WEBVTT - Less Than Zero: A Look Into a Wild Two Weeks in the ETF Fee War 0:00:06.080 --> 0:00:08.600 Welcome trains. I'm Joel Webber and I'm Eric bel Tunis. 0:00:12.080 --> 0:00:14.680 Ericter's been a like a mood in the wind of 0:00:14.800 --> 0:00:18.480 late where things have been getting cheap, cheap and cheaper. 0:00:19.480 --> 0:00:22.840 What's going on? Uh? We we have seen an outbreak 0:00:23.040 --> 0:00:24.680 in the e t f F F war, which by the way, 0:00:24.720 --> 0:00:27.160 has been going on ever since Vanguard was a company 0:00:27.800 --> 0:00:29.680 um and ever since the first t t F came 0:00:29.680 --> 0:00:31.800 out at sp Y came out at twenty basis points 0:00:31.800 --> 0:00:34.000 to sort of tie the Vanguard Index fund. This e 0:00:34.080 --> 0:00:36.320 t F FEW war is nothing new, but what was 0:00:36.400 --> 0:00:40.520 different was the intensity of this particular outbreak. And in fact, 0:00:40.560 --> 0:00:42.800 some people inside e t F the conference we covered 0:00:42.800 --> 0:00:44.800 a couple of months ago, they thought the e t 0:00:44.920 --> 0:00:47.519 f FE war was kind of over and rate is. 0:00:47.680 --> 0:00:50.960 I sort of heard people whispering like, ooh, it's done, 0:00:50.960 --> 0:00:55.200 it's over. Bam. Uh. There was a outbreak like I've 0:00:55.240 --> 0:00:59.160 never seen. We're talking about ten different issuers or shots fired, 0:00:59.600 --> 0:01:03.800 with about twenty different ETFs being affected. And it included 0:01:03.840 --> 0:01:07.800 everything everything from the big guys to the indies. It's 0:01:07.840 --> 0:01:11.360 all there. It was unbelievable and you know, garnered a 0:01:11.360 --> 0:01:14.000 lot of news. It also garnered a lot of reaction. 0:01:14.319 --> 0:01:17.199 You know, I think deep down inside you've got people 0:01:17.200 --> 0:01:19.919 in the fundustry are probably scared that this is really 0:01:20.680 --> 0:01:24.880 wild and scary for everybody's livelihood. Then you had some mockery. 0:01:25.200 --> 0:01:28.280 You know, what's nucks free, steak knives, um, you know 0:01:28.360 --> 0:01:31.440 that's always what you hear. One guy when the first 0:01:31.880 --> 0:01:34.960 shot was fired, which was a zero feetf one guy 0:01:34.959 --> 0:01:37.280 in my Twitter feed a couple of days later said 0:01:37.680 --> 0:01:40.360 how long till they pay you? And then and it 0:01:40.360 --> 0:01:43.480 turns out day later he was, you know, there there 0:01:43.480 --> 0:01:45.759 it was. So that's right, like it went not only 0:01:45.959 --> 0:01:49.520 to zero, but it went below zero. To the fact 0:01:49.560 --> 0:01:52.440 that one issue or basically started to pay you to 0:01:52.640 --> 0:01:55.840 actually hold an ETF. Yeah, this was I think a 0:01:55.920 --> 0:01:58.040 place we all thought we were going to go. But 0:01:58.080 --> 0:02:01.000 I think most people thought pay you would be a 0:02:01.000 --> 0:02:03.200 couple of years down the road. But the fact that 0:02:03.240 --> 0:02:05.160 it came so close on the heels of the zero, 0:02:06.240 --> 0:02:09.320 I think that's what. And then in between you had 0:02:09.440 --> 0:02:12.400 Vanguard in Black Rock and State Street all do their shots. 0:02:12.880 --> 0:02:15.000 Those are more like bombs because those are going to 0:02:15.080 --> 0:02:19.720 really affect some flows. But this was, I get again, 0:02:19.880 --> 0:02:23.040 the most intense two week period of the fee war 0:02:23.200 --> 0:02:25.640 that I've ever seen. Joining us on this episode of 0:02:25.639 --> 0:02:29.520 Trillions is Rachel Evans to help us walk through this 0:02:29.680 --> 0:02:36.520 timeline of the great fee War, this time on Trillians 0:02:37.040 --> 0:02:41.560 the Race for Zero. Rachel, always a pleasure to have you. 0:02:41.639 --> 0:02:45.040 Thanks having me. When you saw this happen and it 0:02:45.200 --> 0:02:49.040 kind of culminated in in late February, what was your 0:02:49.120 --> 0:02:51.120 take on it? Yeah, so I mean as that as 0:02:51.160 --> 0:02:53.320 that kind of said earlier, like we've been seeing this 0:02:53.440 --> 0:02:56.960 fee war developing over the last few years. In many respects, 0:02:57.000 --> 0:02:59.560 this is really nothing new. This kind of cut and 0:02:59.680 --> 0:03:02.680 count a cup, particularly from the big three Black Rock, 0:03:02.960 --> 0:03:05.680 Vanguard and State Street, has really been taking place for 0:03:05.720 --> 0:03:08.480 a long long time. However, what struck me is kind 0:03:08.520 --> 0:03:11.080 of new this time is that really that the diversity 0:03:11.160 --> 0:03:14.240 of players that kind of like suddenly wanted to have 0:03:14.360 --> 0:03:17.119 a crack at lowering price in order to either get 0:03:17.120 --> 0:03:21.080 attention and or lure assets. And it really seems that 0:03:21.120 --> 0:03:23.960 this has become something that is not just for a 0:03:24.000 --> 0:03:27.600 select few large issuers, but something that really everybody wants 0:03:27.600 --> 0:03:28.960 to have a go out. And I think it really 0:03:29.000 --> 0:03:32.600 speaks to exactly how important cost has become within the 0:03:32.600 --> 0:03:34.840 e t F market. You know, whether you're a retail 0:03:34.880 --> 0:03:37.760 investor putting in a few thousand here or there, or 0:03:37.760 --> 0:03:40.480 whether you're an advisor with a millions or billions to 0:03:40.520 --> 0:03:44.520 allocate cost has become something that issuers can can't afford 0:03:44.560 --> 0:03:47.600 to ignore. They have to have something that they can 0:03:47.600 --> 0:03:50.640 show to to those investors that says, hey, you know, 0:03:50.720 --> 0:03:53.040 if you get into this fund, yes the strategy is good, 0:03:53.120 --> 0:03:54.680 Yes we have a good brand. But actually it's also 0:03:54.720 --> 0:03:57.120 not going to cost you much. But isn't this I mean, 0:03:57.360 --> 0:04:00.480 this is a huge business problem. When it's great for 0:04:00.520 --> 0:04:04.680 a consumer like great, everything's free or almost free, what 0:04:04.760 --> 0:04:08.360 does it mean for asset managers? That is the big challenge, right, 0:04:08.400 --> 0:04:10.560 I mean, if you are charging nothing for your funds, 0:04:10.560 --> 0:04:14.040 where do you make a profit? Now? For for some companies, Banker, 0:04:14.120 --> 0:04:16.480 for example, has an interesting business model in which it 0:04:16.800 --> 0:04:19.560 isn't really working for shareholders. It's working very much for 0:04:19.720 --> 0:04:22.400 kind of I guess, the shareholders in its ETFs. Whereas 0:04:22.440 --> 0:04:24.440 you know, for other companies that are publicly listed, you 0:04:24.440 --> 0:04:26.440 know they have shareholders that they are accountable to and 0:04:26.440 --> 0:04:28.800 they do need to generate a profit. So the idea 0:04:28.960 --> 0:04:31.520 is that if you cut two very very low. You 0:04:31.560 --> 0:04:33.280 then either kind of managed to make it up by 0:04:33.320 --> 0:04:35.880 getting lots of assets into those funds and a very 0:04:35.960 --> 0:04:38.960 very low one basis point on a billion dollars, for example, 0:04:39.000 --> 0:04:41.919 it's better than fifty basis points on no billion dollars. 0:04:42.160 --> 0:04:43.720 So in that respect, you can make it up there, 0:04:43.920 --> 0:04:47.640 or you try and potentially upsell by having other products 0:04:47.680 --> 0:04:49.680 that you know, do charge more that you can kind 0:04:49.680 --> 0:04:53.200 of move clients into once they brought those very cheap products. 0:04:53.320 --> 0:04:55.160 There are also a few ways in which you can 0:04:55.200 --> 0:04:57.520 try and make a no cost funds sort of pay 0:04:57.600 --> 0:04:59.880 for itself. They're a little bit more technical, but tend 0:04:59.880 --> 0:05:02.520 to involve, you know, securities lending, lending out the securities 0:05:02.560 --> 0:05:04.919 from within the fund for a fee, and then using 0:05:04.960 --> 0:05:07.880 that to offset the lost revenue from charging nothing. Let 0:05:07.960 --> 0:05:11.040 me jump in here, because you know, the invisible hand 0:05:11.040 --> 0:05:14.719 behind all this is advisors. They switched to a model 0:05:14.760 --> 0:05:16.760 where they get paid as a percentage of the client's 0:05:16.800 --> 0:05:19.600 assets as opposed to getting a commission from the mutual fund. 0:05:20.400 --> 0:05:22.400 So what that did is it kind of left mutual 0:05:22.440 --> 0:05:24.800 funds out and out in the cold, because now that 0:05:24.839 --> 0:05:27.359 you're getting a percentage of your client's assets. Of course, 0:05:27.360 --> 0:05:30.640 you want cheap stuff, right, But advisors may be creating 0:05:30.640 --> 0:05:34.040 a monster that when may come back and haunt them 0:05:34.080 --> 0:05:36.840 because if they're so cost obsessed to the point where 0:05:36.839 --> 0:05:40.200 they're going to drive the issuer's fees down to nothing, 0:05:40.839 --> 0:05:43.480 these issuers who can't sell a fund over ten basis 0:05:43.520 --> 0:05:47.000 points may start looking at their one percent fees and 0:05:47.040 --> 0:05:48.640 be like, hm, that looks like a good business to 0:05:48.640 --> 0:05:51.560 get into. And so advisors, for the most part haven't 0:05:52.000 --> 0:05:55.120 felt anything close to what asset managers are going through 0:05:55.160 --> 0:05:57.719 with their fees. So you may find asset managers start 0:05:57.720 --> 0:06:00.920 to get closer and closer to the end customer and 0:06:00.960 --> 0:06:03.240 become advisors themselves. You've already seen it with Vanguard and 0:06:03.279 --> 0:06:06.799 Schwab black Rocks becoming like a technology provider to advisors 0:06:06.800 --> 0:06:08.960 to try to make money from them in different ways. 0:06:09.360 --> 0:06:12.320 And this is also you know when Fidelity did their 0:06:12.400 --> 0:06:15.640 zero about a year ago. Since then, the index of 0:06:15.680 --> 0:06:19.800 asset managers is down, and this is when the S 0:06:19.839 --> 0:06:23.920 and P is up six percent, so that's under performance 0:06:24.040 --> 0:06:27.039 of stocks of asset managers. So you can see that 0:06:27.080 --> 0:06:30.400 Wall Street is really onto this, even though the revenues 0:06:30.440 --> 0:06:34.000 haven't been hurt that badly. Because of the bull market's 0:06:34.000 --> 0:06:36.920 been nice for their assets and revenue. This is sort 0:06:36.960 --> 0:06:41.120 of them looking forward and saying these companies are in trouble. Yeah, 0:06:41.200 --> 0:06:42.800 that's gonna be really interesting, you know, when we do 0:06:42.880 --> 0:06:45.560 get a bear market, given that things are already at 0:06:45.560 --> 0:06:48.680 this point where so many fund issues have had to 0:06:48.839 --> 0:06:51.400 lower their fees towards zero, and that has been very 0:06:51.480 --> 0:06:53.800 much done on the basis that assets will continue coming 0:06:53.800 --> 0:06:56.120 into these funds and these funds will continue growing to 0:06:56.160 --> 0:06:58.000 allow them to make a profit. If we start to 0:06:58.040 --> 0:07:00.719 see a bear market, yes, et F may well become 0:07:00.800 --> 0:07:02.680 kind of a place where people can hide out and 0:07:02.960 --> 0:07:05.479 try and kind of ride out the storm. But it 0:07:05.560 --> 0:07:07.880 does make it much harder for those asset managers to 0:07:08.000 --> 0:07:10.360 keep blowering costs and to make a profit. It could 0:07:10.400 --> 0:07:13.440 become quite nasty when we do see see that bad market. Yeah. 0:07:13.440 --> 0:07:15.760 I mean most people are calling for an intense period 0:07:15.800 --> 0:07:18.600 of consolidation, and I think a bear market may trigger that. 0:07:19.280 --> 0:07:22.800 In my opinion, you know, I think these brave souls 0:07:22.840 --> 0:07:24.440 in the E t F Terror Dome as I call it, 0:07:24.480 --> 0:07:27.520 that are fighting vanguard and you know, losing limbs left 0:07:27.520 --> 0:07:29.760 and right. I think they will be rewarded In the 0:07:29.760 --> 0:07:33.400 long run, I think these companies, because they have organic growth, 0:07:33.520 --> 0:07:36.920 they have things people want, which is cheap ETFs um. 0:07:37.000 --> 0:07:38.800 On the other side of a bear market, they may 0:07:38.840 --> 0:07:41.520 find themselves the buyer of some of these large asset 0:07:41.520 --> 0:07:45.000 managers that have were brand names for years. So companies 0:07:45.040 --> 0:07:49.200 like Black Rock, State Street Invest, Go Schwab. I think 0:07:49.240 --> 0:07:51.440 their names could be around in ten or twenty years. 0:07:52.080 --> 0:07:54.320 As much as the pain they're feeling now, they may 0:07:54.320 --> 0:07:57.480 be rewarded down the road in terms of growing through 0:07:57.520 --> 0:08:01.000 acquisition and getting scale that way. Okay, I want to 0:08:01.040 --> 0:08:05.560 walk through this leaderst fee war and and this two 0:08:05.560 --> 0:08:08.680 week period that we've been talking about. What was the 0:08:08.680 --> 0:08:11.680 first shot across the bow? So so the first shot 0:08:11.720 --> 0:08:14.200 across the bow was really so far. This is the 0:08:14.280 --> 0:08:17.640 the online lender you've probably received through the mail various 0:08:17.720 --> 0:08:20.960 kind of offers to refinance your student debt. Well, these 0:08:21.000 --> 0:08:23.440 guys now have their own kind of like asset management 0:08:23.440 --> 0:08:26.400 type business where they're trying to encourage people to to 0:08:26.480 --> 0:08:28.720 let them sort of invest their money on their behalf 0:08:28.760 --> 0:08:31.160 as well as be financing their loans. So one of 0:08:31.200 --> 0:08:33.480 the things that they're doing as part of that is 0:08:33.480 --> 0:08:35.920 that they are launching these two e t fs that 0:08:35.960 --> 0:08:38.600 are going to be zero fee or at least zero 0:08:38.679 --> 0:08:41.280 fee for a certain period in time. The way they're 0:08:41.320 --> 0:08:43.920 doing this is rather than price the product at zero 0:08:43.960 --> 0:08:46.839 basis points for for the life of the products, they're 0:08:46.840 --> 0:08:49.360 actually doing a fee waiver, so the management fee will 0:08:49.440 --> 0:08:52.679 kick in potentially in a year's time. And so this 0:08:52.720 --> 0:08:54.880 was that the kind of first real shot across the bow. 0:08:55.000 --> 0:08:57.360 This came out in late February, and it really shows 0:08:57.400 --> 0:08:59.199 I think kind of in terms of you know, these 0:08:59.240 --> 0:09:01.439 different theater as of war, if you will, of kind 0:09:01.440 --> 0:09:03.720 of like how the this price always kind of being four. 0:09:03.960 --> 0:09:05.760 This is really that this is a new entrance that 0:09:05.840 --> 0:09:07.720 kind of needs come into the market. They need to 0:09:07.760 --> 0:09:09.960 make a splash, and this is a way to kind 0:09:10.000 --> 0:09:13.079 of like get headlines and get people interested in their products, 0:09:13.120 --> 0:09:15.040 you know, when they don't necessarily have a background in 0:09:15.080 --> 0:09:18.160 asset management, especially when it has a younger audience. Exactly 0:09:18.200 --> 0:09:20.679 absolutely a couple of things on so far. I do 0:09:20.760 --> 0:09:23.199 think this one isn't going to become big business. I 0:09:23.240 --> 0:09:25.760 think they'll probably service their own clients with this product 0:09:25.920 --> 0:09:28.559 or these products that are zero I don't know how 0:09:28.559 --> 0:09:31.800 many outside investors they'll get a couple of reasons. One, 0:09:31.840 --> 0:09:33.520 they're not that well known. You know, they're not a 0:09:33.559 --> 0:09:37.240 brand name like black Rock or Vanguard or JP morgan UM. 0:09:37.320 --> 0:09:39.640 The second thing is that the zero fee funds they're 0:09:39.679 --> 0:09:42.880 launching aren't pure beta or you know, it's not like 0:09:42.920 --> 0:09:45.160 the SNP or the total market. They're actually a sort 0:09:45.160 --> 0:09:47.760 of a proprietary index that has a growth tilt. I 0:09:47.800 --> 0:09:50.760 think they think the millennial clients are more aggressive, and 0:09:50.800 --> 0:09:53.319 I get that. So you know, unless you're pure beta, 0:09:53.480 --> 0:09:55.160 you're not going to get mass money. I mean you're 0:09:55.160 --> 0:09:58.560 you're obviously looking for a smaller audience, uh that way. 0:09:58.600 --> 0:10:01.560 So I don't know if that'll be big, but it's 0:10:01.559 --> 0:10:05.720 certainly got the headlines. UM. It's something that I think 0:10:05.760 --> 0:10:08.080 will have ripple effects. And but beyond that, it is 0:10:08.120 --> 0:10:11.320 interesting that it shows that outside companies that have nothing 0:10:11.360 --> 0:10:13.440 to do with the t F s UM now have 0:10:13.559 --> 0:10:15.880 a quick way to launch a free t F to 0:10:15.880 --> 0:10:17.840 serve their existing clients, because there's been some calls that 0:10:17.880 --> 0:10:21.520 tech companies may get into this business, and so far 0:10:21.640 --> 0:10:25.280 went through a UM somebody else's exemptive relief. So it's 0:10:25.280 --> 0:10:28.080 almost like they took this fast track to get it done, 0:10:28.559 --> 0:10:30.760 and you may find um E t f s being 0:10:30.800 --> 0:10:33.960 issued to service small groups of clients, and that way 0:10:33.960 --> 0:10:35.640 they don't have to pay Vanguard to black Rock. I 0:10:35.679 --> 0:10:38.120 actually think that I kind of disagree with you. I think, 0:10:38.160 --> 0:10:40.840 actually this is a really interesting strategy because you have 0:10:40.920 --> 0:10:44.160 a built in audience and you've just got them basically 0:10:44.200 --> 0:10:46.440 out of their debt, and now it's like, hey, as 0:10:46.480 --> 0:10:48.199 long as we get you out of debt, do you 0:10:48.240 --> 0:10:52.600 wanna help make money? Yeah? But the question is, again, 0:10:52.640 --> 0:10:55.480 if you're looking at the big, gigantic sort of ocean 0:10:55.520 --> 0:11:00.560 of assets, um is an advisor in Texas gonna put 0:11:00.600 --> 0:11:02.640 their clients money in so Far and have to explain 0:11:02.679 --> 0:11:05.000 what that is rather than say black Rock or shall 0:11:05.040 --> 0:11:07.880 you know what I mean? It's maybe if so Far 0:11:07.960 --> 0:11:09.720 grows and grows. But I just think this is a 0:11:09.760 --> 0:11:13.720 product for their own audience. That's it. I actually think 0:11:13.760 --> 0:11:19.480 that's advantageous. But then the next day of February what happened. 0:11:19.960 --> 0:11:23.000 So we we've already just heard about the new entrance. 0:11:23.240 --> 0:11:27.000 This was really a case of the old established guard 0:11:27.080 --> 0:11:29.440 kind of like coming out with with their latest round 0:11:29.440 --> 0:11:31.400 of feed cuts. This was Vanguard. Vanguard came out and 0:11:31.440 --> 0:11:34.960 cut by one or two basis points fees on about 0:11:35.000 --> 0:11:38.480 ten ETFs. Of course, they didn't finish off that week necessarily, 0:11:38.600 --> 0:11:40.160 and sitting on that, they actually came out and then 0:11:40.200 --> 0:11:43.320 cut a few basis points off another three funds, three 0:11:43.320 --> 0:11:46.680 big funds, including their SMP five hundred funds that became 0:11:46.760 --> 0:11:49.840 the lowest cost SMP five hundred focused e t F 0:11:49.920 --> 0:11:51.640 with that fee cut. So that was kind of a 0:11:51.640 --> 0:11:54.120 really interesting example I guess of kind of how I 0:11:54.120 --> 0:11:56.079 sort of think of, like, you know, the US versus 0:11:56.080 --> 0:11:58.079 the Soviet Union in this kind of price wall. I mean, 0:11:58.080 --> 0:11:59.839 this is kind of like where the real sort of 0:12:00.360 --> 0:12:03.720 arms races going on between Vanguard and Black Black and Vanguard. 0:12:03.840 --> 0:12:06.480 The two tend to kind of like they won't tell 0:12:06.480 --> 0:12:09.720 you necessarily that they're watching that their their rivals that closely, 0:12:09.840 --> 0:12:13.600 but they're very aware exactly. Yeah, there are some interesting 0:12:13.640 --> 0:12:16.160 timings that on these things. Um So, Vanguard very much 0:12:16.200 --> 0:12:17.880 came out and kind of like put down a sort 0:12:17.880 --> 0:12:19.640 of market and said, you know, here, here we have 0:12:19.679 --> 0:12:21.960 the cheapest kind of S and P fivet F now 0:12:22.000 --> 0:12:23.480 out there. Um So that was kind of like an 0:12:23.480 --> 0:12:26.400 example I guess of of perhaps more of the type 0:12:26.400 --> 0:12:28.959 of feewall that we've been coming to expect rather than 0:12:29.160 --> 0:12:32.440 the new guys. And that's interesting because Vanguard hasn't been 0:12:32.480 --> 0:12:34.839 the cheapest in the S and P five hundred, right, 0:12:35.000 --> 0:12:37.160 They've they've struggled to kind of always be lower than 0:12:37.200 --> 0:12:39.160 anybody else there. Yes, I mean it's kind of an 0:12:39.200 --> 0:12:41.080 interesting one because, like you know, you have all these 0:12:41.120 --> 0:12:43.760 broad stock market funds and Vanguard has always kind of 0:12:43.760 --> 0:12:46.600 been towards the top there. But it's very much been 0:12:46.679 --> 0:12:49.720 kind of this question of people changing positions every few months. 0:12:49.720 --> 0:12:52.000 You know, you've got sort of Black Rock and Vanguard 0:12:52.080 --> 0:12:54.120 kind of vuying like one's one's up on the other 0:12:54.160 --> 0:12:55.920 one month, one's up on the other the next month. 0:12:56.080 --> 0:12:58.040 You've got State Street making a push to get into 0:12:58.080 --> 0:13:00.480 that space, not so much with their and P five 0:13:00.559 --> 0:13:03.600 hundred fund spy that's actually ready to be expensive, but 0:13:03.640 --> 0:13:06.440 with broad stock market funds. They have also been in 0:13:06.480 --> 0:13:09.240 that space. And Schwab, which is a new entrant into 0:13:09.240 --> 0:13:12.720 the space, has been incredibly aggressive at launching and cutting 0:13:12.800 --> 0:13:15.600 fees to actually be in that space and very much 0:13:15.600 --> 0:13:18.480 alongside Black rocome Banguard at the top there. Yeah, this 0:13:18.559 --> 0:13:21.240 is kN Congrese Godzilla, right, So this is and this 0:13:21.280 --> 0:13:24.480 will move billions if not hundreds of billions of dollars. 0:13:24.480 --> 0:13:27.319 This is big boy stuff here. The Vanguard case is 0:13:27.360 --> 0:13:30.600 interesting because and what Rachel just described we referred to 0:13:30.600 --> 0:13:33.000 as the core wars, because these are products that would 0:13:33.000 --> 0:13:35.040 make the core of your portfolio, which is where most 0:13:35.080 --> 0:13:37.800 of the money in America is. Right. So when they 0:13:37.880 --> 0:13:41.040 cut one bib, when i VV came out and went 0:13:41.240 --> 0:13:45.280 one bit lower than VOO back in, i VV immediately 0:13:45.320 --> 0:13:48.679 doubled its rate of flows and became the biggest flow getter, 0:13:48.720 --> 0:13:53.520 and since then and got separation from VO from twenty 0:13:53.559 --> 0:13:56.520 billion to sixty billion. Now VO comes out cuts one 0:13:56.760 --> 0:14:00.680 bit lower than i VV two weeks ago, and since 0:14:00.720 --> 0:14:03.360 then it's had its biggest weekend flows. Ever. We can't 0:14:03.400 --> 0:14:05.839 prove that's related, but I wouldn't be surprised if you 0:14:05.880 --> 0:14:09.320 see VOO get a nice bump out of this, because 0:14:09.640 --> 0:14:12.480 we've seen the power of of one basis points one 0:14:12.520 --> 0:14:16.080 basis point in this case, especially in the SMP five hundred. 0:14:16.080 --> 0:14:20.280 But overall, the core wars are a rough, brutal place 0:14:20.320 --> 0:14:22.400 to be. But if you just take the four corey 0:14:22.480 --> 0:14:24.520 tfs from black Rock and you compare them to the 0:14:24.520 --> 0:14:27.840 four corey ETFs of Vanguard, those eight e t f 0:14:27.920 --> 0:14:30.960 s alone have taken in the inflows in the past 0:14:30.960 --> 0:14:34.040 three years, even though they only made up eighteen percent 0:14:34.240 --> 0:14:36.400 ish of the assets at the beginning of that time. 0:14:36.400 --> 0:14:38.680 In other words, that is where a lot of the 0:14:38.720 --> 0:14:41.440 money is flowing. UM again, that this is a real 0:14:42.000 --> 0:14:44.160 assets that that you know, you see at the top 0:14:44.200 --> 0:14:46.280 of the leaderboard year in and year out. I have said, 0:14:46.400 --> 0:14:48.640 I really liked a stat that Blamebag Intelligence had at 0:14:48.640 --> 0:14:50.480 the end of last year, which was that I think 0:14:50.560 --> 0:14:53.920 nine percent of flows into index funds when you look 0:14:53.960 --> 0:14:56.760 at ets and mutual funds have gone into products charging 0:14:56.840 --> 0:14:59.440 less than twenty basis points. I mean, that's crazy. I 0:14:59.440 --> 0:15:01.920 mean that show to you quite like quiet how imports 0:15:02.000 --> 0:15:10.960 into it is to have a cheap product. Okay, the 0:15:11.000 --> 0:15:13.960 next turn of this grew happened on March first, Eric. 0:15:14.000 --> 0:15:17.480 What happened then March first was an interesting one UM 0:15:17.480 --> 0:15:20.760 State Street. Quietly, this was in the shadow of Vanguard. 0:15:20.760 --> 0:15:24.440 I thought said they were gonna UM convert C junks, 0:15:25.000 --> 0:15:28.000 J and K, which was a crossover sort of double 0:15:28.040 --> 0:15:30.640 B bond et F they had that wasn't getting much 0:15:30.680 --> 0:15:33.600 traction because of the products had sort of done better. 0:15:34.000 --> 0:15:36.680 They're converting it to a broad high yield product. But 0:15:36.760 --> 0:15:38.520 by the way, they're going to slash the fee to 0:15:38.720 --> 0:15:42.760 fifteen basis points. This was quiet, but in any other 0:15:42.960 --> 0:15:46.240 you know, time period, you're essentially seeing State Street a 0:15:46.240 --> 0:15:48.760 major issue or come out with the cheapest junk bond 0:15:48.760 --> 0:15:52.480 etf on the market by a good measure too. And 0:15:52.560 --> 0:15:55.440 we've seen that. Deutsche Bank, I think two years ago 0:15:55.560 --> 0:15:58.680 came out with h y LB, which was at the 0:15:58.720 --> 0:16:01.360 time undercut everybody and fees in the junk bond market 0:16:01.880 --> 0:16:05.160 because it was twenty basis points. So here comes State Street. 0:16:05.200 --> 0:16:07.280 Now as of April one is going to have a 0:16:07.320 --> 0:16:11.720 broad high yield TF for fifteen um. I can't imagine 0:16:11.760 --> 0:16:14.160 this doesn't do well. It's a big issuer. And we've 0:16:14.160 --> 0:16:16.800 seen the power of cheap in the junk bond space. 0:16:17.080 --> 0:16:19.240 Most people who are traders are going to use H 0:16:19.360 --> 0:16:21.479 y G and J and K. They just want that liquidity. 0:16:21.520 --> 0:16:24.480 But there is a group of longer term investors who 0:16:24.520 --> 0:16:28.440 are really going to respond to those uh that those 0:16:28.480 --> 0:16:30.960 low fees, and I think H C, J and K. 0:16:31.400 --> 0:16:33.000 Let's look out for New Year to probably have a 0:16:33.000 --> 0:16:36.240 billion dollars. I'm really curious though, to see how Deutsche 0:16:36.240 --> 0:16:39.040 Bank and black Rock potentially react to this, because there 0:16:39.080 --> 0:16:42.040 was a really entertaining, from my perspective, a little spat 0:16:42.080 --> 0:16:43.800 that kind of like flared up in this fee wall. 0:16:44.200 --> 0:16:45.960 I think it was last year, may have been the 0:16:46.000 --> 0:16:48.760 year before. Time is flying past, but basically what once 0:16:48.840 --> 0:16:50.920 h y LB came out and did kind of undercut 0:16:50.920 --> 0:16:53.400 the rest of the market. Black Rock came out with 0:16:53.400 --> 0:16:56.360 this new broad high yield fund. I think the tackle 0:16:56.520 --> 0:16:58.800 was U s h Y. Does that sound right, Eric, Yes, 0:16:58.880 --> 0:17:02.800 that's the that's the one that's like double the securities 0:17:02.840 --> 0:17:04.719 of h YG but it's still broad and sort of 0:17:04.840 --> 0:17:06.919 market exactly. But anyway, they came out with that, so 0:17:07.000 --> 0:17:08.880 that was that was cheaper, and then Deutsche came out 0:17:08.920 --> 0:17:10.880 and cut the fee on h y l B two 0:17:10.920 --> 0:17:12.879 it's to kind of undercut U s h Y. So 0:17:12.960 --> 0:17:15.360 I'm curious to see kind of like whether this fifteen 0:17:15.359 --> 0:17:18.800 basis point sort of shot across the bow actually prompts 0:17:19.200 --> 0:17:21.560 black Rock or Deutsche has come out and try and 0:17:21.600 --> 0:17:24.240 be the cheapest again, or whether they're prepared to, you know, 0:17:24.320 --> 0:17:26.040 take the fact that they've managed to get decent number 0:17:26.040 --> 0:17:27.560 of assets into h y l B and kind of 0:17:27.600 --> 0:17:30.160 sit on that and assume that that money will keep 0:17:30.200 --> 0:17:32.200 coming in now that they've reached that kind of landmark. 0:17:32.480 --> 0:17:35.320 And what's interesting is what Spiders really doing here, and 0:17:35.320 --> 0:17:38.280 they've done it over and over, is in a way 0:17:38.359 --> 0:17:40.800 mirror what black Rock did, which was pretty genius. Back 0:17:40.840 --> 0:17:43.000 in the day. Black Girl was getting its lunch eaten 0:17:43.040 --> 0:17:46.480 by Vanguard, so it said, hey, let's instead of we 0:17:46.520 --> 0:17:48.600 know we've got these liquid products that traders want and 0:17:48.600 --> 0:17:50.280 they don't care what the fee is, Let's keep those 0:17:50.280 --> 0:17:53.080 there and we'll come out with a core series. So 0:17:53.119 --> 0:17:55.800 they've come up with similar products that do similar things, 0:17:55.800 --> 0:17:58.120 but they're way cheaper. Their priced at Van Guardian level. 0:17:58.200 --> 0:18:01.320 So Spider is keeping J and K, which I think 0:18:01.359 --> 0:18:05.119 is forty BIPs and now they've got their sort of 0:18:05.160 --> 0:18:08.040 core series version with C junk and that's what black 0:18:08.119 --> 0:18:10.080 Rock has with h Y G and U S h Y. 0:18:10.240 --> 0:18:12.480 So a lot of these issues are started getting with 0:18:12.520 --> 0:18:14.760 the program of let's keep our liquid ones at the 0:18:14.840 --> 0:18:18.040 higher fee because traders don't care what it costs, and 0:18:18.080 --> 0:18:20.919 then we'll have these lower ones for these costs obsessed advisors. 0:18:21.760 --> 0:18:24.639 And what's this done. I mean, look, we're a couple 0:18:25.440 --> 0:18:29.440 shots into this. This full on cost cutting war here. 0:18:29.840 --> 0:18:32.600 What's the mood like by this point that you guys 0:18:32.640 --> 0:18:35.480 can kind of discern. I think people are starting to 0:18:35.480 --> 0:18:37.679 sort of quake a little bit in their boots. And 0:18:37.680 --> 0:18:39.400 when you start to see kind of like this happening 0:18:39.560 --> 0:18:42.520 across such a variety of different products, it makes you 0:18:42.520 --> 0:18:44.600 start wondering, like, you know, you start looking over your shoulder, 0:18:44.640 --> 0:18:46.440 who's next, Who's going to come up, come out, Who's 0:18:46.480 --> 0:18:48.720 going to undercut which products? So I think there's a 0:18:48.720 --> 0:18:51.119 lot of people, you know, on the sidelines kind of 0:18:51.160 --> 0:18:54.240 talking to their their fund boards, talking to others in 0:18:54.280 --> 0:18:55.720 the market, and trying to get a sense of like 0:18:56.160 --> 0:18:58.760 where the right prices for their products at the moment. 0:18:58.760 --> 0:19:00.760 I mean, no, no an issue is ever going to 0:19:00.840 --> 0:19:02.879 tell you before that they come out and cut that 0:19:02.920 --> 0:19:04.919 they're thinking about cutting it. It doesn't have it a 0:19:04.920 --> 0:19:06.520 good ring to it. But I think there's a lot 0:19:06.560 --> 0:19:08.600 of kind of conversations going on behind the scenes as 0:19:08.640 --> 0:19:11.720 to whether this kind of like resets the dial for 0:19:11.800 --> 0:19:13.800 what you can actually ask for these types of products, 0:19:14.040 --> 0:19:17.600