Welcome new Trillions. I'm Joel Webber and.
I'm Eric Belchunas Eric, we try and do the global story of ETFs on Trillions.
A lot of the times we're pretty US centric on that. I know we've done India recently. And then there is this headline that moved from Bloomberg News recently about Kathy Wood acquiring Rise ETF and making a play for Europe, and Europe is actually like a quiet ETF market and that made me want to talk to you more about that and dedicate this episode to it.
Yeah, you know, I've been to Europe a couple of times as an ETF analyst and visiting clients there, and it's a really different market. We cover it on my team, and like I said, some of the stuff over there is a little different than the US and it's interesting. But many of the issuers like black Rock and Vanguard and Invesco and JP Morgan are all trying to sell their stuff over there. And it's interesting with ARC right because now you've got to thematic issue, we're actually moving
over there. Kathy Wood was interviewed and said that she found that twenty five percent of the downloads from her research were in Europe, and that was what sparked her to move over there, and so it's an interesting time to cover that area. They've got about one point five trillion dollars in assets over there, so it's, you know, a fraction of the US, but it's growing, I believe,
on a percentage basis, slightly faster than the US. And so also in Europe you can charge higher fees and so a lot of the issues here are getting vanguarded to death and so over in Europe, even though Vanguard exists, it's not quite as intense in the cost of obsession. So from a revenue point of view, I could totally
see the drive to go over there. But there's all kinds of like acronyms over there, like usets and mifids and regulations, and I think it's interesting to get into the differences between that continent and US, and you know, what works over there and what doesn't.
And help us navigate what it all looks like. Hector McNeil, who's the co CEO, owner and founder of han ATF, this time on Trillions.
What's going on in Europe?
Hector, welcome to Trillions.
Hey guys, how are you doing good?
Thanks? Hey, so Eric thinks you're like mister Europe for ETFs, and he's like kind of like he thinks of himself as like mister America. So how does mister Europe feel about mister America.
Well, there you go.
It sounds like a couple of superheroes meeting each other, doesn't it.
But again, people saw us, they know that was that was far away from the truth. But no, certainly, I think when you say things like that, it just means I'm old and I've been around for a long time. But you know, certainly I've been here, and you know, I say, I think you would say I've seen it, done it, pinched it, spent it for sure, that's for sure.
Well let me let me say why I thought that is that Hector isn't just an ETF issuer. He's a white label issuer. So if you're in Europe or even in US, and you want to launch an ETF in Europe, you may go to him just to get the lay of the land. So he has all the answers and that's what he's used to doing. And so that is an interesting per And so before we get into your perch there, tell us a little bit of how you got there. What was your road to become a white label issure.
Yeah, it's pretty interesting really.
I've been involved in ETF pretty much in the start late nineties in Europe, and I first got involved by setting up Saskuhanas ETF business in Europe. So I was there nearly just on the five years, and then I left there and went to be one of the founders and owners of ETF Securities. So I was course CEO there and co founder with my buddy now Nick and
handstands for Hector and Nick. So while we were at ETFs US, we invented gold ETFs create the first gold ECHF in the world in Australia, brought it to London. Then a couple of years later we helped the Go Council create the GLD. So sometimes Europe is ahead, you know in the US, and get there before them, and
then we were. We created a business called Boost Nick and I which was a short leverage provider similar to Direction pro Shares that ultimately got bought out by Wisdom Tree, which we then set up Wisdom Trees business in Europe. Again we were core CEOs, co founders. We co owned Wizd'try Europe with wisdon try and then they bought us out.
So hands afourth ETF business, fourth and master have to say, And in that time we've issued just allver six hundred and fifty ETFs and ETPs, which I think equates about eight percent of every ETF on the planet.
So not by AUM, unfortunately, but by by a number of products.
So I think we do.
We think that we know our stuff pretty well.
So perception though is that Europe is always behind in in the ETF market. How true is that perception? And and how big is an opportunity when you see somebody like Kathy would make an acquisition like this.
Yeah, I think I think it's it's fair.
I mean, I mean I often say, you know, with three to five years behind, but on a very similar,
if not faster trajectory. You know, Europe's thirty countries, its populations double the size of the US, similar wealth demographic, you know, and we're just really a little behind to the point where actually when we decided to set up Handy TF four or five years ago, the AUM in the in Europe is where the where the today is where the in the US was at the time, right, So that sort of almost proves that we are four
or five years behind. I mean, as I say, there is some innovation in Europe that's a little bit ahead of the US.
You know, we have spot crypto products already in Europe.
It does make us laugh when you guys say the world doesn't have a spot bitcoin product, and we think, well, we've had that for a few years now, you know, and and then esg as well, you know, we think we're ahead of you guys to a certain extent.
On that a lot of things you guys are litigating and fighting about.
You know, we've decided on and moved on now really and it's become a just part of the part of the mix. I think the Kathy Wood scenario is really really interesting. She really is going to stir it all up in Europe. I mean, you're probably well aware that the Europe is pretty much an active market, probably bigger from an active basis than the US.
You know, when you look at the full you know, suite.
Of mutual funds and such light. But it hasn't really hit the tape yet. On the ETF world, We've got some on the fixed income side that Pincord did several years ago, but it's not really being a thing on the equity side.
But I do believe.
She's going to shake everything up with that because I think she's the first sort of superstar, you know, active manager in the ETF space.
You know, both in the US and she will be in in Europe.
The retail guys know her name as well, and you know, with the with the embeddedness of that retail demand, I think she's going to really really shake it up. So I'm really quite excited. I think it'll see a lot of people come to the table. And actually, to be fair, we've probably had about, you know, over twenty inquiries. You know that people have been talking to post the announcement with Rice, So we're pretty excited about it, to be honest.
Yeah.
No, it's interesting back to sort of the Europe being behind. So I did deep research on a recent book called the Bogle Effect, which was interested seameless Plug. But in that book, I looked at the spread of sort of ETFs and passive and low cost across the world, and
it spreads in some places versus others. I kind of concluded that you kind of need two things for ETFs at least, you know, the traditional beta type ETFs to spread, you need advisors that are fiduciary and get paid as a percentage of assets versus a kickback from the mutual fund. And you need a population that doesn't think its government is going to cover it for retirement. And so in America we have both in spades. It's big time fee
based advisors. They're seventy five percent of the ETF owners really, and of course everybody in America doesn't think they're going to get so secured or anything, so they're a little more savvy so that thus they sort of shop better for their financial situation and investments. Can you take that and sort of give me the take what it's like in Europe on those two fronts.
Yeah, well, I think you know what you've got to realize with Europe is it's you know, thirty plus countries, you know, with different currencies, cultures, exchanges, sellment systems, the whole, the whole shooting match, right, So you've got varying degrees of off of good climates for what you've just talked about, you know, from you know quite socialist, uh, you know, countries with strong social infrastructure.
You know, through to a little bit more entrepreneur a little bit more capitalist.
But I think where you do see ETF strongest in Europe pretty much is I would say, the u UK, Germany, you know, Italy, with the second tier being Switzerland, France. But equally, you know, you are seeing some pretty interesting you know, moves in the Nordics and ben Lux, but there are varying degrees of penetration. I think one interesting thing in is happening in Germany at the moment, which
is akin to what you're talking about. There's been a massive growth of saving plans, savings plans with the big robo advisors and the big banks online brokerage platforms, and these are essentially once a month investments and essentially they're almost being completely dominated by ETF now, you know. And they're very tax advantageous as well. So that's a bit of a revolution that didn't exist before that is actually making people think long and hard, both with the ETF wrapper.
And also the model portfolios that that back that up. I mean, we did something really interesting as well, which I just like to chuck in there that you know, just shows the stage of it that we we we we.
Crossed listed the first gold product into Poland two weeks ago end of end of August, and I think we're the eleventh product there of which we're the only foreign issue of.
Off off of gold products. You know, Poland's forty million people.
You know, it's a bit as big as Canada, right, you know, so you know that that that's that's an example of a market. This in very early days, but you can see over time it will get adopted and will get will get part of it. To the point where I was saying, you've got, you know, pretty mature markets like like Germany and and and the UK.
That's why I think you really need somebody who knows what's going on the ground.
I would say that you know, when US and suit has come to Europe, they don't know what they don't know, and I think it often means that they they took two to three years to figure out what they should have got right in the first place, but got But it's pretty hard to model that and pretty hard to tell people that.
So if you said you're four to five years behind, I'm curious though, because you've also hinted that there are things like crypto that you're ahead on. Are there things that the US, the US market and American issuers might be able to learn more from Europe.
Yeah.
I think there's always things people can learn from each other, right, I mean, you know, there's there's a lot of smart people, you know, in both places. And you know, I just think that ultimately, you know, you had a great tax advantage,
which you know, speeded up the adoption. I mean I always say, you know, eachfs are just a rapper, you know, they're not They're not an asset class or a you know, or a certain type of investment, but just a way to do a delivery mechanism to give a payout to clients. And it just makes you know, and it's not even new technology, you know.
I always use the analogy.
It's it's like mobile funds and landlines when you describe mutual funds versus ETFs. You know, but ultimately the technology will win the day. And I think that's that's essentially what we're seeing. And you know, and I do I do think you know where you know, we do have areas we are I.
Think ahead, you know, and a lot of it's.
Regulatory regulatory environment, you know, you know, the crypto side. You know, in Germany in particular, you know, they have you know, very very benign crypto regulations. I mean, they made crypto official financial instuments in twenty twenty.
Then I think another.
Side that I think, you know, the US can learn quite heavily from the Europe is the use of share classes. You know, we've used share classes pretty much since day one in Europe. I mean obviously a Vanguard and its patent which prevented that, but most of ETFs in Europe WI have multiple share classes, whether it's accumulating, distributing, whether it's currency hedged, you know, whether it's you know, lower fees.
I mean you even have an unlisted share class ability in Europe now where you can basically blend the mutual fund with ETF, you know, and you can have basically an invisible share class that nobody says unless it's sull to them. So but equally, I think where you guys, you know, really knock spots of US is really on the retail side. I think the retail really underpins the eatif stories easier success points, and I think the barriers to entry is so significantly less in the US and
they are in Europe. And hence why I think white labels are really important because you know building, you know, the infrastructure in Europe to get across thirty countries, you know, probably is a two to three year journey five to ten million dollars, and that's before you've even started making any money, right.
So it's a big, big decision.
And then you've got to go against the beer moth like you know, Vanguard and A Monday and black Rock, you know. So so it's a big decision for a lot of people, but it's what ultimately everyone's going to have to take.
Talking a little more about that retail angle, I remember going over there again, maybe been in Europe three times in the past like twelve years, and what you'll hear is, Oh, it's really institutional over here, not a ton of retail. And I'm assuming that you put financial advisors in retail else since they're managing retail money versus institutions would be like endowments, pensions, hedge funds, traders. When we look at that retail advisor market, what do you think is going
to be key to penetrating it? Is it the plumbing or is it more of the psychology of the investor there.
I think it's a mixture mixture of everything. Really.
I think it's the I think it's the broader adoption of the products. It's you know, the product's being more interesting than just being you know, five business points chreaper than the last guys, right, you know, And that's where I think thematics make a lot of a lot of sense. I mean, you know, just an example, we you know, we we set up spots uranium miners that they have in the US, you are, and we've got the same product now in Europe. You know, listen over over over
a year ago. It's just popped one hundred and fifty million, you know, And and that's been largely retail driven because it's a good story, you know, people looking for that exposure, the press picking up, the you know, the trade magazines.
All those types of things.
But I think the sweet spot currently is pretty much in the sort of wealth management, private banking space.
And I think the sort of pure retail angle is picking up.
And I think largely because we're starting to get our sort of challenger brokerage platforms now similar to your Robin Hood.
You know, we've got free trade, two on two trading.
All these guys are offering free trading, fractional trading, you know, things that weren't available until the last few years and the technology wasn't there to do it, you know, So I think that's been really important. I sort of expect the next stage that will be, you know, mass adoption of model portfolios as well. So you know, I think again that's just as catching up to you guys, I think from that perspective. But it's that sort of ecosystem, as you say, that's really important.
You're totally describing something that seems like it's exactly four to five years old.
You know.
One element that's also kind of interesting to me though, is Eric Paulled ETF market share for Europe, and it's it's fascinating how similar the names are, right, You've got I Shares at number one, you got Vanguard at number four, you got Spider at number six. But then there's like other names in here, and I'm just wondering from a
from a you know, competitive standpoint. You had mentioned a MOUNDI before their number two, X Tracers at number three, Ubs at number five, so there is a different a difference here, I guess too, and just the number and types of players.
So what is that?
How's that unfolding? And how could this end up being a different sort of competition than the exact same players that are in the US.
I think, if we're brutally honest, I think the sort of bigger players have won the passive space, you know, the cheap passive space. I don't think that's up for grabs anymore, you know, So I think they sort of cheap SMP fives. I mean, you know, we got this ridiculous scenario where there's fifty euros eurostocks, fifty products in Europe.
You know, there's forty s and P five hundred products and that's largely driven by you know, every bank, and you know major asset manager who's got a wealth management business needs those core products to you know, to be competitive and.
To have that offering.
And also you're talking about, as I mentioned before, thirty of country. So you know, somebody might be strong in Switzerland's, somebody might be strong in Germany, whatever it is. But obviously you've got those common players that you know, are global players who will always be hoovering up you know, that market share, around the costs, the scale, those types
of arguments. So I think, so I think this this sort of next movement into the you know et F two point zero or three point zero, whether it's you know, sematics, whether it's active, whether it's you know, more IP driven good idea.
Products, you know.
I mean, we we did a product you guys don't have in the US yet, which I think is a real good, good example of something you know, quite quite.
Niche, but but pretty cool. You know.
We created a physically backed carbon credit product.
Now.
You know, we did the first futures back carbon product back in two thousand and seven at EATF Securities that's now owned by Wisdom Try that was backed by Shell, you know. But actually we did.
Something three years ago with the company called spark Change Tickets c or.
Two where we actually owned the euas directly with the European Union, you know. So we were I think one of the first financial companies that were allowed to do that, you know, so rather than be you know, a non part of the physical story, because the finite supply there's a bit like the bitcoin and gold story.
You know, there's a finite supply off carbon credits.
You know, you as a personal investment now can own those you and effectively affect the demand.
Supply side of that of that asset class.
So so I think that's where you can sort of muscle in and get a bit of air time, you know, next to these huge giants who otherwise, you know, create a vacuum and hoover up all the all the space, you know, and that's.
Where you've got to do.
You've got to be you've got to be innovative, and you've got to just make sure that you you've got strong en availables to make sure you heard in that in that sort of scenario.
It's funny. So we have in the US, we have the three c's for ETF success, cheap, creative or cabernet. You're talking about the creative. You've got to do something very different than beta, something innovative that can work. You can innovate your way to assets. The cabernet is the old school. Let me whine and die in the advisors and brokers, hook them up, kiss their butt, give them golf balls, and there is a lane for that. It's shrinking,
but it still exists here. But I think I wanted to, you know, kind of jump on that a little bit with I have seen a bifurcation in the US. Forming it used to be you'd buy like the fidelity fund for your core retirement. But over the years people replace that with as you said, cheap beta. But then they don't want to just have three funds that are sort of vanilla and boring. They want to add on top of that, so they look for things that are very different.
I call it hot sauce. Carbon credits would be, that arc would be that, thematic ets would be that gold, crypto. All that stuff I think has a viable lane. It's not as big as the core of the portfolio, but ten to fifteen percent of a lot of portfolios. So therefore the client has a low cost based and then adds on sort of to customize and scratch their fomo witch and in that way they can participate and speculate. Like with uranium, that's a story they can participate in.
So they're being active, but their portfolio is filled with things that are either cheap or shiny. Do you see that happening in Europe over the years, and that sort of old school mutual fund that's close to the index but charges one hundred basis points kind of goes extinct.
Yeah, I think that's exactly what is happening. You know, I have to say I don't think is happening quick enough, you know, I do think the governments and regulators should be pushing that down down the road. We all see those academic studies that show the degradation on long term portfolios.
Due to the fees, right, So so if you're not.
Adding any IP or any added value, you know, you know, you should go off as cheap as possible, as much scale as possible. So we're certainly seeing that where people are waking up to the fact that, you know, the classic gold index trackers at one percent just make no sense to anybody. And I do think that, you know what I always felt about, you know, products with good.
IP and stuff that investors get their head around.
There are all many CIOs or investment managers you know, who want to feel that they've done their homework and got good ideas, and you know, as you say, you know, have a part of their portfolio that is a little bit, a little bit more out there, a bit more bit more spicy. As you say that, you know, is a bit more you know, effectively in active decision that they're
putting into their portfolios. And you know, obviously, you know, I've always been a big believer in PR for ETF selling, you know, and I think you can really reach retail pretty well and get that sort of point across where you do have a little bit of a differentiator, you know, through PR. And we have a great example of that with the raw mint gold product that we have. You know, we use recycled gold within that, you know, in recycled golds ninety five percent less carbon intensive than.
The mind gold is the only one in the world that does that.
Plus we allow retail to have physical delivery of bars and coins if they want to swap their ETF for sovereigns and Britannias, you know, with the.
Queen or the King's head on it, as I should say.
Now, so you know that that resonates with people, and well that's cool is we actually put the price up on that product from twenty two to twenty five basis points and now the six hundred products have on In my career, I've never put the price of an et F up ever, So so I think that that that's a real good measure of.
You know, where you can you can get your elbows out and get.
Some space and you know, show these guys you can add value to the space and if you can get that message out through PR and you know, on the on the on the wires or on the magazines, et cetera.
And don't think it makes a massive difference, all.
Right, Hector. Last question is when we like to end with what is your favorite et F ticker other than any that you're affiliated with.
That's that's awful because we've we've I think we've got the best forever Yoda, which.
Is you have Yoda.
I saw that there's another one over in Europe, Jedi. They've got Jedi's.
Stalled after us. After rules we've got, we've got Yoda.
And then for our we've just done a defense et F which we've got NATO, which I really like NATO as.
Well, which is pretty cool.
But but I think I actually if I can go back to one that's not mine currently, which is with Elgin. But I did actually trade in the first place, which was two times leverage foot see, which is look to l u K two, and then the two times shorts footee was suck to, which I think look to and stuck to is pretty cool.
There they're good sickens.
I like this, all right, Hector Vino, thanks so much for joining us on Trillions.
Thank you very much, guys appreciate it.
Thanks for listening to Trillions until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify, or wherever else.
You'd like to listen.
We'd love to hear from you. We're on Twitter. I'm at Joel Webbers Show, He's at Eric Boltuna's. This episode of Trillions was produced by Magnus Hendrickson.
Bye