WEBVTT - That Mutual Fund Has an ETF Now 0:00:05.880 --> 0:00:06.600 Well conatrillions. 0:00:06.600 --> 0:00:12.480 I'm Joel Weber and I'm Eric Balchunas Eric, this is 0:00:12.480 --> 0:00:15.000 an episode that we've actually been waiting on for a while. 0:00:15.840 --> 0:00:19.960 Vanguard had this thing. Now that patent expired. 0:00:20.440 --> 0:00:21.440 What am I talking about. 0:00:22.200 --> 0:00:24.600 Yeah, so everybody knows what mutual funds are, and they 0:00:24.600 --> 0:00:27.800 have share classes ABCI class depending on how much you 0:00:27.800 --> 0:00:30.920 can afford. It's kind of like a regressive tax system. 0:00:31.360 --> 0:00:34.360 The more you can pony up, the less they charge you, Joel, 0:00:35.200 --> 0:00:38.559 which is pretty consistent with the rest of society. But anyway, 0:00:39.080 --> 0:00:41.400 mutual funds have the share class system, and then ETFs 0:00:41.440 --> 0:00:46.240 existed separately. Vanguard developed a patent where the ETF would 0:00:46.280 --> 0:00:49.440 be just bolted into the mutual fund as another share class. 0:00:49.920 --> 0:00:51.960 But because that patent, nobody could do it. But the 0:00:52.080 --> 0:00:56.160 patent expired a couple of years ago, and so basically 0:00:56.200 --> 0:00:58.880 like eighty to one hundred mutual fund firms were like, yeah, 0:00:58.960 --> 0:01:02.840 let's do that. So they all filed and the SEC 0:01:03.280 --> 0:01:05.959 starting to approve them, and the guinea Pig, the first 0:01:05.959 --> 0:01:08.000 one out of the gate to do a non Vanguardian 0:01:09.319 --> 0:01:12.360 ETF share class of a mutual fun is dimensional DFA, 0:01:13.120 --> 0:01:19.080 and they put it out recently, and it's basically a 0:01:19.120 --> 0:01:23.920 big moment for the industry. It's wonky, but it's major. 0:01:24.280 --> 0:01:26.240 And the reason it's major is because those eighty to 0:01:26.280 --> 0:01:29.600 one hundred issuers have in the ballpark of ten trillion 0:01:29.640 --> 0:01:32.399 dollars in assets. So if you're sitting out there and 0:01:32.440 --> 0:01:35.199 you own a mutual fund and you kind of would 0:01:35.280 --> 0:01:37.440 rather have it in the ETF format, you might be 0:01:37.520 --> 0:01:41.200 able to get that without having to sell your mutual fund. 0:01:41.240 --> 0:01:43.039 You can maybe just move over. There's a lot of 0:01:43.080 --> 0:01:46.080 options now. And also, at the end of the day, 0:01:47.240 --> 0:01:50.800 ETFs were the fisher biting trol. It's like Spotify, It's 0:01:50.800 --> 0:01:52.880 just how people like to get music. So if you're 0:01:52.880 --> 0:01:55.840 an asset manager, you definitely want to get your strategy 0:01:56.320 --> 0:01:57.160 in this format. 0:01:57.240 --> 0:01:57.360 Right. 0:01:57.360 --> 0:01:59.320 You wouldn't make an album and only put it on 0:01:59.360 --> 0:02:01.680 compact disc, right, So this is a way for some 0:02:01.800 --> 0:02:04.120 legacy managers to get their stuff out in the format 0:02:04.160 --> 0:02:04.840 people wanted in. 0:02:05.000 --> 0:02:09.160 Well, let's go fishing. Joining us Dimensional Fund Advisors, Joel Schneider, 0:02:09.160 --> 0:02:13.760 who's the vice president of portfolio management, I think also 0:02:13.919 --> 0:02:17.960 joining us Katie Greifeld of Bloomberg News, who's written about 0:02:17.960 --> 0:02:25.360 this story already, this time on trillions the ETF share class. 0:02:26.639 --> 0:02:28.280 Joel Schneider, Welcome to Trillions. 0:02:28.720 --> 0:02:30.399 Thank you for having me excited to be here. 0:02:30.480 --> 0:02:32.680 Katie welcome as well. Hey, Joel, I want to start 0:02:32.720 --> 0:02:37.040 with you. What exactly did Dimensional launch here? 0:02:37.720 --> 0:02:42.079 Yeah, recently we launched the industry's first ETF share class 0:02:42.240 --> 0:02:45.280 of an active mutual fund. So, as Eric was saying earlier, 0:02:45.320 --> 0:02:47.480 we think this is a big deal for the industry 0:02:47.960 --> 0:02:50.520 and that you're likely to see more of these to come. 0:02:51.840 --> 0:02:53.240 And how does it work. 0:02:55.120 --> 0:02:58.120 Is it an ETF or a mutual fund? It's both. 0:02:58.560 --> 0:03:02.760 There is one underlying portfolio that holds all the investments, 0:03:03.080 --> 0:03:06.440 and there's two access points to it, so investors can 0:03:06.639 --> 0:03:10.280 buy it directly from us the manager, which is the 0:03:10.280 --> 0:03:13.240 way mutual funds transact, or they can buy it on 0:03:13.280 --> 0:03:16.680 an exchange in the brokerage account or other accounts through 0:03:16.760 --> 0:03:19.760 the ETF share class. And what this will do is 0:03:19.800 --> 0:03:23.000 it will allow some of the benefits of both vehicle 0:03:23.040 --> 0:03:27.240 types to coexist. You're talking about bringing really big economies 0:03:27.280 --> 0:03:30.440 of scale right. Because it's one pool of assets, you're 0:03:30.480 --> 0:03:33.680 able to amortize some of the costs across a bigger pool. 0:03:34.280 --> 0:03:38.280 You also get more choice because in the past, investors 0:03:38.320 --> 0:03:41.160 always had to think about what strategy do I want? 0:03:41.520 --> 0:03:43.800 Is it available in an ETF or a mutual fund? 0:03:44.000 --> 0:03:46.360 And then, as Eric was referring to earlier, they would 0:03:46.360 --> 0:03:49.800 have to think about are the costs similar? Because before 0:03:49.800 --> 0:03:52.360 I used to have pretty different costs for different types 0:03:52.360 --> 0:03:56.160 of classes. So hopefully going forward investors can just say 0:03:56.400 --> 0:03:59.160 what investment strategy do I want, and then it can 0:03:59.200 --> 0:04:03.040 be available in either way they can consume it as 0:04:03.080 --> 0:04:05.800 a ETF as a mutual fund for similar prices. 0:04:06.200 --> 0:04:10.240 Okay, I'm curious, what problem do you think that this 0:04:10.480 --> 0:04:14.760 solves that either existing ETFs or mutual funds don't. 0:04:15.920 --> 0:04:17.920 Yeah, I think there's a couple of them. So Eric 0:04:18.240 --> 0:04:21.960 talked earlier about there are some investors who would prefer 0:04:22.080 --> 0:04:25.560 to hold an ETF instead of a mutual fund, and 0:04:25.920 --> 0:04:29.159 being able to convert in a tax free way is 0:04:29.240 --> 0:04:33.200 very beneficial to them. So in the prior world, they 0:04:33.200 --> 0:04:35.799 would have to sell that share of the mutual fund, 0:04:35.960 --> 0:04:39.640 potentially realize the capital gains, pay tax, and then buy 0:04:39.680 --> 0:04:43.680 that ETF share. So in the future, are actually starting 0:04:44.680 --> 0:04:47.599 now with these new share classes, they will be able 0:04:47.640 --> 0:04:50.720 to convert in a tax free manner to get an 0:04:50.800 --> 0:04:53.920 ETF share instead of a mutual fund share. I think 0:04:53.960 --> 0:04:56.920 that's a big problem that solved. A second problem I 0:04:57.000 --> 0:04:59.880 think is solved is what I was mentioning earlier, which 0:04:59.920 --> 0:05:04.360 is it was pretty hard to navigate figuring out what 0:05:04.400 --> 0:05:07.600 investment do I want, how is it offered, and then 0:05:07.600 --> 0:05:10.280 how's it priced? Differently, I think it brings a lot 0:05:10.320 --> 0:05:13.479 of simplicity where you can go get the investment you 0:05:13.520 --> 0:05:16.000 want in the rapper you want for a similar price. 0:05:17.120 --> 0:05:20.719 So, Katie, you wrote the big story on this that 0:05:21.040 --> 0:05:25.679 recently came out, and looking at this, you've been covering 0:05:25.680 --> 0:05:28.480 this for the whole time. What are your thoughts on this? 0:05:28.520 --> 0:05:30.440 And can you give us some details on this guinea 0:05:30.480 --> 0:05:32.640 pig ETF that is the first one. 0:05:33.320 --> 0:05:34.560 Yeah, it's pretty interesting. 0:05:34.600 --> 0:05:39.080 So Dimensional, as Joel Schneider knows well, is going ahead. 0:05:39.480 --> 0:05:42.559 The first product is going to be the dimensional US 0:05:42.600 --> 0:05:47.320 microcap ETF. The mutual fund that it's being tacked onto 0:05:47.360 --> 0:05:51.760 has existed as a mutual fund since nineteen eighty one. 0:05:52.400 --> 0:05:56.880 So I find that I find that pretty charming. 0:05:56.920 --> 0:05:59.040 You know, microcaps, you don't really think of them that much. 0:05:59.080 --> 0:06:02.960 And I would like to ask Joel, I mean other Joel, 0:06:03.279 --> 0:06:06.200 not Jeel Weber Jewel Schneider. I mean, talk to us 0:06:06.240 --> 0:06:09.599 a little bit about how you selected the micro Cap 0:06:09.640 --> 0:06:13.040 Fund to be your debut product here, because you know, 0:06:13.080 --> 0:06:16.480 people have a personality assigned to small caps to large caps. 0:06:16.520 --> 0:06:18.960 Maybe that's just me, but I feel like micro caps 0:06:19.320 --> 0:06:21.240 don't take up as much mind share. 0:06:22.200 --> 0:06:25.680 It's great you call it charming. I hope people have 0:06:25.720 --> 0:06:28.159 a positive reaction to it, because what it is is 0:06:28.200 --> 0:06:30.640 it's a solution to one of the major problems that 0:06:30.680 --> 0:06:33.839 investors are facing in the market right now. Everyone's talking 0:06:33.880 --> 0:06:37.160 about how top heavy the market is, right Everyone's worried 0:06:37.160 --> 0:06:40.400 about concentration US large caps, and there's a lot of 0:06:40.440 --> 0:06:43.240 other solutions out there that people are pursuing to try 0:06:43.279 --> 0:06:46.279 to deal with that, and in some ways, they're just 0:06:46.320 --> 0:06:50.200 sort of reshuffling the chairs. And if you're holding let's 0:06:50.200 --> 0:06:52.599 say that's five s top five hundred in an equal 0:06:52.640 --> 0:06:56.400 weight format, you're not actually getting additional diversification. You're not 0:06:56.440 --> 0:07:00.360 gaining access to different exposures. And what this Portfoli folio 0:07:00.480 --> 0:07:03.799 does is it targets companies that are in the smallest 0:07:03.920 --> 0:07:07.839 five percent of market cap in the US. And as 0:07:07.880 --> 0:07:09.920 you said, Katie, it's been around for forty five years. 0:07:10.480 --> 0:07:14.320 It's had a great track record of outperforming other small 0:07:14.360 --> 0:07:18.200 cap funds, other small cap indexes. It's beaten the Rustle 0:07:18.240 --> 0:07:21.200 two thousand by one hundred and fifty basis points a 0:07:21.320 --> 0:07:25.240 year annualized for forty five years. So if you compound that, 0:07:25.240 --> 0:07:29.360 that's just massive wealth creation for our investors. And it 0:07:29.400 --> 0:07:32.160 behaves differently than the large cap space, and so if 0:07:32.160 --> 0:07:36.800 you're looking to round out your portfolio and diversify away 0:07:36.880 --> 0:07:39.520 from being so top heavy, this is a great solution. 0:07:40.240 --> 0:07:42.640 I have a question about this one too, because the 0:07:42.720 --> 0:07:47.000 performance is ridiculously good versus small Of course, large caps 0:07:47.000 --> 0:07:50.840 have beaten everything since then, but it really has demolished 0:07:50.840 --> 0:07:54.760 small caps. It's weird though. The microcap ETFs on the 0:07:54.760 --> 0:07:57.000 market don't have a ton of assets. As Katie said, 0:07:57.000 --> 0:08:00.480 they're kind of forgotten. Is that why you pick this? 0:08:00.720 --> 0:08:02.640 Did you feel like there was more white space here 0:08:03.400 --> 0:08:06.600 or was it the idea that this mutual fund that 0:08:06.600 --> 0:08:09.360 you have is only has one class, which is institutional. 0:08:09.840 --> 0:08:12.840 So the ETF has the same expense ratio as the 0:08:12.880 --> 0:08:15.840 institutional class of the mutual fund. So there really is 0:08:15.840 --> 0:08:18.880 no AB or C classes with a higher fee that 0:08:18.920 --> 0:08:22.080 you might potentially annoy which I think could be an 0:08:22.120 --> 0:08:25.560 issue with other funds where you give people the I 0:08:25.720 --> 0:08:28.880 class fee and the ETF and the ABC people are like, hey, 0:08:29.480 --> 0:08:33.080 that's not cool. We found that to be somewhat of 0:08:33.080 --> 0:08:39.320 an inhibitor in some cases with conversions and other things 0:08:39.320 --> 0:08:41.520 of that sort. But any thoughts on that. 0:08:42.640 --> 0:08:45.280 Yeah, I'm glad you're bringing that up, because I think 0:08:45.320 --> 0:08:49.520 a challenge that some managers may face is if they're 0:08:49.559 --> 0:08:52.640 offering different price points on their mutual funds, it could 0:08:52.800 --> 0:08:56.200 create this pricing challenge, and that's never been our philosophy. 0:08:56.440 --> 0:09:01.320 Our philosophy is we want to offer institution grade whether 0:09:01.360 --> 0:09:06.200 they're mutual funds or ETFs, and really let the investor 0:09:06.280 --> 0:09:09.720 choose which rapper is best for them in their situation. 0:09:10.679 --> 0:09:15.280 And so for other future ETF share classes in our lineup, 0:09:15.320 --> 0:09:18.120 I think you'll see something similar right where we're not 0:09:18.160 --> 0:09:20.439 going to face some of that challenge with multiple pricing 0:09:20.480 --> 0:09:23.520 points that other managers may face. Another thing that I 0:09:23.559 --> 0:09:26.839 think you have to be cognizant of is if you're 0:09:26.960 --> 0:09:32.080 running a more traditional active strategy that has higher turnover, 0:09:32.480 --> 0:09:36.280 is more concentrated, then that may be more challenging in 0:09:36.280 --> 0:09:40.880 an ETF format. Now, you mentioned earlier that the performance 0:09:40.920 --> 0:09:44.480 of this strategy, the microcap strategy, has been excellent for 0:09:44.520 --> 0:09:48.480 a really long time period, and you may think that 0:09:48.800 --> 0:09:51.680 it is doing that in some sort of high turnover 0:09:51.920 --> 0:09:56.320 active way, but it's not. It's actually broadly diversified, it's 0:09:56.360 --> 0:10:00.960 low turnover, it's incredibly tax efficient. Everyone in the ETF 0:10:01.000 --> 0:10:07.040 ecosystem loves to talk about tax efficiency, and this strategy 0:10:07.040 --> 0:10:10.319 as a mutual fund was actually more tax efficient than 0:10:10.360 --> 0:10:13.360 the other small cap index ETFs that were out there. 0:10:13.920 --> 0:10:18.240 So I think there's it'll depend on the manager and 0:10:18.280 --> 0:10:21.520 the strategy in terms of what strategies are best to 0:10:21.559 --> 0:10:31.640 bring in the ETF share class format. 0:10:31.840 --> 0:10:35.120 Okay, I'm I'm gonna ask a question. I'm gonna regret 0:10:35.200 --> 0:10:37.760 asking the question, but can you walk us through how 0:10:37.800 --> 0:10:40.040 that tax efficiency actually works under the hood. 0:10:40.760 --> 0:10:43.839 Sure, happy to. It's our goal to be one of 0:10:43.880 --> 0:10:46.720 the most tax efficient managers in the entire industry, whether 0:10:46.760 --> 0:10:50.280 that's a ETF or a mutual fund. And I think 0:10:50.440 --> 0:10:53.840 start with the really simple framework, which is taxes are 0:10:53.880 --> 0:10:59.120 driven by two things, right, capital gains and income. The 0:10:59.160 --> 0:11:02.160 ETF industry, he puts a lot of focus on capital gains, 0:11:02.400 --> 0:11:06.600 and rightfully so we do too. Last year the US 0:11:06.640 --> 0:11:09.679 Microcap mutual fund had no capital gain distribution. The year 0:11:09.720 --> 0:11:12.600 before that had no capital gain distribution. But let's not 0:11:12.760 --> 0:11:19.160 forget that income also matters, and any investment fund, whether 0:11:19.200 --> 0:11:22.840 it's ETF mutual fund, can put off two types of income, 0:11:23.440 --> 0:11:27.280 qualified and non qualified. And qualified income is taxed like 0:11:27.320 --> 0:11:31.520 a long term capital gain, but non qualified income is 0:11:31.559 --> 0:11:33.920 taxed like a short term capital gain. So at the 0:11:33.960 --> 0:11:38.439 highest marginal rate, non qualified dividend income is a forty 0:11:38.480 --> 0:11:42.960 point eight percent tax. So that's really toxic. And what 0:11:43.679 --> 0:11:47.880 our strategies do is they are maximizing the amount of 0:11:47.960 --> 0:11:51.200 qualified income. So compared to other index ETFs that are 0:11:51.240 --> 0:11:54.080 out there, if you go look at their QDI percentage, 0:11:54.200 --> 0:11:57.160 they are putting out a lot more non qualified dividend 0:11:57.200 --> 0:12:00.559 income that's taxed at a much higher rate. And so 0:12:00.720 --> 0:12:03.960 the way that any of the listeners would find this 0:12:04.040 --> 0:12:06.160 information for themselves without having to get too much in 0:12:06.200 --> 0:12:09.439 the weeds is start from the highest level. Just open 0:12:09.520 --> 0:12:12.520 up the perspectus, go to the performance section of any 0:12:12.840 --> 0:12:16.199 fund or ETF, and there will be a pre tax 0:12:16.240 --> 0:12:19.880 return and there will be a post tax return, and 0:12:19.960 --> 0:12:22.120 you just want to compare the difference year by year, 0:12:22.480 --> 0:12:25.360 and that difference is called the tax cost. And so 0:12:25.600 --> 0:12:29.040 across the morning Star universe of US small cap strategies, 0:12:29.679 --> 0:12:34.600 the average tax cost has been over one hundred basis points. 0:12:34.720 --> 0:12:36.760 And if you narrow it down to just the biggest 0:12:36.800 --> 0:12:40.920 small cap index ETFs, that tax costs was still about 0:12:40.920 --> 0:12:44.920 fifty basis points, whereas this strategy's tax cost last year 0:12:45.040 --> 0:12:48.000 was only twenty nine basis points, so twenty one basis 0:12:48.000 --> 0:12:50.920 points better than some of the big index ETFs. 0:12:52.040 --> 0:12:53.520 I didn't see you right in that town. Tool. 0:12:53.640 --> 0:12:56.880 I got it all twenty one basis points better. 0:12:57.920 --> 0:12:58.559 Joel Schneider. 0:12:58.600 --> 0:13:01.440 Something I did want to ask you. You know, it 0:13:01.480 --> 0:13:04.480 feels like every asset manager has filed to do this 0:13:04.720 --> 0:13:08.960 with the SEC in some form. Dimensional obviously first, yes, 0:13:09.160 --> 0:13:11.920 it's it's nuts. I think the number is close to 0:13:13.200 --> 0:13:16.440 it's close to triple digits at this point. Dimensional first 0:13:16.520 --> 0:13:19.920 of the punch. But I was recently speaking with Capital Group, 0:13:19.960 --> 0:13:23.200 for example, about why they didn't file for this exemptive relief, 0:13:23.240 --> 0:13:26.559 which was pretty interesting, and their point was that the 0:13:26.640 --> 0:13:30.600 bulk of their mutual fund assets are sitting in retirement accounts, 0:13:30.600 --> 0:13:34.079 and if you have a mutual fund in a retirement account, 0:13:34.400 --> 0:13:37.559 it's not as urgent to you know, get the tax 0:13:37.559 --> 0:13:42.839 efficiency that the ETF offers, since I believe capital gains 0:13:43.000 --> 0:13:47.280 aren't taxed in the same way if it's in a 0:13:47.320 --> 0:13:49.800 retirement account. I'm sure I butchered that somehow. But I 0:13:49.840 --> 0:13:55.120 wonder how Dimensional sorted through that. I mean, what percent 0:13:55.480 --> 0:14:00.560 of Dimensional's mutual funds are in retirement accounts and versus 0:14:00.600 --> 0:14:03.199 you know, how many would be eligible for something like this. 0:14:03.920 --> 0:14:07.200 So you were right, Katie that the mutual funds that 0:14:07.280 --> 0:14:10.959 are held by investors in four one ks, those are 0:14:11.080 --> 0:14:13.560 tax exempt, and so they're not dealing with those income 0:14:13.600 --> 0:14:16.480 distributions each year. And so this is why it's actually 0:14:16.480 --> 0:14:20.280 so important to be able to, I think, offer share 0:14:20.280 --> 0:14:25.200 classes of either. So we've talked already today about taking 0:14:25.240 --> 0:14:28.560 some of our mutual funds and offering ETF share classes. 0:14:29.120 --> 0:14:32.880 And the types of clients that care about that may 0:14:32.920 --> 0:14:37.920 be a financial advisor who has both a retirement business 0:14:38.080 --> 0:14:41.560 and a wealth business, and once they've done the diligence 0:14:41.600 --> 0:14:43.720 on the strategy and they're like, I really love this 0:14:43.800 --> 0:14:45.640 investment strategy. I would like to be able to use 0:14:45.640 --> 0:14:48.720 it for both types of clients. Now, they can, whereas 0:14:48.760 --> 0:14:51.080 before they were faced with the trade off where they 0:14:51.080 --> 0:14:53.360 could only use it in one or the other. But 0:14:53.560 --> 0:14:57.640 going the other direction, we actually do have some strategies 0:14:58.000 --> 0:15:02.000 that are only offered in ETF formats right now that 0:15:02.440 --> 0:15:05.200 we are likely to bring over and offer mutual fund 0:15:05.240 --> 0:15:10.080 share classes of So we recently filed to do that 0:15:10.400 --> 0:15:13.920 for two strategies that we call our market series. And 0:15:13.960 --> 0:15:18.600 what these are is they're designed to be index replacement strategies, 0:15:18.920 --> 0:15:21.880 so they have lower tracking air than most of our 0:15:21.920 --> 0:15:25.960 other more active strategies, but they're designed to outperform, and 0:15:25.960 --> 0:15:28.520 they have a track record of outperforming. And we have 0:15:28.600 --> 0:15:31.720 some clients who are using those for their taxable clients 0:15:31.760 --> 0:15:34.920 in the ETF wrapper, saying we would love to be 0:15:35.000 --> 0:15:38.000 able to offer those in mutual fund format to some 0:15:38.040 --> 0:15:40.880 of our retirement clients. Or we have institutions who are 0:15:40.880 --> 0:15:43.880 tax exempts saying we would like to have these in 0:15:43.960 --> 0:15:47.520 another vehicle type, and so we are likely to offer 0:15:47.840 --> 0:15:50.920 both types of share classes, so then you can get 0:15:50.920 --> 0:15:55.240 the economies of scale of running one portfolio with two 0:15:55.280 --> 0:15:56.280 different access points. 0:15:56.840 --> 0:16:00.560 Okay, let's talk about the performance record of the track record, 0:16:00.640 --> 0:16:04.240 because a lot of ETF issuers it's really important for 0:16:04.280 --> 0:16:07.160 advisors to have a track record, and in order to 0:16:07.200 --> 0:16:09.520 get on the wirehouse platform sometimes they they want to 0:16:09.520 --> 0:16:12.200 see three years and this has been a challenge for 0:16:12.280 --> 0:16:14.520 some of the active clones that have come out. They've 0:16:14.520 --> 0:16:18.080 got to really perform well in the market. Do you 0:16:18.160 --> 0:16:22.480 get to use the mutual funds performance when marketing the 0:16:22.520 --> 0:16:25.720 ETF or do the wirehouse is consider it to be 0:16:26.200 --> 0:16:27.880 the same performance? How does that work? 0:16:27.960 --> 0:16:31.160 Yeah, track records are really important, and in the case 0:16:31.200 --> 0:16:35.520 of the ETF share classes, it is literally a new 0:16:35.560 --> 0:16:39.960 access point to an existing portfolio, and so that's viewed 0:16:40.320 --> 0:16:43.840 as a track record that you can rely upon. And 0:16:43.880 --> 0:16:48.400 in the case of DFMC, the microcap ETF share class, 0:16:48.600 --> 0:16:51.720 that portfolio has a forty five year track record and 0:16:51.800 --> 0:16:54.520 so people who come in and do diligence on the 0:16:54.520 --> 0:16:58.240 ETF share class can look through a ton of history 0:16:58.280 --> 0:17:00.880 and understand how that portfolio is design and how it's managed, 0:17:00.920 --> 0:17:04.159 how it's behaved, and that does I think give the 0:17:04.160 --> 0:17:08.000 ETF share class a leg up over a newly issued ETF, 0:17:08.400 --> 0:17:12.680 even if it's of sort of a sister strategy. 0:17:13.520 --> 0:17:17.800 Joe, I'm also curious how many mutual funds do you 0:17:17.920 --> 0:17:21.880 expect are going to from Dimensional have this new ETF 0:17:21.880 --> 0:17:24.840 share class, And now that I know you intend to 0:17:24.840 --> 0:17:29.639 go the other way, what the overall Dimensional portfolio start 0:17:29.640 --> 0:17:32.359 to look like with the addition of this share class. 0:17:32.440 --> 0:17:34.560 Yeah. So, so I'll say two things about this. The 0:17:34.600 --> 0:17:39.080 first is we have went out and spoken with many, 0:17:39.440 --> 0:17:43.440 many of our clients across different channels, so different types 0:17:43.480 --> 0:17:46.880 of advisors, different types of institutions, to try to understand 0:17:47.280 --> 0:17:50.800 what they need. Because our job isn't necessarily to be 0:17:50.840 --> 0:17:55.320 a supermarket where we offer one of everything. We're really 0:17:56.400 --> 0:18:00.760 our client is the financial professional, and so we're trying 0:18:00.760 --> 0:18:04.119 to give them professional grade tools, best in class strategies 0:18:04.400 --> 0:18:06.960 so they can accomplish the investment outcomes that they need 0:18:07.080 --> 0:18:10.080 for their clients or their organizations. And what we've heard 0:18:10.160 --> 0:18:13.560 from all of them, I shouldn't say all, but the vast, 0:18:13.640 --> 0:18:18.679 vast majority have said we really like this idea of 0:18:18.720 --> 0:18:21.520 having shared classes, and then the other ones have really 0:18:21.560 --> 0:18:23.560 just not said anything. To be honest, I have not 0:18:23.600 --> 0:18:26.640 heard a negative thing yet. Most of them are very 0:18:26.720 --> 0:18:30.520 supportive of the idea that there's going to be mutual 0:18:30.520 --> 0:18:32.920 funds share classes of ETFs and ETF shared classes and 0:18:32.960 --> 0:18:35.840 mutual funds, and so in terms of what that means 0:18:35.840 --> 0:18:39.360 for our plans in the short run, we have filed 0:18:39.800 --> 0:18:45.679 to bring thirteen different US equity strategies to the ETF 0:18:45.800 --> 0:18:51.760 share Class Rapper. We will likely be doing that through 0:18:51.840 --> 0:18:54.560 the rest of this year and into the following years. 0:18:54.960 --> 0:18:59.720 I think you can probably expect fixed income to follow equity, 0:19:00.400 --> 0:19:04.720 and then non US markets to follow the US markets, 0:19:05.280 --> 0:19:08.840 and so we do have a pretty big pipeline in mind. 0:19:09.040 --> 0:19:12.040 It will be driven by client demand. But if we 0:19:12.400 --> 0:19:16.120 realize sort of the vision that we're hearing clients want 0:19:16.200 --> 0:19:18.800 us to realize, and this is a big statement, but 0:19:18.880 --> 0:19:22.040 I think you'll see us go from being a big 0:19:22.119 --> 0:19:25.399 mutual fund manager and a big ETF manager. And you know, 0:19:25.440 --> 0:19:29.320 we've been the largest active ETF manager. I think we 0:19:29.400 --> 0:19:33.240 could potentially go to become one of the largest ETF 0:19:33.280 --> 0:19:38.440 managers period, whether that's active or passive, big words, big words. 0:19:38.800 --> 0:19:41.159 Right now, they're at two hundred and fifty five billion, 0:19:41.560 --> 0:19:43.600 which is pretty good. I mean, I think they're ninth 0:19:43.760 --> 0:19:47.240 ish around there. So this is going to. 0:19:47.280 --> 0:19:49.280 Help higher up when it comes to active. 0:19:49.359 --> 0:19:53.560 Oh yeah, dominant and active overall ninth But you know, look, 0:19:54.240 --> 0:19:56.120 I think the whole industry is looking for you at 0:19:56.160 --> 0:19:59.040 you guys, because there's all these people who have filed, 0:19:59.760 --> 0:20:02.680 but that I can tell there they want to see 0:20:02.720 --> 0:20:05.679 some data come back from the marketplace, and it'll be 0:20:05.720 --> 0:20:08.520 interesting to see what happens with you. I think. Do 0:20:08.920 --> 0:20:11.480 you feel that that there's a lot of people watching 0:20:11.560 --> 0:20:13.920 you to see what happens or do you think we'll 0:20:13.920 --> 0:20:17.320 see other launches very quickly even if we don't have 0:20:17.400 --> 0:20:20.560 any maybe early flows or information from your funds. 0:20:20.560 --> 0:20:23.320 How does it feel to be a guinea pig more 0:20:23.400 --> 0:20:23.680 or less? 0:20:23.720 --> 0:20:26.880 Yeah, We're happy to be the guinea pig. And one 0:20:26.880 --> 0:20:28.960 of the things that I'll say has actually been very 0:20:29.000 --> 0:20:33.120 positive for the industry here is when we put out 0:20:33.200 --> 0:20:37.159 that first application for exemptive relief, a lot of the 0:20:37.240 --> 0:20:42.200 other managers ended up using our application as sort of 0:20:42.280 --> 0:20:46.160 a template, and I think there was a healthy discussion 0:20:46.200 --> 0:20:49.719 in the industry with SEC about all the benefits that 0:20:49.800 --> 0:20:53.440 this can bring to end clients. Now, do I think 0:20:53.480 --> 0:20:58.879 that it'll be panacea, that it'll be a universal solution 0:20:59.000 --> 0:21:00.959 for everybody in that every fund in the industry will 0:21:01.000 --> 0:21:05.399 also turn into an ETF. Probably not. Not every strategy 0:21:05.480 --> 0:21:08.840 is well suited to an etf rapper. Right, You've seen 0:21:08.880 --> 0:21:11.159 the debates already about what can be fit into an 0:21:11.160 --> 0:21:14.520 etf rapper over on the private side and people dealing 0:21:14.560 --> 0:21:19.160 with the lack of liquidity. I think people will eventually 0:21:19.240 --> 0:21:21.359 run into some limits of what can be put in 0:21:21.400 --> 0:21:25.480 the etf rapper, even in public markets, and so I 0:21:25.520 --> 0:21:28.760 think that other managers will have to think through which 0:21:28.760 --> 0:21:31.800 of their strategies are well suited to the etf rapper, 0:21:32.320 --> 0:21:35.439 and then it's not one of those situations where if 0:21:35.480 --> 0:21:37.840 you build it, people will just come. I think it's 0:21:37.840 --> 0:21:41.359 also important that you spend time talking with your clients 0:21:41.440 --> 0:21:44.320 to understand is this a solution that they really need. 0:21:44.880 --> 0:21:46.840 And what we've done is we've went out. You know, 0:21:46.880 --> 0:21:50.240 we saw in the first day of trading for DFMC 0:21:51.000 --> 0:21:54.720 some clients come in and place trades on day one 0:21:54.760 --> 0:21:58.399 in really large sizes and get great executions inside a 0:21:58.480 --> 0:22:01.400 very tight spread. So that type of coordination with your 0:22:01.400 --> 0:22:04.160 clients is key. You can't just sort of toss these 0:22:04.160 --> 0:22:06.240 things out there in the market and hope that assets 0:22:06.240 --> 0:22:06.640 show up. 0:22:15.160 --> 0:22:18.439 Okay, I'm curious, Eric, what's the big number that you 0:22:18.480 --> 0:22:20.320 know we've come back to this in a couple of years. 0:22:20.920 --> 0:22:25.199 How much money moves into ETFs because of this, you. 0:22:25.240 --> 0:22:27.560 Mean everybody, or just this one microcap BTF? 0:22:27.600 --> 0:22:28.119 Everybody? 0:22:28.280 --> 0:22:30.920 Okay, well, let me start with the microcap BTF. The 0:22:30.960 --> 0:22:34.800 mutual fund has six point six billion, this ETF has 0:22:34.840 --> 0:22:38.440 one million. So what portion of them come over? If 0:22:38.440 --> 0:22:40.640 we use Vanguard as a model, I think about ten 0:22:40.680 --> 0:22:42.960 percent went from the one class to the other. But 0:22:43.040 --> 0:22:45.360 the ETF was cheaper for them for most of them, 0:22:45.400 --> 0:22:47.760 only one bit. But that's enough for Vanguardians to move. 0:22:48.320 --> 0:22:51.680 This one's the same fee, but the tax efficiency is better. 0:22:52.520 --> 0:22:53.000 We'll see. 0:22:53.320 --> 0:22:57.720 I think this dfa ETF, if it has over I 0:22:57.720 --> 0:22:59.720 don't know, one hundred million, five hundred million in the 0:22:59.720 --> 0:23:02.240 next couple months, that will turn heads. And if it 0:23:02.280 --> 0:23:05.000 gets one to two billion, or even goes and becomes 0:23:05.040 --> 0:23:07.719 more than fifty percent of the mutual fund, everyone's going 0:23:07.760 --> 0:23:09.680 to be like jumping in like crazy. That's my guess 0:23:09.680 --> 0:23:13.280 on this guinea pig. In terms of if that happens, man, 0:23:13.359 --> 0:23:15.400 I mean, we could see a lot of money coming in. 0:23:16.760 --> 0:23:19.439