Speaker 1: Well carew brilliance. I'm Joel Weber and I'm Eric Belchiernis.
Speaker 1: I was in London recently, Eric, and one thing I've
Speaker 1: learned about being in London is that you're kind of
Speaker 1: a superman in the ETF space, but you have sidekicks.
Speaker 1: And one of them has been on the show a
Speaker 1: couple of times. Tom Sarah Vegas. He's relocated to London recently. Yeah,
Speaker 1: he's like, he's like a Miniu but over there. Yeah,
Speaker 1: effectively Robin to your batman, I guess. So you know,
Speaker 1: I think Tom is his own man. He's much more
Speaker 1: of an expert in smart beta and multi factor research
Speaker 1: than I am. For sure, he's our smart beta expert.
Speaker 1: But the reason he went to London. He was here
Speaker 1: for a full year, and we kept getting the same
Speaker 1: reply from clients, I love this data set on the library,
Speaker 1: or I love this note, but can you do it
Speaker 1: for Europe? But can you do it for Europe? But
Speaker 1: can you do it for Europe? And we got this
Speaker 1: so many times that we thought, Okay, we should just
Speaker 1: do it for Europe. And Tom is being sent there
Speaker 1: to do it for Europe. So I went to the
Speaker 1: pub with him bottom a pint. We have an incredible office,
Speaker 1: this little pub around the corner. We took him there
Speaker 1: and started kicking some stuff around with him, and we
Speaker 1: just started talking about e t F s in Europe,
Speaker 1: and I thought this would actually be a really good episode.
Speaker 1: And he happens to be back in New York now
Speaker 1: on like a spring break, I guess, And we said,
Speaker 1: why don't why don't we talk to him about what
Speaker 1: he's learned in the little baptism he's had in Europe. Yeah,
Speaker 1: I think it's good to think global sometimes. The t
Speaker 1: F they trade and I think last time I checked
Speaker 1: seventy exchanges around the world. Europe is the second biggest
Speaker 1: area after the United States. But it is different, and
Speaker 1: the culture is different, the regulations are different, and kind
Speaker 1: of it was a it's a good excuse to get
Speaker 1: some perspective on how investors in another country do it
Speaker 1: and some similarities and differences. The US is somewhat spoiled
Speaker 1: because it's just the US over there. There's all these
Speaker 1: different countries, They've got different currencies. We sometimes referred to
Speaker 1: it as the Wild West in terms of trying to
Speaker 1: tame that beast, which is all these different uh like legacy. Uh,
Speaker 1: situations that make it hard to just do certain things
Speaker 1: that are easy in the US, and so Tom has
Speaker 1: his work cut out for him. Okay, So joining us
Speaker 1: on this episode of Trillions, Tom Saraphagus, an analyst with
Speaker 1: Bloomberg Intelligence. This WEEKND Trillions, five surprising things about the
Speaker 1: European et F markets. Tom, Welcome back to Trilliance. Can
Speaker 1: you say your first name again? Last name Sara Hagus? Okay,
Speaker 1: it's I have a much easier time in Europe getting
Speaker 1: by with that name. He's our version of the Greek freak.
Speaker 1: It's just a basketball player for those who don't know
Speaker 1: from the other Bucks with a crazy Greek leame. So, Tom,
Speaker 1: how do you like London so far? It's great. Yeah,
Speaker 1: it's it's going great. I've always uh, you know, I've
Speaker 1: been to London before, so you know, before I decided
Speaker 1: to go, I had to make sure I like the city.
Speaker 1: So it's sort of just like a cleaner version of
Speaker 1: New York, a little bit of a slower pace. But
Speaker 1: so far, so good. And talk to me about what
Speaker 1: you've learned since you've been there. So I think Eric's
Speaker 1: sort of like alluded to it in the intro with
Speaker 1: the t F market, I meant life like it's much
Speaker 1: slower paced. Uh, And they take their holidays very seriously
Speaker 1: and they're called holidays. Yeah, they are called holidays, And
Speaker 1: apartments are called flats. The elevators to lift, so you
Speaker 1: sort of have to get used to it. You know.
Speaker 1: It's like English technology. So that is actually a perfect
Speaker 1: transition into E T S. Right, So what's it like
Speaker 1: over there? So I would say overall, it's the same
Speaker 1: but different, right, and so can we end the podcast
Speaker 1: there is that it? So overall, Um, you know, they
Speaker 1: do want to be like the US, but um, some
Speaker 1: things that are kind of alluded to, they're just they're
Speaker 1: not there yet there, you know. I think the biggest
Speaker 1: thing is we call it Europe, right, but when you
Speaker 1: think about it, it's all these regional markets all put together.
Speaker 1: They're all very different, to have different mentalities, they have
Speaker 1: different investor bases. There's a lot of fragmentation in Europe.
Speaker 1: So I think as they move sort of trying to
Speaker 1: be more centralized, the market is going to grow faster.
Speaker 1: But um, they really want to grow. I think they
Speaker 1: It's sort of why we even decided to put an
Speaker 1: analyst age because they asked for for content. They're like,
Speaker 1: we really want more help into helping figure out this market. Um,
Speaker 1: which is why we're in the position that we're in.
Speaker 1: So UM, I think it's gonna keep continuing to grow,
Speaker 1: not to say it doesn't have its own hurdles, but okay,
Speaker 1: so you brought with you something like five mind blowing facts.
Speaker 1: Are they gonna blow my mind and Eric's mind or
Speaker 1: just mine? I'm gonna pretend my mind is blow. I
Speaker 1: probably know these, but I when I first saw them,
Speaker 1: my mind was blown. So I'll go back to that
Speaker 1: feeling of not knowing. I think some Eric might know,
Speaker 1: but definitely some Eric might know. Um, I think any
Speaker 1: of the et F nerds listening are going to be
Speaker 1: blown away. But there's some other ones that I think
Speaker 1: Eric didn't know about. Drop your hammer. So let's start
Speaker 1: with the first one. Um, there are actually way more
Speaker 1: e t F s in Europe than there are in
Speaker 1: the U. S is about almost three thousand in Europe.
Speaker 1: There's only about in the US. But asset wise, we're
Speaker 1: at three point six trillion here less than a trillion
Speaker 1: in Europe, right, so way more products, much fewer assets.
Speaker 1: And that goes back to the the thing I was talking
Speaker 1: about fragmentation, right, So if you are so, what you
Speaker 1: end up finding here is we have three smpts, but
Speaker 1: in Europe you have like fifty stock six et s, right,
Speaker 1: because of all that fragmentation. So if you are an
Speaker 1: issue er launching a product in the UK, you're going
Speaker 1: to launch a similar product in France and Germany xcess.
Speaker 1: You end up having a lot of these copycat products,
Speaker 1: and because of that, you end up having a lot
Speaker 1: more products out there, but the assets so when you
Speaker 1: sort of look at assets per product, it's much less
Speaker 1: in Europe. So literally it will be the same et
Speaker 1: F but listed on different exchanges yep, and like different exchanges.
Speaker 1: And also the thing that we are not used to
Speaker 1: here in the US their share classes there, right, So
Speaker 1: if you buy an e t F to paysitive, then
Speaker 1: you're getting that dividend and Europe you get to pick
Speaker 1: that I want the dividend do I want the dividend
Speaker 1: being reinvested. So there's all these nuances that you don't
Speaker 1: um sort of appreciate being a US invest So that's
Speaker 1: interesting because I think there's a little behavioral economics in there,
Speaker 1: which is when you have too much choice. Maybe it's
Speaker 1: a bad thing. And when you talk about all those
Speaker 1: different products, are we talking about if you are are
Speaker 1: you are they cross list thing on all these different
Speaker 1: exchanges or do they actually go to that country domicile
Speaker 1: and come out with a fresh new product in that country. No,
Speaker 1: So what it will be is um. There's also issuers
Speaker 1: in all different countries. Right, So there's DWS right, which
Speaker 1: is German, There's I Shares, there's the French issues, so
Speaker 1: a lot of them. What they do is okay, So
Speaker 1: like French clients are gonna buy from the French issues,
Speaker 1: So the French companies are going to launch the you know,
Speaker 1: the the broad bench mark e TS DWUS is gonna
Speaker 1: launch this broad market et F, I Shares, Vanguard, etcetera.
Speaker 1: So you end up having a lot of the same
Speaker 1: products just launched them the different respective markets. Um. And
Speaker 1: then on the cross listings. That's one thing too. But
Speaker 1: there's also different share classes which we don't have here
Speaker 1: in the U. S. That's a that's a very new
Speaker 1: thing for anyone who's sort of been trained in the
Speaker 1: US and going over to Europe. Uh. And they also
Speaker 1: have different currencies. Again, I think we don't really have
Speaker 1: to deal with here. So there's a lot more decisions
Speaker 1: that go into buying an et F there do I
Speaker 1: want this? Do I want the dividends? And what currency
Speaker 1: I want? A currency hedge? And then what currency the frank,
Speaker 1: the Euro, the pound. Right, So there's all these decisions
Speaker 1: that go into buying an ETF that we don't that
Speaker 1: we're not necessarily used to here. Okay, so related what
Speaker 1: are people investing in if they're not investing in ETFs
Speaker 1: active mutual funds? So like here again, the whole the
Speaker 1: big battle there is sort of active active mutual funds
Speaker 1: versus et s UM And then a new piece of
Speaker 1: of of regulation went into effect last year which is
Speaker 1: MYFED two, and that was really trying to shine the
Speaker 1: light on the cost of active. Right, active funds are
Speaker 1: much more expensive. Research plays a big part in that
Speaker 1: it does, and the unbeldoding of research and ETFs just
Speaker 1: naturally are going to be the beneficiary of that. Right
Speaker 1: as there's more scrutiny on costs and that comes the light, uh,
Speaker 1: and there's sort of trying to get away from the
Speaker 1: commission based models which have been really big in Europe.
Speaker 1: Et f are just naturally gonna do we just pause there?
Speaker 1: This is major to me. This is the biggest catalyst
Speaker 1: for et F growth in the U S, which is
Speaker 1: the shift away from the commission model. So all these
Speaker 1: wealth managers and advisors were getting paid by the mutual fund.
Speaker 1: It's kind of like a kickback, and that's what determined
Speaker 1: whether you were in this fund or that fund. That
Speaker 1: it's dying and the new form is fee based, which
Speaker 1: essentially just means the advisor gets a percent of the
Speaker 1: client's assets. And once they're getting a percentage of that pie,
Speaker 1: of course they're motivated to pick cheap stuff because now
Speaker 1: it's coming out of their money too. If if in
Speaker 1: the US we are saying, I don't know in the
Speaker 1: sixth inning of that move, some people may debate that,
Speaker 1: but let's just say we're in the sixth inning. Where
Speaker 1: are we in Europe from the broker the commission broker
Speaker 1: model to the fee based model. Sure, I would say
Speaker 1: we're probably late first inning because if it just went
Speaker 1: into effect last year, right, so it's just all of
Speaker 1: now bringing on that, shedding that light on it. And
Speaker 1: when these things passed, it's never perfect right from the
Speaker 1: get go. It's like Okay, we're gonna pass this regulation
Speaker 1: and it's going to be perfect. They're still sort of
Speaker 1: the industry still started, still trying to figure it out.
Speaker 1: So it's still very early innings in Europe on sort
Speaker 1: of that transition over there. And culturally are people a
Speaker 1: little less okay, paying more in Europe? Because in the
Speaker 1: in the US, whether it's Amazon or E t F
Speaker 1: or Vanguard, whatever, people are pretty We're like professional consumers.
Speaker 1: We are a consumer culture and we're very sensitive to cost.
Speaker 1: We will go to the to me. Yeah, So are
Speaker 1: they that intense over there when it comes to that culturally,
Speaker 1: I would say no. And it's even this goes back
Speaker 1: to the distribution. The way it's handled in Europe is
Speaker 1: you go to your bank, right in your bank handles everything.
Speaker 1: So I have my mortgage in my savings account on
Speaker 1: my investment account at my bank, and I had that
Speaker 1: because my dad had that. So when my dad passed
Speaker 1: to the account to me, I'm not moving it because
Speaker 1: it's convenient. It's there already, know the advisor. They're charging
Speaker 1: me whatever they're charging me, and they're putting me in
Speaker 1: their active funds. So yeah, there is this huge uh,
Speaker 1: the cost obsession isn't as big in Europe, and we
Speaker 1: actually see it in the flows. And I've studied this
Speaker 1: um here. Right. If et F cuts its feed by
Speaker 1: basis point, everyone sort of shifts over in Europe. It's
Speaker 1: just not that obsessive on costs. Yeah. I think as
Speaker 1: more education comes and there's more more the regulation gets
Speaker 1: put to the to the forefront, it'll the obsession I
Speaker 1: think will start to because like the land before time,
Speaker 1: you know, it's like twenty years ago, we'll get there.
Speaker 1: All right, My mind is not blown, but you know
Speaker 1: I've got you've impressed me. There you go, uh fact
Speaker 1: to a number two Okay, I think this one is
Speaker 1: an interesting one, and it's on Vanguard, right, So they
Speaker 1: you cannot talk about the the industry here and not
Speaker 1: bring a vanguard. They are such a big powerhouse here,
Speaker 1: they're sucking up all the floats, they're changing the advisor
Speaker 1: model everything. Here in Europe they don't have that same
Speaker 1: sort of No one really knows who Vanguard is, right,
Speaker 1: So the number two issue where here they're like number
Speaker 1: six in Europe. They have markets here only four percent
Speaker 1: in Europe. So what I think is really interesting is
Speaker 1: that here Vangard doesn't really have to do anything, like
Speaker 1: everyone knows their Vanger. They're cheap and all the money's
Speaker 1: flowing to them. In Europe, they sort of have to
Speaker 1: go out and promote themselves like, hey, we're Vanguard, this
Speaker 1: is what we're doing. Uh, you know, we do each
Speaker 1: We're kind of a big deal. We're from Pennsylvania. So
Speaker 1: I think it's really interesting that you sort of see
Speaker 1: them not in the top tier firm. They're sort of
Speaker 1: like in the second tier and they actually have to
Speaker 1: like hustle and work and like sort of do all
Speaker 1: the work that the other firms have to compete with
Speaker 1: them here in the US. So they've that role sort
Speaker 1: of reversed in Europe for them if they're six, right,
Speaker 1: Uh black Rock is where what are they? Black Rock
Speaker 1: is one? So so it's not like a U S thing.
Speaker 1: It's just they were late going there. Maybe they were late,
Speaker 1: and but they are sort of what we've seen here
Speaker 1: with like JP Morgan being really aggressive. I see that
Speaker 1: with Vanguard over there, like they're opening the opening up
Speaker 1: new offices, they're really building out their sales teams, so
Speaker 1: they're really sort of in ramp up mode. When I
Speaker 1: feel like here the sort of just sitting back and
Speaker 1: sort of just collecting all the money. The fisher jumping
Speaker 1: in the boat here. Yeah, exactly. Yeah, they've taken like
Speaker 1: a little over a billion a day here. How quickly
Speaker 1: have they risen in the ranks? Though, they're rising very quickly.
Speaker 1: I think every issuer has their eye on them because
Speaker 1: they've seen the success they've had here. Um, And it's interesting.
Speaker 1: They're not the cheapest ones out there in Europe. There
Speaker 1: are other firms that are cheaper than they are, but
Speaker 1: all the E t f s are there. You can
Speaker 1: quind of see them like starting to warm up, like
Speaker 1: they sort of like the picture of the bullpen, like
Speaker 1: they're starting to warm up and everyone's starting to watch
Speaker 1: them because they have seen what they've done here. Um,
Speaker 1: and they're you know, they're they've been really aggressive with hirings.
Speaker 1: So what's the football? Mon the four? It's like he's
Speaker 1: got the the like the kicker starts like exactly into
Speaker 1: the net thing. By the way, have you picked a
Speaker 1: team yet? A club? Sorry? So I've always liked the
Speaker 1: Hot Spurs from a long time ago. Now they're good
Speaker 1: and everyone accusing me that I like them now, But
Speaker 1: we're talking is the soccer because not the San Antonio Alright,
Speaker 1: So I'm actually startled that Vanguard is that sort of
Speaker 1: you know, up and coming over in Europe? Blow my
Speaker 1: mind with another fact, okay, um, retail investors, right, they
Speaker 1: have been really the ones that have been behind a
Speaker 1: lot of the growth here in the US. So if
Speaker 1: you sort of look between retail and institutional, it's about
Speaker 1: a fifty fifty split here, it's very small in Europe.
Speaker 1: It's only about in Europe it's really small. Um. And
Speaker 1: again that comes back to the the commission model, right,
Speaker 1: because everything is at your bank. Your bank's handling everything.
Speaker 1: They're on the commission model, so they're putting you in
Speaker 1: mutual funds. I'm gonna put out a theory. Is this
Speaker 1: because everyone's taxed at a higher rate in Europe and
Speaker 1: therefore they don't have as much disposable income to just
Speaker 1: do their own investing. On the side, I think it
Speaker 1: goes back to the that could be it, but also
Speaker 1: the convenience factor, Like it's just the mentality is very
Speaker 1: different there. So here, you start a job, what's the
Speaker 1: first thing you do? You felt your four O one
Speaker 1: K form, right, and you're sort of like have you
Speaker 1: on I RA. In Europe it's different. They don't sort
Speaker 1: of have this do it yourself like investing culture as
Speaker 1: much as we do here. So retail just hasn't really adopted.
Speaker 1: It is fast, but you know they don't. And by
Speaker 1: the way, by retail, we mean advisors and do it
Speaker 1: yourself retail correct That is stunning. In the US, I
Speaker 1: think that number is probably more like and it's eleven
Speaker 1: percent there. I mean retails were the majority of the
Speaker 1: flows come and advisors institutions use them, but more to
Speaker 1: trade and adjust their portfolio. It's more like for liquidity.
Speaker 1: That is stunning, And I think it does speak to
Speaker 1: that incentive. If the middleman is incentivized to get the
Speaker 1: kick back from the mutual fund and they get paid
Speaker 1: more that way, why on earth would they move to
Speaker 1: an e t F for something that doesn't pay them.
Speaker 1: And this is part of what happened here. But now
Speaker 1: I think people actually look for the fee base model,
Speaker 1: which some people are will use fiduciary. That's the big
Speaker 1: word that's used here for that mode, which is acting
Speaker 1: in your client's best interests. So it sounds like fiduciary
Speaker 1: is not a big deal over there, so I don't
Speaker 1: want to be clear. And this goes back when we
Speaker 1: say Europe, right, so some countries have moved away from
Speaker 1: that commission model, so like the UK, like the Netherlands
Speaker 1: have sort of banned that, but other countries haven't. Right
Speaker 1: this this goes back to the nuance and the fragmentation
Speaker 1: in Europe. So yeah, you might see UK might have
Speaker 1: a bigger chunk of retail and advisors than they do
Speaker 1: in other in other countries too. So I think as
Speaker 1: it gets more centralized and more that models adapted across
Speaker 1: Europe will eventually see it. But for now it's really
Speaker 1: mostly institutional, like it's for for tactical moves or or
Speaker 1: like positions a big portfolio. I was over there and
Speaker 1: I met with initial I won't say who, but I was.
Speaker 1: I was, you know, naive, I guess, and they pointed
Speaker 1: out they said, they said, here's what people are paying
Speaker 1: for for everything, their advisor fee. I'll add it up.
Speaker 1: It came to like six to eight percent. You know,
Speaker 1: that's the fund fee, which is like two percent, then
Speaker 1: the advisor fee and then the the loads. You start
Speaker 1: adding it up, it was like six um here, you know,
Speaker 1: you might pay one percent for your advisor and then
Speaker 1: twenty basis points for your funds. So this is dead's
Speaker 1: a large difference, and I think this is probably what
Speaker 1: a lot of the U S issuers. As this market
Speaker 1: here gets so competitive on price, they're seeing opportunity there
Speaker 1: and that's why you see not just Vanguard, but other
Speaker 1: US companies go over there to try to sort of
Speaker 1: be first. As that model moves, they'll be there with
Speaker 1: the products totally. Can probably squeeze a little bit more
Speaker 1: in Europe yet before all that, because we're starting to
Speaker 1: see really cheap products start to launch now. But they're
Speaker 1: just launching now right, so I think there's still a
Speaker 1: little bit of room for them to be able to
Speaker 1: make make a little bit of money there. And all
Speaker 1: that you actual said, all the U S shuares are
Speaker 1: over there now either they started up their own teams
Speaker 1: there or they bought someone to already have some of
Speaker 1: the infrastructure in place. Okay, I want you to turn
Speaker 1: out the volume. Give me something big. I think this
Speaker 1: one's big, and it's not specifically for et s, but
Speaker 1: I think it's going to bring it full circle. And
Speaker 1: it's sort of like this this policing on closet indexing. Right.
Speaker 1: So what that means is there are funds out there
Speaker 1: that that charge a lot more than say a cheap
Speaker 1: etf but they don't look any different than the benchmark. Right.
Speaker 1: So in the UK they got really strict on this
Speaker 1: and they basically went in and said, Okay, we're gonna
Speaker 1: look at all the funds and if you are just
Speaker 1: a closet indexer, we are going to flag you and
Speaker 1: we're going to make you pay back some of the
Speaker 1: fees to investors. Right. So last year thirty four million
Speaker 1: dollars and fees actually went back to investors. This is
Speaker 1: actually a big deal. This is people are looking at
Speaker 1: portfolios and being like, you're actually not doing what you're
Speaker 1: saying you're doing exactly. So they basically looked at um
Speaker 1: a bunch of things, basically are you giving the value
Speaker 1: that you're saying that you're doing. So it's basically a
Speaker 1: mix of qualitative data that they did balso like quantitative.
Speaker 1: So they went in and said, okay, let's see your
Speaker 1: marketing materials. How are you marketing this fund? Right? Are
Speaker 1: you marketing is sort of like this active fund and
Speaker 1: making all this Yes, exactly. In Europe, they're much more
Speaker 1: aggressive about sort of honing in on these closet indexers here,
Speaker 1: I feel like incess sort of no. They'll look and
Speaker 1: they say, hey, this is the closet nex I'm gonna
Speaker 1: move my my funds there. There's a lot of scrutiny.
Speaker 1: And what's eventually going to happen is you have ETFs
Speaker 1: on one side, you have the closet indexers in the middle.
Speaker 1: Then you're sort of like the high active sture active.
Speaker 1: They're basically coming in the middle and splitting it right there,
Speaker 1: gonna so naturally that split is gonna put a lot
Speaker 1: of money back into ETFs in Europe. So this is fascinating.
Speaker 1: I called the closet indexing police. Whenever I post this
Speaker 1: on Twitter, everybody usually has a negative reaction. They're like,
Speaker 1: don't you know you can't police this stuff? Um, but
Speaker 1: I see what Europe is doing. In the US, I
Speaker 1: think a lot of this happens naturally. People have gone,
Speaker 1: like we call the trend going from closet indexing to
Speaker 1: actual indexing. That's why if you look at the Fidelity
Speaker 1: Magellan where a lot of these big old traditional active
Speaker 1: equity funds, the holdings look a lot like the SMP fire,
Speaker 1: and a lot of people are those are the funds
Speaker 1: they're leaving. Why pay one percent for that when you
Speaker 1: get just about the same thing for five basis points um.
Speaker 1: Again in Europe, maybe people aren't doing it is naturally
Speaker 1: in the in the regular to trying to just push
Speaker 1: this little Here's the issue though, and I've come to
Speaker 1: feel a little sorry for the closet indexers because if
Speaker 1: you if you take a lot of active bets and
Speaker 1: a lot of active share, you will not sell as
Speaker 1: much as the fund because it's the middlemen who don't
Speaker 1: want anything to look that crazy on the statement. So
Speaker 1: they actually it's because of advisors having career risk that
Speaker 1: they don't want actual true active They may say they do,
Speaker 1: but they actually want it close to the SNP. That way,
Speaker 1: it doesn't in a bad year, it doesn't return much
Speaker 1: worse than the SMP, and the client goes, oh my god,
Speaker 1: why am I down? That's what I'm saying. So it's
Speaker 1: the demand from the advisors that has the active mutual
Speaker 1: funds here hugging the benchmark a little because they don't
Speaker 1: want to get lose assets. This is what Peter Krauss
Speaker 1: was saying. In our in our podcast with him a
Speaker 1: couple months ago, he he hates this too. He thinks
Speaker 1: this is just protecting your assets. Again, the advisors demand
Speaker 1: is behind a lot of this, and they don't The
Speaker 1: focus is always on the active mutual fund. But the
Speaker 1: advisors are really the one asking for it because they
Speaker 1: they may not want to buy to Vanguard funds in
Speaker 1: call today because the client may go, why am I
Speaker 1: paying you? So they want something that has like different
Speaker 1: to it, but might have returns that are close to
Speaker 1: the S and P so they don't look bad or
Speaker 1: get fired. So in a way, closet indexing is by
Speaker 1: you know, by design and by demand. It's if you
Speaker 1: went to high active share, you would be more active
Speaker 1: and you be truly active, but the client would have
Speaker 1: to weather a bunch of down years and some real
Speaker 1: steep drawouns because over you know, that's how true active goes.
Speaker 1: You don't win every year doing a real true active strategy.
Speaker 1: So I find this issue to be very complicated and
Speaker 1: not as simple as like, oh, these active mutual funds
Speaker 1: are really not doing their job. Um, it's all about
Speaker 1: incentives and and keeping your job and keeping the assets.
Speaker 1: And I think it's just the system that has created
Speaker 1: all this. It up. Give me number five. Okay, so
Speaker 1: this one is a little bit nerdy, but it's sort
Speaker 1: of sometimes in Europe. I noticed some things that they're
Speaker 1: much more advanced and other things in certain things and
Speaker 1: much behind other things in the US. But here, and
Speaker 1: I think this has come up a lot, especially for
Speaker 1: small issuers. It's about payments to market makers, right, and
Speaker 1: what happens in the U s. If you're a small
Speaker 1: issue or with a new product that doesn't trade a lot,
Speaker 1: you're at a disadvantage, right, no one's really buying your product.
Speaker 1: Someone goes to buy it. They noticed spreads are tight
Speaker 1: in Europe. You can actually incentivize the market maker to
Speaker 1: come in and provide liquidity for that product. It's banned
Speaker 1: in the US, but in Europe allows it, They do it,
Speaker 1: They let you do that. Um I think it's interesting
Speaker 1: that they do that because sort of a lot of
Speaker 1: issuers here have been petitioning to have it done. Europe
Speaker 1: has already been okay with that. Um So, I think
Speaker 1: that's a huge difference in Europe. And what I think
Speaker 1: that ultimately might do is a lot of the smaller
Speaker 1: issuers are going to have sort of a better shot
Speaker 1: at being able to raise some assets than in the US,
Speaker 1: because it's really competitive being a small issuer going up
Speaker 1: against some of the larger firms. Here um and oh,
Speaker 1: here's the most important question. How do you pronounce s
Speaker 1: M A R T hyphen b E T A. Well,
Speaker 1: I'm going to pronounce it smart beta. Over there, you
Speaker 1: have to pronounce it smart beta. Okay, that's when he
Speaker 1: comes back, starts saying smart beta. He's coming right back.
Speaker 1: Let's let's see how you're if he's still American? Ready,
Speaker 1: can you say aluminum? Aluminum? Okay, not aluminium? Right, that's
Speaker 1: next level. I mean that's like it's like then you
Speaker 1: it's too late to ask him back. Yeah, Tom, thanks
Speaker 1: for joining us in trillions, Thanks for having me, Thanks
Speaker 1: for listening to trillions. Until next time. You can find
Speaker 1: us in the Bloomberg terminal, Bloomberg dot com, Apple Podcast, Spotify,
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