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Speaker 1: Polcano trillions. I'm Joel Webber and I'm Eric Bell Tunis Eric.

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Speaker 1: There's this thing out there called factors. What is a factor, right? Factors?

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Speaker 1: Obviously it's a word many people know for many different things,

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Speaker 1: like the X factor. So factor to me, I would

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Speaker 1: just assume is there are things that have characteristics of

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Speaker 1: stocks that aren't say large, mid and small and more

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Speaker 1: traditional ways to slice and dice stocks, or characteristics being

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Speaker 1: growth and value. To me, are the two biggies. They

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Speaker 1: were like, you know, they've been around for like thirty

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Speaker 1: forty years, if not longer, but now they've kind of

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Speaker 1: a lot of academic research has uh come out and

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Speaker 1: divided it into even more fine factors. So the big

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Speaker 1: ones that seem to be legitimately accepted our value, cheap stocks,

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Speaker 1: momentum right where all the sort of performance chasing quality,

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Speaker 1: which is sort of more like the Warren Buffett look

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Speaker 1: for good balance sheets. Then you've got size, which is uh,

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Speaker 1: you know, smaller size stocks. And these are the things

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Speaker 1: that active managers have been leaning on for years to

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Speaker 1: get out performance. So they studied how does active outperform

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Speaker 1: and they figured out, well, they're either leaning towards small caps,

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Speaker 1: they're leaning towards value, they're chasing performance, or they're leaning

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Speaker 1: on good balance sheets. So what they've done now is

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Speaker 1: they've taken those alpha techniques and made them into beta,

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Speaker 1: which is just a mark, you know, an index that

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Speaker 1: tracks these techniques. So to me, factors are taking alpha

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Speaker 1: and converting it into cheap beta. And once you've got

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Speaker 1: that index, that's where the ETF comes in. And they're

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Speaker 1: highly popular, as you can imagine, because to take these

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Speaker 1: little methods and then maybe you put them on top

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Speaker 1: of your portfolio. Sometimes you can replace them. It's a

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Speaker 1: way to try to outperform, but for way less cost

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Speaker 1: than you would pay an active mutual fund manager. In

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Speaker 1: some of the cases, the big popular ones are under

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Speaker 1: twenty basis points at this point. Um This year, I

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Speaker 1: think is a big year for factory t f s.

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Speaker 1: Four of them are in the top twenty inflows year

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Speaker 1: to date, and they are accounting for forty billion dollars

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Speaker 1: in flows. If you take all equity e t F

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Speaker 1: flows this here's only five billion. Now, there's some weird

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Speaker 1: things that go into that net number, but let's just

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Speaker 1: take away that a lot of people are using factory

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Speaker 1: tf this year, especially low ball to sort of low volatility.

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Speaker 1: That's low volatility. There are stocks that don't move around

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Speaker 1: a lot. They're using these factory tfs this year, I

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Speaker 1: think more on the defensive tip as a way to

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Speaker 1: sort of navigate a market that's a little more volatile

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Speaker 1: geopolitical situation that's volatile, and that's the way they're playing

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Speaker 1: uh it this year. So factory t f s are

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Speaker 1: can be used tactically short term or bought for the

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Speaker 1: long term, which is the multi factor idea, which we're

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Speaker 1: going to get into. That multi factor thing is exactly

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Speaker 1: where we bring in. If you know anything about Trillions,

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Speaker 1: you know that we love to outsource whenever possible with

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Speaker 1: the Field Report. And so Anti Massa joins us on

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Speaker 1: this episode of Trillions to talk about the multiverse universe

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Speaker 1: multi Do you know about the multiverse? Well, that's trip.

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Speaker 1: It's a whole different situation, but I it does. They

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Speaker 1: both have the word multi in them. So so Anti

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Speaker 1: Massa from Bloomberg News joining us on t this time

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Speaker 1: on Trillions, the multi factor universe. Annie, welcome back to Trillions. Hi,

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Speaker 1: what is multi factor? So multi factor is the idea

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Speaker 1: of taking many different factors and combining them into a

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Speaker 1: single product. And the reason you might want to do

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Speaker 1: that is because you're trying to capture the different attributes

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Speaker 1: of different factors and outperform in that way. So what

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Speaker 1: what are you getting exposure wise with these products? Okay,

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Speaker 1: so I bear with me. I've never seen the Avengers,

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Speaker 1: but I'm just gonna I have so many questions. How

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Speaker 1: could you not have seen the Avengers? But I'm just

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Speaker 1: completely gonna wing it with this analogy. So let's see

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Speaker 1: where it goes. So if you have a bunch of

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Speaker 1: different factors, all these different traits basically of that are

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Speaker 1: supposed to drive investment performance. When you put them together

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Speaker 1: in a multi factor product, it's kind of like having

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Speaker 1: a team of superheroes. Does that work? Yeah, we're traveling

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Speaker 1: Wilberries there. It's like a supergroup with Bob Dylan, George Harrison,

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Speaker 1: and the guy from Yellow He's great. I mean, I

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Speaker 1: just forget his name. So Traveling Wilberries are multi factor

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Speaker 1: e T S. Yeah, I mean, how could I explain

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Speaker 1: it anymore clearly than that? And Eric, when you when

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Speaker 1: you think about the multi factor e T F s,

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Speaker 1: what are you looking at the reason that we're very

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Speaker 1: bullish and b I on this category is because when

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Speaker 1: you think about single factors, it sometimes takes timing, and

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Speaker 1: when low ball is hot, that sometimes people chase into it.

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Speaker 1: Then it gets unhot and people get disappointed. Over the

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Speaker 1: past five seven years, I find that people advisors have

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Speaker 1: been a little turned off by trying to time these.

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Speaker 1: Multi factor takes all that off their hands. They don't

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Speaker 1: need to worry about it. It says, hey, look, let's

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Speaker 1: just try to track them all at once, and it

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Speaker 1: can lower the volatility between the factors. So it makes

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Speaker 1: a lot of sense. But like if I am commercially,

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Speaker 1: if we're in a moment where momentum is hot and

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Speaker 1: you get exposured to momentum, but I also have you know,

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Speaker 1: growth or value that's not going to be as dominant

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Speaker 1: of a factor. How does that come into play? What

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Speaker 1: you look, This is the same thing as diversification, the

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Speaker 1: whole concept you're going to sacrifice the home run to

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Speaker 1: ensure a singular double. Right, that's the same concept. Momentum

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Speaker 1: is hot and you don't own the momentum e TF

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Speaker 1: and you will multi factor. You're not gonna feel all that.

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Speaker 1: That's what you give up though, But Remember, momentum can

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Speaker 1: go bad and sour quickly, and I think for advisors,

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Speaker 1: they generally face their client every once in a while

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Speaker 1: they show them the sheet of funds they own, and

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Speaker 1: I just think a multi factor won't move that much

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Speaker 1: different than the S and P, whereas a momentum et

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Speaker 1: F can really lag or value et F and that's

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Speaker 1: harder to explain. So I think the multi factor is

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Speaker 1: will make the radar less when they have that client interaction,

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Speaker 1: and that's why I think they're gaining popularity and could

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Speaker 1: grow a lot. By the way. One other thing is

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Speaker 1: there are some multi factor funds that are actually trying

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Speaker 1: to time the market using factors, so actually rotating through

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Speaker 1: um these different factors, and and that's I mean, I

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Speaker 1: feel like it's a little bit untested, but that's another

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Speaker 1: way that they're trying to account for different factors performing

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Speaker 1: better at different times. When we think about how we

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Speaker 1: classify these, smart beta comes to mind. Is this a

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Speaker 1: form of smart beta? Yeah, multi factor and factor products

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Speaker 1: are under the smart beta umbrella because you're just basically

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Speaker 1: using something other and market cap weighted indexes to try

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Speaker 1: and drive returns. In smart beta. ERIC is another way

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Speaker 1: of talking about active Yes, so I would consider factors

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Speaker 1: a massive area within the wider tent of smart beta

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Speaker 1: because some people wouldn't consider growth maybe a technical factor,

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Speaker 1: but it's definitely in there. Um. I also think equal

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Speaker 1: weighted and there's some that just wait by revenue. There

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Speaker 1: are they technically factors? No, but they're all part of

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Speaker 1: this way to do something different than a market cap

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Speaker 1: weighted index. Uh And really, in my opinion, it's the

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Speaker 1: new active. This is your chance to maybe outperform. It

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Speaker 1: used to pick an active mutual fund for that. Now

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Speaker 1: people are doing it this way. And any what did

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Speaker 1: you what was the big takeaway would you learn? Well?

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Speaker 1: I went to this conference, this inside smart Beta conference,

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Speaker 1: and it was out in Boston back in the spring,

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Speaker 1: and a bunch of financial advisors attended, and smart beta

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Speaker 1: is obviously the focus of the conference, but multi factor

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Speaker 1: is a huge Multi factor investing was a huge topic

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Speaker 1: and a lot of the financial risers were trying to

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Speaker 1: figure out is this something that their clients would be interested?

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Speaker 1: How should I think about factors? How should I think

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Speaker 1: about timing the market may be using factors? And these

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Speaker 1: were the kinds of questions that were coming up. Okay,

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Speaker 1: so and he took a recorder to this event, so

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Speaker 1: we'll soon find out what you learned. But a report

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Speaker 1: kicks off in the black Rock clubby I'm Andrew head

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Speaker 1: of Factor Investing at black Rock Today. I'm at Spine

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Speaker 1: white Hole in the hall. When you enter one of

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Speaker 1: the reception areas at Black Rocks Manhattan headquarters on fifty

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Speaker 1: three Street, there's a TV screen behind the front desk

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Speaker 1: playing an ad campaign on loop. It features Dr Andrew Ang,

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Speaker 1: black Rocks head of Factors, talking to celebrities about a

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Speaker 1: certain kind of rules based investment strategy called factor investing.

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Speaker 1: The two main outcomes for investors to enhance returns ultra

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Speaker 1: reduced risk and we can inhance returns with value quality momentum.

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Speaker 1: And in one of these spots, and talks to Frozen

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Speaker 1: star Adina Menzou, you know the one who's saying let

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Speaker 1: it go. And they find surprising common ground between factor

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Speaker 1: investing and musical performance. I think investments in music um

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Speaker 1: will sim a little bit different. Music has structures that

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Speaker 1: can move you investments and numbers. They're all about these

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Speaker 1: patents too. Yeah, I feel like my set list is

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Speaker 1: my investment portfolio. I try to achieve some balance and

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Speaker 1: harmony to tell an even greater story. So what are

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Speaker 1: the key attributes of a great investment factor? Investing is

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Speaker 1: becoming a bigger deal in the E t F industry.

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Speaker 1: It's a somewhat unusual clash of academia where factors originated

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Speaker 1: and the fast paced investing world. I wanted to take

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Speaker 1: a closer look at how factors are getting woven into

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Speaker 1: E t F products. In particular, I wanted to find

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Speaker 1: out why asset managers are becoming interested and even more

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Speaker 1: complex products called multi factor funds. Here's how Ben Johnson,

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Speaker 1: an analyst at morning Star, explained the factor landscape to me.

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Speaker 1: If you think about multi factor strategies, I think, you know,

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Speaker 1: it's easiest just to decompose that into you know, it's

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Speaker 1: two sort of component words. They're multi in factor. So

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Speaker 1: easiest to start with factors, which are just sources of

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Speaker 1: returns that can be explained by a story that has

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Speaker 1: some sort of intuition behind it. First and foremost. So

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Speaker 1: let's take value as an example of one of the

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Speaker 1: best known factors. It makes sense to buy stocks and

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Speaker 1: bonds that are cheap relative to what they're truly worth

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Speaker 1: everyone I think can get comfortable with the concept of

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Speaker 1: buying low and selling high. Value is one of the

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Speaker 1: most straightforward factors, picking out investments that are inexpensive to

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Speaker 1: buy compared with some measure of what they're actually worth.

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Speaker 1: Another basic factor, growth singles out investments that might be

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Speaker 1: younger and likely to increase in earnings growth and returns.

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Speaker 1: The idea of combining and harnessing the power of various

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Speaker 1: factors together lad to the birth of multi factor funds.

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Speaker 1: Trying to exploit any one of these factors in isolation

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Speaker 1: can be difficult because these factors have times where they

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Speaker 1: do very well, they have times where they do very poorly.

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Speaker 1: So if you can mix them together in a multi

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Speaker 1: factor fund, the idea is is that it will smooth

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Speaker 1: out that that volatility. So multi factory t f s

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Speaker 1: attempt to do this, putting them all together in a

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Speaker 1: construct that, for all intends and purposes, looks like an

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Speaker 1: an active strategy at the end of the day. Multi

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Speaker 1: factor investing is a relatively new phenomenon in ETFs. There

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Speaker 1: are about a hundred and eighty six multi factor e

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Speaker 1: t f s on the market, with more than half

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Speaker 1: of those launched since According to morning Star data, these

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Speaker 1: multi factor funds have about fifty five five billion dollars

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Speaker 1: in assets. So what's behind this increased interest in the

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Speaker 1: multi factor approach and will it really click for retail investors?

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Speaker 1: I headed to a recent conference in Boston looking for

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Speaker 1: some answers inside SPARTBATO was held in June at a

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Speaker 1: hotel overlooking the Boston Harbor. It's a conference that attracts

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Speaker 1: a lot of financial advisors, and factor investing was a

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Speaker 1: big topic this year. My feet got a little worn

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Speaker 1: out chasing down advisors all day to talk factors, but

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Speaker 1: it was worth it. I just said, to tell you,

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Speaker 1: I love your shoes. I was like, So, with an

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Speaker 1: unexpected boost of confidence, I sought out Scott Ladner, CEO

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Speaker 1: of Horizon Investments, a financial advisory firm. He spoke on

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Speaker 1: a panel about how to time the market using factors.

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Speaker 1: Scott chatted with me on the sidelines about the proliferation

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Speaker 1: of multi factor e t f s. One big hurdle

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Speaker 1: for adoption, he said, is how to bring them to

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Speaker 1: a mainstream audience. If you go talk to financial advisors,

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Speaker 1: many of them don't really understand how to use the factors,

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Speaker 1: especially the multi factor thing, um and and really, if

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Speaker 1: you're going to drive assets into these strategies, you've got

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Speaker 1: to tell people how to use men. Why, you know,

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Speaker 1: we we've not seen a lot of adoption as a

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Speaker 1: one offer standpoint from from the pointancial advisors for the

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Speaker 1: multifactor funds again because fundamentally, financial advisors are going to

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Speaker 1: put their clients into things that they can explain back

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Speaker 1: to them, um and and and if financial advisors are

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Speaker 1: having trouble understanding the purpose of a fund or holding

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Speaker 1: in their portfolio, they're gonna be much less likely to

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Speaker 1: use it because when and if it goes wrong, the

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Speaker 1: answer is, you know that they're going to need to

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Speaker 1: be ab explain to the client why it was in

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Speaker 1: there in the first place, and what when, what went wrong,

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Speaker 1: and what they're going to do to fix it. And

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Speaker 1: the multi factor suee UM is just more complicated. It's

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Speaker 1: just one more layer of complexity, and so that the

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Speaker 1: hurdle to get something like that into an individual advisor's

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Speaker 1: portfolio is rather high. Kip Meadows, CEO of the firm Nottingham,

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Speaker 1: says the multi factor approach makes sense as a way

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Speaker 1: to sort of blend active and passive investment strategies. These

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Speaker 1: products usually are less expensive than actively managed mutual funds,

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Speaker 1: but praise here than e t f s tracking broad benchmarks.

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Speaker 1: Who's been talking the industry about active e t s

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Speaker 1: for quite a while, it's always this year might be

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Speaker 1: the year for active e t s, and then it

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Speaker 1: doesn't quite have the growth, and it seems to be

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Speaker 1: accelerating now. Um I think it makes a lot of

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Speaker 1: sense to get a portfolio manager that knows what they're

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Speaker 1: doing to help make some judgment calls as to what

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Speaker 1: factors might be in favor over the next coming period

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Speaker 1: of time. If you want to know what some of

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Speaker 1: these products actually look like, consider invest Goo. When it

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Speaker 1: acquired Hoppenheimer Funds, It's snapped up some of its dynamic

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Speaker 1: multi factor funds like oh MFL and o m f s,

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Speaker 1: which adjust their factor exposure according to market cycles. And

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Speaker 1: black Rock launched it's d y n F fund in

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Speaker 1: March with a similar goal of shuffling three factors based

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Speaker 1: on what the market is doing. It's the first TTF

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Speaker 1: that doesn't bear black rocks I shares brand to highlight

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Speaker 1: that active aspect. Black Rock declined my request for a

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Speaker 1: meeting with Andrew Ang, saying that he oversees many types

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Speaker 1: of factor products, not just e t s. Still, I

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Speaker 1: did get a chance to hear from him when he

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Speaker 1: appeared on the conference's main stage. Ang doesn't see factors

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Speaker 1: as being overly complex for a mainstream audience. He said,

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Speaker 1: he sees them as democratizing investing fundamentals. He likened this

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Speaker 1: to the spread of streaming music. Music metaphors are big

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Speaker 1: for Ang. By the way he plays the keyboard in

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Speaker 1: a black rock internal band. What's happened in music? He's

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Speaker 1: on funding. I used to record songs in the radio

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Speaker 1: on a cassette tape. But the rise of streaming music

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Speaker 1: means that you do not have to buy the whole thing.

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Speaker 1: You listen to the track you w was you collate,

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Speaker 1: just attracts you want, and you listen to them whenever

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Speaker 1: you want, and your music experience is the fatal for

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Speaker 1: Asset management is undergoing that same transformation. We used to

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Speaker 1: go to one asset manager, and that asset manager would

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Speaker 1: give us the whole thing, the whole album. You do

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Speaker 1: not have to buy that whole thing. Factors are part

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Speaker 1: of this evolution. Factors are active, but beyond the lofty

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Speaker 1: goal of democratizing access to factors. There's another, much more

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Speaker 1: basic reason why issuers might be taking an interest in

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Speaker 1: T factor funds right now. E t F creation is

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Speaker 1: a crowded realm. This is a new style of funds

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Speaker 1: that issuers can pitch to customers. Here's morning Stars, Ben

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Speaker 1: Johnson Again, E t F providers are running out of

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Speaker 1: white space when it comes to product development. I liken

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Speaker 1: it to showing up at the beach at three o'clock

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Speaker 1: in the afternoon on a sunny day when all of

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Speaker 1: the prime real estate has long since been taken and

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Speaker 1: all you've got left really is some cramped spaces next

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Speaker 1: to the garbage can that's adjacent to the exit to

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Speaker 1: the beach. Uh. They're looking for every last nook and

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Speaker 1: cranny that hasn't been filled. Andy, that was amazing, Thank

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Speaker 1: you very much. Eric. Can you tell me about the

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Speaker 1: performance of these products. We heard about the inflo but

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Speaker 1: what about the performance. Well, they're all over the place.

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Speaker 1: They vary right this year, low balls have in a

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Speaker 1: good year, right, it's outperforming the SMP. So guess what,

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Speaker 1: that's where a lot of the flows are going. In

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Speaker 1: two thousand and eighteen, there was a chunk good time

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Speaker 1: where value did well. Remember it was a rough time.

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Speaker 1: But growth has done really well. I mean that's done

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Speaker 1: very well over the years. Momentum has done pretty well.

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Speaker 1: That had a good year I think was a big

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Speaker 1: year from momentum. But part of the issue here is

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Speaker 1: that these things are designed so differently. Some of them

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Speaker 1: are more hardcore than others and some are more water down.

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Speaker 1: And so a lot of them that are watered down

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Speaker 1: and have a lot of beta and them have generally

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Speaker 1: done pretty good because beta and the market's done well.

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Speaker 1: The more hardcore ones tend to either rip or just

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Speaker 1: get crushed, and those tend to see less assets. I

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Speaker 1: think advisors are more scared by those. Black rock to

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Speaker 1: me makes the more water down ones. I mean they

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Speaker 1: are very much in this commercially to try to get assets.

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Speaker 1: So you know US m v M, t U, m

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Speaker 1: uh QAL, those have taken in. You know, we're talking

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Speaker 1: big boy flows, but you know they're pretty much moving

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Speaker 1: around the SMP not nothing too crazy. But the performance

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Speaker 1: will vary depending on what's going on in the market.

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Speaker 1: It's not like one always up forms and any what

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Speaker 1: what do you think investors need to be looking at

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Speaker 1: when they're setting whether or not they're going to invest

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Speaker 1: in the space or be which product they should invest in.

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Speaker 1: I guess one thing to keep in mind is UM.

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Speaker 1: On the plus side, if you're just buying a broad

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Speaker 1: index of UM large cap US stocks, you you have

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Speaker 1: a lot of exposure to big tech companies. Something like

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Speaker 1: a multi factor product could help offset that, like high

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Speaker 1: concentration and say tech um and go towards diversifying. On

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Speaker 1: the other hand, these products aren't completely road tested. Since

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Speaker 1: so many of them have been coming out in recent years,

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Speaker 1: we haven't really seen how they perform in a period

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Speaker 1: of extended volatility and losses from the market. So that's

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Speaker 1: one thing to keep in mind. And this brings up

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Speaker 1: a very big point for US and b I because

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Speaker 1: the academic research is based on long short portfolios, which

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Speaker 1: are really hardcore only one issue. Where does that that way?

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Speaker 1: But that's how like a q R cliff fastness, that's

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Speaker 1: how they do it, That's how a hedge fund would

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Speaker 1: do factors long short UM. Most of them go long only,

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Speaker 1: and then their degrees of hardcoreness, Like there's some that

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Speaker 1: might have like a value a p of like thirteen

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Speaker 1: that's hardcore, and then some might have a p of

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Speaker 1: just about the same as the SMP. And I think

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Speaker 1: that most of the money goes to the water down ones.

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Speaker 1: And I think investors could be disappointed because we called

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Speaker 1: the beta vortex. Anything that has beta in it, it

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Speaker 1: sells better. But when the market goes down, that's not

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Speaker 1: going to help you at all. The correlations are very

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Speaker 1: high to the market. You're not getting diversification. But that

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Speaker 1: may not be what an advisor are looking for. They

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Speaker 1: may actually be looking for something that's beta but has

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Speaker 1: a cool name story to tell. So the marketing and

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00:20:42,160 --> 00:20:47,480
Speaker 1: sales of this definitely is a major unexplored part versus

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Speaker 1: the academic literature that determines factors work. And those two

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Speaker 1: things are not married at all. What else from any's

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Speaker 1: reporting interested you? Well? I have two things on Andrew Wang.

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Speaker 1: First of all, I can't help but find it a

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Speaker 1: little annoying that they Black Rock wouldn't let you, you know, him,

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Speaker 1: talk to us. I mean, Martin Small has been on

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Speaker 1: and that's effectively or was they seem like they're in

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Speaker 1: a band together. Anyway, we gotta do some more work here. Yeah,

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Speaker 1: I'd love to hear the band sounds like, what do

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Speaker 1: you think we're totally gonna get him? I'm picturing late

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Speaker 1: eighties hair metal. But anyway, that's just my my, my view. Um. So,

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Speaker 1: Andrew Ayang said something else which you said, he like

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Speaker 1: loves these music metaphors. I've heard him use the MP

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Speaker 1: three analogy for factors, but that's my metaphor. I I've

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Speaker 1: used the MP three for the E t F. To me,

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00:21:36,080 --> 00:21:39,440
Speaker 1: factors are like a genre of music. They're like jazz

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Speaker 1: or country. The E t F is the MP three.

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Speaker 1: Um but he did bring up a point about used

381
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Speaker 1: to have to buy the whole album and now, which

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Speaker 1: was in the music business is called forced bundling. I know,

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Speaker 1: Anny like the Cars, which is a great band, but

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Speaker 1: let's face it, every Cars album has like four awesome

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Speaker 1: songs and then maybe six like so so ones. He's,

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00:22:01,440 --> 00:22:03,080
Speaker 1: you know, the greatest hits you can push play and

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00:22:03,119 --> 00:22:07,000
Speaker 1: that things go besides the greatest hits. That's cheating, cheating.

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Speaker 1: I hate you, Okay. The force bundling, I think, is

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Speaker 1: something that hurt the music business, and the MP three

390
00:22:13,480 --> 00:22:16,639
Speaker 1: came along and obviously revolutionize it. By the way, I

391
00:22:16,680 --> 00:22:18,920
Speaker 1: think you might just be a little bitter that he's

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Speaker 1: using a music analogy when you like to use the

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Speaker 1: MP three thing as your your go to medical I

394
00:22:24,800 --> 00:22:27,560
Speaker 1: don't think so. I just think that I've been using

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00:22:27,560 --> 00:22:29,439
Speaker 1: that for years. I used it my book, and I

396
00:22:29,480 --> 00:22:32,600
Speaker 1: think that the MP three is a is the structure

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Speaker 1: in which you buy music. Factors are like a genre

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Speaker 1: in the record store or whatever, or in the in

399
00:22:37,400 --> 00:22:40,120
Speaker 1: the iTunes library, and so I think that's the better

400
00:22:40,160 --> 00:22:42,359
Speaker 1: way to look at it. But I see what he's saying,

401
00:22:42,400 --> 00:22:45,680
Speaker 1: and I do think that, um, his concept of being

402
00:22:45,680 --> 00:22:48,760
Speaker 1: able to put everything together exactly how you want, very cheaply,

403
00:22:49,320 --> 00:22:52,440
Speaker 1: the MP three is a I think a good metaphor. UM.

404
00:22:52,640 --> 00:22:55,359
Speaker 1: Here's a question. One person you interviewed that I thought

405
00:22:55,359 --> 00:22:58,000
Speaker 1: was interesting was the advisor who talked about multi factor

406
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Speaker 1: ets being like complicated. Was he a user of them

407
00:23:01,880 --> 00:23:04,440
Speaker 1: or like, I sympathize with somebody like this, who's like

408
00:23:04,440 --> 00:23:06,440
Speaker 1: going to talk to like my mom an attempt to

409
00:23:06,480 --> 00:23:12,119
Speaker 1: explain exactly headwind to the growth. Yeah, So he was

410
00:23:12,160 --> 00:23:15,959
Speaker 1: saying that from actually being on the front lines of

411
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Speaker 1: you know, what investors want, what individual investors want, and

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Speaker 1: what they understand, it's still not quite that easy to

413
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Speaker 1: get over the hump of like how do you how

414
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Speaker 1: do you explain first of all, honestly what a factor is,

415
00:23:28,920 --> 00:23:32,600
Speaker 1: and then something kind of esoteric and academic like multi

416
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Speaker 1: factor investing in why you would need it? Can be

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Speaker 1: a little bit of a bridge too far for some people.

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Speaker 1: One way that he said that financial advisors can one

419
00:23:40,680 --> 00:23:45,040
Speaker 1: strategy financial advisors can use is just explain um kind

420
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Speaker 1: of how it might fit in with your investing goals

421
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Speaker 1: without having to get into the nitty gritty of like

422
00:23:49,720 --> 00:23:53,520
Speaker 1: what exactly is momentum, what exactly is quality? I agree

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Speaker 1: with you, because uh one E t F we analyze

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00:23:55,960 --> 00:23:58,320
Speaker 1: a lot as GSLC, the Goldman Active BATA. This thing

425
00:23:58,400 --> 00:24:00,080
Speaker 1: has been a huge hit, like six billion dollar or

426
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Speaker 1: is it's multi factor? If you look at how it's done,

427
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Speaker 1: it takes four factors and puts them in separately each

428
00:24:07,320 --> 00:24:10,800
Speaker 1: but within each factor there's a myriad of metrics they

429
00:24:10,880 --> 00:24:13,960
Speaker 1: use when all of a sudden done, there's probably twenty

430
00:24:14,040 --> 00:24:17,159
Speaker 1: five metrics that go into this sort of formula. I

431
00:24:17,240 --> 00:24:21,440
Speaker 1: can't imagine that being explained. However, what they do that's

432
00:24:21,440 --> 00:24:24,119
Speaker 1: so genius is they make the E t F almost

433
00:24:24,119 --> 00:24:27,040
Speaker 1: look like the SMP. We'd call that low active share,

434
00:24:27,720 --> 00:24:30,280
Speaker 1: very low tracking error, so the advisor may never need

435
00:24:30,320 --> 00:24:32,439
Speaker 1: to explain it. They'll just say, hey, look I got

436
00:24:32,520 --> 00:24:34,960
Speaker 1: you this new Goldman quant thing. It's the latest stuff

437
00:24:35,000 --> 00:24:38,639
Speaker 1: they're given us. It's Goldman. Uh, it's the quant stuff.

438
00:24:38,680 --> 00:24:42,040
Speaker 1: It's got more tax efficient and by the way, my

439
00:24:42,400 --> 00:24:45,280
Speaker 1: in my for me as the advisor, there's no career risk.

440
00:24:45,720 --> 00:24:47,200
Speaker 1: No one's gonna look at g s LC and go

441
00:24:47,200 --> 00:24:48,960
Speaker 1: oh my, got it underperformed because it won't because it

442
00:24:48,960 --> 00:24:51,720
Speaker 1: literally holds almost the same stocks, And it's so cheap

443
00:24:51,800 --> 00:24:55,800
Speaker 1: for fee based advisors who are because they now get

444
00:24:55,800 --> 00:24:57,680
Speaker 1: paid out of the same assets that the client is in,

445
00:24:58,119 --> 00:25:01,280
Speaker 1: they're incentivized to go cheap. So only nine basis points.

446
00:25:01,760 --> 00:25:04,320
Speaker 1: So I just find that active mutual funds. This to

447
00:25:04,440 --> 00:25:07,080
Speaker 1: me is the you know, we actually equate it to

448
00:25:07,960 --> 00:25:11,679
Speaker 1: Terminator in Terminator too, you know the cyborgs sent from

449
00:25:11,720 --> 00:25:15,439
Speaker 1: the future liquid metal. Yeah, this thing is so it

450
00:25:15,560 --> 00:25:18,000
Speaker 1: checks every single box for the fee based advisor's brain.

451
00:25:18,040 --> 00:25:20,359
Speaker 1: The one thing that it doesn't is a simplicity. But

452
00:25:20,440 --> 00:25:24,320
Speaker 1: I think that as long as it doesn't do anything crazy,

453
00:25:24,200 --> 00:25:27,199
Speaker 1: they might trust it enough to to actually buy and

454
00:25:27,240 --> 00:25:29,600
Speaker 1: they are. It's got six billions and get this, it

455
00:25:29,680 --> 00:25:33,440
Speaker 1: hasn't outperformed. It's it's all bought on those other metrics.

456
00:25:34,000 --> 00:25:37,639
Speaker 1: That's what makes us so fascinating because these things, some

457
00:25:37,720 --> 00:25:39,800
Speaker 1: of these will have their shiny object moment and then

458
00:25:39,840 --> 00:25:42,600
Speaker 1: they'll crash. But this one had never had that. So

459
00:25:42,920 --> 00:25:45,600
Speaker 1: tell me more about its portfolio. What's it got? Let

460
00:25:45,720 --> 00:25:50,720
Speaker 1: let me read the top ten, the top five stocks, Microsoft, Apple, Amazon, Facebook,

461
00:25:50,800 --> 00:25:54,760
Speaker 1: Johnson and Johnson, Google, JP Morgan. I mean, doesn't that

462
00:25:54,760 --> 00:25:59,000
Speaker 1: sound right? Like what's so smart about that smart data angle?

463
00:25:59,320 --> 00:26:02,120
Speaker 1: Goldman is not messing around. They know the advisor's brain

464
00:26:02,359 --> 00:26:06,280
Speaker 1: and they perfectly calibrated everything they would need. This is

465
00:26:06,280 --> 00:26:08,680
Speaker 1: why this one sells. And then you've seen some other

466
00:26:08,680 --> 00:26:11,240
Speaker 1: issuers like say like a leg Mason or they've come

467
00:26:11,240 --> 00:26:14,000
Speaker 1: out with these they've tried to convert their secret active

468
00:26:14,040 --> 00:26:16,040
Speaker 1: sauce into a smart bata et F. They charge like

469
00:26:16,080 --> 00:26:19,960
Speaker 1: thirty basis points. It just doesn't do enough. Um, it's

470
00:26:20,000 --> 00:26:21,960
Speaker 1: too you know, this one's nine bits, which is the

471
00:26:22,000 --> 00:26:26,359
Speaker 1: main feature. Um. And I think that's where Goldman was smart,

472
00:26:26,440 --> 00:26:28,200
Speaker 1: just to go straight at where they were going to

473
00:26:28,280 --> 00:26:32,199
Speaker 1: have to go anyway. So to me, Goldman vanguarded the

474
00:26:32,240 --> 00:26:34,959
Speaker 1: factor space and everybody's followed and most of the flows

475
00:26:34,960 --> 00:26:39,600
Speaker 1: have gone there. We tracked this average asset weighted fee

476
00:26:39,800 --> 00:26:42,640
Speaker 1: for smart Beta and it's now down to, I believe

477
00:26:42,760 --> 00:26:45,239
Speaker 1: last time I checked the twenty four basis points. In

478
00:26:45,240 --> 00:26:46,840
Speaker 1: other words, if you take all the smart Beta e

479
00:26:46,880 --> 00:26:48,639
Speaker 1: t F s and you take the average feet, it

480
00:26:48,680 --> 00:26:51,240
Speaker 1: might be like sixty basis points, but the asset weighted

481
00:26:51,280 --> 00:26:54,480
Speaker 1: average is twenty four. So advisors keep driving down that

482
00:26:54,560 --> 00:26:57,040
Speaker 1: number by going for the cheaper ones. So to me,

483
00:26:57,119 --> 00:27:00,000
Speaker 1: this is another place where cost actually might be paramount

484
00:27:00,040 --> 00:27:03,439
Speaker 1: to performance. They're mixed. I mean, I think performance matters

485
00:27:03,480 --> 00:27:05,600
Speaker 1: to a degree, but there's also this idea of using

486
00:27:05,640 --> 00:27:09,679
Speaker 1: these really cheap ones that give you a story but

487
00:27:09,720 --> 00:27:12,639
Speaker 1: don't necessarily do much different than the S and P.

488
00:27:12,760 --> 00:27:16,320
Speaker 1: They're they're safe. If anything, I think what we're what

489
00:27:16,320 --> 00:27:21,160
Speaker 1: we're seeing here is uh, Wall Street is relentlessly looking

490
00:27:21,160 --> 00:27:24,000
Speaker 1: for new stories, and like, here's a really great story

491
00:27:24,000 --> 00:27:26,480
Speaker 1: that we can put in a new rapper and get

492
00:27:26,480 --> 00:27:28,720
Speaker 1: it out there. And as long as it is part

493
00:27:28,760 --> 00:27:32,600
Speaker 1: of that zeitgeist and reaching for you know, whatever factor

494
00:27:33,160 --> 00:27:35,359
Speaker 1: is happens to be hot right now, you kind of

495
00:27:35,400 --> 00:27:37,440
Speaker 1: get a little bit of exposure to that here, especially

496
00:27:37,480 --> 00:27:39,960
Speaker 1: in the E t F space where it's so crowded already.

497
00:27:40,280 --> 00:27:41,960
Speaker 1: One of my favorite parts of the field reports is

498
00:27:42,000 --> 00:27:43,920
Speaker 1: the stuff you guys let in there that has nothing

499
00:27:43,960 --> 00:27:47,240
Speaker 1: to do with with investing. Who ran over and loved

500
00:27:47,240 --> 00:27:50,359
Speaker 1: your shoes? Who was that? Gosh, some really kind woman

501
00:27:50,400 --> 00:27:52,680
Speaker 1: at the conference. I was just there trying to figure

502
00:27:52,720 --> 00:27:56,080
Speaker 1: out how the heck to use that recorder. I love

503
00:27:56,560 --> 00:28:00,159
Speaker 1: love that part, mainly because of the amazing confidence was

504
00:28:00,240 --> 00:28:02,800
Speaker 1: that gave you. I know, because I was like, it

505
00:28:02,880 --> 00:28:05,399
Speaker 1: was my first time doing a field report. I was

506
00:28:05,440 --> 00:28:08,679
Speaker 1: a little nervous. I was feeling a little cautious, and

507
00:28:08,720 --> 00:28:11,520
Speaker 1: I'm there, like with the recorder, and so she, like

508
00:28:11,600 --> 00:28:13,720
Speaker 1: an angel came out of nowhere. And what kind of

509
00:28:13,720 --> 00:28:17,080
Speaker 1: shows were that? They were black high heels. Annie, Thanks

510
00:28:17,080 --> 00:28:19,160
Speaker 1: for joining us and Trillions and for doing our job

511
00:28:19,200 --> 00:28:27,520
Speaker 1: for us. Thanks thanks for listening to Trillions until next time.

512
00:28:27,640 --> 00:28:30,280
Speaker 1: You can find us on the Bloomberg terminal, Bloomberg dot com,

513
00:28:30,640 --> 00:28:33,920
Speaker 1: Apple Podcast, Spotify, and wherever else you like to listen.

514
00:28:34,359 --> 00:28:36,440
Speaker 1: We'd love to hear from you. We're on Twitter, I'm

515
00:28:36,520 --> 00:28:40,000
Speaker 1: at Joel Webber Show, He's at Eric Falcinus, and you

516
00:28:40,040 --> 00:28:44,680
Speaker 1: can find Annie at Antonia Masa. I don't know, but

517
00:28:44,840 --> 00:28:55,160
Speaker 1: that was listen. Listen, I don't know what you gotta

518
00:28:55,160 --> 00:29:02,480
Speaker 1: try you in I who, I don't know. This is

519
00:29:02,520 --> 00:29:06,280
Speaker 1: a safe space, safe and you can find Kenny at

520
00:29:06,360 --> 00:29:11,760
Speaker 1: Antonia Busca. Trillions is produced by Magnus and Rickson. Friendcesica

521
00:29:11,840 --> 00:29:18,480
Speaker 1: Levie is the head of Bloomberg podcast by