There are many ways to summarize the experience at Exchange after three days of connecting and reconnecting in Las Vegas. About 1,500 of us from all parts of the industry were there. There were deep conversations about the market, a lot of meaningful education both in portfolio and practice management, and plenty of discussion about the current state and the future path of the ETF industry.
I want to share some quotes that captured the moment we are facing right now. I’ll let them tell the story of the key takeaways I brought home from the event.
1. "To invest well, you need courage and you need brains. Courage in the depths of the market, and brains when we are at the top.”
— Dr. David Kelly, chief global market strategist, J.P. Morgan Asset Management
If you’ve ever listened to Dr. Kelly speak, you know he’s a captivating storyteller. You will walk away with plenty of colorful quotes. This is timely, indeed. It does feel like we are in a courage-required stage.
In his keynote detailing the state of markets, Dr. Kelly offered both a somewhat challenged near-term picture but a hopeful longer-term outlook. For example, he sees no recession coming in the U.S. Why? “We have a consumer who doesn’t know how to say no, and an employer who doesn’t know how to say yes to wage increases. That leads to steady economic growth,” he said.
But things like proposed new tariffs, tighter immigration policies, uncertainty around job security and taxes all may lead to slowing growth in the near term. Markets have clearly responded with higher volatility. Concerns are real.
Dr. Kelly sees any economic weakness this year likely met by fiscal stimulus the following year. But he said that advisors must brace for the turbulence. They may want to revisit fixed income through an active lens to access parts of the bond market that are excluded in aggregate approaches, he said. They may want to diversity their risk.
He offered the (funny) reminder about the risks in equity concentration in the wake of our Magnificent Seven obsession: “Have you watched ‘The Magnificent 7’ movie? Remember that only three were alive at the end.” Beware of your risk exposure.
2. “Advisors aren’t looking for a crystal ball. They are looking for a fighting chance.”
— Petra Bakosova, CEO, Hull Tactical
To no one’s surprise, uncertainty and volatility were on everyone’s minds at Exchange. Lack of clarity on policy and on geopolitics have cast a fog over U.S. markets and over investment management. With zero visibility, advisors aren’t quite sure in which direction to travel.
No one has a magic crystal ball. However, challenging as that is, maybe that’s OK too. A solid long-term plan and some good product solutions may suffice.
As one advisor told me on the sidelines of the conference, “You have to remember I’m an advisor, so I’m an optimist. I have to be.”
That optimism keeps them positive for a future where capital preservation meets capital appreciation and leads to investors meeting their financial goals. It’s a long time horizon that’s faced with a lot of near-term noise. But it must remain focused on the end objective.
At Exchange, we explored the importance of staying focused on what matters and on using the tools at your disposal to navigate the current challenging environment. The good news is there’s a lot of expertise and a lot of great ETFs offering advisors exactly what they seek: a fighting chance.
3. “The difference between poison and medicine is the dose.”
— Samir Kerbage, Chief Investment Officer, Hashdex
Kerbage’s pearl of wisdom was offered to address the question of how much crypto is enough in a portfolio today. It was a popular question at Exchange, and many floated the idea of 1%-5%.
But what I love about that quote is that it applies perfectly to everything else in investing (and in life), especially right now. How much risk? And how much income? How much downside protection? And how much alternatives? How much of anything is enough?
As we navigate uncertainty and look for the right balance between risk and reward, let’s think about dosage. No asset class, factor, theme, or management style is necessarily good or bad on their own. True diversification means a well-balanced asset allocation that has some of it all. The secret to success is in the size of the dose.
4. “The SEC is working as a helper, not as a cop.”
— Joe Mannon, chair, private fund formation group, Vedder Price
Markets are offering little clarity right now. Apparently, so are regulators.
As new product ideas hit the regulatory pipeline and come to market quickly, there’s a lot of conversation around what’s allowed, what’s not, and what’s different. Because something is clearly different.
The usually strict SEC seems, somehow, a little more relaxed. Put another way, “It’s like the strict parents are out of town,” said Mark Greer, partner at Stradley Ronon.
There are many things impacting the regulatory mood, according to experts, from recent regulation (ETF Rule, derivatives rule, and so on), to recent litigation (outcomes from battles between big firms and lawmakers), to a recently inaugurated new administration.
That more lenient SEC is faced with a litany of new ETFs hitting the regulatory pipeline at a really fast pace. There’s also the pursuit of ETF share class relief, with more than 50 firms already lined up for approval. That relief, which experts at Exchange said is likely coming in 2025 and could be as soon as the second quarter, could unleash another wave of new ETFs that are share classes of existing mutual funds.
Dave Abner, Northern Trust’s head of global ETFs and funds, put a number on that. He said share class relief could easily, almost immediately, bring the number of ETFs in the U.S. to 7,000 from about 4,000 now.
If you are a fan of product choice, hooray! But if you are a fiduciary, your role is increasingly vital and challenging. That’s because product due diligence and suitability assessment is a task that only grows bigger from here.
5. “Embrace the uncomfortable in pursuit of better results.”
— Anna Paglia, chief business officer, State Street Global Advisors
One of the big themes this year was ETF innovation, especially on the heels of some big launches from providers like State Street Global Advisors. The firm just brought to market an all-weather ETF with Bridgewater (the theme of Paglia’s session) and the first private credit ETF, PRIV.
Both are big moves for the industry. PRIV, specifically, has received both fanfare and doubt in its effort to break into yet another difficult asset class to democratize access. Why? There’s no easy solution to put private assets in an ETF wrapper. PRIV is setting out to attempt that for the first time.
There are ongoing concerns about illiquidity of the underlying, opacity and difficulty in pricing of the assets, confidence in the structure’s setup, and so on. The entire industry is watching closely to see how PRIV solves for these challenges.
And challenges can make us uncomfortable. That’s how I see Paglia’s call.
There’s no disruption and innovation without discomfort. Evolving, improving, and pursuing new access requires embracing that discomfort as we, as an industry, determine the path to what’s next.
6. “The conversation around crypto is moving from ‘what is it’ to ‘why is it important?’”
— Calvin Tintle, senior manager, national accounts and distribution, CoinShares
Last year, crypto was all the rage with the arrival of spot bitcoin ETFs, and later Ethereum ETFs. Billions of dollars poured as prices soared higher, even as advisors worked through making sense of the asset class. Now, the conversation around crypto is deepening as it gains a decidedly more long-term focus.
With all of the coins beyond bitcoin, one way to think about it, as Bitwise’s Ryan Rasmussen put it, is that “Fundamentally, all crypto projects are innovative technology.”
Another way is to accept that we may not have all the answers. But as innovation, crypto could be a path to growth. To quote Samir Kerbage, CIO at Hashdex, “Crypto is a new asset class. It’s a new technology that we are still trying to figure out how to apply to our society. The technology is still evolving, but it’s slow to see its application in the real world. This creates growth opportunities.”
7. “The next $10 trillion in ETF assets is going to come from the core — the ‘meat and potatoes’ part of portfolios.”
— Dave Abner, head of global ETFs and funds, Northern Trust
As we look to the future, and a world with many more ETFs, Abner reminds us that new things are cool and exciting. But long-term wealth is centered on a strong core. Investors will remain focused on building that.
New product development, new investment styles, and new types of access will all be welcomed by the market as the industry expands. But big growth is going to come from the continuous effort to build a strong, resilient core to a portfolio, he said. Time will tell.
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