Speaker 1: Welcome the trillions. I'm Eric Beltis, and I'm Rachel Levin's
Speaker 1: and Joel Webber, who you're normally used to hearing, is
Speaker 1: not here. He's in China. He's editor of Business Week,
Speaker 1: so occasionally his job somehow Trump's this which I can't believe.
Speaker 1: This is should be way more important. But anyway, Rachel's
Speaker 1: filling in. Um, welcome, Rachel. How are you? It feels
Speaker 1: pretty good to be on this side of the desk.
Speaker 1: I can tell you that Joel better watch his back.
Speaker 1: I'm liking where I'm sat. Um. Actually, I think I'm
Speaker 1: Joel and you're me. If that's okay. I'm not sure
Speaker 1: whose shoes I'm wearing. Either way, big shoes to fail,
Speaker 1: so I will do my best to keep up. You
Speaker 1: even came a little late, which is normally what I do.
Speaker 1: And I was here early, which is normally Joel. But
Speaker 1: Joel has to leave early, so I might just bolting
Speaker 1: them halfway through. God, don't do that. I'll have to
Speaker 1: round things out. No, No, this is good. So we
Speaker 1: have a great episode. I think this is a unique one.
Speaker 1: It's wanted I've been wanting to do a while. You
Speaker 1: don't really see much written about this topic, which was
Speaker 1: the gatekeepers of the E t F world. What does
Speaker 1: that mean? So the metaphor I like to use is,
Speaker 1: let's say you're you make salad dressing and you're trying
Speaker 1: to get it into Whole Foods. Whole Foods has a gatekeeper.
Speaker 1: If they accept your salad dressing, you're in the You're
Speaker 1: in the money, right, your your your whole life changes.
Speaker 1: So the E t F industry has something like that. So, um, Rachel,
Speaker 1: talk a little bit about, you know, why this is
Speaker 1: important and what the platform can do to an E
Speaker 1: t F. Yeah, So, I mean this is something we've
Speaker 1: seen kind of in the E t F industry over
Speaker 1: the last I say five to ten years. We used
Speaker 1: to talk about the spaghetti cannon and the idea that
Speaker 1: you would just kind of fire ideas at the wall
Speaker 1: and see what sticks. Well, increasingly you need to have,
Speaker 1: I don't know, a rotating spaghetti cannon. You need to
Speaker 1: paper that wall with a kind of Jackson Pollock esque
Speaker 1: sort of canvas in order to actually get your product
Speaker 1: to the masses, because having a great idea isn't enough anymore.
Speaker 1: You need to get that great idea out to the masses.
Speaker 1: And one way of doing that is to get your
Speaker 1: e t F onto a platform. So those platforms are
Speaker 1: often run by class some of the biggest banks out there,
Speaker 1: what we call the wire houses and kind of the
Speaker 1: industry terminology. And once you get onto those platforms, you
Speaker 1: have access to all of the financial advisors that use
Speaker 1: their architecture. Now that can be a huge step up
Speaker 1: for some of the ETF issues out there, because, let's
Speaker 1: not forget the big three are really dominant here. We're
Speaker 1: talking of assets. You know, they're getting huge amounts of
Speaker 1: flows because they are so dominant in this space. So
Speaker 1: if you are a smaller issuer, you really really need
Speaker 1: to find a way to get your distribution so that
Speaker 1: you can even compete with these guys. Yeah, you frequently
Speaker 1: hear the smaller issuers at the conferences sort of you know,
Speaker 1: grape to you or on Twitter. You can't get on
Speaker 1: the platforms. The platforms. So we have with us today
Speaker 1: two people who know this world very well and are
Speaker 1: going to take us inside the platform world Gatekeepers, and
Speaker 1: we're joined today by Marianna Bush of Wells Fargo. Marianna, welcome,
Speaker 1: thank you very much. It's a pleasure being here. We
Speaker 1: also have John Mayer who is from global X who
Speaker 1: is an issuer trying to get on the platforms sort
Speaker 1: of like refer to them as the key masters, but
Speaker 1: he was also a gatekeeper in his former life at MARL.
Speaker 1: Welcome John, Thanks Eric, thanks for having me so this
Speaker 1: week on trillions, gatekeepers and key masters. So welcome guys.
Speaker 1: I'm very excited to have you guys here. Um, before
Speaker 1: we start, I just want to get a sense for
Speaker 1: the platforms and how much they actually take in. So
Speaker 1: there's twentytfs right, give or take a dozen. How many
Speaker 1: would you say are on the platforms out of that? Like, so,
Speaker 1: what what? What percentage are we talking here? It's probably
Speaker 1: so it's an exclusive club. It's hard to get into. Marianna,
Speaker 1: let's start with you. I actually met you over a
Speaker 1: decade ago. I was in data. I used to call
Speaker 1: Marianna the George Martin of Bloomberg, you know, the fifth Beatle,
Speaker 1: because she would come at us with such great suggestions
Speaker 1: for the funds data base. Why don't you have this?
Speaker 1: Morning store has this? And they would turn into great ideas.
Speaker 1: So I always thought you'd deserve like a little cut
Speaker 1: from the Bloomberg. But UM. That that aside, talk about
Speaker 1: what you do it wells fargo and how it involves
Speaker 1: et F s UM. I've been with the firm for
Speaker 1: a while. I started with them in We've gone through
Speaker 1: a few name changes, but except for the first two years, UH,
Speaker 1: since then, I've been doing pretty much the same thing,
Speaker 1: covering close end funds and since the mid nineties covering
Speaker 1: exchange traded funds. And what does that mean covering them again?
Speaker 1: You're you're I'm considering you sort of a gatekeeper. You
Speaker 1: are vetting them so that they get onto a platform
Speaker 1: and then the advisors that you service can use them.
Speaker 1: By covering a fund, whether it's on a close end
Speaker 1: funder and exchange traded fund, it means doing research on them,
Speaker 1: trying to understand them very well. In the case of
Speaker 1: an e t F, UM making sure that we understand
Speaker 1: the index methodology of the benchmark that the e t
Speaker 1: F is tracking, UM, understanding the risks, the volatility them,
Speaker 1: the liquidity UH efficiency metrics of them, doing research DP
Speaker 1: research on them, and trying to identify which are the
Speaker 1: e t f s that best fit a specific exposure.
Speaker 1: And in the case where UM they are tracking different
Speaker 1: ets are tracking exactly the same index. What are the
Speaker 1: differences between them besides the easy factor which is expense ratio?
Speaker 1: Um so, just covering them and recommending them to UH
Speaker 1: to the to our advisors and John, when did you
Speaker 1: first meet Marianna? Was as part of that role or
Speaker 1: are you kind of doing something to gentile? I actually
Speaker 1: think it was two decades ago that I met Marianna
Speaker 1: when I was the closed and fund research channel. Is
Speaker 1: that pain Webber, which obviously no longer exists, and then
Speaker 1: UBS purchased pain Webber, and then I left UBS in
Speaker 1: two thousand seven went to Merrill Lynch to do the
Speaker 1: same thing, covering closed down funds. Um so it's in
Speaker 1: Maryland two thousand seven to two thou seventeen, covering clothes
Speaker 1: in funds and then cover I wouldn't say covering E
Speaker 1: t F s. I was managing their et F model
Speaker 1: portfolio business WI started. I started doing that in about
Speaker 1: two thousand nine to interject that model portfolio is what
Speaker 1: exactly is that and how does that kind of relate
Speaker 1: to us? So that the coverage aspect of Marianna was
Speaker 1: talking about, Sure, well, model portfolios is a good way
Speaker 1: to think of it. As it's kind of a managed
Speaker 1: portfolio of using the components of something. And the component
Speaker 1: that what we're talking about now is is e t
Speaker 1: F s. Now, those e t fs have to be
Speaker 1: approved by a particular firm. So there's a different group
Speaker 1: that actually is kind of the gatekeepers within Mery Lynch
Speaker 1: and in that group actually has to approve the funds
Speaker 1: based on some of the things that that Marianna just
Speaker 1: brought up, assets, exposures, spreads, So in other words, sees
Speaker 1: the gatekeeper of the platform says, okay, this is good
Speaker 1: enough to be the platform. And then you were the
Speaker 1: model maker, so you choose from amongst what's on the platform,
Speaker 1: and if you're in the model, you get like a
Speaker 1: billion dollars instantly. So it's like depends on depends firm. Right,
Speaker 1: So yeah, if you're a big Meryl, yeah, because we
Speaker 1: see we actually see when Meryl rotates. You can tell
Speaker 1: in the flows it's just this giant spike out of
Speaker 1: nowhere and you okay, Meryl probably rotated in you know,
Speaker 1: out of this into this. But those ets have to
Speaker 1: be on the platform first. That's the first step, right,
Speaker 1: That's that's correct. And and there's periods of time, or
Speaker 1: like where I may have thought a certain fund should
Speaker 1: be in my portfolios, but it was not approved on
Speaker 1: the platform, so that there would be a process behind
Speaker 1: the scenes, like I was talking to, I would be
Speaker 1: talking to the gatekeepers out of the firm. Would you
Speaker 1: consider using X Y Z fund? Uh? They would say no.
Speaker 1: I say please, UM, and try to make my case
Speaker 1: more than just saying please. So so to to Eric's point,
Speaker 1: I mean, we can definitely see in the flows, you know,
Speaker 1: when we see a big rotation by those models. But
Speaker 1: I'm curious to your point about kind of getting onto
Speaker 1: the platform first, Marianna, can you speak to sort of
Speaker 1: the criteria that you're looking at or that the firm
Speaker 1: is looking at when it's deciding whether this e t
Speaker 1: F versus this ETF is actually available to financial advisors
Speaker 1: to either bio order to put into models. UM. Currently,
Speaker 1: my team and I are in the Well's Farrego Investment
Speaker 1: Institute and within that, within the Global Manager Research Division,
Speaker 1: and so we serve a number of lines of businesses.
Speaker 1: The biggest one is Well's farre Go Advisors, the brokerage firm,
Speaker 1: but also the private bank and family wealth, and so
Speaker 1: it is possible that there may be a search request
Speaker 1: from one of those lines of businesses, that there are
Speaker 1: clients there's demand for a specific exposure or for a
Speaker 1: specific e t F. Sometimes we may also decide that
Speaker 1: our master list is missing a certain type of e
Speaker 1: t F, a certain exposure, and so therefore we will
Speaker 1: UM look into what's available, UM impair them contrast of
Speaker 1: analyze them and figure out which is the most optimal
Speaker 1: one to to add. Well, let's go over that, because
Speaker 1: do you start with a list let's just say it's
Speaker 1: a tech ETF or let's go dividend. I think that's
Speaker 1: just makes sense. They're divid in d TF. Right, there's them, right,
Speaker 1: How do you trim that list to come up with
Speaker 1: what is going to be put on the platform from twos?
Speaker 1: Good question? Assets. It's is definitely a factor, and I
Speaker 1: would say is an important factor because while the factor
Speaker 1: appears to be very simple and very plain vanilla, I
Speaker 1: think it does uh keep us from taking certain types
Speaker 1: of risks, a lot of types of risks. Uh. The
Speaker 1: more assets there are, the more liquid the e t
Speaker 1: F is, UH, the cheaper it will probably be uh
Speaker 1: not only from an expense perspective, but also something that
Speaker 1: maybe not that many people focus on is from a
Speaker 1: udity perspective, bitas spreads um. Closure risk is something else
Speaker 1: that just looking at assets will help you to identify
Speaker 1: closure risk, or at least try to stay away from that.
Speaker 1: You wouldn't want to recommend an e t F that
Speaker 1: doesn't raise enough assets and then a few weeks later,
Speaker 1: a few months later, the sponsor decides, Oops, we couldn't
Speaker 1: raise enough acids, so let's just um close the fund
Speaker 1: or maybe change the index too, hopefully it will be
Speaker 1: more successful then. So assets is a very simple, but
Speaker 1: I think a very effective. And do you have like
Speaker 1: a particular bar you're looking at fifty million, a hundred million,
Speaker 1: a billion, Like if I'm an ECFS, you are how
Speaker 1: much have I got to raise before I am eligible
Speaker 1: to be considered. There's nothing written in stone, but I
Speaker 1: think it is very common um for the minimum to
Speaker 1: be a hundred million dollars. Certain broader exposures I would
Speaker 1: say they can easily go to get to a billion dollars.
Speaker 1: So it depends. So John, you're a global X, you
Speaker 1: probably have I don't know a bunch of ets that
Speaker 1: are blow a hundred million, just a just think you
Speaker 1: have a bunch of big ones to um take those
Speaker 1: small ones or new ones? What do you what do
Speaker 1: you saying to Marianna to get her to add them? Please? UM? So,
Speaker 1: I think we have seventy three between seventy three and
Speaker 1: seventy six funds and we have uh twenty five funds
Speaker 1: that are a hundred million dollars or more. When we
Speaker 1: have certainly some new funds, that we should come out
Speaker 1: with that two million and a half million dollars in
Speaker 1: seat capital. Now, different firms require different things. Some firms
Speaker 1: are more quant based and in terms of how they
Speaker 1: look at uh covering certain funds for the stepping back
Speaker 1: once one moment. UH, certain firms won't even look at
Speaker 1: you if you have just one or two funds out there.
Speaker 1: They want a significant firm, a firm that has every aspect,
Speaker 1: whether it be product management and marketing and research and
Speaker 1: sales and all that kind of stuff. Global X certainly
Speaker 1: falls into that kind of category. We have about eleven
Speaker 1: billion dollars in assets UM. But certain firms required at
Speaker 1: least three months of his trading history, and it doesn't
Speaker 1: necessarily matter if there are a smaller fund. Other firms
Speaker 1: require million fifty million or a hundred million. There's certain
Speaker 1: exposures that certain funds aren't going to cover. There's some
Speaker 1: new funds out there that some of the wirehouses are
Speaker 1: not quite ready to cover yet. We haven't one of
Speaker 1: those funds. Um Yes Marijuana e TF. You caught X
Speaker 1: which which went up like ten percent to that. It's
Speaker 1: one of the tamer tickers, believe it or not, like
Speaker 1: you you kind of sometimes you guys, when I see
Speaker 1: you're filing, I'm expecting something wild and you take it
Speaker 1: down a notch. Actually now, I mean global X is
Speaker 1: very thoughtful and how we market our our funds. Um
Speaker 1: Uh pot x are cannabisy TF is one of our
Speaker 1: newest funds, and we thought long and before we came
Speaker 1: out with that fun But but I digress. There's certain
Speaker 1: other firms that just you're automatically on so usually not
Speaker 1: the wirehouse, and that's where there you get a huge
Speaker 1: amount of But are you talking to Marianna constantly? Do
Speaker 1: you shoot your emails? Like how do you? How do
Speaker 1: you how often are you talking to her to try
Speaker 1: to get her to cover more of your stuff? Global
Speaker 1: X does. It's not me personally. We talk, We talk
Speaker 1: we know each other, but maybe somebody else at global
Speaker 1: ex that will reach out to how many global x
Speaker 1: cts do you cover? Are? Do you do you have
Speaker 1: you allowed on out of seventy three I I don't
Speaker 1: know the answer right now, but not all right and
Speaker 1: not no, not at all right? Okay, please every second?
Speaker 1: Every second? Um, do you ever point out like, let's
Speaker 1: say an e T F has a nice run, right,
Speaker 1: it's up a lot, or it's assets just one over
Speaker 1: a hundred million? Do you fire out emails to the platform?
Speaker 1: But I'm sure there you know it's in terms of performance.
Speaker 1: I don't think that's necessarily helpful. I mean, these are
Speaker 1: index funds um and they go up and down based
Speaker 1: on the underlying exposures, and I don't think they're necessarily
Speaker 1: judged on on that portion. They're they're more judged on fees, assets, liquidity,
Speaker 1: exposures and the actual firm. But certainly, if a fund
Speaker 1: gets to scale, there's going to be a group of
Speaker 1: people within our firm. That's that's calling the Marianna Bushes
Speaker 1: of the world. I would say on on performance, I
Speaker 1: would it shows up in a slightly different way for
Speaker 1: E T s. I would say, Um, if it happens
Speaker 1: to be it's really an index, not the the e
Speaker 1: t F, but an index that or an exposure that
Speaker 1: is doing really, really well. Chances are there's going to
Speaker 1: be more demand for that exposure, especially if it's a
Speaker 1: unique and niche exposure. And that's where we're going to
Speaker 1: start seeing the demand from the financial advisors or from
Speaker 1: the client saying you don't offer this, I'm interested in
Speaker 1: this e t F and this exposure. Can you please
Speaker 1: look into that? So that's how performance is going to
Speaker 1: show up. And maybe performance is measured a slightly different
Speaker 1: way with e t S, for example tracking error. Um,
Speaker 1: so it's it's a different way of well attracts the index, right,
Speaker 1: which is its job in life, right, but the performance
Speaker 1: Sometimes ETF will just have a shardy object moment and um,
Speaker 1: nobody can ignore it like pot a year ago or robotics.
Speaker 1: And you're saying that advisors itself might come up to
Speaker 1: you and say, hey, starting to get some inquiries about this,
Speaker 1: and that's when performance would matter, right. Well, Well, there's
Speaker 1: certain firms where the interest by the financial advisor is
Speaker 1: the first point that is required before a firm will
Speaker 1: actually look at the fund for the due diligence process.
Speaker 1: So the tell where the dog, and sometimes that tell
Speaker 1: is really strong for us. It is a factor, it
Speaker 1: is an input. It's not necessarily I don't think I
Speaker 1: would say it's the number one factor, um, but certainly
Speaker 1: if there's demand, we certainly want to serve our clients.
Speaker 1: And so there's demand, we want to meet that demand. Uh.
Speaker 1: Now with demand also it is possible that it is
Speaker 1: a hot area and it may not become hot it
Speaker 1: maybe like the parents would be like, look, let's see
Speaker 1: x IV. You don't trust me on this. But there
Speaker 1: were times at Meryl where I really wanted to cover
Speaker 1: include a certain funds within the models that I was managing,
Speaker 1: and I would have to go to the due diligence
Speaker 1: department and say this is the reason why I want
Speaker 1: to include X y Z fund and over time they
Speaker 1: usually would kind of work with me. So again, the
Speaker 1: tail wagon the dog. So when we're looking at kind
Speaker 1: of what makes it onto the platform, So you've got
Speaker 1: all of these different inputs. You've got that the assets
Speaker 1: that that you want to see from a fund. You've
Speaker 1: got potentially track record and that kind of an amount
Speaker 1: of time trading. You've got maybe the issuer like how
Speaker 1: established they are and potentially kind of that demand and
Speaker 1: performance kind of aspect. John, when you don't get onto
Speaker 1: a platform, what does that kind of look like for
Speaker 1: you guys? I mean, is it a question of well,
Speaker 1: we've we've got to get on one, so we're going
Speaker 1: to keep on lobbying, or do you think about other
Speaker 1: kind of strategies to kind of get distribution. Well, so
Speaker 1: there are certain firms that on day one that that
Speaker 1: a E T F trades that you can you can
Speaker 1: buy UM that particularly TF like SWAB and Pershing and
Speaker 1: Commonwealth and Raymond James and RBC to name a few. Um,
Speaker 1: there's there's there's several others. Then there's other firms where
Speaker 1: there's three months requirements, so that that's the starting points.
Speaker 1: Now if there's major interest, obviously the assets will grow
Speaker 1: that certainly will help get onto some of the other
Speaker 1: platforms over time. There's certain platforms like Wells which takes
Speaker 1: about a year before they'll consider, and there's kind of
Speaker 1: different firms in between. And then in that time we
Speaker 1: do a lot of marketing. You know, we have we
Speaker 1: have sales sales to both internals next ternals that so
Speaker 1: it's still kind of an end goal. Like even if
Speaker 1: you're kind of like pursuing other other kind of methods
Speaker 1: to try and kind of like boost the assets and
Speaker 1: the other short term there's still long term kind of
Speaker 1: or medium term like outlook is we want to get
Speaker 1: on the wirehouse platforms. Is that important? It's very helpful. Um,
Speaker 1: It's not an absolute You can still be successful without
Speaker 1: being on the wires. But if you get to a
Speaker 1: certain scale, and if you're a firm like globle X,
Speaker 1: where we have a decent amount of assets, UM, we
Speaker 1: have a defined process in terms of every functional area,
Speaker 1: it's likely we will get onto the wires at some point.
Speaker 1: But then you have the other shops out there with
Speaker 1: one or two ETFs. They may never get on, but
Speaker 1: they still can achieve scale. Is it How quickly do
Speaker 1: you feel the effects of getting on the platform? Um?
Speaker 1: Is it very obvious that yep, that fund you know
Speaker 1: within a year you assets double kind of thing or
Speaker 1: not necessarily. It really depends on the exposure in the
Speaker 1: demand and and need a perception of the needed in
Speaker 1: the market. So it also depends on what's what's out there,
Speaker 1: and we're you're competing against so we could be the
Speaker 1: only e t F that the financial technology e t
Speaker 1: F or autonomous vehicles or um robotics, well there was
Speaker 1: a bunch of those. If you're number one, meaning the
Speaker 1: only fund out there, certainly helpful. And if you're too
Speaker 1: you have that great ticker and lower expenses, that's certainly
Speaker 1: helpful as well. But bots was an interesting example. Robot
Speaker 1: came out first, but bots passed it in assets. Was
Speaker 1: platforms part of that? I I think platform was certainly
Speaker 1: part of it. We dedicate a lot of time to research.
Speaker 1: A research team headed by j Jacob said, you know,
Speaker 1: we have four or five people working with him. So
Speaker 1: and that particular fund is a lot more defined then
Speaker 1: it's competitor, so that we and if we can articulate
Speaker 1: that properly, that is helpful to the market. Maybe if
Speaker 1: you're lucky and something happens in the news, that helps
Speaker 1: to right. We saw that with hack, you know, back
Speaker 1: in twelve I think you know when we saw kind
Speaker 1: of like suddenly a really big interest in sort of
Speaker 1: security and cybersecurity just after it had launched and suddenly
Speaker 1: asked its went skyrocketing. But I just want to circle
Speaker 1: back to a point that that John made about a
Speaker 1: sort of you know, et f issuers that may have
Speaker 1: like two or three funds and may never kind of
Speaker 1: get onto a wirehouse. UM, there's been a bit of
Speaker 1: kind of a sort of conversation or griping depending on
Speaker 1: on your perspective, from some of those smaller issues, and
Speaker 1: like the SEC has actually said it will look into
Speaker 1: kind of whether sort of investors are losing out from
Speaker 1: smaller issuers finding it tougher in the marketplace to get
Speaker 1: their funds distributed and to keep their funds going. Like, Marianna,
Speaker 1: do you have any kind of sort of sympathy for
Speaker 1: that perspective you know of of the smaller issu where
Speaker 1: that's you know, really got a great idea but they
Speaker 1: just can't get that distribution. Are they right to be
Speaker 1: angry that the wirehouses won't take them? Well, I can,
Speaker 1: I can understand, UM. But from our perspective, our clients
Speaker 1: our highest priority, and then number two our clients, and
Speaker 1: then number three are clients. So we're not here in
Speaker 1: the business to support um other businesses except for our clients.
Speaker 1: So we have to think if they have a product
Speaker 1: that makes a lot of sense, and we think there
Speaker 1: is a need for that. We're absolutely going to be
Speaker 1: looking at that, um, but we have to think of
Speaker 1: our clients. Of course, you know, you also have to
Speaker 1: think about it. And I'm trying to put my hat
Speaker 1: on when I did work at a wirehouse risk these
Speaker 1: larger firms are risk is the is the first thing
Speaker 1: they think about all the time. And you know, if
Speaker 1: you really look at and I'm kind of dissing some
Speaker 1: of my old portfolios and a lot of portfolios out there,
Speaker 1: they're beta mills in a sense. Um they're looking to
Speaker 1: track their benchmark maybe you know, with a little bit
Speaker 1: of tracking, are like a two hund basis points. And
Speaker 1: that's because it's being directed by the firm, because the
Speaker 1: firm does want to take a lot of risk. And
Speaker 1: you can kind of drill that down to almost every
Speaker 1: business line and that yeah. They um somebody at a
Speaker 1: conference of the day and they I think it was
Speaker 1: because we're talking about the Goldman GSLC, which is this
Speaker 1: smart beta fund that literally is very much like the SMP.
Speaker 1: And he was like, it's all about don't rock the boat.
Speaker 1: That phrase stuck with me, like, just whatever it is,
Speaker 1: make sure it's not too doesn't deviate too much. A
Speaker 1: lot of the newer, smaller indie ones tend to be
Speaker 1: the more the ones that deviate more, but those tend
Speaker 1: to pop when they work, they go up much more
Speaker 1: than the ones that have more beta. But I could
Speaker 1: see the platforms being again a little more conservative with those.
Speaker 1: I would see it a little bit differently because sometimes
Speaker 1: I see those that they pop, they do well, they
Speaker 1: start raising assets as long as they're outperforming, but then
Speaker 1: as soon as they start underperforming, then they start losing assets.
Speaker 1: And in fact, I love looking at the UM Shares
Speaker 1: Outstanding chart on Bloomberg because that strips out the the
Speaker 1: market and you can truly see is that fund growing,
Speaker 1: is the number of shares outstanding growing, and then you
Speaker 1: compare that with performance or out performance underperformance, and then
Speaker 1: you see that inflection point where it starts to underperform,
Speaker 1: the shares outstanding starts coming down. So that's a chart
Speaker 1: that I love seeing on Bloomberg. This is a great
Speaker 1: point and we study this a lot. When that when
Speaker 1: e t F has its the stars aligned and it
Speaker 1: goes up and people buy it UM, you do tend
Speaker 1: to see the flows will come back out, but not
Speaker 1: all of it comes out there are definitely people who
Speaker 1: forgot they own it, don't care, or just really into
Speaker 1: the story. Currency HEDGDTF cybersecurity robotics is going through this now.
Speaker 1: But if you take their assets from today versus where
Speaker 1: they were when they first launched, they they grew. You know,
Speaker 1: they're probably a couple of billion. And once you get
Speaker 1: in the cauld billion, your trade, um, I don't know,
Speaker 1: ten millions dollars worth of shares a day, you're kind
Speaker 1: of up and going. So even though you have that
Speaker 1: ramp up, even when you come down, you're you're full
Speaker 1: of life. So it's not like you go out of
Speaker 1: business after that moment. You tend to hang around and
Speaker 1: then maybe you catch the next wave up. But that's
Speaker 1: definitely the life of a high active share kind of
Speaker 1: ETF which will either really crush it or really get crushed.
Speaker 1: But do you like if you have advisors. Like one
Speaker 1: thing I find is interesting is like take the factor world,
Speaker 1: Like do you look at factory TF and smart data right,
Speaker 1: you look at value and growth and stuff. If you
Speaker 1: take some of the value et f s like there's
Speaker 1: some that market cap weight, so they tend to be
Speaker 1: move a lot more like the market. Then there's some
Speaker 1: that are hardcore. You know, they're they're holding mall stocks. Right.
Speaker 1: Do you look at that that active share, that aggressiveness,
Speaker 1: the concentration of holdings, And do you ever have an
Speaker 1: advisor who will the pure stuff is better for them?
Speaker 1: They want hardcore value versus you. You probably need like
Speaker 1: something more like closer to the market. Yes, And that's
Speaker 1: why we for our financial advisors love showing them UH
Speaker 1: weighting methodology selection methodology G because you're right, it may
Speaker 1: be just UH selection based on value, but their market
Speaker 1: cap weighted UH. But then you may have a different
Speaker 1: uh waiting UH. And so you're going to get different results.
Speaker 1: You think you're comparing to e T s that are
Speaker 1: very very similar, but the reality is that their exposures
Speaker 1: end up being different and therefore the performance ends up
Speaker 1: being different. So you have to truly understand uh. And
Speaker 1: John and I were talking about earlier today about kind
Speaker 1: of that education, that full understanding of the exposure the
Speaker 1: index that you're getting into. Unfortunately, too many people still
Speaker 1: make the mistake of purely focusing on the expenses UH
Speaker 1: and nothing else, and they don't realize that you're comparing
Speaker 1: apples and oranges or apples and Kiwi's UH, and you think, oh,
Speaker 1: this has a lower expense ratio, I will pick that
Speaker 1: one when the difference in basis points in expense ratio
Speaker 1: is very small compared to the difference in performance due
Speaker 1: to the very difference in exposure, so that that is
Speaker 1: very important I think to focus on. I'm curious, like
Speaker 1: just you mentioned the differences in the index, is like,
Speaker 1: what do you guys think of these active non transparent
Speaker 1: products and how the gatekeepers should think about these. I'm
Speaker 1: going to rebrand these the ants active non transparent because
Speaker 1: I think this is going to catch on. But what
Speaker 1: do you think of these kind of products and whether
Speaker 1: there's something that should be getting through a kind of
Speaker 1: the gate keeping process and how you'll think about them,
Speaker 1: whether it be different to your current evaluation process or
Speaker 1: kind of the same, but maybe with a few sort
Speaker 1: of tweaks to accommodate their differences. We're certainly watching and
Speaker 1: we're keeping track of what's happening UM at our firm,
Speaker 1: the Global Manager Research in the worlds FARAG Investment Institute UH.
Speaker 1: The the coverage is separated between passive and active, and
Speaker 1: so these actively managed nontransparent ets will be covered under
Speaker 1: the active working groups. I I expected this question to
Speaker 1: come up today, So for ants, I I kind of
Speaker 1: asked around on ants, and yes, I agree with Marianna,
Speaker 1: these are gonna be viewed more as mutual funds. But
Speaker 1: I have a couple of comments just about the active
Speaker 1: non transparent UM structure. The question is is it needed.
Speaker 1: Probably not UM. You have mutual funds, you have ETFs,
Speaker 1: well they do well. Well, it depends, I mean, it
Speaker 1: depends if certain mutual fund assets are poured it over
Speaker 1: into uh this particular structure. That if they can poured
Speaker 1: over their their track record, because if they can get
Speaker 1: some sort of scale, scale, you gets scale, and if
Speaker 1: you start from zero, it's gonna be a lot harder.
Speaker 1: But I think that this is gonna be a heavy
Speaker 1: lift on the side of the industry to get this done. Well. Yeah,
Speaker 1: I mean, if they're getting if they're being weighed against
Speaker 1: mutual funds, if they've got the ants and the mutual
Speaker 1: funds stacked up against each other rather than the kind
Speaker 1: of traditional E t F s, I mean, how does
Speaker 1: that change the criteria in terms of like what those
Speaker 1: products will have to do in order to compete with
Speaker 1: the mutual funds, do they automatically look better or not really? UM.
Speaker 1: We were talking about performance earlier and I mentioned that
Speaker 1: performance is measured in a different way for for e
Speaker 1: t s for passively managed cts. UM. I would argue
Speaker 1: that for these actively managed not transparent, they will be
Speaker 1: treated more like the actively managed mutual funds. And are
Speaker 1: they beating the benchmark? Are they are they worthwhile relative
Speaker 1: to a passive product? So I think they will be
Speaker 1: treated differently. One other comment on ants UH say, UM
Speaker 1: expenses are will likely be lower, but you have to
Speaker 1: remember many mutual funds and inaggregate they haven't been outperforming
Speaker 1: their benchmarks, and they probably haven't been outperforming the benchmarks
Speaker 1: because managers probably haven't been taking enough risk and there's
Speaker 1: just a lot of smart money fighting smart money. But
Speaker 1: if you have the dirty base points lowerings senses, that
Speaker 1: actually could be a big help. Combined with tax efficiency. UM.
Speaker 1: Maybe now you have to think about the total cost
Speaker 1: of ownership, not just the expensure because the biggest spreads
Speaker 1: are probably gonna be wider than very liquid passively managed TTF,
Speaker 1: but even beyond that, and even the licensing fees if
Speaker 1: if you need to pay extra even beyond that, what's
Speaker 1: in it stockpicking? Nobody wants that right now. That's the
Speaker 1: bigger problem. Somebody had said the other day, if you
Speaker 1: have a bad show and it's on cable and you
Speaker 1: move it to Netflix, um, it doesn't make the show better.
Speaker 1: And I think that's the bigger problem. I'm sorry to
Speaker 1: be cruel. I'm just looking at the data and I
Speaker 1: talked to people out there and I just embarished unless
Speaker 1: people like like you said, move money over. But by
Speaker 1: the way, just people listening if you are interested in
Speaker 1: this AUNT concept. We had a good episode with Dan
Speaker 1: McCabe from Proceeding about three episodes ago. Um, and we
Speaker 1: threw everything at him, all these objections, and he was
Speaker 1: pretty good. He had he has a plan. I'm not
Speaker 1: sure it'll work, but um, we'll know next year. These
Speaker 1: are going to come out in like in mass starting
Speaker 1: in Q one, I think. So. We mean, we've talked
Speaker 1: about kind of what it takes to sort of get
Speaker 1: on a platform and kind of like how you guys
Speaker 1: are thinking about it in terms of which funds make
Speaker 1: it on and which don't, and then how to kind
Speaker 1: of go about getting those kind of funds on for
Speaker 1: issues like a global expert. Others as well, like what
Speaker 1: a kind of like the top tips of how to
Speaker 1: kind of get onto a fun platform? Is it just
Speaker 1: a question of patients and hard lobbying or other some
Speaker 1: things that you can do to sort of stand out? Well,
Speaker 1: I mean it's patience and persistence certainly helps, UH and
Speaker 1: exposures and making sure that your funds are competitive relative
Speaker 1: to the peers out there. But if the firm isn't
Speaker 1: constructed in a way that is positively perceived by a gatekeeper,
Speaker 1: you can have a really hard time getting on a platform.
Speaker 1: We don't have a hard time getting on platforms. Do
Speaker 1: we have one or two funds here and there? We
Speaker 1: have more tyfficult time, sure, but inaggregate you know of
Speaker 1: our seventy three funds. No, we're on all the platforms
Speaker 1: we need to be on. You used to be on
Speaker 1: the on the one side, probably getting pitched and lobbied
Speaker 1: and wind and dined constantly. Then you moved to the
Speaker 1: issuer side. How is your life changed? Nobody calls me anymore,
Speaker 1: nobody looks like the weirdest think we can always talk.
Speaker 1: So you know, do you miss it? Do you miss
Speaker 1: the attention? Because I imagine you were swarmed at inside
Speaker 1: et F s and these conferences by UM issuers. Well,
Speaker 1: I complained about the attention. When I got the attention,
Speaker 1: I missed the attention. But here's like a celebrity. Here's
Speaker 1: a quick little story. So three years ago I went
Speaker 1: to the Inside ETFs conference in Hollywood, Florida, and we
Speaker 1: had just we were just about to do a very
Speaker 1: large trade, probably the biggest trade of my career. I
Speaker 1: think it was between five and six billion dollars and
Speaker 1: a lot of household names like Emerging Markets and UH Developed,
Speaker 1: Developed Markets International, and a bunch of sector funds UM.
Speaker 1: Some of our traders at Merrill Lynch had to cancel
Speaker 1: the trip because this trade was so huge. Remember when
Speaker 1: I left, there was about fifty billion dollars in the
Speaker 1: twenty portfolios that I rant. It's probably like eighty million,
Speaker 1: eight billion at this point. Anyway, got to the conference,
Speaker 1: literally I was rushed by issuers, by market makers like
Speaker 1: was that you guys, Like, what what's going on? Can
Speaker 1: you tell me? We're about the trade. I'm like, what
Speaker 1: are you talking about? But I'm not sure we're talking
Speaker 1: about I mean obviously they knew I knew, and now
Speaker 1: we walk around in obscurity, Marianna, do you get do
Speaker 1: you get a lot of attention when you go to
Speaker 1: the conferences? And is it annoying or you like it?
Speaker 1: We do get a good lot of calls, We do
Speaker 1: get a lot of lunches, um. But I really appreciate
Speaker 1: that because we learned a lot, and we always want
Speaker 1: to be listening to stories because we may be missing
Speaker 1: something and we may learn something. I I'm constantly learning
Speaker 1: something new. And the more we dig, the more we
Speaker 1: ask questions, the more I realized, Oh, there's a little,
Speaker 1: so much more to learn. So we truly appreciate the
Speaker 1: patients and the willingness to tell our story. Uh, tell
Speaker 1: their story, and hopefully they are patient, and hopefully they
Speaker 1: have a very good story to tell. Uh, and hopefully
Speaker 1: their fact sheets are chock full of great insight. UM.
Speaker 1: It is sometimes disappointing when we see a fact sheet
Speaker 1: and we feel that it's missing kind of some of
Speaker 1: the key information that should be there. And UH, we'll
Speaker 1: give them feedback and we'll suggest you know what. I
Speaker 1: remember several years ago it was an emerging market fund
Speaker 1: and they did not even have a country breakdown. And
Speaker 1: we still see sometimes those kinds of cases. So being
Speaker 1: on the issuer side and to leverage off. Marianna just said,
Speaker 1: we have to be on points. We have to really
Speaker 1: get our story out. And while I was joking that
Speaker 1: we don't get a lot of phone calls, but we
Speaker 1: make a lot of outgoing calls and we have to
Speaker 1: articulate our message very well because we don't get too
Speaker 1: many opportun unities to get in front of people. We
Speaker 1: articulate the message well, hopefully we'll get storytellers research based.
Speaker 1: So we fight. We fight for every issue. Told me
Speaker 1: the other day that that's that's called conversation alpha. We
Speaker 1: just trademarks, did you we trademark conversational alpha. Expect my
Speaker 1: blog post any day now. It's basically like the idea
Speaker 1: that an advisor can have a conversation with the client
Speaker 1: and that creates value about this theme or story. And
Speaker 1: that's so that's the pitch from theme ETFs is it'll
Speaker 1: give you a conversation alpha. No, we actually just trademarked it.
Speaker 1: Thank you both very much. This is fun. This is
Speaker 1: a lot of thanks very much for inviting, thank you
Speaker 1: for listening to trillions um for more. What am I
Speaker 1: saying I forget what I say. You can find us
Speaker 1: find the one. You can thank me as well stepping in.
Speaker 1: I am, I am alright, So thank you very much
Speaker 1: for tuning into Trillions this week. Um and I want
Speaker 1: to thank Rachel Evans for filling in for Joel Clutch something. Yeah,
Speaker 1: this is amazing never leaving. Uh So we have some
Speaker 1: handles here for Twitter if you want to follow. Rachel
Speaker 1: is at Rachel Evans Underscore New York and why oh
Speaker 1: and why Sorry New York's too. Rachel is at Rachel
Speaker 1: Evans Underscore n Why Um John is at John D. Mayor.
Speaker 1: That's m a I e er different than the musician
Speaker 1: and Marianna, who doesn't do Twitter. Um Is would like
Speaker 1: you to follow at WF Investing. Trillions can be found
Speaker 1: on iTunes or anywhere they have podcasts. Isn't that what
Speaker 1: he's says? It just sounds so much better. Okay, I
Speaker 1: feel like I'm just like just not giving it the
Speaker 1: classiness of needs all right. Trillions is produced by Magnus
Speaker 1: Hendrickson and Francesco levia Is, the head of Bloomberg Podcasts.
Speaker 1: Goodbye It was awful. Look, I like the conversation