Bloomberg Audio Studios, podcasts, radio News. You know, Molly, one of the most amazing stories to me in financial services over the last decade or so has been the growth of ETFs. Huge Just how amazed at the fun flows to ETFs and it makes a lot of sense. Unfortunately, we have people like Eric Paul Junis at Bloomberg Intelligence who keeps us update on what's going on there. But we wanted to talk to one of the practitioners in the business. Jennifer Grancio joins us. She's global head of
distribution at TCW. Little firm on the West Coast, huge firm on the West Country, and they're into the ETF business. Jennifer, thanks for joining us here in our studio. What is the TCW ETF business? Tell us kind of how you guys are in that business.
Happy to you, great to be here. So from a TCW perspective, a lot of people think of us as you know, the core of the fixed income portfolio, which we are for many investors with the TCW or met West funds, and now we're growing the equity business as well, so a lot of that will be ETFs and we also were going to do ETFs in the fixed income space.
When you say you do ETFs, are you the one so that you're like deciding what goes into each one or like tell us what your role is in this marketplace?
Yeah, for sure. So from an equity perspective at TCW, we have some great core strategies we run in mutual funds and SMAs through the end to number one acquisition, and then also we're converting a couple of legacy TCW active mutual funds. We're going to have a very impressive range of megatrend thematic products for clients. And if you think about why and what's the role and why does the world need that. There's a lot of index ETF
option out there. A lot of people are very indexed in their portfolios, which has this real concentration bias now in large tech, and so we're offering the market a range of ETFs on energy and power transformation, reshoring of supply chains, artificial intelligence that let you take some money out of the core and really go after outperformance in alpha in portfolio.
So by definition are those active ETFs.
They are very concentrated portfolios and active and if you think about the markets, money's not free anymore rates are much higher. So we think the next ten to twenty years are our great market for active managers that can outperform. So all of these ETFs on the thematic side will be active. Yeah, So let's talk about some of those themes. I mean you had mentioned, you know, related to energy
transition supply chains. What are some of the ones that you guys are really paying a lot of attention to right now. Yeah, I mean, those are two big ones, and they're not small, tactical, narrow trends. They're huge. They're going to be here for many decades. And so one of the ETFs is net Z and ETZ and that's about energy and power transformation. And so if you think about that, we are going to need to more than double our power and energy in the next twenty years.
So think about that, more than double. And so companies that are at the forefront of how we service the need and demand and kind of months or demand we have for power, as well as companies that are more efficient have a huge opportunity to outperform. And so that's a big theme. And now in that theme, we own companies that are energy better energy producers. We own Vertive, which cools, data centers. We own waste and garbage companies that are finding ways to create natural gas and energy
out of landfill. So it's a very diverse portfolio and very complementary and different than what you might hold in an index fund.
When I started my equity research business way way back in a day, it starts within eight back in the eighties, it covered railroads.
Really.
We wrote the first research report on Consolidata Railroad, which the company which the government US government was privatizing via an IPO. We wrote about a two hundre page report on that owned that stock.
For you, you want to give us a nice summary of that right now?
Yeah, it was a great cost cutting thing. Taking railroad crews from five to two, tripled your margins.
And that's and the other big trend is supply supply chain. That's it.
So I know you've got an ETF on railroads. That's why I bring it up. Is that again, I think about the roads and supply chain. I guess we all got really smart about supply change and the delicate nature of supply change during the pandemic. How do you guys think about that?
Yeah, so the sort of restoring of supply chains and manufacturing to America and North America is again it's a monster trend. It started during COVID. So if I'm deer and I'm trying to make it tractor and my bolt is made in Asia, I couldn't get my bolt. It was really bad for business. So we're seeing that trend already having started. And then on top of that, we've now got geopolitical issues that make us more nervous about doing things like semiconductors outside of the US. So again huge,
very broad, multi sector trend. And what we own in sup or the reshoring of supply chain ETF is all the way from railroads, So how are we going to transport things if we're manufacturing all over North America. It's fantastic for railroads and they've been undervalued. So that's a big performance opportunity. And early in the cycle where I think we have three trillion of committed projects of new manufacturing,
more than we've ever had in the US. Early in the cycle, we invest a lot in what we call picks and shovels, so Martin Marrietta Vulcan companies that make materials. So as we build all of these factors, factories, pardon me. And then we own a lot of semiconductor names as well, because all of these factors are going to have AI and robots and they have much higher demand for content from a semiconductor perspective.
I wanted to ask you about the AI theme next. That's certainly got to be a big one of these thematic trends that you're focusing on. So how are you positioning around AI right now?
Yeah, So in the case of AI, it's in those two portfolios to some extent. And then we have a mutual fund at TCW which we're converting to an ETF, so watch the space for that.
And the advantage of that is it just like you know, I guess, because ETFs tend to be a bit cheaper for like a more consumer friendly product. Is that the idea?
Yeah, in this case, it's an active fund, so it's not a sort of a cheap index fund. But the argument, and what I think you see a lot of active manager converting where it makes sense, is that the market likes ETFs. It likes the ability to click through and see the underlying holdings on the website, it likes the tax advantages of an ETF, and so in the case of these mega trends, we see the market in general
buying ETFs, not funds. So we have a very long track record on the TCW Artificial Intelligence Fund, and we're converting it to an ETF and a little bit like what we talked about in the case of net Z and sub, the AI fund has an ability to invest in different things as we move through time. So it's not all big tech. It's also systems and enablers and hardware that is going to grow aggressively as all these companies are doing more in AI.
So it's safe to say, you, guys at tc there'll be a big believers in AI. We are okay, because I guess my skeptical self sient analysts nature is like, where did this come from? Is this just big data from three or four years ago? Is this just big tech growing as a percentage a GDP of twenty years ago? What's new about AI?
We're in the We're in the next evolution of training systems asking systems questions with all these models and natural language models asking questions in a way that we just get faster and faster and better output. And so that's really that's good for everyone and so it'll start slowly, but as more people learn to get that leverage, I think we're going to see is you're going to see it boom.
Yep, and it's you know. We hear every company in the S and pat on with it on their conference call talking about you know uh ai and how it's getting to be critical to their business. Jennifer Grantcio, thanks so much for joining us. Jennifer is a global head of Distribution for TCW. We appreciate our coming into our Bloomberg Interactor Broker studio in New York City.