Jim Ross Recounts the Rise of the SPYs

sp Y. There are also numerous Spider variations. You can buy growth, you can buy value, you can buy sector, you can buy all these very loci, which is their low carbon version of the SMP five hundred. There are trillions of dollars, literally trillions of dollars in various indices that track UH what State Street does, and it's really quite a fascinating business. He is also chairman of s s g A, which is the State Street Global Advisors.

If you are remotely interested in things like the S and P five ETFs the future of investing, I cannot over emphasize how knowledgeable and influential Jim Ross is. He won the Lifetime Achievement Award last year at et F dot Com. I could go over his CV for hours. The accolades don't stop. He is simply one of the most insightful people whose career has taken so many fascinating twists and has been really there at the formation of a number of events that are still impacting us today. Uh.

I think you're just gonna love this conversation. So, with no further ado, my conversation with Jim Ross. My extra special guest today is Jim Ross. He is chairman of the Global Spider Business at State Street. Spider is the most widely held e t F with well over two hundred billion dollars in assets. He is also chairman of the board of s s g A Fund Management, which

is the registered investment advisor arm of State Street. He most recently was the recipient of the Lifetime Achievement Award from e t F dot Com, which is a division of the Chicago Board of Option Exchanges. Jim Ross, Welcome to Bloomberg. Very thank you very much for having me. Let's start with uh, pretty much at the beginning, you've you've been at State Street since How did you find your way to State Street? And what was your roll back?

So pretty straightforward, I would um, I started my career in public County can very easily say hated it. Looking for an exit path. After I got my certification, I needed three years. That was three and a half years, found an exit plan, took a job at State Street career plan and by I'll talk to people about career planning. I thought I'd be there two to three years. That was my plan plan change. So I got the State Street entry level job. New group they were setting up

called fund administration. They hired me. Could I could do mutual fund financial statements for the most part, So the accounting actually came in handy. The accounting background was important back nine. Yes, So twenty five years later, after your two year plan, uh, you're running more or less running the largest et F there is. How did you go from Hey, I'm going to start at State Street for a couple of years to really chairman of of a big department for them, and you really wear a couple

of hats there? How did these come about? So? Um, I'd like to say summer it was hard work, persistent, and somewhe was pure luck. That's a theme here. You know, the role of random chance is always underestimated. So the random chance was I was at State Street. I could have gone different places I was in a group and it was a new group, so there wasn't a lot of work yet. Right into how big a shop was State Street State Stage were still probably at the time logist, custodian, um, lodgist,

custody accounting agent in the world. But fund administration was brand new. This is a new service they were adding. And I was probably the tenth person hide into this group. So new division, large storied firm, new division, new business. Kind of like, not a lot of clients yet that were taken on this service, so really not a lot of work for me to do. I came out of public County House. I used to working seventy nine hours

a week. I was losing my mind, Parry, so you're working forty hours and really a lot of mind sweeper and pretty much I was working forty hours. I probably had twenty hours with the work to do. Um, so would you do to fill the time? I went to one of my bosses and said, hey, if you have anything. It was kind of a strange situation. My boss had been out, so I went to my boss. Boss said, listen, you have anything, give it to me. I I just

I'm looking for stuff. At some point and these were a whole bunch of people working really hot on a project like day and night. I had no idea what it was. But a month later he looks, hey, Jim, come, oh yeah, we need help on this. It was the originally TF Spy. Yeah, and that's no, no, this is this is this is two months into my career. They've been working on this for a couple of years. They

brought me over for one specific reason. They were about to getting closer to launch and they needed someone to do the first set of financial statements. And like, Jim has that experience perfect, you know, So I like say, I got invited in because hey, I asked for more, but which kind of They just needed some help and I was I get a lot of credit for Spy, and I'm gonna be very honest, yeah, I deserve very

little of it. You have been called various names, like the father of the Spiders, and every time I see someone say that to you, you swatted away and say no, no, no. I was a late addition to a team. I was a very late addition to a team. Um. I think my smartest move wasn't getting involved in that. My smartest move was staying involved in that and I get asked that question all the time, and a lot folks moved

on to different things. I got offer different roles over the time, like why didn't you leave my God, this was more interesting than my day job. I was meeting traders on Wall Street and never had done that. I never knew really what the stock exchange was, to be completely honest with you, wasn't I don't see myself as kind of an investment guy. I kind of grew up and kind of the county world then kind of moved out of the product world and did a lot of

different things, but I stayed involved. So at the time, State Street a Gilant custodian, a Gilant administrator. How does how at the time did State Streets see their competitors and what made them think, Hey, let's let's go into some asset management. Well, I mean, at the time we did have an asset management on so we had State what is now State Street Global Advisor. At the time, it was called an asset management division of State Street Bank. Horrible name for national manager, but um A M D

and any. At the time, it was very much it was a passip shop. So in effect, what we did with spiders in spy. The original SPY was we combine what's a street did well the Costian County and transaction processing and S s G A, which became S s G A. I probably got renamed that year maybe the probably right around then we brought the asset management. But let's remember one thing. The American Stock Exchange came to

us with this idea. Really they said, hey, you guys are buying all these individual stocks once you put it in an E T F rapper or did we not know the name ETF back then? Um, the name ETF was not known. Um, there's different iterations of what is now spider, different names, different things we were calling index receipts, depositories or whatever. So there's a lot of different names back then. But it was really kind of you know,

they had this idea. It kind of came out of the crash of eight seven where the SEC said, listen, portfolio didn't insurance didn't work. By the way, none of this at the time I understood, um, and we're trying to find something. Nate most who was head of product development at the American Stock Exchange think at the time he was in his early seventies, came up with this idea, if we can put somehow securitize something that will trade on the exchange, and they only care about trading on

the exchange. Um. So, basically we came up with the idea of they came up with the f take the SMP five stocks, everyone knows what's in it, tell everyone's into every day, be fully transparent, and move the securities in kind, which was novel at that time. You know, one or two times you might do something unique there, but every day moving five hundred stocks at the time was was new. Let's talk a little bit about spiders, because the numbers are really quite mind blowing. Sp Y,

the stock symbol for the spider. SMP five Investment Trust has two hundred forty billion dollars in assets less I looked, it's by far the most widely held d t F and if you look at the next closest SMPTF, it's less than half the size. How did the spies become go to SPF. Yeah, it's a great question. There's a couple of really good reasons. Um. One, we were first.

That always helps. So there was the first mover, definitely a first mover advantage, and it was by seven years, right, because we all we you hear two different versions of that. The second mass gets the cheese. The pioneers are the ones with their arrows arrows in their back. But that hasn't really seemed to impact this in a significant way. Well, the SPY has a few advantages. One it's it's not just that it was first. It had established trading volume.

I mean today Spy by dollar weighted volume is the most liquid equity security in the world. That's amazing. Um, it trades and there's some fun stats on this. It's traded at a penny wise spread for twelve years every day. So the difference between the bit they esk is one cent one cent and most folks and trade inside of that. It trade five point five time more than Apple. Um and from a hundred million shares to day. What sort

of volume do you do? It turns over, it can turn over and once again that changes all the time, but it can turn over fifteen billion dollars in nassets today. UM, I think the you know the one stat that I hear that I love. I mean, there's the Apple stat which is good. You take the next like eighteen ETFs eighteen largest ETFs combined, and they don't have the same trading bline. It's obviously go to liquidity product for the marketplace. It's not just about a buying whole product. This is

a liquidity product. It's used for as an alternative to Fugere's a lot of different uses to it, very flexible, so it's fairly low costs. What's the internal expense ratio expense reussus about not a little a little of a nine basis points? Is anybody even close to that amongst the tfs? Because E t F s there's a broad range. You could pay over a hundred basis points. You could pay no basis points for e t F of ETFs

that they themselves have have an internal expense ratio. How much of an advantage is nine bits versus everybody else? I think once you get into the single basis point, you know that differential if it's nine or five or something. It's really especially a product like spy where a lot of folks are using it for the liquidity and trading it daily, so they're not buying and holding it for

five years. There might be for five minutes. The expense ratio is not necessarily a factor in that decision making that makes sense, and the expense ratio is a function of the costs of running it, and you're constantly so your trading desk has to constantly be rejiggering and arbitraging all the underlying the four hundred and sixty stocks in the SMB five hundred. Well in the interest, I do think there's actually five. There isn't there has been for

some time now, um. But I think the interesting about that is actually the portfolio management side of this from an et F perspective, well relatively straightforward, because every day when that fund goes up with down its eyes, and it can go up and down billions of dollars a day, we don't trade that. It comes to us in kind and we deliver it out in kind. So the portfolio managers when they read jigger, it's really around index changes,

which is every June, I believe quarterly on the SMP. Uh, it's quarterly on the SMP it's Russell two thousand, that's every June. So once a how big an event is the SMP five hundred rebalancing, It all depends on whether or not there's just you know kind of up, you know, changing of capital stuff. Maybe some corporate actions is not the time when they have UM. But if if there's a read, you know, if there's a add and delete, that can be a relatively significant advantage. That's what I

am I thinking that's June or October. The ad delete is that once it can be it can be any time Barry it's announced, it announced in advantage, it can be any time. UM. Do you guys get any sort of heads up or is it you want in your email and it's like, oh, I guess we've got work to do today. We get the same heads up the entire marketplace, yes, which is usually in advance, you know, more than a few days, so you can't plan for it.

And like I said, the portfolio management team that runs that runs indexing for some of the largest, most sophisticated investors in the world. So this is the kind of what they do for living. Is their bread and buttle. How big is your trading desk that handles spy and everything else. We have a pretty sizable equity trading desk and a pretty sizeable portfolio management team has dedicated to this. The you know, they're we're one of the largest passive

invest investment managers in the world. So we we we we look at this as there's not anas science to it, and some people, you know, some folks will say, how we can do that on a Excel spread seat. We do not really can This isn't all that readily? Well, let me ask you the question is supposed to putting my uninformed opinion in how readiably replaceable? Are some of the things that the team does with software algorithms and and bots or are they using algorithms as part of

of what they do. They're using algorithm and technology and improving it every day to make our process more efficient and more effective. And we'll continue to do that. I have been doing that as long as I've been involved with them, and we'll continue to do that. It's the way of the world. They do that to find better ways to continue to deliver um the performance that we

want to deliver. And so I mentioned nine bibs. Do you guys ever feel any pressure on the price side from Vanguard of black Rock or any of the other large competitors out there or is it not not all that important? You know? I think listen, fee feed compression is actually a very it's a real live thing in

the industry is not just on spy. So obviously across our et F business, we have more than a hundred and forty plus ETFs in the US two D globally, so we see that around the globe feed compression fee, you know, feature fee business. So you you definitely want to look at it. You know, I think there's certain areas where you have certain products you feel very comfortable with the fee is low enough to compete in as areas where sometimes you do adjust pricing. It's just, um,

just the new reality. It's what everybody's dealing with. It's also but you know, I mean the fun thing about that is everyone's like, wow, jeez, that's tough on you got it's tough on the business. We can live with that. It's good for investors. There's a reason. That's the reason that's more folks are buying ets is because the price of them has come down in a variety of ways, not just the expense ratio, but the big ass spreads

come in. You know, they're a lot tier because of changes in equity market structure, and the commission rates have welcome down. Commission rates are practically nothing these days. So for nine basis points, and a seven dollar or a five dollar transaction fee. You can own the entire s and P five hundred and all. What. I don't know what we are, but we four nineties something. How many stocks have fallen out and haven't been replaced yet? I don't know that they I mean, they do do do

a good job of trying to keep that up. So it's pretty close to that. I know, the whelship five. Yeah, no, that's no question that. That's because they try and get every stock. But I think you know the great thing about that is when you think about the E t F side of this, you can make that investment. You can buy and hold spy for ten years, twenty years. You know exactly what it is, you know exactly what's

in it, you know what you're getting. Oh, you can buy and hold that for five minutes, ten minutes, two days, twenty days. That's what I love about thet F. It's very flexible. It's not you know, we have you know, I remember when we first started launching this, and you know, hedge funds. Everyone's like, no mutual fund wants hedge funds, And I'm I'm like, we cannot. We do? They help with liquidity and liquidity matters these days. Let's talk a little bit about some of the things that you and

State Street do besides the spiders. Uh, let's talk about g l D. The Gold index when we're recording this, uh, Midsummer gold has actually output form the SNP this year. It's the first time that's happened since I want to say, a few years. I'm doing it off the top of my head. How has the advent of g l D changed the entire gold market? You know, I think the advantage g l D has really helped reinforce the gold market was a great market before g l D. It's

a twenty four hour trading market. It's a very global market. But what g l D was able to do was to I call it, democratizing the ability to invest in gold. Because prior to g l D, investors, retail investors had very few ways to invest in goals. It was physical coins, the costs were three or four or four all of it, and it really wasn't so you know, frankly, retail investors

and even financial advisors didn't invest in gold. I I have a pet theory that g l D just destroyed the junior gold miners because what I want management risk, execution, risk, etcetera. When I could just for eight bucks go by g l D and there's my gold exposure. Yeah, I mean less. I think it gave you a different way to get exposure to gold. But it gave you exposure to pure gold. I mean because the l D is backed by physical gold interval. Now isn't g l D also back isn't

part of it um futures contracts as well? Or is it only physical gold g l D physical gold with a little little tiny bit of excess cash um but gold they've sold pay expenses. But literally there is physical gold bods interval backing g l D. There was very, very important to the to the structure of the fund. There was a wonderful article in the Wall Street Journal about how g l D came about, I want to say about five years ago, and really it was a

function of the World Gold Council. They say, hey, we have all this excess inventory. Let's find a way to get this out of our vaults into somebody else's hands. And how what was that interaction like Queen State Street and the World Gold Council, And were the spies helpful in having you guys win that business, I would say, so at this point in time we're talking. We started working with them probably and to vote three into the OH four and they had worked very much on the

concept and the idea. We're working very much with the legal process. But the will Go Counsoles focus wasn't on distributing E T F s UM, so they were looking for a partner. I'm very happy that we became their partner on this from a marketing and distribution standpoint. So we had at the time Spy Sector, Spiders Diamonds, another suite of BTF, so we had a you know hand probably time probably t in a suite today it's all

over a hundred um. But we we looked at potnering with the wild Gold console on g l D. We thought the product structure work great. It was a that was one where it was a close race to who was going to get first. Very happy to say g l he was first mockt on that and that's also dominated like nothing else. Nobody's even close to them now. It's been a really really strong product, and isn't it.

It's it's one of those products where it's really helped investors be able to allocate to gold um as a diverse fire in their portfolio, and depending on how they have a view on that, they might have an overweight to that, they might have an underweight to that. But there's a strategic case for having an investment in gold.

I remember, now my reputation is a little bit of a goldbug basher, but I remember being on television in oh four oh five, and it wasn't long after g LD had come out, and one of the anchors had said, so, what does an investor do to heads themselves against inflation? And my answer was, well, you could buy the gold DTF it's g l D. And everybody looked at me like I had two heads. Now everybody is totally plugged in.

And I remember, was it two thousand ten or two thousand and eleven, g l D briefly past spiders as the biggest CTF in the world, arguably quite the cell signal for gold at that point. Um, well, there was a lot going on at that point, remember that, if I'm correct the exact time here on. That was the concern about the US downgrade of the debt. There was a lot of things going on in the world. Or two was eleven, but post crisis as post crisis, I think it was eleven, but it was either tenor eleven.

I'm pretty sure it was eleven. But that that was I was you know, t LD is a great product, it was fantastic, but to have it the largest et F in the world was a little strange when you think about kind of the broader equity world. Um so, I think, you know, from that perspective, is a lot of dynamics in the market place. I'm not sure it was a sustu on gold. I think it was just a overall what was going on in the world at

that point in time makes makes sense. And when we look at the total value of gold as an asset versus the equity markets, it's just totally dwarf the equity markets are giant. Yeah, exactly, That's that was one my point, Like the t o D has a purpose in a place in a portfolio, but it should be the largest et from the world. I'm not so sure. So so let's talk about some of the multi factor e t f s that are out there. What do you think of these? And I'm really curious as as the process,

We'll talk about the process later. What do you think about these single and multi factor e t f s that are becoming increasingly popular? You know, I think listen, I think it's it's very straightforward to me. You have to know how they work. Are you committed to for the long term? Because they work, whether it's single factor, multi factor, they're meant to work over an entire market cycle.

And my my premise on them is that's fine. If you're an investor, you've done your due diligence, understand the product, Understand what it's not going to keep up with whatever the benchmark index might be, that might be market cap. Where I worry about this from an investor standpoint because institutions have been using these factors to invest for quite a while now, but they have long term views and

convictions are worried. What I worry about fromn end investor standpoint is that they see this, Oh, this is something new, it seems like it's great, and oh it's under performing, you know, und of performing in a running market, which should do so they sell it exactly when they need low ball. So it's really one of those From an investor standpoint, do you educate, you know, do you do diligence do your education, understand the products, whether it's single

factor multi factor. Obviously multi factor is really trying to package them together for you, and there's a couple of different ways you can do that. But understand what you're investing in because you know what you own. No, no, I mean it's you know, it's basic, but you know what you won't understand your long term goal and what you're trying to do to get there. Let's talk about some of the more interesting trends that we see UH in investing these days. Smart beta is Some people have

criticized that as a marketing slogan. Other people have called it fundamental indexing. What do you guys think of this? Uh, you know, I think it's term. It tries to capture a lot of different things. I've had different debates within that firm. We're an investment firm, so we debate a lot of things around different things. And I had someone tell me, Jim, if you want to call what we do, you want to call anything that's not market cap indexing

smart beta, you can't. That means we have a huge business in it because we have products like the Dow which is not actually price weighted. You could make as an alternative index that's smart beta. Now, I think that's a little bit of a stretch. Um it is, it's a term I I look at it. It's most of the cases you're looking at smart beta. It's about factor and it's about you know, you were buying earnings or

diving end growth or some other metric. I mean. The interesting is divind in ets has been around for a heck of a lot longer than the term smart beta, but they're now seen as smart. So this is an odd question. You mentioned the diamonds. Then names that you guys come up with for um marketing, things like the SMP five hundred in the Dow. I mean, the SMP spiders commercials. Those are great. I mean it's clear that it's not what you expect. It sticks in your mind.

How do you not remember spiders when you see a little spider crawling on the screen. The same thing with the Dow Jones diamonds being the Dow Jones Industrial Average, which is what d i A stands for. But again, how does that process of coming up with here's what the index is, here's what the name is, here's our marketing campaign. They all seem to flow seamlessly into each other. Yeah,

you know, you know, Listen, everything evolves over time. Um, you go back to the early days a spy, it's a different kind of spider scared some people, right, It's often it's a uh so we I think we've seen different things. Listen, there's a lot of work that goes in trying to understand kind of from a product development standpoint, we spent a lot of time of my product innovation and really making sure where we were responsible in the

products we're developing. We're not perfect, No one's perfect like this, but you kind of look at it and say, Okay, we want to make sure anything we're gonna put our name on we own, we're gonna be behind it, We're gonna make sure we have a marketing strategy around it. Um. You know a unique thing that happens in no space, which I think is a little different than the traditional asset management mutual fund spaces. We all have ticket symbols. Take a symbols matter, So you try and see if

you can come up with a unique ticker symbol. There is a a number of academic studies that have shown that a ticker symbol that's a word has a tendency to do better than a ticker symbol. That's just random letters. And that's just the behavioral side of it. Um what other what other ticket symbols? You guys don't do moved, do you? We don't do move, although it's it's a very good symbol. Um. Yeah, I think listen, I think

you gotta wear immune. Listen, this too tis too piece this you don't want to buy any TF go ahead the cool ticket symbol, right do you want to make sure you understand the et F and not online and where it fits for you, but it can help get your attention, and so you think about sector spoders. We every everything in sective side of thoughts out with Xcel right now that back in the time, that's what we did,

so how we designed a spreadsheet. So but if you you know, if you're a trader, you know what actual F is. You know what actually is you know, you know that's that's the financial sector spot in the energy sector spider. But no one calls him by the whole name. And sometimes you just have to get a little lucky with the name. I remember when the e t F hack came out and then a month later, Sony Pictures was hacked and suddenly it was in the news every day and that became a billion dollar et F. That's

the power, that's the power of a name. Um. What about market capitalization? We look at the way UM a lot of E t F and a lot of indexing, passive indexing is done. It's cap weighted. There's been some criticism, some pushback on that. What what What is the official state street view on cap waiting? I don't know if I want to give official state street view on that. I'm gonna give my view of even better. But I think pretty straightforward. You know, cap wait is pride and true.

It's been around for a very long time. It's kind of what indexing styt of that. I think some of the things you're seeing today have emerged because of technology. Honestly, I'm not sure you could have isolated some of the factors today as easily as you can and then execute on top next you on top of fifteen twenty years ago. So technology has helped you allowed you to do other things. But market cap, when you think about it, it's a

very straightforward thing. It makes sense, you know, and the self balances to self balances, you know what I worry about from an investor standpoint, and sometimes investors will take you know, they'll just mismash things together, and you really have to lens through and make sure you understand what you own because even though you might have the SMP five hundred, and if you have the SMP five hundred, the Russell too and some mid cap you might have overlapped,

you know, so you really want to understand kind of where you're you know, what your overall portfolio looks like. If you can get a portfolio portfolio analyze that shows all of it, because some people will buy, you know, I have this active lodge cap fund, this other active MidCap fund that's really a lodge cap fund. I'll have spy and what you find out you have if you have multiple duplay your portfolios. Do you think they're diversified, but they really have a giant That ven diagram of

overlap is is tremendous. So so let's talk a little bit about UM E s G, which is probably um the hottest new or not so new UH theme and investing Environmental, social and governance. You have five separate ETFs UH in that space, if not more since we last looked UH the e t F SHE, which is focused on companies that are UM either run by women or have diverse diversification across their corporate board with women or other women female related UM governance issues, is about three

hundred and thirty million dollars. Is that about right? Where's the demand for these sort of products coming from? Because it really seems to be the hot new thing. So I mean the demand is coming from a lot of different places depending on the type of E s G products. So the Gender Diversity ETFC was a product that we did with UM Calister So California Teachers Pension UM. That's very interesting that they came to you and said, hey, we have an idea. We need to check off this

box which we can't really do cheaply elsewhere. Can you guys develop this way? And it wasn't It was interesting. It was really based on the research. So they came to us, can you do a research project around this?

Like the research, we had to get deep into the research because some of the research is really just looking at corporate board seats and that's nice to have, but an easy thing to a company to fix this is really going down in the company and saying where is your you've seen your management, your executive management, and how diverse is it? And it stats that you can get.

That's one of the challenges with these things. Typetimes like, you know, it sounds great, but if you can't get to the core data, it's hard to build a product around it. Because we worked very hot with them on the research around this and then turn it into an index that we feel can continually update and get to

the exposure that we're trying to get to. And and the academic research on gender diversity says corporations that have their board of directors, the seenior management they're hiring that is more diverse than the average company actually do better than the index. That's what the research showed. What other stuff tends to do better than than the than the index. What other research is they're showing different themes actually generate alpha.

So it's challenging. So it's challenging. Might think of the whole kind of board, you know, governance area. You know, we're very active in governance as a firm because we think it's right for the folks who invest in us, and we think we're trying to produce a better long term outcome for the investor, it's not a short term view.

The unique thing about being a large passive index player is an active manager can look at a company and say, I don't think they're taking the long term view on you know, the environment right, and it's gonna hurt their company's profits and sell it. We as an index provider, can't sell that company even if we have the same view, So we engage with it on our concerns, whether it's diversity of the board, gender diversity, all diversity, or if it's around some of their views on social programs or

long term views on the environment we have. We we look at our responsibility from a corporate governor standpoint. To engage makes a lot of sense. Um although you lose the stick of saying and if you know we're not happy with your answers, we're gonna sell, but you still have the ability to vote proxies and do other things. So companies, I assume are somewhat cooperative. When State Street comes and says, hey, we have these concerns. How receptive

is corporate management? I think you know what we have found is they're very receptive and we want to work with them on a long term so we're not gonna We're not the you know, we're not in this going to I'm saying, hey, we have these concerns, what do you gonna do about it tomorrow? You're not You're not activists, investors demanding boards. Exactly, We're in there saying, give us you a long term view on this. Here's our long

term view. How can we continue to work together. But yeah, the you know, the the stick there is that we vote proxies. What are the e t f s that State Street has that addresses people who are concerned about the environment, and what do you expect the long term demand for these products to look like in the future. So we we most of that today has been focused on. Once again, it gets to what do you have good data on that you can actually build an index, honor

an investment strategy on UM. So we do try and look at that from the long term. We have focused We have a PARTICT that is low combon that really is you know, a subset of the core SMP five. What's the ticker symbol on the low carbon ETF low see low s makes sense UD good. And then we have spy X, which is really focused on cobbon free

UM A fossil Yeah, what's the what's the difference? So, uh, spy X is no oil companies, no coal companies, nothing that is carbon based, whereas lo SEE is really trying to get you to that same core benchmark return by underwaiting cobbon producers but not completely limited. It's a waiting shift as a waiting shift versus an exclusionary And which which is better spy X, which is bigger, spy extra low C. I think low C today is a little

bit bigger. But the better is a hard one to say because low se fit's a little bit better into your asset out case. And if you're an institutional investor, because you still want to get exposed. Um, you don't necessarily want to make a big bet one way or the other if anyone is more. If you're an investor that fundamentally believes that's where you want to invest, which is what a lot of the s G is, this

is where my mind is. We see this more with institutions in Europe than we see even in the US day. That's that's quite fascinating. We also tend to see that with millennial and youthful investors and admittedly small part of the current market, but hey, that's probably where things are going ten twent thirty years from now. Um, So what about business risk? You guys obviously have massive exposure to the market. What does it mean if the market takes

a twenty or thirty percent correction? Does that mean you're revenues for dropping by a substantial amount? And we're a revenue based organism. I mean we're an asset based organization in many ways now S s g A is a pretty diversified business, and that we have fixed income, we have cash, and we have equity. We obviously have g l D so in some cases when some of those are coming off, some of the other things we're going up.

But yeah, in general, when the market, if and when the market goes down like that, we feel pressure on a revenue side, no question. And you mentioned earlier the VIX and some of the low volatility products. Um, we have a tremendous amount of political volatility, but we really haven't seen all that much uh market volatility. Uh we we The day after the fire and fury Trump remark

about North Korea, the market opened down fairly substantially. I think we closed down thirty points on the DAW yesterday, which is which is nothing. It's a tick. How do you guys look at this and and and what what,

if anything do you do about it? I think you know, what we try and do best is in most it's really just make sure our clients inform about what I've used on the market, what we think about it as a firm um communicate as much as we can, you know, I think the reality is is what you see in political you know, instability in some cases does not necessarily drive the market. The markets can be driven on the fundamental unlying stocks and the long term views of those

companies for the most part. And once again, there's always a potential that there's, ah, you know, something going on in the world from a politically not not even political, but just you know, anything can happen in the world. We can be a market shock, and you try and think about those, you know, the black swan, gray swan, whatever you want to call them, Try and think about those and make sure they're part of your overall investment

strategy and plan that you've thought about that. The fact the market can go down um where we sometimes and this recent run that folks haven't really seen a lot of that but you know, I think it's important for folks to make sure you you're still looking at your long term outcome and understanding why you have the diversigation

you have them. Hopefully you're rebalancing at different points. And someone mentioned the other day that we now have an entire generation of traders that has never experienced the rising environment, which is which is pretty funny. Um last market related question, there is a general sense from a number of quarters that markets in the US are overvalued. How do you look at valuations and what can you guys do about

that as a product manager? So I'm not sure that the lot we can do about that as a product manager. I think what we try and do is ensure that we have a diversified set of products. So when our clients want to diversify, if they if they believe that there's a long term view. And we saw this shift, you know, we saw this shift into you know, strong into the US after the election and shift into much more of a Europe looks a little more attractive. You look at et F flows, you can see a lot

of things. If you look at Broady E t F industry flows, you can see a lot of trendits that played through from the markets where people want to shifting some of their some of the bats I'm gonna call it UM towards Europe E M Europe EM is definitely You're probably more Europe initially, probably a little more M now. So I think we see that playing out in the marketplace.

My goal is kind of somebody who has a broad diverse products set, is to ensure that we have products for our investors that they can use if they want to shift. We're not telling necessary folks to shift, you know. Our goal is really to make sure we pride them with the information, engage with them about what their options are. And they're the ones they're gonna direct, you know, whether they want to shift their client's assets. That's probably work

very closely with. You know, financial advisors and investors are on the club. Can you stick around a little bit, we'll we'll keep talking about all things UH et F related. Sure, we have been speaking with Jim Ross. He is the chairman of the State Street Spider Global Group as well as chairman of s s G as Asset Management ARM. If you enjoy this conversation, be sure and check out our full podcast. You can find that on Bloomberg dot com, Apple, iTunes, SoundCloud,

and wherever fine podcasts are sold. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. You can find my daily columns on Bloomberg View dot com. Check me out on Twitter at rid Halts. I'm Barry Ridholts. You're listening to Masters in Business on Bloomberg Radio. Welcome to the podcast. Thank you Jim for doing this. I've really been looking forward

to this, UH for a long time. Thank you very much for having me my pleasure, your legend in the industry, and this entire um library would be incomplete without without you in it. So so let's talk a little bit about some of our our favorite questions. Things that UH I really like. What's the most important thing people don't know about your background? That's an interesting question. There's a lot of things I don't want people to know about

my background. I happen to have a dossier here. Yeah, you were in Russia recently, weren't No, no, no, no. I have the captain for a really bad basketball team in high school. But that doesn't really matter. You don't strike me as a basketball player. You look you're you're a solid guy. You look more like a football player undred and sixty pound point guard in high school. But that's really I've changed a little bit all the time.

I think, you know, I think the one and I'll say it, the one that I I think people probably don't know about background. I got involved in NETF somewhat by accident, and I got a lot more credit for spy than I deserve. You've every time I've seen you speak publicly, you practically open with that. So no one could ever accuse you of taking um credit for something that that you don't deserve. Let's let's talk about some of your mentors. Who are the people who really influenced

your career. You know, there's been quite a few. I think of mentors, and it's like sometimes when somebody has like I just had this one mentum my whole career. I think I probably, you know, my first mentors, probably my dad got a lot from him. Um. But I think I look at mentorship is I've taken things from different folks. I've worked with good and bad over the years. You know, different styles. Um, you know, I take a little bit the folks who first hired me a State

street cat Cooglo. Glen Francis gave me a great opportunity, so I give them a lot of credit. I've learned different things from them over the years. Um one for sure was the CEO of S S g A for the years for early years I was there, which just Tim Hobbitt Um who unfortunately passed away on the job in two thousand three. So but he was one who I took a lot of from. Like I said, I've worked for a lot of different folks. I've seen a

lot of different styles. So part of what I try and do is understand different folks style, take the good, maybe not take some of their bad. So I've worked with folks who have you know, hot timbers, but they're passionate. Okay, well I want to take the passionate side. I don't really have a temper all that month. So you're try and learn from different things. But though I think in mentorship is kind of like That's how I've on it over the years. Different folks I know have different mentors.

I've had colleagues that I've looked at his mentors. Um that's been straight peers of mine because I like the way they do things. I've learned from them that. That's quite that's quite fascinating. Um, what investors have influenced the way you approach your job? You know, it's funny. I'm not I'm not a core investment guy. I didn't come up with that. I didn't read about investment. I'm not sure how knew Warren Buffett was twenty years ago, to be completely honest with you, So I don't want to

sit here in bs and that what's his name? Who? Warren Buffett? Right? I think I'm gonna be honest with you. Twenty five years ago I kne Jimmy Buffett a lot better than any Warren Buffett. And it turns out there

distant cousins. Yeah. So Um, but I think I learned most of my investment frankly from working in the industry at State Street and S S G. A. That's where I kind of got the passion A for E. T. S, but B for you know, the ability to use passive product to get to the outcome, which is different than passive versus active. In my vore, do you and a quick digression, is everything that State Street does is it in house or do you have require things from the outside?

We do something, so we have some partnership. We will hire subadvisors in different areas. We've done that in ETF business. We have a great partnership there with Double Line for core fixed income, GSL Blackstone for bank loans, MFS for equities, and frankly now Vinan from UNI. So we do we do have a We do that in certain segments. We also manufacture both active return streams within the firm and passive return streams. Obviously that's interesting. So this is everybody's

favorite question, what are some of your favorite books? So I'm gonna be honest here. My wife gave me an idea. I chose not to take it, which was look up what Donald's answer was for this. I don't read a lot if I tend to read, and I'm sitting here in New York City, So I just want to be honest about this. It tends to be about some of the Red Sox or Patriot success stories, um so books on the two thousand four Red Sox. I enjoyed that year, didn't enjoy being a game seven and two thousand three

um two thousand three um who who? Just uh my? My biggest Red Sox um recollection was the game against the Mets in it was the eighty six World Series old that that stayed with you, that stayed with me, that hurt still hurts. And and at this point have we have we all accepted the flake gate is a real thing or no, that that went nowhere with Tom Brady, I have no idea what you're talking about. Oh no, I know what you're talking about. No idea what you're

talking about. I don't think it's real at all. A right, Um, so let's let's talk about the overall investment industry. What are some of the most significant changes since you've joined. God, there's been a lot of change. I mean, I think change is constant in this world, constant this industry. You know, I think we've seen just the way people can invest has changed dramatically, you know, huge, huge difference. You know.

I think about, you know, going back twenty five years ago, and this is I sho laugh at this, but you years ago. One of the things you're broker did for you is you won't usually individual stocks. Sometimes you might call him up and say, hey, what's this stock doing to because you couldn't see the price. You didn't want to wait till the next day. We take it for granted that you could look at any price in four hours a day. That wasn't how it used to be.

But I look at you know, commissions have compressed, you know, how you invest in, how you work with the financial advisor has probably gone from commission based to fee based. As far as that world, what you pay to buy and sell stocks, ets, anything has come down. You know. I go back to the days where as a single specialist they owned the book, you know, and spy traded it thirty cents spreading. That's what we knew. Spy trades less and a penny spread today. Um, so you get commissioned.

I think that's kind of some of the good things some of the bad things. I think from an investor standpoint, it's got a lot more complex, there's a lot more products out there. You need to do your due diligence to invest, and so naturally the next question is what are the next shifts? What do you see happening within the industry that people may not be anticipated. Yeah, you know, it's it's always easy to look back and see what's happened,

and try and look forward and say here's my great prediction. Um, but I've seen a lot of things, and I continue to see improvements going on in the marketplace, the way people invest, the way they think. I look at technology, and you know, I'm looking at this broadly, not just around robo advice, but you see people buying managed portfolios that way. Um, it's just and it's just a way. I think younger investors want to be able to do it directly. I think they at times want to get advice.

So I think that's going to continue to shift. I also think there's you know, long term, I think there could be more tech disruption in the financial space. I think where you know, we're kidding us off if we don't think that there's folks looking at the asset management space and the broader financial space to say these is a piece of that that we can play in that will be good for us. And I'm a technology from what was what was Jeff Bezos line? Your margin is

my opportunity, Yeah, no, no doubt about it. So so we've been talking about all your successes. Tell us about a time you failed and what you learned from that. Oh God, I failed a lot, um, I filed a ton of So I mean that in a good way because big part of my career has been launching product. And if you don't take risks and fail, you're not

gonna have success. If you wait to try and think you have everything right, first of all, you probably gonna beat the market by about five years and you're gonna figure out what not what's right or wrong. So UM

I have different products over the years. Um One of them famous when I worked on called the OH strip never hear of it, No Yep, triple os, great ticker, Oh, great ticker idea from the marketplace, so idea a friend of mine solving a problem because at the time the NASDAC stocks didn't have a close for the S and P and it was a problem for the traders. So he was a trader Tim this is gonna be a great et f we develop it, we launched it, Nozac

fixed the problem. Six months later the product now we're trying to stella out as a tech stock and a tists. It was a failure. So when I was versus the q Q ces is that we tried for a little bit that didn't really fly either. So when my rights to everyone on failure, just feel quick, fail quick, feel quick, learned from learn from it. Move on to the One of the best comments a colleague of mine said to a board member about me one day is Jim doesn't

lose sleep over the failures. He wonders why that wants it a successful as successful that you're losing slip over the winners, not the losers. That that's pretty funny. Um, So tell us what you do to keep mentally fit? What do you do to relax or for enjoyment outside of the office. So I do a lot of different things. I you know, mentally and physically. I have actually work out lot one of that probably looks like I work out. I have to. It's old muscle underneath. It's getting there

working on that. Um, I don't keep hurting things that would be better. Yeah. By the way, it only gets worse as you get, doesn't get better. I know, I get knee issues and shoulder issues. But but we walked. So my wife and I moved into the city a few years ago. Everyone's like, uba bill is going to go through the I don't have an uber bill, at least not for in the city of Boston. We walk everywhere here in New York. Yeah, you don't think about it. Um,

you know, other things listen. We have a house on a lake in the hampsh to have a boat. I play golf up there. Lots of family and friends up there, So that's kind of how we like to enjoy ourselves. And we're not against going out and having maybe a cocktail and a nice meal here and there. Are you a fisherman or a water ski or what do you use the boat for? We use the boat more for tooling around the lake. And then Nissa and nephews and friends will throw off a tube and kick him around

the lake. So that's that's a that's a lot of fun. I love to do the same thing. Um, let's let's we talked earlier about mentors, and let's talk a little bit about millennials and recent college graduates. What sort of advice would you give to a millennial who came to you and said, hey, I'm interested in the career of finance? What what? What sort of response would you give them? Try something different? Though I'm kidding, I know, I think, um, you know the advice, you know, it's one of those

couple of things. And I have these conversations a lot with different folks. Um, when I talked to folks earlier in their career. One of the first thing I said, I was like, don't freak out like this next decision you make, but what you're gonna do in your first job I after college, doesn't your final decision done your career? So you know, I think, you know, I have good friends of mine to think about their career and three year increments and have a plan for all of it.

I planned none of it. You know, we've talked a little bit about I got involved in Spy, I stayed involved in it, became really successful et s crew. I was there. It was really high. It did a lot hot work there. But I mean the advice I give everyone, which is kind of raise your hand. Like I asked for more work, I got more work and ended up being something incredible that no one anticipated it to be. So raise your hand, work hot, do your job. I

say this folks all the time. You know, if I have somebody who's been working for us for six months, they say, hey, what's my next job? My couch? You go to the job I hired you for, you know, so you know, earned the right for that next step, um and work hot. I mean, it's not this and this is now that complicated work. Hot do your job and learn your craft. You know. One of the things I did early on with the TF is I tried to make sure I understood as much of it as

I could. I knew the back office side, I didn't understand trading. I can now have a conversation but equity market structure and trading. Maybe not with some of the best in the world, but I can hold my own. And and our final question, uh, what is it that you know about products et fs investing today that you wish you knew back in when you were getting rolling? Jeez ah, what what do I wish? I wish I knew Honestly, I wish you know, I wish we had

seen the vision that they would become. We developed the original e t s with the intent of institutional trading firms. That was the design um. The adoption of them from the financial advisor and retail space has been virtually was not ever plan. So I think if I had known that, probably would have thought about that differently from a strategic standard point, from a job um, there's a lot of things I wish I knew new twenty five years ago.

I wish, but I think from that perspectives, like, you know, I wish to new the global financial crisisally happening, I might have invested differently around that. You know, there's a lot of things you want to know, but I think the reality is is you're never gonna know everything, and the best thing when you're working in this world is to try and understand how best to shift when you are. We have been speaking with Jim Ross, chairman of the

Global Spider business for State Street. If you enjoy this conversation, be sure and look Up an Inch or Down an Inch on Apple iTunes and you can see any of the other hundred and fifty such conversations that we've had. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. I would be remiss if I did not thank all the people who helped put this UH podcast together. Taylor Riggs is our booker, Medina part Water is our audio engineer. Michael

bat Nick is my head of research. I'm Barry Ridholtz. You've been listening to Masters in Business on Bloomberg Radio