WEBVTT - Are Multi-Factor ETFs the New Active Mutual Fund? 0:00:06.280 --> 0:00:12.080 Polcano trillions. I'm Joel Webber and I'm Eric Bell Tunis Eric. 0:00:12.160 --> 0:00:18.360 There's this thing out there called factors. What is a factor, right? Factors? 0:00:18.520 --> 0:00:21.520 Obviously it's a word many people know for many different things, 0:00:21.600 --> 0:00:26.799 like the X factor. So factor to me, I would 0:00:26.840 --> 0:00:30.360 just assume is there are things that have characteristics of 0:00:30.400 --> 0:00:33.520 stocks that aren't say large, mid and small and more 0:00:33.560 --> 0:00:37.320 traditional ways to slice and dice stocks, or characteristics being 0:00:37.360 --> 0:00:39.760 growth and value. To me, are the two biggies. They 0:00:39.760 --> 0:00:41.480 were like, you know, they've been around for like thirty 0:00:41.560 --> 0:00:44.839 forty years, if not longer, but now they've kind of 0:00:45.200 --> 0:00:48.760 a lot of academic research has uh come out and 0:00:48.840 --> 0:00:52.440 divided it into even more fine factors. So the big 0:00:52.440 --> 0:00:56.200 ones that seem to be legitimately accepted our value, cheap stocks, 0:00:56.240 --> 0:01:01.120 momentum right where all the sort of performance chasing quality, 0:01:01.160 --> 0:01:03.160 which is sort of more like the Warren Buffett look 0:01:03.200 --> 0:01:07.479 for good balance sheets. Then you've got size, which is uh, 0:01:07.880 --> 0:01:11.240 you know, smaller size stocks. And these are the things 0:01:11.240 --> 0:01:15.039 that active managers have been leaning on for years to 0:01:15.160 --> 0:01:18.440 get out performance. So they studied how does active outperform 0:01:18.480 --> 0:01:21.360 and they figured out, well, they're either leaning towards small caps, 0:01:21.400 --> 0:01:24.720 they're leaning towards value, they're chasing performance, or they're leaning 0:01:24.720 --> 0:01:27.320 on good balance sheets. So what they've done now is 0:01:27.360 --> 0:01:30.400 they've taken those alpha techniques and made them into beta, 0:01:30.520 --> 0:01:32.360 which is just a mark, you know, an index that 0:01:32.400 --> 0:01:36.560 tracks these techniques. So to me, factors are taking alpha 0:01:36.720 --> 0:01:39.200 and converting it into cheap beta. And once you've got 0:01:39.200 --> 0:01:41.800 that index, that's where the ETF comes in. And they're 0:01:41.880 --> 0:01:44.840 highly popular, as you can imagine, because to take these 0:01:44.880 --> 0:01:46.759 little methods and then maybe you put them on top 0:01:46.800 --> 0:01:49.720 of your portfolio. Sometimes you can replace them. It's a 0:01:49.760 --> 0:01:52.960 way to try to outperform, but for way less cost 0:01:53.040 --> 0:01:55.560 than you would pay an active mutual fund manager. In 0:01:55.600 --> 0:01:57.640 some of the cases, the big popular ones are under 0:01:57.640 --> 0:02:00.880 twenty basis points at this point. Um This year, I 0:02:00.920 --> 0:02:03.280 think is a big year for factory t f s. 0:02:04.000 --> 0:02:06.520 Four of them are in the top twenty inflows year 0:02:06.560 --> 0:02:11.520 to date, and they are accounting for forty billion dollars 0:02:11.520 --> 0:02:14.400 in flows. If you take all equity e t F 0:02:14.400 --> 0:02:17.160 flows this here's only five billion. Now, there's some weird 0:02:17.240 --> 0:02:19.040 things that go into that net number, but let's just 0:02:19.480 --> 0:02:21.799 take away that a lot of people are using factory 0:02:21.880 --> 0:02:26.000 tf this year, especially low ball to sort of low volatility. 0:02:26.040 --> 0:02:28.000 That's low volatility. There are stocks that don't move around 0:02:28.000 --> 0:02:31.360 a lot. They're using these factory tfs this year, I 0:02:31.400 --> 0:02:33.640 think more on the defensive tip as a way to 0:02:33.639 --> 0:02:37.440 sort of navigate a market that's a little more volatile 0:02:37.840 --> 0:02:41.640 geopolitical situation that's volatile, and that's the way they're playing 0:02:41.800 --> 0:02:44.200 uh it this year. So factory t f s are 0:02:44.280 --> 0:02:48.280 can be used tactically short term or bought for the 0:02:48.320 --> 0:02:51.440 long term, which is the multi factor idea, which we're 0:02:51.480 --> 0:02:54.560 going to get into. That multi factor thing is exactly 0:02:54.639 --> 0:02:57.120 where we bring in. If you know anything about Trillions, 0:02:57.120 --> 0:03:00.280 you know that we love to outsource whenever possible with 0:03:00.360 --> 0:03:03.200 the Field Report. And so Anti Massa joins us on 0:03:03.639 --> 0:03:09.560 this episode of Trillions to talk about the multiverse universe 0:03:09.960 --> 0:03:13.239 multi Do you know about the multiverse? Well, that's trip. 0:03:13.639 --> 0:03:16.799 It's a whole different situation, but I it does. They 0:03:16.800 --> 0:03:18.920 both have the word multi in them. So so Anti 0:03:19.000 --> 0:03:24.880 Massa from Bloomberg News joining us on t this time 0:03:24.880 --> 0:03:31.000 on Trillions, the multi factor universe. Annie, welcome back to Trillions. Hi, 0:03:31.760 --> 0:03:36.120 what is multi factor? So multi factor is the idea 0:03:36.160 --> 0:03:39.720 of taking many different factors and combining them into a 0:03:39.760 --> 0:03:42.400 single product. And the reason you might want to do 0:03:42.440 --> 0:03:47.480 that is because you're trying to capture the different attributes 0:03:47.720 --> 0:03:51.800 of different factors and outperform in that way. So what 0:03:51.800 --> 0:03:55.720 what are you getting exposure wise with these products? Okay, 0:03:55.760 --> 0:03:59.000 so I bear with me. I've never seen the Avengers, 0:03:59.120 --> 0:04:01.800 but I'm just gonna I have so many questions. How 0:04:01.800 --> 0:04:05.840 could you not have seen the Avengers? But I'm just 0:04:05.880 --> 0:04:08.880 completely gonna wing it with this analogy. So let's see 0:04:08.880 --> 0:04:11.440 where it goes. So if you have a bunch of 0:04:11.440 --> 0:04:15.640 different factors, all these different traits basically of that are 0:04:15.640 --> 0:04:19.520 supposed to drive investment performance. When you put them together 0:04:19.600 --> 0:04:24.039 in a multi factor product, it's kind of like having 0:04:24.120 --> 0:04:28.120 a team of superheroes. Does that work? Yeah, we're traveling 0:04:28.120 --> 0:04:33.720 Wilberries there. It's like a supergroup with Bob Dylan, George Harrison, 0:04:33.839 --> 0:04:37.800 and the guy from Yellow He's great. I mean, I 0:04:37.839 --> 0:04:41.159 just forget his name. So Traveling Wilberries are multi factor 0:04:41.200 --> 0:04:43.560 e T S. Yeah, I mean, how could I explain 0:04:43.600 --> 0:04:48.720 it anymore clearly than that? And Eric, when you when 0:04:48.800 --> 0:04:51.000 you think about the multi factor e T F s, 0:04:51.040 --> 0:04:53.840 what are you looking at the reason that we're very 0:04:53.880 --> 0:04:57.280 bullish and b I on this category is because when 0:04:57.320 --> 0:05:01.080 you think about single factors, it sometimes takes timing, and 0:05:01.120 --> 0:05:03.400 when low ball is hot, that sometimes people chase into it. 0:05:03.440 --> 0:05:06.599 Then it gets unhot and people get disappointed. Over the 0:05:06.640 --> 0:05:09.800 past five seven years, I find that people advisors have 0:05:09.880 --> 0:05:11.960 been a little turned off by trying to time these. 0:05:12.400 --> 0:05:15.280 Multi factor takes all that off their hands. They don't 0:05:15.279 --> 0:05:17.480 need to worry about it. It says, hey, look, let's 0:05:17.480 --> 0:05:19.839 just try to track them all at once, and it 0:05:19.880 --> 0:05:23.080 can lower the volatility between the factors. So it makes 0:05:23.120 --> 0:05:25.479 a lot of sense. But like if I am commercially, 0:05:25.520 --> 0:05:28.720 if we're in a moment where momentum is hot and 0:05:28.920 --> 0:05:32.800 you get exposured to momentum, but I also have you know, 0:05:33.320 --> 0:05:36.920 growth or value that's not going to be as dominant 0:05:37.000 --> 0:05:40.680 of a factor. How does that come into play? What 0:05:40.839 --> 0:05:43.560 you look, This is the same thing as diversification, the 0:05:43.600 --> 0:05:46.479 whole concept you're going to sacrifice the home run to 0:05:46.720 --> 0:05:49.800 ensure a singular double. Right, that's the same concept. Momentum 0:05:49.839 --> 0:05:51.680 is hot and you don't own the momentum e TF 0:05:51.800 --> 0:05:54.719 and you will multi factor. You're not gonna feel all that. 0:05:54.720 --> 0:05:57.000 That's what you give up though, But Remember, momentum can 0:05:57.040 --> 0:06:00.000 go bad and sour quickly, and I think for advisors, 0:06:00.480 --> 0:06:02.880 they generally face their client every once in a while 0:06:02.920 --> 0:06:06.080 they show them the sheet of funds they own, and 0:06:06.360 --> 0:06:08.479 I just think a multi factor won't move that much 0:06:08.480 --> 0:06:10.440 different than the S and P, whereas a momentum et 0:06:10.560 --> 0:06:14.000 F can really lag or value et F and that's 0:06:14.000 --> 0:06:17.159 harder to explain. So I think the multi factor is 0:06:17.640 --> 0:06:21.839 will make the radar less when they have that client interaction, 0:06:21.880 --> 0:06:24.520 and that's why I think they're gaining popularity and could 0:06:24.560 --> 0:06:27.120 grow a lot. By the way. One other thing is 0:06:27.160 --> 0:06:29.400 there are some multi factor funds that are actually trying 0:06:29.400 --> 0:06:32.800 to time the market using factors, so actually rotating through 0:06:33.480 --> 0:06:37.840 um these different factors, and and that's I mean, I 0:06:37.880 --> 0:06:41.480 feel like it's a little bit untested, but that's another 0:06:41.520 --> 0:06:44.920 way that they're trying to account for different factors performing 0:06:44.960 --> 0:06:47.000 better at different times. When we think about how we 0:06:47.040 --> 0:06:50.200 classify these, smart beta comes to mind. Is this a 0:06:50.240 --> 0:06:54.440 form of smart beta? Yeah, multi factor and factor products 0:06:54.480 --> 0:06:58.560 are under the smart beta umbrella because you're just basically 0:06:58.640 --> 0:07:03.680 using something other and market cap weighted indexes to try 0:07:03.680 --> 0:07:06.320 and drive returns. In smart beta. ERIC is another way 0:07:06.360 --> 0:07:10.280 of talking about active Yes, so I would consider factors 0:07:10.360 --> 0:07:14.560 a massive area within the wider tent of smart beta 0:07:14.800 --> 0:07:17.800 because some people wouldn't consider growth maybe a technical factor, 0:07:17.840 --> 0:07:20.559 but it's definitely in there. Um. I also think equal 0:07:20.560 --> 0:07:23.040 weighted and there's some that just wait by revenue. There 0:07:23.120 --> 0:07:25.160 are they technically factors? No, but they're all part of 0:07:25.160 --> 0:07:27.640 this way to do something different than a market cap 0:07:27.680 --> 0:07:31.120 weighted index. Uh And really, in my opinion, it's the 0:07:31.120 --> 0:07:34.880 new active. This is your chance to maybe outperform. It 0:07:35.040 --> 0:07:37.200 used to pick an active mutual fund for that. Now 0:07:37.240 --> 0:07:39.400 people are doing it this way. And any what did 0:07:39.400 --> 0:07:41.840 you what was the big takeaway would you learn? Well? 0:07:41.920 --> 0:07:44.720 I went to this conference, this inside smart Beta conference, 0:07:44.840 --> 0:07:47.840 and it was out in Boston back in the spring, 0:07:48.320 --> 0:07:52.840 and a bunch of financial advisors attended, and smart beta 0:07:53.000 --> 0:07:55.679 is obviously the focus of the conference, but multi factor 0:07:55.800 --> 0:07:58.360 is a huge Multi factor investing was a huge topic 0:07:58.760 --> 0:08:00.960 and a lot of the financial risers were trying to 0:08:01.000 --> 0:08:03.720 figure out is this something that their clients would be interested? 0:08:03.960 --> 0:08:06.120 How should I think about factors? How should I think 0:08:06.120 --> 0:08:09.320 about timing the market may be using factors? And these 0:08:09.320 --> 0:08:11.920 were the kinds of questions that were coming up. Okay, 0:08:11.960 --> 0:08:13.600 so and he took a recorder to this event, so 0:08:13.640 --> 0:08:15.840 we'll soon find out what you learned. But a report 0:08:16.040 --> 0:08:24.320 kicks off in the black Rock clubby I'm Andrew head 0:08:24.360 --> 0:08:27.600 of Factor Investing at black Rock Today. I'm at Spine 0:08:27.600 --> 0:08:29.240 white Hole in the hall. When you enter one of 0:08:29.280 --> 0:08:32.640 the reception areas at Black Rocks Manhattan headquarters on fifty 0:08:32.720 --> 0:08:36.080 three Street, there's a TV screen behind the front desk 0:08:36.280 --> 0:08:41.120 playing an ad campaign on loop. It features Dr Andrew Ang, 0:08:41.640 --> 0:08:45.200 black Rocks head of Factors, talking to celebrities about a 0:08:45.240 --> 0:08:49.480 certain kind of rules based investment strategy called factor investing. 0:08:49.600 --> 0:08:53.840 The two main outcomes for investors to enhance returns ultra 0:08:53.880 --> 0:08:59.600 reduced risk and we can inhance returns with value quality momentum. 0:08:59.640 --> 0:09:02.640 And in one of these spots, and talks to Frozen 0:09:02.760 --> 0:09:05.800 star Adina Menzou, you know the one who's saying let 0:09:05.800 --> 0:09:10.520 it go. And they find surprising common ground between factor 0:09:10.520 --> 0:09:14.439 investing and musical performance. I think investments in music um 0:09:14.440 --> 0:09:17.920 will sim a little bit different. Music has structures that 0:09:17.960 --> 0:09:21.880 can move you investments and numbers. They're all about these 0:09:21.920 --> 0:09:25.000 patents too. Yeah, I feel like my set list is 0:09:25.080 --> 0:09:29.160 my investment portfolio. I try to achieve some balance and 0:09:29.440 --> 0:09:32.880 harmony to tell an even greater story. So what are 0:09:33.000 --> 0:09:37.480 the key attributes of a great investment factor? Investing is 0:09:37.520 --> 0:09:39.680 becoming a bigger deal in the E t F industry. 0:09:40.200 --> 0:09:44.280 It's a somewhat unusual clash of academia where factors originated 0:09:44.520 --> 0:09:49.960 and the fast paced investing world. I wanted to take 0:09:50.160 --> 0:09:52.880 a closer look at how factors are getting woven into 0:09:52.920 --> 0:09:57.000 E t F products. In particular, I wanted to find 0:09:57.000 --> 0:10:00.880 out why asset managers are becoming interested and even more 0:10:00.920 --> 0:10:05.640 complex products called multi factor funds. Here's how Ben Johnson, 0:10:05.800 --> 0:10:09.640 an analyst at morning Star, explained the factor landscape to me. 0:10:10.640 --> 0:10:14.720 If you think about multi factor strategies, I think, you know, 0:10:14.800 --> 0:10:19.480 it's easiest just to decompose that into you know, it's 0:10:19.600 --> 0:10:23.480 two sort of component words. They're multi in factor. So 0:10:23.760 --> 0:10:27.800 easiest to start with factors, which are just sources of 0:10:28.040 --> 0:10:32.200 returns that can be explained by a story that has 0:10:32.280 --> 0:10:35.720 some sort of intuition behind it. First and foremost. So 0:10:35.880 --> 0:10:39.680 let's take value as an example of one of the 0:10:39.679 --> 0:10:43.880 best known factors. It makes sense to buy stocks and 0:10:43.960 --> 0:10:48.199 bonds that are cheap relative to what they're truly worth 0:10:49.200 --> 0:10:53.160 everyone I think can get comfortable with the concept of 0:10:53.640 --> 0:10:58.320 buying low and selling high. Value is one of the 0:10:58.360 --> 0:11:02.240 most straightforward factors, picking out investments that are inexpensive to 0:11:02.280 --> 0:11:04.839 buy compared with some measure of what they're actually worth. 0:11:05.800 --> 0:11:09.600 Another basic factor, growth singles out investments that might be 0:11:09.679 --> 0:11:12.640 younger and likely to increase in earnings growth and returns. 0:11:14.280 --> 0:11:17.720 The idea of combining and harnessing the power of various 0:11:17.760 --> 0:11:21.520 factors together lad to the birth of multi factor funds. 0:11:21.520 --> 0:11:25.720 Trying to exploit any one of these factors in isolation 0:11:25.800 --> 0:11:29.200 can be difficult because these factors have times where they 0:11:29.240 --> 0:11:32.160 do very well, they have times where they do very poorly. 0:11:32.880 --> 0:11:35.920 So if you can mix them together in a multi 0:11:36.040 --> 0:11:40.200 factor fund, the idea is is that it will smooth 0:11:40.240 --> 0:11:43.640 out that that volatility. So multi factory t f s 0:11:44.080 --> 0:11:47.120 attempt to do this, putting them all together in a 0:11:47.200 --> 0:11:50.600 construct that, for all intends and purposes, looks like an 0:11:50.760 --> 0:11:53.800 an active strategy at the end of the day. Multi 0:11:53.840 --> 0:11:58.280 factor investing is a relatively new phenomenon in ETFs. There 0:11:58.320 --> 0:12:00.760 are about a hundred and eighty six multi factor e 0:12:00.840 --> 0:12:03.240 t f s on the market, with more than half 0:12:03.240 --> 0:12:07.480 of those launched since According to morning Star data, these 0:12:07.600 --> 0:12:11.320 multi factor funds have about fifty five five billion dollars 0:12:11.360 --> 0:12:15.319 in assets. So what's behind this increased interest in the 0:12:15.400 --> 0:12:19.160 multi factor approach and will it really click for retail investors? 0:12:20.040 --> 0:12:22.720 I headed to a recent conference in Boston looking for 0:12:22.760 --> 0:12:30.040 some answers inside SPARTBATO was held in June at a 0:12:30.120 --> 0:12:33.920 hotel overlooking the Boston Harbor. It's a conference that attracts 0:12:33.960 --> 0:12:37.040 a lot of financial advisors, and factor investing was a 0:12:37.040 --> 0:12:40.080 big topic this year. My feet got a little worn 0:12:40.080 --> 0:12:43.160 out chasing down advisors all day to talk factors, but 0:12:43.360 --> 0:12:46.160 it was worth it. I just said, to tell you, 0:12:46.200 --> 0:12:53.679 I love your shoes. I was like, So, with an 0:12:53.760 --> 0:12:58.240 unexpected boost of confidence, I sought out Scott Ladner, CEO 0:12:58.440 --> 0:13:02.800 of Horizon Investments, a financial advisory firm. He spoke on 0:13:02.840 --> 0:13:05.160 a panel about how to time the market using factors. 0:13:06.320 --> 0:13:09.280 Scott chatted with me on the sidelines about the proliferation 0:13:09.440 --> 0:13:12.480 of multi factor e t f s. One big hurdle 0:13:12.559 --> 0:13:14.960 for adoption, he said, is how to bring them to 0:13:15.000 --> 0:13:18.640 a mainstream audience. If you go talk to financial advisors, 0:13:18.720 --> 0:13:21.520 many of them don't really understand how to use the factors, 0:13:21.600 --> 0:13:24.840 especially the multi factor thing, um and and really, if 0:13:24.840 --> 0:13:27.319 you're going to drive assets into these strategies, you've got 0:13:27.320 --> 0:13:29.240 to tell people how to use men. Why, you know, 0:13:29.440 --> 0:13:31.680 we we've not seen a lot of adoption as a 0:13:31.720 --> 0:13:34.079 one offer standpoint from from the pointancial advisors for the 0:13:34.120 --> 0:13:37.800 multifactor funds again because fundamentally, financial advisors are going to 0:13:37.800 --> 0:13:39.920 put their clients into things that they can explain back 0:13:39.920 --> 0:13:43.000 to them, um and and and if financial advisors are 0:13:43.000 --> 0:13:46.280 having trouble understanding the purpose of a fund or holding 0:13:46.280 --> 0:13:48.439 in their portfolio, they're gonna be much less likely to 0:13:48.520 --> 0:13:51.160 use it because when and if it goes wrong, the 0:13:51.200 --> 0:13:53.480 answer is, you know that they're going to need to 0:13:53.520 --> 0:13:54.640 be ab explain to the client why it was in 0:13:54.679 --> 0:13:56.360 there in the first place, and what when, what went wrong, 0:13:56.400 --> 0:13:58.200 and what they're going to do to fix it. And 0:13:58.640 --> 0:14:02.000 the multi factor suee UM is just more complicated. It's 0:14:02.000 --> 0:14:04.240 just one more layer of complexity, and so that the 0:14:04.360 --> 0:14:06.760 hurdle to get something like that into an individual advisor's 0:14:06.760 --> 0:14:12.199 portfolio is rather high. Kip Meadows, CEO of the firm Nottingham, 0:14:12.320 --> 0:14:14.560 says the multi factor approach makes sense as a way 0:14:14.600 --> 0:14:19.000 to sort of blend active and passive investment strategies. These 0:14:19.000 --> 0:14:23.160 products usually are less expensive than actively managed mutual funds, 0:14:23.200 --> 0:14:26.000 but praise here than e t f s tracking broad benchmarks. 0:14:26.080 --> 0:14:30.000 Who's been talking the industry about active e t s 0:14:30.080 --> 0:14:32.880 for quite a while, it's always this year might be 0:14:32.920 --> 0:14:35.800 the year for active e t s, and then it 0:14:35.840 --> 0:14:38.160 doesn't quite have the growth, and it seems to be 0:14:38.200 --> 0:14:41.720 accelerating now. Um I think it makes a lot of 0:14:41.760 --> 0:14:46.520 sense to get a portfolio manager that knows what they're 0:14:46.520 --> 0:14:50.200 doing to help make some judgment calls as to what 0:14:50.320 --> 0:14:54.480 factors might be in favor over the next coming period 0:14:54.480 --> 0:14:58.080 of time. If you want to know what some of 0:14:58.120 --> 0:15:02.880 these products actually look like, consider invest Goo. When it 0:15:02.920 --> 0:15:06.280 acquired Hoppenheimer Funds, It's snapped up some of its dynamic 0:15:06.320 --> 0:15:09.840 multi factor funds like oh MFL and o m f s, 0:15:10.400 --> 0:15:15.120 which adjust their factor exposure according to market cycles. And 0:15:15.200 --> 0:15:17.720 black Rock launched it's d y n F fund in 0:15:17.840 --> 0:15:21.200 March with a similar goal of shuffling three factors based 0:15:21.240 --> 0:15:23.760 on what the market is doing. It's the first TTF 0:15:23.760 --> 0:15:26.440 that doesn't bear black rocks I shares brand to highlight 0:15:26.440 --> 0:15:29.760 that active aspect. Black Rock declined my request for a 0:15:29.760 --> 0:15:32.680 meeting with Andrew Ang, saying that he oversees many types 0:15:32.720 --> 0:15:36.120 of factor products, not just e t s. Still, I 0:15:36.160 --> 0:15:37.760 did get a chance to hear from him when he 0:15:37.800 --> 0:15:46.800 appeared on the conference's main stage. Ang doesn't see factors 0:15:46.840 --> 0:15:51.280 as being overly complex for a mainstream audience. He said, 0:15:51.320 --> 0:15:55.920 he sees them as democratizing investing fundamentals. He likened this 0:15:56.240 --> 0:15:59.480 to the spread of streaming music. Music metaphors are big 0:15:59.520 --> 0:16:01.720 for Ang. By the way he plays the keyboard in 0:16:01.760 --> 0:16:05.560 a black rock internal band. What's happened in music? He's 0:16:05.600 --> 0:16:10.200 on funding. I used to record songs in the radio 0:16:10.280 --> 0:16:14.440 on a cassette tape. But the rise of streaming music 0:16:14.520 --> 0:16:17.200 means that you do not have to buy the whole thing. 0:16:18.080 --> 0:16:22.480 You listen to the track you w was you collate, 0:16:23.520 --> 0:16:26.160 just attracts you want, and you listen to them whenever 0:16:26.200 --> 0:16:28.760 you want, and your music experience is the fatal for 0:16:30.440 --> 0:16:34.680 Asset management is undergoing that same transformation. We used to 0:16:34.720 --> 0:16:38.240 go to one asset manager, and that asset manager would 0:16:38.280 --> 0:16:41.320 give us the whole thing, the whole album. You do 0:16:41.440 --> 0:16:46.360 not have to buy that whole thing. Factors are part 0:16:46.400 --> 0:16:53.000 of this evolution. Factors are active, but beyond the lofty 0:16:53.040 --> 0:16:57.280 goal of democratizing access to factors. There's another, much more 0:16:57.320 --> 0:16:59.800 basic reason why issuers might be taking an interest in 0:17:00.040 --> 0:17:03.360 T factor funds right now. E t F creation is 0:17:03.400 --> 0:17:06.600 a crowded realm. This is a new style of funds 0:17:06.680 --> 0:17:10.120 that issuers can pitch to customers. Here's morning Stars, Ben 0:17:10.200 --> 0:17:12.840 Johnson Again, E t F providers are running out of 0:17:12.880 --> 0:17:17.280 white space when it comes to product development. I liken 0:17:17.320 --> 0:17:20.600 it to showing up at the beach at three o'clock 0:17:20.640 --> 0:17:23.720 in the afternoon on a sunny day when all of 0:17:23.760 --> 0:17:26.480 the prime real estate has long since been taken and 0:17:26.520 --> 0:17:29.600 all you've got left really is some cramped spaces next 0:17:29.680 --> 0:17:32.679 to the garbage can that's adjacent to the exit to 0:17:32.760 --> 0:17:36.720 the beach. Uh. They're looking for every last nook and 0:17:36.800 --> 0:17:42.200 cranny that hasn't been filled. Andy, that was amazing, Thank 0:17:42.240 --> 0:17:45.080 you very much. Eric. Can you tell me about the 0:17:45.080 --> 0:17:47.760 performance of these products. We heard about the inflo but 0:17:47.800 --> 0:17:50.920 what about the performance. Well, they're all over the place. 0:17:50.960 --> 0:17:53.480 They vary right this year, low balls have in a 0:17:53.480 --> 0:17:56.199 good year, right, it's outperforming the SMP. So guess what, 0:17:56.640 --> 0:17:58.439 that's where a lot of the flows are going. In 0:17:58.520 --> 0:18:00.280 two thousand and eighteen, there was a chunk good time 0:18:00.280 --> 0:18:02.280 where value did well. Remember it was a rough time. 0:18:02.760 --> 0:18:05.320 But growth has done really well. I mean that's done 0:18:05.440 --> 0:18:07.480 very well over the years. Momentum has done pretty well. 0:18:07.520 --> 0:18:09.479 That had a good year I think was a big 0:18:09.560 --> 0:18:12.520 year from momentum. But part of the issue here is 0:18:12.560 --> 0:18:15.840 that these things are designed so differently. Some of them 0:18:15.880 --> 0:18:18.720 are more hardcore than others and some are more water down. 0:18:19.680 --> 0:18:21.680 And so a lot of them that are watered down 0:18:21.720 --> 0:18:23.399 and have a lot of beta and them have generally 0:18:23.440 --> 0:18:26.040 done pretty good because beta and the market's done well. 0:18:26.520 --> 0:18:30.159 The more hardcore ones tend to either rip or just 0:18:30.359 --> 0:18:33.359 get crushed, and those tend to see less assets. I 0:18:33.400 --> 0:18:36.119 think advisors are more scared by those. Black rock to 0:18:36.200 --> 0:18:38.760 me makes the more water down ones. I mean they 0:18:38.760 --> 0:18:42.760 are very much in this commercially to try to get assets. 0:18:43.240 --> 0:18:45.840 So you know US m v M, t U, m 0:18:46.520 --> 0:18:49.600 uh QAL, those have taken in. You know, we're talking 0:18:49.680 --> 0:18:53.720 big boy flows, but you know they're pretty much moving 0:18:53.760 --> 0:18:56.960 around the SMP not nothing too crazy. But the performance 0:18:57.000 --> 0:18:58.680 will vary depending on what's going on in the market. 0:18:58.720 --> 0:19:00.919 It's not like one always up forms and any what 0:19:01.040 --> 0:19:02.840 what do you think investors need to be looking at 0:19:02.840 --> 0:19:05.560 when they're setting whether or not they're going to invest 0:19:05.560 --> 0:19:08.199 in the space or be which product they should invest in. 0:19:08.800 --> 0:19:12.200 I guess one thing to keep in mind is UM. 0:19:12.840 --> 0:19:15.399 On the plus side, if you're just buying a broad 0:19:15.480 --> 0:19:19.159 index of UM large cap US stocks, you you have 0:19:19.200 --> 0:19:21.800 a lot of exposure to big tech companies. Something like 0:19:22.280 --> 0:19:25.560 a multi factor product could help offset that, like high 0:19:25.600 --> 0:19:31.600 concentration and say tech um and go towards diversifying. On 0:19:31.640 --> 0:19:35.160 the other hand, these products aren't completely road tested. Since 0:19:35.280 --> 0:19:37.760 so many of them have been coming out in recent years, 0:19:38.080 --> 0:19:40.520 we haven't really seen how they perform in a period 0:19:40.560 --> 0:19:44.560 of extended volatility and losses from the market. So that's 0:19:44.680 --> 0:19:47.560 one thing to keep in mind. And this brings up 0:19:47.560 --> 0:19:50.280 a very big point for US and b I because 0:19:50.800 --> 0:19:53.760 the academic research is based on long short portfolios, which 0:19:53.800 --> 0:19:57.200 are really hardcore only one issue. Where does that that way? 0:19:57.240 --> 0:19:59.560 But that's how like a q R cliff fastness, that's 0:19:59.600 --> 0:20:01.040 how they do it, That's how a hedge fund would 0:20:01.080 --> 0:20:04.040 do factors long short UM. Most of them go long only, 0:20:04.720 --> 0:20:09.240 and then their degrees of hardcoreness, Like there's some that 0:20:09.359 --> 0:20:12.160 might have like a value a p of like thirteen 0:20:12.560 --> 0:20:14.280 that's hardcore, and then some might have a p of 0:20:14.320 --> 0:20:17.080 just about the same as the SMP. And I think 0:20:17.080 --> 0:20:19.359 that most of the money goes to the water down ones. 0:20:20.000 --> 0:20:22.840 And I think investors could be disappointed because we called 0:20:22.880 --> 0:20:25.800 the beta vortex. Anything that has beta in it, it 0:20:25.880 --> 0:20:28.800 sells better. But when the market goes down, that's not 0:20:28.840 --> 0:20:30.919 going to help you at all. The correlations are very 0:20:31.000 --> 0:20:34.199 high to the market. You're not getting diversification. But that 0:20:34.280 --> 0:20:35.760 may not be what an advisor are looking for. They 0:20:35.760 --> 0:20:38.640 may actually be looking for something that's beta but has 0:20:38.640 --> 0:20:42.159 a cool name story to tell. So the marketing and 0:20:42.160 --> 0:20:47.480 sales of this definitely is a major unexplored part versus 0:20:47.520 --> 0:20:51.280 the academic literature that determines factors work. And those two 0:20:51.359 --> 0:20:54.280 things are not married at all. What else from any's 0:20:54.320 --> 0:20:57.520 reporting interested you? Well? I have two things on Andrew Wang. 0:20:57.680 --> 0:20:59.800 First of all, I can't help but find it a 0:20:59.800 --> 0:21:02.840 little annoying that they Black Rock wouldn't let you, you know, him, 0:21:02.880 --> 0:21:05.480 talk to us. I mean, Martin Small has been on 0:21:05.520 --> 0:21:09.440 and that's effectively or was they seem like they're in 0:21:09.440 --> 0:21:12.800 a band together. Anyway, we gotta do some more work here. Yeah, 0:21:13.000 --> 0:21:15.159 I'd love to hear the band sounds like, what do 0:21:15.160 --> 0:21:20.040 you think we're totally gonna get him? I'm picturing late 0:21:20.040 --> 0:21:23.920 eighties hair metal. But anyway, that's just my my, my view. Um. So, 0:21:24.080 --> 0:21:26.560 Andrew Ayang said something else which you said, he like 0:21:26.680 --> 0:21:29.760 loves these music metaphors. I've heard him use the MP 0:21:29.840 --> 0:21:33.440 three analogy for factors, but that's my metaphor. I I've 0:21:33.520 --> 0:21:35.399 used the MP three for the E t F. To me, 0:21:36.080 --> 0:21:39.440 factors are like a genre of music. They're like jazz 0:21:39.640 --> 0:21:43.280 or country. The E t F is the MP three. 0:21:44.040 --> 0:21:47.320 Um but he did bring up a point about used 0:21:47.320 --> 0:21:49.760 to have to buy the whole album and now, which 0:21:49.840 --> 0:21:52.560 was in the music business is called forced bundling. I know, 0:21:52.640 --> 0:21:55.359 Anny like the Cars, which is a great band, but 0:21:55.440 --> 0:21:58.200 let's face it, every Cars album has like four awesome 0:21:58.240 --> 0:22:01.280 songs and then maybe six like so so ones. He's, 0:22:01.440 --> 0:22:03.080 you know, the greatest hits you can push play and 0:22:03.119 --> 0:22:07.000 that things go besides the greatest hits. That's cheating, cheating. 0:22:07.480 --> 0:22:10.480 I hate you, Okay. The force bundling, I think, is 0:22:10.480 --> 0:22:13.480 something that hurt the music business, and the MP three 0:22:13.480 --> 0:22:16.639 came along and obviously revolutionize it. By the way, I 0:22:16.680 --> 0:22:18.920 think you might just be a little bitter that he's 0:22:19.000 --> 0:22:21.199 using a music analogy when you like to use the 0:22:21.280 --> 0:22:24.800 MP three thing as your your go to medical I 0:22:24.800 --> 0:22:27.560 don't think so. I just think that I've been using 0:22:27.560 --> 0:22:29.439 that for years. I used it my book, and I 0:22:29.480 --> 0:22:32.600 think that the MP three is a is the structure 0:22:32.600 --> 0:22:35.640 in which you buy music. Factors are like a genre 0:22:35.680 --> 0:22:37.359 in the record store or whatever, or in the in 0:22:37.400 --> 0:22:40.120 the iTunes library, and so I think that's the better 0:22:40.160 --> 0:22:42.359 way to look at it. But I see what he's saying, 0:22:42.400 --> 0:22:45.680