Latest / Masters in Business / Jim Ross Recounts the Rise of the SPYs

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Jim Ross Recounts the Rise of the SPYs · Masters in Business

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Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
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Speaker 1: This week on the podcast, I have an extra special guest.
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Speaker 1: His name is Jim Ross. He is known as the
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Speaker 1: father of the Spiders, the SMP five hundred UH e
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Speaker 1: t F which State Street has put out. It is
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Speaker 1: one of, if not the largest e t F, with
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Speaker 1: nearly three hundred billion dollars in assets under management. In
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Speaker 1: sp Y. There are also numerous Spider variations. You can
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Speaker 1: buy growth, you can buy value, you can buy sector,
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Speaker 1: you can buy all these very loci, which is their
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Speaker 1: low carbon version of the SMP five hundred. There are
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Speaker 1: trillions of dollars, literally trillions of dollars in various indices
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Speaker 1: that track UH what State Street does, and it's really
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Speaker 1: quite a fascinating business. He is also chairman of s
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Speaker 1: s g A, which is the State Street Global Advisors.
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Speaker 1: If you are remotely interested in things like the S
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Speaker 1: and P five ETFs the future of investing, I cannot
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Speaker 1: over emphasize how knowledgeable and influential Jim Ross is. He
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Speaker 1: won the Lifetime Achievement Award last year at et F
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Speaker 1: dot Com. I could go over his CV for hours.
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Speaker 1: The accolades don't stop. He is simply one of the
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Speaker 1: most insightful people whose career has taken so many fascinating
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Speaker 1: twists and has been really there at the formation of
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Speaker 1: a number of events that are still impacting us today. Uh.
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Speaker 1: I think you're just gonna love this conversation. So, with
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Speaker 1: no further ado, my conversation with Jim Ross. My extra
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Speaker 1: special guest today is Jim Ross. He is chairman of
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Speaker 1: the Global Spider Business at State Street. Spider is the
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Speaker 1: most widely held e t F with well over two
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Speaker 1: hundred billion dollars in assets. He is also chairman of
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Speaker 1: the board of s s g A Fund Management, which
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Speaker 1: is the registered investment advisor arm of State Street. He
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Speaker 1: most recently was the recipient of the Lifetime Achievement Award
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Speaker 1: from e t F dot Com, which is a division
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Speaker 1: of the Chicago Board of Option Exchanges. Jim Ross, Welcome
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Speaker 1: to Bloomberg. Very thank you very much for having me.
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Speaker 1: Let's start with uh, pretty much at the beginning, you've
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Speaker 1: you've been at State Street since How did you find
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Speaker 1: your way to State Street? And what was your roll back?
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Speaker 1: So pretty straightforward, I would um, I started my career
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Speaker 1: in public County can very easily say hated it. Looking
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Speaker 1: for an exit path. After I got my certification, I
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Speaker 1: needed three years. That was three and a half years,
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Speaker 1: found an exit plan, took a job at State Street
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Speaker 1: career plan and by I'll talk to people about career planning.
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Speaker 1: I thought I'd be there two to three years. That
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Speaker 1: was my plan plan change. So I got the State
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Speaker 1: Street entry level job. New group they were setting up
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Speaker 1: called fund administration. They hired me. Could I could do
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Speaker 1: mutual fund financial statements for the most part, So the
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Speaker 1: accounting actually came in handy. The accounting background was important
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Speaker 1: back nine. Yes, So twenty five years later, after your
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Speaker 1: two year plan, uh, you're running more or less running
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Speaker 1: the largest et F there is. How did you go
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Speaker 1: from Hey, I'm going to start at State Street for
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Speaker 1: a couple of years to really chairman of of a
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Speaker 1: big department for them, and you really wear a couple
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Speaker 1: of hats there? How did these come about? So? Um,
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Speaker 1: I'd like to say summer it was hard work, persistent,
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Speaker 1: and somewhe was pure luck. That's a theme here. You know,
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Speaker 1: the role of random chance is always underestimated. So the
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Speaker 1: random chance was I was at State Street. I could
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Speaker 1: have gone different places I was in a group and
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Speaker 1: it was a new group, so there wasn't a lot
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Speaker 1: of work yet. Right into how big a shop was
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Speaker 1: State Street State Stage were still probably at the time logist, custodian, um, lodgist,
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Speaker 1: custody accounting agent in the world. But fund administration was
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Speaker 1: brand new. This is a new service they were adding.
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Speaker 1: And I was probably the tenth person hide into this group.
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Speaker 1: So new division, large storied firm, new division, new business.
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Speaker 1: Kind of like, not a lot of clients yet that
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Speaker 1: were taken on this service, so really not a lot
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Speaker 1: of work for me to do. I came out of
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Speaker 1: public County House. I used to working seventy nine hours
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Speaker 1: a week. I was losing my mind, Parry, so you're
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Speaker 1: working forty hours and really a lot of mind sweeper
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Speaker 1: and pretty much I was working forty hours. I probably
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Speaker 1: had twenty hours with the work to do. Um, so
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Speaker 1: would you do to fill the time? I went to
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Speaker 1: one of my bosses and said, hey, if you have anything.
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Speaker 1: It was kind of a strange situation. My boss had
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Speaker 1: been out, so I went to my boss. Boss said, listen,
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Speaker 1: you have anything, give it to me. I I just
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Speaker 1: I'm looking for stuff. At some point and these were
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Speaker 1: a whole bunch of people working really hot on a
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Speaker 1: project like day and night. I had no idea what
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Speaker 1: it was. But a month later he looks, hey, Jim, come,
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Speaker 1: oh yeah, we need help on this. It was the
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Speaker 1: originally TF Spy. Yeah, and that's no, no, this is
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Speaker 1: this is this is two months into my career. They've
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Speaker 1: been working on this for a couple of years. They
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Speaker 1: brought me over for one specific reason. They were about
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Speaker 1: to getting closer to launch and they needed someone to
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Speaker 1: do the first set of financial statements. And like, Jim
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Speaker 1: has that experience perfect, you know, So I like say,
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Speaker 1: I got invited in because hey, I asked for more,
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Speaker 1: but which kind of They just needed some help and
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Speaker 1: I was I get a lot of credit for Spy,
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Speaker 1: and I'm gonna be very honest, yeah, I deserve very
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Speaker 1: little of it. You have been called various names, like
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Speaker 1: the father of the Spiders, and every time I see
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Speaker 1: someone say that to you, you swatted away and say no, no, no.
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Speaker 1: I was a late addition to a team. I was
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Speaker 1: a very late addition to a team. Um. I think
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Speaker 1: my smartest move wasn't getting involved in that. My smartest
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Speaker 1: move was staying involved in that and I get asked
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Speaker 1: that question all the time, and a lot folks moved
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Speaker 1: on to different things. I got offer different roles over
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Speaker 1: the time, like why didn't you leave my God, this
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Speaker 1: was more interesting than my day job. I was meeting
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Speaker 1: traders on Wall Street and never had done that. I
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Speaker 1: never knew really what the stock exchange was, to be
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Speaker 1: completely honest with you, wasn't I don't see myself as
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Speaker 1: kind of an investment guy. I kind of grew up
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Speaker 1: and kind of the county world then kind of moved
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Speaker 1: out of the product world and did a lot of
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Speaker 1: different things, but I stayed involved. So at the time,
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Speaker 1: State Street a Gilant custodian, a Gilant administrator. How does
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Speaker 1: how at the time did State Streets see their competitors
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Speaker 1: and what made them think, Hey, let's let's go into
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Speaker 1: some asset management. Well, I mean, at the time we
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Speaker 1: did have an asset management on so we had State
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Speaker 1: what is now State Street Global Advisor. At the time,
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Speaker 1: it was called an asset management division of State Street Bank.
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Speaker 1: Horrible name for national manager, but um A M D
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Speaker 1: and any. At the time, it was very much it
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Speaker 1: was a passip shop. So in effect, what we did
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Speaker 1: with spiders in spy. The original SPY was we combine
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Speaker 1: what's a street did well the Costian County and transaction
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Speaker 1: processing and S s G A, which became S s
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Speaker 1: G A. I probably got renamed that year maybe the
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Speaker 1: probably right around then we brought the asset management. But
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Speaker 1: let's remember one thing. The American Stock Exchange came to
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Speaker 1: us with this idea. Really they said, hey, you guys
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Speaker 1: are buying all these individual stocks once you put it
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Speaker 1: in an E T F rapper or did we not
7:23
Speaker 1: know the name ETF back then? Um, the name ETF
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Speaker 1: was not known. Um, there's different iterations of what is
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Speaker 1: now spider, different names, different things we were calling index receipts,
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Speaker 1: depositories or whatever. So there's a lot of different names
7:40
Speaker 1: back then. But it was really kind of you know,
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Speaker 1: they had this idea. It kind of came out of
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Speaker 1: the crash of eight seven where the SEC said, listen,
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Speaker 1: portfolio didn't insurance didn't work. By the way, none of
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Speaker 1: this at the time I understood, um, and we're trying
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Speaker 1: to find something. Nate most who was head of product
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Speaker 1: development at the American Stock Exchange think at the time
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Speaker 1: he was in his early seventies, came up with this idea,
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Speaker 1: if we can put somehow securitize something that will trade
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Speaker 1: on the exchange, and they only care about trading on
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Speaker 1: the exchange. Um. So, basically we came up with the
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Speaker 1: idea of they came up with the f take the
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Speaker 1: SMP five stocks, everyone knows what's in it, tell everyone's
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Speaker 1: into every day, be fully transparent, and move the securities
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Speaker 1: in kind, which was novel at that time. You know,
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Speaker 1: one or two times you might do something unique there,
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Speaker 1: but every day moving five hundred stocks at the time
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Speaker 1: was was new. Let's talk a little bit about spiders,
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Speaker 1: because the numbers are really quite mind blowing. Sp Y,
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Speaker 1: the stock symbol for the spider. SMP five Investment Trust
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Speaker 1: has two hundred forty billion dollars in assets less I looked,
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Speaker 1: it's by far the most widely held d t F
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Speaker 1: and if you look at the next closest SMPTF, it's
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Speaker 1: less than half the size. How did the spies become
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Speaker 1: go to SPF. Yeah, it's a great question. There's a
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Speaker 1: couple of really good reasons. Um. One, we were first.
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Speaker 1: That always helps. So there was the first mover, definitely
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Speaker 1: a first mover advantage, and it was by seven years, right,
9:16
Speaker 1: because we all we you hear two different versions of that.
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Speaker 1: The second mass gets the cheese. The pioneers are the
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Speaker 1: ones with their arrows arrows in their back. But that
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Speaker 1: hasn't really seemed to impact this in a significant way. Well,
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Speaker 1: the SPY has a few advantages. One it's it's not
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Speaker 1: just that it was first. It had established trading volume.
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Speaker 1: I mean today Spy by dollar weighted volume is the
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Speaker 1: most liquid equity security in the world. That's amazing. Um,
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Speaker 1: it trades and there's some fun stats on this. It's
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Speaker 1: traded at a penny wise spread for twelve years every day.
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Speaker 1: So the difference between the bit they esk is one
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Speaker 1: cent one cent and most folks and trade inside of that.
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Speaker 1: It trade five point five time more than Apple. Um
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Speaker 1: and from a hundred million shares to day. What sort
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Speaker 1: of volume do you do? It turns over, it can
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Speaker 1: turn over and once again that changes all the time,
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Speaker 1: but it can turn over fifteen billion dollars in nassets today. UM,
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Speaker 1: I think the you know the one stat that I
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Speaker 1: hear that I love. I mean, there's the Apple stat
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Speaker 1: which is good. You take the next like eighteen ETFs
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Speaker 1: eighteen largest ETFs combined, and they don't have the same
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Speaker 1: trading bline. It's obviously go to liquidity product for the marketplace.
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Speaker 1: It's not just about a buying whole product. This is
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Speaker 1: a liquidity product. It's used for as an alternative to
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Speaker 1: Fugere's a lot of different uses to it, very flexible,
10:40
Speaker 1: so it's fairly low costs. What's the internal expense ratio
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Speaker 1: expense reussus about not a little a little of a
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Speaker 1: nine basis points? Is anybody even close to that amongst
10:50
Speaker 1: the tfs? Because E t F s there's a broad range.
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Speaker 1: You could pay over a hundred basis points. You could
10:57
Speaker 1: pay no basis points for e t F of ETFs
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Speaker 1: that they themselves have have an internal expense ratio. How
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Speaker 1: much of an advantage is nine bits versus everybody else?
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Speaker 1: I think once you get into the single basis point,
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Speaker 1: you know that differential if it's nine or five or something.
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Speaker 1: It's really especially a product like spy where a lot
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Speaker 1: of folks are using it for the liquidity and trading
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Speaker 1: it daily, so they're not buying and holding it for
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Speaker 1: five years. There might be for five minutes. The expense
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Speaker 1: ratio is not necessarily a factor in that decision making
11:30
Speaker 1: that makes sense, and the expense ratio is a function
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Speaker 1: of the costs of running it, and you're constantly so
11:37
Speaker 1: your trading desk has to constantly be rejiggering and arbitraging
11:42
Speaker 1: all the underlying the four hundred and sixty stocks in
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Speaker 1: the SMB five hundred. Well in the interest, I do
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Speaker 1: think there's actually five. There isn't there has been for
11:52
Speaker 1: some time now, um. But I think the interesting about
11:55
Speaker 1: that is actually the portfolio management side of this from
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Speaker 1: an et F perspective, well relatively straightforward, because every day
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Speaker 1: when that fund goes up with down its eyes, and
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Speaker 1: it can go up and down billions of dollars a day,
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Speaker 1: we don't trade that. It comes to us in kind
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Speaker 1: and we deliver it out in kind. So the portfolio
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Speaker 1: managers when they read jigger, it's really around index changes,
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Speaker 1: which is every June, I believe quarterly on the SMP. Uh,
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Speaker 1: it's quarterly on the SMP it's Russell two thousand, that's
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Speaker 1: every June. So once a how big an event is
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Speaker 1: the SMP five hundred rebalancing, It all depends on whether
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Speaker 1: or not there's just you know kind of up, you know,
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Speaker 1: changing of capital stuff. Maybe some corporate actions is not
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Speaker 1: the time when they have UM. But if if there's
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Speaker 1: a read, you know, if there's a add and delete,
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Speaker 1: that can be a relatively significant advantage. That's what I
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Speaker 1: am I thinking that's June or October. The ad delete
12:49
Speaker 1: is that once it can be it can be any
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Speaker 1: time Barry it's announced, it announced in advantage, it can
12:54
Speaker 1: be any time. UM. Do you guys get any sort
12:57
Speaker 1: of heads up or is it you want in your
12:59
Speaker 1: email and it's like, oh, I guess we've got work
13:01
Speaker 1: to do today. We get the same heads up the
13:03
Speaker 1: entire marketplace, yes, which is usually in advance, you know,
13:07
Speaker 1: more than a few days, so you can't plan for it.
13:10
Speaker 1: And like I said, the portfolio management team that runs
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Speaker 1: that runs indexing for some of the largest, most sophisticated
13:16
Speaker 1: investors in the world. So this is the kind of
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Speaker 1: what they do for living. Is their bread and buttle.
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Speaker 1: How big is your trading desk that handles spy and
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Speaker 1: everything else. We have a pretty sizable equity trading desk
13:26
Speaker 1: and a pretty sizeable portfolio management team has dedicated to this.
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Speaker 1: The you know, they're we're one of the largest passive
13:35
Speaker 1: invest investment managers in the world. So we we we
13:38
Speaker 1: we look at this as there's not anas science to it,
13:41
Speaker 1: and some people, you know, some folks will say, how
13:43
Speaker 1: we can do that on a Excel spread seat. We
13:46
Speaker 1: do not really can This isn't all that readily? Well,
13:49
Speaker 1: let me ask you the question is supposed to putting
13:52
Speaker 1: my uninformed opinion in how readiably replaceable? Are some of
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Speaker 1: the things that the team does with software algorithms and
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Speaker 1: and bots or are they using algorithms as part of
14:04
Speaker 1: of what they do. They're using algorithm and technology and
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Speaker 1: improving it every day to make our process more efficient
14:11
Speaker 1: and more effective. And we'll continue to do that. I
14:14
Speaker 1: have been doing that as long as I've been involved
14:17
Speaker 1: with them, and we'll continue to do that. It's the
14:19
Speaker 1: way of the world. They do that to find better
14:21
Speaker 1: ways to continue to deliver um the performance that we
14:25
Speaker 1: want to deliver. And so I mentioned nine bibs. Do
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Speaker 1: you guys ever feel any pressure on the price side
14:33
Speaker 1: from Vanguard of black Rock or any of the other
14:36
Speaker 1: large competitors out there or is it not not all
14:39
Speaker 1: that important? You know? I think listen, fee feed compression
14:43
Speaker 1: is actually a very it's a real live thing in
14:46
Speaker 1: the industry is not just on spy. So obviously across
14:48
Speaker 1: our et F business, we have more than a hundred
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Speaker 1: and forty plus ETFs in the US two D globally,
14:54
Speaker 1: so we see that around the globe feed compression fee,
14:58
Speaker 1: you know, feature fee business. So you you definitely want
15:00
Speaker 1: to look at it. You know, I think there's certain
15:02
Speaker 1: areas where you have certain products you feel very comfortable
15:05
Speaker 1: with the fee is low enough to compete in as
15:08
Speaker 1: areas where sometimes you do adjust pricing. It's just, um,
15:13
Speaker 1: just the new reality. It's what everybody's dealing with. It's
15:16
Speaker 1: also but you know, I mean the fun thing about
15:18
Speaker 1: that is everyone's like, wow, jeez, that's tough on you
15:20
Speaker 1: got it's tough on the business. We can live with that.
15:23
Speaker 1: It's good for investors. There's a reason. That's the reason
15:26
Speaker 1: that's more folks are buying ets is because the price
15:28
Speaker 1: of them has come down in a variety of ways,
15:31
Speaker 1: not just the expense ratio, but the big ass spreads
15:33
Speaker 1: come in. You know, they're a lot tier because of
15:35
Speaker 1: changes in equity market structure, and the commission rates have
15:37
Speaker 1: welcome down. Commission rates are practically nothing these days. So
15:41
Speaker 1: for nine basis points, and a seven dollar or a
15:44
Speaker 1: five dollar transaction fee. You can own the entire s
15:47
Speaker 1: and P five hundred and all. What. I don't know
15:50
Speaker 1: what we are, but we four nineties something. How many
15:53
Speaker 1: stocks have fallen out and haven't been replaced yet? I
15:55
Speaker 1: don't know that they I mean, they do do do
15:57
Speaker 1: a good job of trying to keep that up. So
15:59
Speaker 1: it's pretty close to that. I know, the whelship five. Yeah, no,
16:04
Speaker 1: that's no question that. That's because they try and get
16:06
Speaker 1: every stock. But I think you know the great thing
16:08
Speaker 1: about that is when you think about the E t
16:09
Speaker 1: F side of this, you can make that investment. You
16:14
Speaker 1: can buy and hold spy for ten years, twenty years.
16:17
Speaker 1: You know exactly what it is, you know exactly what's
16:19
Speaker 1: in it, you know what you're getting. Oh, you can
16:22
Speaker 1: buy and hold that for five minutes, ten minutes, two days,
16:24
Speaker 1: twenty days. That's what I love about thet F. It's
16:26
Speaker 1: very flexible. It's not you know, we have you know,
16:29
Speaker 1: I remember when we first started launching this, and you know,
16:33
Speaker 1: hedge funds. Everyone's like, no mutual fund wants hedge funds,
16:36
Speaker 1: And I'm I'm like, we cannot. We do? They help
16:39
Speaker 1: with liquidity and liquidity matters these days. Let's talk a
16:43
Speaker 1: little bit about some of the things that you and
16:46
Speaker 1: State Street do besides the spiders. Uh, let's talk about
16:51
Speaker 1: g l D. The Gold index when we're recording this, uh,
16:56
Speaker 1: Midsummer gold has actually output form the SNP this year.
17:01
Speaker 1: It's the first time that's happened since I want to say,
17:04
Speaker 1: a few years. I'm doing it off the top of
17:05
Speaker 1: my head. How has the advent of g l D
17:10
Speaker 1: changed the entire gold market? You know, I think the
17:13
Speaker 1: advantage g l D has really helped reinforce the gold
17:16
Speaker 1: market was a great market before g l D. It's
17:19
Speaker 1: a twenty four hour trading market. It's a very global market.
17:22
Speaker 1: But what g l D was able to do was
17:25
Speaker 1: to I call it, democratizing the ability to invest in gold.
17:29
Speaker 1: Because prior to g l D, investors, retail investors had
17:35
Speaker 1: very few ways to invest in goals. It was physical coins,
17:38
Speaker 1: the costs were three or four or four all of it,
17:43
Speaker 1: and it really wasn't so you know, frankly, retail investors
17:46
Speaker 1: and even financial advisors didn't invest in gold. I I
17:50
Speaker 1: have a pet theory that g l D just destroyed
17:54
Speaker 1: the junior gold miners because what I want management risk, execution, risk, etcetera.
17:59
Speaker 1: When I could just for eight bucks go by g
18:01
Speaker 1: l D and there's my gold exposure. Yeah, I mean less.
18:04
Speaker 1: I think it gave you a different way to get
18:06
Speaker 1: exposure to gold. But it gave you exposure to pure gold.
18:09
Speaker 1: I mean because the l D is backed by physical
18:11
Speaker 1: gold interval. Now isn't g l D also back isn't
18:16
Speaker 1: part of it um futures contracts as well? Or is
18:19
Speaker 1: it only physical gold g l D physical gold with
18:24
Speaker 1: a little little tiny bit of excess cash um but
18:29
Speaker 1: gold they've sold pay expenses. But literally there is physical
18:33
Speaker 1: gold bods interval backing g l D. There was very,
18:37
Speaker 1: very important to the to the structure of the fund.
18:38
Speaker 1: There was a wonderful article in the Wall Street Journal
18:41
Speaker 1: about how g l D came about, I want to
18:43
Speaker 1: say about five years ago, and really it was a
18:46
Speaker 1: function of the World Gold Council. They say, hey, we
18:49
Speaker 1: have all this excess inventory. Let's find a way to
18:53
Speaker 1: get this out of our vaults into somebody else's hands.
18:56
Speaker 1: And how what was that interaction like Queen State Street
19:01
Speaker 1: and the World Gold Council, And were the spies helpful
19:05
Speaker 1: in having you guys win that business, I would say,
19:08
Speaker 1: so at this point in time we're talking. We started
19:11
Speaker 1: working with them probably and to vote three into the
19:14
Speaker 1: OH four and they had worked very much on the
19:17
Speaker 1: concept and the idea. We're working very much with the
19:19
Speaker 1: legal process. But the will Go Counsoles focus wasn't on
19:23
Speaker 1: distributing E T F s UM, so they were looking
19:27
Speaker 1: for a partner. I'm very happy that we became their
19:29
Speaker 1: partner on this from a marketing and distribution standpoint. So
19:33
Speaker 1: we had at the time Spy Sector, Spiders Diamonds, another
19:36
Speaker 1: suite of BTF, so we had a you know hand
19:39
Speaker 1: probably time probably t in a suite today it's all
19:43
Speaker 1: over a hundred um. But we we looked at potnering
19:47
Speaker 1: with the wild Gold console on g l D. We
19:49
Speaker 1: thought the product structure work great. It was a that
19:52
Speaker 1: was one where it was a close race to who
19:54
Speaker 1: was going to get first. Very happy to say g
19:56
Speaker 1: l he was first mockt on that and that's also
19:58
Speaker 1: dominated like nothing else. Nobody's even close to them now.
20:01
Speaker 1: It's been a really really strong product, and isn't it.
20:05
Speaker 1: It's it's one of those products where it's really helped
20:07
Speaker 1: investors be able to allocate to gold um as a
20:11
Speaker 1: diverse fire in their portfolio, and depending on how they
20:14
Speaker 1: have a view on that, they might have an overweight
20:16
Speaker 1: to that, they might have an underweight to that. But
20:18
Speaker 1: there's a strategic case for having an investment in gold.
20:21
Speaker 1: I remember, now my reputation is a little bit of
20:23
Speaker 1: a goldbug basher, but I remember being on television in
20:28
Speaker 1: oh four oh five, and it wasn't long after g
20:31
Speaker 1: LD had come out, and one of the anchors had said, so,
20:35
Speaker 1: what does an investor do to heads themselves against inflation?
20:38
Speaker 1: And my answer was, well, you could buy the gold
20:40
Speaker 1: DTF it's g l D. And everybody looked at me
20:42
Speaker 1: like I had two heads. Now everybody is totally plugged in.
20:47
Speaker 1: And I remember, was it two thousand ten or two
20:50
Speaker 1: thousand and eleven, g l D briefly past spiders as
20:55
Speaker 1: the biggest CTF in the world, arguably quite the cell
20:59
Speaker 1: signal for gold at that point. Um, well, there was
21:02
Speaker 1: a lot going on at that point, remember that, if
21:05
Speaker 1: I'm correct the exact time here on. That was the
21:07
Speaker 1: concern about the US downgrade of the debt. There was
21:10
Speaker 1: a lot of things going on in the world. Or
21:13
Speaker 1: two was eleven, but post crisis as post crisis, I
21:17
Speaker 1: think it was eleven, but it was either tenor eleven.
21:20
Speaker 1: I'm pretty sure it was eleven. But that that was
21:23
Speaker 1: I was you know, t LD is a great product,
21:25
Speaker 1: it was fantastic, but to have it the largest et
21:29
Speaker 1: F in the world was a little strange when you
21:30
Speaker 1: think about kind of the broader equity world. Um so,
21:34
Speaker 1: I think, you know, from that perspective, is a lot
21:36
Speaker 1: of dynamics in the market place. I'm not sure it
21:38
Speaker 1: was a sustu on gold. I think it was just
21:40
Speaker 1: a overall what was going on in the world at
21:42
Speaker 1: that point in time makes makes sense. And when we
21:45
Speaker 1: look at the total value of gold as an asset
21:48
Speaker 1: versus the equity markets, it's just totally dwarf the equity
21:52
Speaker 1: markets are giant. Yeah, exactly, That's that was one my point,
21:55
Speaker 1: Like the t o D has a purpose in a
21:56
Speaker 1: place in a portfolio, but it should be the largest
21:59
Speaker 1: et from the world. I'm not so sure. So so
22:03
Speaker 1: let's talk about some of the multi factor e t
22:06
Speaker 1: f s that are out there. What do you think
22:09
Speaker 1: of these? And I'm really curious as as the process,
22:12
Speaker 1: We'll talk about the process later. What do you think
22:15
Speaker 1: about these single and multi factor e t f s
22:18
Speaker 1: that are becoming increasingly popular? You know, I think listen,
22:22
Speaker 1: I think it's it's very straightforward to me. You have
22:25
Speaker 1: to know how they work. Are you committed to for
22:28
Speaker 1: the long term? Because they work, whether it's single factor,
22:31
Speaker 1: multi factor, they're meant to work over an entire market cycle.
22:36
Speaker 1: And my my premise on them is that's fine. If
22:39
Speaker 1: you're an investor, you've done your due diligence, understand the product,
22:42
Speaker 1: Understand what it's not going to keep up with whatever
22:45
Speaker 1: the benchmark index might be, that might be market cap.
22:48
Speaker 1: Where I worry about this from an investor standpoint because
22:51
Speaker 1: institutions have been using these factors to invest for quite
22:56
Speaker 1: a while now, but they have long term views and
22:58
Speaker 1: convictions are worried. What I worry about fromn end investor
23:01
Speaker 1: standpoint is that they see this, Oh, this is something new,
23:04
Speaker 1: it seems like it's great, and oh it's under performing,
23:08
Speaker 1: you know, und of performing in a running market, which
23:12
Speaker 1: should do so they sell it exactly when they need
23:15
Speaker 1: low ball. So it's really one of those From an
23:18
Speaker 1: investor standpoint, do you educate, you know, do you do
23:20
Speaker 1: diligence do your education, understand the products, whether it's single
23:23
Speaker 1: factor multi factor. Obviously multi factor is really trying to
23:26
Speaker 1: package them together for you, and there's a couple of
23:28
Speaker 1: different ways you can do that. But understand what you're
23:32
Speaker 1: investing in because you know what you own. No, no,
23:35
Speaker 1: I mean it's you know, it's basic, but you know
23:37
Speaker 1: what you won't understand your long term goal and what
23:40
Speaker 1: you're trying to do to get there. Let's talk about
23:43
Speaker 1: some of the more interesting trends that we see UH
23:46
Speaker 1: in investing these days. Smart beta is Some people have
23:51
Speaker 1: criticized that as a marketing slogan. Other people have called
23:55
Speaker 1: it fundamental indexing. What do you guys think of this? Uh,
23:59
Speaker 1: you know, I think it's term. It tries to capture
24:02
Speaker 1: a lot of different things. I've had different debates within
24:05
Speaker 1: that firm. We're an investment firm, so we debate a
24:07
Speaker 1: lot of things around different things. And I had someone
24:09
Speaker 1: tell me, Jim, if you want to call what we do,
24:12
Speaker 1: you want to call anything that's not market cap indexing
24:16
Speaker 1: smart beta, you can't. That means we have a huge
24:20
Speaker 1: business in it because we have products like the Dow
24:22
Speaker 1: which is not actually price weighted. You could make as
24:27
Speaker 1: an alternative index that's smart beta. Now, I think that's
24:31
Speaker 1: a little bit of a stretch. Um it is, it's
24:33
Speaker 1: a term I I look at it. It's most of
24:35
Speaker 1: the cases you're looking at smart beta. It's about factor
24:39
Speaker 1: and it's about you know, you were buying earnings or
24:42
Speaker 1: diving end growth or some other metric. I mean. The
24:46
Speaker 1: interesting is divind in ets has been around for a
24:49
Speaker 1: heck of a lot longer than the term smart beta,
24:52
Speaker 1: but they're now seen as smart. So this is an
24:56
Speaker 1: odd question. You mentioned the diamonds. Then names that you
25:00
Speaker 1: guys come up with for um marketing, things like the
25:05
Speaker 1: SMP five hundred in the Dow. I mean, the SMP
25:08
Speaker 1: spiders commercials. Those are great. I mean it's clear that
25:13
Speaker 1: it's not what you expect. It sticks in your mind.
25:15
Speaker 1: How do you not remember spiders when you see a
25:17
Speaker 1: little spider crawling on the screen. The same thing with
25:21
Speaker 1: the Dow Jones diamonds being the Dow Jones Industrial Average,
25:25
Speaker 1: which is what d i A stands for. But again,
25:28
Speaker 1: how does that process of coming up with here's what
25:32
Speaker 1: the index is, here's what the name is, here's our
25:34
Speaker 1: marketing campaign. They all seem to flow seamlessly into each other. Yeah,
25:38
Speaker 1: you know, you know, Listen, everything evolves over time. Um,
25:41
Speaker 1: you go back to the early days a spy, it's
25:44
Speaker 1: a different kind of spider scared some people, right, It's
25:49
Speaker 1: often it's a uh so we I think we've seen
25:53
Speaker 1: different things. Listen, there's a lot of work that goes
25:55
Speaker 1: in trying to understand kind of from a product development standpoint,
25:58
Speaker 1: we spent a lot of time of my product innovation
26:01
Speaker 1: and really making sure where we were responsible in the
26:04
Speaker 1: products we're developing. We're not perfect, No one's perfect like this,
26:07
Speaker 1: but you kind of look at it and say, Okay,
26:09
Speaker 1: we want to make sure anything we're gonna put our
26:11
Speaker 1: name on we own, we're gonna be behind it, We're
26:14
Speaker 1: gonna make sure we have a marketing strategy around it. Um.
26:18
Speaker 1: You know a unique thing that happens in no space,
26:20
Speaker 1: which I think is a little different than the traditional
26:22
Speaker 1: asset management mutual fund spaces. We all have ticket symbols.
26:26
Speaker 1: Take a symbols matter, So you try and see if
26:28
Speaker 1: you can come up with a unique ticker symbol. There
26:32
Speaker 1: is a a number of academic studies that have shown
26:37
Speaker 1: that a ticker symbol that's a word has a tendency
26:40
Speaker 1: to do better than a ticker symbol. That's just random letters.
26:43
Speaker 1: And that's just the behavioral side of it. Um what
26:46
Speaker 1: other what other ticket symbols? You guys don't do moved,
26:50
Speaker 1: do you? We don't do move, although it's it's a
26:52
Speaker 1: very good symbol. Um. Yeah, I think listen, I think
26:55
Speaker 1: you gotta wear immune. Listen, this too tis too piece
26:57
Speaker 1: this you don't want to buy any TF go ahead
27:00
Speaker 1: the cool ticket symbol, right do you want to make
27:01
Speaker 1: sure you understand the et F and not online and
27:03
Speaker 1: where it fits for you, but it can help get
27:06
Speaker 1: your attention, and so you think about sector spoders. We
27:10
Speaker 1: every everything in sective side of thoughts out with Xcel
27:12
Speaker 1: right now that back in the time, that's what we did,
27:16
Speaker 1: so how we designed a spreadsheet. So but if you
27:18
Speaker 1: you know, if you're a trader, you know what actual
27:20
Speaker 1: F is. You know what actually is you know, you
27:23
Speaker 1: know that's that's the financial sector spot in the energy
27:25
Speaker 1: sector spider. But no one calls him by the whole name.
27:28
Speaker 1: And sometimes you just have to get a little lucky
27:30
Speaker 1: with the name. I remember when the e t F
27:32
Speaker 1: hack came out and then a month later, Sony Pictures
27:36
Speaker 1: was hacked and suddenly it was in the news every
27:38
Speaker 1: day and that became a billion dollar et F. That's
27:41
Speaker 1: the power, that's the power of a name. Um. What
27:44
Speaker 1: about market capitalization? We look at the way UM a
27:50
Speaker 1: lot of E t F and a lot of indexing,
27:52
Speaker 1: passive indexing is done. It's cap weighted. There's been some criticism,
27:57
Speaker 1: some pushback on that. What what What is the official
28:00
Speaker 1: state street view on cap waiting? I don't know if
28:03
Speaker 1: I want to give official state street view on that.
28:05
Speaker 1: I'm gonna give my view of even better. But I
28:08
Speaker 1: think pretty straightforward. You know, cap wait is pride and true.
28:11
Speaker 1: It's been around for a very long time. It's kind
28:14
Speaker 1: of what indexing styt of that. I think some of
28:17
Speaker 1: the things you're seeing today have emerged because of technology. Honestly,
28:21
Speaker 1: I'm not sure you could have isolated some of the
28:23
Speaker 1: factors today as easily as you can and then execute
28:27
Speaker 1: on top next you on top of fifteen twenty years ago.
28:29
Speaker 1: So technology has helped you allowed you to do other things.
28:32
Speaker 1: But market cap, when you think about it, it's a
28:35
Speaker 1: very straightforward thing. It makes sense, you know, and the
28:39
Speaker 1: self balances to self balances, you know what I worry
28:42
Speaker 1: about from an investor standpoint, and sometimes investors will take
28:45
Speaker 1: you know, they'll just mismash things together, and you really
28:48
Speaker 1: have to lens through and make sure you understand what
28:50
Speaker 1: you own because even though you might have the SMP
28:52
Speaker 1: five hundred, and if you have the SMP five hundred,
28:55
Speaker 1: the Russell too and some mid cap you might have overlapped,
28:59
Speaker 1: you know, so you really want to understand kind of
29:01
Speaker 1: where you're you know, what your overall portfolio looks like.
29:04
Speaker 1: If you can get a portfolio portfolio analyze that shows
29:07
Speaker 1: all of it, because some people will buy, you know,
29:10
Speaker 1: I have this active lodge cap fund, this other active
29:13
Speaker 1: MidCap fund that's really a lodge cap fund. I'll have
29:15
Speaker 1: spy and what you find out you have if you
29:17
Speaker 1: have multiple duplay your portfolios. Do you think they're diversified,
29:22
Speaker 1: but they really have a giant That ven diagram of
29:25
Speaker 1: overlap is is tremendous. So so let's talk a little
29:28
Speaker 1: bit about UM E s G, which is probably um
29:33
Speaker 1: the hottest new or not so new UH theme and
29:37
Speaker 1: investing Environmental, social and governance. You have five separate ETFs
29:43
Speaker 1: UH in that space, if not more since we last
29:46
Speaker 1: looked UH the e t F SHE, which is focused
29:51
Speaker 1: on companies that are UM either run by women or
29:55
Speaker 1: have diverse diversification across their corporate board with women or
30:00
Speaker 1: other women female related UM governance issues, is about three
30:06
Speaker 1: hundred and thirty million dollars. Is that about right? Where's
30:09
Speaker 1: the demand for these sort of products coming from? Because
30:12
Speaker 1: it really seems to be the hot new thing. So
30:15
Speaker 1: I mean the demand is coming from a lot of
30:17
Speaker 1: different places depending on the type of E s G products.
30:20
Speaker 1: So the Gender Diversity ETFC was a product that we
30:24
Speaker 1: did with UM Calister So California Teachers Pension UM. That's
30:30
Speaker 1: very interesting that they came to you and said, hey,
30:32
Speaker 1: we have an idea. We need to check off this
30:34
Speaker 1: box which we can't really do cheaply elsewhere. Can you
30:37
Speaker 1: guys develop this way? And it wasn't It was interesting.
30:39
Speaker 1: It was really based on the research. So they came
30:41
Speaker 1: to us, can you do a research project around this?
30:44
Speaker 1: Like the research, we had to get deep into the
30:46
Speaker 1: research because some of the research is really just looking
30:48
Speaker 1: at corporate board seats and that's nice to have, but
30:51
Speaker 1: an easy thing to a company to fix this is
30:54
Speaker 1: really going down in the company and saying where is
30:56
Speaker 1: your you've seen your management, your executive management, and how
31:00
Speaker 1: diverse is it? And it stats that you can get.
31:03
Speaker 1: That's one of the challenges with these things. Typetimes like,
31:05
Speaker 1: you know, it sounds great, but if you can't get
31:08
Speaker 1: to the core data, it's hard to build a product
31:10
Speaker 1: around it. Because we worked very hot with them on
31:12
Speaker 1: the research around this and then turn it into an
31:15
Speaker 1: index that we feel can continually update and get to
31:20
Speaker 1: the exposure that we're trying to get to. And and
31:22
Speaker 1: the academic research on gender diversity says corporations that have
31:27
Speaker 1: their board of directors, the seenior management they're hiring that
31:30
Speaker 1: is more diverse than the average company actually do better
31:34
Speaker 1: than the index. That's what the research showed. What other
31:38
Speaker 1: stuff tends to do better than than the than the index.
31:42
Speaker 1: What other research is they're showing different themes actually generate alpha.
31:48
Speaker 1: So it's challenging. So it's challenging. Might think of the
31:51
Speaker 1: whole kind of board, you know, governance area. You know,
31:55
Speaker 1: we're very active in governance as a firm because we
31:59
Speaker 1: think it's right for the folks who invest in us,
32:01
Speaker 1: and we think we're trying to produce a better long
32:04
Speaker 1: term outcome for the investor, it's not a short term view.
32:08
Speaker 1: The unique thing about being a large passive index player
32:12
Speaker 1: is an active manager can look at a company and say,
32:15
Speaker 1: I don't think they're taking the long term view on
32:19
Speaker 1: you know, the environment right, and it's gonna hurt their
32:22
Speaker 1: company's profits and sell it. We as an index provider,
32:28
Speaker 1: can't sell that company even if we have the same view,
32:31
Speaker 1: So we engage with it on our concerns, whether it's
32:34
Speaker 1: diversity of the board, gender diversity, all diversity, or if
32:38
Speaker 1: it's around some of their views on social programs or
32:42
Speaker 1: long term views on the environment we have. We we
32:46
Speaker 1: look at our responsibility from a corporate governor standpoint. To
32:50
Speaker 1: engage makes a lot of sense. Um although you lose
32:53
Speaker 1: the stick of saying and if you know we're not
32:55
Speaker 1: happy with your answers, we're gonna sell, but you still
32:59
Speaker 1: have the ability to vote proxies and do other things.
33:02
Speaker 1: So companies, I assume are somewhat cooperative. When State Street
33:06
Speaker 1: comes and says, hey, we have these concerns. How receptive
33:09
Speaker 1: is corporate management? I think you know what we have
33:11
Speaker 1: found is they're very receptive and we want to work
33:14
Speaker 1: with them on a long term so we're not gonna
33:16
Speaker 1: We're not the you know, we're not in this going
33:18
Speaker 1: to I'm saying, hey, we have these concerns, what do
33:20
Speaker 1: you gonna do about it tomorrow? You're not You're not activists,
33:23
Speaker 1: investors demanding boards. Exactly, We're in there saying, give us
33:26
Speaker 1: you a long term view on this. Here's our long
33:28
Speaker 1: term view. How can we continue to work together. But yeah,
33:31
Speaker 1: the you know, the the stick there is that we
33:34
Speaker 1: vote proxies. What are the e t f s that
33:37
Speaker 1: State Street has that addresses people who are concerned about
33:40
Speaker 1: the environment, and what do you expect the long term
33:43
Speaker 1: demand for these products to look like in the future.
33:46
Speaker 1: So we we most of that today has been focused on.
33:48
Speaker 1: Once again, it gets to what do you have good
33:51
Speaker 1: data on that you can actually build an index, honor
33:54
Speaker 1: an investment strategy on UM. So we do try and
33:57
Speaker 1: look at that from the long term. We have focused
33:59
Speaker 1: We have a PARTICT that is low combon that really
34:02
Speaker 1: is you know, a subset of the core SMP five.
34:06
Speaker 1: What's the ticker symbol on the low carbon ETF low
34:09
Speaker 1: see low s makes sense UD good. And then we
34:12
Speaker 1: have spy X, which is really focused on cobbon free
34:17
Speaker 1: UM A fossil Yeah, what's the what's the difference? So, uh,
34:22
Speaker 1: spy X is no oil companies, no coal companies, nothing
34:26
Speaker 1: that is carbon based, whereas lo SEE is really trying
34:30
Speaker 1: to get you to that same core benchmark return by
34:34
Speaker 1: underwaiting cobbon producers but not completely limited. It's a waiting
34:38
Speaker 1: shift as a waiting shift versus an exclusionary And which
34:42
Speaker 1: which is better spy X, which is bigger, spy extra
34:46
Speaker 1: low C. I think low C today is a little
34:49
Speaker 1: bit bigger. But the better is a hard one to
34:51
Speaker 1: say because low se fit's a little bit better into
34:56
Speaker 1: your asset out case. And if you're an institutional investor,
34:58
Speaker 1: because you still want to get exposed. Um, you don't
35:01
Speaker 1: necessarily want to make a big bet one way or
35:03
Speaker 1: the other if anyone is more. If you're an investor
35:06
Speaker 1: that fundamentally believes that's where you want to invest, which
35:10
Speaker 1: is what a lot of the s G is, this
35:11
Speaker 1: is where my mind is. We see this more with
35:14
Speaker 1: institutions in Europe than we see even in the US day.
35:17
Speaker 1: That's that's quite fascinating. We also tend to see that
35:21
Speaker 1: with millennial and youthful investors and admittedly small part of
35:26
Speaker 1: the current market, but hey, that's probably where things are
35:30
Speaker 1: going ten twent thirty years from now. Um, So what
35:34
Speaker 1: about business risk? You guys obviously have massive exposure to
35:38
Speaker 1: the market. What does it mean if the market takes
35:41
Speaker 1: a twenty or thirty percent correction? Does that mean you're
35:44
Speaker 1: revenues for dropping by a substantial amount? And we're a
35:49
Speaker 1: revenue based organism. I mean we're an asset based organization
35:52
Speaker 1: in many ways now S s g A is a
35:56
Speaker 1: pretty diversified business, and that we have fixed income, we
35:59
Speaker 1: have cash, and we have equity. We obviously have g
36:01
Speaker 1: l D so in some cases when some of those
36:04
Speaker 1: are coming off, some of the other things we're going up.
36:06
Speaker 1: But yeah, in general, when the market, if and when
36:10
Speaker 1: the market goes down like that, we feel pressure on
36:12
Speaker 1: a revenue side, no question. And you mentioned earlier the
36:16
Speaker 1: VIX and some of the low volatility products. Um, we
36:20
Speaker 1: have a tremendous amount of political volatility, but we really
36:24
Speaker 1: haven't seen all that much uh market volatility. Uh we
36:30
Speaker 1: we The day after the fire and fury Trump remark
36:33
Speaker 1: about North Korea, the market opened down fairly substantially. I
36:37
Speaker 1: think we closed down thirty points on the DAW yesterday,
36:40
Speaker 1: which is which is nothing. It's a tick. How do
36:42
Speaker 1: you guys look at this and and and what what,
36:45
Speaker 1: if anything do you do about it? I think you know,
36:48
Speaker 1: what we try and do best is in most it's
36:50
Speaker 1: really just make sure our clients inform about what I've
36:52
Speaker 1: used on the market, what we think about it as
36:54
Speaker 1: a firm um communicate as much as we can, you know,
36:58
Speaker 1: I think the reality is is what you see in
37:01
Speaker 1: political you know, instability in some cases does not necessarily
37:05
Speaker 1: drive the market. The markets can be driven on the
37:07
Speaker 1: fundamental unlying stocks and the long term views of those
37:10
Speaker 1: companies for the most part. And once again, there's always
37:14
Speaker 1: a potential that there's, ah, you know, something going on
37:16
Speaker 1: in the world from a politically not not even political,
37:20
Speaker 1: but just you know, anything can happen in the world.
37:22
Speaker 1: We can be a market shock, and you try and
37:24
Speaker 1: think about those, you know, the black swan, gray swan,
37:26
Speaker 1: whatever you want to call them, Try and think about
37:28
Speaker 1: those and make sure they're part of your overall investment
37:31
Speaker 1: strategy and plan that you've thought about that. The fact
37:35
Speaker 1: the market can go down um where we sometimes and
37:39
Speaker 1: this recent run that folks haven't really seen a lot
37:41
Speaker 1: of that but you know, I think it's important for
37:43
Speaker 1: folks to make sure you you're still looking at your
37:45
Speaker 1: long term outcome and understanding why you have the diversigation
37:49
Speaker 1: you have them. Hopefully you're rebalancing at different points. And
37:52
Speaker 1: someone mentioned the other day that we now have an
37:54
Speaker 1: entire generation of traders that has never experienced the rising environment,
37:59
Speaker 1: which is which is pretty funny. Um last market related question,
38:04
Speaker 1: there is a general sense from a number of quarters
38:07
Speaker 1: that markets in the US are overvalued. How do you
38:11
Speaker 1: look at valuations and what can you guys do about
38:16
Speaker 1: that as a product manager? So I'm not sure that
38:19
Speaker 1: the lot we can do about that as a product manager.
38:22
Speaker 1: I think what we try and do is ensure that
38:24
Speaker 1: we have a diversified set of products. So when our
38:28
Speaker 1: clients want to diversify, if they if they believe that
38:31
Speaker 1: there's a long term view. And we saw this shift,
38:34
Speaker 1: you know, we saw this shift into you know, strong
38:37
Speaker 1: into the US after the election and shift into much
38:40
Speaker 1: more of a Europe looks a little more attractive. You
38:42
Speaker 1: look at et F flows, you can see a lot
38:44
Speaker 1: of things. If you look at Broady E t F
38:46
Speaker 1: industry flows, you can see a lot of trendits that
38:48
Speaker 1: played through from the markets where people want to shifting
38:51
Speaker 1: some of their some of the bats I'm gonna call
38:53
Speaker 1: it UM towards Europe E M Europe EM is definitely
38:58
Speaker 1: You're probably more Europe initially, probably a little more M now.
39:01
Speaker 1: So I think we see that playing out in the marketplace.
39:04
Speaker 1: My goal is kind of somebody who has a broad
39:06
Speaker 1: diverse products set, is to ensure that we have products
39:09
Speaker 1: for our investors that they can use if they want
39:11
Speaker 1: to shift. We're not telling necessary folks to shift, you know.
39:15
Speaker 1: Our goal is really to make sure we pride them
39:16
Speaker 1: with the information, engage with them about what their options are.
39:20
Speaker 1: And they're the ones they're gonna direct, you know, whether
39:23
Speaker 1: they want to shift their client's assets. That's probably work
39:25
Speaker 1: very closely with. You know, financial advisors and investors are
39:28
Speaker 1: on the club. Can you stick around a little bit,
39:30
Speaker 1: we'll we'll keep talking about all things UH et F related. Sure,
39:35
Speaker 1: we have been speaking with Jim Ross. He is the
39:37
Speaker 1: chairman of the State Street Spider Global Group as well
39:40
Speaker 1: as chairman of s s G as Asset Management ARM.
39:45
Speaker 1: If you enjoy this conversation, be sure and check out
39:48
Speaker 1: our full podcast. You can find that on Bloomberg dot com, Apple, iTunes, SoundCloud,
39:54
Speaker 1: and wherever fine podcasts are sold. We love your comments,
39:58
Speaker 1: feedback and suggestions right to us at m IB podcast
40:02
Speaker 1: at Bloomberg dot net. You can find my daily columns
40:06
Speaker 1: on Bloomberg View dot com. Check me out on Twitter
40:09
Speaker 1: at rid Halts. I'm Barry Ridholts. You're listening to Masters
40:13
Speaker 1: in Business on Bloomberg Radio. Welcome to the podcast. Thank
40:29
Speaker 1: you Jim for doing this. I've really been looking forward
40:31
Speaker 1: to this, UH for a long time. Thank you very
40:36
Speaker 1: much for having me my pleasure, your legend in the industry,
40:39
Speaker 1: and this entire um library would be incomplete without without
40:44
Speaker 1: you in it. So so let's talk a little bit
40:46
Speaker 1: about some of our our favorite questions. Things that UH
40:49
Speaker 1: I really like. What's the most important thing people don't
40:53
Speaker 1: know about your background? That's an interesting question. There's a
40:56
Speaker 1: lot of things I don't want people to know about
40:58
Speaker 1: my background. I happen to have a dossier here. Yeah,
41:02
Speaker 1: you were in Russia recently, weren't No, no, no, no.
41:04
Speaker 1: I have the captain for a really bad basketball team
41:06
Speaker 1: in high school. But that doesn't really matter. You don't
41:08
Speaker 1: strike me as a basketball player. You look you're you're
41:11
Speaker 1: a solid guy. You look more like a football player
41:13
Speaker 1: undred and sixty pound point guard in high school. But
41:16
Speaker 1: that's really I've changed a little bit all the time.
41:18
Speaker 1: I think, you know, I think the one and I'll
41:21
Speaker 1: say it, the one that I I think people probably
41:24
Speaker 1: don't know about background. I got involved in NETF somewhat
41:26
Speaker 1: by accident, and I got a lot more credit for
41:29
Speaker 1: spy than I deserve. You've every time I've seen you
41:33
Speaker 1: speak publicly, you practically open with that. So no one
41:37
Speaker 1: could ever accuse you of taking um credit for something
41:41
Speaker 1: that that you don't deserve. Let's let's talk about some
41:44
Speaker 1: of your mentors. Who are the people who really influenced
41:47
Speaker 1: your career. You know, there's been quite a few. I
41:51
Speaker 1: think of mentors, and it's like sometimes when somebody has
41:53
Speaker 1: like I just had this one mentum my whole career.
41:56
Speaker 1: I think I probably, you know, my first mentors, probably
41:58
Speaker 1: my dad got a lot from him. Um. But I
42:02
Speaker 1: think I look at mentorship is I've taken things from
42:04
Speaker 1: different folks. I've worked with good and bad over the years.
42:08
Speaker 1: You know, different styles. Um, you know, I take a
42:11
Speaker 1: little bit the folks who first hired me a State
42:13
Speaker 1: street cat Cooglo. Glen Francis gave me a great opportunity,
42:17
Speaker 1: so I give them a lot of credit. I've learned
42:18
Speaker 1: different things from them over the years. Um one for
42:22
Speaker 1: sure was the CEO of S S g A for
42:25
Speaker 1: the years for early years I was there, which just
42:27
Speaker 1: Tim Hobbitt Um who unfortunately passed away on the job
42:31
Speaker 1: in two thousand three. So but he was one who
42:35
Speaker 1: I took a lot of from. Like I said, I've
42:37
Speaker 1: worked for a lot of different folks. I've seen a
42:38
Speaker 1: lot of different styles. So part of what I try
42:40
Speaker 1: and do is understand different folks style, take the good,
42:46
Speaker 1: maybe not take some of their bad. So I've worked
42:48
Speaker 1: with folks who have you know, hot timbers, but they're passionate. Okay,
42:52
Speaker 1: well I want to take the passionate side. I don't
42:54
Speaker 1: really have a temper all that month. So you're try
42:56
Speaker 1: and learn from different things. But though I think in
42:58
Speaker 1: mentorship is kind of like That's how I've on it
43:00
Speaker 1: over the years. Different folks I know have different mentors.
43:02
Speaker 1: I've had colleagues that I've looked at his mentors. Um
43:05
Speaker 1: that's been straight peers of mine because I like the
43:08
Speaker 1: way they do things. I've learned from them that. That's
43:11
Speaker 1: quite that's quite fascinating. Um, what investors have influenced the
43:16
Speaker 1: way you approach your job? You know, it's funny. I'm
43:18
Speaker 1: not I'm not a core investment guy. I didn't come
43:21
Speaker 1: up with that. I didn't read about investment. I'm not
43:24
Speaker 1: sure how knew Warren Buffett was twenty years ago, to
43:27
Speaker 1: be completely honest with you, So I don't want to
43:29
Speaker 1: sit here in bs and that what's his name? Who?
43:33
Speaker 1: Warren Buffett? Right? I think I'm gonna be honest with you.
43:37
Speaker 1: Twenty five years ago I kne Jimmy Buffett a lot
43:39
Speaker 1: better than any Warren Buffett. And it turns out there
43:41
Speaker 1: distant cousins. Yeah. So Um, but I think I learned
43:44
Speaker 1: most of my investment frankly from working in the industry
43:46
Speaker 1: at State Street and S S G. A. That's where
43:49
Speaker 1: I kind of got the passion A for E. T. S,
43:51
Speaker 1: but B for you know, the ability to use passive
43:55
Speaker 1: product to get to the outcome, which is different than
43:57
Speaker 1: passive versus active. In my vore, do you and a
44:01
Speaker 1: quick digression, is everything that State Street does is it
44:06
Speaker 1: in house or do you have require things from the outside?
44:10
Speaker 1: We do something, so we have some partnership. We will
44:12
Speaker 1: hire subadvisors in different areas. We've done that in ETF business.
44:16
Speaker 1: We have a great partnership there with Double Line for
44:18
Speaker 1: core fixed income, GSL Blackstone for bank loans, MFS for equities,
44:23
Speaker 1: and frankly now Vinan from UNI. So we do we
44:26
Speaker 1: do have a We do that in certain segments. We
44:29
Speaker 1: also manufacture both active return streams within the firm and
44:32
Speaker 1: passive return streams. Obviously that's interesting. So this is everybody's
44:37
Speaker 1: favorite question, what are some of your favorite books? So
44:42
Speaker 1: I'm gonna be honest here. My wife gave me an idea.
44:45
Speaker 1: I chose not to take it, which was look up
44:47
Speaker 1: what Donald's answer was for this. I don't read a
44:49
Speaker 1: lot if I tend to read, and I'm sitting here
44:52
Speaker 1: in New York City, So I just want to be
44:53
Speaker 1: honest about this. It tends to be about some of
44:55
Speaker 1: the Red Sox or Patriot success stories, um so books
44:59
Speaker 1: on the two thousand four Red Sox. I enjoyed that year,
45:01
Speaker 1: didn't enjoy being a game seven and two thousand three
45:04
Speaker 1: um two thousand three um who who? Just uh my?
45:12
Speaker 1: My biggest Red Sox um recollection was the game against
45:17
Speaker 1: the Mets in it was the eighty six World Series
45:23
Speaker 1: old that that stayed with you, that stayed with me,
45:27
Speaker 1: that hurt still hurts. And and at this point have
45:31
Speaker 1: we have we all accepted the flake gate is a
45:33
Speaker 1: real thing or no, that that went nowhere with Tom Brady,
45:37
Speaker 1: I have no idea what you're talking about. Oh no,
45:39
Speaker 1: I know what you're talking about. No idea what you're
45:41
Speaker 1: talking about. I don't think it's real at all. A right, Um,
45:44
Speaker 1: so let's let's talk about the overall investment industry. What
45:48
Speaker 1: are some of the most significant changes since you've joined. God,
45:53
Speaker 1: there's been a lot of change. I mean, I think
45:55
Speaker 1: change is constant in this world, constant this industry. You know,
45:58
Speaker 1: I think we've seen just the way people can invest
46:02
Speaker 1: has changed dramatically, you know, huge, huge difference. You know.
46:05
Speaker 1: I think about, you know, going back twenty five years ago,
46:08
Speaker 1: and this is I sho laugh at this, but you
46:11
Speaker 1: years ago. One of the things you're broker did for
46:13
Speaker 1: you is you won't usually individual stocks. Sometimes you might
46:17
Speaker 1: call him up and say, hey, what's this stock doing
46:19
Speaker 1: to because you couldn't see the price. You didn't want
46:21
Speaker 1: to wait till the next day. We take it for
46:23
Speaker 1: granted that you could look at any price in four
46:26
Speaker 1: hours a day. That wasn't how it used to be.
46:29
Speaker 1: But I look at you know, commissions have compressed, you know,
46:33
Speaker 1: how you invest in, how you work with the financial
46:36
Speaker 1: advisor has probably gone from commission based to fee based.
46:39
Speaker 1: As far as that world, what you pay to buy
46:42
Speaker 1: and sell stocks, ets, anything has come down. You know.
46:45
Speaker 1: I go back to the days where as a single
46:47
Speaker 1: specialist they owned the book, you know, and spy traded
46:50
Speaker 1: it thirty cents spreading. That's what we knew. Spy trades
46:54
Speaker 1: less and a penny spread today. Um, so you get commissioned.
46:57
Speaker 1: I think that's kind of some of the good things
47:00
Speaker 1: some of the bad things. I think from an investor standpoint,
47:02
Speaker 1: it's got a lot more complex, there's a lot more
47:04
Speaker 1: products out there. You need to do your due diligence
47:07
Speaker 1: to invest, and so naturally the next question is what
47:11
Speaker 1: are the next shifts? What do you see happening within
47:14
Speaker 1: the industry that people may not be anticipated. Yeah, you know,
47:17
Speaker 1: it's it's always easy to look back and see what's happened,
47:20
Speaker 1: and try and look forward and say here's my great prediction. Um,
47:25
Speaker 1: but I've seen a lot of things, and I continue
47:27
Speaker 1: to see improvements going on in the marketplace, the way
47:30
Speaker 1: people invest, the way they think. I look at technology,
47:34
Speaker 1: and you know, I'm looking at this broadly, not just
47:36
Speaker 1: around robo advice, but you see people buying managed portfolios
47:42
Speaker 1: that way. Um, it's just and it's just a way.
47:44
Speaker 1: I think younger investors want to be able to do
47:47
Speaker 1: it directly. I think they at times want to get advice.
47:51
Speaker 1: So I think that's going to continue to shift. I
47:53
Speaker 1: also think there's you know, long term, I think there
47:56
Speaker 1: could be more tech disruption in the financial space. I
47:59
Speaker 1: think where you know, we're kidding us off if we
48:02
Speaker 1: don't think that there's folks looking at the asset management
48:05
Speaker 1: space and the broader financial space to say these is
48:07
Speaker 1: a piece of that that we can play in that
48:09
Speaker 1: will be good for us. And I'm a technology from
48:12
Speaker 1: what was what was Jeff Bezos line? Your margin is
48:15
Speaker 1: my opportunity, Yeah, no, no doubt about it. So so
48:19
Speaker 1: we've been talking about all your successes. Tell us about
48:22
Speaker 1: a time you failed and what you learned from that.
48:25
Speaker 1: Oh God, I failed a lot, um, I filed a
48:28
Speaker 1: ton of So I mean that in a good way
48:30
Speaker 1: because big part of my career has been launching product.
48:34
Speaker 1: And if you don't take risks and fail, you're not
48:37
Speaker 1: gonna have success. If you wait to try and think
48:39
Speaker 1: you have everything right, first of all, you probably gonna
48:42
Speaker 1: beat the market by about five years and you're gonna
48:44
Speaker 1: figure out what not what's right or wrong. So UM
48:46
Speaker 1: I have different products over the years. Um One of
48:49
Speaker 1: them famous when I worked on called the OH strip
48:52
Speaker 1: never hear of it, No Yep, triple os, great ticker, Oh,
48:57
Speaker 1: great ticker idea from the marketplace, so idea a friend
49:00
Speaker 1: of mine solving a problem because at the time the
49:03
Speaker 1: NASDAC stocks didn't have a close for the S and
49:06
Speaker 1: P and it was a problem for the traders. So
49:08
Speaker 1: he was a trader Tim this is gonna be a
49:10
Speaker 1: great et f we develop it, we launched it, Nozac
49:14
Speaker 1: fixed the problem. Six months later the product now we're
49:16
Speaker 1: trying to stella out as a tech stock and a tists.
49:19
Speaker 1: It was a failure. So when I was versus the
49:22
Speaker 1: q Q ces is that we tried for a little
49:24
Speaker 1: bit that didn't really fly either. So when my rights
49:27
Speaker 1: to everyone on failure, just feel quick, fail quick, feel quick,
49:31
Speaker 1: learned from learn from it. Move on to the One
49:33
Speaker 1: of the best comments a colleague of mine said to
49:36
Speaker 1: a board member about me one day is Jim doesn't
49:38
Speaker 1: lose sleep over the failures. He wonders why that wants
49:42
Speaker 1: it a successful as successful that you're losing slip over
49:45
Speaker 1: the winners, not the losers. That that's pretty funny. Um,
49:48
Speaker 1: So tell us what you do to keep mentally fit?
49:51
Speaker 1: What do you do to relax or for enjoyment outside
49:54
Speaker 1: of the office. So I do a lot of different things.
49:57
Speaker 1: I you know, mentally and physically. I have actually work
49:59
Speaker 1: out lot one of that probably looks like I work out.
50:01
Speaker 1: I have to. It's old muscle underneath. It's getting there
50:04
Speaker 1: working on that. Um, I don't keep hurting things that
50:07
Speaker 1: would be better. Yeah. By the way, it only gets
50:11
Speaker 1: worse as you get, doesn't get better. I know, I
50:14
Speaker 1: get knee issues and shoulder issues. But but we walked.
50:17
Speaker 1: So my wife and I moved into the city a
50:18
Speaker 1: few years ago. Everyone's like, uba bill is going to
50:21
Speaker 1: go through the I don't have an uber bill, at
50:24
Speaker 1: least not for in the city of Boston. We walk
50:27
Speaker 1: everywhere here in New York. Yeah, you don't think about it. Um,
50:30
Speaker 1: you know, other things listen. We have a house on
50:32
Speaker 1: a lake in the hampsh to have a boat. I
50:34
Speaker 1: play golf up there. Lots of family and friends up there,
50:37
Speaker 1: So that's kind of how we like to enjoy ourselves.
50:39
Speaker 1: And we're not against going out and having maybe a
50:42
Speaker 1: cocktail and a nice meal here and there. Are you
50:44
Speaker 1: a fisherman or a water ski or what do you
50:46
Speaker 1: use the boat for? We use the boat more for
50:48
Speaker 1: tooling around the lake. And then Nissa and nephews and
50:50
Speaker 1: friends will throw off a tube and kick him around
50:53
Speaker 1: the lake. So that's that's a that's a lot of fun.
50:56
Speaker 1: I love to do the same thing. Um, let's let's
51:00
Speaker 1: we talked earlier about mentors, and let's talk a little
51:04
Speaker 1: bit about millennials and recent college graduates. What sort of
51:10
Speaker 1: advice would you give to a millennial who came to
51:12
Speaker 1: you and said, hey, I'm interested in the career of finance?
51:15
Speaker 1: What what? What sort of response would you give them?
51:19
Speaker 1: Try something different? Though I'm kidding, I know, I think, um,
51:22
Speaker 1: you know the advice, you know, it's one of those
51:26
Speaker 1: couple of things. And I have these conversations a lot
51:28
Speaker 1: with different folks. Um, when I talked to folks earlier
51:31
Speaker 1: in their career. One of the first thing I said,
51:32
Speaker 1: I was like, don't freak out like this next decision
51:36
Speaker 1: you make, but what you're gonna do in your first
51:38
Speaker 1: job I after college, doesn't your final decision done your career?
51:41
Speaker 1: So you know, I think, you know, I have good
51:44
Speaker 1: friends of mine to think about their career and three
51:46
Speaker 1: year increments and have a plan for all of it.
51:48
Speaker 1: I planned none of it. You know, we've talked a
51:51
Speaker 1: little bit about I got involved in Spy, I stayed
51:53
Speaker 1: involved in it, became really successful et s crew. I
51:58
Speaker 1: was there. It was really high. It did a lot
52:00
Speaker 1: hot work there. But I mean the advice I give everyone,
52:02
Speaker 1: which is kind of raise your hand. Like I asked
52:05
Speaker 1: for more work, I got more work and ended up
52:07
Speaker 1: being something incredible that no one anticipated it to be.
52:11
Speaker 1: So raise your hand, work hot, do your job. I
52:14
Speaker 1: say this folks all the time. You know, if I
52:16
Speaker 1: have somebody who's been working for us for six months,
52:18
Speaker 1: they say, hey, what's my next job? My couch? You
52:20
Speaker 1: go to the job I hired you for, you know,
52:22
Speaker 1: so you know, earned the right for that next step,
52:26
Speaker 1: um and work hot. I mean, it's not this and
52:28
Speaker 1: this is now that complicated work. Hot do your job
52:32
Speaker 1: and learn your craft. You know. One of the things
52:34
Speaker 1: I did early on with the TF is I tried
52:36
Speaker 1: to make sure I understood as much of it as
52:39
Speaker 1: I could. I knew the back office side, I didn't
52:41
Speaker 1: understand trading. I can now have a conversation but equity
52:45
Speaker 1: market structure and trading. Maybe not with some of the
52:48
Speaker 1: best in the world, but I can hold my own.
52:51
Speaker 1: And and our final question, uh, what is it that
52:54
Speaker 1: you know about products et fs investing today that you
52:58
Speaker 1: wish you knew back in when you were getting rolling?
53:05
Speaker 1: Jeez ah, what what do I wish? I wish I
53:09
Speaker 1: knew Honestly, I wish you know, I wish we had
53:12
Speaker 1: seen the vision that they would become. We developed the
53:16
Speaker 1: original e t s with the intent of institutional trading firms.
53:20
Speaker 1: That was the design um. The adoption of them from
53:23
Speaker 1: the financial advisor and retail space has been virtually was
53:27
Speaker 1: not ever plan. So I think if I had known that,
53:29
Speaker 1: probably would have thought about that differently from a strategic
53:32
Speaker 1: standard point, from a job um, there's a lot of
53:35
Speaker 1: things I wish I knew new twenty five years ago.
53:37
Speaker 1: I wish, but I think from that perspectives, like, you know,
53:40
Speaker 1: I wish to new the global financial crisisally happening, I
53:42
Speaker 1: might have invested differently around that. You know, there's a
53:44
Speaker 1: lot of things you want to know, but I think
53:46
Speaker 1: the reality is is you're never gonna know everything, and
53:49
Speaker 1: the best thing when you're working in this world is
53:51
Speaker 1: to try and understand how best to shift when you are.
53:54
Speaker 1: We have been speaking with Jim Ross, chairman of the
53:57
Speaker 1: Global Spider business for State Street. If you enjoy this conversation,
54:02
Speaker 1: be sure and look Up an Inch or Down an
54:04
Speaker 1: Inch on Apple iTunes and you can see any of
54:07
Speaker 1: the other hundred and fifty such conversations that we've had.
54:11
Speaker 1: We love your comments, feedback and suggestions right to us
54:16
Speaker 1: at m IB podcast at Bloomberg dot net. I would
54:21
Speaker 1: be remiss if I did not thank all the people
54:23
Speaker 1: who helped put this UH podcast together. Taylor Riggs is
54:28
Speaker 1: our booker, Medina part Water is our audio engineer. Michael
54:32
Speaker 1: bat Nick is my head of research. I'm Barry Ridholtz.
54:36
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio