We sit down with Chris Hempstead, Director of institutional business development at IndexIQ, to discuss ETF distribution and some of the challenges that ETF issuers face when it comes to getting the word out on their product.
Transcript
Speaker 1:
Speaking Logicly is brought to you by ETFLogic, the leading provider of analytics and portfolio analysis tools for financial advisors. No information within this should be considered trading or investment advice.
Scott McKenna:
Hey guys and welcome to another episode of Speaking Logicly. My name is Scott McKenna.
Emil Tarazi:
And I’m Emil Tarazi.
Scott McKenna:
Today we are joined by Chris Hempstead who’s the head of Institutional Business Development at Index IQ. Chris, how are you doing today?
Chris Hempstead:
I’m good, thanks. How are you today?
Scott McKenna:
Excellent. Got to say, we’re really excited to have you on the podcast. Obviously, you’re a pretty well known name in the ETF issuer space, right, but for some of the advisors who are listening that might not know about you, why don’t you give us a little bit of background?
Chris Hempstead:
Sure, thanks. Yeah, I mean, critically, I probably made a name for saying yes to everything, so that’s probably, willingly, why some of my colleagues in the industry, we’ve done a lot [inaudible 00:01:08] over the years. I started out as a trader, liquidity provider market share, like many in the ETF industry. As automation and technology advancements in the market [inaudible 00:01:24] continued to evolve, the role of an actual trader changed significantly, and probably adversely for someone in our skillset back in the early days of ETF trading.
Chris Hempstead:
However, it opened up a massive opportunity for education, and [inaudible 00:01:46] in a consultative kind of way as it relates to ETFs and trading of ETF implementation. All of these things, there’s still so much that needs to be taught and understood on the consumer level, with respect to ETFs, and trading’s only one part of that. That’s sort of where I’ve evolved into, from origination of ETFs, from seeing in market making, secondary market making, and sales of ETFs, themselves. Everything and every part of that experience has revolved around consultation, education, and getting people comfortable with the process.
Scott McKenna:
Yeah, couldn’t agree any more. I mean, education is so, so important. It’s a big part of what we do here at ETFLogic. With this podcast, we’re trying to educate advisers based on experiences that ETF issuers, other advisers, model providers, anyone within the ETF space has had. And then also our CE Webinars, Chris, I know you’ve been on those before. That’s a big part of what we’re trying to do to help educate advisers about ETFs. Talking about education, why don’t we dive a little bit deeper and talk a little bit about ETFs, and use this episode almost as like a level two crash course on ETFs. Right, Emil?
Chris Hempstead:
Right.
Emil Tarazi:
Yeah. I mean, I think that’s touched on all the different sort of aspects of how ETFs are made, and we usually say “how the sausage is made.” We’d like to kind of do a little light walkthrough of those different stages. So, ideas for ETFs obviously start with ETF issuers, and in your former role, you were in a capital market’s desk at one of the big banks. Let’s talk a little bit about how that process starts. How do you go from, issuer coming to you, and then what’s sort of the role of the capital market’s desk? How do you help in the process of getting ETFs out there and to a wider audience?
Chris Hempstead:
Well, yeah. I mean, it’s important to know how they came to be and then walk the line as to how they’ve evolved and progressed. If you think about what early ETFs did for investors, they provided [inaudible 00:04:26] a daily liquidity vehicle on exchange. It was not available prior to ETFs in the US. Index space product [inaudible 00:04:37] mutual funding were now in this other wrapper that people could access from a trading account, and so most [inaudible 00:04:44] obviously [inaudible 00:04:45] S&P 500, the SEC providers and the [inaudible 00:04:51] a lot of those were right behind it, the [inaudible 00:04:54] products.
Chris Hempstead:
So, familiar indices was number one the big [inaudible 00:05:02]. That’s the good side of ledger. It’s something that our investment advisers were familiar with in terms of the index. The new vehicle, which is the con is the ETF, is something that they were not familiar with.
Chris Hempstead:
So a couple of things needed to happen. We needed to structure products that practically index accurately, efficiently at a competitive cost. And one that would be in some kind of a structure that would be simple enough for investors and their advisors to understand how to use them efficiently. I remember with mutual funds, you buy in a mutual fund, you get that, there’s low fees and all of this, that people can talk about in the front or the back end for instructors, but now where they need ETF what people needed to get most comfortable with was pricing of ETFs. You’re at the mercy of the efficiency, of the secretary Mark, in a sense. So the best price you can get when you’re buying an ETF price that someone willing to sell and may not be net asset value, maybe net asset value, plus some, deviations and FIPs or pennies.
Chris Hempstead:
But there are also times where you may be able to buy an ETF [inaudible 00:06:19] those books. Again, this is what market, market makers and liquidity providers compete vigorously to provide competitive exchange [inaudible 00:06:33] don’t go too far into that, but again, the tax efficiency and the cost structure of ETFs in the early days in the early days were just enough to get things to a much bigger environment, which we’re in today.
Emil Tarazi:
So when an issue has come to you, like, I know you’re at an issue now, but in your previous role and issues came to you, what were some of the major pain points? Like what were their challenges in getting out?
Chris Hempstead:
Well, you know, it’s interesting fast because generally over the, over the course of my career, the original pain points for all, we need seed capital. We need someone to put, whatever it was 2,500,000 or 5,000,000 bucks into the ETF to get first units of ETF pairs created, right? So that it would meet the listing standards on the New York stock exchange. So oftentimes that would be, somewhere between 2,500,000, and 5,000,000. And there weren’t, there’s not a long list of participants that are equipped or have the ability to provide that there were a handful of, and we would do it all. And we have a service that we can provide to become valued and build franchise opportunities for our business. So that was one of the early pounces but over time seed capital became easier to keep her both internally at the issuer level and externally with their partners.
Chris Hempstead:
So that became less of a challenge. And then the other challenge that remained and persistent for some time was having a lead market mix for, who would be out there on the secondary market, ARCA or NASDAQ for bats or XE. They would be out there bidding an offering competitively at good prices, real nice out a lot of premium and discount, ample liquidity for advisors and their clients on the secondary market with more and more products coming to market. There were there’s 2300 plus products. And at one point it just seemed like there were another 20 ETFs they were coming out. And so the writers and marketing experts were like, Hey, look, I’ll bet anything, but if it’s not trading every day, I really can’t take the time to invest in technology and the staff for products that don’t trade.
Chris Hempstead:
So the issuers VCF, we’re challenged with incentivized anchors to make a market because it became a chicken or the egg problem, right. Where, well, if there’s no really good market maker out there and my product, I’m never going to be able to convince my product because the more quality of the markets wasn’t good enough. So, again, I bring that up as there was a period of time where there were challenges in finding really willing participants in the lead Mark making arena, something that issuers need to have. I don’t think we’ve ever hit a breaking point in the ETF industry. I don’t think we’ve ever gotten to a point where couldn’t find one, everyone always won one, but it did feel like there was a period of time where, the phones were ringing and it was like a little bit about what was going to pick up their hand and say did a lot of that to the pain of a lot of my colleagues over the years who had to pick up, I guess the other thing is if their workers would come to us, Hey, look, you have some capital capabilities.
Chris Hempstead:
You have some lead market capabilities. We would love for you to be a partner. And here’s our idea. And this is when we would take out our notebooks and we, as the market niche provider, we’re looking for a few things other than the relationship aspect of it, prop itself, we’re looking for what are the costs with being able to maintain the market in this product? What are the costs to create it and redeem it? How liquid is this going to be? Am I going to be able to make up five basis points wide? Or is the design going to have to, so what are you putting into it? And so they would usually come in and treat us like clients, which we’re not. And they’d say we have an idea blow away, the S and P 500 products.
Chris Hempstead:
We’re going to be monthly or weekly rebalance. You never consider that. And we’re going to use all kinds of instruments. And our back test says, we’re going to be great. And they look at us, we’re going to be a mess. We’re not market recruiters. Arbitragers say, look, we don’t care what, but if you want us to be able to make a nice spread on exchange where the bid and offer the spread of where people can buy and sell is narrow enough to give them comfort. And we need to have comfort that we can actually manage the product in that way, because we’re the ones that are actually manufacturing when we’re creating ETFs and destroying the shares when we’re redeeming ETFs. So we need to be able to deliver to you the secure, when we’re manufacturing the shares and be able to sell those securities you are giving to us. Over the years they would learn to build a product it’s really hard to assemble products that can be supported efficiently and regularly in the secondary market by these independent market participants, which are liquidity providers and marketing who are acting independently.
Chris Hempstead:
And so we’ve seen great advancement there. I mean, so much so that someone would come to us and say, well, this is the portfolio that we’re working with. This is the index that we’re based off. And, often times we would do analysis of that index and say, well, six or seven names in this index that are extremely, extremely costly to trade.
Chris Hempstead:
These are things that are probably going to become pain points for you. Are they that important to have in your product? Because if they’re not, you may want to consider taking them out and buy them out. You might see there’s a, with an ability to make a tight market to make a deeper market, if you will. Those are just some loose examples of things. But I think to sum it up issuers by and large are very sensitive to what they put into an ETF because they want to maximize performance and alpha generation. And they also want to minimize complexity and inefficiencies. So they have to, they have to carefully balance whether they’re going to get the most performance and they’re going to get the highest amount of secondary market liquidity and efficiency.
Scott McKenna:
That’s an excellent, very thorough description. Chris really appreciate that. So moving on, now that you’re on the other side at an ETF issuer, what are some of the things that you do at index IQ and your team does to overcome some of those challenges when it comes down to distribution?
Chris Hempstead:
Yeah. I mean, that’s the other member. I kind of alluded to the fact that, managers would come to the market and be very excited about a product. We’re not investigators, right. Now I’m on the other side of the other side of the table and, distributions are a huge part of that. ETF constantly asked, who is this market? Who are you targeting? It’s not our job to sell, but who are you targeting with the product? And do you have some level of expectancy that you’re going to be successful and raising assets? And we do that because we don’t like to speak to them as closed down. There’s no big deal closes down. Everyone gets their money though.
Chris Hempstead:
And ETF closing is there’s a liquidation process. They probably liquidate the assets and return the money to the shareholders. So it’s not a doomsday scenario for investors. Maybe it may be a little bit up. I may have to be deployed into another product, but they’ll get the money. But at any rate, distribution is incredibly important and having a sound distribution plan. So, what are you selling? I am particular right now, I’m trying to sell liquid ETFs into an institutional panels, but there’s a number of challenges as you can imagine. First of all, our institution, using liquid are probably an easier access point to have a temper station, but many are familiar with them, but not using them. So there’s a barrier to getting the knowledge where it needs to be, or that you may be, probably about at an institutional level in distributed, but it could involve the clients.
Chris Hempstead:
It could involve their consultants. There’s a number of things that come into play. So the other part is the retail audience, do you have a good captive retail distribution plan? Are you going to be able to get approved on some of the major platforms like UBS or Morgan Stanley or Wells Fargo or bank of America? It’s not so easy where you just call them up and ask them to put the product on the platform and that can be sold. It doesn’t work that way. There are a number of things that need to be done. There’s due diligence that needs to be done and research. So issuers need to be thinking about that before they bring a product to market and be real in what they’re day one, month one, in year one, or even years one, two, three distribution channels looked like because they might look different than then the channels won’t look at your track record, which often times opens up more opportunity.
Chris Hempstead:
The other hurdle is asset one of the biggest, one of the biggest headwinds, one of the biggest, pieces of negative return for ETF sales is, Oh, there’s not enough in the ETF. There’s some asset levels that people like to see. So it only has a 100,000,000 dollars or only has $50,000,000. I can’t use that ETF. It’s just that. So what all that does it requires an ex conversation that the AUM and an ETF is really some insignificant measure of if the ability gives you some level of performance.
Chris Hempstead:
Now, there are some things that have happened in the ETF world where maybe they’re, they’ve been out for several years and there’s only one unit, or there’s only the minimum number of shares allowed outstanding in the ETF. And we’re really talking about, it has a few 100,000 dollars in it, the odds of that owned being owned by an individual investor, and there being some confirm there that you can redeem it or sell it, it’s almost not, most ETFs have, once they hit the .500,000 Mark, or once they hit a certain number of unique owners and units out there pretty much a going concern at them.
Chris Hempstead:
And then what you need to be thinking about is what, how much can any ETF in the strategy handle? Could you put a 100,000,000 dollars to work in a day or a week and not have it disrupt the underlying asset class? Certainly in the S&P 500, several billion dollars to fund 5,500 stocks and not really disrupt the market in any way, shape or form that being said, if you’re looking at a micro cap ETF, or a specialized micro cap ETF with a lot of less liquid stocks in it, you may not want to invest a 100,000,000 or a 1,000,000 dollars in a single day because you will have impact in the market. It could have adverse consequences to your performance. So these are all things that could be thought about when you’re thinking about product design.
Chris Hempstead:
Are you thinking about distribution? Who is your audience today? And, when we talk to clients about an ETF, not so much, it’s not always about also how big your order is, but what is, do you need to have this money? You need to have this done right this second there’s time in the market, or sort of something that you’re looking to work in chief portfolio, doesn’t have to be done with an immediate trade. These are all ingredients that lead to the perfect and right, but you can’t just take one soundbite, one piece of those, of all of those ingredients and have that answer for your client or for the advisor. You really need to ask curious questions, what are you looking to achieve? How much? When? How long are you going to be in it? That’s another one.
Chris Hempstead:
If you’re gonna buy, security and you’re only gonna be in it for a day or two, you might want to look to the most liquid or the most actively traded index products, because the idea of using something that’s a little more esoteric for going with a boutique manager who provides alpha over time, the thought of them being able to provide that out two days or then outperformance in two days is also probably not listed. So again, these are all questions that sort of need to be asked before people like us, go back with found recommendation on how to move forward.
Emil Tarazi:
Yeah, Chris, actually, you touched on something that interesting to me, you mentioned the word liquid alts for, I’d like to know more about that product, especially like, kind of what’s the pitch when you go to advisors and how does it fit in your portfolio? And maybe just for a little background, maybe you can define it for our audience.
Chris Hempstead:
Yeah. Well, I mean, look, there’s a bunch of products. I mean, the one that we talk about the most with, with respect to liquid offs would probably be QAI which is a multi-strat macro tracker, right? And it encompasses long short, global equity, hedge fixed income. There’s a number of hedge fund, like strategies, that sit within the ETF, uses the other each guest to achieve those hedge fund strategy outcomes. Look, if you were a fund, a fund manager, or if you’re a fund to fund client, if you will, if you look at you have several X bonds, your return is going to look similar to the hedge fund index. The HFRI index, this product builds off of all the components of that index and then replicate to the best of its ability strategy, that mindset.
Chris Hempstead:
So if you look over time and keep it high over and over, again, really fairly on the average performance, in their category. In terms of where it fits in the portfolio and you look at the bigger institutions, if you will pride themselves on doing lots of due diligence and hiring managers and private equity and all kinds of things that are at the end investor, the retail investor we really don’t have access. So there’s a different conversation. And when you look at retail versus traditional, when it comes to, they certainly serve a volatility dampening sort of leave, the question is what are you getting in terms of uncorrelated market above risk-free right? And so what do you expect to get from that, your best performance might be 50% greater than some other, if your worst, my 80% worse so, and that’s where a lot of this, you see a lot of the outliers making a lot of noise.
Chris Hempstead:
So for someone to implement a liquid ops strategy and their portfolio over a long term, they’re going to see some dampening they’ll have uncorrelated assets or uncorrelated strategies. Now, another area of conversation we’ve been kind of talking a lot about this year in 2020 is in transition management, with managers, closing down headphones, alot of them this year, returning capital to investors, other institutions, doing certain strategies and managers, some strategies, while that process takes time, that’s not an overnight start, the search and the due diligence associated with the recommendations that are made to these institutions can take three months, six months a year. So the question is what are they doing with their cut? While they’re sitting and doing those searches and those challenges of not being invested to AI in particular, those that are in the middle of the hedge fund searches for so well, maybe you don’t use this as a core allocation.
Chris Hempstead:
Maybe you do, but at a minimum, you might want to think about using this because this is going to, spit squarely in that, on the strategic allocation. If you can put, because it’s made up of so many liquid instruments, you can put a lot of money into a fund like that. Like you go AI and have it done very efficiently and sit on it as long as you need to and get out on the same day that you want to get up and get through no lockup in ETFs, no penalties for getting out early or anything like that. So we see multiple uses completion. We also see multiple uses for transition management. Yes. Does that sort of answer a little bit, that’s where we’re occupied right now. There will be, the merger are another emergent AARP strategy, very popular strategy in our old space. Think of that as M and A.
Emil Tarazi:
I mean, I think it’s just such an exciting part of obviously with ETFs, you can really put almost anything inside of them, and it’s just a segment of the market that’s growing more. And as there are better tools out there. I mean, as you know, what we’re trying to do at ETF logic and with the Logicly platform is show people how these 2300 ETFs fit in a portfolio. So that’s why I’m curious to hear, how are those all products? What’s your pitch to people because that’s also informing me as portfolio and analytics provider, well, this is how people want to see these things, right? There’s a core and satellite model, if you’re trying to build a portfolio, but people also may want to include these products to, dampening volatility or potentially enhancing income or enhancing yield in some way. So those are all different views on products.
Chris Hempstead:
Yeah. With your platform in particular. I mean, this is, again, I hinted at it earlier asking questions before you pitched a solution. It’s critically important here in Q4. We just asked you for, in one of the craziest years, any of us in our careers can ever remember in market social and science worlds, this has just been one heck of a year, and we’re only three quarters of the way through it. And we’re heading into an election cycle. I mean, this is it. It really is. It’s just like, wow, what else could happen? Eddie van Halen died. I mean, just off, like worst year ever, but at any rate. So when we look and you have to ask, well, what are you looking for? A lot of people don’t know how to start and how to make sense of all the products that are out there.
Chris Hempstead:
So, okay, fine. There’s 2300 ETFs, 500 and they’re not all high yield. So there’s, there’s hundreds and hundreds of variations of product types within certain asset classes, tilts and liens long short there’s some with leverage. So you really want to find an easy source of information to help make sense. That’s what platforms like ETF logic provide to consumers and advisors managers, right? So we look at what is coming up in the pie for the year end, we’re expecting more volatility, the market without making a call of markets going up or down, just let’s just say we expect them to be bouncing around a bit and be very headline expensive. That being said, if you are invested in a high yield and you want to take some of that high yield volatility off the table, are there other high yield products out there that can help keep you would, I would assume in ETF, logic in particular is type in high yield and see what’s available.
Chris Hempstead:
And then you can start to break down the different metrics of those ETFs. And by the way, again, if I’m leading, found purpose, notice that the first thing I’m not asking people to do, or I would never ask people to do is search for ETS by their volume or their assets. The first thing you should do is search for ETS that are designed to give you what you want, what your client wants going into this at a certain time. Do you want to reduce volatility? You want to reduce drawdown. You maybe have some sensitivities different piece. Do you want to stick? These are the kinds of inputs you’ve been, and then see what the best roster looks like when you are drafting a team, we talked through, fantasy football. You can draft last years players, but there’s a lot of good rookies and up and comers coming up that have no data associated with them other than they look good.
Chris Hempstead:
Right? Well, we all know how that works out, right? You’re going to pick them up. ETFs are, are infinitely useful. And again, I can’t stress enough. Look under the hood first, find the ones that are in a perfect world make the most sense for you. This looks like a diamond in the rough. This is a gem. This is exactly what I need. Then think about implementation. Then think about, are going to treat. Is there a secondary market in this product where I can get in and out my clients without costing them too much money in trading cards, work with your trading desk at the various platforms that you’re associated with after you’ve done your homework on some, on a platform like ETF project after you’ve done all that homework and you’ve come up with the purpose portfolio or the perfect, then go and start asking your trading desk. Hey, I’m looking at this fund. Can you do an inquiry and see how much I can get.
Chris Hempstead:
On the last day or whatever is work with the ETF capital markets. We have one, every other store in the world has one they’re very qualified and who are there to help you navigate what you don’t know. And most of the time and rating or trading world, what we know really well and the capital markets teams at the issuers are designed to help find comfort in that process. Again, it’s important to do it in reverse. Look at the funds first, find the ones that make the most sense for you in that perfect world. And then try to find a reason not to check it. I can almost assure you that 99% of the cases you’re going to find that you can actually invest comfortably in an out of nearly all 2300.
Scott McKenna:
Chris that is such great advice. And in over a 100 demos that I’ve done with advisors, that’s the exact issue that I see a lot of the times, they immediately when we’re talking about ETF screening, they go and they say, I only want to have funds that have certain volumes or, over a certain threshold. And I always try to explain to them that, that’s not the case. And they’re narrowing down the universe of ETFs that they can invest in to the point where it’s not really beneficial for their end clients. There’s a lot of great products out there that they can still get into, especially when you’re talking about a long-term investment horizon. So I really love that advice. Super helpfull.
Chris Hempstead:
Yeah. I mean, there’s look, I mean, there’s a, I’m willing to admit that, that some of the funds that are household names that sprayed a lot they’re commodified and some, they trade super like water and there’s a use for that, but remember these are passive, very low cost, plain vanilla products in a sense, we use the words plain vanilla. So yeah, you could throw, a whole lot at it and get a whole lot out of it and use it strategically. That’s fine. But that’s usually for liquidity management and it’s usually for, maybe a hedge fund or a strategist needs to pull money out of the market very, very quickly. They may gravitate to those products just because there’s a good use case for that. But in terms of building core allocations for longevity and really looking at the longer term objectives of your clients, investment cycle, how long are they going to be in the products?
Chris Hempstead:
What are they looking to get out of it? Well, how much risk do they want to have in terms of equity, fixed income in terms of high yield investment grade, in terms of small cap and micro cap versus large cap growth value, all of these things are important and you really need to figure out that you’re going to be in there for two seconds, then fine, use the most liquid, most accessible water down product that you could find. That’s, there’s nothing wrong with that. But if you’re talking about building portfolio for your clients and a strategy for your clients, it fits them specifically fits their needs, fits the objectives you’re probably going to get a lot more bang for your buck by using other products that strip out a lot of the noise that might be in the most popular products.
Emil Tarazi:
Well, okay. So as you’re getting in the final stretch here, what are the current trends that you’re seeing? And then let’s extrapolate that into the future. So where, things that are happening and things that are moving right now, I know weve spoken about active non-transparent or..
Chris Hempstead:
Yeah. I mean, with respect to active non-transparent some of us have really moved to semi-transparent really because there they’re really, none of them are really non-transparent. Right. So again, we definitely see more of those products coming to market. We see early on a patient by a few of the issuers that are from the market. I think the challenge there is going to be performance. They’re going to need to, they’re going to need to step up from employers. I’m one of them in particular out, but like one of the checks that came out, it’s an exceptionally well benchmark. And as we see more and more of that, then I think the investment community is going to find comfort in these products as new versions of ETFs, in a sense, this is new access to active managers who were previously only others. So the ETF wrapper is not going to magically give a manager some kind of a boost in performance.
Chris Hempstead:
That’s not what ETFs do. They might give them some tax, but they’re not going to automatically make a losing fund, a winner. That being said, if there’s a winning strategy out there and they launched it in an ETF wrapper in a semitransparent active way, there’s no reason to think that they won’t continue to be able to provide that out performance and provide that octane. Look, I think that fixed income space is definitely poised for more attention in fixed income, obviously with rates as low as they are looking for opportunity, looking for yield, looking for the value of our invested in what’s going to get the best return. So there is opportunity out there. And typically in active management, active high yield managers through what they do for a living, they can recognize when paper is discounted, way more than paper is relative class or something is very expensive relative to other debt, peer group, active managers in the fixed income space.
Chris Hempstead:
They’re very good at. And I think that’s where you’re going to see more opportunity. I think you’re going to win with rates as low as they are. One would think the active managers are going to really start to shine because they can avoid, picking up some of the stuff that you might not want to pick up an index based product. What else is trending? Education continues to trend obviously a huge part of a business, constantly providing content webinars. I think we’re going to continue to see that, evolve, and more as years coming to market that hadn’t been in the market before. There’s big platforms that don’t have products that are, that are still in the process of coming to market. So don’t be surprised to see new suites of products coming out, strategically positioned on major platforms.
Chris Hempstead:
And don’t be surprised to see assets go that way. Because again, there’s something to be said for brand familiarity. If you and your family and your colleagues have been invested with a particular family of managers for decades or generations, and now they have an ETF, you might find it easy to just keep your money and they don’t have an ETF well then, and you want to be in it yet. So I think you’ll, you’ll continue to see, large managers coming to market with products. So they have solutions for those clients that are looking.
Scott McKenna:
I mean totally makes sense. The landscape right now is very unique in terms of the situation we’re in. We’ve seen a lot of ETF closures this year, almost 150, but we’ve also seen a lot of ETF launches. And it’s something that we monitor given it’s a part of the data that we feed into the platform. And I saw recently a lot of names that don’t have ETF products that are now filing for them or launching them. So curious your viewpoint, being an ETF issuer, do you think there’s room to grow for everyone or do you think they’re kind of entering in overcrowded?
Chris Hempstead:
Well, look, I mean, there’s definitely room to grow. There’s still plenty of money on the table and there’s still a seismic shift, into ETS, now will the largest issuers continue to get bigger? Yeah, probably, but I think their market share will continue to slivered away a little bit at a time as, other managers come to market and retain a piece of the pie. Look, I mean, there’s ESG. We didn’t even talk about ESG. That’s a huge new segment of the market in a sense, not new to the market, but certainly feels new for 2020 in ETFs. There’s been, phenomenal growth in ESG TFS assets this year, that trend we expect to continue. We think that investors and managers are pressured more and more through at least be able to talk ESG at least to have a solution or two that fits certain mandates, be it impact investing or some sort of disruptive investing.
Chris Hempstead:
That’s another trend that we’re seeing. And there’s certainly opportunity there for managers to step up. Again sifting through all that information as an issuer, is hard. We certainly, if we’re going to position our ESG ETFs into a client or a segment of the market, we want to know who we’re positioning it against. And I don’t magically have the answers to all of that information. I don’t have a email that comes out every day and says, this is what we did. This is what they did. I’m leaning on ETF logic to build lists of ESG ETFs that are like ours and see how we stack up using the data. And I want to make sure that our portfolio managers know how we stack up and how we’re stacking up, what the metrics look like.
Chris Hempstead:
Because if we’re asking people to do this homework, if you will, we’re asking people to look under the hood and they see that, Oh, we’re ranked fifth out of 15, if that were the case, it’s not the case, but if we were, I want to know why aren’t we number one. And how do I answer that question? Getting that data and getting access to information is one of the things that, that we as issuers are constantly looking to obtain, and look, there are times when certain segments of the market, underperform others where you’re doing exactly what you’re supposed to be doing, but you should at least know why. Right.
Chris Hempstead:
You have to at least have that answer and that, explanation as to what were the contributors to a lack of performance or what were the contributors to the excess performance? Look at Tesla, anyone that had Tesla had, all kinds of a positive attribution in their funds that could easily be explained by saying, well, we were overweight Tesla. Great. But know that you have to do a little homework to find that out sometimes.
Emil Tarazi:
Cool. Anything else you want to mention or add, or like,
Chris Hempstead:
I mean, look, if I had, think about some of the things we talked about. I mean, again, I stress, look at the macro big picture, put those macro big picture input into your purchase, into your due diligence and find, the products that make the most sense based on what they’re designed to do. And the very last thing you should do is think about, all right, now, can I trade this and invest in this to get my money out when I want to get it out and all of that, because the answer is yes, all of those things, but you need to know that yourself. You need to be convinced yourself, do that, go in reverse. And if there’s something you don’t like about the product because it doesn’t have the right volume or the assets rule out a product for those reasons, then you can go to that one, but just do it that way. And I promise you’re going to find opportunities. You didn’t need to know were right under your nose the whole time. Yeah.
Scott McKenna:
Great words of wisdom. I think very, very helpful advice for financial advisors when it comes down to improving their ETF screening processes. Love it. It’s what we try to do here for advisors. That’s the whole point of our lives with your platform, right? So Chris really appreciate you coming on. I think, great takeaways overall, and for advisors who want to set up another chat with you, what’s the best way to reach you.
Chris Hempstead:
Yeah. If there’s anything you can hit us on our LinkedIn page, you can hit us on our home, but you know, I’m easily reachable at emails, inbound that want to jump on a call with myself or one of our PMs.
Scott McKenna:
Awesome. Well, thanks again, Chris, for coming on, for the listeners again, if you guys have not claimed your Logicly free trial, yet you can go ahead and go to our website, app.logicly.finance/signup?promocode=ria-trial-1w. And again, thank you guys for listening to the speaking logicly podcast. If you’re listening on a streaming platform or a website also wanted to let you know that all episodes are now available via our YouTube channel. So again, you can just search logicly or speaking logicly on YouTube to find all of the videos of previous episodes and upcoming episodes, as well as some other great video content that we’ve produced on that channel. Thanks again.
Emil Tarazi:
Cool. Well, thanks Chris. All right. Thank you.
