ETF Edge - China’s Covid Unrest & Tax-Loss Harvesting Season 11/28/22

Episode Date: November 28, 2022

CNBC’s Bob Pisani spoke with Brendan Ahern, CIO of KraneShares – along with Ben Slavin, Global Head of ETFs at BNY Mellon, and Matt Bartolini, Head of SPDR Americas Research at State Street Global Advisors. They discussed the fallout from Covid-19 unrest in China as rare protests break out across the nation. What does this all mean for China’s reopening story? Plus, it’s been a rough year and a lot of investors have had losses, particularly in technology stocks and funds. The gang explored the ins and outs of tax loss harvesting as investors look to close out the year. In the Markets ‘102’ portion of the podcast, Bob continues the conversation with Ben Slavin from BNY Mellon. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQQ, supporting the innovators changing the world. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange, traded funds, you are in the right place. Every week we're bringing you interviews, market analysis, breaking down what it means for investors. I'm your host, Bob Bizani. Today on the show, we'll discuss the fallout from COVID-unrest in China after protests broke out across the nation. What does it mean for China's reopening story?

Plus, now that you've enjoyed that bountiful harvest of Thanksgiving, it's time to harvest something else. Tax losses, it's been a miserable year, and a lot of investors have had big losses, particularly in technology stocks and tech funds. We'll explore the ins and outs of tax loss harvesting with ETFs. Investors look to close out the year. Here's my conversation with Brendan Ahern. He's the CIO of crane shares, along with Ben Slavin. He's the global head of ETFs at BNY Mellon and Matt Bartolini. He's the head of Spider America's research at State Street Global Advisors.

Brendan, let me start with you. Bulls argue these protests are going to hasten the process of reducing lockdowns and increasing vaccination levels, so they're optimistic. But I get bears arguing to me that more targeted lockdowns are going to continue regardless of the protests. So what is your position? What are you telling people? Well, certainly we've seen zero COVID evolve into dynamic zero COVID. So the government's been moving away from the very strict the lockdowns right back. in the spring with Shanghai. At the same time, they need a balancing act that they have a large

segment, particularly their elderly population, is unvaccinated. So they don't want to hurt the economy at the same time they want to protect these elder, this older generation. So I think the protests only accelerate the opening up process. You just have to move forward. The government's not tone deaf to what the population is saying. Yeah. And the investing public seems a little confused about this. I watched China overnight. Hong Kong was down one and a half percent. Shanghai was down one and a half percent. A lot of big names were down. And yet we open here.

China stocks are all up. Your K-Web is up 4% this morning. There's the Hangsang. That's the close over in Hong Kong. I don't know. It seems a little confusing. They're not sure what to do with this. Well, I think the key read is that within the Shanghai and Shenzhen, which is 95% owned

by investors in China, is that you have all of the reopening trades were up. Restaurants, hotels, airlines, where the top. top performing subsectors. And then this morning you have PIN Duo Duo, the big e-commerce company, absolutely crushed their Q3 financial results. Adjusted to the EPS was twice what analysts expected. As well as you have the PBOC on Friday after the close, cutting the bank reserve requirement ratio. So some more support for the financial market. So I think you see a little bit of a pivot here as China gets back to business post-party Congress. You know, Matt, you have the Spider-S-NP, China, ETIP, GXC, it's down 30%. Everything's down 30%.

Yeah. K-Web's down 30% this year. There's been a big debate this year in the investment community and the ETF community about how to look at China as an investment itself. At the very least, political risk seems a lot higher than we thought it was going to be three or four years ago. Is China becoming a sort of separate asset class? I'm trying to figure out how should we be looking at this, given all of this obviously increased political risk that we're seeing. So I don't think this should be a separate asset class, but I think you can view it as a disparate sort of separate allocation within a portfolio and trying to gauge your EM interest and your emerging market allocation.

And, you know, perhaps going tactically overweight or underweight China based on your current views. I think when we talk to investors and they're trying to make a case for China within their allocation, there's sort of two aspects that I would look at right now. One is valuations because the market is down, so significantly, you know, down 30%. Valuations are relatively constructive versus broad EM as well as versus just the U.S. or broad global equities. And the second part is liquidity. It is one of the few areas of the marketplace where central bank liquidity is increasing, given the fact the rate cuts by the PBOC, where the rest of the world, we're still going

through rate hikes. So the valuation liquidity argument could make it as a standalone case for an allocation, not as a standalone asset class right now. But again, that's a huge contrarian play right now because of all that elevated macro risk. Forecasting that out, I think, is going to be inherently difficult, and that's why you have cheap valuations.

Yeah. You know, I'm going to ask you the same question, you know, Ben. Has the situation in China changed the way we should view global investing? So years ago, we assumed all of us, when I did these ETF shows, investors should own their allocation of the world based on market capitalization. So if China is 15% of the market capitalization of the world, for example,

then you should own a fund that represents 15%. And yet a lot of people are now in the last few years, given what's going on politically in China, have a question that, saying this may not be the only way we should look at this. There are other viewpoints that have emerged about this, from what I call the strict, we invest by market capitalization and we don't care where it is, to, well, you know, maybe we should reconsider and look at other metrics.

Does this matter at all in the discussion? Yeah, our clients are really struggling with how to play this market. And, you know, one of the things that's available now versus, you know, a long time ago is really the amount of choice you have in the ETF market. And that choice also creates a predicament as to how to position yourself in these markets. Right now there's close to 50 ETFs that one way or another track China. And it's very important for investors really to look under the hood, which is one of the really great features of ETFs to understand what you own because the performance differential,

what those, you know, ETFs hold and the risk that investors are undertaking is very different depending on which one of those products you're in. But historically, they've been underweight China, but here again, it's been kind of a struggle and we're seeing mixed messages from our clients. Well, I have to say, I'm much more aware of this argument than I was three or four years ago, Bob, we need to, you can't just look at market capital. Then I get the value guys. The value guys, they don't care about any of this discussion. If it's 15 times forward multiple or less, I'm a buyer.

If it's more than that, I'm a seller. There's sort of like mechanical value guys that don't, Bob, you can debate the politics all you want. We don't care. We know we're value people. We know where our entry points are and we get in and out. And that's another way of looking at the whole. I think another way, too, is that on a market capitalization basis,

and the market cap weighted indices are great for their use cases as asset allocation tools, but they somewhat are different than how global GDP is generated. So they're much more geared towards U.S. equities, if they're on a global basis, where global GDP is actually more further, you know, to the east. And you get more sort of global GDP generated in areas like India and China that are represented within market cap-weighted indices. So sometimes, instead of using just a global market-cap-weighted broad-based index,

we say divvy it up and sort of try to reallocate a little bit more towards international stocks to be more reflective of how global GDP growth is generated. The problem with that is if you had done that in the last 10 years, you've really lagged that broad-based benchmark because U.S. equities have been so powerful that goes back to the valuation case, where value stocks are international stocks right now. Value stocks are Chinese equities,

but sometimes things can be cheap for a reason, so you need to look for sort of increasing profitability alongside that valuation. Sort of developed ex-U.S. seems to be a better fit. Sounds like quality, you know, when you're going for it generally. I think one issue in this debate is that, you know, if you look at MSCI emerging markets in MSCI China, 10 years ago,

50% of those benchmarks was financials, energies, and materials. So at the start of a decade of growth, decadence, investing, the big blob benchmarks were basically value proxies. And so this China's underperformed. No, within MSCI China, do you know how much was in tech 10 years ago?

2%. That 2% did 2.5 times the performance of the S&P 500. So, I mean, I think that's part of what we've tried to do at Cranehires is give you really exposure to those growth elements within E.M and China, which the broad benchmarks have really failed to deliver you. China is an example of the value underperformance that happened here in the United States as well. 100%.

Yeah. And if you had exposure within your EM or your China sleeve to those gross segments, you ran circles around S&P 500. You just didn't get that buying the blob, buying the big beta proxy that you paid nothing for it, and so you got nothing in return. So let me see, you're the China expert here. Let's go 30,000 feet. What's your best guess what happens here going forward? I mean, Xi Jinping, the guy in charge of China, is in a real dilemma right now.

If he essentially starts opening up, how can he do that without mass vaccination? I mean, he's really exposing the population. This is a very hard decision. They can't really keep lock it down the country forever, but they're woefully unprepared, essentially, to open up. How do you get mass vaccinations, or am I keying on the wrong idea here? It seems like they're woefully under-vaccinated. No, I mean, they've said the things they need is they need enough hospital beds, they need enough drugs in storage, and they need a lot more effort in getting the elderly vaccinated to fully move away from dynamic zero-COVID.

At the same time, they can't afford to hurt the economy. So I think it just accelerates this path toward reopening. And zero COVID is never officially going away. I mean, that's never going to be admitted that this was a wrong. Because it's kind of part of the official doctrine and they can't backtrack on official doctrine. They can only evolve the doctrine. I'm not putting words you in mind. That seems what's going on here.

Yeah, I mean, it's never officially going away. It will slowly recede into the background and slowly disappear. I just think what's happening right now with these protests only accelerates that trend. Yeah, yeah. Any other thoughts on China? Yeah, I would say it's a very tricky situation that China finds itself in. But again, on top of what's actually happening on the ground in China is really the macro picture of how it's impacting really investments globally, depending on, you know, whether or not China reopens, how quickly that happens and really, you know, what the Chinese government actually

does here and how strict they were. want to continue this policy and, you know, to the extended impacts, things like supply chain and, you know, other markets are really like oil like we saw today, in other ways impacting supply. And China, it's remarkable. This is why I go back to the politics and whether political risk is higher. They chose to basically move away from the vaccines we were using here. They chose, did not impose, I mean, they're imposing a crackdown on the country, but they didn't

impose a crackdown to vaccinate people. That's what I find astonishing. It seems like they keep saying they're pro-science, and yet this didn't seem pro-science to me. It seemed more like somehow it's going to go away if we just isolate. It's not. We know what this is like. It's extremely contagious. That minute you open up, you're going to get big outbreaks now.

And the only thing is to vaccinate the whole population as much and then keep developing better vaccines, it seems to me. Yeah, I mean, that's, I think the game plan is to move forward with promoting these, inhalable vaccines where there's less stigma about getting a shot, you know. Wasn't there a nasal vaccine that was approved today? Exactly. Sino Farm today after the Hong Kong close announced that they're going into clinical trials. We've already seen the cancino inhalable vaccine got approved for use in Shanghai. Right after that 10 more cities signed on.

So there's clearly a path to making the more digestible vaccinations happen. And big push toward the elderly. Now, I want to switch gears for a moment. bear with me here. We've all enjoyed the bountiful harvest of Thanksgiving the last week, and I want to talk about harvesting something else. Tax losses. It's been a rough year. We've been talking about this before we went on the air, all four of us for investors. Stocks down, bonds down, and a lot of investors have had big losses, particularly in technology stocks and tech funds. Tax loss harvesting allows investors to sell securities at a loss and offset those losses against capital gains, taxes on other securities.

So, Matt, give us some examples of how this. I had a discussion with you last week. You said, you've seen some signs investors are using ETFs for tax loss harvesting. Explain how this might work. Give us an example of how it works. So a couple examples. One is you have a mutual fund. You own a mutual fund that tracks broad-based U.S. equities.

That is obviously down this year. Now, perhaps it's an active manager who's also down relative to the benchmarks. You sort of down on both ends. that mutual fund might actually be lined up to pay a capital gains dividend because of the losses associated within the overall portfolio. And what you can do is you can, at this point in time, sell that mutual fund and then buy an associated ETF. And therefore, you're able to maintain your market exposure

and harvest those losses in some of the areas of the marketplace. So I think that's one of the areas that we've seen. And then you can also see it within just ETFs in its own right. So, again, selling broad-based equity exposures, and then buying back into another ETF that covers a very similar marketplace. And then on the mutual fund side, the biggest way to sort of point towards this type of activity is that we've seen basically about $750 billion of outflows in mutual funds, while you've seen roughly about $600 billion of inflows into ETF.

So you can start to see some of that rotation where... I want to get that number again because, Mike, it's been remarkable. We're getting inflows still this year. but 700 billion outflows from mutual funds, more than 500 billion inflows into ETFs. So I guess the question is, where's the money going? Is there any, on the topic here, is any of this money potentially due to tax loss harvesting?

Is some of this? Yeah, I mean, I think some of it on the face are from tax loss harvesting. Some of it is just the acceleration of the great migration out of mutual funds into ETFs from a tax efficiency perspective, but also from a cost efficiency perspective. But I think when we look at it, you see roughly about 60% of all flows into ETFs this year have gone into very low-cost ETFs. I think that's a very clear sign of some tax loss harvesting motivation. But that's been going on for years.

It has. It has. It has. It has. But I think you've seen an acceleration of it this year because those low-cost ETFs have taken in more share of flows this year than they did in the last two years individually. The other big thing is that one of the tactics that we see utilized within clients' portfolios in tax-loss harvest is to just lower your costs. Lower your costs, go into a lower cost exposure, harvest some losses, and maintain that allocation into a market exposure like U.S. equities,

like emerging market equities, as we've just all discussed, China's down big. China's big part of emerging market equities and emerging market equities. We've seen anecdotally from our clients and what their motivations have been, some big tax loss are already seeing trades out of competing emerging market ETFs into some of ours. So, Ben, and not only has you've been a rotten year for stock, I've been a rotten year for bonds too. We've seen outflows in bond mutual funds, and I have 154 billion into fixed income ETFs.

I think you gave me this. 446 billion out of fixed income mutual funds and rising. And here's another example where potentially there's tax loss harvest. Yeah, fixed income actually is the really big story. And this trend is something that we've seen accelerate. And certainly the outflows out of bond mutual funds presents some opportunity for investors, again, not just with equities, but also in the fixed income arena as well.

And we've seen this structural shift, again, out of mutual funds into ETFs. And part of that is because of the losses that we've seen this year in the bond market have accelerated some of that selling. And then again, the structural shift just generally for investors' preference towards the ETF structure creating those opportunities. And so we think some of that really is around harvesting losses. some of that also is around repositioning the investor's portfolio as well. So it's not simply about just harvesting your losses.

It's the right time of year to take a look at the portfolio that you have and understand how to position yourself in these markets. So I think it's a double-edged sword there. Between getting a double-edged sword, it's like a triple-edge source for mutual funds. This is just a horrible year for mutual funds. Not only are they down, most, as you said, most active funds underperform their Benzmark, so they're underperforming there. Then if they're an active fund, they might also have

capital gains. I'm waiting for this disaster to emerge from some active mutual funds hitting some of these people with, what? Wait, I'm down 50% and I have how much of capital gains? What? Mutual fund investors are in for quite a nasty surprise, and a lot of

the mutual fund companies have already provided estimates on their website so investors can take a look and see what their expectation would be around the capital gains, and what kind of tax bill they're going to get at the end of the year. So from a tax loss harvesting perspective, the time for investors to act actually is right now,

because at the end of the year, whether it be January or February, by the time you get that bill, it's too late. So in order to take advantage of these opportunities, it's something that needs to get taken care of really before the end of the year, and that information is starting to trickle out into the market, typically on the websites and, you know, through many of the major market data providers. And for people, again, this is that educational moment,

to explain to people that are between an ETF and a mutual fund. In a mutual fund, you may have active managers making trades that result in taxable events. But when you're buying and selling ETFs, of course, is a different situation. You might want to, do you explain that to everybody, the difference here? This is that teachable moment. Yeah, so within a mutual fund, if I was a holder of shares of a mutual fund and I would redeem my shares, the portfolio manager would go have to sell securities to fund that redemption order. And ETFs, very simply, the creation redemption mechanism takes place in the primary market,

and I'm trading my shares in the secondary market. So I'm selling my shares to a marketmaker, and then they are redeeming those shares from the eight. And that does not create a taxable event. That's the key. That's the key. Because those transitions are usually done in kind. So it really limits the sort of taxable events within the ETF structure. And that's why, on average, historically over the last 10 years, only about 6% of ETFs historically

We have paid cap gains in a given year. Conversely, mutual funds pay about 60%. So about 60% of mutual funds pay capital gains in a given year, both active and passive, but on the majority side on the active side. And I think in 2018, what we saw, because that was a year where both stocks and bonds were down as well, we saw roughly 35% of all mutual funds have the three true bad outcomes. They were down, they were down relative to the benchmark, and they got levied with a capital gain. And that's a significant amount of assets in the numbers of trillions with a very big capital.

Now, by the way, you're talking about redemptions here, but if you have an active fund manager in an ETF wrapper, you can still have situations where they generate capital gains because they're trading. But it's much less. So historically active ETFs, you know, roughly, I think somewhere in the neighborhood of like 10%, high single digits, perhaps a percentage of pay capital gains dividends in a year. Because what happens is, you know, not every trade has to go through the primary market. We have some funds in our lineup that have very robust secondary market. where you can trade $200 million worth of shares back and forth

and never touch the primary market where it leaves the PM to have to trade securities on buyer's sell side. And that speaks to the benefits of ETF from an ETF tax efficiency. You're just spying and selling the ETF, not the underlying. And that's the key. I know we've been a little bit obstruse here, but it's important to explain to everybody exactly how this whole thing happens. And I appreciate everybody. We were going to talk about tax loss harvesting exclusively,

but the China events over the weekend made us switch gears a little bit. a little bit and thank you Brendan for joining us on such very short notice. Now it's time to round out the conversation with some analysis and perspective to help you better understand ETFs. This is the Markets 102 portion of the podcast. Today we'll be continuing the conversation with Ben Slavin from BNY Mellon. Ben, thanks for joining us and staying with us. One of the things that has happened this year is because the year has been so difficult, It seems like we've seen a bunch of ETF closures this year. Is there an unusually high risk of more ETF closures?

Would that be a good or bad thing for the market? Certainly when the markets are down like they have been this year, it always elevates the risk of closures, without a doubt. You've also seen an incredible explosion in product development in the ETF market. So if you look at last year was a record year, we're going to be just off the record pace this year. We'll see where we land. But there's been so many products that have come to market.

It has put the squeeze on certain issuers. Certainly the smaller issuers or smaller funds tend to be at risk. And that's put, you know, and again, with the markets the way they are, that's put, you know, quite a bit of pressure on those managers to really keep those funds open and continue to fund them as they wait either for the markets to turn or just simply trying to get through and the marketing clutter that's out there in the ETF space. If you've got to, I mean, just think about the simple.

If you've got a 15% downturn in the market and you're priced by price, you know, you're charging 10 basis points or 20, whatever, you're making less money even if you haven't had mass redemptions. Well, look, the cheaper the expense ratio is, which is a great thing for investors, the harder or the higher the hurdle rate is to actually make a profit. So those two things are working on exact opposite ends of the spectrum. And so, again, with that fee pressure is one of the things that is, again, causing that hurdle rate for asset managers just to frankly keep the lights on for the ETF. And so we're starting to see, you know, an increase in these closures. So I guess my question would be, as a market watch, there's almost 3,000 ETFs out there right now.

There's sort of what I call peak everything occurring. Peak everything was Netflix a couple years ago talked about peak streaming. There's peak podcasting. There's peak, you know, entertainment, more TV shows than ever, and probably will decrease. So we also see peak ETFs, perhaps. Do we need 25 China funds necessarily, is my point? I mean, do we need vast quantities of leverage and inverse ETFs that, I don't know how much they really add to the intellectual value of everything?

Well, there's not even 25 China ETFs. There's almost 50 now, so they've, you know, sort of duplicated that, right? The real answer is it's hard to say, but just when you think you've seen every ETF under the sun, here comes something else, right, new to the market. And one of the things I sort of was attracted to originally about getting involved with ETFs in the first place was around innovation. And so you have seen this year categories of ETFs like single stock futures or single stock ETFs that are brand new that weren't even contemplated a couple years ago. And here we go again, and we're seeing a wave of new ETFs. I would say another area that I would expect to see more of,

and certainly an area of innovation, is these target income or option income ETFs, which have become quite popular, especially in this market. And again, another category where just when you think you've seen everything, here we go. Do you think this kind of comes and goes with fads? I mean, single stock ETFs were quite popular early on, and yet they've dropped off. Tesla's one of the only ones that have gotten any traction there.

Does the world need a Pfizer, you know, single-stock ETFs? It doesn't seem that there's much of a demand for that. So initially, eight months ago, we were all saying, oh, my God, is there going to be 500 single-stock ETFs, one for the entire S&P 500, and an inverse, and a leverage one. And I'm not sure the demand's there necessarily. My roots go back in product development in the ETF market for a long time. And traditionally, when you look at these strategies, whether it's a Pfizer or a Netflix single-stock ETF as an example, or just any basket of securities, you have to have a certain amount of patience

until the market sort of tailwinds at your back or you're able to break through from a marketing and distribution standpoint because really if you try to launch it when the market is hot, it's always too late. You're always going to be chasing that and you just cannot bring the product to market fast enough. So part of it is trying to really anticipate what investors are going to want six, 12, maybe 18 months down the road, and that is a very hard thing to do. Some work, some don't. Speaking of what's had a tough year, crypto assets, a year ago, we were talking with pro-shares about the Bitcoin futures ETF.

It was a huge launch, huge assets under management. So, you know, when you down, what, 75% or so in some of these, in Bitcoin this year, makes it very tough. So here's another classic area where we've had a very important. rough year overall. The asset class is certainly not going away, yet the prospects for a Bitcoin ETF seem more remote than ever, to me, given what's happened. If anything, the reluctance of the head of the main regulator out there, Gary Gensler, head of the SEC, he's been reluctant to approve a Bitcoin ETF. His position seems strengthened to me by what's happened. So there's

another area of product innovation that comes and goes. But this is all part of the natural wave of investing. We saw this with tech ETFs, you know, with thematic tech. We saw this with pot stocks. You know, we saw this all sorts of subclasses that kind of come and go depending on what investor interest is. And the Jack Bogle in me, Bogle was the founder of Vanguard, as you know, used to always ridicule this saying you're chasing investor fads and if you look at over long periods, it all evens out, right? If you would have just owned a S&P 500 fund over 20 years, go ahead, pick.

You're not going to outperform. As I get older, I keep thinking he's right about this. Even though I love when I hear investors get enthusiastic about pot stocks six or seven years ago or crypto three or four years ago or single stock, and it all kind of evens out. There's, without a doubt. That said, I think there clearly is a market

for these products, whether we need 2,000 or 3,000, I'm not really sure. But one of those key attributes of ETFs has been about really democratizing some of these areas of the market to make it easy for investors and to do so at relatively low cost. And what we've really seen a fundamental shift from the early days in the market to now is really around ETF models where we're seeing an increasing use of ETFs really as a tool. box for advisors and professional managers, also institutional managers, to really use ETFs as a way to provide some mix of asset allocation and do so, again, cheaply, cost-efficiently, and with liquidity as well.

But yeah, Bob, you're right. I mean, the S&P 500 has been hard to beat and it's been hard to beat for a long, long long time. The greatest thing to watch covering ATFs for 20 years is to watch the triumph of indexing and to watch all of these advisors from these big wirehouses leave, set up their own registered investment advisor accounts. And the first thing they do is they realize they can't charge 2% or even 1.5%.

1% is a big threshold to get over. And the only way they can charge 1% or close to it is to use ETFs. That's the only vehicle that makes sense. If I'm setting up, if I worked at Morgan Stanley and I'm setting up an RIA by myself, and 1% is my maximum threshold that I can charge clients, I better find a lot of stuff out there that's 10 basis points, 20 basis points. And I know a lot of RIAs that charge 80 basis points.

That is a big piece of why you're seeing the flows go towards these low-cost ETFs because they are looking to manage that all-in fee of, let's say, 100 basis points. So the more they gobble up from expenses, right, in higher-cost ETFs, that eats into whatever the advisor is charging. But it was funny. I think when I started out in the ETF business, it was always the advisors who were basically buying and selling loaded mutual funds. And then they would tell me on the side, oh, by the way, I own ETFs in my personal account. But for my clients, I'm going to put mutual funds. That's changed. Give me a look ahead at 20203. Is there any, what's the single stock

ETF craze of 2023 going to be? I mean, I'm thinking about what's, is something thematically that you see out there that's going to catch investor interest in 2020? Yeah, I think, look, from a, just from a macro point of view, I see, and quite

bullish for ETFs in terms of flows going into next year. Whether or not we'll see a record, I'm not sure, but I think unless we have a market crash or something craters in the market, I think it's going to be a very strong year for ETFs for a variety of Part of it structural shift, part of it tax loss harvesting, part of it fees.

In terms of the products, you know, it's hard to say. I guess I don't have a crystal ball, but I do think there's going to be quite a bit of additional flow and product development into, I would say, more sophisticated strategies, these, again, target outcome or defined outcome, ETFs that provide, you know, some sort of an investment exposure with an options overlay, whether that be for income or a market. a market hedge is something that I would expect to see more of going into next year for sure, especially given these markets. And yet, no matter what, the one thing I feel perfectly confident in saying is plain vanilla

ETFs is still going to get the majority of the inflows for exactly the reasons we just talked about. And they do. There's something that's not particularly brilliant observation. And they do. And that's going to continue to gobble up the assets. I would say, though, on a lower base, we are looking at and expect active ETFs to continue to tick up in terms of their share of flows.

That said, it's off a very small base. And those large passive ETFs, the SPYs, the VTIs are going to continue to gobble up the lion's share of assets. I don't expect that to change it all going into next year. I think we'll see more of that same from that standpoint. Ben Slavin, thanks very much for joining us. Ben is the global head of ETS at BNYMellon, and thank you for listening to the ETF Edge podcast.

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