19:33.119 --> 0:19:37.080 but our primary goal is maintaining and ensuring that when 0:19:37.119 --> 0:19:39.880 you invest in these products, you get your capital back 0:19:39.920 --> 0:19:42.359 first and foremost. You may give up ten basis points 0:19:42.400 --> 0:19:46.120 for that because capital return is our priority, but it's 0:19:46.280 --> 0:19:48.480 we think it's worthwhile and at the same time, we're 0:19:48.480 --> 0:19:51.000 trying to get you as much yield as we possibly can. 0:19:52.320 --> 0:19:55.120 So do you think there's a tradeoff between the alpha 0:19:55.240 --> 0:19:57.160 versus the predictable cash flows? 0:19:58.200 --> 0:20:00.320 I always do, And I mean, look, I think that's 0:20:00.359 --> 0:20:05.280 the industry, right Like, there's every time you go up 0:20:05.400 --> 0:20:11.000 a notch in potential alpha, you go down a notch 0:20:11.800 --> 0:20:14.919 in We call it increased risk, but you really go 0:20:15.080 --> 0:20:19.520 down a notch in predictability of that return, right Like, 0:20:19.640 --> 0:20:24.480 volatility increases with increases in alpha. So what's happening here 0:20:24.640 --> 0:20:26.919 is like you again, it gets back to where I 0:20:26.960 --> 0:20:31.159 think advisors and you know, for Northern Advisors, if somebody 0:20:31.200 --> 0:20:34.520 comes to us and says, I've got you know, I'm 0:20:34.600 --> 0:20:38.880 sixty two, I'm retiring at seventy two. I need an 0:20:38.880 --> 0:20:41.920 income over the next ten years until I can start 0:20:41.920 --> 0:20:45.399 taking Social Security. I've got this million dollars. If I 0:20:45.440 --> 0:20:48.119 spend one hundred grand a year. So we give them 0:20:48.160 --> 0:20:50.000 a ten year product. You think about a ten year 0:20:50.040 --> 0:20:52.560 distributing ladder, It'll give them one hundred grand each year 0:20:52.600 --> 0:20:56.040 to spend. That's more important, right If we showed up 0:20:56.480 --> 0:21:01.080 in year ten and said, you know, we're only we've 0:21:01.080 --> 0:21:04.919 only got sixty thousand dollars left. So this year that 0:21:05.040 --> 0:21:08.000 Alaska cruise you were thinking about. Sorry, you got to 0:21:08.080 --> 0:21:10.600 mix that, right, Like, if you want us to have 0:21:10.600 --> 0:21:13.159 that conversation with your wife, we can, but you know 0:21:13.280 --> 0:21:14.920 it's I know it's going to be a hard one, right. 0:21:15.840 --> 0:21:17.639 We never want to be in that position. Right, So 0:21:18.160 --> 0:21:21.879 they're not asking us, they're not at the end of 0:21:21.920 --> 0:21:26.880 that year saying, oh, how come I only generated ten 0:21:26.960 --> 0:21:31.240 BIPs versus fifteen dips in my interest. What they're thanking 0:21:31.320 --> 0:21:34.520 us for is the fact that we securely stewarded their 0:21:34.560 --> 0:21:38.080 capital through the process and help them achieve their goals. 0:21:38.320 --> 0:21:41.239 That's way more important, right, That's you know, that's what 0:21:41.280 --> 0:21:44.080 goals based investing is all about. I actually think it's like, 0:21:44.440 --> 0:21:46.760 you know, it's something out you can go back to it. 0:21:46.760 --> 0:21:50.639 It's something I had internalized as a person for years. 0:21:50.680 --> 0:21:52.520 Like when I got back to when I got into 0:21:52.560 --> 0:21:55.800 the ETF industry many, you know, nineteen ninety eight, and 0:21:55.840 --> 0:21:58.560 when I really got my head around ETFs, it was 0:21:58.640 --> 0:22:01.440 roughly two thousand and I was like, yeah, like these 0:22:01.520 --> 0:22:04.280 makes sense when I leave the office. I was working 0:22:04.280 --> 0:22:07.119 at bear Stearns at the time. I'm an investor, and 0:22:07.200 --> 0:22:13.719 investors deserve you know, fair deals, transparency, lower fees. And 0:22:13.760 --> 0:22:16.520 that was really what got me hooked on ets back then. 0:22:16.920 --> 0:22:19.320 And we're still on this and now we're just using 0:22:19.359 --> 0:22:22.520 the structure to give people better and better products to 0:22:22.560 --> 0:22:25.000 help them manage their financial lives. That's the way I 0:22:25.040 --> 0:22:25.600 think of these. 0:22:26.200 --> 0:22:28.880 That definitely makes sense if we take a step back 0:22:28.920 --> 0:22:32.080 and just think of fixed income active strategies in general, 0:22:32.119 --> 0:22:34.840 and you know, the current macro environment. I do a 0:22:34.920 --> 0:22:37.880 quarterly report called Beat the Beat Report by Bloomberg where 0:22:37.920 --> 0:22:40.320 I look at the percentage of managers upperforming. And one 0:22:40.320 --> 0:22:42.439 of the things I noticed last quarter, and you know, 0:22:42.520 --> 0:22:46.000 just last year in general, active bond managers really struggled 0:22:46.080 --> 0:22:49.159 than in past, and so you know, there's some debate 0:22:49.200 --> 0:22:53.080 of whether alpha opportunities are as available as they were 0:22:53.640 --> 0:22:56.480 you know, years ago. How do you adjust risk appetite 0:22:56.560 --> 0:22:59.080 versus I guess income adjectives. How do you think about that? 0:22:59.320 --> 0:23:02.080