Ben Johnson: Active exchange-traded funds, the market’s taper tantrum, and gold’s fall from grace. These are just a few of the topics that I’d like to cover here today with Chris Goolgasian, who is the head of portfolio management for the Americas with State Street Global Advisors.
Chris, thanks for joining me.
Chris Goolgasian: Thank you, Ben.
Johnson: Chris, you manage a trio of actively managed ETFs of ETFs. Many people have asked me whether the concept of an active ETF is an oxymoron. What’s your take?
Goolgasian: That’s a good question, and I think I would draw an example maybe back to when we took the SATs [in high school, and we had] to do those analogies. I would say, passive is to ETF, as what is to a glass? In my mind, the answer is not as specific as milk is to glass; it is liquid is to glass. We could put anything in that glass, and you could put anything in an ETF. We need to disconnect ourselves from "it is only passive to ETF." There are active ETFs. There are more coming, many have been filed for in the industry, and we have them. Why wouldn't there be more and more innovation there?
The ETF itself is just a wrapper. It doesn’t have to be associated with purely passive, just as mutual funds don’t have to be associated with purely active or passive. We’ve got plenty of active and passive mutual funds, and I think we’re going to have plenty of both in the ETF space, albeit that innovation is coming and growing. But it’s definitely there. Like with innovation in any other industry, I think you’re going to see a slow ramp at first and then a pretty big take-up as more and more product comes out.
Johnson: If we think about the ETF as being just a glass or just a vessel, what advantages does the ETF glass, let’s call it, a pint glass have, say, versus a traditional mutual fund, which we can call a wine glass in this scenario?
Goolgasian: It’s a good question, and it’s a tool that is different. When you have a different project, you choose a different tool. What’s different about the ETF, in general, is that you have the transparency. With our active ETFs, the holdings are posted daily, and so investors know exactly what they own in our tactical positions. Secondly, you have generally significantly lower costs in ETFs than you do in the traditional space. In this market environment where investors, I think, globally feel returns are going to be compressed across a number of asset classes, suddenly that expense ratio difference seems to matter a lot more than it did certainly in the 1990s.
Then you have things like liquidity and intraday trading, in which you have access to your portfolio very quickly. You’re not on a rigid time clock or any other type of schedule in which you can’t have access to the product. ETFs are priced second-by-second just like stocks are, and you have a pretty good pricing mechanism out there that’s telling you what the value of your holdings every second of the day. The capital markets figure that out pretty well, and you can gain access to that pretty quickly. There are differences, and there are investors out there who certainly want those differences as they need them for their construction. And those are the tools they need to help them out.