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Clash of the Titans: BlackRock and Vanguard LIVE · Trillions

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  Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
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  Speaker 2: Hello and welcome to a special edition of the Trillions podcast.
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  Speaker 3: I'm Joel Webber and I'm Eric Valchunas.
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  Speaker 2: And we're coming to you live from Bloomberg's headquarters, London
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  Speaker 2: Headquarters at our ETFs and Depth conference. Thanks to all
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  Speaker 2: of you and the audience. You are now on the
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  Speaker 2: episode which we are calling the Clash of the Titans
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  Speaker 2: for very obvious reason. Today our guests are MANUELA Esprandio Welcne,
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  Speaker 2: co head of h we practiced, co head of European
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  Speaker 2: I Shares at Blackrock, and Jonathan Cleeborne, Managing director for
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  Speaker 2: Vanguard Europe.
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  Speaker 4: Eric, we've got a couple.
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  Speaker 2: Of giants here, heavyweights. Maybe how did we get them
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  Speaker 2: to join us on our humble podcast.
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  Speaker 3: I don't know. We swee talked them, that's for sure.
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  Speaker 2: In the history of our podcast, this is these are
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  Speaker 2: pretty good gets.
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  Speaker 3: Yeah, we said free drinks afterwards, so that helped.
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  Speaker 5: But these are amazing companies. It is rare to find
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  Speaker 5: two companies dominating so much in their respective industry. So
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  Speaker 5: let me give you some numbers just to set this up. Okay,
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  Speaker 5: so Global Assets, this is the whole Enchilada.
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  Speaker 3: These guys rank one and two and everything.
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  Speaker 5: So Blackrock fourteen trillion, Vanguard twelve trillion.
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  Speaker 3: The third place person.
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  Speaker 5: Fidelity six trillions, so not even half US total assets
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  Speaker 5: Vanguard eleven trillion, Blackrock five trillion. But then international Blackrock
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  Speaker 5: cleans up global ETF assets Blackrock six trillion Vanguard four trillion.
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  Speaker 5: US ETF assets will call it a tie at four
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  Speaker 5: point five trillion. Third place is below two trillion. So
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  Speaker 5: these guys make up in the US market thirty percent,
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  Speaker 5: each market share at sixty percent, and they take in
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  Speaker 5: flows at about that rate. They kind of punch about
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  Speaker 5: their weight, so it's sort of like these two heavyweights
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  Speaker 5: battling it out and everybody else has to like feed
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  Speaker 5: off the crumbs. That's sort of the image I get
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  Speaker 5: when I think of Vanguard and Blackrock. But yeah, Joel,
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  Speaker 5: you couldn't find two a bigger heavyweight matchup.
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  Speaker 2: You said heavyweights gloves and you know, just in case
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  Speaker 2: things get heated here just theory.
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  Speaker 3: We were serious. Yeah, we're literally gonna fight.
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  Speaker 2: Or if you don't like the questions, you can come
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  Speaker 2: after Eric and I fair enough. So Eric and I
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  Speaker 2: have interviewed a lot of people on the podcast, mostly
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  Speaker 2: about the ETF landscape. Blackrock and Vanguard come up a lot.
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  Speaker 2: In this industry, everybody is always thinking about you. People
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  Speaker 2: in the audience have been thinking about you, probably multiple
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  Speaker 2: fans today already. So before we get into thinking anything else,
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  Speaker 2: how much do Blackrock and Vanguard think about each other?
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  Speaker 6: Right in.
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  Speaker 3: Honest answers only come on?
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  Speaker 6: Okay, listen.
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  Speaker 7: It's great to be here and it's great to share
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  Speaker 7: share the stage with John of course, and listen. I
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  Speaker 7: think there is something to be said about what is
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  Speaker 7: happening here in Europe. It's great to have you guys
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  Speaker 7: here in London because I think what is happening in
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  Speaker 7: Europe is pretty unique, and I think it really speaks
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  Speaker 7: to the phenomenal growth of ETFs, and so I think
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  Speaker 7: for both Black Rock and Bank Guard, I think to
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  Speaker 7: be able to take a lot of the learnings from
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  Speaker 7: the US and really deploy them here. And I think
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  Speaker 7: a lot about how ets are really changing the industry
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  Speaker 7: and investing is I think is pretty unique. I mean, clearly,
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  Speaker 7: we think about each other quite a lot. I would
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  Speaker 7: say there is a lot about building this culture of
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  Speaker 7: investing that our respective firms are really championing.
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  Speaker 6: I mean, clearly there is an element of the relevance of.
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  Speaker 7: Being invested, which we love to compliment with the opportunity
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  Speaker 7: to really be dynamic and offer more choice.
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  Speaker 6: Is this how I would frame it?
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  Speaker 8: Yeah, And you know, I think my perspective on it is,
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  Speaker 8: you know, credit to black Rocker. You guys saw the
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  Speaker 8: opportunity of getting into ETFs in Europe early. But the
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  Speaker 8: thing that I always focus on is when I think
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  Speaker 8: about the biggest opportunity in Europe around ETFs, it's not
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  Speaker 8: about the two of us trying to battle for share. Actually,
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  Speaker 8: it's it's about taking money that is sitting on the sidelines,
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  Speaker 8: sitting in current accounts and in deposits, and getting that
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  Speaker 8: money invested for the long run. That's the big opportunity
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  Speaker 8: in Europe because you just see, you know, Europeans who
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  Speaker 8: are incredibly disciplined savers stuffing their money under the mattress,
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  Speaker 8: and you know, they're just missing out on the benefit
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  Speaker 8: of compounding over decades and they need it to be
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  Speaker 8: able to have secure retirements. And I think whether you're
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  Speaker 8: at Blackrock or you're at Vanguard, that's the thing that
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  Speaker 8: we're focused on, is trying to figure out how do
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  Speaker 8: you pull more peopleeople into the markets, and how do
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  Speaker 8: you get them to benefit over the long run.
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  Speaker 2: Okay, speaking of markets, we just witnessed the largest TYPEO
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  Speaker 2: in history with SpaceX. We might have Enthropic and Open
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  Speaker 2: Eye AI go public later in the year, all of
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  Speaker 2: which is kind of reigniting a familiar debate. When a
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  Speaker 2: company becomes so large, index inclusion matters immediately. It already mattered,
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  Speaker 2: but it's going to matter even more now. So some
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  Speaker 2: of those indexes are fast tracking newcomers, others are waiting.
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  Speaker 2: Either way, demand is enormous and the fomo is real.
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  Speaker 2: So how existential are megacaps to passive investing?
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  Speaker 8: Jonathan looks, So, you know, when you think about the
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  Speaker 8: space X i PO, I think it's a good example
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  Speaker 8: of you know, over the long run, you're you're going
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  Speaker 8: to want exposure to these these types of firms. But
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  Speaker 8: you know, at the at the at the I p
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  Speaker 8: O level, you know, I think when you look at
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  Speaker 8: the float adjustment, which is basically an adjustment of the
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  Speaker 8: weight of a stock in the index for the amount
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  Speaker 8: that's traded publicly, it's actually a pretty small component of
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  Speaker 8: most of the indices. So I think for the total
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  Speaker 8: US market, the SpaceX turns out to be about fifteen
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  Speaker 8: basis points of total exposure. So when you think about
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  Speaker 8: the market cap of the firm, it's enormous, But when
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  Speaker 8: you think about what's the actual exposure that you can
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  Speaker 8: get access to it, it's much smaller piece of the
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  Speaker 8: total pie. But clearly over the long run these stocks
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  Speaker 8: are going to matter. I mean, you don't need to
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  Speaker 8: look much further than some of the research that's been
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  Speaker 8: done by Hendrik Bessenbinder. Many of you be familiar with that.
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  Speaker 8: You know, basically finding that only four percent of securities
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  Speaker 8: account for the entirety of returns over one hundred year period.
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  Speaker 8: You need to own the entirety of the market over
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  Speaker 8: the long run.
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  Speaker 3: Can I jump in there for a little bit.
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  Speaker 5: One, Yeah, the waiting is going to be small, but
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  Speaker 5: the float will grow quickly. It went because the insiders
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  Speaker 5: are going to get unlocked, So we could be looking
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  Speaker 5: at hundreds of billions in float.
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  Speaker 3: It'll go up.
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  Speaker 5: If it gets anywhere near the real market cap, it's
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  Speaker 5: going to be like six percent waiting in the SMP.
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  Speaker 5: I guess I would let me ask you this since
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  Speaker 5: you just answered that if I'm an S and P
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  Speaker 5: Five hundred, I know you have something for everybody, so
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  Speaker 5: you could tell them to go use this other thing.
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  Speaker 5: But let's say I'm an S and P five hundred.
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  Speaker 5: The idea of not you know the best and Binder study,
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  Speaker 5: which is like ride the winners. If a company is
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  Speaker 5: going to wait till they're a fully grown adult to
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  Speaker 5: go public, why shouldn't I a get them quickly in
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  Speaker 5: my index. It's not like the old days where they
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  Speaker 5: would be IPO at a small cap and they would
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  Speaker 5: sort of be future stars there and then they sort
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  Speaker 5: of grow up. That's why the index rules were made.
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  Speaker 5: This is a different variable. Or do you try to
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  Speaker 5: get me private companies or private companies in an ETF
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  Speaker 5: format or to the public somehow so they can participate
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  Speaker 5: in the winners when they're teenagers.
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  Speaker 6: Listen.
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  Speaker 7: I think we need to recognize, I mean, investing has
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  Speaker 7: changed dramatically over the last decade. More company stay private
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  Speaker 7: for longer, and so I think there is a real
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  Speaker 7: case to be made for you know, also the way
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  Speaker 7: index provider have been changing, they're thinking about how they
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  Speaker 7: build benchmarks. I think it's clear the way people would
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  Speaker 7: be thinking about index investing is now very far from
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  Speaker 7: like passive investing.
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  Speaker 6: Again, many years for us to really promote this concept.
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  Speaker 7: So I think I will really have to say that
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  Speaker 7: it is a real opportunity for investors to really look
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  Speaker 7: at the options that are available for them. You're right,
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  Speaker 7: I think it is a real opportunity also for dispersion,
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  Speaker 7: and so I think I would argue that the choice
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  Speaker 7: that you have among indices that have actually opened up
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  Speaker 7: more flexible index rules as well as those that actually
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  Speaker 7: want to see a little bit more profitability and so
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  Speaker 7: actually having a little bit more and I think it's
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  Speaker 7: really going to be real responsibility, especially for also active investing,
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  Speaker 7: to really think around what it means to deviate from benchmarks.
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  Speaker 7: And I think ultimately it is important to offer the
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  Speaker 7: choice because I think the demand is there, and I'm
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  Speaker 7: sure we're going to talk a lot about eating investing.
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  Speaker 6: The demand is there.
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  Speaker 7: I mean you will have seen we recently launched Star
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  Speaker 7: very catchy teaker here in Europe because there was a
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  Speaker 7: compelling demand. I think there was a lot of demand
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  Speaker 7: for investor from investors to really have the ability to
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  Speaker 7: have still a diversified exposure to this very exciting segment
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  Speaker 7: and some flexibility around the inclusion. So again, I think
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  Speaker 7: it's important to also reflect on the way index investing
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  Speaker 7: had to adapt to what is now a really new
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  Speaker 7: and different investment opportunity.
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  Speaker 5: Here's where we're going to get them to disagree a little. Okay,
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  Speaker 5: now that they become friends. Okay, van Guard does not
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  Speaker 5: do themes Blackrock does. I think Blackrock there is a
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  Speaker 5: line where I think you both probably trash a lot
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  Speaker 5: of the hot sauce products out there as being worthless.
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  Speaker 5: But themes are kind of like a sober version of
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  Speaker 5: they're long only equity, but they're volatile, and you you
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  Speaker 5: launched the thematic products. I got to be honest, Vanguard,
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  Speaker 5: I'm with you because if you have this sort of
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  Speaker 5: like boring vanilla cord, and that's great, don't you want
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  Speaker 5: to speculate a little stuff that's not in the index
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  Speaker 5: yet so you can add a little one percent two percent?
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  Speaker 5: That way you can participate in more of the teenage
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  Speaker 5: years or something that you were really passionate about, like memory,
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  Speaker 5: AI or space.
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  Speaker 3: What's wrong with that?
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  Speaker 8: Yeah, it's it's funny.
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  Speaker 4: You know.
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  Speaker 8: I am at a boss who once told me your
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  Speaker 8: job when you're working at Vanguard is to try to
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  Speaker 8: figure out how to make eating your broccoli interesting and
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  Speaker 8: and how did you respond to exactly you got to
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  Speaker 8: pour a little cheese on it, I suppose, And maybe
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  Speaker 8: that's maybe that's to your point. Eric. You know, for us,
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  Speaker 8: the challenge with thematics is thematics have been around for decades.
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  Speaker 8: The challenge of it is figuring out which themes are
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  Speaker 8: actually going to matter, because the themes that matter today
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  Speaker 8: aren't the same themes we were talking about five years ago.
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  Speaker 8: We were talking about green energy and you're talking about
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  Speaker 8: batteries and you're talking about you know, emerging market e
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  Speaker 8: commerce five years ago. You look back, you know twenty
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  Speaker 8: years ago, thirty years ago, you had different set of themes.
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  Speaker 3: Forty fifty years ago.
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  Speaker 8: I think there was a television ETF in the forties
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  Speaker 8: or television fund in the forties. So you know, that's
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  Speaker 8: the challenge with et or with the with the themes
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  Speaker 8: is how do you how do you choose them? I mean,
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  Speaker 8: our philosophy is you just buy them all and you
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  Speaker 8: will end up winning because you've got exposure to everything.
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  Speaker 2: That theme is called capitalism.
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  Speaker 8: Yeah, yeahh there you go.
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  Speaker 5: Who is one big theme et, what one big theme.
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  Speaker 5: It's interesting the way you spun that, I would.
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  Speaker 7: Say to I mean, you're right, I think thematic investing
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  Speaker 7: has been around. I mean, we launched the first thematic
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  Speaker 7: benchmarks ten years ago because we're excited about the better
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  Speaker 7: data to capture some.
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  Speaker 6: Of these themes.
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  Speaker 7: And you know, this notion of for example, owning AI
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  Speaker 7: is not only owning the technologies, about owning the back
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  Speaker 7: really owning like all materials powering AI. So I think
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  Speaker 7: really what we've seen changing over the year is that
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  Speaker 7: while there is nothing new about themes, they started as
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  Speaker 7: really professional and you know, portfolio management tools. But I
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  Speaker 7: think now they're really opening up a whole new set
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  Speaker 7: of investors. This notion of thematic investing capturing the like
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  Speaker 7: the retail imagination, is something very recent, especially here in Europe.
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  Speaker 7: And then I really again, I would really argue that
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  Speaker 7: there is a real opportunity for some of these themes
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  Speaker 7: to really unlock a new segment of the investment spectrum.
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  Speaker 7: You know, I was speaking with my colleagues in the US.
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  Speaker 7: I'm actually you know, discretionary multil portfolios there are still
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  Speaker 7: like only ten percent of their equity.
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  Speaker 6: A location is in themes.
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  Speaker 7: So it is you know, it's meaningful, but I think
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  Speaker 7: there is still a lot of growth and opportunity. And again,
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  Speaker 7: especially now the indices, they're just so rich in terms
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  Speaker 7: of the ability to be very targeted on some of
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  Speaker 7: these nascent team that I actually think there is steal
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  Speaker 7: a big runway for Sematic ETF.
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  Speaker 2: Okay, so next to thematic ETFs is an expression that
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  Speaker 2: Eric has.
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  Speaker 3: He's going hot sauce.
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  Speaker 2: Hot sauce investing versus vanilla. Both of your companies specialize
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  Speaker 2: in many core offerings, many of them broad based and
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  Speaker 2: always very cheap for the most part. But we're seeing
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  Speaker 2: a lot more of these hot sauce products, and I'm
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  Speaker 2: curious when when we see a Vanguard Bitcoin ETF or
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  Speaker 2: an I shares three x space.
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  Speaker 8: Yeah, like that's a that's a that's a that's a
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  Speaker 8: loaded one.
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  Speaker 6: You know.
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  Speaker 8: Look, I mean I think that, you know, going back
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  Speaker 8: to the point around thematics, like if if somebody wants
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  Speaker 8: a Thematic ETF, nothing wrong with having a little bit
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  Speaker 8: of that kind of stuff on the side. If somebody
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  Speaker 8: is you know, feeling like that's a way to get
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  Speaker 8: them into the market, get them engaged, and get them
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  Speaker 8: saving for.
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  Speaker 4: The long run.
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  Speaker 8: You just don't want to put your retirement savings into that, right,
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  Speaker 8: that's that's for a little bit of play money. But
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  Speaker 8: you know, you ask about about bitcoin, and bitcoin's like,
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  Speaker 8: it's an interesting one. It's another one that I would
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  Speaker 8: put in that category. It's like, you know, if you
• 14:05
  Speaker 8: want a little bit of bitcoin, it's it's not gonna
• 14:08
  Speaker 8: hurt you to have a little bit of bitcoin, but
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  Speaker 8: it's not where you want to put your real assets
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  Speaker 8: that you're saving for the long run.
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  Speaker 3: And you know you.
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  Speaker 8: Want to bet a little bit on on on something
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  Speaker 8: like that, you know, that's fine, but make sure that
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  Speaker 8: it's not where you're putting your retirement but.
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  Speaker 7: You know what's on bitcoin? If I made what has
• 14:28
  Speaker 7: been interesting learning for us. I can't believe it's been
• 14:30
  Speaker 7: two and a half years since the launch of i bit,
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  Speaker 7: which used to be the most successful launch until recently.
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  Speaker 4: I know that.
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  Speaker 5: By the way, I'm stunned by that d d ram
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  Speaker 5: past i bit into twenty to ten billion. But let's
• 14:43
  Speaker 5: see it do fifty billion in like three months.
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  Speaker 3: It won't do that. I bid will have a lot
• 14:47
  Speaker 3: of records for a.
• 14:47
  Speaker 7: Long time, and I think one of the most interesting
• 14:50
  Speaker 7: learnings for us is been is actually for us, actually
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  Speaker 7: I bit has been the gateway for ETF adoption and
• 14:57
  Speaker 7: for a first time investing, believe it or not. So
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  Speaker 7: you know, the we actually estimated of the first year
• 15:02
  Speaker 7: or the first year, there were actually one million of
• 15:04
  Speaker 7: new investors, of which really we actually had like of
• 15:08
  Speaker 7: the investors that bought ib it, thirty percent would be
• 15:12
  Speaker 7: first time investors that then went on and bought another
• 15:15
  Speaker 7: I SHARE's ETF.
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  Speaker 2: It's like a reverse red pill from being like outside
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  Speaker 2: of it to like.
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  Speaker 3: It's you sixty forty pill people. That's amazing. I've never
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  Speaker 3: heard of that.
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  Speaker 7: We launched in Europe last year, and I think what
• 15:29
  Speaker 7: has been interesting is that while the bulk of ETF
• 15:31
  Speaker 7: trading still happens i mean predominantly in the primary market
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  Speaker 7: for ib one t, it was exactly the opposite.
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  Speaker 6: Ninety percent of the trading happened on exchange. So again
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  Speaker 6: it really.
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  Speaker 7: Tells you how it's really transforming. I mean, something like
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  Speaker 7: bitcoin that I agree with you. I mean it's I mean,
• 15:47
  Speaker 7: you can have like very diverging opinion on the merit
• 15:50
  Speaker 7: of the asset class. But it's been fascinating to see
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  Speaker 7: how this has really been a true gateway for ETF
• 15:55
  Speaker 7: and investing.
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  Speaker 2: Take the black pill, Take the black pillar.
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  Speaker 3: Fo orange Pilled.
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  Speaker 5: I'm a real big index fun investor, so that kind
• 16:04
  Speaker 5: of vaccinates you from going full orange pilled just so fi.
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  Speaker 5: So I tell people that because they're like, oh, you're
• 16:09
  Speaker 5: so into crypto, I'm like, I can never be full though. Anyway,
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  Speaker 5: speaking of that, this idea of Europe and bringing in
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  Speaker 5: retail investors, this is a huge problem here and in
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  Speaker 5: the US it's easy. It's like little minnows biting on
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  Speaker 5: everything to throw in there. I mean, they're like really
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  Speaker 5: hungry here, it's just harder to get them excited. I
• 16:28
  Speaker 5: want to ask you a question because I talked to
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  Speaker 5: your predecessor, one of yours, Jim Norris. He covered Vanguard
• 16:34
  Speaker 5: International for like fifteen years. I need Room for the
• 16:36
  Speaker 5: book I wrote about four years ago, and he said
• 16:39
  Speaker 5: the problem with international and I've been repeating this because
• 16:42
  Speaker 5: it really tracks you need a population that wants to
• 16:46
  Speaker 5: save they don't think the government's going to cover them
• 16:48
  Speaker 5: in retirement. Now in the US, we've been feeling this
• 16:51
  Speaker 5: way for fifty years, thirty years, you know, so we're
• 16:53
  Speaker 5: like pretty smart choppers. We're like, oh, I'm not going
• 16:56
  Speaker 5: to pay for that, and they we soart through and
• 16:58
  Speaker 5: we get the good stuff. Some populations are not into that.
• 17:01
  Speaker 5: And the second thing you need is advisors that get
• 17:03
  Speaker 5: paid as a percent of assets.
• 17:05
  Speaker 3: We call them fee based advisors.
• 17:06
  Speaker 5: In the US that's seventy five percent of the money now,
• 17:09
  Speaker 5: but in most of the countries it's like one to
• 17:11
  Speaker 5: two percent. The rest are you call them here retro sessions,
• 17:15
  Speaker 5: which has got to be the fanciest word for what
• 17:17
  Speaker 5: it does. So how do you get past the retro sessions?
• 17:22
  Speaker 3: Themes might be a good way to do it. What's
• 17:24
  Speaker 3: your take? How do you solve this?
• 17:26
  Speaker 8: I mean, look, I think one of the things that's
• 17:27
  Speaker 8: been amazing, so you can tell from my accent obviously
• 17:30
  Speaker 8: I'm American, but transplanted to London two years ago to
• 17:34
  Speaker 8: lead vanguard to European business. And one of the things
• 17:37
  Speaker 8: that has just struck stuck with me as i've as
• 17:40
  Speaker 8: I've spent some time, particularly on the continent, and you
• 17:43
  Speaker 8: get into Germany and into a handful of countries, there
• 17:48
  Speaker 8: is just how much I think the mentality that many
• 17:53
  Speaker 8: of us of a certain era in the US is
• 17:56
  Speaker 8: starting to creep into into people's mindset around gosh, I
• 18:00
  Speaker 8: don't know if I can count on the government to
• 18:02
  Speaker 8: deliver the type of retirement that I once thought was
• 18:05
  Speaker 8: going to be guaranteed or was going to be part
• 18:08
  Speaker 8: of the state benefit. And so, you know, I think
• 18:10
  Speaker 8: what what we're now seeing is an awful lot of
• 18:13
  Speaker 8: people saying, I better, I better start to put this
• 18:16
  Speaker 8: on my own shoulders. I'm going to have to start
• 18:18
  Speaker 8: to do this on my own and so and you
• 18:20
  Speaker 8: see that playing out with with ETF savings plans. They
• 18:23
  Speaker 8: call them SPAT plans in Germany, and you've got you
• 18:27
  Speaker 8: in five years, you now have millions of German investors,
• 18:32
  Speaker 8: oftentimes first time investors, coming in being in effectively a
• 18:37
  Speaker 8: dollar cost averaging scheme that allows them to save for
• 18:42
  Speaker 8: the long run. And you know, it's been pretty remarkable
• 18:45
  Speaker 8: to see that. So in many ways, people are going
• 18:48
  Speaker 8: sort of around the traditional ways of accessing the investment
• 18:52
  Speaker 8: market and coming in through these through these SPAR plans.
• 18:56
  Speaker 8: The point that you raise Eric around fee based advice
• 19:00
  Speaker 8: is interesting too, because I think you know, that's that's
• 19:03
  Speaker 8: been a long transition in the US to go from
• 19:07
  Speaker 8: from commission based advising to fee based advising. And you know,
• 19:11
  Speaker 8: I've been with Anger for twenty three years. It has
• 19:14
  Speaker 8: taken a decent chunk of that to see that evolution
• 19:16
  Speaker 8: play out. You know, in the UK, it happened almost
• 19:19
  Speaker 8: overnight because of the regulatory change, and I think many
• 19:22
  Speaker 8: of us were hoping that that same dynamic was going
• 19:25
  Speaker 8: to play out on the continent more recently with the
• 19:27
  Speaker 8: retail investment strategy. Unfortunately, it doesn't look like that's going
• 19:31
  Speaker 8: to be the case, and so then it becomes upon
• 19:33
  Speaker 8: all of us to get out and help to really
• 19:35
  Speaker 8: tell the story around why fee based investing and fee
• 19:38
  Speaker 8: based advice is a better setup for investors. So we've
• 19:42
  Speaker 8: got a lot of work to do on that front.
• 19:43
  Speaker 8: It doesn't look like the regulatory tail wind is going
• 19:46
  Speaker 8: to be there, so I think that leaves it to
• 19:49
  Speaker 8: firms like black Rock into Vanguard to get out and
• 19:51
  Speaker 8: help the shape that story.
• 20:06
  Speaker 5: Let me ask Blackrock this, when you meet with it
• 20:08
  Speaker 5: an advisor who takes inducements or retro sessions in the US,
• 20:13
  Speaker 5: I felt a lot of them had a crisis of consciousness.
• 20:16
  Speaker 5: They knew there were these cheap index funds that would
• 20:18
  Speaker 5: have like a better outcome, but they couldn't put the
• 20:21
  Speaker 5: client in them at the bank they were at, and
• 20:24
  Speaker 5: they left, and that's where you got the RIA movement
• 20:28
  Speaker 5: which has been so popular. The wirehouses have now sort
• 20:31
  Speaker 5: of moved in that direction.
• 20:34
  Speaker 3: Is that happening here?
• 20:35
  Speaker 5: Do you find them kind of going, I know I
• 20:37
  Speaker 5: do better in your ETF, but I get money from
• 20:40
  Speaker 5: the mutual fund.
• 20:41
  Speaker 7: Let me offer you my European story, being Italian, which means,
• 20:46
  Speaker 7: unfortunately there's going to be no sport anecdote for me.
• 20:49
  Speaker 6: At this time.
• 20:51
  Speaker 7: Definitely no football or soccer relations analogy there. But what
• 20:55
  Speaker 7: I can tell you is that I've been doing ETF
• 20:58
  Speaker 7: for twelve years, and I will tell you, like I
• 21:01
  Speaker 7: was so set in my mind of like, you know,
• 21:02
  Speaker 7: the ETF thing in Italy never happening exactly for this
• 21:05
  Speaker 7: reason you said. It was a like a big like
• 21:08
  Speaker 7: intermediated market, a strong role of tide agents. And so
• 21:12
  Speaker 7: what's happening is that there is a real transformation of
• 21:15
  Speaker 7: the wealth ecosystem. Again we're talking about in southern Europe.
• 21:18
  Speaker 7: There is still a disadvantage in holding an ETF in
• 21:21
  Speaker 7: terms of the tax treatment, notwithstanding that these are some
• 21:24
  Speaker 7: of the markets that our actually our retail research shows
• 21:29
  Speaker 7: are the fastest growing and also have the intention to
• 21:32
  Speaker 7: grow even faster. Because this speaks to the transformation of
• 21:36
  Speaker 7: a lot of these wealth distributors that really see the
• 21:38
  Speaker 7: opportunity in leveraging ETF to really rethink about their offering,
• 21:43
  Speaker 7: which is now more centralized so that the advisor does
• 21:46
  Speaker 7: not have to really spend time thinking of and really
• 21:49
  Speaker 7: convincing about product selection. It is much more around portfolio
• 21:53
  Speaker 7: is much more about outcome, and so to some extent,
• 21:56
  Speaker 7: it's really now aligning to a lot of like the
• 21:57
  Speaker 7: rise of goal based investing, which is really very prevalent,
• 22:01
  Speaker 7: for example in the US. And then I also actually
• 22:04
  Speaker 7: I would also say that there is I think a
• 22:06
  Speaker 7: real opportunity to your point. I mean, this is a
• 22:09
  Speaker 7: moment in Europe where we really have this combination of
• 22:13
  Speaker 7: intentionality around regulation. I mean, I agree with you, I
• 22:16
  Speaker 7: mean Rice was not what many expected, but I think
• 22:19
  Speaker 7: there is so much in terms of the way the market,
• 22:22
  Speaker 7: the capital market is evolving. There is a considerable package
• 22:26
  Speaker 7: which is encouraging a better function in capital market. So
• 22:30
  Speaker 7: this means deeper liquidity. Deeper liquidity for ETF. I mean
• 22:33
  Speaker 7: think about consolidated tape, better liquidity, I think for market,
• 22:37
  Speaker 7: more integrated markets. So I actually I know at the
• 22:40
  Speaker 7: beginning I said that we had the opportunity to bring
• 22:43
  Speaker 7: learnings from the US to Europe. I would argue, first
• 22:46
  Speaker 7: of all, the opportunity in Europe and ready to transform
• 22:48
  Speaker 7: and create this investing community is investing culture is way bigger.
• 22:54
  Speaker 7: But I really think that the ETF have a real opportunity.
• 22:57
  Speaker 7: You know, if we get this right in terms of
• 23:00
  Speaker 7: the distribution change, the regulation change, the changes in capital
• 23:04
  Speaker 7: market to really turn savers into investors. Better capital markets
• 23:09
  Speaker 7: are really going to be better for companies in Europe.
• 23:11
  Speaker 7: Actually think ultimately this is going to be signific a
• 23:14
  Speaker 7: significant change for Europe as a whole.
• 23:17
  Speaker 8: And you see some you do see encouraging signs. So
• 23:20
  Speaker 8: if there's not an outright ban on commissions, that that
• 23:22
  Speaker 8: is what it is.
• 23:23
  Speaker 3: But I agree with you.
• 23:24
  Speaker 8: I mean, even just things like value for money reporting,
• 23:26
  Speaker 8: which sounds kind of sort of wonky and in the weeds,
• 23:30
  Speaker 8: but it does create a degree of transparency around what
• 23:33
  Speaker 8: people are paying for financial advice here. And you know,
• 23:37
  Speaker 8: that's one of the other things that's very striking is
• 23:40
  Speaker 8: you know, you're talking about all in cost for financial
• 23:42
  Speaker 8: advice in Germany, if two one hundred and twenty basis
• 23:47
  Speaker 8: points in Italy one hundred and ninety basis points, you're
• 23:50
  Speaker 8: relative to a UK where you might have one hundred
• 23:53
  Speaker 8: and sixty five or in the US where it's less
• 23:56
  Speaker 8: than one hundred. So it's still so expensive, and so
• 24:00
  Speaker 8: it just bring more transparency to that I think will
• 24:03
  Speaker 8: help to bring the market forces to bear.
• 24:06
  Speaker 2: I want to ask about active ETFs here because they've
• 24:10
  Speaker 2: gone from niche products to like a growth story in
• 24:12
  Speaker 2: the US very quickly.
• 24:14
  Speaker 3: In Europe they're still pretty small.
• 24:16
  Speaker 2: So what do you think has to happen to that
• 24:18
  Speaker 2: category to have a breakout moment here?
• 24:21
  Speaker 6: I agree with you.
• 24:21
  Speaker 7: I think we've we've spent a lot of time in
• 24:23
  Speaker 7: the past three years to think hard what is going
• 24:25
  Speaker 7: to be different here in Europe with what's happened in
• 24:28
  Speaker 7: the US. I mean, we're still looking at three percent
• 24:31
  Speaker 7: of the asset is ten percent of the industry growth.
• 24:33
  Speaker 7: But it is really interesting in my mind, first of all,
• 24:36
  Speaker 7: because it's different. The type of active ETF that are
• 24:41
  Speaker 7: gaining traction is no surprise based on anything we said that,
• 24:45
  Speaker 7: given the ETF is still a professional instrument strategies which
• 24:49
  Speaker 7: are still quite benchmark constraint have been the most popular,
• 24:52
  Speaker 7: but I think at the same time, is as presented,
• 24:55
  Speaker 7: I would argue a very interesting innovation area to bring
• 24:58
  Speaker 7: in you know, differentiated outcome, greater adoption of derivatives, but
• 25:03
  Speaker 7: also really the ability to act excitement of the portfolio,
• 25:07
  Speaker 7: which again for me, I remember starting doing a product
• 25:09
  Speaker 7: twelve years ago, there was a lot of there were
• 25:12
  Speaker 7: a lot of opportunities that indexing could not capture, and
• 25:15
  Speaker 7: active management can be truly additive and differentiated. I mean,
• 25:19
  Speaker 7: I think about you know, Tier one CLO segment of
• 25:21
  Speaker 7: the fixed income market, which are really important to be
• 25:24
  Speaker 7: exposed to. And so I would actually say that to
• 25:27
  Speaker 7: answer your question, I think we really need to see
• 25:29
  Speaker 7: the acceleration in distribution models. Mutual funds are still very
• 25:32
  Speaker 7: relevant here for many markets. But then also I actually
• 25:37
  Speaker 7: think that some of the trends in terms of the
• 25:39
  Speaker 7: rise of digital are also really going to have I
• 25:42
  Speaker 7: think a tipping point because all these offerings are built
• 25:46
  Speaker 7: on ETF first, so as soon as DTF will become
• 25:49
  Speaker 7: the wrapper of choice, I think we might end up
• 25:52
  Speaker 7: seeing the same level of acceleration.
• 25:54
  Speaker 8: There's some fundamental differences between the ETF wrapper in the
• 25:59
  Speaker 8: US the ETF wrapper in Europe. You don't have some
• 26:02
  Speaker 8: of the same tax advantages that you do see in
• 26:06
  Speaker 8: the US, and so that that is one challenge with
• 26:09
  Speaker 8: active strategies. One of the reasons why active works in
• 26:11
  Speaker 8: an ETF construct is that they can. Yeah, you get
• 26:15
  Speaker 8: you get an advantage there from a tax perspective, you know.
• 26:17
  Speaker 8: But I think the real challenge for active is it's
• 26:20
  Speaker 8: got to deliver the alpha and then it will whatever
• 26:25
  Speaker 8: rapper you happen to put it in. You know, it could,
• 26:29
  Speaker 8: it could have success. But that that's been the real
• 26:31
  Speaker 8: challenge for the last several decades is we're just not
• 26:34
  Speaker 8: seeing the active strategies deliver on the promise.
• 26:38
  Speaker 3: Yeah.
• 26:38
  Speaker 5: I think it's a wide spectrum, and they're getting cheaper,
• 26:42
  Speaker 5: and I think a lot of advisors are like, look,
• 26:43
  Speaker 5: I like your strategy, but I want to pay thirty
• 26:45
  Speaker 5: not eighty exactly.
• 26:47
  Speaker 3: And that's starting to move the needle in the US.
• 26:48
  Speaker 3: It's it's working. I'm with you.
• 26:50
  Speaker 5: But the cheaper they are, the better chance they have
• 26:52
  Speaker 5: about professors, so it will help the beat rates. Let's
• 26:54
  Speaker 5: quickly talk last question for me, which is on the bonds.
• 26:58
  Speaker 5: You've seen the charts, like, fine, they might go up,
• 27:00
  Speaker 5: but like let's say there's a high inflation print. If
• 27:02
  Speaker 5: the FED raises rates, I'm sorry, bonds are going to
• 27:06
  Speaker 5: go down and stocks are going to go down. It's
• 27:07
  Speaker 5: it's almost like guaranteed if you cannot trust the bonds,
• 27:12
  Speaker 5: obviously that you need something to sleep at night. Buffers
• 27:15
  Speaker 5: are really trying to solve that. Let me go to
• 27:17
  Speaker 5: Vanguard first, because you don't launch them, but I want
• 27:20
  Speaker 5: you to tell us today that you're planning on it,
• 27:22
  Speaker 5: because I have a sneaky feeling they've got. They're like
• 27:25
  Speaker 5: an inch away from actually entering the buffer Ett space.
• 27:29
  Speaker 5: So either tell me you're launching them or why they're bad.
• 27:31
  Speaker 2: No, look, we're.
• 27:36
  Speaker 8: No, we don't have near term plans.
• 27:39
  Speaker 2: I'll go off boxing globs.
• 27:40
  Speaker 8: Yeah, yeah, right there, there you go. Look, I mean,
• 27:42
  Speaker 8: the sixty forty portfolio has been declared dead more times
• 27:46
  Speaker 8: than I can count in my career, and every time
• 27:49
  Speaker 8: it bounces back, and you know, you can look at
• 27:52
  Speaker 8: twenty and twenty two and say, oh gosh, you know
• 27:55
  Speaker 8: it was a tough time for a sixty forty bounced portfolio.
• 27:58
  Speaker 8: It's up thirty percent over the last five years, right,
• 28:01
  Speaker 8: so I think, you know, well, if your.
• 28:04
  Speaker 5: Equities are up thirty percent, like, it's I think the
• 28:06
  Speaker 5: well that's why you and both the real return of
• 28:08
  Speaker 5: the AAG over ten years is like zero.
• 28:11
  Speaker 8: Well, you know, look if you look at like, let's
• 28:14
  Speaker 8: go back further, So to go back to the founding
• 28:19
  Speaker 8: Vanguard Fund, the Wellington Fund, go back to nineteen twenty nine.
• 28:22
  Speaker 8: It's been through inplation, it's been through deflation, it's been
• 28:25
  Speaker 8: through war wars, it's been through all different market cycles.
• 28:29
  Speaker 8: The average return on it eight point four to four
• 28:31
  Speaker 8: percent over a you almost one hundred year horizon. I
• 28:37
  Speaker 8: just think that you've got to be careful about trying
• 28:38
  Speaker 8: to solve a one year problem with a whole bunch
• 28:40
  Speaker 8: of new product innovation.
• 28:43
  Speaker 7: I would say, though, that looking at bonds only as
• 28:47
  Speaker 7: an equity diversity fire is a little bit limiting because
• 28:50
  Speaker 7: I actually think what has happened in the last two
• 28:53
  Speaker 7: decades and really the rise of BONDYTF which again I
• 28:56
  Speaker 7: know they would be perceived as such a dry topic.
• 29:00
  Speaker 7: I actually think it has been nothing short than transformational
• 29:04
  Speaker 7: because I think, I mean, you can look at fixed
• 29:05
  Speaker 7: income as an asset class. But I really look at
• 29:07
  Speaker 7: bond TF as a real transformation of the whole fixed
• 29:11
  Speaker 7: income market. So there is an element of really the
• 29:14
  Speaker 7: diversity fire. But I also see it is such a
• 29:16
  Speaker 7: technology in terms of the way it has opened up
• 29:20
  Speaker 7: opportunity for income.
• 29:22
  Speaker 6: It has an.
• 29:22
  Speaker 7: Open opportunity for greater liquidity, cash deployments. I mean we
• 29:26
  Speaker 7: are now looking at trading. That's in terms of fixing
• 29:30
  Speaker 7: committef The point to the notion of these are not
• 29:33
  Speaker 7: only core in terms of portfolio to your point to
• 29:36
  Speaker 7: really diversify your core. But at the same time, I mean,
• 29:39
  Speaker 7: these are instruments that I've really served investors at the
• 29:42
  Speaker 7: time of needs. We're talking about like March last year,
• 29:45
  Speaker 7: we're talking about April this year. Every year we go
• 29:48
  Speaker 7: like from strength to strength in the way these tools
• 29:50
  Speaker 7: are really transforming the whole sixting comical system. So I mean,
• 29:54
  Speaker 7: clearly the sixty forty debate is again is.
• 29:57
  Speaker 6: Not going to go away.
• 29:58
  Speaker 7: But I think there are many other areas and many
• 30:01
  Speaker 7: other aspects of six income that we should absolutely spend
• 30:04
  Speaker 7: time on.
• 30:05
  Speaker 2: All right, both if you work at amazing companies, I'm
• 30:08
  Speaker 2: sure you can find something to admire about one another,
• 30:11
  Speaker 2: but also when you look at each other, I'd like
• 30:14
  Speaker 2: you to tell us what you're most jealous of.
• 30:19
  Speaker 8: All right, I'll kick off. Look, I am a huge
• 30:25
  Speaker 8: admirer of the way that black Rock has seen the
• 30:28
  Speaker 8: opportunity for ETFs in Europe and bet big on it
• 30:32
  Speaker 8: and has blazed a path. And you know, we really
• 30:35
  Speaker 8: think that that's been been transformative and will be transformative
• 30:38
  Speaker 8: for investors across the board in Europe. I have a
• 30:42
  Speaker 8: lot of respect for how how boldly the firm moved
• 30:45
  Speaker 8: into that space.
• 30:46
  Speaker 6: I would definitely love vanguards at the budget a bit.
• 30:50
  Speaker 7: More and investor publicity for sure, But this is actually
• 30:55
  Speaker 7: what I admire the most because I think kit has
• 30:57
  Speaker 7: driven incredible impact. I mean, we spoke about the UK,
• 31:00
  Speaker 7: We're speaking about Germany. I think this notion of really
• 31:03
  Speaker 7: getting to the end investor, increasing investor participation, I think
• 31:07
  Speaker 7: we really need more of that. Eric, I told you
• 31:10
  Speaker 7: we need more of you guys coming more often to Europe.
• 31:13
  Speaker 7: We need really mainstream press speaking more about.
• 31:16
  Speaker 6: ETF and investing.
• 31:18
  Speaker 7: So I would actually say that the clarity of the message,
• 31:20
  Speaker 7: I think the narrative, how compelling it is to stay invested,
• 31:24
  Speaker 7: to participate to growth. It is a message which is
• 31:27
  Speaker 7: absolutely critical.
• 31:29
  Speaker 2: Manuela Jonathan, thanks for joining us on Trillions.
• 31:31
  Speaker 3: Thank you having.
• 31:32
  Speaker 9: Us, Thanks for listening to Trillions until next time.
• 31:45
  Speaker 4: You can find us on the Bloomberg Terminal, Bloomberg dot com,
• 31:48
  Speaker 4: Apple Podcasts, Spotify, or wherever else you'd like to listen.
• 31:52
  Speaker 4: We'd love to hear from you. Hit us up on social.
• 31:55
  Speaker 4: Trillions is produced by Mangott Hendrickson and Kishev Pandya Special Thing.
• 32:00
  Speaker 4: Thanks to Moses On, Dam Somersadi, Caroline Salas, Andrew Marriott,
• 32:05
  Speaker 4: Laura Chapman, Jackie Kessler, and Bill all Mongol for helping
• 32:10
  Speaker 4: us make this live episode possible.
• 32:13
  Speaker 2: Bye