Interest in ESG
November 14, 2019
Clare O’Hara: As exchange-traded funds are now seen as a mainstream investment choice for Canadians, assets under management had seen an upward trajectory in growth. Last year, more than $26 billion flowed into ETFs and we saw 11 new providers join the Canadian market alone. Today the market sits at $180 billion with 35 new providers in total. The options for constructing a low cost efficient portfolio using ETFs has never been greater and continuing to see fees drop. Today we're going to continue to explore the Canadian ETF landscape, with three experts at the forefront of the industry. Joining me today is Ahmed Farooq, Vice President ETF Business Development at Franklin Templeton investments. Prerna Chandak, Vice President of ETF Product and Strategy for Mackenzie Investments, and Spencer Barnes, Associate Vice President ETF and Mutual Funds Strategy at Raymond James. And I'm Clare O'Hara with The Globe and Mail and this is Asset TV's ETF Masterclass.
Good afternoon, everyone. And thank you so much for joining me today to dig into the world of ETFs. And there's lots to cover today. So, I'm going to just start off with you Prerna, I just want to know leading into, we're almost at the end of 2019. How is the ETF industry continuing to evolve?
Prerna Chandak: There's still a continuous number of new ETFs coming to market first of all, lots of new issuers coming to market. And we're seeing the ETF industry in Canada grow, which is great news for Canadian investors, the more products we have available locally, the better it is for Canadian investors. We're also seeing a lot of different types of products come to market, right? And it's not just about index. There's a lot of products within strategic beta and active that continue to provide investors with more choice. And cost is becoming more important across the entire investment spectrum, and we're seeing a variety of product across the fee spectrum come to market. So, lots of change happening. It's not an ETF or a fun narrative either. We've seen flows, ebb and flow essentially between funds and ETFs. And funds are still quite relevant to investors, in particular segments of the market just as ETFs are continuing to become more relevant for investors. And we're seeing more types of users come to market, right? It's not just about do it yourself investors or advisors, we're seeing an increasing number of Canadian institutions as well seek that exposure up North that they typically have gone down to the U.S for.
So, lots of change going on and even within something like vanilla indexing, so much happening there in terms of tweaks that make products more suitable for Canadian investors. So, I think we're just going to continue to see more of that change happening. More flows continue to drive into ETFs across all types of products, and more Canadian firms being represented on that lead table as well.
Clare O’Hara: So Ahmed is that how you're seeing the evolution as well?
Ahmed Farooq: Just to echo and maybe talk a little bit about the history, I started my career in 2007, almost 12 years in the ETFs industry where there were only three providers, and I was the provider that captured 90% of the marketplace at the time. There were only about maybe 30 products. So, I've seen the big shift in the evolution firsthand. I've lived through it, I've seen the amount of providers that have jumped in and have jumped out and jump back in to the extent where, when the products have changed and evolved from just passive and that's why a lot of people still feel a little uncomfortable looking at ETFs as something else than passive. So, when I first started passive was the only thing and I traveled across Canada from Victoria all the way to Newfoundland, just educating and educating and educating. Even trying to get advisors to understand that it wasn't an EFT it was an ETF, even the small just getting the acronym correct.
And then today, there's about 35 different providers out there, 180 billion in assets. So, when I was in the industry, it started at 19 billion. So, I've seen firsthand, and I think the biggest change as Prerna mentioned is that, we see an evolution from passive to smart beta to active. And we've all seen the evolution of the advisor, the advisor was initially a commission based advisor and we were trying to educate them to go fee based. So, they went fee based and then from fee based they're now discretionary. So, we're starting to see that evolution from the advisor, but also the product sets that are available. So, I think it's really great to see from my hand and I think the most amazing thing for me is just even the growth of an active in Canada against the world. As you know the rules are a little bit more lenient in Canada where we can have active in an ETF format while in the U.S you've got to have full transparency, so I think to seeing that growth come in very differently than what we're seeing globally, it's been nice to see firsthand.
Clare O’Hara: Great. So, Spencer, I want to jump over to you for a second and ask from the advisor perspective, when we're looking at the evolution of ETFs. What's the conversation like? And is it really shifted from that mutual fund versus ETF discussion?
Spencer Barnes: Yeah, if I could just add quickly to the end of that conversation as well. The one thing that I've seen a change in 2019, it would be a continuation of what we saw a lot in 2018 in ETFs, which is a lot more thematic based products, a lot more differentiators. So not just the same index based product coming to market, but something new and innovative. One thing that's been interesting to see though, and I hope this trend continues, is that we're starting to see a bit more complicated products come to market. So, with the addition of liquid alts we've seen some new changes there. But just if you look at plain smart beta if you will, five to 10 years ago, when that education campaign was just starting to ramp up it was really difficult to convey that message of here's why this makes sense. We're taking this index; we're doing a few things to it and this is the outcome for you.
Based on the good work that everybody here has done in terms of bringing that education level up, we're able to take sort of that second dive down into what new factory ETFs are. So, we're ramping up in computer power for instance so we can run more complicated models, but the end retail investor is also getting to a comfort level where they can hear that from their advisor and say, that actually makes a lot of sense. So quick take there on 2019. In terms of the advisor, and how the advisor is starting to utilize that and how that's coming up, it comes to a lot of the portfolio construction that people are doing. The great part about Raymond James is we have a number of advisors who run their books a whole bunch of different ways. So, they're individual equity pickers, and then they use funds and ETFs for fixed income or every swath in between.
One of the conversations that's coming up more is, how do I utilize these products and where does it make sense to utilize them? And part of the education that I try to do is to say, well, let's look at the client needs specifically, do you just need exposure to fixed income, in which case there are a number of index based solutions that are pretty cost effective, they can be scaled across your book of business, they're very accessible. Then there's the opposite side of that as well, maybe those client needs are a little too specific and maybe this simplistic solution just doesn't fit those needs. Maybe we have to look elsewhere. But the consistent message that we try to get across is that there's typically an appropriate vehicle and we are starting to move past I think just ETFs are the cheapest vehicles, so which one is the best of the cheapest and more to this sounds really interesting, how do I then scale this across and how do I do that? So, there are a lot less of those conversations, in terms of which one's better?
Clare O’Hara: So, Prerna we were just talking about all the growing number of ETFs you pointed out some of the variety that we have, but how are investors evaluating the difference between all those?
Prerna Chandak: Yeah, so the negative to having so much new product come to market in a short period of time is it's a lot. It's a lot to digest, it's a lot to understand. And for most investors it can be quite scary if it's not a very simple ETFs, right? And so, it really comes down to understanding what you're trying to achieve, and it's as simple as that, what is the outcome you're trying to achieve? So as to narrow down that universally start with that. And then you get into the question of, well, should I go active, should I go passive strategic beta the right form.
Now, the great thing is we've got many ETF providers in Canada providing that kind of insight, and everybody's got a house view, and everybody's got a lot of great information that can help all sorts of investors be more informed about their offerings in the market. But I think it really comes down to understanding all of the hidden costs, not just the headline management fee. So, understanding that there is a trading element to it and you have to be comfortable with what that cost is on screen and what you might be paying.
As a direct investor, from a commission standpoint for instance, and then looking at under the hood, what are the tax consequences of an ETF and the type of exposure it's seeking and really understanding whether you should be buying that in Canada or the U.S because that's another critical element of a lot of ETF investors who've still been buying a lot of ETFs down South. So, there's a framework I think a general simplicity in that understanding exactly what you're trying to achieve as opposed to looking at what's the next new exciting product in market, it's probably the best way to go. And there's a lot of great Canadian managers now in market with both ETFs and funds. And it comes down to what is the right vehicle for what you're seeking. If it's a long term exposure, it's sitting in your portfolio, your trading cost shouldn't matter as much as your ongoing expenses like your fees, your trading expenses in a portfolio, your taxes. These things should matter to you much more than I just paid a 30 basis point spread to buy into that product.
So really evaluating your hold period, the type of exposure you're seeking, the type of return you're anticipating from that exposure, the risk you're willing to take, and ultimately that total cost that should fit within that framework that you have.
Clare O’Hara: So Ahmed we're talking about fees and looking under the hood, is that similar when you're talking to investors, when they're selecting, what are some of the things that they consider?
Ahmed Farooq: Yeah, I mean, it's the due diligence process. I mean, just like anything you do, you buy a new home, you buy a car, you're buying anything that's important to you and you put some money into it, you've got to make sure that the bells and whistles and the features and benefits work for you. I think that's the most important thing, is does the philosophy or the methodology jive with how you're running your business practice? I think that's very important. And once you figure that out, then you can carve into what are the spreads and who is the manufacturer? Will this manufacturer be around 10 years or five years from now? And we're seeing a lot of new providers coming in, and the worry is that are they going to be around five years from now? Or are they just having the most hottest product that makes sense today? So, you have to look at all that stuff. And I think the other big thing is you have to look at who are the market makers and behind the scenes to ensure that you're going to have that liquidity? Because a lot of people still get spooked on the fact that newer products don't trade that much. But is there is a liquidity issue, or they may not have enough knowledge about the primary and secondary markets that occur in ETFs land.
I think it's more about; due diligence is very necessary as you buy anything. And then you've got to figure out is the product the right outcome you're looking for? And then you can go into the more specifics of should I start to execute? Maybe talk to Spencer at Raymond James and figure out, do you recommend it or have you heard other advisors looking into these products and then go from there.
Clare O’Hara: And so Spencer, how are you seeing that?
Spencer Barnes: Yeah, the fee conversation's an interesting one it comes up a lot, I think we've done a lot of work as an industry, good and bad to say low cost is better, low cost is better. Well, in certain circumstances perhaps it could be right? If you have a long time horizon the compounding effect of fees can be quite substantial. But at the same time, it really drives to what we've all been speaking here to, which is the investors outcome. What exactly does that investor need? Do they need stability? Do they need downside protection? All of those things do come with a cost, you're not just paying this for the sake of it, you're paying for expertise and skill.
So, when we look at that, I try to have that conversation from, let's start from the beginning, what kind of portfolio are we constructing, this is a long term buy and hold portfolio for a young, in the capital accumulation phase. Sometimes low cost, low beta works or excuse me, beta portfolios work really well. But if you're starting to get to a point where you have short term time horizon needs for capital and you want to protect that, well it starts to make sense to have a conversation about, what do I value here? Well, I value not losing my money, I can't withstand a massive market draw down, well, that makes sense to start reaching out and saying, maybe it does make sense to pay somebody who knows exactly what they're doing to protect that downside. Particularly within our industry, and in the 81102 world, all of the performance are showing net of fees. So, there are managers who you can point to have done a considerable job of beating indices or just putting up great numbers, they're all net of fees.
And that's long term net of fee, short term net of fees, so you can really have that apples to apples comparison and say, okay, well, again, it makes sense, the transportation example, I won't do it justice, but there's many different ways of getting somewhere, you can take a bus to New York or you can fly well, it'll cost you more to fly than it is to take the bus and if the goal is just to get there and you have time, maybe see the countryside, but if you need to get there tomorrow, you need to make sure that you're there in good time that makes a lot more sense and it costs a little bit more money as a result. So, a little bit of an analogy there.
But again, the other nice part is in broader portfolio construction, there's a place for both now, even with that long term time horizon investor, perhaps their core solutions, their core is lower cost beta. But they can express a view in a particular market, or maybe they want exposure to a theme, so let's say clean water, renewable energy, something along those lines where you going to pay a little bit more, and it makes sense to have an active touch in there. So, what's nice is you can bring down the overall cost of the portfolio by having large chunks in lower cost products, but that allows you then to explore a little bit more, not only just active manager, but parts of the market where it's just more expensive to be. I think the last point without going too far down is, there are markets that are just more expensive to transact in. So, if you look at the Canadian marketplace, for example, we're essentially at zero cost for replicating the TSX 60 but it's not the same for emerging markets and it will just cost 20 to 30 basis points even for the cheapest exposure. And that's an interesting one to point to and say, well, there's just expenses to do this, and there's just different costs.
Prerna Chandak: If I could just build on that comment, you made a really good comment on the role of a manager, because I think, again, this is the evolution of ETFs. And it's not all about indexing, as Ahmed mentioned. And we've seen tremendous growth, just overall types of products coming to market. But it comes back down to manager selection really, and it's how we've thought about mutual funds for a very long time here. And now we can think about our ETF industry in the same way because whether we talk about active or strategic beta or index, the quality of your investment manager is more important today than ever before. Certainly, domicile and longevity of the manager is important, quality of how well a manager can perform even in indexing matters, and to your point emerging markets is very different than trying to make that happen in Canadian equity which should be easy for any manager to do.
So, I think that the criteria on how you select the manager you partner with is becoming of increasing relevance beyond just the fee that's charged, beyond the index that attracts, for instance, in index products and beyond the headline fund ETF name it's a lot more than that.
Clare O’Hara: It's interesting to bring it up comparing it with funds, because traditionally fund companies had big fund manager names, and they put them on billboards, and they marketed it that way. Is the evolution of ETFs, we haven't quite seen that where ETFs are marketed that way. Do you see that coming in where it would be individual fund managers, or is it still for ETFs right now the company or even the indexes that are behind them?
Prerna Chandak: Yeah, I would say it's actually moving away from indexes. I think it is all about the company. Certainly, I don't believe it will go back to the lead manager being sort of named on it. Unless you have a boutique at your firm, you have a very strong manager who has a reputation, you might see that extend into the ETF space. But I think increasingly, ETF providers are moving away from even indexes in the case of index ETFs, within their ETF names. And part of that is because of the cost framework. And we could talk about that of interest, but I think it is all about the brand of the ETF provider more than ever in Canada, and Canadians looking to other reliable firm or firms-
Clare O’Hara: The one that they trust.
Prerna Chandak: Yeah.
Ahmed Farooq: I would disagree.
Prerna Chandak: Really? Okay.
Ahmed Farooq: I disagree, because I think there's a lot of institutions and there's a lot of advisors that are still track indices, and they still want pure beta exposures that provide access to an MSCI or a Russell or FTSE or what would be in even when you're looking at being smart, being a strategist, they do want a proper third party manager. If you're buying an emerging market index, I would argue that people would probably want an MSCI as the benchmark of choice, and not a selective or a no name brand to go out there because then you're self-indexing. That's me because I've been doing this for a while. But I do hear your point that newer firms are actually going the other way where they're not going. And there is a lot of cost, for example, when you license like an S&P 500, it's expensive. It's not free. It's not cheap. I mean, you are paying for a very high branded index that and S&P wants their licensing fees.
So, I would say, it depends on the mandates, I wouldn't say it's not all. But if it's like an active mandate, then yes, I would say then you'd probably want to sell the manager more than what it's benchmarked towards or how the methodology was created. But if it's smart, beta or passive, I would argue that you probably want... The first question an advisor is asking is like, well, what benchmark are you using? And if it's something that they've never heard of then I have to go into a longer, more deeper conversation to have that.
Prerna Chandak: But isn't that our role as ETFs providers in the market. And so, I come back to what is the role of an index provider? It is to do math, essentially. It is to capture what is market tap or that segment of the market if its strategic beta a factor and to calculate data, essentially S&P, MSCI, FTSE are either branded firms, so a marketing element to it, or B data companies. And that is the role as we see at least in terms of indexes evolving into the future.
And so, I'd say Canada is probably behind in that as we are, sometimes we're a bit of a laggard in terms of a lot of trends that we're seeing globally. But in the U.S, it starts with institutions trickling down to individual investors. It isn't just about the branded indices anymore, and it's because the math is all the same. Picking the 500 largest companies in the world takes a spreadsheet really, and good data science as well as sound servers can set you up pretty well to make sure you're doing exactly what a lot of these branded indices are doing. But from my standpoint, it really comes down to, what is the exposure you're seeking, and can you get that at lower costs than what you were paying yesterday? And if that's the case, save your fee bullets for those elements of the market where inefficiencies still exist, and you can pay an active manager for that.
Clare O’Hara: So Spencer, I want to get your thoughts.
Spencer Barnes: Yeah. I wanted to jump in on. [crosstalk 00:20:24] There's a few things I wanted to jump in on there. I think both your comments make a lot of sense. There are certainly investors who it's an easier conversation to say we're buying an S&P 500 than it is to try and get into did you mean China or U.S? You don't have to dig into it a little bit more than that. I totally agree on the fee side of things, though, is it's not that hard to create a list of the size of a company and when I should trade them why am I paying a licensing fee to that?
Ahmed Farooq: But aren't those ETFs low cost anyway? So, you can buy an S&P-
Spencer Barnes: They certainly are, I just mean there's a good-
Ahmed Farooq: And you can get cheaper than that-
Prerna Chandak: We have gotten lower costs, and we're able to do that by passing those fees on. So, I think it depends on what your economics are as an ETF provider. Let's call it what it is, as well, but-
Spencer Barnes: No, no, I would say that they're both good arguments there. The third piece I would add into it is not just that, but to the original question of fund manager versus an index versus just exposures. I think one of the interesting things that's coming to light a little bit more today is, how do we actually replicate these indices? Because certainly my thought of it initially was, oh, yeah, we just push a button and all the stocks we're purchasing is there, these are much more active and much more complicatedly managed products than just that. It goes a little bit to the fees conversation that we have, but one of my favorite examples is if you can put three or four ETFs it'll all track the same index. So, let's, for example, say the S&P 500. My default answer is don't necessarily buy the cheapest one, buy the one that does the best job of replicating that index, we're talking about splitting hairs here, but if you're making a difficult decision of the three products that do the exact same things, you're splitting hairs at this point.
In some of the more complicated markets though, in the fixed income markets where you're doing sampling rather than just stock purchasing, how you do that matters a lot and your size and scale starts to impact that in a huge way. So while I don't necessarily see a billboard of the next index manager of I manage this FTSE bond index, we might not get quite there, but what we might see is companies saying, hey, we have an incredible team that is doing this day in and day out, sampling this index so that we can give you the best performance at the lowest cost. And that takes a material amount of work. Again, we don't see that billboard, but we're going to see a little bit more of an emphasis to, we have a lot of resources to this team so that you get the best outcome for your individual lot.
Prerna Chandak: I think just to step back specifically to index is that a lot of the indexes that we know today, the branded ones, were built to benchmark against not to necessarily track. Now in equity world, it's much easier to replicate those indices in fixed income. That's a very different conversation. And so this is where index construction becomes critical. And where you've seen a lot of evolution in how methodologies are written. Now, most investors are not going to dig up the 30 page methodology on an index and see it for what it is on the cover.
But these are the little tweaks that save the basis points that compound over time, and at the end of the day, that's all we're trying to do. And where we don't have to think about that is the strategies where we add value in strategic beta or active, where it's a lot more than a couple of basis points. You're striving for hundreds of basis points, but these are the changes we'll continue to see because investors at some point, say okay, if everything is offered at the same price, how do you pick? And to your point, you've got to go deeper, look at tracking error, look at all these elements that impact trading costs, that ultimately take away from what goes into your bank account.
Clare O’Hara: And I guess it's going to have the education for the investor to have to take that next step, right? Because they just sort of want it quick and easy and a solution. And we will get to fixed income and active in a moment. But I want to jump back to you Spencer and talk about the percentage of ETFs and portfolios. So, what are you seeing advisors use? We've heard of advisors at 100% average, what are you seeing at your firm?
Spencer Barnes: Yeah, it's a swath, and to speak about Raymond James, simply because I'm there and that's what I see every day. Again, we see investors or advisor, excuse me, that have their entire book in ETFs, so 100% across the board, to those that either don't own it or only own one or two, I think, where we're starting to see a big growth is areas that it makes sense or areas that are just more difficult for them. So, they're able to sort of customize their portfolio solutions based on where their area of expertise is, and then leverage an ETF to complement what they're already doing. So, the biggest one probably would be on the fixed income side, not to jump right back into fixed income, but for a lot of advisors they're very comfortable running their Canadian equity book, they have their managers who they like for international equities, maybe U.S equities. Fixed income has always presented a bit of a challenge. Either your clients aren't big enough to build out a robust portfolio bonds that would be considered diverse or they're not comfortable doing that, or they don't have the resources to do that. Bond ETFs provide an excellent opportunity, particularly for the smaller retail clients to gain access to a market that they wouldn't have otherwise.
So, the example that I always like giving is for a retail client to buy or try to sample the Canadian aggregate bond index. I mean, there's 1500 names in that, it's been next to impossible for a very long time. Now for a couple of basis points, you can have it in a number of different products, and you can do it for 10 bucks, or you can do it for a fraction of a penny and you can generally do it for free. So that shift has been phenomenal in terms of the democratization of how to access different markets. But again, to recap and go back to your question, how is it being used? They're tools that are being employed, typically where there is an area that they either need help, or they just haven't been able to access otherwise.
So real estate would be another good one. There’re these illiquid parts of the market that we've never been able to access well now we can, and we can do so more effectively and more efficiently. There comes with some cautions there as I said or illiquid areas, that can be a challenge. And there's a few warning flags there. But overall the other side and not to go on too long with this, but it's also the thematic side, so you're able to customize a lot more now. You're having more ETFs than there are listed stocks in the world comes with some benefits, and that's, you can take targeted exposures in areas that you wouldn't have been comfortable to do otherwise.
So pick on a few robotics, automation, clean energy areas where a client might be interested in playing that but you might not have the expertise to pick a stock and then you might not be comfortable saying, well, I know two of three of these companies are going to go bankrupt and one's going to the moon, I don't want to try and pick that, well, now you can pick a basket of those stocks, 50 or 60 of those and know that well if the general market segment goes up we'll run along with it, if it goes down it won't be as bad as it could have been if we have owned one.
Clare O’Hara: And so Ahmed I want to get your thoughts on the percentage of ETFs and portfolios and what you're seeing when you're out there talking to advisors?
Ahmed Farooq: It all depends on how they run their business practice. If they're commission based and it's all one offs based on hot ideas that they want to get into, like you said, if systematics are hot, that's the conversation they're going to have to convince their client and have a conversation on that this is the next best thing. When you go into a more of a fee based platform, I feel that the ETFs start to get larger very quickly just because the fact is that it's not a hindrance for them anymore. With before with if they bought a fund they would have got paid with a trailer and now they can add it into the portfolio. I do still feel that we're still way behind the scenes and behind the U.S in terms of where they are in terms of how much percentage.
But the percentage even hikes up even further, once you get to discretionary, all of a sudden you can bulk trade across a bulge, you can have a uniform bulge, you can scale it. And obviously ETFs make a lot of sense. And so, if you're at the big brokerage houses, I find, it can be between 20 to 50%. And some people are going the other direction where the added value that they're trying to bring to the street or to their client is that we're using ETFs I'm the PM, I'm going to make the asset allocation decisions, you don't need to pay for an active manager, I'm the active manager.
So, we're starting to see that a lot now, where all of a sudden, they're the ones making all the tactical and regional calls in the portfolio. And then there's those that will build a core portfolio of passive ETFs. And then they will have satellites which will be the active managers that are popping into the ETFs world, or thematics and so forth. I think for what I'm saying is that it's just once they get to that PM licensing and they become discretionary, then all of a sudden, the floodgates open. And all of a sudden, if you can get into a meeting with an advisor who's building his models at that stage for a manufacturer, it's amazing because then all of a sudden, every dollar that's converted into the new platform you're getting in, and every new dollar that comes in again you're getting that piece of the pie.
So, I think from that standpoint it all depends on what the evolution of the advisor is. And then from there, I think it's a good conversation to have with them to talk about whatever products they need, and then we can go through the due diligence process and figure out if we're going to be a winner or not. We can duke it out and figure out which provider it is, but again it's a great time to be in the ETFs world.
Clare O’Hara: And so not that you're duking it out but Prerna do you agree with that?
Prerna Chandak: Yeah, I mean, I think the pie is growing every year. There’re more users seeking ETFs within how they're managing their clients’ portfolios, but we've got a long way to go, right? It's only eight percent of investable assets that are in ETFs. It's hard to make a comparison to the U.S because of that 30-ish percentage, 30% of assets and ETFs in the US, most of it is index. So, the Canadian market is quite different and we are growing differently. The ETF industry is growing differently up here. And we still got a long way to go. A lot of advisors are still using mutual funds, because there's quite a lot of fee compression happening in the mutual fund world. So not to be back to the fee conversation again, but that's still an important criteria of selection. And when you get into categories where you have products both in fund and ETF form, there are still advisors who are more comfortable, not necessarily always for the right reasons maybe they're nervous about trading an ETF on screen, so to Ahmed's earlier point on how do you get liquidity and ETFs that don't post up volume every day? What does that mean?
So, it's an education and learning journey still in our industry and will continue to be, but there's still so much potential to see that segment grow. And we will I mean, the CAGRs that we've seen in the past and will continue to see moving forward there's no slow down.
Clare O’Hara: So Spencer, I want to jump over about fees where you've mentioned it a few times. And there is a race to zero. And in Canada, we've seen it a bit, but there are underlying costs on those zero fee funds. So how much is that conversation happening with advisors? Like how much do they care about the actual zero fee fund?
Spencer Barnes: They certainly care. Price matters always. And a lot of that has been driven by not only the advisor, but the industry itself is pushing the clientele to say and to demand, I want lower fees, I want lower costs, I want lower cost solution. So, to me, there needs to be a balancing point as well, you can get essentially free beta now. And certainly, in the U.S we're starting to see that in Canada. One of the funny conversations I often have with portfolio managers is talking about North America's use of credit cards versus the rest of the world. And one of the things that they joke around about is that in North America, everybody's obsessed with points. Well, we pay for that, we're getting two percent cashback or five percent, but that's baked into the cost of what we're doing. To pull the analogy over to the fun side of things, nothing's really ever free. There’re other ways that these providers are making money with it.
So, whether it be sec lending or their secondary channels where if you have an account with us, it's free beta, but then there's higher cost solutions over here. So, it's having sort of a robust conversation of what does that actually mean, free? And then how are they making money? And am I still in the best product for that? The other thing that I try to chat about with folks is, ETFs aren't necessarily the cheapest product. There’re examples now where there's high quality active management that come in fun wrapper that's actually cheaper than smart beta ETFs out there. So, wait a sec, I have a team of 15 people managing this fund, and I can get it for 20 basis points cheaper than a model that runs over here. Well, we go back to my original point, which is maybe that's a different market segment where it's more expensive to run that. But it's not just a simple ETFs are cheaper, there are structural reasons why ETFs are cheaper. There’re administration costs that they can outsource into the exchanges versus having to have those in house. But it all comes together. It has to be sort of looked at holistically.
I think one of the points that I often try to talk about as well is, if you look at the Canadian marketplace for funds, we have 3500 to 4000 unique mutual fund strategies in Canada. Are all of them good? No, probably not. If you just look at our normal distribution, excuse me, at least half of them are average, and a lot of them are below average. So, the age old two or two and a half percent management fees are just gone. That's the new reality. Everybody's sharpening up their skills, they're bringing better products to market. As a consequence of I think higher fees in Canada than perhaps elsewhere is we're starting to push that fee compression down and to have those realistic comments of, where am I spending my fee budget? Where does it make sense to you and how much does that matter to me and to my client.
And it's amazing how much you can bring down the average cost of a portfolio by introducing some lower cost solutions. And it doesn't have to be zero, just maybe it's Canadian equities or to pick on whatever you want to, if you can replace a bit of that with something that's five to 10 basis points instead of 100 basis points, that'll make a massive difference to the overall returns for the client.
Clare O’Hara: So Ahmed I'm going to jump back to you and will get off the fee conversation. But I do want to talk about why some advisors are still viewing ETFs as just indexes or passive, when we've talked a lot about new strategies coming out and active Canada being so growing in that area.
Ahmed Farooq: Yeah, it just comes back down to the history of ETFs. And when it all started and even going back to the fee part is that ETFs are low cost because they don't transact, and in people's heads they think that it's an index you're not buying anything, you're just buying one time and it's kind of going on its own. The taxation is amazing, there's no capital gains, but again, you have to look at the inside to figure out that. And as the ETFs industry is evolved, I think even for a traditional, mutual fund company to come in and say, hey, we're launching ETFs, in the advisors mind and the psychology of the mind's like, oh, it's going to be low cost passive. And you're like, actually, an ETF is an open end mutual trust what we put inside is a package. It could be an active manager, it could be smart beta, it could be tilted in every direction, all it is you're getting an ETF or a mutual fund of the stock exchange.
So once you kind of have those type of conversations, then all of a sudden, it starts to open up a little bit to the fact that oh, so I can buy active, and I remember, even at my firm, when I first started just talking about active in an ETF form, they're scratching it but ETFs are, I think it's just that's inherently what is baked into a conversation. And then once you saw this evolution of going from passive to smart beta to active, I would start to call like even some of the things I read in some of the national banks ETF research is that, the first ETF in Canada for fixed income was in 2000. Like the first passive.
The first active came out in 2010. So almost 10 year differential between the two and you look at the overall ETF industry, so 188 billion, but 65 billion is only in fixed income. Of that, 71% is still in passive while 29 is in active. What amazes me on that fact is that the growth rate between passive and active and fixed income, active is growing at 43% year over year and passive is only growing at 15. I think what is happening is that, initially, as Spencer mentioned, that fixed income is getting tough on the advisor, if I can shift them and say, hey, you can use an active manager that will help, you can outsource it at ETF type pricing. There's a manager behind the scenes. So, when there is a policy maker that makes a different call and all of a sudden, you're kind of scrambling with your team to figure out, do we take our five passive ETFs and figure out where we should be on the duration side? That's now a decision you have to make.
And lot advisors feel uncomfortable making those decisions, because it's either they don't have the time and effort to go into it. So, all of a sudden, we're starting to see this active kind of grow significantly. Because with passive, what essentially happens for fixed income, the onus is on the advisor to make the changes. Passive will do what passive does, it's based on making a benchmark, and we will track that index as best as possible. And if we can't, then we'll go back to the manufacturer and say, well, there's all this tracking error and all that. So, I think the evolution now is that you're moving, there are different types of products and advisors are now seeing that there's different types of products. So, we're starting to see them now making choices based on what's available in the marketplace.
Clare O’Hara: So you bring up fixed income because I do want to get to that today. How are you helping advisors choose between a passive or an active manager when we're talking about fixed income because we're saying that's one of the largest areas, they're using them?
Ahmed Farooq: I would say the two biggest thorn in the advisors back has been prefs in one thorn and the other thorn out policy is fixed income. I think what it is, is that, there's been this overwhelming response of staying short for so many years, I think for 10 years every advisor's like well, the rates are going to go up, rates are going to go up, rates are going to go. So I'm going to stay short, finally rates went up. And then the bond market had baked in that there's going to be rate increases, then they went flat, and then also the U.S starts cutting and then this is 30% my book, I'm in a losing proposition, what is my opportunity cost, do have the skill do I have the time, to have the education to start figuring out where I should be.
And with a passive mandate, when I started my career, you build out four or five ETFs, you figure out what that strategic duration will be probably benchmarked way. I'm going to have a universe, I'm going to have a short bond, a bank loan, maybe [inaudible 00:38:53] in the portfolio, I'm going to have some high yield in there, but all of a sudden, things have changed. And all of a sudden, overwhelmingly we're starting to see active fixed income products start to come out, almost similar to passive pricing, sometimes even lower than passive pricing. So, all of a sudden, the advisor will say to us, well, if I can get a mandate, like an outsourced stock manager whose expertise full time is in fixed income. And if I can give that to someone else, and they can manage my duration for me, they can manage my credit quality for me. They can make a call when a policymaker can pull those talks and something happened. And they can move further on the curve. I'm going to do that. And that's where overwhelming that we've seen from our standpoint, but even I'm looking at some of the flows when I've tracked out there going to active managers, because it's just difficult.
And I would say that part of the difficulty is more about timing. Most advisors who have been short have been even reluctant to go long, even though rates have been cut in the U.S. And a lot of longer duration strategies are up eight, nine percent. And now they're saying well, I'm not going to make that call because the onus is on them.
Clare O’Hara: And Prerna what's your take on it when we're sitting down and talking about the active passive fixed income?
Prerna Chandak: I'm not going to debate you on this. I actually agree with Ahmed on this, I feel the same way. I mean, active fixed income has been a conversation we've been having on the ETF side with advisors for three and a half years now and I completely agree. There’re advisors who are struggling to figure out what to do with that segment of their portfolio. And so, we have certainly seen an uptake of usage. But it still comes down to the fee budget, and it comes down to outcome orientation for a particular client. And we still go into conversations with advisors who say, yeah, I've been using your active fixed income ETF and it's great, performance has been great. I feel still uncertain. I want to cut my fee; I want to move into a passive offering. And that's the decision that advisors are still making, and its cost related.
So certainly, seen a fee compression, and the band is so tight now in fixed income overall in the ETF space that sometimes in certain sub segments of fixed income you wonder, why active is not the default because it makes a lot of sense where there are significant inefficiencies in the market. But there is still a very healthy usage of passive side by side.
So, I think we will continue to see that but it goes back to manager selection. This is where it's great to have very familiar brands in the Canadian market in the mutual fund industry coming into the ETFs, because there is a legacy there of many managers in the country with advisors and they have that familiarity. They like the vehicle of ETFs. Their investors are asking for more ETF representation in their portfolios, and so they're able to have that active element, but in a new vehicle that seems exciting to them, but really, it's just to Ahmed's point a mutual fund trust, but it gives them the opportunity to have that sort of element of ETF exposure in their portfolio. So yeah, I think especially in prefs and you know even floating rate loans. When do I go in? When do I go out? Is this the right time to be there? Should I start to sell down my position? We're answering these questions on a daily basis, because advisors are just very concerned looking at that segment of the market.
Clare O’Hara: So Spencer are you in agreement with these two, when we're talking about whether investors or advisors are going towards the active versus passive fixed income?
Spencer Barnes: To a certain extent, I wanted to add one other thing-
Clare O’Hara: We couldn't all be in agreement.
Prerna Chandak: That would be too good.
Spencer Barnes: Not a disagreement but I wanted to add another layer to me, where I start this conversation of active versus passive on the fixed income side is what market are, we talking about? And even maybe take a step back and say how are these indexes created? So to flick yours entirely if we look at equity indices, the majority of them and the well-known ones area all market capsulated and that makes a lot of sense in certain respects where your lower transaction costs, you're benefiting the winners in the space that those who have done a better job of managing capital get more money. Great. Applying that same logic to fixed income, those issuing the most debt get the largest share of the index. Wait a second, that stops making as much sense. And that doesn't actually sound quite as good.
So, there's a lot of large market capsulated fixed income indices, excuse me that I don't like the sounds of that. And I would much rather have not only is it over the counter and more opaque in terms of the market itself and having an active manager and their picking credits makes a lot of sense, but I don't want to own credit from the largest issuers of it. Where I might disagree or add another layer into that is when you put the client into context, and then you look at the market. So, for me, I look at the Canadian marketplace, well, at least 70% or more, in it around that is provincial and government bonds in our aggregate index. If you had to be an indiscriminate buyer of credit in Canada, an index is not the worst place to be. Primarily what you're owning is high grade government bonds. Not the worst thing. Scale out to the U.S or globally? Yeah, I'm not as comfortable with that position, it might make sense for a particular clientele, but it's not necessarily my default.
So, I think fixed income is just interesting with that added layer of what are you actually buying and again to recap the market weighted side of that issuance is not my favorite place to start.
Ahmed Farooq: I was just going to add one more thing. So, just exactly what you're saying is that when you look outside of North America you go global, and you go market capsulated from a fixed income standpoint. I mean, do you really want to be benchmark way to Japan or countries that have negative interest rates and have weaker economies? I think that's where an active manager can come in and say, well, we don't want to be 17% we could be five. Similar to Europe. I mean, do you want to be benchmark way to Germany, France or England or you can go to Italy, Spain or other areas around that have better economies or are moving in a different direction. So, I think once you start looking at the global picture, I think you do need to be a lot more selective because 16 and a half trillion dollars are in negative yields. So, you got to think about, well, why would I want a bond that's negative in my portfolio.
Spencer Barnes: And where you're hedging it back to, I guess.
Prerna Chandak: Actually, if I could also, this could keep going. And it's a great topic. But I just also wanted to add with the growing number of fixed income ETFs on offer across the active passive spectrum, it also comes down to how you're using them as an advisor. So, if you have the expertise and are looking to be an allocator and want building blocks, then perhaps index solutions fit in well as an allocation tool, right? It's just tools in the toolkit. But if you're spending or if you'd prefer to spend your time in other areas of your portfolio, not just fees, but time allocated to really understanding those segments of the market then an active manager makes a lot of sense to do that for you. So, echoing on his comments from earlier, but there are a lot of portfolio allocators in this country. A lot of advisors who are increasingly looking at their own angle in terms of how they're tilting over waiting and under waiting segments of the market. And so, this is where we've seen and heard a lot of comments around. Well, I just want a pure building block, give me a pure building block so I can make a call whether long or short. And I can tweak my portfolio accordingly.
So generally, investors, advisors should be aware of what they're trying to look for, because everything will be on offer. It's just a matter of what makes sense within your framework.
Clare O’Hara: So I'm not going to jump back to you. We're going to leave fixed income, maybe it'll come back in the discussion, but how do investors fund yield in today's environment?
Ahmed Farooq: From a perspective of what has happened so far, I think in the beginning, the equity markets have been on this quite amazing war for last 10 years and fixed income was boring, and all of a sudden, most advisors start to buy unconstrained type bond funds or go further down the credit spectrum or by bank loans. And then all of a sudden, the last two months of last year, we saw some exciting type of volatility that we haven't seen. And then all of a sudden, we heard from a lot of advisors that my fixed income didn't act like fixed income. I didn't get that negative correlation, or I didn't get that buffering that is supposed to provide me my portfolio. And then all of a sudden, when interest rates were going up, government bonds tend to be a lot more sensitive.
So, like we saw a lot of advisors shift towards high credit quality investment grade type portfolios, but not moving out in the high yield. Those we saw a lot of bank loan type products really pick up, but then all of a sudden when the market volatility hit even throughout this year, they tend to act like equities, and they saw some volatility. So all of a sudden we saw a shift back to higher quality investment grade type products or even going back to just boring government bonds just because the yields are going to be lower but at least you're getting, I think a storm is brewing we've got this Brexit thing that's looks like it's going to be delayed again and his Parliament keeps on voting against Boris and then you've got the U.S election that's coming up and I'm not sure with Trudeau winning again, I don't know how much influence it's going to have in the K marketplace. But Polos is also in a difficult predicament does he try to have his own interest rate policy? Or does he follow U.S and cut, and if the U.S cuts then we may have to cut to keep our dollar between 75 and 80 cents?
So, there is yield to be found. But again, it's what type of risk you're willing to take to get it. And I think I would say from our standpoint, we're seeing a lot of advisors are loading up on higher quality investment grade to at least give you more than what the government yield is giving you.
Clare O’Hara: And Spencer do you agree, is that what you're seeing too?
Spencer Barnes: Yeah, I think what's interesting ETFs have done such a good job of making the market accessible, that people stop thinking as much about what I'm actually buying. So, they're seeing a five or six percent yield, and they're giving that last thought to I need yield. It's a low yielding environment. And we brought a number of products out to the market, none, not myself, obviously, but there's been a number of products that have been brought out to the market that provide that yield. So, to Ahmed's point, there's people holding a basket of senior loans or bank loans, and the end person, it might not have been exactly what they thought they were holding, or why they were holding it, it might have been. But it's important to have that conversation of if traditional fixed income is going to be negatively correlated, you might not get that yield anymore, or you might have to get it in a different way.
So, we're also seeing folks using covered call products. There's been a number of those that have come to market, certainly even more and that goes back to the education side of things of okay, what are you giving up or what are you risking being in a product like this? So, do you need that stream of income in your portfolio? Or do you want that negative correlation, because there's going to be a tradeoff here and there. But certainly, people going into different areas. One of the thing I'd like to chat about not necessarily in this conversation, but is the liquidity of these products as well, and really what that means to the end advisor. So, catch that for a second.
Clare O’Hara: I'll give you a couple seconds Prerna to give me your thoughts on where our investors are finding-
Prerna Chandak: I agree and just echoing Spencer's comments at the end there, tourist investors attracted to some of these more exciting segments of the fixed income space because of the number they see on screen. That's what we've seen. And those are typically the investors that flee first, right? So, unless there's a mass exodus and significant volatility extending over a period, what we saw even in the fourth quarter was, in our opinion, a lot of the tourist investors leaving some of these products and you started to see some stability within a couple weeks to that. So that's going to be the case whether it's ETFs or fund it's irrelevant, that the vehicle itself, that has been the case for decades within the mutual funds space, and we're just seeing that a lot more visually in ETFs, because you see the market price, you see it trading every second of the day. So, it's a lot more in your face than a fund with its end of day nav where you really don't see that outflow activity throughout the day.
Ahmed Farooq: Sometimes transparency can hurt us, right?
Prerna Chandak: Very true.
Clare O’Hara: Just before I jump back to liquidity, and final thoughts, when we're talking about where investors are going, we haven't really been brought up, I think, touched upon thematics and SRI, and I'll just throw it open to the floor. Are advisors interested in that? We hear about it in the newsroom, is that something that's resonating with investors as we're talking about the evolution of funds?
Ahmed Farooq: I do hear about it. But I think what it is, is that what percentage of the book are you going to capture? A lot of advisors who are interested will say, well, that'll be my two percent play money or my gambling part of the account or some people have a big thoughtful process, and they kind of figure out like, if it's lithium batteries or human genomes or whatever that thematic idea is. I mean, you're going to see that. But I think so far in Canada, it's picked up, but it hasn't significantly picked up. Because when all of a sudden, the theme is out of play, and then another theme comes in, you're going to see a lot of movement back and forth.
So, I think it's more about, it has to be hot and interesting and exciting, similarly to how the marijuana industry started, and everyone kind of jumped in and got into it. And those who missed the first kind of jump and said, well, I can't get into it now because evaluations are so high. Am I going to make money in this? So, I think it's all dependent on the advisor, or it usually comes non solicited from the client. They read the newspaper, they read one of your articles and all of a sudden, they're like, hey, I want to get into this, client gets a phone call, he'll call Spencer and we'll do some due diligence and figure out that's the right product. I'm not sure Spencer is going to recommend 50% of portfolio but it all dependent on how it fits.
Clare O’Hara: So it's still staying in a small percentage of books?
Prerna Chandak: Yeah, I'll speak to the SRI. I do agree on the thematic. Certainly, I think SRI we've seen these waves over the past several decades of interests peaking and you see a lot more product come to market. I think this time around is going to be different. It's a big theme for us from a corporate perspective, certainly on our ETFs shelf. We are hearing a lot about ESG becoming a critical element of how investors are thinking and whether they've started to move the money or not is a different question. But they're asking their advisors for it. So, we are hearing about it. Are we seeing the dollars move yet? Not quite. And I don't think we'll get there yet. I think many markets globally are much further along in that narrative than we are. I mean, we're starting to see and hear a lot more about it in the news, which is the positive direction to head in, but the dollars are not moving out.
Clare O’Hara: Spencer.
Spencer Barnes: I want to say I agree with some of it. I would look at it differently I think is how I put it. I wouldn't necessarily say I disagree, but I look at it differently. I think almost every asset manager in Canada, with maybe a few exceptions have signed on to the UNPRI, the UN Principles for Responsible Investing, everybody is making a fundamental shift to how they manage money. And I think the core tenants of what ESG is not many people disagree with anymore. So especially from an active management perspective, simply take the governance, I want well governed companies, excuse me that treat their employees well, and care about worker safety, et cetera. I mean, these are core principles of how we would want to invest capital. Most managers have been doing that for a long time. Take Franklin Templeton, John Franklin, excuse me, Mr. Templeton was not allowing investing in tobacco from the start. I mean, that's something quietly they've done for 65 years and they're now saying, wait a second I guess we can talk about this. This is part of that SRI screen.
So, it's been a core tenant in terms of how people have invested. I think what we're starting to see, and I would echo those points, which is you're not seeing massive shifts into very niche SRI products. But you're starting to have a much more serious conversation about not only do all of my active managers now incorporate ESG in it, whether they label it or not, but also a lot of really good work and interesting thought leadership on what index look like today. How hard is it to just screen out weapons manufacturing, and tobacco to pick on maybe two industries, however you want to screen that it doesn't take a whole lot and it doesn't take away from those indices. So, we were writing a piece recently on this and looking at it, the return stream is roughly the same. And it's pretty easy for me to see a future in five to 10, 15 years, whatever the number might be, where every index is basically an SRI index, because why would you want to own those companies?
Prerna Chandak: Yeah, and there's a growth from there, too. It's the positive screening, not just the negative screening, we're seeing a lot more of this sort of, we want to invest in better companies as opposed to just penalizing the bad companies. So, it's definitely become a normal course of business to your point.
Ahmed Farooq: The only thing I would add to that is that what I found is that every advisors view on ESG is different.
Prerna Chandak: Yes.
Ahmed Farooq: And it's so hard to get everyone, you bring out a product, you talk about your process, you talk about your methodology. And one person may have a big on the E but not the S or the G or one is a big on the G doesn't really care about E, he he's like the contacts I don't want it, but I really care. So it's very hard to really maneuver with a product that will make the masses happy, because what I found is that when ESG products are launched, they'll go through the individual product stock names. I like these five, I don't like these. This one does this to this people. So, it's very difficult to really get the right product because everybody's got their opinions and then their client has their opinions on top of that. But I agree with you on the fact that it is a lot of firms are moving in that direction, Franklin Templeton has been a really big priority for us. But to make everyone happy is very difficult.
Clare O’Hara: Great.
Spencer Barnes: If I could just add one point in there as well, another one of the angles where I've seen this being spoken about, which I think is fascinating is, from the passive ownership perspective. So, we have major, major owners of passive funds, name all the big ones in your head, they're holding trillions of dollars worth of capital passively. And those companies have started to think well, wait a sec, we can start to act on our massive invested capital. So again, take the largest owners of capital in the world, they're saying, well, no, let's actually start to be active. Oh, and by the way, company A or B, we're going to be here and we're going to own your company for as long as your company exists. So, you have to listen to us. We're not just going to move our dollars away. It's an interesting way of slicing it.
And I think, do we see two types of indices come out from the major leaders? Is that here's the one where we're actively going to talk to the company. Here's the one if you don't want us to do anything, maybe, they might need to, but I think it's an interesting shift to say, yeah, wait a sec, we don't have to just passively not do anything with management, we can start to swing the weight around a little bit too.
Clare O’Hara: Great. So, I'm going to get some final thoughts. Spencer, I'll start with you. You brought up liquidity, try to break that down in a few thoughts.
Spencer Barnes: Sure. I think one of those interesting conversations that I have is on ETF liquidity. And it's something that I've explored throughout my career, and always learning something new about it. The easiest example for me is talking about the difference between fixed income and equity. So, let's start with equities. On the equity side. The liquidity on the board, what you're seeing traded share by share is not irrelevant, but certainly much less relevant than what the underlying index actually is. So, whether it has traded 50 shares, 500 shares or 5000 shares for the majority of investors that's not the question you need to be asking. What you need to be looking at is what is the implied liquidity of the underlying? Because, at every major institution, they can access market making desks, they can work with their own traders, and they can get liquidity on things that might not have traded at all.
There’re too many examples to count of where an ETF hasn't traded, you can quadruple the assets of that ETF in a day, and you'll trade in less than a penny spread. So just because it's on the board, doesn't really matter. What's interesting about that is, it's not really the same in fixed income. And we probably don't have enough time to get into all the details of it, but-
Clare O’Hara: You can come back to our fixed income panel on that.
Spencer Barnes: But the fixed income side is interesting where both actually start to matter, because a lot of the products we've talked about, so prefs and senior loans, we're now actually seeing the secondary market, the trading of the ETF being a source of liquidity for an industry that didn't have liquidity before. That's an interesting concept that we haven't seen. We're starting to explore people, there's a lot of people who might be a little doom and gloom and say, well, this doesn't work. The underlying doesn't trade therefore the ETF is not going to work. Well, we've kind of seen that that's the opposite. We're seeing liquidity on the board. We're seeing that that's facilitating another wise, illiquid part of the market that people haven't been able to invest in. I think it's fascinating to see that. I brought this up on a call the other day and realized that the person agreed with me and that it's actually written down I think it was talking about when bonds go no bit.
So, in circumstances where there is no market on the over the counter market for bonds, the ETF is now recognized as a form of liquidity in the market. As a proxy. And that to me is fascinating. So you have these sophisticated over the counter traders are saying, I don't want to buy it in retail or people who are owners of the ETF go, well, we don't really care, we're willing to sell it for a different price and guess what, that's what it's worth now.
Clare O’Hara: So Prerna final thoughts?
Prerna Chandak: Yeah, it just comes down to people, process, performance and price. And that's all the ETF vehicle really is just more opportunities for advisors to really seek the exposure they're looking for. And to go beyond the headlines, go beyond everything in the media and all the noise there, go beyond the the name of the ETF itself, beyond just the headline management fee, look at what kind of exposure you're actually getting, what kind of risk you're taking on. And that will likely inform which direction you've had and what product to pick. But sticking to the fundamentals, and nothing different than that.
Clare O’Hara: And Ahmed you get the final thought of the day.
Ahmed Farooq: Yeah, I think what it is that ETFs are not passive. I mean, they've evolved, and I think people still need to think about that main question is that, there are other things that are available to you, the landscape has changed. There’re so many products, there's 35 different providers. I think due diligence is very important when you're try to figure out what product you want to buy. And then as Prerna mentioned, you've got to go through the whole step by step process, talking to the manufacturer, talking to your analysts, looking at the screens and figuring out. And then also if that's the outcome of the portfolio. And then you're off to the races.
Clare O’Hara: Great. So, ETFs think beyond passive. I think that's a great place to end. I want to thank all of you for joining me today and we could probably talk for another hour on the evolution of ETFs but thank you very much. I'm Clare O'Hara with The Globe and Mail and this has been asset TV's ETF masterclass.