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LaSalla on Adding Allocations to Alternatives (Audio) · Bloomberg Intelligence

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  Speaker 1: And now we want to bring in somebody to talk
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  Speaker 1: about our very special show today and a guy who's
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  Speaker 1: probably got a thing or two to say about bonds
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  Speaker 1: and what they're doing right now. We're very happy to
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  Speaker 1: welcome Frank LaSala. Now he is here for our very
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  Speaker 1: special show today at b M Y Melons et F
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  Speaker 1: Exchange sixteen Conference Ideas, Innovation Interaction. Frank is CEO of
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  Speaker 1: Global Structured Products and Alternative Investment Services at b M
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  Speaker 1: Y Melon. Welcome. So, Uh, first of all, let's because
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  Speaker 1: we were talking about the bond market. You tell me
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  Speaker 1: you're the expert. Uh, Have we seen a correction in
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  Speaker 1: yields and prices or is just a little reversal and
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  Speaker 1: yells are gonna keep rising again? You know, Kathleen, it's
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  Speaker 1: hard to tell, only because my senses. Every time we
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  Speaker 1: see new loads on the yield um, it feels like
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  Speaker 1: we've really bottomed. But when you look at this enormous
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  Speaker 1: amount of liquidity coming in from him just mentioned several
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  Speaker 1: central banks, Clearly Europe is going to be in continued
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  Speaker 1: ease mode. Bank of Japan is going to be very
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  Speaker 1: very accommodative. It's very hard to see how rates can
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  Speaker 1: really move with any sort of Even even if the
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  Speaker 1: FED raises rates before the end of the year, it's
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  Speaker 1: hard to see with all the liquidity, where else is
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  Speaker 1: it going to go. So I think it's really hard
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  Speaker 1: to make a case for higher interest rates. UM. I
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  Speaker 1: think they're just gonna stay in this very tight range.
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  Speaker 1: What's the theme this year? Because you're talking about a
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  Speaker 1: low interest rate environment, many people missed the bond market rally.
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  Speaker 1: They thought that rates were gonna go higher. They haven't yet,
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  Speaker 1: as you just described. So what's the big theme? What's
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  Speaker 1: the big concern? Because we're here with I don't tell
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  Speaker 1: us how many we've got pro shares, we've got reality shares,
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  Speaker 1: We've got a whole group of et F sponsors here.
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  Speaker 1: What's the theme? Well, well, the theme is real. Well
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  Speaker 1: there's a couple of things for the three hundred participants
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  Speaker 1: that are here with us for this conference. It really
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  Speaker 1: is around where do we t f s play a
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  Speaker 1: part in the portfolio? But do you have brought a
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  Speaker 1: question about what is the theme in the markets? To me,
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  Speaker 1: it's still uncertainty. It's not knowing UM the Fed. The
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  Speaker 1: thinking about the FED and what the Fed's next action
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  Speaker 1: just seems to take all the oxygen out of out
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  Speaker 1: of everything else, UM fundamentals seem to be okay. I
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  Speaker 1: think the story is in earnings that we've gotten mixed
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  Speaker 1: messages type of economic growth. So until we get the
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  Speaker 1: Feds speak, if you will, out of the way, it's
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  Speaker 1: hard to see the markets really react with any sort
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  Speaker 1: of connection. So it's been volatility but really not going
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  Speaker 1: anywhere fast. What we see, what we're hearing at the
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  Speaker 1: conference today is around There's there's two big themes for
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  Speaker 1: ETF issues and for investors and e t f s.
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  Speaker 1: One is the d O L. White Deal of Fiduciary
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  Speaker 1: Standard Department of Labor, the new fiduciary standards for registered
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  Speaker 1: investment advisors. Yes, and and basically advisors and wealth managers
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  Speaker 1: now have to really act in the client's best interest,
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  Speaker 1: which I think a lot have done in the past,
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  Speaker 1: but it's now been codified. But what that means is
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  Speaker 1: UM they really have to look at not only put
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  Speaker 1: portfolio performance risk, but also cost for continuing our very
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  Speaker 1: special live broadcast here in Data Point, California or at
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  Speaker 1: the Monarch Beach Resource for B and Y Melons et
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  Speaker 1: F Exchange sixteen looking at ideas innovation interaction in this
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  Speaker 1: growing doesn't the right word. I think it's kind of
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  Speaker 1: an exploding industry. Our guest is Frank las Sala. Frank,
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  Speaker 1: of course, is CEO of Global Structured Products and Alternative
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  Speaker 1: Investment Services at b n Y Melon So Frank regarding
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  Speaker 1: UH the markets, uncertainty, volatility, central banks, you know, speak,
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  Speaker 1: don't speak, move, don't move. It's really it's it's a
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  Speaker 1: it's a tough environment for a lot of people trying
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  Speaker 1: to make money. So what are people What do you think?
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  Speaker 1: Was one of the some of the important important questions
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  Speaker 1: here at this conference about the kinds of e T
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  Speaker 1: s that are out there, how they can be used
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  Speaker 1: to make money to protect money at a time like this. Well, Kathleen,
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  Speaker 1: I mean, fundamentals still count right, and we are now
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  Speaker 1: in this seven or eight year of this almost zero
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  Speaker 1: interest rate environment, and as we've talked about many times,
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  Speaker 1: investors need to get returned, and so they're looking at
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  Speaker 1: different alternatives. And one of the things we've talked about
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  Speaker 1: here and at the conferences, what do ETFs provide investors
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  Speaker 1: as an alternative to straight equity purchase debt debt instruments
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  Speaker 1: which are really not giving them a return. And what
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  Speaker 1: the industry is trying to do with the e t
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  Speaker 1: F industry is trying to do is developed products, capability
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  Speaker 1: solutions that investors can go into and get a better
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  Speaker 1: UH risk adjusted return. And e t f s, by
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  Speaker 1: their inherent nature do provide some benefits. Ay, you get
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  Speaker 1: daily liquidity, which is very very important for many investors.
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  Speaker 1: They just want that ability to get in and out
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  Speaker 1: when they need to. It is relatively more tax efficient
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  Speaker 1: because of the way e t f s create and redeem,
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  Speaker 1: So most investors don't even realize that, but there is
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  Speaker 1: a tax benefit to being in an e t F.
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  Speaker 1: Two other assets quite futral fund, right, I mean, like
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  Speaker 1: of a mutual fund. Even if you're still invested in
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  Speaker 1: the mutual fund and you've selld you've sold no shares,
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  Speaker 1: you're gonna end up with a tax liability. If the
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  Speaker 1: mutual fund has a tax liability, that's that's not the
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  Speaker 1: same with the t F. You're in control of when
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  Speaker 1: that tax event happens. And that helps investors, you know,
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  Speaker 1: on an after tax return, which is obviously important. Um
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  Speaker 1: And and the other thing is, as we said, what
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  Speaker 1: the big theme that we're really talking about is this
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  Speaker 1: whole department of labor him as you mentioned earlier, this
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  Speaker 1: department of labor fiduciary rule, where we think more advisors
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  Speaker 1: will look into e t F as an alternative for
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  Speaker 1: their end investor. The way we see the e t
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  Speaker 1: F market right now, it's roughly a three point one
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  Speaker 1: trillion a global market. Most of that two thirds of
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  Speaker 1: it is here in the United States, about five billions
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  Speaker 1: in Europe, and there's in Canada and Japan makeup the
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  Speaker 1: majority of the rest. We think that will grow, and
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  Speaker 1: our current data is suggesting that that could grow as
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  Speaker 1: much as to ten trillion dollars in the next five years.
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  Speaker 1: So in terms of asset class growth, e t f
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  Speaker 1: s will certainly become a bigger part of the overall
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  Speaker 1: investor portfolio. And what that will do is probably induce
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  Speaker 1: many of the issues that are here to think about
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  Speaker 1: more creative ways how they can issue ETFs that are
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  Speaker 1: contoured tour investor interest. So uh speaking to investor interest
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  Speaker 1: in this this market, I mean that if we had
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  Speaker 1: if this for TV we get to occur, the growth
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  Speaker 1: is just so almost straight up right for a lot
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  Speaker 1: of e t s and spreading around the world as
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  Speaker 1: you said, where where are the mark what kind of
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  Speaker 1: e t F concentrations exists? What are the we're just
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  Speaker 1: saying like or how do you break it down for
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  Speaker 1: is like we're the majority of money as in e
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  Speaker 1: t F s and what are some of the new
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  Speaker 1: ones that are small now where you see possible growth. Well,
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  Speaker 1: as we talked about this morning, um, the biggest concentration
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  Speaker 1: of e t F investment is in the passive low
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  Speaker 1: cost indexes. So you buy an SMPI index at Dow
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  Speaker 1: thirty index to q q Q is one. As you
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  Speaker 1: looking at nastack get the attack of a lot of
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  Speaker 1: investors are going for a very low cost, safe play,
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  Speaker 1: and that's been like that for a while. What we
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  Speaker 1: many of the issues that I hear at all at
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  Speaker 1: our conference are really more in you know, the hybrid ETF.
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  Speaker 1: So it's more like smart beta. It's not exactly linked,
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  Speaker 1: although it's correlated to indexes, it's actively managed in the
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  Speaker 1: in the to anticipate better returns for investors. So we
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  Speaker 1: think that although right now, particularly just after the Department
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  Speaker 1: of Labors fiduciary standards have changed, we've seen a lot
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  Speaker 1: of flow into passive, passive low cost we think as
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  Speaker 1: investors and advisors get more comfortable with the array of
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  Speaker 1: et F products, we will begin to see a shift
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  Speaker 1: more toward the hybrid or smart beta type ETF products.
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  Speaker 1: I just want to challenge a little bit on this
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  Speaker 1: idea that you know, when you talk about let's say
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  Speaker 1: a plain vanilla exchange traded fund like the Triple Q
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  Speaker 1: or you know that is long equities that may be
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  Speaker 1: diversive hide within equities, But if that's all you've got
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  Speaker 1: in your portfolio, you're not diversified. Your exposed to the
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  Speaker 1: volatility in stocks. Yes, that's exactly right, I mean, and
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  Speaker 1: so that's what you're trying to deal with. But a
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  Speaker 1: good advisor knows that and construct an overall portfolio of
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  Speaker 1: which that particular et F like you've mentioned UH is
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  Speaker 1: part of it. But you've got to look at the
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  Speaker 1: whole portfolio. And that doesn't mean you get out of
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  Speaker 1: government bonds. It doesn't mean you maybe get out of equities,
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  Speaker 1: you know, straight equity purchases. But it's got to be
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  Speaker 1: constructed holistically, and you have to be educated, right because
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  Speaker 1: if you may end up with an e t F
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  Speaker 1: that all it really does is mitigate the risk that
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  Speaker 1: you have in something else but doesn't produce great returns,
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  Speaker 1: but that's not what it's designed to do in the portfolio.
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  Speaker 1: That's exactly right. And and and we see more interest
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  Speaker 1: in the advisor community to really look into e t
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  Speaker 1: F s and to get educated, as you say, because
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  Speaker 1: the end investor needs to be educated, and until he
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  Speaker 1: or she is, it's hard for them to comfortable to
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  Speaker 1: see it in their portfolio. But the general attributes of
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  Speaker 1: the of e t F s um I think are
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  Speaker 1: enough and in many cases superior, so that investors should
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  Speaker 1: really consider them well done. All right, Well, we've got
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  Speaker 1: a lot to learn here at the e t F Symposium,
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  Speaker 1: the b n Y Melan et F Symposium. I want
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  Speaker 1: to thank you very much. Frankly sala He is the
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  Speaker 1: chief executive of Global Structured Products Alternative Investment Services at
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  Speaker 1: b n Y Melon. I'm PIM Fox, my co host
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  Speaker 1: Kathleen Hayes coming up more on the world of exchange
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  Speaker 1: traded funds. And you know what we'll define smart beta.
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  Speaker 1: This is Bloomberg