ETF Edge - Innovation, consolidation… or both? 8/31/26

Episode Date: August 31, 2026

As the ETF industry’s race to innovate intensifies, is it better to buy than build? Plus, why “income” investing products may be turning a new corner. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The EETF Edge podcast is sponsored by InvescoQQQ. Let's rethink possibility. Invesco Distributors, Inc. Welcome to ETF Edge the podcast. If you're looking to learn the latest insights on all things, exchange-traded funds, you're in the right place. Every week we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors. I'm your host, Dominic Chu. Now, innovation, quote-unquote, has been the recent driver of the ETF industry.

but could consolidation be the next big theme? Here's my conversation with Brian Lake, Goldman Sachs Asset Management, Chief Transformation Officer, and also co-head of third-party wealth there, alongside Pedro Pallandrani, the Global X head of product research and development. Thank you both for being here in person for ETF Edge today. We appreciate it.

You know, I was a little bit maybe tongue-in-cheek, but maybe not, right, about the whole idea that we are trying to acquire things now. The reason why we're here talking about product innovation is because Goldman Sachs, asset management, has made its second kind of big acquisition along a certain type of ETF thematic specifically. Innovator was first, and now it's Nios. Take us through what exactly is the reason why Goldman would want to kind of push even further into a specific type of product like those offered by innovator and NEOS. Yeah, absolutely. Thanks, Dom. You know, as you think about Goldman Sachs asset management, our identity is about solving problems for clients. We're leaders in SMAs and direct indexing.

We have a leading alternatives platform with evergreen private assets and then active ETFs. If you want to be serving clients on the public side, we are seeing them embrace the ETF wrapper as fast, if not faster than ever. You probably know the numbers. ETFs have seen about $1.2 trillion dollars of net flows this year alone already setting a record probably on pace to close close to two trillion dollars in net assets this year but when it comes to those flows there's something interesting that's happening under the surface investors are embracing active ETS that can deliver them some sort of an outcome that's different than kind of the traditional ETFs and so what Goldman's been doing is we've got our legacy ETF business we deliver our best active capabilities through the

ETF technology, but now through the acquisition of Innovator and also NEOs, we have leading capabilities across the important defined outcome category and the derivative income category, which are two of the fastest growing categories within active ETS. So we really like how we're positioned to serve clients. If I could follow up there, why exactly would you, what's the benefit to going out and acquiring those assets and those channels and the funds and the strategies as opposed to building them in-house? Goldman is. isn't exactly one that's lacking a balance sheet or resources. Why do these types of acquisitions for that kind of money? I mean, to really answer the question, we're doing both. We feel

really good about our organic strategy and our platform has continued to grow. And then we've taken these two properties, Innovator and Nios, which align with the strategy that we were already executing. It just accelerates us down the path a little bit further. They fit from a cultural standpoint, both Innovator and Nios are client-led organizations. They wake up every day, like Goldman, thinking about how can we serve our clients. They have differentiated products, whether it's defined outcome or the derivative income. So it fits in line with what we're doing. And so it all is in the same strategy of what we're trying to accomplish as an asset manager. It just accelerates us down the path. It's interesting. So Pedro, as we talk a little bit about the way that ETFs have developed

over time and what they look like now, Global X has been one of those. phone complexes that's done a lot, not just with straight index investments, but almost more active and thematic type products as well. How exactly is the dynamic shifting in your mind, where ETF issuers now have to be a little bit more innovative with regard to the types of products they bring out? And how exactly is a company like GlobalX tapping into that demand? Yeah. Well, look, first of all, thanks for having done. Innovation is in the DNA of GlobalX. It's been the case for many, many years now. Of course, we're talking about income.

We launch our first cover call strategy back in 2013. That's a NASDAQ 100 cover call ETF QLD, very well known by investors. It's a passively managed, of course, cover call strategy. But I think what we're talking about here is that investors are looking for targeted exposure, right? Of course, the ETF wrapper has become the go-to-wrapper for investors, but that targeted exposure

is very much needed, is what we're hearing from clients, is what they're looking for. We're seeing now in the market, a lot of concentration, whether that's looking at equities, with, you know, looking at the SMP 500, 35 to 40 percent of the S&P 500 is concentrated in just a handful of names. So investors are looking for diversification through targeted exposure. What exactly, though, was driving, you know, Pedro, that particular move. It's easy enough to understand why somebody would want to buy an S&P 500 index fund. It's easy enough to understand why you'd want a NASDAQ 100 product, you know, whatever that is, or a Dow Jones 30 product or something like that. Is it really that much of a tailwind right now, the demographic and secular shift within the investing population that is making the active seeking of income more of that kind of story for ETF innovation going forward?

Look, I think it's a sign or a symptom of market evolution, right? Of course, over the last five years, we went through a lot of volatility in the fixed income market. Rates were very low for a long time. And that really pushed investors to try to find higher sources of income, enter the cover-call conversation, right? We're seeing investors really trying to maintain that equity exposure, something that they know very well within their portfolios, but at the same time, trying to generate a higher level of income with a cover-call strategy, for example. It could be defined protection at the same time. But beyond that, look in the thematic space, I think we're seeing investors gravitating towards

strategies that are offering a high degree of diversification. Again, look at, for example, areas like defense technology, data center, electrification. These are things that are underrepresented in large equity benchmarks and allow allowing investors to express your views in a more targeted way. How much, Brian, as you look towards that kind of targeted exposure, the targeted kind of moves towards certain types of assets, whether they be income-seeking or just straight-passive, how much of that do you think needs to be more tapped into? The growth of the ETF business over the last couple of years has been, to your point, very much about active management,

very much about targeted exposures, and it seems as though a lot of companies are out there trying to strike and hit that vein. I don't know, though, from your standpoint, I'd like to hear, what exactly is going to be the reason why those businesses will become viable and profitable down the line when there is a lot of competition, even between your firms with regard to the similar types of strategies out there? Yeah. Well, I mean, I think you said the right word, innovation. So we have this ETF technology, which is a new delivery mechanism for investors to, it trades throughout the day, it's transparent, you have some tax efficiency that's aligned with it. So the wrapper makes a lot of sense for investors to get exposure to. I think about it as like making the leap from CDs to streaming

music. It's so convenient and it gives you control. What I think is now the interesting innovations, we're taking these strategies, whether it's defined outcome or income strategies or other active capabilities and delivering them in that efficient ETF wrapper. Now, these strategies have existed for quite some time, but often they were on kind of an institutional level or this is what an insurance company would do within their general accounts. What we're doing now is the innovation where we're democratizing these types of strategies delivering it through the ETF wrapper and then making it available to investors through that democratization. That's what I think is really interesting. And now we're having these really fascinating conversations with pretty sophisticated investors

that are seeing ways to use these tools within their portfolio. So I think it was mentioned, but in 2022, some people were a little disappointed with the diversification aspect of how fixed income worked in their portfolios. And so maybe you could use a defined outcome ETF like Bolt, BALT, as a way to buffer or to provide some of that diversification within the portfolio. You also have this innovation where maybe you got your income from dividend strategies in the past, but now a premium income

ETF exists like G-PIC or G-PICs, some of the traditional GS products or some of the NEOs products that provide that income as well. These are different tools that give you the ability to really achieve the investment outcome that you specifically are looking to accomplish within your portfolio. Now you have all of this tools that the industry is providing through the innovation that we've developed. It's curious, too. So yeah, go ahead. I was just going to add, right, like we're saying, like the ETF is really becoming the go-to-wrapper for investors. And it's important to recognize for the first three decades of the ETF industry. Of course, we provided access to stocks,

fixed income, commodities, many things that investors were very well familiar with. More recently, we're looking at innovation with private market exposure, whether that's credit or equity within ETFs, autocolables becoming an increasingly way for investors to tap into income potential within portfolios. Now we're seeing even filings at the forefront of innovation with prediction markets. So I think the ETF wrapper is the go-to wrapper for investors. A lot of innovation will continue to happen here. And I think specifically on the thematic side of things is where you will continue to see

a lot of innovation, right? at Global X, we launched our artificial intelligence ETF back in 2018, AQ, very well known by investors. That was four years before the chat GPT moment. So I think it's important for investors to try to recognize those opportunities ahead of time and then try to offer those solutions out there. And that's the work that we do from an issuer perspective. Pedro, we've mentioned over the course of the last year or so numerous times, because it bears repeating, that we now have, I still think it holds true, more ETF tickers than we do single stock issues traded on these public markets here in America. So the capital markets have become more robust, even from an

issuance standpoint, because of this. Now, a lot of that is because regulations have changed somewhat so that you can bring product to market in a more efficient streamlined manner. But another reason is because there is just so much more hyper-specific investor demand for certain types of things. it used to just be you could get a 2x levered S&P 500 or inverse levered S&P 500 or some other type of product on an index level. But now you can actually do it with single stocks as well and with income tilted towards that. Is that a trend that you see continuing? The specificity of very targeted exposure but with the derivatives kind of tilt to generate income, say from a single stock or three or four stocks

and then generate income from option strategies on top of that? 100%. And look, yes, there are over 5,000 ETFs today in the marketplace, more than stocks like you just mentioned. We'll continue to see that need from investors to capture still equity potential with higher degrees of income. I think something important when it comes to income is certainty around what that income could look like.

Something that we're hearing from clients is I love that income-generating aspect. I understand options, something that potentially five years ago wasn't the case. Now you understand option, but I also want to have a level of certainty when it comes to what that income potential could be. So we're seeing issuers in a global X, of course. We're really starting to focus on target income strategies or target distribution rate strategies that allow investors to know what's coming. And of course, you can play with your call writing strategy and your coverage ratio.

So you can try to manage that dynamically. riding less on the cover side of the equity to generate potentially less income if you need or writing more to generate higher degree of incomes if that's what you're looking for. But having that target distribution rate is something important for investors today. Brian, what's interesting about that, though, is we talk about some of the history that both of your firms have had in some of these more kind of frontier innovator type spaces with regard to these types of products in an ETF format. One of the things that we haven't yet seen, at least really in earnest for the past few years,

as these products have come much more to market, is any type of market stress. We don't know how they perform. And in the past, people have remembered how much derivative-based instruments have led to or been at least blamed for some of the market volatility that's out there. How exactly then do you reconcile some of the issues around potential market volatility and whether or not these stable income generating type strategies will respond in times of stress. How have you guys tried to figure that out? Yeah.

I think I'd challenge the premise that we haven't had volatility. Maybe we haven't had a full year, although if you flash back to 2022 when a number of these strategies did exist. So, for example, the defined outcome category tripled in size during 2022 when you saw the major benchmarks off pretty substantially as investors looked for ways to protect their portfolio or maybe buffer to the downside. And so those strategies battle tested. The strategies themselves have been battle tested.

Maybe they didn't exist in an ETF at the time, but that strategy has existed throughout that. It's also a benefit of the income-oriented products that we deliver G-PIC and G-PICs. Again, they do provide that targeted consistent income, but because of the premium that it's giving, it does give some of that downside protection. And so, again, in 2022, we saw that coming into play as well. where it did protect to the downside versus where the benchmark is.

I'd actually invert it a little bit as well. Most investors are trying to achieve an outcome. They're investing for an outcome. They don't look at an arbitrary January 1st to December 31st return. They look at can this income can sustain the thing that I'm trying to purchase. Can I save enough for retirement? Can I save enough to buy my first home, do all of these other things? the defined outcome and derivative income products give you that level of certainty where you

understand how they work and what they're trying to accomplish for you. And the investor then has that comfort. And so even today, the headlines are a little bit rockier with some geopolitical issues. At the same time, markets still are trading close to their all-time highs. And investors are saying, well, what do I do? There's a lot of exciting news out there. The AI trend continues to boom. I want to get that exposure, but also I see some risk.

And so maybe you use a defined outcome ETF as you're on ramp to the markets and you can get that exposure. Another thing that we're hearing a lot about is investors that have too much cash on the sidelines. How do I get this money invested? Again, a defined outcome strategy or an income oriented strategy that says, okay, here's the objective that I'm going to start putting this money to work. You can achieve that with the portfolio as well. Do you find, Pedro, that investor may be desires have shifted on the income side of things? It used to be good enough to receive a maybe semi-annual or annual kind of payment or distribution. Then it became much more of a demand towards quarterly.

Now it's becoming even more specific towards monthlies or even potentially the weekly income type situation. Is that something that we should be banking on for the future as well? No pun intended. That people want those more regular paychecks on a more frequent basis. The answer is yes. And two points. We've seen that coming from annual distributions to now, even like weekly. distributions. Like Global X, this year we introduced our Income Edge cover called Sweet with that

weekly distribution, the certainty that I mentioned before in terms of how much you're actually expect to generate on a weekly basis. And that's a feature, not a bulk of the ETF wrapper, and something that will continue to see investors using more and more. On top of the income certainty, tax certainties and other big aspect, investors want to know how the tax treatment of many of these strategies will look like. And that's something that in a transparent vehicle, will be able to offer. Are there plans for your side of things at Global X to take many of the thematics that you're doing and in essence double the number of issues that you have by just putting income strategies over the existing fund strategies that you already currently run? Look, it's a possibility.

We've talked about how investors want to continue to own what they believe in. In many cases, that's really looking at thematic strategies. They can see and feel AI in today's market. So perhaps they want to also tap into the income potential with those AI names. It's something that clearly we're looking at. At Global X, we have over 100 different ETS, now close to $100 billion in total assets under management, and we'll continue to bring those solutions to investors where they're looking for solutions in their portfolies.

Brian, last question to you. At GSM, what exactly is going to be the next thing that you're eyeing? from a product development or potential acquisition or or a thematic standpoint. What exactly is going to be that kind of next area that you want to tap into to see if you can grow that portfolio of product? Well, I mean, if you think about how we're positioned right now, we talked about ETF growing, we talked about active ETF growing. Derivative income is the fastest growing active ETF category, 80% a year for the last five years.

To find outcome, 40% a year for the last five years. We now have the largest range. range of defined outcome ETFs with a leadership position through the innovator capabilities that we have. We now have one of the most, if not the most complete income ranges with our existing GS capabilities and the new NEOS capabilities that we're welcoming to the family. And we have our own proprietary active capabilities that we've been delivering through the ETF wrapper as well. So if you think about how we're positioned across those three categories, we're really excited about delivering that to investors, and that's how we're going to take the business forward.

All right. So the tilt will still be on some of those income generation and derivative type strategies. It's time now to round out the conversation with some thoughtful analysis and perspective to help you better understand ETFs with our Markets 102 portion of the podcast. Pedro Pallandrani, Global X, head of product research and development continues with us now. Pedro, thanks for sticking around for the podcast. The interesting part about the conversation is kind of thematically, if you will, and not just because of the ETFs you bring the market, but thematically, there are bigger secular trends that are driving the ETF business and its growth in the coming quarters and years. A lot of it is about active, and especially for you

and companies like Goldman Sachs, it's also about a certain specific type of product innovation with derivatives-based strategies over underlying positions. In an ETRAC, in an ETRAC, format driving it. How much more can we expect to see from companies like Global X along the lines of taking portfolios, thematic ones, or actively traded ones, and putting options overlays on top of them? Look, innovation is something that we're thinking day in and day out at GlobalX ETFs. We've been pioneering many of these categories that we're talking about today, down from thematic ETFs. We launched our first thematic ETF back in 2010.

and there was the lithium and battery technology ETF, even before electric vehicles were a thing, right? It happened again. In 2011, we introduced our social media ETF before even Facebook nowadays called meta-platforms IPO. So I think we've always been at the forefront of that innovation, as well as the income space, with many of the pioneer cover-call ETF strategies

that investors know very well, like QALD, that's a ticker that investors know and recognize very much so. But innovation continues to be part of who we are, We continue to eye many of forward-looking investment strategies. We're always thinking about where do we see areas of the market where we can express our high conviction. There might be market gaps to solve those issues for clients. And clients are, of course, coming to us as well with many ideas, and we're working together with our clients to bring differentiated, unique solutions to their hands.

One of the other points that was kind of brought up during our conversation during the ETFED show was about the idea of growing products organically and then acquiring them, right? Like Goldman Sachs asset management is done. From your mind and your standpoint, when you kind of look at product development and deployment, distribution, do you think that you're better off sometimes

innovating and developing the product in-house and then finding the market for them, or do you feel as though there are situations where acquisition becomes the best way to kind of grow your presence? I don't think both are mutually exclusive, but of course, at Global X, we've been purely focused on developing our business organically,

growing our business by launching our own ETFs and finding the right markets and investors for those categories. But of course, we've seen many competitors also doing a lot of M&A activity. I guess that's a symptom of what we're seeing today in the market where it's easy to bring an ETF to, market today, Dom. You know, after 6-11 in 2019, it's really easy for an ETF issue to launch an ETF. What's really hard is to get assets to this ETF. So that's where, again, incumbents like us, Global X, we've been always focused on distribution, serving our clients with a wide-glob approach,

not only focusing on what's a strategy, having high conviction on the strategy in a very thoughtful research way developing those strategies, but at the same time, working closely. with them, educating them on many different investment opportunities because like we're talking about, we're talking about many areas within thematic investing or derivative income strategies where education is paramount for investors. And that's where we, Global Lakes, have always been positioned to really help investors understand many of these investment strategies. Because you work alongside of some of those teams that you alluded to just now, what exactly in your conversations with your management team at GlobalX,

what exactly does make a well-distributed product? What exactly is a product that needs to come to market or wants to come to market that can actually find good distribution? Is it just the traditional sense of being out there to sell it to clients and finding a good story? Or is there something else behind what exactly makes a product easy to get in the hands of investors and generate even more? more interest to grow that assets under management kind of base?

Look, that's a great point because at GlobalX, when it comes to thematic ETFs, we've always said that these are very relatable concepts, right? We know how investors understand artificial intelligence, for example. They understand what's happening out there in the world of geopolitics with defense technology, to give you another example. We call that conversational alpha, and we work with many advisors out there where we see them using many of these tools as a way to have conversations with their own clients. Hence why the conversational alpha aspect of things, they may own, look, two, three, five percent

of the portfolio in many of these thematic strategies, and that's, you know, looking at a 64E type of portfolio. But most of the client conversations are usually happening on these thematic strategies, artificial intelligence, defense technology, how the portfolios are positioned to capitalize on those things that may be headline grabber. and investors recognize very well. So really understanding where are those relatable concepts and launching ETFs with high conviction with a lot of thoughtful research

is something very important for us at GlobalX and that's why we pioneered the category of thematic ETFs many, many years ago and we'll continue to bring more thematic strategies, more concentrated thematic strategies over the next few years. All right, let's put on our lab coats and go into the back room over there and talk about what's cooking over at GlobalX.

You mentioned conversational alpha as driving distribution and demand in sales. What exactly is the conversational alpha that you guys are maybe looking to tap more into down the line? What types of products do you think that you have in the hopper that we might see at some point in the coming quarters in years? Look, I think concentrated targeted exposures are top of mind. And let me give you a couple examples here. If we go back to 2018 when we introduce our artificial intelligence ETF, ticker AIQ, we knew artificial intelligence was developing. It was the early days of artificial intelligence. And of course, we had that CHATD moment in 2022, four years after the launch of our ETFs. AIQ is now one of the largest

artificial intelligence ETF in the United States. Then we started gravitating towards different verticals within artificial intelligence, whether that's data centers, whether that's, whether that's electrification and the power needed to support the growth of artificial intelligence. More recently, a lot of growth in semiconductors. And I think as we look at the future, to answer your question, Dom, we'll continue to see those targeted exposures within artificial intelligence. Artificial intelligence AI is here to stay. We're just seeing the early developments and growth of artificial intelligence,

and we're seeing that in the fundamentals of many of these larger companies, talking about revenues, talking about profitability, talking about AI adoption, and where we see significant opportunity is offering targeted exposure to many of the bottlenecks within AI. For example, capacitor technology or micro-layer ceramic capacitors, one area is within semiconductors that it's helping GPUs, CPUs, and other semiconductors to manage power in a very efficient way. And this is an area where you have a concentrated group of companies that will provide

access to investors to tap into one of these AI bottle. next. That theme is MLCC is something that it's top of mind and you'll likely see coming from global eggs in the weeks in the weeks to come. All right. So one final point here about that, because we are seeing that kind of more specificity and I guess more concentrated look at the parts of your portfolio that you want to target, this is also a situation, as you pointed out, where it's easier to bring issues to market. That also implies that there's a hyper-level of competition with regard to kind of the types of products that are out there and the money that's going to be ultimately going after some of these investments. What exactly separates a successful

fund issuer from ones that may not do as well? What exactly drives the economics behind getting a fund to market and making sure that it's viable and successful? Well, first of all, we welcome competition. I think competition helps the industry to continue to grow and serve investors. better, but to answer your question specifically, even though you may see a lot of ETFs looking and feeling the same way just by looking at the name of the fund, I think it's important for investors to double click and look at underground

to understand what's really within an ETF. And at Global X, like I said before, we spent a lot of time doing research and working very thoughtfully with clients as well to understand what's the right exposure for a given theme. So for us, it's really about identifying a high conviction area, identifying an investable universe of companies that we can bring within that ETF wrapper, and ultimately looking at long-term

investment strategies, especially in the thematic world. We're not looking at short-term cyclical trends within the economy. We're looking at long-term investment strategies that will allow investors to capitalize on secular, very strategic areas of the market where we'll see opportunities for the next five, ten, 15 years, if not more. innovation is a key place in this whole market for ETFs. Pedro Pondrani at GlobalX, thank you so much for joining us. We appreciate the conversation. Thanks, Tom. All right. That does it for the ETF Edge podcast. Thanks for listening.

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