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AIM High: Tackling the assumptions and opportunities for ETFs · Two in Twenty

• 0:02
  SPEAKER_02: Hello and welcome to another episode of Aim High.
• 0:05
  SPEAKER_02: My name is Twink Field.
• 0:07
  SPEAKER_02: I am the CEO of White Marble and the host of these podcasts, which I'm sure you all know by now.
• 0:14
  SPEAKER_02: In today's episode, we are talking about ETFs.
• 0:18
  SPEAKER_02: We are tackling some of the assumptions around them, the opportunities and trends and themes that are emerging.
• 0:25
  SPEAKER_02: And we have two brilliant speakers on this, Nick Batten, who is a marketing strategist in ETFs, as well as Alex Olivares, who is head of Amir Campaign Marketing at Evesco.
• 0:39
  SPEAKER_02: So both bringing sort of different perspectives and really talking to us as marketers as to how to position them, how they are used.
• 0:51
  SPEAKER_02: There's a whole host of different takeaways from today's session.
• 0:56
  SPEAKER_02: So I will go straight to my conversation with them.
• 1:01
  SPEAKER_02: So thank you so much, Alex, Nick, for joining me today to talk about all things ETFs.
• 1:08
  SPEAKER_02: I think the best thing to do is to get stuck straight in.
• 1:12
  SPEAKER_02: Maybe you could each introduce yourselves.
• 1:15
  SPEAKER_02: And maybe Nick, you could then flow straight into giving us a bit of the lay of the land and a bit of the history on ETF.
• 1:23
  SPEAKER_02: So maybe if Alex, you just introduce yourself, Nick can then introduce him and then go to that first question.
• 1:29
  SPEAKER_00: Great.
• 1:29
  SPEAKER_00: Thank you so much.
• 1:30
  SPEAKER_00: It's a pleasure to be here.
• 1:32
  SPEAKER_00: I'm Alex Olivaris.
• 1:33
  SPEAKER_00: I work at Invesco and I head up campaigns across EMEA.
• 1:37
  SPEAKER_00: So this includes both active and passive.
• 1:41
  SPEAKER_00: And I do have a lot of experience on the passive part in particular, ETF part in particular.
• 1:46
  SPEAKER_01: Yeah.
• 1:47
  SPEAKER_01: Hi, uh Nick Basson, a marketer with uh 15 years' experience in financial services, and I was uh former head of marketing for an ETF issuer called Source, uh, and latterly uh led marketing strategy and planning at Invesco in EMEA.
• 2:00
  SPEAKER_01: Um, all right, let me uh kick off on the layer of the land.
• 2:04
  SPEAKER_01: Um, I think a first thing to unpack really is the name, ETF, which stands for exchange traded fund.
• 2:11
  SPEAKER_01: Uh the I guess important thing to look at is that you know they will have a similar or in many cases identical fund structure to usual collective investment schemes, um, but they use a the highly efficient stock exchange order clearing and settlement system to manage the flows of the funds.
• 2:27
  SPEAKER_01: That's the E and the T and ETF, the exchange traded element uses an existing efficient system to uh to move orders, uh, client assets and units backwards and forwards.
• 2:38
  SPEAKER_01: And this in and of itself brings increased flexibility for clients.
• 2:41
  SPEAKER_01: So that's talking about the wrapper.
• 2:43
  SPEAKER_01: Um some people talk about uh the ETP market or the exchange traded product market, which is, I suppose, a catch-all term for ETFs, exchange traded funds, ETCs, uh sometimes called exchange traded commodities, but more accurately exchange traded certificates.
• 3:00
  SPEAKER_01: And then the sort of on the esoteric end, the exchange traded notes, all of these um investment uh securities, I guess you could say the funds, uh the certificates and the notes, all form part of the ETP uh collective.
• 3:14
  SPEAKER_01: Um the biggest uh part of this being the funds, and second to that, the exchange traded uh certificates, primarily the commodity market.
• 3:22
  SPEAKER_01: Um so if we look at uh 2021 year to date, um, it's been another record-breaking year in Europe, globally, but Europe too, in terms of inflows.
• 3:33
  SPEAKER_01: Uh globally, we're seeing it, seeing about$840 billion of net new money flow into exchange traded funds, uh, and just shy of$600 billion of that is in the US, about$580 billion.
• 3:44
  SPEAKER_01: Um, and this has brought the total to a hair breadth below$10 trillion, uh, an increase of 21% year on year.
• 3:52
  SPEAKER_01: Um it's important to remember the last year was a record year for inflows, and certainly in Europe, um, we've already surpassed that two-thirds of the way through the year.
• 4:02
  SPEAKER_01: All of this data is uh from uh ETF Research Consultancy called ETFGI, uh very handy.
• 4:08
  SPEAKER_01: They collate all of the thousands of listings across the globe uh and help paint this picture.
• 4:15
  SPEAKER_01: Um if you were to contrast the European market and that includes the UK, um you see there's a gap both in in terms of the uh the magnitude of the flow of assets into uh exchange traded funds, uh, as well as the diversity of different types of products and different uses people are using these exchange traded funds for.
• 4:35
  SPEAKER_01: And that the lag is roughly somewhere between five and ten years.
• 4:39
  SPEAKER_01: Uh recent data is pointing that actually is compressing, getting closer to the five years, it's accelerating rate of acceptance in Europe.
• 4:46
  SPEAKER_01: Uh two, uh there's been an exception, and that's where Europe has led the way, and that has been in EST products.
• 4:52
  SPEAKER_01: Uh Alex, perhaps you can add some more.
• 4:55
  SPEAKER_00: Yeah, and looking at some other data sources, Bloomberg in particular, um, they show that 30% of long-term assets are in ETFs.
• 5:04
  SPEAKER_00: That's their figure for the US.
• 5:06
  SPEAKER_00: Right.
• 5:06
  SPEAKER_00: Whereas for Europe, they they peg that more at 10%.
• 5:10
  SPEAKER_00: So it's interesting to see the breakdown.
• 5:12
  SPEAKER_00: Um, and you know, some people expect the US figures to move to 50% of all long-term investable assets into ETFs.
• 5:20
  SPEAKER_00: But you know, you could you could do the back of the envelope maths there if you expect you know a trebling of assets uh of the investable universe to to match what we see in the US.
• 5:31
  SPEAKER_00: You could see what the implication would be for here in Europe, which is which is incredible.
• 5:36
  SPEAKER_00: And um the other thing is that a lot of people think that ETFs are a relatively new phenomenon, but but they're not.
• 5:44
  SPEAKER_00: We're all aware, being kind of marketing professionals and investment marketing professionals, that um fund wrappers come in various guises, and you know, the world has been investing collectively for you know hundreds, if not thousands of years.
• 5:59
  SPEAKER_00: But um, the modern mutual fund is kind of dates to the 1920s.
• 6:04
  SPEAKER_00: That's basically where that wrapper comes from.
• 6:06
  SPEAKER_00: And ETFs is is just a new wrapper of collecting assets and opening that up to people to invest in.
• 6:14
  SPEAKER_00: And the first ETF actually appeared in the 1990s.
• 6:18
  SPEAKER_00: It followed the Toronto Stock Exchange.
• 6:20
  SPEAKER_00: And so that was, I think it was in 1993, if I if I check my my uh timelines.
• 6:26
  SPEAKER_00: So, you know, we've been doing this for a while now, and um I think it's only recently that a lot more investors have uh woken up to kind of the benefits of ETFs.
• 6:36
  SPEAKER_02: That's interesting.
• 6:37
  SPEAKER_02: You know, I quite like the simplicity, just thinking about it as just that wrapper, and actually that it's been around for quite a while, and no doubt, you know, seeing that sort of that continued growth in both markets.
• 6:50
  SPEAKER_02: So maybe given the appetite and the demand and the growth, you could just set out for us just the main differences you see of those two different wrappers.
• 6:59
  SPEAKER_02: Um, maybe Nick, again, you could kick us off and and and Alex to compliment um where you get to on that.
• 7:05
  SPEAKER_01: Sure.
• 7:06
  SPEAKER_01: You know, if you focus on what matters, so the desired client outcome, um, there is very little difference.
• 7:12
  SPEAKER_01: So, I mean, Alex can can speak to how we as marketers think about messaging and communicating on these products, and he's shown great success um being sort of structure agnostic in campaigns and speaking thematically.
• 7:23
  SPEAKER_01: Um, but you know, I think often people conflate the fund structure.
• 7:27
  SPEAKER_01: This it's a fund that it trades on the stock exchange, um, that's you know, the vehicle, and also the investment strategy uh which the ETF contains.
• 7:36
  SPEAKER_01: Um, so that can either be you know active or indexed or passive.
• 7:40
  SPEAKER_01: Um so in Europe, the fund structure is generally an Irish USITS or Luxembourg CCAP.
• 7:45
  SPEAKER_01: Um, and then they say, as I said, benefit from this efficient stock exchange trading system for the orders and settlement.
• 7:51
  SPEAKER_01: Um, and there's then there's the spectrum between uh indexed, uh fully systematic allocation of what securities are bought and in what um in what uh proportions, uh, all the way to full discretion, human uh decision making, uh, which you would you would call a fully active fund.
• 8:10
  SPEAKER_01: So it's very much like a regular mutual fund that can be in an index index fund or it can be a full human discretion.
• 8:16
  SPEAKER_01: Um but you know, it will be the case with many of them, they sort of fall somewhere between those two extremes, somewhere on that sort of spectrum between the you know the human and the rules-based investment decisions.
• 8:27
  SPEAKER_01: Yeah, I think interestingly, which I think does fall fit nicely in this uh this question about what the differences are, is there's a there's actually a trend which is accelerating um in the US, um, where we're actually seeing existing mutual funds being converted to ETFs.
• 8:46
  SPEAKER_01: So same funds, same teams, same objective, uh changing the old 40 act funds in a different ramper.
• 8:52
  SPEAKER_01: Correct.
• 8:53
  SPEAKER_01: So there's a there's a new there's a new structure which is like a non-transparent ETF.
• 8:56
  SPEAKER_01: That was one of the important elements of the ETF is having transparency of what the fund holds on a regular, sometimes daily basis.
• 9:02
  SPEAKER_01: Um but they've got this concept of an exchange traded mutual fund or ETMF.
• 9:07
  SPEAKER_01: Um, and that in various guises is uh is picking up in the US.
• 9:11
  SPEAKER_01: And I think that's likely to continue in Europe.
• 9:14
  SPEAKER_01: Uh simply put, investment strategy aside, uh the exchange traded fund structure and wrapper is superior to the old one.
• 9:24
  SPEAKER_00: Yeah, and I'd say, like in terms of um messaging, we try to communicate the benefits of ETFs generally to investors.
• 9:32
  SPEAKER_00: And um, we found that you know there's three points that seem to resonate with people.
• 9:37
  SPEAKER_00: One is accessibility.
• 9:38
  SPEAKER_00: As Nick mentioned, these funds are traded on exchange.
• 9:42
  SPEAKER_00: So it that offers continuous pricing um throughout the day.
• 9:48
  SPEAKER_00: And that becomes vitally important during times of market stress.
• 9:52
  SPEAKER_00: And we do actually have some case studies on the Evesco side where we looked at liquidity and trading and actually found that um ETFs served as, well, they did the job that they set to do, which was to provide uh liquidity and accessibility.
• 10:06
  SPEAKER_00: But they were actually used to kind of um help the price discovery process for some of the underlying investments themselves, which is really remarkable.
• 10:16
  SPEAKER_00: Um people were concerned about you know whether these things would freeze up, and they proved extraordinarily resilient and actually provided additional data to the market, which is incredible.
• 10:26
  SPEAKER_00: Um, the other thing tied to that is that you could buy or sell an ETF to other market participants, whereas with the mutual fund, or you know, the more uh traditional fund, you'd have to execute that directly with the investment manager themselves.
• 10:42
  SPEAKER_00: So that offers a little bit of flexibility that way.
• 10:45
  SPEAKER_00: Other benefits we see are transparency.
• 10:48
  SPEAKER_00: So ETFs generally provide a list of everything that they hold on a daily basis.
• 10:54
  SPEAKER_00: And so the traditional fund might provide that on a monthly basis or quarterly basis.
• 10:59
  SPEAKER_00: By the time you get those statements in the mail or you know, on your app, it probably has moved on you, and that's not indicative of what's actually being held.
• 11:07
  SPEAKER_00: So that's another great benefit of the ETF.
• 11:10
  SPEAKER_00: And lastly, cost efficiency.
• 11:12
  SPEAKER_00: And um, there sometimes it gets a bit confusing as Nick mentioned, because people conflate ETFs with passive.
• 11:18
  SPEAKER_00: It's true the majority of assets are in passive strategies that are in ETFs, but we do see a lot of trends um moving away from that given the kind of product innovation.
• 11:29
  SPEAKER_00: And essentially you could put anything in an ETF.
• 11:31
  SPEAKER_00: So, you know, if you wanted to, you could put an active product and charge one 1% for that as well.
• 11:37
  SPEAKER_00: But generally, because a majority of the assets are passive, we do find that you know there's some cost efficiencies there.
• 11:44
  SPEAKER_00: And in the United States in particular, there are some tax cost efficiencies as well.
• 11:48
  SPEAKER_00: Although that's become a hotbed topic given um the government's scrutiny of that particular advantage.
• 11:56
  SPEAKER_01: Yeah.
• 11:57
  SPEAKER_01: It's one important element, I think people you know generally do focus on the cost.
• 12:02
  SPEAKER_01: But you know, if you have a single share class listed as the ETF, an institutional investor is going to pay the same total expense ratio, the total cost of ownership.
• 12:12
  SPEAKER_01: Well, not the same total cost of ownership, we can come to that later, but certainly the same sticker uh expense ratio as an individual investor who buys a single share for 10 to 20 pounds, whatever the whatever the product's value is.
• 12:24
  SPEAKER_01: So you as a small investor are getting the same um, you know, the same great pricing that institutional investors were the ones that got in the past.
• 12:34
  SPEAKER_00: Yeah, so it's very much a kind of headline of democratizing investments, right?
• 12:40
  SPEAKER_00: And so it enables more investors and market participants to benefit from all sorts of products and strategies, providers at various price points that they normally would not have access to.
• 12:51
  SPEAKER_00: So that's another great thing about the ETF.
• 12:53
  SPEAKER_02: I can't uh move on without complimenting you, Alex, on knowing your target audience, talking to our listeners who are clearly markets in this industry.
• 13:00
  SPEAKER_02: So thank you very much for thinking about the messaging and how you position uh ETS for them.
• 13:05
  SPEAKER_02: Brilliant.
• 13:05
  SPEAKER_02: And I'm just reflecting also, and we'll maybe come to some of the trends, um, but reflecting on the sort of the growth that we're seeing and clearly that that you we've mentioned a few of the kind of the messages and the reasons people might be attracted to to use them.
• 13:20
  SPEAKER_02: Um perhaps we could just explore a bit more kind of the the kind of the broader reasons why people might be investing in them or using them in their portfolios.
• 13:30
  SPEAKER_01: Okay, I I'll I'll I'll I'll feel that one.
• 13:32
  SPEAKER_01: Uh there alone.
• 13:34
  SPEAKER_01: So the the the one that that Alex mentioned earlier with that really great data print um is around core exposure.
• 13:42
  SPEAKER_01: So they offer precise benchmark tracking.
• 13:44
  SPEAKER_01: Um, and as as they're able to offer the economies of scale to uh to all investors, you generally get better management fees.
• 13:53
  SPEAKER_01: Uh, you also get the opportunity to enhance uh performance.
• 13:56
  SPEAKER_01: So the smart beta or factor ETFs uh funds which don't weight the holdings by market cap.
• 14:05
  SPEAKER_01: Um they may use fundamentals, they may use uh geographic exposure, uh, they may use this particular factor.
• 14:11
  SPEAKER_01: Uh, those are also available in a wide array for investors to use, the opportunity there is mentioned for enhancing performance, and then also for taking tactical positions, um, sector thematic or country-specific ETFs are also available and are an essential part of many investors toolkit.
• 14:32
  SPEAKER_01: And it leads them to the next one, really, is accessing new markets, uh, large investors who want to gain beta exposure to a new market instead of you know, I remember in the old days working in a well the old days, a while ago when I used to work for an investment bank, if a if an asset manager wants to gain exposure to a market that they were unfamiliar with, a lot of experts in, they would buy a few of the large cap names to gain beta exposure to their market.
• 14:54
  SPEAKER_01: Well, you don't need to do that.
• 14:55
  SPEAKER_01: Uh you can you can buy a tracker uh you know it very very uh efficiently uh and an ETF is a is a great um is a great tool for that.
• 15:05
  SPEAKER_00: Yeah, and then some other use cases.
• 15:07
  SPEAKER_00: I mean, you could you could do basic things that normal investors would would seek as well.
• 15:13
  SPEAKER_00: So, you know, you talk about maybe uh an investor who is looking for income, you could easily replicate that type of strategy within the ETF.
• 15:22
  SPEAKER_00: And then you have some kind of more, I would say, exotic use cases.
• 15:26
  SPEAKER_00: So one would be using ETFs instead of futures or swaps.
• 15:31
  SPEAKER_00: And depending on the market environment, um, specifically, you know, the underlying assets and you know, the futures markets on those assets, there are points in time where the ETF is cheaper than the future.
• 15:45
  SPEAKER_00: So for more sophisticated investors who are using those instruments and using them at significant size, it could offer significant cost advantages there.
• 15:53
  SPEAKER_00: Other things are um transition management.
• 15:56
  SPEAKER_00: So here you could take an example of a portfolio manager.
• 16:00
  SPEAKER_00: Let's let's assume she's an active portfolio manager looking at a given space like, I don't know, equity, uh tech stocks global.
• 16:09
  SPEAKER_00: And um, she might want to express an opinion on that, um, but is not sure just yet of the specific securities that she wants to select.
• 16:20
  SPEAKER_00: So rather than give up having exposure until she's done with her research and has made her decisions on the individual securities, she could, in the interim, buy a sector ETF for global technology, equity global technology sector, get that exposure, finish her research, and then once she finishes her research, sell the ETF and then buy the specific names that she's looking at.
• 16:44
  SPEAKER_00: So that way her portfolio doesn't miss out on any potential opportunities within the broader tech sector in that example.
• 16:50
  SPEAKER_00: And then another kind of more sophisticated one is um hedging.
• 16:55
  SPEAKER_00: So you could, this is probably more for kind of hedge funds and very sophisticated investors, but they could take short positions and express those through through ETFs, whether it's sectors or more uh beta regional type products, I mean basically anything.
• 17:10
  SPEAKER_00: And then um one other thing that that comes to mind is um we're seeing growing use of ETFs in insurance, and they're they're using it for liability matching.
• 17:21
  SPEAKER_00: So you know, you've got very specific use cases for a specific sector there.
• 17:26
  SPEAKER_00: So it's quite exciting, and and I think it just points to the fact that these are extremely versatile tools and the benefits that we talked about earlier are you know applicable to a wide range of people, of investors.
• 17:39
  SPEAKER_02: Thank you so much for explaining that.
• 17:40
  SPEAKER_02: I I definitely didn't realize quite how many different ways ETFs could be played played in.
• 17:45
  SPEAKER_02: So thank you.
• 17:46
  SPEAKER_02: Um and I just wonder, you know, given the growth, given the sort of the those that versatility you mentioned, kind of where next and what next for ETFs?
• 17:56
  SPEAKER_02: You know, I think clearly it's been utilized in many different ways.
• 18:00
  SPEAKER_02: Kind of what what's the next stage for ETFs?
• 18:03
  SPEAKER_00: Yeah, so I mean that's a great question, and it's an exciting space to be in.
• 18:07
  SPEAKER_00: Uh, it seems like we're kind of in the confluence of many factors coming together.
• 18:12
  SPEAKER_00: So obviously, you know, we've talked extensively already about the growth of ETFs and a lot of people waking up to you know the benefits that those offer.
• 18:22
  SPEAKER_00: Um, but there's some other factors out there that are on people's radars as well, and it all seems to be coming together, which is great.
• 18:28
  SPEAKER_00: So one of them is ESG.
• 18:30
  SPEAKER_00: We're all aware of environmental, social, and governance investing and how important that is.
• 18:35
  SPEAKER_00: But just to kind of give you a stat, people put the figure at about 50%, I mean, sometimes as high as 65%, depending on you know what the latest month you're looking at or you know, what the data source is.
• 18:47
  SPEAKER_00: But um 50 to 65 percent of data uh inflows for ETFs have been for ESG ETFs, which is amazing.
• 18:55
  SPEAKER_00: So that's a huge space.
• 18:57
  SPEAKER_00: And obviously, you know, there's a lot of appetite there.
• 19:00
  SPEAKER_00: Uh, climate change is on a lot of people's minds, and people want to play a part in terms of helping mitigate that.
• 19:06
  SPEAKER_00: But it's it's a new space.
• 19:08
  SPEAKER_00: So, you know, it's very difficult.
• 19:10
  SPEAKER_00: Investors are finding it difficult to kind of pinpoint what exactly they need for an ESG solution, um, let alone how to compare different ESG products or select an ESG uh ETF provider, ESG fund provider, full stop.
• 19:26
  SPEAKER_00: So, you know, there's a lot that we can do, not just on highlighting or marketing the benefits of ESG ETFs, but also helping educate people and taking them through the process as well.
• 19:38
  SPEAKER_00: Another trend that we're seeing is fixed income.
• 19:41
  SPEAKER_00: That kind of started last year.
• 19:43
  SPEAKER_00: And uh I think we're seeing something in the range of about 30, 30 to 40 billion a year going into the fixed income ETFs.
• 19:51
  SPEAKER_00: So, you know, people used to think that ETFs didn't make sense in fixed income because there you needed the active manager to select the securities, particularly because a given issuer can have multiple bonds over, you know, obviously the maturity cycle and the the sorry, the maturity spectrum and the credit spectrum.
• 20:10
  SPEAKER_00: So uh, but we're seeing that people are adopting fixed income ETFs quite strongly, which is which is fantastic.
• 20:16
  SPEAKER_00: And the other thing that we're seeing is uh thematic.
• 20:19
  SPEAKER_00: So thematic is is a growing uh kind of trend.
• 20:24
  SPEAKER_00: And uh what does that mean?
• 20:25
  SPEAKER_00: It's kind of uh broader, as the name would suggest, theme.
• 20:29
  SPEAKER_00: So you could think of anything from you could have blockchain, for example, so uh ETF that that invests in blockchain related companies, you could have digital consumer, you could have clean water, you could have even space exploration.
• 20:44
  SPEAKER_00: I know there's some on in the on the US side that that target that.
• 20:48
  SPEAKER_00: So very specific themes that you think are are going to grow and you want to get exposure to that.
• 20:53
  SPEAKER_00: And um, you know, it's it's great to see that.
• 20:56
  SPEAKER_00: And I think I found some numbers showing that at the end of June there was about 41 billion AUM in thematic uh ETFs, and that compared to 15 billion just a year ago.
• 21:08
  SPEAKER_00: So you could just see how big that's that's growing.
• 21:12
  SPEAKER_02: It's interesting, isn't it?
• 21:13
  SPEAKER_02: That sort of ability to be sort of nimble to sort of um take advantage of sort of different trends um and sort of innovative to accommodate them.
• 21:25
  SPEAKER_02: Now what um I was just sort of curious, I guess, sort of with that perhaps comes a proliferation of products.
• 21:32
  SPEAKER_02: You know, you get many products in the market, and um, I guess our industry has uh a bad habit of that, and you know, in many quarters trying to close down those that don't quite get to size.
• 21:45
  SPEAKER_02: Is that a similar issue with with ETFs where you're sort of being responsive, you have that flexibility, but don't necessarily get to critical mass?
• 21:55
  SPEAKER_01: Yeah, I I yeah, I think that's you know that that's been observed from in the ETF industry from the Getting.
• 22:00
  SPEAKER_01: I mean you've you work on a much quicker cycle in the sense that you um you can bring a a fund to launch uh within eight weeks, which is a lot is generally a lot quicker than you can do with an active team.
• 22:11
  SPEAKER_01: Um and you're you're able to respond to client demand, to trends a lot quicker.
• 22:17
  SPEAKER_01: Um, but but equally, you know, unless unless a fund you know forms part of a family of say sectors or um a suite of ETFs, um, you if there isn't the client demand for the product, um you know it just economically doesn't make sense to keep it open.
• 22:35
  SPEAKER_01: So there's a real, I guess, a Darwinian force in play with uh with a lot of funds being launched and and and the unsuccessful ones falling by the ways.
• 22:43
  SPEAKER_00: Yeah, I think that's right, Nick.
• 22:44
  SPEAKER_00: Um, you know, the the benefit, as you said already, is accessibility.
• 22:49
  SPEAKER_00: And so as a consequence, ETFs are extremely dynamic, much much more dynamic than um the funds in terms of you know uh how you said uh time to launch, as well as maybe react reaction to market events or you know, the time that's needed to get a track record, et cetera.
• 23:07
  SPEAKER_00: So you know that that creates some challenges.
• 23:10
  SPEAKER_00: But what I would say is that you know the the kind of uh ETF closure or fund closure process is very similar to you know the standard fund closure process.
• 23:21
  SPEAKER_00: So any asset manager or investment provider will be doing their due diligence on an ongoing basis, assessing strategically where they want to be, as well as you know, from a financial perspective, uh what to maintain uh and what to maybe combine or close with some of their other funds.
• 23:40
  SPEAKER_00: And that definitely relates to kind of strategic decisions as to whether they want to occupy certain spaces, or sometimes it's it's commercial.
• 23:48
  SPEAKER_00: But we we have seen um some examples where unless you're one of the first few entrants to an asset class or you know, an idea, it's very difficult to gain market share once once those um competitors have have achieved that critical mass.
• 24:08
  SPEAKER_00: And so, you know, I'd say it's probably more pressure for ETF providers to be very disciplined and to monitor not just their own plans and and you know the appetite from investors, um, but also the competitive space.
• 24:22
  SPEAKER_00: Another great thing is because of the short lead time, asset managers can launch ETFs on behalf of specific clients.
• 24:30
  SPEAKER_00: So if you talk about ultimate client centricity, I think that that's a pretty good testament to that.
• 24:35
  SPEAKER_01: Yeah, I think it's a it's a good point.
• 24:37
  SPEAKER_01: It is a it's a it's a tough environment if you're not the first handful of issuers to a particular index or a particular space.
• 24:46
  SPEAKER_01: Um, the the options are open to you uh reduce significantly.
• 24:50
  SPEAKER_01: And the last thing you want already is to be forced to compete on price.
• 24:54
  SPEAKER_01: Um it it does, as I say, result in some of those tough decisions having to be made.
• 25:00
  SPEAKER_00: Yeah.
• 25:00
  SPEAKER_00: But it's good to have it be really democratic and in some sense Darwinian and let you know, let investors decide what's appropriate to them.
• 25:08
  SPEAKER_00: And we've got some stats where I think year to date we've seen 238 new ETF launches with 78 closures.
• 25:16
  SPEAKER_00: So that just gives you a sense of you know how things are looking this year.
• 25:20
  SPEAKER_00: Um, and obviously that's an ongoing, um, a moving target, right?
• 25:24
  SPEAKER_02: And I'm conscious that um we've we've talked a lot about the kind of the benefits, the roles, and we've sort of tackled kind of maybe some of the assumptions that people might have about ETFs.
• 25:34
  SPEAKER_02: There's not a lot wrong with ETFs from what I'm hearing over the last sort of 20, 30 minutes or so.
• 25:40
  SPEAKER_02: And I was just wondering, you know, what are for marketers thinking about um, you know, if they are positioning more ETFs in in their campaigns, um, looking at kind of balancing that with their kind of broader, you know, more traditional campaigns, maybe around mutual funds?
• 25:59
  SPEAKER_02: Just what what key considerations should they have?
• 26:02
  SPEAKER_02: Are there are there any downsides, things to be wary of?
• 26:05
  SPEAKER_02: Is there a balance to this great story, which clearly, you know, there's huge appetite, huge flexibility, great dynamism, lots of things we need in our industry, um, which you know ETFs are clearly playing to.
• 26:19
  SPEAKER_02: Is there anything that we should just be cautious of or have in mind as well?
• 26:22
  SPEAKER_02: Sorry to throw a curveball in, but uh just to ask that question.
• 26:26
  SPEAKER_00: No, no, no, twink.
• 26:27
  SPEAKER_00: That's a great question.
• 26:28
  SPEAKER_00: And and so, I mean, what I'd say is a very simple answer, you know, we need to start with with our audience, with our investors, the people that we're trying to serve.
• 26:37
  SPEAKER_00: And so, you know, if you're talking about a uh structure agnostic campaign, we really come at it with, you know, what's the need of the investor, and then from there give them the opportunity to pick the wrapper that's appropriate to them.
• 26:54
  SPEAKER_00: Because the ETF, while you know, we've been talking about how great it is, it might not make sense to everybody in every situation.
• 27:01
  SPEAKER_00: And so it's important to let the investor take the lead on what's appropriate to them.
• 27:05
  SPEAKER_00: Okay, I'll add next to that.
• 27:08
  SPEAKER_02: Not to add to that.
• 27:09
  SPEAKER_02: Um very nice sort of solution focus.
• 27:13
  SPEAKER_01: Yeah, I I think that the one there's one element of of of ETF generally that we we haven't really touched on here, and that is the the we spoke about how being uh traded on a stock exchange is a great thing for efficient clearing and settlement and um uh and handling and handling the the operational elements of the of the fund.
• 27:32
  SPEAKER_01: Um but actually there's uh there's a lot to uh we call in the industry call them the capital markets team.
• 27:38
  SPEAKER_01: There's a lot to what the capital markets team do um to ensure that when a client is buying on an exchange, that they're actually getting the best possible price for that.
• 27:47
  SPEAKER_01: Because much like a normal fund, an ETF will get an official net asset value nav print towards the end of the day, but during between market open and market close, um the you know the issuer will produce an indicative net asset value and the trading will happen around that.
• 28:03
  SPEAKER_01: So this this element of the process of buying and selling in and out of this fund um goes through the cap, you know, capital markets teams, and their job is enormously important to ensure that they're actually getting the best possible price for the client.
• 28:18
  SPEAKER_01: Um and I guess also for the audience of people are having to perhaps work in a large asset manager and having to think about how to market ETFs the first time, I think that that trend is going to increase.
• 28:30
  SPEAKER_01: We've seen large asset managers either buying in ETF issuers or uh sort of spinning up their own.
• 28:36
  SPEAKER_01: Um, and you know, I think that's if you're a large serious asset manager, that's the place you've got to play in because your clients, uh their needs uh could be met, as Alex mentioned, by something more bespoke, a segregated mandatory might even be a regular mutual fund.
• 28:52
  SPEAKER_01: Um, but ETFs are very much on their minds, and as we mentioned, the positive benefits from them, certainly something that should be considered and certainly something that needs to be part of your offering to clients is that they can get the uh the investment exposure that you're that you are an expert at uh in a structure that makes sense to them.
• 29:11
  SPEAKER_00: Yeah, and another kind of challenge with marketing ETFs, I mean we touched upon it a little bit, is the accessibility and the dynamism of that.
• 29:20
  SPEAKER_00: So, you know, it becomes extremely critical for us marketers to talk about the benefits and I'll obviously highlight any kind of uh potential risks as well, but um, in the context of the market environment, which is constantly changing.
• 29:34
  SPEAKER_00: So, in some instances, you know, it's uh with I would say the example of broad beta ETFs, it's just reminding people that you have certain capabilities and giving them maybe macroeconomic information to help make their own decisions.
• 29:49
  SPEAKER_00: Whereas in other areas, like we could say look at ESG, for example, because that's kind of nascent and growing, a lot of education is needed there.
• 29:57
  SPEAKER_00: So, you know, it's kind of this balance between reminding people but providing education in other instances.
• 30:03
  SPEAKER_00: So, and and given just how complex the world is and how challenging it's been and looks likely to continue to be, this is just an ongoing, tricky exercise, but it's part of the fun too.
• 30:15
  SPEAKER_00: And you know, it's part of the of the learning that we're all that we're all going on together.
• 30:19
  SPEAKER_02: So brilliant.
• 30:20
  SPEAKER_02: Thank you guys.
• 30:21
  SPEAKER_02: And I'm just conscious of time.
• 30:24
  SPEAKER_02: Um, do you think there's anything else that we haven't quite covered or or maybe some final tips for for marketers?
• 30:32
  SPEAKER_02: You know, seemingly this is gonna be coming down the path to your point, you know, to provide that sort of full solution to clients, they're gonna have to be thinking about ETFs in the mix.
• 30:40
  SPEAKER_02: And if they don't already have that in their capability set, it's probably on the minds of the senior management.
• 30:46
  SPEAKER_02: Uh, so is there any anything else um that you would suggest or kind of final thoughts or even just to repeat a key point that you've made?
• 30:55
  SPEAKER_02: Maybe we'll come to you guys.
• 30:57
  SPEAKER_02: Uh sorry, yeah, right.
• 31:03
  SPEAKER_01: Um, I'd say look, embrace them.
• 31:06
  SPEAKER_01: Uh particularly for the broad-indexed ETFs, uh, your macro strategist or your economist is going to be your is going to be your key source of content for content for campaigns and material.
• 31:17
  SPEAKER_01: So rather than telling sort of stock and security stories from individual investment teams for the broad-based indices, you're going to be speaking thematically, which is often a bit of a change.
• 31:28
  SPEAKER_01: Um, I think that's quite interesting.
• 31:31
  SPEAKER_01: Um, and then hopefully you guys do too.
• 31:34
  SPEAKER_01: Um, whereas the process of marketing speaking about these active products and some of the systematic sort of smart beta um products blur those lines is very similar to active mutual funds.
• 31:45
  SPEAKER_01: I mean, um, when Alex and I were both at source together, we we were some of the first to launch active ETFs, and you are embarking on very similar activities to an active mutual fund.
• 31:56
  SPEAKER_01: You're roadshowing the management team, you're setting up webinars, uh, it's it's etc.
• 32:02
  SPEAKER_01: It's a it's a very it's a very similar process with the added benefit of this uh better structure.
• 32:08
  SPEAKER_01: Um Alex mentioned as well, is a lot about it, a lot of need for education around um around the ETF wrapper itself.
• 32:17
  SPEAKER_01: Um and there's they're that all it's very similar, whether it's equity, fixed income, or even commodity products.
• 32:25
  SPEAKER_01: Uh you're gonna you're gonna be having a similar conversation.
• 32:28
  SPEAKER_01: And I guess finally, as I as I mentioned, really, is just those capital markets teams are really important.
• 32:34
  SPEAKER_01: Uh, and there's also a lot of messaging you can do around their capability as an added service to your clients.
• 32:39
  SPEAKER_01: Talk about you know, research, uh, attentive sales.
• 32:42
  SPEAKER_01: Um, there's also the the an element of capital markets teams being a really valuable resource you add for your clients.
• 32:50
  SPEAKER_00: Yeah, those are all great points, Nick, and um totally agree with them.
• 32:54
  SPEAKER_00: And I would kind of underline twink the message of democratizing investment, because I think ETFs do a lot of good things for a lot of good uh a lot of people.
• 33:04
  SPEAKER_00: And you know, there's even some interesting examples of you know, uh uh investor who's got a long-term time horizon, just wants a diversified global portfolio.
• 33:15
  SPEAKER_00: That investor can achieve that through a series of ETFs, in some instances for around a total weighted average portfolio cost of around 20 basis points, which is amazing.
• 33:27
  SPEAKER_00: So, you know, this helps a lot of people, but there's a lot of tools in there because again, it's just a wrapper.
• 33:34
  SPEAKER_00: Um, so you know, those tools can be used in any number of intricate ways.
• 33:39
  SPEAKER_00: And so um highlighting the benefits of them, educating people, staying on top of market events, and just being connected that way to just make things as easy as possible for people to express their views is seems to be the name of the game from our point of view.
• 33:53
  SPEAKER_01: Yeah.
• 33:54
  SPEAKER_02: Quite brilliant.
• 33:55
  SPEAKER_02: Um, thank you both.
• 33:56
  SPEAKER_02: I mean, your passion and expertise in this area is just palpable.
• 34:01
  SPEAKER_02: So thank you so much for finding the time and sharing all your thoughts on this.
• 34:05
  SPEAKER_02: And hopefully uh we've made ETS feel more accessible to some and and sort of fed the curiosity uh for others.
• 34:13
  SPEAKER_02: And indeed, um, no doubt with ETFs how to be increasingly part of their marketing, messaging, and campaigns, they now feel everybody feels a bit readier.
• 34:23
  SPEAKER_02: So thank you, thank you again for taking time today.
• 34:25
  SPEAKER_02: It's been great talking to you both.
• 34:26
  SPEAKER_01: Thanks so much, Drake.
• 34:27
  SPEAKER_01: Appreciate the opportunity.
• 34:29
  SPEAKER_01: Thanks for having me.