Presented by Syntax Advisors.
Margareta Hricova: Welcome to ETF TV – your insight into the world of exchange traded funds, issuers and investments. I am Margeta Hricova and joining me today is Salim Ramji, Global Head of ETFS and Index Investments at BlackRock, and Deborah Fuhr from ETFGI.
Welcome to the show.
Salim Ramji: Thanks for having me, Margareta and thanks for having me, Deborah.
Deborah Fuhr: Thank you.
Margareta Hricova: Salim, can you briefly describe your role and the path that took you to that role?
Salim Ramji: I run our ETF and Index investing business here at BlackRock. And ETFs are probably the most prominent part. It’s iShares, it’s the market leader in the ETF business. But there’s an equal sized business, which is actually how we got started in indexing way back 50 years ago, which is all of our institutional clients; big pension funds, endowments, and even mutual funds that use indexation as its underlying wrapper. And so, combined, those two areas really serve the needs of about 120 million investors all around the world.
I’ve been in this role for about three years now. Before this, I led our US wealth area, which was really the area within BlackRock that caters to all the financial advisors, and all the big self-directed platforms or platforms that serve the needs of financial advisors. And one of my first jobs when I’d taken on that responsibility was bringing together our iShares sales team and our active sales team into a combined team, which was really looking at a wealth advisors’ overall portfolio. And wealth advisors really became the most significant segment within iShares during this period, and so it’s been a natural progression to move into ETFs and indexation much more broadly and cater to a lot of different segments all over the world.
Deborah Fuhr: When we think about 2021, it was a record year for the ETF industry, globally in the U.S. and in most geographies. For you, what were the highlights?
Salim Ramji: People will look back at 2021, not just for the extraordinary flows. I think there was well over 1.2 trillion that came into ETFs. You know, we ourselves had just over $300 billion coming into our ETFs. But I think it will really be the year in which the ETF became the default investment vehicle for the 21st century.
You know, the mutual funds are almost a 100 years old, and I think that was really the default investment vehicle for the 20th century.
What really struck me was not just the size of the flows last year, but the diversity underneath it. Within there you had active ETFs, you had active managers and index managers converting or redirecting their mutual funds into ETFs in what was a pretty trying year for fixed income markets. You still had over $270 billion come into fixed income ETFs, including 80 into ours, and haven’t even gotten into sustainable investing.
I think the ETF wrapper is really stretching to wrap all kinds of transparent, rules-based investing, even those that aren’t traditional market cap weighted indices or even those that aren’t even indices at all, but are active management. I think that was the real pivot point that I think we’ll look back on two, three, four years from now.
Deborah Fuhr: What is your outlook for 2022 in terms of the asset management industry and ETFs?
Salim Ramji: The biggest thing on everyone’s mind is obviously inflation. It’s obviously elevated, it’s going to stay elevated for a while, but I don’t think it’s going to be looking like the 1970s or the early 1980s. And there are ways, whether it’s through tips, whether it’s through commodities, whether it’s in real estate infrastructure, really just to build inflation protection into our portfolio.
I think the second thing we’re really seeing is a reduction in barriers to ETF investing at large. And so we’ll certainly see it in the movement towards fee based amongst financial advisors, but you can also see it in the reduction of commissions which is essentially down to zero across all self-directed and many individual investment platforms.
One thing that we’ve seen is that when the barriers are reduced, whether it’s commissions for ETFs or whether it’s an incentive barrier for an advisor, now it is much more of a fiduciary and it’s very much focused on kind of the overall client interest. That’s been great for ETF investors, and it’s been a real boon to some of the growth that we saw in 2021. It’s what makes us optimistic about the growth in 2022 and 2023. And it just provides clients a whole degree of choice for how they can invest with a level playing field.
Deborah Fuhr: That’s great. So we know the ETF industry now has over 10 trillion dollars, about 10.000 products with about 20.000, 596 providers in 62 countries. What do you see as the biggest opportunities in terms of products?
Salim Ramji: I would still look at it so much from a product point of view as a client segment opportunity. I mean, those are some staggering numbers that you cited, and the great thing about that is just the incredible choice that’s in there. I mean, we’ve got 1200 of those ETF ourselves. And so we’re big advocates for that type of choice.
But when you think about the clients, it ranges from the first time investor, and so we’ve seen 40 million people all around the world open up their first investment accounts since the pandemic began. And if you go to the other end of the spectrum, some of the most sophisticated investors in the world are also using ETFs to improve their investment process. 8 of the 10 largest, active managers in the United States are using ETFs, and particularly our bond ETFs, to improve their investment process, to improve liquidity, to improve price discovery, to reduce their transaction costs.
And so you have this incredible, in fact, situation where everyone from the first time investor putting a hundred dollars or a hundred euros to work for the first time, to the most sophisticated fixed income managers in the world are each using ETFs, albeit for different purposes. And so it’s through unlocking all of these new use cases that I think just feels full of optimism about why those numbers that you cited can even get bigger over the next 5-10 years.
Deborah Fuhr: And what are your thoughts on the use of model portfolios?
Salim Ramji: Model portfolios have been a big way in which we’ve been growing iShares. Within the U.S. it was about a third of our flows just a year or two ago. We expect that that’s going to be half of our flows, because what we found is that if the clients ultimately focused on what’s their portfolio return, what’s the probability they’re going to get the return and how much you’re going to charge them?
Then their advisor or they themselves in a self-directed kind of platform can then assemble the different underlying pieces. More often than not, they assemble the ETFs for asset allocation or ESG tilts, or fixed income. But I think models have become a really, really important part of the system. The model ecosystem is itself close to a five trillion dollar system just here in the United States. And I think ETFs have a really important role to play in helping advisors customize and helping individuals kind of build those models.
Deborah Fuhr: And do you have any sense of what type of return expectations investors should be looking at for 2022?
Salim Ramji: 2021 was an extraordinary year, particularly in the equity markets, a difficult year in the bond markets and we publish very regularly, including our latest BlackRock Investment Institute return estimates across different asset classes, and so I’d refer you to that for the detailed answer, but the short answer is; it always pays to stay invested and it always pays to stay invested in a diversified way.
With the tick ups in inflation that we see, what we know for sure is that cash isn’t a great investment, but I think for investors that are able to take a longer term view of things, the ability to stay invested in the market in a diversified way, I think is the best way to build long term wealth.
Deborah Fuhr: That’s great. Thank you so much for joining us today.
Salim Ramji: Thank you for having me.
Margareta Hricova: Debbie, can you tell us about some of the other news in the ETF industry?
Deborah Fuhr: Last week, we saw 26 new listings. Uniquely, it was one product per issuer, so 26 issuers brought products to market and there was only one cross listing.
Six of the new products were from the US, two were in Europe and 18 were from Asia Pacific.
The number of new listings last year were 1815, which is up significantly from 2020, when it was 1090.
In terms of cross listings, also a huge increase so it was 2010, up from 1108 in 2020.
We saw the most significant numbers of new products coming out as thematics. ESG and active ETFs. We’ll dive into more details next week when we will have some insight into the amount of net inflows, which we already know is over $1.2 trillion.
We know assets have gone up above 10 trillion, but we’ll have more details to share with you then.
Margareta Hricova: Thank you, Debbie, and thank you again to Salim for joining us and to our sponsors, Syntax Advisors, and to all of you for watching.
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