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What are active ETFs and should you invest in them? · On The Money

• 0:03
  Sam Benstead: Hello. I'm Sam Benstead. Kyle is out of office, so I'm stepping in for another week to host On The Money, the weekly look at how to get the best out of your savings and investments. This week, we are discussing active ETFs, a relatively new type of exchange trader fund that allows instant access to actively managed portfolios. With me to discuss this product is Tom Bailey, who's the head of research at ETF firm Han ETF.
• 0:31
  Tom, thank you so much for coming on the podcast. We're here to talk about exchange traded funds, ETFs. These are now quite a normal investment vehicle, but they haven't always been. So can you please talk me through the history of ETFs and how we got to where we are today?
• 0:48
  Tom Bailey: Thanks, Sam. Thanks for having me. Pleased to be here. Yeah. I mean, we can go right back to the start.
• 0:52
  I think it's kinda illustrative of the changes we've seen in ETFs. So the origins of ETFs actually lie in the 1987 market crash, Black Wednesday. And the report the SEC published after that crash essentially said, it would've been great if there was a tool for investors to buy the entire market intraday, which could have stemmed that that kind of that big drawdown. Now a guy called Nathan Moss noticed that in the report. Several people did, but Nathan Moss did, and kind of inspired him to to think about how he could create that tool.
• 1:23
  Because, obviously, back then there wasn't an ETF. There wasn't a way you could buy the entire market intraday in the middle of the the trading hours. Right? You you could do an index fund, but, obviously, you're gonna get that early deals at the end of the day. And so with that in mind of how to create that, he set about trying to create it.
• 1:39
  And the combination of that is basically in 1993, the creation of SPYDER SPY, the the biggest ETF in the world most of the time. Sometimes the Vanguard S and P 500 tracker takes over, but this is the biggest ETF in the world, the oldest ETF in the world. And so that's the first ETF. And I think, you know, the launch of the ETF, obviously, it was built to track the entire market and be a tool to buy the entire market, S and P five hundred in particular. And I think at the same time as you saw kind of investors increasingly aware of that tool, start to use it, and aware of ETFs themselves, was around the same time that you also saw this growth of passive investment.
• 2:16
  So the two that's different, passive and ETFs, not the same thing, but the two kinda grew up together and and came to prominence together. So I think that what that created in the mind of many investors was this kind of synonym between passive ETF, which you kinda still see today. But, you know, within ten years of launch of that, you saw the first gold ETF or ETC technically be launched. Actually, our co CEO Nick Bengalski essentially invented the first gold ETC back in the early two thousands. And so there was this expansion of kind of what you can actually do inside an ETF.
• 2:48
  It doesn't just have to be, you know, S three four hundred instead of that's tracking the the price of gold. And then in the February, you also saw 02/2008, you saw the first active ETF launch in The US. And then you saw the kind of new products emerge, kind of utilizing kind of research from, you know, French and Fama around different factors and doing smart beta ETFs with a kind of a tilt towards value or growth or or or quality, etcetera. And then they kind of took on an interest in the in the in the twenty tens. And at the same time, then you saw this kind of approach towards thematic in terms of maybe your screen stocks for for revenue exposure to certain areas to try and capture these kind of broad themes.
• 3:26
  And so you saw that kind of expansion of of the use of ETF. And so as I mentioned, the active ETF has been around since 02/2008. It's the first active ETF launched in The US, but it's really been for the last six years, I'd say, that we've seen a strong, real kind of substantial growth in active ETFs in particular. In The US, it's coming to Europe, But, obviously, in Europe, I think we're usually always around, like, five to ten years behind The US on these trends. But in in The US you know, last year in The US, Eighty Percent of new ETFs that launched were active.
• 3:55
  Essentially, no one is launching the mutual fund anymore in The US. The default wrapper has increasingly become the ETF itself, and then, you know, we start to see that that trend come towards Europe. So last year in Europe, active ETF AUM in aggregate grew by 68%. So we're kind of seeing strong strong movement there, but at the same time, you know, it's still relatively early days for Europe. So something like 2.6% of all ETF AUM in Europe is is an active ETF.
• 4:23
  So early days, but the active ETF is is, kind of increasing the game in dominance.
• 4:28
  Sam Benstead: And before we go a bit deeper on active ETFs, can you just explain to me how ETFs work? How through one transaction you can accurately own an underlying basket of shares and you're paying the right price for them.
• 4:42
  Tom Bailey: Yeah. So, you know, it's it's a it's a good way to explain active ETFs. Right? Because you kind of explain the mechanism and then kind of where active is slightly different. So if you take a venture ETF, obviously, you have an index.
• 4:52
  Right? Just say, 5,100, and then, obviously, the ETF structure, the fund rapper will will buy those stocks in proportion. To that, you have a portfolio manager to do that. And then, obviously, the ETF issuer will have shares issued against the ETF, which investors can buy. So those shares and ETF trades on exchange throughout the day, so it's on the stock exchange or or New York Stock Exchange.
• 5:14
  And any investor, obviously, can buy them through a platform like II and and throughout the day. Now, obviously, that sounds like an investment trust. Right? Because that's also what an investment trust can can do. But the key difference then with an ETF is the creation redemption process, and this is what keeps the price and the net asset value of the ETF in line.
• 5:33
  So, essentially, the price of the shares ETF in proportion to the value of the underlying stocks. Because, obviously, listeners are familiar with, say, an investment trust, it obviously trades sometimes at a premium or discount. So that's the kind of issue the ETF had to overcome or or basically to to come into existence and how you can do that, how you can have that daily trading, intraday trading throughout on the exchange without having big premiums or discounts emerge. And the way that's done is essentially an ecosystem the ETF's kind of industry has, and the key part of that is what what are called the authorized participants. So they carry out what's called the creation redemption process.
• 6:09
  So we take that basket stocks, say there's strong buying for it, a lot of investors want it, then you'll start to see, like with investment trust, a premium emerge. Right? So the share price will be slightly ahead of the net asset value. Now rather than just letting that sit there, as soon as that kind of starts to emerge in a notable way, these all participants, people like Jane Street, Flow Traders, some of this might have heard of, they will see an opportunity there. So they'll come in, and then they'll see that that premium.
• 6:37
  So they'll buy the underlying basket stocks in proportion to what the ETF holds, then they'll come to the ETF issuer, hand over those stocks to us. In exchange we'll give them shares, and then they can then sell those shares onto the market, and that will bring down the premium. Conversely, if a lot of investors selling the ETF, they don't want the ETF anymore, or at least a notable number don't want the ETF anymore, then you might see start to trade at discount. So the price of the shares of ETF at discount to the net asset value of of the underlying stocks. And so that will obviously then see the APs come in as well, see an opportunity.
• 7:11
  They'll buy the shares in the ETF, the ETF itself, and then they'll exchange them with the ETF issuer for those underlying stocks. So the AP there is kind of making a kind of a small profit arbitrage, obviously, to do this at massive scale, but that's kind of what keeps that that that price and net asset value in line. Now when it comes to an active ETF, the only difference really is that first step, the security selection. So go back to what I originally said in terms of we take the foot to a hundred, the portfolio manager is buying the stocks in proportion to fit to a hundred. Instead of doing that, the portfolio manager instead is is like your typical portfolio manager for an investment trust or a or a mutual fund or an OIC, who is basically buying those stocks and waiting those stocks in quarters to obviously what he believes is has potential to to provide outperformance to whatever his benchmark is.
• 8:00
  Sam Benstead: The first I heard of active ETFs was in early twenty twenty when Cathie Wood's ARK innovation was all in the media. Everybody followed what she was investing in, and this was an ETF product that actually tracks the positions of an active fund manager. It was often compared to Scottish Mortgage in The UK in terms of what it invested in. But what do active ETFs look like now in The UK? What what's on the market and and how are we defining an active ETF?
• 8:27
  Tom Bailey: Yeah. I mean, so if you look at data providers, you see discrepancy sometimes in numbers because of different definitions, but anyway, we don't in a Han ETF, we we don't have a kind of a strict definition, so to speak. You know, historically, you've seen these kind of benchmark aware products where and I think this is kind of addictive of the early days of active ETFs, where there's kind of some attempt to outperform the benchmark, but kind of hugging very close to the benchmark. Not the kind of, you know, when people talk about, you know, closet trackers in terms of it. It's very transparent.
• 8:58
  This is what they're doing. They're trying to add a bit about performance. And I think that reflected the kind of just the early days of of the activity set market, and and there's been some some demand for that. But I think now what you're getting is is quite a change in in approach. So what we're instead seeing is kind of your more kind of high conviction active strategies come to market.
• 9:16
  So, obviously, you mentioned Cathie Wood in The US as obviously very high conviction funds for the best or worse. But if we kind of look at who's gonna enter the market recently, so, you know, we launched an ETF with Guinness, by no means a kind of a kind of shy active kind of fund house of high conviction. So we launched an ETF with them last year as well as Jupiter. So what we're seeing, think, is a lot of the traditional fund managers kinda realize that the ETF space is something to look at now and to add ETF to their kind of distribution tools.
• 9:48
  Sam Benstead: And if you have the option of an ETF of an active product or an open ended fund of the same active product, same management team, what would be the advantages and disadvantages of of choosing the ETF over the open ended fund?
• 10:01
  Tom Bailey: So, you know, one of the key advantages is yeah. It's a it's a very strange kind of mutual fund structure. I think it's quite archaic in many ways. Right? What else do you buy where you don't actually know the price you're gonna end up transacting at?
• 10:14
  It's hard to think of anything else in the world you do that in at least for consumer on a consumer basis. Right? But that is the case with mutual fund. Right? You you if you buy at 12:00, you're getting the price at a closer market.
• 10:24
  So you don't actually know what price you're buying at. Now not all investors necessarily care about this, but I think it's kind of it's it's a it's a strange archaic structure in that way, and I think that's a kinda clear advantage is you know the price you're buying at. There might only be small discrepancies, but in in periods of volatility, it might make a difference. Right? So that's that's kinda one.
• 10:42
  Another one is, you know, the the cost structure, not the fee, because the fees obviously, you know, can can vary, but more the cost structure. And so in this, you know, you can point this as a as a upside or a downside to ETFs or or one one in the ledger for ETFs, one in ledger for mutual funds. But if you take an ETF, right, or if you take it, Ravi, if you take a mutual fund, when someone buys into that mutual fund, the cost of the portfolio manager buying the stocks in proportion to to kind of what he wants for his allocation is borne by all the investors in it. Now if you're an existing investor, that's detracting from your performance. Right?
• 11:19
  Because you're paying for that transaction cost inside the wrapper. With an ETF, that's not the case. That transaction takes place outside. It's the APs who come along, provide the the shares for for the ETF. So you're not getting that kind of shared cost of of maintaining the portfolio in that same way.
• 11:35
  But what it does mean, because it transacts on exchange, there is a spread to buy the ETF. Right? So, you know, if you could obviously, if you look on II, you'll see you'll see the bid ask spread on on on your screen. So you are paying that spread potentially. Now obviously, all ETF companies work to to kinda minimize that spread, but sometimes it's a function of of the kind of liquidity of those underlying stocks.
• 11:55
  So it is a cost that investors pay, but our view would be that, you know, it's a fairer cost structure. So if you want to buy into the ETF, you want to sell the ETF, then you obviously eat the spread. That's that's a cost that you bear. The other investors inside the ETF are not affected by your decision making, whereas with a mutual fund, they are affected by the decision making of investors. So we'd say, you know, you can look at it either way, but we think it's a fairer cost structure.
• 12:22
  Sam Benstead: You mentioned you partnered with Jupiter. That was on a fixed income ETF, wasn't it? So how does that work when when buying bonds? Is that a different process to equities?
• 12:32
  Tom Bailey: Not not really. You know, it's still the the portfolio manager, the the way would for for in the mutual funds kind of buy those bonds. Doesn't really function any differently than than you expect other than in terms of difference in terms of, you know, buying a bond versus buying equities.
• 12:48
  Sam Benstead: And what happens when an active ETF becomes too small or too large? When looking at open ended funds, they often put limits on the size of portfolios, which is the fund manager saying, actually, we can effectively manage this strategy up to a certain point where we might become too large to buy what we really want to buy. So what happens with ETFs if they become too large or too small?
• 13:09
  Tom Bailey: Yeah. I mean, so the the first
• 13:10
  Sam Benstead: if if you know if
• 13:10
  Tom Bailey: an ETF is too small, like, if all funds, if the economics aren't there for an asset manager to continue to run it, then, obviously, they'll look look at potentially closing that fund. That's kind of full funds. Essentially, you know, asset managers are not there to just provide funds for for no reason. It has to kind of have a economic rationale for their business. Right?
• 13:29
  In terms of the size, that's a nice problem to have. It's kinda not an issue anyone in terms of you look at, you know, active ETFs at 2% of ETF AUM in Europe right now. It's not necessarily a problem yet, but it's obviously something to keep in mind. Right? That if if if what we think is the case that ETFs will become creating the default wrapper, then it's gonna be something that will be confronted at some point.
• 13:50
  So, you know, with mutual funds or an OIC, etcetera, you you you will gate you can gate the product to new money. Right? And that's how you deal with with that that size. With ETFs right now, obviously, that that realizes so one aspect is, you know, the the fund itself would have to be very big, and then also big in proportion to say the liquidity or size of the underlying stocks. Right?
• 14:12
  That's why why you do it. So it's not again, most active ETFs you're seeing now are still relatively small and also still investing in in relatively liquid strategies. But in the future, essentially, what you do is rather than, you know, with a with a mutual funds or an OIC, the asset manager themselves closes new flows because they take the flows themselves. You subscribe to the asset manager themselves. Obviously, as described, you have this whole authorized participant creation redemption process.
• 14:40
  So instead, you would you would gate the you know, you'd essentially tell the APs in so many words to stop doing new crates on on the product. The result of that would be the ETF starts to trade at a premium. So in some ways, it will start to look like an investment trust in that regard, but that would stop new money coming in. But what it wouldn't do in terms of mutual fund, you stop new money coming in, is obviously no one can buy it anymore. In ETFs, keep in mind, there's a primary market, which is that whole AP process, and then there's a secondary market, and you just share a trade on exchange.
• 15:13
  So you would essentially close the creation in the primary market, and then it would go to a premium. I had not ideal for an ETF because that's obviously what what we kind of want an ETF to do is to to obviously trade in line with its net asset value and not be at a premium or a discount, but that's what you would essentially do. And then investors can then buy and sell those shares on the exchange. So, you know, investors can sell at a premium into the market if there's a counterparty who wants to buy that fund at a premium still, if that's so as they wish. It essentially would look like an investment trust.
• 15:41
  So it's not a insurmountable issue. It it kind of it it's something that would, in theory, work very seamlessly. Whether or we'll kind of see other approaches to that as it starts to become an issue, think the ETF industry is very creative and their ability to kind of consider how to make this work the best and and trying to keep what everyone wants to do, keep the price and NAV in line. But if you did need to gate it, at least gate inflows or outflows, you could do so.
• 16:05
  Sam Benstead: Have there been examples in the past where you see problems with the valuation of ETFs? Perhaps during a market crisis where lots of people wanna take money out or a hugely successful launch where lots of money is flowing in. Have there been issues finding finding a real market price for the underlying assets?
• 16:24
  Tom Bailey: Not in terms of at a launch with new money coming in. There's some interesting examples of ETFs kind of surviving through market volatility. So a good example would be when the the Greek stock market closed. Obviously, there was ETFs tracking Greek basket, Greek stocks. What a lot of the APs and and the market makers in the ETF ecosystem do is they they always try to determine the price also through correlation of other assets.
• 16:52
  So, obviously, with this the exchange closed, those stocks couldn't trade, but the ETF, obviously, that ETF say listed on the London Stock Exchange, it's still trading, but you don't know what the value of what's underlying is. But using correlations of other asset classes, they could work it out roughly. And when the exchange in Athens reopened, then you did see the price attract relatively well. Another example though would be, say, during COVID, when you saw, like, that real volatility in in The US bond market, you saw some of the fixed income products in The US kind of ETFs kind of get dislocated on on on price and NAV. And, you know, again, no one wants price and NAV to diverge.
• 17:35
  That's the whole point of the ETF. But when you consider, you know, with the kind of those illiquidity in the bond market, right, and then lots of people wanted to redeem out of their bond funds, be it ETFs or mutual funds. Now if you took the ETF version, what essentially meant was that it ended up trading on on a big discount because it couldn't price price couldn't come back down in line of the underlying because no one knew what the price was. So trading at a discount. But we say that comes back to the fairer cost structure.
• 18:04
  So if you take in a kind of similar scenario with a mutual fund, essentially, you're getting people coming to redeem out of mutual funds. Right? The fund manager is gonna sell the parts of the market which are not gummed up, which are liquid, leaving those inside it with being stuck with basically the rest of the market, which they can't sell. That creates a bit of a bank run dynamic. Right?
• 18:25
  Because you wanna you don't even if you weren't planning to sell, you didn't need that liquidity set up with your bond fund. You're then incentivized to do so, so you're not the last one holding basically the the basket of stocks at the end or or bonds rather, which which everyone was kind of that you're not able to sell. Whereas with the ETF, what it meant was if you really needed to sell now, you could. You would just take that hit yourself in terms of the the, basically, the difference between price and asset value. So, you know, I think ETFs are quite a resilient tool in that regards in terms of kind of what they offer.
• 18:56
  That's that's a kind of two layers being the primary market and the secondary market.
• 19:00
  Sam Benstead: Let's talk about the range of active ETFs that you can buy. We've spoken about pure actively managed funds where a stock picker picks their basket, which I think is going to outperform. But there's other there's other active ETFs on there. Thematic ETFs might be categorized in this bucket. Can you just explain what those are?
• 19:19
  Tom Bailey: I'd say if you take, say, thematic ETFs, right, because of this historic kind of focus on using index based products for for ETFs, index strategies for ETFs, a lot of the thematics in the ETF fold are index based. Right? So they'll construct rules around revenue exposure or scanning for kind of IP disclosures to try and fit stocks in that kind of match the the the theme to provide disclosure to. But there's no reason why an active manager can't do that as well. Right?
• 19:49
  Because if you look at, say, the mutual fund world, there's a lot of actively managed thematic products out there. Right? And so I think, you know so are thematics active or passive? Obviously, how they're used, it's an active bet. You think, you know, say the defense sector is is is positive.
• 20:08
  You want to avoid that in your portfolio. That's the investor being active, but if it tracks an index, that's kinda less active in that sense. But at the same time, there's rules written. You make a choice that, you know, actually to be included in this ETF, a stock must have 50% exposure plus revenue to defense. That's obviously kind of moving away from a market neutral position, so there's less active.
• 20:28
  But what we're seeing too is is kind of the actual active in terms of a portfolio manager who says, you know so for example, our Kinstad product portfolio manager says, you know, I know the ins and outs of sustainable energy stocks and and providing that exposure through through the active management skill. So you kind of both I think there's a place for both, and and, essentially, what you're seeing, I think, is kind of some of the strategies which would have been an investment trust, OIC, etcetera, are just being put into an ETF as well.
• 20:55
  Sam Benstead: And the other area, which I think is quite interesting, is what you might describe as smart beta, where there are set rules, not on the themes that company is in, but on characteristics around the companies, be those, you know, value measures or growth measures or or dividend measures. So you actually build a portfolio which allows you to do something a bit different than than the underlying index. Would those be considered active ETFs too?
• 21:24
  Tom Bailey: I personally wouldn't consider active because I think, you know, as I described, you know, constructing those rules, there's an element of kind of activeness in terms of you moving away from what is a neutral kind of benchmark market. But at the same and also how it's implemented as an active choice of the investor, obviously, you know, do they want 2% in in this product, 5% in this is obviously active active management within a portfolio. I wouldn't necessarily describe those products as active because I think that kind of muddies the waters a bit for what we are seeing, which is the actual active products. With with the smart beta question, you know, they were quite popular around ten, fifteen years ago, and dividend products, I think, are still very popular. But I think one of the one of the issues has been is that while as you have all the historic data on value stocks outperforming other stocks, it's not actually been the case.
• 22:10
  And there's only so long, you know, an ETF which doesn't provide performance will will kind of continue to attract assets into it. So and a lot of investors are not necessarily gonna be buying a you know, what's the appeal of a smart beta growth product when, obviously, if you look at the market is obviously very for the last ten years, it's been very heavily skewed towards growth stocks anyway. So it was a value, obviously, was was kind of the question, and and that kind of reversion to value outperformance, which has obviously happened periodically over the last ten years, but kind of small blips. So I think a lot of investors kind of have have moved away from from that smart beta style products for now. But, you know, once you get market is changing, obviously, not hear so about news, and I'm sure by the time your listeners hear this, so much other stuff will happen.
• 23:00
  And, obviously, we're talking on on Friday after Trump's tariff announcements. You know, there's a big market regime shift, macroeconomic shift. So how those other factors will start to perform in in that new climate, who knows? But it might see kind of smart beta return to interest, I think.
• 23:19
  Sam Benstead: And how do you think the ETF industry in The UK will evolve over the next five years?
• 23:24
  Tom Bailey: Sure. I I think the key thing will be the entry of we call, kind of traditional fund houses into the ETF space. I think a lot of traditional fund houses have been reluctant to enter the ETF space because they've seen it as a as area where, basically, you you're competing with BlackRock, Vanguard on scale and price. Right? So it's why would I want to enter the ETF market and create an ETF, which is gonna have to, you know, compete with Vanguard, BlackRock for, you know, can I charge three basis points for this S and P 500 tracker?
• 24:00
  Will that get the money in when, you know, the other competitors are charging five or four? So that's kind of kept kind of fun houses away from the ETF world. They said, like, what's the point of that? It's not the economics. It's such an uphill battle to to gain a foothold in it.
• 24:14
  But what we're seeing now is this growing awareness around active, and and other differentiated products where your USP isn't cost, which is a function of scale. Instead, it's it's a it's it's, you know, it's your own IP and your potential or kind of past outperformance, which which is a driver of that interest. So that's why I think you'll see a lot of more traditional fund houses come in to ETF world. At the same time, a lot of kind of traditional fund houses, they wanna set up an ETF that's creating a whole new section of the business, but now you have, like with Han ETF, kind of these white labelers. So if you are Jupiter, Guinness, you don't have to go and hire a whole ETF team, set up a new section of the business to focus on ETFs themselves.
• 24:59
  Instead, you can go to a white labeler like Han ETF and then essentially create. We'll create that product for you. They'll have your branding, your IP, and then if they want Hand ETF distribution, a mix of it, or or they can do their own distribution. So I think that kind of ease of access to market has been one of the key drivers of more more fund managers and asset managers in The US coming to ETF market, and that is kind of a turnkey solution rather than have to set up your own business itself. So I think that will be a major feature is that when your your listeners who obviously on their II platform right now, obviously, if they go and look at a lot of the kind of fun houses, they might see there's an investment trust version and there's an open end version, and they have a choice in to whatever they wish.
• 25:37
  Right? I think, increasingly, they'll start to see the third arm of that distribution, which we need to have. So they have a choice to do on the ETF version,
• 25:43
  Sam Benstead: the trust version, the WIC version. And finally, if consumers have that option, why should they choose the active ETF? Can we have two or three reasons?
• 25:52
  Tom Bailey: Well, we're neutral on active versus passive, but that varies on, you know, which asset class, whichever approach. So I think with active ETF, it's less why I want an active ETF over a passive ETF. I think you're trying to achieve different things there in your portfolio. You have a different perception of markets. You're trying to access different areas of of the market, etcetera.
• 26:12
  But instead, I'll be you should use an ETF for your active exposure over an OIC, or why you should use an ETF for your passive exposure over a traditional index fund. And that comes down to the key reasons is you get that you get that daily pricing. So not daily pricing, intraday pricing. You pay the price you see on the screen when you click that transact button on on I I, and at the same time, that core of fairer cost structure. There is some tax benefit to to owning Irish domicile ETF if they own US stocks, which pay dividends.
• 26:48
  You get better tax treatment on those US dividends if it's Irish domicile ETF than if it wasn't. So there's also that argument. At the same time, I think you'll you'll see a lot of the the, you know, the the more innovative new strategies come come via ETFs increasingly like we've seen in The US. And then at the same time, the transparency. So this is slightly changing, but right now, your ETF has to publish its entire daily holdings.
• 27:15
  It's not the case with the trust or a link. In The US, they've changed it, and since 02/2019, that ETFs don't have to publish their daily holdings. But what we've seen is basically 90% of money in active ETFs is going to those fully transparent ETFs still, even though they have the option not to. They they can have their non semi transparent, so not disclose their holdings daily. The two key regulators for ETFs in Europe, so in Luxembourg and in Ireland, where most ETFs are domiciled, are loosening the rules on this, and they are gonna allow not full transparency.
• 27:47
  But I think like in The US, the ETF will most ETFs will still have that full transparency. So that I think that's a benefit to investors too. They can pull up their you know, you can go on the the ETF issuer's website, and you can see exactly every day what those holdings are in full, not just the top 10. And this this kind of one kind of example of this would be if you go back to to, say, February 2022 after Ukraine was invaded by Russia, a lot of investors wanted to know, did they have any Russian exposure in their portfolios? Right?
• 28:17
  Now with an ETF, you can immediately see that. You can see, okay. There's this Russian stock, this Russian stock, or there's no Russian stocks. With a mutual fund, you're not gonna be able to see that immediately. Right?
• 28:27
  So that transparency, I think, is is is quite valued by investors, which is why even though that transparency won't be required in the future in Europe for ETFs, I think it will still be the default way ETFs are structured.
• 28:40
  Sam Benstead: My thanks to Tom, and thank you for listening to this episode of On the Money. If you enjoyed it, please follow the show in your podcast app, and do tell a friend about it. If you get a chance, leave us a rating or review in your podcast app too. You can join the conversation, ask questions, and tell
• 28:58
  Tom Bailey: us what you'd like us
• 28:59
  Sam Benstead: to talk about via email on 0tm@ii.co.uk. In the meantime, you can find more information and practical pointers on how to get the most out of your investments on the Interactive Investor website at ii.co.uk. And I'll see you next week.