Inside Inside ETFs 2020: What the ETF Industry is Talking About

Episode Summary

Executive Summary: This Trillions episode recaps Bloomberg’s Inside ETFs conference in Florida, focusing on the biggest industry debates: active non-transparent ETFs, ESG’s rapid rise and definitional ambiguity, fee compression and new business models, the challenge for small issuers, and the evolution of portfolio construction beyond 60/40. The hosts and guests mix conference color with substantive reactions from issuers, skeptics, and ETF veterans.

Main Topics: Active Non-Transparent ETFs (“ANTS”) (Priority: 5/5): The central conference theme was the push to wrap active mutual fund strategies into ETF structures without daily holdings disclosure. Guests debated whether investor demand is real, whether firms will place their best strategies into the wrapper, and whether pricing will be attractive enough to win ETF buyers. ESG Investing and Greenwashing Concerns (Priority: 5/5): ESG was everywhere at the conference, but speakers questioned how it is defined, whether products truly align with investor expectations, and whether the category is being sold too broadly. The discussion centered on ESG as either a factor tilt or a values-based portfolio shift. Fee Compression and Data-Driven Business Models (Priority: 4/5): As ETF fees approach zero, speakers discussed how asset managers can still make money—through platforms, client data, and ancillary services rather than just expense ratios. This reflects a broader shift from assets under management to monetizing engagement and information. Small Issuers, Differentiation, and Theme ETFs (Priority: 4/5): Independent ETF issuers are struggling to stand out in a crowded market dominated by giants like BlackRock, State Street, and Fidelity. The episode highlights how niche products, strong branding, and unusual marketing are used to attract attention and asset flows. Portfolio Construction Beyond 60/40 (Priority: 4/5): A GMO economist argued the classic 60/40 portfolio may no longer deliver expected diversification or returns, especially after periods when stocks and bonds both decline. Alternatives like emerging markets value and long-short strategies were floated as replacements or complements. ETF Industry History and Growth (Priority: 3/5): The episode closes with a historical look at SPY’s early struggles and the hustle required to build the ETF market. Veterans and conference newcomers alike underscore how young, fast-growing, and still-evolving the ETF industry remains.

Key Arguments: Active non-transparent ETFs may finally have a chance because major issuers are filing with strong strategies, not just weak products, which suggests more confidence in the wrapper. Skeptics argue the products may fail to gather significant assets because large-cap equity is a weak fit for active management and fee expectations remain too high for ETF buyers. ESG is more of an umbrella label than a precise investment category, and investors may be disappointed if they think it guarantees outperformance or full portfolio cleansing. Many issuers treat ESG as a factor tilt rather than a complete portfolio solution; the real challenge is ensuring investors understand what they are buying. The ETF industry’s low-fee environment may push firms to monetize client data, distribution platforms, and services rather than fund expense ratios alone. Independent issuers can differentiate themselves through niche themes, but they face major distribution and price competition from large firms that can undercut them instantly. The 60/40 portfolio may fail to provide the diversification investors expect if stocks and bonds fall together, making alternative exposures increasingly important. SPY’s early growth depended on institutional arbitrage and persistent hustle, showing that ETF success often comes after an initially slow start. Some ESG criticism is valid because large corporations and asset managers may promote sustainability while still engaging in carbon-intensive behavior. Conference enthusiasm around ESG and thematic ETFs may be tied to bull-market conditions, and investor appetite could weaken in a downturn.

Data Points: Projected AUM threshold for active non-transparent ETFs: Less than $10 billion by 2025 - Cerulli survey expectation discussed by Daniil Shapiro; half of respondents were pessimistic. Share of respondents with pessimistic forecast: Half of respondents - Cerulli study on whether active non-transparent ETFs would gather assets. Expected ETF pricing for some active non-transparent launches: 50 to 60 basis points - Discussed as a likely fee range for products like T. Rowe blue chip strategies. Desired ETF fee level from ETF investors: Below 20 basis points - Eric argued this is the typical ETF buyer expectation, creating a pricing mismatch. Attendance footprint at Inside ETFs: 20–25 Bloomberg people - Estimated total Bloomberg presence at the conference. 5K fun run start time: 6:30 a.m. - Katie Greifeld ran the conference 5K before dawn. Ryan Hall marathon achievement: Sub-2:05 marathon - Used to explain why the runner was a celebrity in Katie’s world. U.S. half-marathon record: Still held by Ryan Hall (per transcript) - Mentioned during discussion of the 5K fun run celebrity appearance. MAGA ETF performance since launch: Up 15.1% - Eric compared the ETF’s return with the S&P 500. S&P 500 performance over same period: Up 33% - Used to show MAGA lagging the broader market. BlackRock air-travel reduction: 21% reduction per employee by year-end 2018 - BlackRock’s response to criticism about climate policy and private jets. Jobs and ETFs listings: Over 100 jobs - Claude Mitrosh described the site as a recruiting hub for ETF firms worldwide. Historic SPY target: $100 million in six months - American Stock Exchange executives asked early marketers to build SPY volume. Daiwa Securities SPY creation: $250 million - Jay Baker described how Daiwa created a large SPY position to hedge and short futures.

Pivotal Quotes: "active non-transparent or ants was probably the biggest topic" — Joel Weber: Opening the discussion of the main conference theme. "we now see the filings coming in for what of these mutual funds they're going to actually try to convert into this new structure" — Eric Balchunas: Explaining why Cerulli had become more optimistic about active non-transparent ETFs. "the 60-40 is simply not going to work the way that people expect it to work" — James Mortier: Arguing that traditional balanced portfolios may no longer deliver expected diversification.

Implications: The ETF industry is entering a more crowded, more competitive phase where product structure, fees, and messaging matter as much as returns. Investors should read labels carefully—especially in ESG and active ETF wrappers—and expect more innovation, more confusion, and more consolidation.