Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: This week on the podcast, I have an extra special guest.
Speaker 1: His name is Jim Ross. He is known as the
Speaker 1: father of the Spiders, the SMP five hundred UH e
Speaker 1: t F which State Street has put out. It is
Speaker 1: one of, if not the largest e t F, with
Speaker 1: nearly three hundred billion dollars in assets under management. In
Speaker 1: sp Y. There are also numerous Spider variations. You can
Speaker 1: buy growth, you can buy value, you can buy sector,
Speaker 1: you can buy all these very loci, which is their
Speaker 1: low carbon version of the SMP five hundred. There are
Speaker 1: trillions of dollars, literally trillions of dollars in various indices
Speaker 1: that track UH what State Street does, and it's really
Speaker 1: quite a fascinating business. He is also chairman of s
Speaker 1: s g A, which is the State Street Global Advisors.
Speaker 1: If you are remotely interested in things like the S
Speaker 1: and P five ETFs the future of investing, I cannot
Speaker 1: over emphasize how knowledgeable and influential Jim Ross is. He
Speaker 1: won the Lifetime Achievement Award last year at et F
Speaker 1: dot Com. I could go over his CV for hours.
Speaker 1: The accolades don't stop. He is simply one of the
Speaker 1: most insightful people whose career has taken so many fascinating
Speaker 1: twists and has been really there at the formation of
Speaker 1: a number of events that are still impacting us today. Uh.
Speaker 1: I think you're just gonna love this conversation. So, with
Speaker 1: no further ado, my conversation with Jim Ross. My extra
Speaker 1: special guest today is Jim Ross. He is chairman of
Speaker 1: the Global Spider Business at State Street. Spider is the
Speaker 1: most widely held e t F with well over two
Speaker 1: hundred billion dollars in assets. He is also chairman of
Speaker 1: the board of s s g A Fund Management, which
Speaker 1: is the registered investment advisor arm of State Street. He
Speaker 1: most recently was the recipient of the Lifetime Achievement Award
Speaker 1: from e t F dot Com, which is a division
Speaker 1: of the Chicago Board of Option Exchanges. Jim Ross, Welcome
Speaker 1: to Bloomberg. Very thank you very much for having me.
Speaker 1: Let's start with uh, pretty much at the beginning, you've
Speaker 1: you've been at State Street since How did you find
Speaker 1: your way to State Street? And what was your roll back?
Speaker 1: So pretty straightforward, I would um, I started my career
Speaker 1: in public County can very easily say hated it. Looking
Speaker 1: for an exit path. After I got my certification, I
Speaker 1: needed three years. That was three and a half years,
Speaker 1: found an exit plan, took a job at State Street
Speaker 1: career plan and by I'll talk to people about career planning.
Speaker 1: I thought I'd be there two to three years. That
Speaker 1: was my plan plan change. So I got the State
Speaker 1: Street entry level job. New group they were setting up
Speaker 1: called fund administration. They hired me. Could I could do
Speaker 1: mutual fund financial statements for the most part, So the
Speaker 1: accounting actually came in handy. The accounting background was important
Speaker 1: back nine. Yes, So twenty five years later, after your
Speaker 1: two year plan, uh, you're running more or less running
Speaker 1: the largest et F there is. How did you go
Speaker 1: from Hey, I'm going to start at State Street for
Speaker 1: a couple of years to really chairman of of a
Speaker 1: big department for them, and you really wear a couple
Speaker 1: of hats there? How did these come about? So? Um,
Speaker 1: I'd like to say summer it was hard work, persistent,
Speaker 1: and somewhe was pure luck. That's a theme here. You know,
Speaker 1: the role of random chance is always underestimated. So the
Speaker 1: random chance was I was at State Street. I could
Speaker 1: have gone different places I was in a group and
Speaker 1: it was a new group, so there wasn't a lot
Speaker 1: of work yet. Right into how big a shop was
Speaker 1: State Street State Stage were still probably at the time logist, custodian, um, lodgist,
Speaker 1: custody accounting agent in the world. But fund administration was
Speaker 1: brand new. This is a new service they were adding.
Speaker 1: And I was probably the tenth person hide into this group.
Speaker 1: So new division, large storied firm, new division, new business.
Speaker 1: Kind of like, not a lot of clients yet that
Speaker 1: were taken on this service, so really not a lot
Speaker 1: of work for me to do. I came out of
Speaker 1: public County House. I used to working seventy nine hours
Speaker 1: a week. I was losing my mind, Parry, so you're
Speaker 1: working forty hours and really a lot of mind sweeper
Speaker 1: and pretty much I was working forty hours. I probably
Speaker 1: had twenty hours with the work to do. Um, so
Speaker 1: would you do to fill the time? I went to
Speaker 1: one of my bosses and said, hey, if you have anything.
Speaker 1: It was kind of a strange situation. My boss had
Speaker 1: been out, so I went to my boss. Boss said, listen,
Speaker 1: you have anything, give it to me. I I just
Speaker 1: I'm looking for stuff. At some point and these were
Speaker 1: a whole bunch of people working really hot on a
Speaker 1: project like day and night. I had no idea what
Speaker 1: it was. But a month later he looks, hey, Jim, come,
Speaker 1: oh yeah, we need help on this. It was the
Speaker 1: originally TF Spy. Yeah, and that's no, no, this is
Speaker 1: this is this is two months into my career. They've
Speaker 1: been working on this for a couple of years. They
Speaker 1: brought me over for one specific reason. They were about
Speaker 1: to getting closer to launch and they needed someone to
Speaker 1: do the first set of financial statements. And like, Jim
Speaker 1: has that experience perfect, you know, So I like say,
Speaker 1: I got invited in because hey, I asked for more,
Speaker 1: but which kind of They just needed some help and
Speaker 1: I was I get a lot of credit for Spy,
Speaker 1: and I'm gonna be very honest, yeah, I deserve very
Speaker 1: little of it. You have been called various names, like
Speaker 1: the father of the Spiders, and every time I see
Speaker 1: someone say that to you, you swatted away and say no, no, no.
Speaker 1: I was a late addition to a team. I was
Speaker 1: a very late addition to a team. Um. I think
Speaker 1: my smartest move wasn't getting involved in that. My smartest
Speaker 1: move was staying involved in that and I get asked
Speaker 1: that question all the time, and a lot folks moved
Speaker 1: on to different things. I got offer different roles over
Speaker 1: the time, like why didn't you leave my God, this
Speaker 1: was more interesting than my day job. I was meeting
Speaker 1: traders on Wall Street and never had done that. I
Speaker 1: never knew really what the stock exchange was, to be
Speaker 1: completely honest with you, wasn't I don't see myself as
Speaker 1: kind of an investment guy. I kind of grew up
Speaker 1: and kind of the county world then kind of moved
Speaker 1: out of the product world and did a lot of
Speaker 1: different things, but I stayed involved. So at the time,
Speaker 1: State Street a Gilant custodian, a Gilant administrator. How does
Speaker 1: how at the time did State Streets see their competitors
Speaker 1: and what made them think, Hey, let's let's go into
Speaker 1: some asset management. Well, I mean, at the time we
Speaker 1: did have an asset management on so we had State
Speaker 1: what is now State Street Global Advisor. At the time,
Speaker 1: it was called an asset management division of State Street Bank.
Speaker 1: Horrible name for national manager, but um A M D
Speaker 1: and any. At the time, it was very much it
Speaker 1: was a passip shop. So in effect, what we did
Speaker 1: with spiders in spy. The original SPY was we combine
Speaker 1: what's a street did well the Costian County and transaction
Speaker 1: processing and S s G A, which became S s
Speaker 1: G A. I probably got renamed that year maybe the
Speaker 1: probably right around then we brought the asset management. But
Speaker 1: let's remember one thing. The American Stock Exchange came to
Speaker 1: us with this idea. Really they said, hey, you guys
Speaker 1: are buying all these individual stocks once you put it
Speaker 1: in an E T F rapper or did we not
Speaker 1: know the name ETF back then? Um, the name ETF
Speaker 1: was not known. Um, there's different iterations of what is
Speaker 1: now spider, different names, different things we were calling index receipts,
Speaker 1: depositories or whatever. So there's a lot of different names
Speaker 1: back then. But it was really kind of you know,
Speaker 1: they had this idea. It kind of came out of
Speaker 1: the crash of eight seven where the SEC said, listen,
Speaker 1: portfolio didn't insurance didn't work. By the way, none of
Speaker 1: this at the time I understood, um, and we're trying
Speaker 1: to find something. Nate most who was head of product
Speaker 1: development at the American Stock Exchange think at the time
Speaker 1: he was in his early seventies, came up with this idea,
Speaker 1: if we can put somehow securitize something that will trade
Speaker 1: on the exchange, and they only care about trading on
Speaker 1: the exchange. Um. So, basically we came up with the
Speaker 1: idea of they came up with the f take the
Speaker 1: SMP five stocks, everyone knows what's in it, tell everyone's
Speaker 1: into every day, be fully transparent, and move the securities
Speaker 1: in kind, which was novel at that time. You know,
Speaker 1: one or two times you might do something unique there,
Speaker 1: but every day moving five hundred stocks at the time
Speaker 1: was was new. Let's talk a little bit about spiders,
Speaker 1: because the numbers are really quite mind blowing. Sp Y,
Speaker 1: the stock symbol for the spider. SMP five Investment Trust
Speaker 1: has two hundred forty billion dollars in assets less I looked,
Speaker 1: it's by far the most widely held d t F
Speaker 1: and if you look at the next closest SMPTF, it's
Speaker 1: less than half the size. How did the spies become
Speaker 1: go to SPF. Yeah, it's a great question. There's a
Speaker 1: couple of really good reasons. Um. One, we were first.
Speaker 1: That always helps. So there was the first mover, definitely
Speaker 1: a first mover advantage, and it was by seven years, right,
Speaker 1: because we all we you hear two different versions of that.
Speaker 1: The second mass gets the cheese. The pioneers are the
Speaker 1: ones with their arrows arrows in their back. But that
Speaker 1: hasn't really seemed to impact this in a significant way. Well,
Speaker 1: the SPY has a few advantages. One it's it's not
Speaker 1: just that it was first. It had established trading volume.
Speaker 1: I mean today Spy by dollar weighted volume is the
Speaker 1: most liquid equity security in the world. That's amazing. Um,
Speaker 1: it trades and there's some fun stats on this. It's
Speaker 1: traded at a penny wise spread for twelve years every day.
Speaker 1: So the difference between the bit they esk is one
Speaker 1: cent one cent and most folks and trade inside of that.
Speaker 1: It trade five point five time more than Apple. Um
Speaker 1: and from a hundred million shares to day. What sort
Speaker 1: of volume do you do? It turns over, it can
Speaker 1: turn over and once again that changes all the time,
Speaker 1: but it can turn over fifteen billion dollars in nassets today. UM,
Speaker 1: I think the you know the one stat that I
Speaker 1: hear that I love. I mean, there's the Apple stat
Speaker 1: which is good. You take the next like eighteen ETFs
Speaker 1: eighteen largest ETFs combined, and they don't have the same
Speaker 1: trading bline. It's obviously go to liquidity product for the marketplace.
Speaker 1: It's not just about a buying whole product. This is
Speaker 1: a liquidity product. It's used for as an alternative to
Speaker 1: Fugere's a lot of different uses to it, very flexible,
Speaker 1: so it's fairly low costs. What's the internal expense ratio
Speaker 1: expense reussus about not a little a little of a
Speaker 1: nine basis points? Is anybody even close to that amongst
Speaker 1: the tfs? Because E t F s there's a broad range.
Speaker 1: You could pay over a hundred basis points. You could
Speaker 1: pay no basis points for e t F of ETFs
Speaker 1: that they themselves have have an internal expense ratio. How
Speaker 1: much of an advantage is nine bits versus everybody else?
Speaker 1: I think once you get into the single basis point,
Speaker 1: you know that differential if it's nine or five or something.
Speaker 1: It's really especially a product like spy where a lot
Speaker 1: of folks are using it for the liquidity and trading
Speaker 1: it daily, so they're not buying and holding it for
Speaker 1: five years. There might be for five minutes. The expense
Speaker 1: ratio is not necessarily a factor in that decision making
Speaker 1: that makes sense, and the expense ratio is a function
Speaker 1: of the costs of running it, and you're constantly so
Speaker 1: your trading desk has to constantly be rejiggering and arbitraging
Speaker 1: all the underlying the four hundred and sixty stocks in
Speaker 1: the SMB five hundred. Well in the interest, I do
Speaker 1: think there's actually five. There isn't there has been for
Speaker 1: some time now, um. But I think the interesting about
Speaker 1: that is actually the portfolio management side of this from
Speaker 1: an et F perspective, well relatively straightforward, because every day
Speaker 1: when that fund goes up with down its eyes, and
Speaker 1: it can go up and down billions of dollars a day,
Speaker 1: we don't trade that. It comes to us in kind
Speaker 1: and we deliver it out in kind. So the portfolio
Speaker 1: managers when they read jigger, it's really around index changes,
Speaker 1: which is every June, I believe quarterly on the SMP. Uh,
Speaker 1: it's quarterly on the SMP it's Russell two thousand, that's
Speaker 1: every June. So once a how big an event is
Speaker 1: the SMP five hundred rebalancing, It all depends on whether
Speaker 1: or not there's just you know kind of up, you know,
Speaker 1: changing of capital stuff. Maybe some corporate actions is not
Speaker 1: the time when they have UM. But if if there's
Speaker 1: a read, you know, if there's a add and delete,
Speaker 1: that can be a relatively significant advantage. That's what I
Speaker 1: am I thinking that's June or October. The ad delete
Speaker 1: is that once it can be it can be any
Speaker 1: time Barry it's announced, it announced in advantage, it can
Speaker 1: be any time. UM. Do you guys get any sort
Speaker 1: of heads up or is it you want in your
Speaker 1: email and it's like, oh, I guess we've got work
Speaker 1: to do today. We get the same heads up the
Speaker 1: entire marketplace, yes, which is usually in advance, you know,
Speaker 1: more than a few days, so you can't plan for it.
Speaker 1: And like I said, the portfolio management team that runs
Speaker 1: that runs indexing for some of the largest, most sophisticated
Speaker 1: investors in the world. So this is the kind of
Speaker 1: what they do for living. Is their bread and buttle.
Speaker 1: How big is your trading desk that handles spy and
Speaker 1: everything else. We have a pretty sizable equity trading desk
Speaker 1: and a pretty sizeable portfolio management team has dedicated to this.
Speaker 1: The you know, they're we're one of the largest passive
Speaker 1: invest investment managers in the world. So we we we
Speaker 1: we look at this as there's not anas science to it,
Speaker 1: and some people, you know, some folks will say, how
Speaker 1: we can do that on a Excel spread seat. We
Speaker 1: do not really can This isn't all that readily? Well,
Speaker 1: let me ask you the question is supposed to putting
Speaker 1: my uninformed opinion in how readiably replaceable? Are some of
Speaker 1: the things that the team does with software algorithms and
Speaker 1: and bots or are they using algorithms as part of
Speaker 1: of what they do. They're using algorithm and technology and
Speaker 1: improving it every day to make our process more efficient
Speaker 1: and more effective. And we'll continue to do that. I
Speaker 1: have been doing that as long as I've been involved
Speaker 1: with them, and we'll continue to do that. It's the
Speaker 1: way of the world. They do that to find better
Speaker 1: ways to continue to deliver um the performance that we
Speaker 1: want to deliver. And so I mentioned nine bibs. Do
Speaker 1: you guys ever feel any pressure on the price side
Speaker 1: from Vanguard of black Rock or any of the other
Speaker 1: large competitors out there or is it not not all
Speaker 1: that important? You know? I think listen, fee feed compression
Speaker 1: is actually a very it's a real live thing in
Speaker 1: the industry is not just on spy. So obviously across
Speaker 1: our et F business, we have more than a hundred
Speaker 1: and forty plus ETFs in the US two D globally,
Speaker 1: so we see that around the globe feed compression fee,
Speaker 1: you know, feature fee business. So you you definitely want
Speaker 1: to look at it. You know, I think there's certain
Speaker 1: areas where you have certain products you feel very comfortable
Speaker 1: with the fee is low enough to compete in as
Speaker 1: areas where sometimes you do adjust pricing. It's just, um,
Speaker 1: just the new reality. It's what everybody's dealing with. It's
Speaker 1: also but you know, I mean the fun thing about
Speaker 1: that is everyone's like, wow, jeez, that's tough on you
Speaker 1: got it's tough on the business. We can live with that.
Speaker 1: It's good for investors. There's a reason. That's the reason
Speaker 1: that's more folks are buying ets is because the price
Speaker 1: of them has come down in a variety of ways,
Speaker 1: not just the expense ratio, but the big ass spreads
Speaker 1: come in. You know, they're a lot tier because of
Speaker 1: changes in equity market structure, and the commission rates have
Speaker 1: welcome down. Commission rates are practically nothing these days. So
Speaker 1: for nine basis points, and a seven dollar or a
Speaker 1: five dollar transaction fee. You can own the entire s
Speaker 1: and P five hundred and all. What. I don't know
Speaker 1: what we are, but we four nineties something. How many
Speaker 1: stocks have fallen out and haven't been replaced yet? I
Speaker 1: don't know that they I mean, they do do do
Speaker 1: a good job of trying to keep that up. So
Speaker 1: it's pretty close to that. I know, the whelship five. Yeah, no,
Speaker 1: that's no question that. That's because they try and get
Speaker 1: every stock. But I think you know the great thing
Speaker 1: about that is when you think about the E t
Speaker 1: F side of this, you can make that investment. You
Speaker 1: can buy and hold spy for ten years, twenty years.
Speaker 1: You know exactly what it is, you know exactly what's
Speaker 1: in it, you know what you're getting. Oh, you can
Speaker 1: buy and hold that for five minutes, ten minutes, two days,
Speaker 1: twenty days. That's what I love about thet F. It's
Speaker 1: very flexible. It's not you know, we have you know,
Speaker 1: I remember when we first started launching this, and you know,
Speaker 1: hedge funds. Everyone's like, no mutual fund wants hedge funds,
Speaker 1: And I'm I'm like, we cannot. We do? They help
Speaker 1: with liquidity and liquidity matters these days. Let's talk a
Speaker 1: little bit about some of the things that you and
Speaker 1: State Street do besides the spiders. Uh, let's talk about
Speaker 1: g l D. The Gold index when we're recording this, uh,
Speaker 1: Midsummer gold has actually output form the SNP this year.
Speaker 1: It's the first time that's happened since I want to say,
Speaker 1: a few years. I'm doing it off the top of
Speaker 1: my head. How has the advent of g l D
Speaker 1: changed the entire gold market? You know, I think the
Speaker 1: advantage g l D has really helped reinforce the gold
Speaker 1: market was a great market before g l D. It's
Speaker 1: a twenty four hour trading market. It's a very global market.
Speaker 1: But what g l D was able to do was
Speaker 1: to I call it, democratizing the ability to invest in gold.
Speaker 1: Because prior to g l D, investors, retail investors had
Speaker 1: very few ways to invest in goals. It was physical coins,
Speaker 1: the costs were three or four or four all of it,
Speaker 1: and it really wasn't so you know, frankly, retail investors
Speaker 1: and even financial advisors didn't invest in gold. I I
Speaker 1: have a pet theory that g l D just destroyed
Speaker 1: the junior gold miners because what I want management risk, execution, risk, etcetera.
Speaker 1: When I could just for eight bucks go by g
Speaker 1: l D and there's my gold exposure. Yeah, I mean less.
Speaker 1: I think it gave you a different way to get
Speaker 1: exposure to gold. But it gave you exposure to pure gold.
Speaker 1: I mean because the l D is backed by physical
Speaker 1: gold interval. Now isn't g l D also back isn't
Speaker 1: part of it um futures contracts as well? Or is
Speaker 1: it only physical gold g l D physical gold with
Speaker 1: a little little tiny bit of excess cash um but
Speaker 1: gold they've sold pay expenses. But literally there is physical
Speaker 1: gold bods interval backing g l D. There was very,
Speaker 1: very important to the to the structure of the fund.
Speaker 1: There was a wonderful article in the Wall Street Journal
Speaker 1: about how g l D came about, I want to
Speaker 1: say about five years ago, and really it was a
Speaker 1: function of the World Gold Council. They say, hey, we
Speaker 1: have all this excess inventory. Let's find a way to
Speaker 1: get this out of our vaults into somebody else's hands.
Speaker 1: And how what was that interaction like Queen State Street
Speaker 1: and the World Gold Council, And were the spies helpful
Speaker 1: in having you guys win that business, I would say,
Speaker 1: so at this point in time we're talking. We started
Speaker 1: working with them probably and to vote three into the
Speaker 1: OH four and they had worked very much on the
Speaker 1: concept and the idea. We're working very much with the
Speaker 1: legal process. But the will Go Counsoles focus wasn't on
Speaker 1: distributing E T F s UM, so they were looking
Speaker 1: for a partner. I'm very happy that we became their
Speaker 1: partner on this from a marketing and distribution standpoint. So
Speaker 1: we had at the time Spy Sector, Spiders Diamonds, another
Speaker 1: suite of BTF, so we had a you know hand
Speaker 1: probably time probably t in a suite today it's all
Speaker 1: over a hundred um. But we we looked at potnering
Speaker 1: with the wild Gold console on g l D. We
Speaker 1: thought the product structure work great. It was a that
Speaker 1: was one where it was a close race to who
Speaker 1: was going to get first. Very happy to say g
Speaker 1: l he was first mockt on that and that's also
Speaker 1: dominated like nothing else. Nobody's even close to them now.
Speaker 1: It's been a really really strong product, and isn't it.
Speaker 1: It's it's one of those products where it's really helped
Speaker 1: investors be able to allocate to gold um as a
Speaker 1: diverse fire in their portfolio, and depending on how they
Speaker 1: have a view on that, they might have an overweight
Speaker 1: to that, they might have an underweight to that. But
Speaker 1: there's a strategic case for having an investment in gold.
Speaker 1: I remember, now my reputation is a little bit of
Speaker 1: a goldbug basher, but I remember being on television in
Speaker 1: oh four oh five, and it wasn't long after g
Speaker 1: LD had come out, and one of the anchors had said, so,
Speaker 1: what does an investor do to heads themselves against inflation?
Speaker 1: And my answer was, well, you could buy the gold
Speaker 1: DTF it's g l D. And everybody looked at me
Speaker 1: like I had two heads. Now everybody is totally plugged in.
Speaker 1: And I remember, was it two thousand ten or two
Speaker 1: thousand and eleven, g l D briefly past spiders as
Speaker 1: the biggest CTF in the world, arguably quite the cell
Speaker 1: signal for gold at that point. Um, well, there was
Speaker 1: a lot going on at that point, remember that, if
Speaker 1: I'm correct the exact time here on. That was the
Speaker 1: concern about the US downgrade of the debt. There was
Speaker 1: a lot of things going on in the world. Or
Speaker 1: two was eleven, but post crisis as post crisis, I
Speaker 1: think it was eleven, but it was either tenor eleven.
Speaker 1: I'm pretty sure it was eleven. But that that was
Speaker 1: I was you know, t LD is a great product,
Speaker 1: it was fantastic, but to have it the largest et
Speaker 1: F in the world was a little strange when you
Speaker 1: think about kind of the broader equity world. Um so,
Speaker 1: I think, you know, from that perspective, is a lot
Speaker 1: of dynamics in the market place. I'm not sure it
Speaker 1: was a sustu on gold. I think it was just
Speaker 1: a overall what was going on in the world at
Speaker 1: that point in time makes makes sense. And when we
Speaker 1: look at the total value of gold as an asset
Speaker 1: versus the equity markets, it's just totally dwarf the equity
Speaker 1: markets are giant. Yeah, exactly, That's that was one my point,
Speaker 1: Like the t o D has a purpose in a
Speaker 1: place in a portfolio, but it should be the largest
Speaker 1: et from the world. I'm not so sure. So so
Speaker 1: let's talk about some of the multi factor e t
Speaker 1: f s that are out there. What do you think
Speaker 1: of these? And I'm really curious as as the process,
Speaker 1: We'll talk about the process later. What do you think
Speaker 1: about these single and multi factor e t f s
Speaker 1: that are becoming increasingly popular? You know, I think listen,
Speaker 1: I think it's it's very straightforward to me. You have
Speaker 1: to know how they work. Are you committed to for
Speaker 1: the long term? Because they work, whether it's single factor,
Speaker 1: multi factor, they're meant to work over an entire market cycle.
Speaker 1: And my my premise on them is that's fine. If
Speaker 1: you're an investor, you've done your due diligence, understand the product,
Speaker 1: Understand what it's not going to keep up with whatever
Speaker 1: the benchmark index might be, that might be market cap.
Speaker 1: Where I worry about this from an investor standpoint because
Speaker 1: institutions have been using these factors to invest for quite
Speaker 1: a while now, but they have long term views and
Speaker 1: convictions are worried. What I worry about fromn end investor
Speaker 1: standpoint is that they see this, Oh, this is something new,
Speaker 1: it seems like it's great, and oh it's under performing,
Speaker 1: you know, und of performing in a running market, which
Speaker 1: should do so they sell it exactly when they need
Speaker 1: low ball. So it's really one of those From an
Speaker 1: investor standpoint, do you educate, you know, do you do
Speaker 1: diligence do your education, understand the products, whether it's single
Speaker 1: factor multi factor. Obviously multi factor is really trying to
Speaker 1: package them together for you, and there's a couple of
Speaker 1: different ways you can do that. But understand what you're
Speaker 1: investing in because you know what you own. No, no,
Speaker 1: I mean it's you know, it's basic, but you know
Speaker 1: what you won't understand your long term goal and what
Speaker 1: you're trying to do to get there. Let's talk about
Speaker 1: some of the more interesting trends that we see UH
Speaker 1: in investing these days. Smart beta is Some people have
Speaker 1: criticized that as a marketing slogan. Other people have called
Speaker 1: it fundamental indexing. What do you guys think of this? Uh,
Speaker 1: you know, I think it's term. It tries to capture
Speaker 1: a lot of different things. I've had different debates within
Speaker 1: that firm. We're an investment firm, so we debate a
Speaker 1: lot of things around different things. And I had someone
Speaker 1: tell me, Jim, if you want to call what we do,
Speaker 1: you want to call anything that's not market cap indexing
Speaker 1: smart beta, you can't. That means we have a huge
Speaker 1: business in it because we have products like the Dow
Speaker 1: which is not actually price weighted. You could make as
Speaker 1: an alternative index that's smart beta. Now, I think that's
Speaker 1: a little bit of a stretch. Um it is, it's
Speaker 1: a term I I look at it. It's most of
Speaker 1: the cases you're looking at smart beta. It's about factor
Speaker 1: and it's about you know, you were buying earnings or
Speaker 1: diving end growth or some other metric. I mean. The
Speaker 1: interesting is divind in ets has been around for a
Speaker 1: heck of a lot longer than the term smart beta,
Speaker 1: but they're now seen as smart. So this is an
Speaker 1: odd question. You mentioned the diamonds. Then names that you
Speaker 1: guys come up with for um marketing, things like the
Speaker 1: SMP five hundred in the Dow. I mean, the SMP
Speaker 1: spiders commercials. Those are great. I mean it's clear that
Speaker 1: it's not what you expect. It sticks in your mind.
Speaker 1: How do you not remember spiders when you see a
Speaker 1: little spider crawling on the screen. The same thing with
Speaker 1: the Dow Jones diamonds being the Dow Jones Industrial Average,
Speaker 1: which is what d i A stands for. But again,
Speaker 1: how does that process of coming up with here's what
Speaker 1: the index is, here's what the name is, here's our
Speaker 1: marketing campaign. They all seem to flow seamlessly into each other. Yeah,
Speaker 1: you know, you know, Listen, everything evolves over time. Um,
Speaker 1: you go back to the early days a spy, it's
Speaker 1: a different kind of spider scared some people, right, It's
Speaker 1: often it's a uh so we I think we've seen
Speaker 1: different things. Listen, there's a lot of work that goes
Speaker 1: in trying to understand kind of from a product development standpoint,
Speaker 1: we spent a lot of time of my product innovation
Speaker 1: and really making sure where we were responsible in the
Speaker 1: products we're developing. We're not perfect, No one's perfect like this,
Speaker 1: but you kind of look at it and say, Okay,
Speaker 1: we want to make sure anything we're gonna put our
Speaker 1: name on we own, we're gonna be behind it, We're
Speaker 1: gonna make sure we have a marketing strategy around it. Um.
Speaker 1: You know a unique thing that happens in no space,
Speaker 1: which I think is a little different than the traditional
Speaker 1: asset management mutual fund spaces. We all have ticket symbols.
Speaker 1: Take a symbols matter, So you try and see if
Speaker 1: you can come up with a unique ticker symbol. There
Speaker 1: is a a number of academic studies that have shown
Speaker 1: that a ticker symbol that's a word has a tendency
Speaker 1: to do better than a ticker symbol. That's just random letters.
Speaker 1: And that's just the behavioral side of it. Um what
Speaker 1: other what other ticket symbols? You guys don't do moved,
Speaker 1: do you? We don't do move, although it's it's a
Speaker 1: very good symbol. Um. Yeah, I think listen, I think
Speaker 1: you gotta wear immune. Listen, this too tis too piece
Speaker 1: this you don't want to buy any TF go ahead
Speaker 1: the cool ticket symbol, right do you want to make
Speaker 1: sure you understand the et F and not online and
Speaker 1: where it fits for you, but it can help get
Speaker 1: your attention, and so you think about sector spoders. We
Speaker 1: every everything in sective side of thoughts out with Xcel
Speaker 1: right now that back in the time, that's what we did,
Speaker 1: so how we designed a spreadsheet. So but if you
Speaker 1: you know, if you're a trader, you know what actual
Speaker 1: F is. You know what actually is you know, you
Speaker 1: know that's that's the financial sector spot in the energy
Speaker 1: sector spider. But no one calls him by the whole name.
Speaker 1: And sometimes you just have to get a little lucky
Speaker 1: with the name. I remember when the e t F
Speaker 1: hack came out and then a month later, Sony Pictures
Speaker 1: was hacked and suddenly it was in the news every
Speaker 1: day and that became a billion dollar et F. That's
Speaker 1: the power, that's the power of a name. Um. What
Speaker 1: about market capitalization? We look at the way UM a
Speaker 1: lot of E t F and a lot of indexing,
Speaker 1: passive indexing is done. It's cap weighted. There's been some criticism,
Speaker 1: some pushback on that. What what What is the official
Speaker 1: state street view on cap waiting? I don't know if
Speaker 1: I want to give official state street view on that.
Speaker 1: I'm gonna give my view of even better. But I
Speaker 1: think pretty straightforward. You know, cap wait is pride and true.
Speaker 1: It's been around for a very long time. It's kind
Speaker 1: of what indexing styt of that. I think some of
Speaker 1: the things you're seeing today have emerged because of technology. Honestly,
Speaker 1: I'm not sure you could have isolated some of the
Speaker 1: factors today as easily as you can and then execute
Speaker 1: on top next you on top of fifteen twenty years ago.
Speaker 1: So technology has helped you allowed you to do other things.
Speaker 1: But market cap, when you think about it, it's a
Speaker 1: very straightforward thing. It makes sense, you know, and the
Speaker 1: self balances to self balances, you know what I worry
Speaker 1: about from an investor standpoint, and sometimes investors will take
Speaker 1: you know, they'll just mismash things together, and you really
Speaker 1: have to lens through and make sure you understand what
Speaker 1: you own because even though you might have the SMP
Speaker 1: five hundred, and if you have the SMP five hundred,
Speaker 1: the Russell too and some mid cap you might have overlapped,
Speaker 1: you know, so you really want to understand kind of
Speaker 1: where you're you know, what your overall portfolio looks like.
Speaker 1: If you can get a portfolio portfolio analyze that shows
Speaker 1: all of it, because some people will buy, you know,
Speaker 1: I have this active lodge cap fund, this other active
Speaker 1: MidCap fund that's really a lodge cap fund. I'll have
Speaker 1: spy and what you find out you have if you
Speaker 1: have multiple duplay your portfolios. Do you think they're diversified,
Speaker 1: but they really have a giant That ven diagram of
Speaker 1: overlap is is tremendous. So so let's talk a little
Speaker 1: bit about UM E s G, which is probably um
Speaker 1: the hottest new or not so new UH theme and
Speaker 1: investing Environmental, social and governance. You have five separate ETFs
Speaker 1: UH in that space, if not more since we last
Speaker 1: looked UH the e t F SHE, which is focused
Speaker 1: on companies that are UM either run by women or
Speaker 1: have diverse diversification across their corporate board with women or
Speaker 1: other women female related UM governance issues, is about three
Speaker 1: hundred and thirty million dollars. Is that about right? Where's
Speaker 1: the demand for these sort of products coming from? Because
Speaker 1: it really seems to be the hot new thing. So
Speaker 1: I mean the demand is coming from a lot of
Speaker 1: different places depending on the type of E s G products.
Speaker 1: So the Gender Diversity ETFC was a product that we
Speaker 1: did with UM Calister So California Teachers Pension UM. That's
Speaker 1: very interesting that they came to you and said, hey,
Speaker 1: we have an idea. We need to check off this
Speaker 1: box which we can't really do cheaply elsewhere. Can you
Speaker 1: guys develop this way? And it wasn't It was interesting.
Speaker 1: It was really based on the research. So they came
Speaker 1: to us, can you do a research project around this?
Speaker 1: Like the research, we had to get deep into the
Speaker 1: research because some of the research is really just looking
Speaker 1: at corporate board seats and that's nice to have, but
Speaker 1: an easy thing to a company to fix this is
Speaker 1: really going down in the company and saying where is
Speaker 1: your you've seen your management, your executive management, and how
Speaker 1: diverse is it? And it stats that you can get.
Speaker 1: That's one of the challenges with these things. Typetimes like,
Speaker 1: you know, it sounds great, but if you can't get
Speaker 1: to the core data, it's hard to build a product
Speaker 1: around it. Because we worked very hot with them on
Speaker 1: the research around this and then turn it into an
Speaker 1: index that we feel can continually update and get to
Speaker 1: the exposure that we're trying to get to. And and
Speaker 1: the academic research on gender diversity says corporations that have
Speaker 1: their board of directors, the seenior management they're hiring that
Speaker 1: is more diverse than the average company actually do better
Speaker 1: than the index. That's what the research showed. What other
Speaker 1: stuff tends to do better than than the than the index.
Speaker 1: What other research is they're showing different themes actually generate alpha.
Speaker 1: So it's challenging. So it's challenging. Might think of the
Speaker 1: whole kind of board, you know, governance area. You know,
Speaker 1: we're very active in governance as a firm because we
Speaker 1: think it's right for the folks who invest in us,
Speaker 1: and we think we're trying to produce a better long
Speaker 1: term outcome for the investor, it's not a short term view.
Speaker 1: The unique thing about being a large passive index player
Speaker 1: is an active manager can look at a company and say,
Speaker 1: I don't think they're taking the long term view on
Speaker 1: you know, the environment right, and it's gonna hurt their
Speaker 1: company's profits and sell it. We as an index provider,
Speaker 1: can't sell that company even if we have the same view,
Speaker 1: So we engage with it on our concerns, whether it's
Speaker 1: diversity of the board, gender diversity, all diversity, or if
Speaker 1: it's around some of their views on social programs or
Speaker 1: long term views on the environment we have. We we
Speaker 1: look at our responsibility from a corporate governor standpoint. To
Speaker 1: engage makes a lot of sense. Um although you lose
Speaker 1: the stick of saying and if you know we're not
Speaker 1: happy with your answers, we're gonna sell, but you still
Speaker 1: have the ability to vote proxies and do other things.
Speaker 1: So companies, I assume are somewhat cooperative. When State Street
Speaker 1: comes and says, hey, we have these concerns. How receptive
Speaker 1: is corporate management? I think you know what we have
Speaker 1: found is they're very receptive and we want to work
Speaker 1: with them on a long term so we're not gonna
Speaker 1: We're not the you know, we're not in this going
Speaker 1: to I'm saying, hey, we have these concerns, what do
Speaker 1: you gonna do about it tomorrow? You're not You're not activists,
Speaker 1: investors demanding boards. Exactly, We're in there saying, give us
Speaker 1: you a long term view on this. Here's our long
Speaker 1: term view. How can we continue to work together. But yeah,
Speaker 1: the you know, the the stick there is that we
Speaker 1: vote proxies. What are the e t f s that
Speaker 1: State Street has that addresses people who are concerned about
Speaker 1: the environment, and what do you expect the long term
Speaker 1: demand for these products to look like in the future.
Speaker 1: So we we most of that today has been focused on.
Speaker 1: Once again, it gets to what do you have good
Speaker 1: data on that you can actually build an index, honor
Speaker 1: an investment strategy on UM. So we do try and
Speaker 1: look at that from the long term. We have focused
Speaker 1: We have a PARTICT that is low combon that really
Speaker 1: is you know, a subset of the core SMP five.
Speaker 1: What's the ticker symbol on the low carbon ETF low
Speaker 1: see low s makes sense UD good. And then we
Speaker 1: have spy X, which is really focused on cobbon free
Speaker 1: UM A fossil Yeah, what's the what's the difference? So, uh,
Speaker 1: spy X is no oil companies, no coal companies, nothing
Speaker 1: that is carbon based, whereas lo SEE is really trying
Speaker 1: to get you to that same core benchmark return by
Speaker 1: underwaiting cobbon producers but not completely limited. It's a waiting
Speaker 1: shift as a waiting shift versus an exclusionary And which
Speaker 1: which is better spy X, which is bigger, spy extra
Speaker 1: low C. I think low C today is a little
Speaker 1: bit bigger. But the better is a hard one to
Speaker 1: say because low se fit's a little bit better into
Speaker 1: your asset out case. And if you're an institutional investor,
Speaker 1: because you still want to get exposed. Um, you don't
Speaker 1: necessarily want to make a big bet one way or
Speaker 1: the other if anyone is more. If you're an investor
Speaker 1: that fundamentally believes that's where you want to invest, which
Speaker 1: is what a lot of the s G is, this
Speaker 1: is where my mind is. We see this more with
Speaker 1: institutions in Europe than we see even in the US day.
Speaker 1: That's that's quite fascinating. We also tend to see that
Speaker 1: with millennial and youthful investors and admittedly small part of
Speaker 1: the current market, but hey, that's probably where things are
Speaker 1: going ten twent thirty years from now. Um, So what
Speaker 1: about business risk? You guys obviously have massive exposure to
Speaker 1: the market. What does it mean if the market takes
Speaker 1: a twenty or thirty percent correction? Does that mean you're
Speaker 1: revenues for dropping by a substantial amount? And we're a
Speaker 1: revenue based organism. I mean we're an asset based organization
Speaker 1: in many ways now S s g A is a
Speaker 1: pretty diversified business, and that we have fixed income, we
Speaker 1: have cash, and we have equity. We obviously have g
Speaker 1: l D so in some cases when some of those
Speaker 1: are coming off, some of the other things we're going up.
Speaker 1: But yeah, in general, when the market, if and when
Speaker 1: the market goes down like that, we feel pressure on
Speaker 1: a revenue side, no question. And you mentioned earlier the
Speaker 1: VIX and some of the low volatility products. Um, we
Speaker 1: have a tremendous amount of political volatility, but we really
Speaker 1: haven't seen all that much uh market volatility. Uh we
Speaker 1: we The day after the fire and fury Trump remark
Speaker 1: about North Korea, the market opened down fairly substantially. I
Speaker 1: think we closed down thirty points on the DAW yesterday,
Speaker 1: which is which is nothing. It's a tick. How do
Speaker 1: you guys look at this and and and what what,
Speaker 1: if anything do you do about it? I think you know,
Speaker 1: what we try and do best is in most it's
Speaker 1: really just make sure our clients inform about what I've
Speaker 1: used on the market, what we think about it as
Speaker 1: a firm um communicate as much as we can, you know,
Speaker 1: I think the reality is is what you see in
Speaker 1: political you know, instability in some cases does not necessarily
Speaker 1: drive the market. The markets can be driven on the
Speaker 1: fundamental unlying stocks and the long term views of those
Speaker 1: companies for the most part. And once again, there's always
Speaker 1: a potential that there's, ah, you know, something going on
Speaker 1: in the world from a politically not not even political,
Speaker 1: but just you know, anything can happen in the world.
Speaker 1: We can be a market shock, and you try and
Speaker 1: think about those, you know, the black swan, gray swan,
Speaker 1: whatever you want to call them, Try and think about
Speaker 1: those and make sure they're part of your overall investment
Speaker 1: strategy and plan that you've thought about that. The fact
Speaker 1: the market can go down um where we sometimes and
Speaker 1: this recent run that folks haven't really seen a lot
Speaker 1: of that but you know, I think it's important for
Speaker 1: folks to make sure you you're still looking at your
Speaker 1: long term outcome and understanding why you have the diversigation
Speaker 1: you have them. Hopefully you're rebalancing at different points. And
Speaker 1: someone mentioned the other day that we now have an
Speaker 1: entire generation of traders that has never experienced the rising environment,
Speaker 1: which is which is pretty funny. Um last market related question,
Speaker 1: there is a general sense from a number of quarters
Speaker 1: that markets in the US are overvalued. How do you
Speaker 1: look at valuations and what can you guys do about
Speaker 1: that as a product manager? So I'm not sure that
Speaker 1: the lot we can do about that as a product manager.
Speaker 1: I think what we try and do is ensure that
Speaker 1: we have a diversified set of products. So when our
Speaker 1: clients want to diversify, if they if they believe that
Speaker 1: there's a long term view. And we saw this shift,
Speaker 1: you know, we saw this shift into you know, strong
Speaker 1: into the US after the election and shift into much
Speaker 1: more of a Europe looks a little more attractive. You
Speaker 1: look at et F flows, you can see a lot
Speaker 1: of things. If you look at Broady E t F
Speaker 1: industry flows, you can see a lot of trendits that
Speaker 1: played through from the markets where people want to shifting
Speaker 1: some of their some of the bats I'm gonna call
Speaker 1: it UM towards Europe E M Europe EM is definitely
Speaker 1: You're probably more Europe initially, probably a little more M now.
Speaker 1: So I think we see that playing out in the marketplace.
Speaker 1: My goal is kind of somebody who has a broad
Speaker 1: diverse products set, is to ensure that we have products
Speaker 1: for our investors that they can use if they want
Speaker 1: to shift. We're not telling necessary folks to shift, you know.
Speaker 1: Our goal is really to make sure we pride them
Speaker 1: with the information, engage with them about what their options are.
Speaker 1: And they're the ones they're gonna direct, you know, whether
Speaker 1: they want to shift their client's assets. That's probably work
Speaker 1: very closely with. You know, financial advisors and investors are
Speaker 1: on the club. Can you stick around a little bit,
Speaker 1: we'll we'll keep talking about all things UH et F related. Sure,
Speaker 1: we have been speaking with Jim Ross. He is the
Speaker 1: chairman of the State Street Spider Global Group as well
Speaker 1: as chairman of s s G as Asset Management ARM.
Speaker 1: If you enjoy this conversation, be sure and check out
Speaker 1: our full podcast. You can find that on Bloomberg dot com, Apple, iTunes, SoundCloud,
Speaker 1: and wherever fine podcasts are sold. We love your comments,
Speaker 1: feedback and suggestions right to us at m IB podcast
Speaker 1: at Bloomberg dot net. You can find my daily columns
Speaker 1: on Bloomberg View dot com. Check me out on Twitter
Speaker 1: at rid Halts. I'm Barry Ridholts. You're listening to Masters
Speaker 1: in Business on Bloomberg Radio. Welcome to the podcast. Thank
Speaker 1: you Jim for doing this. I've really been looking forward
Speaker 1: to this, UH for a long time. Thank you very
Speaker 1: much for having me my pleasure, your legend in the industry,
Speaker 1: and this entire um library would be incomplete without without
Speaker 1: you in it. So so let's talk a little bit
Speaker 1: about some of our our favorite questions. Things that UH
Speaker 1: I really like. What's the most important thing people don't
Speaker 1: know about your background? That's an interesting question. There's a
Speaker 1: lot of things I don't want people to know about
Speaker 1: my background. I happen to have a dossier here. Yeah,
Speaker 1: you were in Russia recently, weren't No, no, no, no.
Speaker 1: I have the captain for a really bad basketball team
Speaker 1: in high school. But that doesn't really matter. You don't
Speaker 1: strike me as a basketball player. You look you're you're
Speaker 1: a solid guy. You look more like a football player
Speaker 1: undred and sixty pound point guard in high school. But
Speaker 1: that's really I've changed a little bit all the time.
Speaker 1: I think, you know, I think the one and I'll
Speaker 1: say it, the one that I I think people probably
Speaker 1: don't know about background. I got involved in NETF somewhat
Speaker 1: by accident, and I got a lot more credit for
Speaker 1: spy than I deserve. You've every time I've seen you
Speaker 1: speak publicly, you practically open with that. So no one
Speaker 1: could ever accuse you of taking um credit for something
Speaker 1: that that you don't deserve. Let's let's talk about some
Speaker 1: of your mentors. Who are the people who really influenced
Speaker 1: your career. You know, there's been quite a few. I
Speaker 1: think of mentors, and it's like sometimes when somebody has
Speaker 1: like I just had this one mentum my whole career.
Speaker 1: I think I probably, you know, my first mentors, probably
Speaker 1: my dad got a lot from him. Um. But I
Speaker 1: think I look at mentorship is I've taken things from
Speaker 1: different folks. I've worked with good and bad over the years.
Speaker 1: You know, different styles. Um, you know, I take a
Speaker 1: little bit the folks who first hired me a State
Speaker 1: street cat Cooglo. Glen Francis gave me a great opportunity,
Speaker 1: so I give them a lot of credit. I've learned
Speaker 1: different things from them over the years. Um one for
Speaker 1: sure was the CEO of S S g A for
Speaker 1: the years for early years I was there, which just
Speaker 1: Tim Hobbitt Um who unfortunately passed away on the job
Speaker 1: in two thousand three. So but he was one who
Speaker 1: I took a lot of from. Like I said, I've
Speaker 1: worked for a lot of different folks. I've seen a
Speaker 1: lot of different styles. So part of what I try
Speaker 1: and do is understand different folks style, take the good,
Speaker 1: maybe not take some of their bad. So I've worked
Speaker 1: with folks who have you know, hot timbers, but they're passionate. Okay,
Speaker 1: well I want to take the passionate side. I don't
Speaker 1: really have a temper all that month. So you're try
Speaker 1: and learn from different things. But though I think in
Speaker 1: mentorship is kind of like That's how I've on it
Speaker 1: over the years. Different folks I know have different mentors.
Speaker 1: I've had colleagues that I've looked at his mentors. Um
Speaker 1: that's been straight peers of mine because I like the
Speaker 1: way they do things. I've learned from them that. That's
Speaker 1: quite that's quite fascinating. Um, what investors have influenced the
Speaker 1: way you approach your job? You know, it's funny. I'm
Speaker 1: not I'm not a core investment guy. I didn't come
Speaker 1: up with that. I didn't read about investment. I'm not
Speaker 1: sure how knew Warren Buffett was twenty years ago, to
Speaker 1: be completely honest with you, So I don't want to
Speaker 1: sit here in bs and that what's his name? Who?
Speaker 1: Warren Buffett? Right? I think I'm gonna be honest with you.
Speaker 1: Twenty five years ago I kne Jimmy Buffett a lot
Speaker 1: better than any Warren Buffett. And it turns out there
Speaker 1: distant cousins. Yeah. So Um, but I think I learned
Speaker 1: most of my investment frankly from working in the industry
Speaker 1: at State Street and S S G. A. That's where
Speaker 1: I kind of got the passion A for E. T. S,
Speaker 1: but B for you know, the ability to use passive
Speaker 1: product to get to the outcome, which is different than
Speaker 1: passive versus active. In my vore, do you and a
Speaker 1: quick digression, is everything that State Street does is it
Speaker 1: in house or do you have require things from the outside?
Speaker 1: We do something, so we have some partnership. We will
Speaker 1: hire subadvisors in different areas. We've done that in ETF business.
Speaker 1: We have a great partnership there with Double Line for
Speaker 1: core fixed income, GSL Blackstone for bank loans, MFS for equities,
Speaker 1: and frankly now Vinan from UNI. So we do we
Speaker 1: do have a We do that in certain segments. We
Speaker 1: also manufacture both active return streams within the firm and
Speaker 1: passive return streams. Obviously that's interesting. So this is everybody's
Speaker 1: favorite question, what are some of your favorite books? So
Speaker 1: I'm gonna be honest here. My wife gave me an idea.
Speaker 1: I chose not to take it, which was look up
Speaker 1: what Donald's answer was for this. I don't read a
Speaker 1: lot if I tend to read, and I'm sitting here
Speaker 1: in New York City, So I just want to be
Speaker 1: honest about this. It tends to be about some of
Speaker 1: the Red Sox or Patriot success stories, um so books
Speaker 1: on the two thousand four Red Sox. I enjoyed that year,
Speaker 1: didn't enjoy being a game seven and two thousand three
Speaker 1: um two thousand three um who who? Just uh my?
Speaker 1: My biggest Red Sox um recollection was the game against
Speaker 1: the Mets in it was the eighty six World Series
Speaker 1: old that that stayed with you, that stayed with me,
Speaker 1: that hurt still hurts. And and at this point have
Speaker 1: we have we all accepted the flake gate is a
Speaker 1: real thing or no, that that went nowhere with Tom Brady,
Speaker 1: I have no idea what you're talking about. Oh no,
Speaker 1: I know what you're talking about. No idea what you're
Speaker 1: talking about. I don't think it's real at all. A right, Um,
Speaker 1: so let's let's talk about the overall investment industry. What
Speaker 1: are some of the most significant changes since you've joined. God,
Speaker 1: there's been a lot of change. I mean, I think
Speaker 1: change is constant in this world, constant this industry. You know,
Speaker 1: I think we've seen just the way people can invest
Speaker 1: has changed dramatically, you know, huge, huge difference. You know.
Speaker 1: I think about, you know, going back twenty five years ago,
Speaker 1: and this is I sho laugh at this, but you
Speaker 1: years ago. One of the things you're broker did for
Speaker 1: you is you won't usually individual stocks. Sometimes you might
Speaker 1: call him up and say, hey, what's this stock doing
Speaker 1: to because you couldn't see the price. You didn't want
Speaker 1: to wait till the next day. We take it for
Speaker 1: granted that you could look at any price in four
Speaker 1: hours a day. That wasn't how it used to be.
Speaker 1: But I look at you know, commissions have compressed, you know,
Speaker 1: how you invest in, how you work with the financial
Speaker 1: advisor has probably gone from commission based to fee based.
Speaker 1: As far as that world, what you pay to buy
Speaker 1: and sell stocks, ets, anything has come down. You know.
Speaker 1: I go back to the days where as a single
Speaker 1: specialist they owned the book, you know, and spy traded
Speaker 1: it thirty cents spreading. That's what we knew. Spy trades
Speaker 1: less and a penny spread today. Um, so you get commissioned.
Speaker 1: I think that's kind of some of the good things
Speaker 1: some of the bad things. I think from an investor standpoint,
Speaker 1: it's got a lot more complex, there's a lot more
Speaker 1: products out there. You need to do your due diligence
Speaker 1: to invest, and so naturally the next question is what
Speaker 1: are the next shifts? What do you see happening within
Speaker 1: the industry that people may not be anticipated. Yeah, you know,
Speaker 1: it's it's always easy to look back and see what's happened,
Speaker 1: and try and look forward and say here's my great prediction. Um,
Speaker 1: but I've seen a lot of things, and I continue
Speaker 1: to see improvements going on in the marketplace, the way
Speaker 1: people invest, the way they think. I look at technology,
Speaker 1: and you know, I'm looking at this broadly, not just
Speaker 1: around robo advice, but you see people buying managed portfolios
Speaker 1: that way. Um, it's just and it's just a way.
Speaker 1: I think younger investors want to be able to do
Speaker 1: it directly. I think they at times want to get advice.
Speaker 1: So I think that's going to continue to shift. I
Speaker 1: also think there's you know, long term, I think there
Speaker 1: could be more tech disruption in the financial space. I
Speaker 1: think where you know, we're kidding us off if we
Speaker 1: don't think that there's folks looking at the asset management
Speaker 1: space and the broader financial space to say these is
Speaker 1: a piece of that that we can play in that
Speaker 1: will be good for us. And I'm a technology from
Speaker 1: what was what was Jeff Bezos line? Your margin is
Speaker 1: my opportunity, Yeah, no, no doubt about it. So so
Speaker 1: we've been talking about all your successes. Tell us about
Speaker 1: a time you failed and what you learned from that.
Speaker 1: Oh God, I failed a lot, um, I filed a
Speaker 1: ton of So I mean that in a good way
Speaker 1: because big part of my career has been launching product.
Speaker 1: And if you don't take risks and fail, you're not
Speaker 1: gonna have success. If you wait to try and think
Speaker 1: you have everything right, first of all, you probably gonna
Speaker 1: beat the market by about five years and you're gonna
Speaker 1: figure out what not what's right or wrong. So UM
Speaker 1: I have different products over the years. Um One of
Speaker 1: them famous when I worked on called the OH strip
Speaker 1: never hear of it, No Yep, triple os, great ticker, Oh,
Speaker 1: great ticker idea from the marketplace, so idea a friend
Speaker 1: of mine solving a problem because at the time the
Speaker 1: NASDAC stocks didn't have a close for the S and
Speaker 1: P and it was a problem for the traders. So
Speaker 1: he was a trader Tim this is gonna be a
Speaker 1: great et f we develop it, we launched it, Nozac
Speaker 1: fixed the problem. Six months later the product now we're
Speaker 1: trying to stella out as a tech stock and a tists.
Speaker 1: It was a failure. So when I was versus the
Speaker 1: q Q ces is that we tried for a little
Speaker 1: bit that didn't really fly either. So when my rights
Speaker 1: to everyone on failure, just feel quick, fail quick, feel quick,
Speaker 1: learned from learn from it. Move on to the One
Speaker 1: of the best comments a colleague of mine said to
Speaker 1: a board member about me one day is Jim doesn't
Speaker 1: lose sleep over the failures. He wonders why that wants
Speaker 1: it a successful as successful that you're losing slip over
Speaker 1: the winners, not the losers. That that's pretty funny. Um,
Speaker 1: So tell us what you do to keep mentally fit?
Speaker 1: What do you do to relax or for enjoyment outside
Speaker 1: of the office. So I do a lot of different things.
Speaker 1: I you know, mentally and physically. I have actually work
Speaker 1: out lot one of that probably looks like I work out.
Speaker 1: I have to. It's old muscle underneath. It's getting there
Speaker 1: working on that. Um, I don't keep hurting things that
Speaker 1: would be better. Yeah. By the way, it only gets
Speaker 1: worse as you get, doesn't get better. I know, I
Speaker 1: get knee issues and shoulder issues. But but we walked.
Speaker 1: So my wife and I moved into the city a
Speaker 1: few years ago. Everyone's like, uba bill is going to
Speaker 1: go through the I don't have an uber bill, at
Speaker 1: least not for in the city of Boston. We walk
Speaker 1: everywhere here in New York. Yeah, you don't think about it. Um,
Speaker 1: you know, other things listen. We have a house on
Speaker 1: a lake in the hampsh to have a boat. I
Speaker 1: play golf up there. Lots of family and friends up there,
Speaker 1: So that's kind of how we like to enjoy ourselves.
Speaker 1: And we're not against going out and having maybe a
Speaker 1: cocktail and a nice meal here and there. Are you
Speaker 1: a fisherman or a water ski or what do you
Speaker 1: use the boat for? We use the boat more for
Speaker 1: tooling around the lake. And then Nissa and nephews and
Speaker 1: friends will throw off a tube and kick him around
Speaker 1: the lake. So that's that's a that's a lot of fun.
Speaker 1: I love to do the same thing. Um, let's let's
Speaker 1: we talked earlier about mentors, and let's talk a little
Speaker 1: bit about millennials and recent college graduates. What sort of
Speaker 1: advice would you give to a millennial who came to
Speaker 1: you and said, hey, I'm interested in the career of finance?
Speaker 1: What what? What sort of response would you give them?
Speaker 1: Try something different? Though I'm kidding, I know, I think, um,
Speaker 1: you know the advice, you know, it's one of those
Speaker 1: couple of things. And I have these conversations a lot
Speaker 1: with different folks. Um, when I talked to folks earlier
Speaker 1: in their career. One of the first thing I said,
Speaker 1: I was like, don't freak out like this next decision
Speaker 1: you make, but what you're gonna do in your first
Speaker 1: job I after college, doesn't your final decision done your career?
Speaker 1: So you know, I think, you know, I have good
Speaker 1: friends of mine to think about their career and three
Speaker 1: year increments and have a plan for all of it.
Speaker 1: I planned none of it. You know, we've talked a
Speaker 1: little bit about I got involved in Spy, I stayed
Speaker 1: involved in it, became really successful et s crew. I
Speaker 1: was there. It was really high. It did a lot
Speaker 1: hot work there. But I mean the advice I give everyone,
Speaker 1: which is kind of raise your hand. Like I asked
Speaker 1: for more work, I got more work and ended up
Speaker 1: being something incredible that no one anticipated it to be.
Speaker 1: So raise your hand, work hot, do your job. I
Speaker 1: say this folks all the time. You know, if I
Speaker 1: have somebody who's been working for us for six months,
Speaker 1: they say, hey, what's my next job? My couch? You
Speaker 1: go to the job I hired you for, you know,
Speaker 1: so you know, earned the right for that next step,
Speaker 1: um and work hot. I mean, it's not this and
Speaker 1: this is now that complicated work. Hot do your job
Speaker 1: and learn your craft. You know. One of the things
Speaker 1: I did early on with the TF is I tried
Speaker 1: to make sure I understood as much of it as
Speaker 1: I could. I knew the back office side, I didn't
Speaker 1: understand trading. I can now have a conversation but equity
Speaker 1: market structure and trading. Maybe not with some of the
Speaker 1: best in the world, but I can hold my own.
Speaker 1: And and our final question, uh, what is it that
Speaker 1: you know about products et fs investing today that you
Speaker 1: wish you knew back in when you were getting rolling?
Speaker 1: Jeez ah, what what do I wish? I wish I
Speaker 1: knew Honestly, I wish you know, I wish we had
Speaker 1: seen the vision that they would become. We developed the
Speaker 1: original e t s with the intent of institutional trading firms.
Speaker 1: That was the design um. The adoption of them from
Speaker 1: the financial advisor and retail space has been virtually was
Speaker 1: not ever plan. So I think if I had known that,
Speaker 1: probably would have thought about that differently from a strategic
Speaker 1: standard point, from a job um, there's a lot of
Speaker 1: things I wish I knew new twenty five years ago.
Speaker 1: I wish, but I think from that perspectives, like, you know,
Speaker 1: I wish to new the global financial crisisally happening, I
Speaker 1: might have invested differently around that. You know, there's a
Speaker 1: lot of things you want to know, but I think
Speaker 1: the reality is is you're never gonna know everything, and
Speaker 1: the best thing when you're working in this world is
Speaker 1: to try and understand how best to shift when you are.
Speaker 1: We have been speaking with Jim Ross, chairman of the
Speaker 1: Global Spider business for State Street. If you enjoy this conversation,
Speaker 1: be sure and look Up an Inch or Down an
Speaker 1: Inch on Apple iTunes and you can see any of
Speaker 1: the other hundred and fifty such conversations that we've had.
Speaker 1: We love your comments, feedback and suggestions right to us
Speaker 1: at m IB podcast at Bloomberg dot net. I would
Speaker 1: be remiss if I did not thank all the people
Speaker 1: who helped put this UH podcast together. Taylor Riggs is
Speaker 1: our booker, Medina part Water is our audio engineer. Michael
Speaker 1: bat Nick is my head of research. I'm Barry Ridholtz.
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio