ETF Edge - The Future(s) of Bitcoin & Tracking the "Trillions"

Episode Date: October 18, 2021

CNBC's Bob Pisani spoke with Simeon Hyman, Global Investment Strategist at ProShares and Robin Wigglesworth, Global Finance Correspondent at The Financial Times and author of the new book "Trillions". ProShares will be launching the first ever Bitcoin futures ETF tomorrow on the New York Stock Exchange. Plus, Bob dives into the history of the index fund and how its evolved over time. In the 'Markets 102' portion of the podcast, Bob continues the conversation with Robin Wigglesworth from the Financial Times about his book, "Trillions". 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 InvescoQQQ, supporting the innovators changing the world, 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 interviews, market analysis, and breaking down what it all means for investors. I'm your host, Bob Fassani. Today on the show, we'll get right into the hot ETF story of the day, a brand new crypto-ETF. Pro-shares will be launching the first ever.

Bitcoin Futures ETF Tuesday on the New York Stock Exchange, and we've got the man behind that ETF here to tell us all about it. Plus, we'll dive into the history of the index funds and how it's evolved over time, changing the face of finance forever. Here's my conversation with Simeon Hyman, Global Investment Strategist at Pro Shares, along with Robin Wigglesworth, Global Finance Correspondent at the Financial Times, and author of the new book, Trillions. Simeon, this is a big day tomorrow for the crypto community and the ETF community. There's been some unhappiness that the first Bitcoin ETF is tied to a futures contract and not a spot Bitcoin contract. The concern out there has been that a futures ETF might deviate significantly from spot Bitcoin.

Tell us about what your research has revealed about that. That seems to be a bit of a gripe from the crypto community. Sure. Thanks very much for having me. We'll turn this narrative a little bit on its head. First, many of the experts believe that the futures market is actually, of anything, a better place for price discovery than spot Bitcoin. And people think spot Bitcoin is a simple place.

There are a lot of different exchanges. The prices can vary. And there's a ton of liquidity in those futures. For example, the CME futures market trades at about 40% more volume than the largest U.S. spot market exchange. So there's a lot of information in futures, but of course, importantly, there's regulation there too. And simply the combination of the regulated futures market, along with the simple ease and structure of an ETF, we think will provide an opportunity for many people who've been waiting for such an opportunity to get invested and exposed to Bitcoin.

Yeah, this seems to be what happens in commodity exchanges in general. It's the futures market that ultimately is the one that sets the price, not the spot market. This is true in most commodities, right? And I know Matt Hogan, who I've known for many years, at Bitwise, released a report last week, indicating that they felt that was the situation now with Bitcoin, that the Bitcoin futures market actually led things.

So one of the concerns here has been manipulation, that even Bitcoin futures might be subject to concerns about manipulation down the road. So I wonder, is there some evidence that the futures market set the prices now, not the spot market. That's, I guess, my question. Yeah, and I think it's that the regulated aspect is a part of it. It's very difficult, if almost impossible, to try to manipulate the futures market. The combination of the CME and the CFTC is really a valuable piece of that ecosystem, and the clearinghouse mechanism, make sure that really nothing kind of funny happens in the futures market. You know, for reference as an example,

Our mutual fund that we launched, very similar strategy back on July 28th, so far through Friday, the spot market, BRR is the Bitcoin reference rate. So that amalgamates a few of these exchanges, so it's as good as it gets, if you will. That's up 51%. Our mutual fund based on futures is up 52, and you've got the GBTC gray scale up just 37. So, you know, again, other forms of exposure may not be as effective in, in terms of giving you a real indication of value or performing in line with what folks might expect

and require from their Bitcoin investment. Right, so I'm trying to figure out what's the right way to view this, other than people griping that it's not a pure Bitcoin ETF. It seems to me like this is a necessary baby step. Is this the way to look at it, a first step toward a full Bitcoin ETF? I'm not even sure if we look at it as a baby step,

because there are advantages to the futures market in and of itself, such that even in a world where, in a world, it sounds like a movie trailer, but if there was the opportunity to do this in spot form, there are still key advantages to the futures market itself that make this a worthy investment vehicle almost regardless of timing. That said, we're still super excited to be first and bring this opportunity because there really hasn't been anything like it to date to offer investors an opportunity to get exposure to Bitcoin in their regular brokerage account

and just like trading it just like any other stock. So what's next? There's obviously a raft of Bitcoin futures ETFs that are going to likely launch within days after yours. Some of your competitors have some that are out there as well. I think we're going to see that in the next couple of weeks, but including Invesco, Vanek, Valkyrie, Galaxy, you know all these people, Simeon. What can we expect next? I know viewers are going to write in asking me to ask you to handicap the possibility of a Bitcoin

ETF in the future. So there's the question. Go ahead and address it. Yeah, I'm obviously not in a position to handicap what the regulatory environment will bring. But assuredly, innovation is core to who we are at pro shares. It's the key driver that brought us first with our future solution tomorrow morning to be traded. But look, we're watching it. We're watching the maturation and the evolution of the spot market and the ecosystem.

We think these ETFs will add to the robustness of that space. And we're also watching the evolution of the regulatory environment. And if the opportunity arises, we'll certainly be exploring other opportunities to bring important and differentiated solutions to investors. Okay. I want to turn now to our next guest, a fellow. I've been wanted to talk to for a long time. Financial Times, Global Finance Correspondent, Robin Wigglesworth.

He's out with a new book, Trillions, how a band of Wall Street Renegades, invented the index fund and changed finance forever. It's about the rise of indexing and the birth and explosive growth of the ETF business. A fascinating read, Robin. Congratulations on a great book. He joins us now by phone.

All about people, Robin, that we know and love here at CNBC like Warren Buffett and John Bogle from Vanguard. Now, beginning in the 1970s, index funds started changing the investment world, and then in the 1990s, the birth of ETFs further accelerated the indexing revolution. Can you summarize for the viewers why indexing and passive investing has slowly been conquering the investing world? Yeah, hi, Bob. Thanks for having me on. I mean, two things, really. I mean, it's cost and performance. I think everybody knows about the cost side that index funds, especially broad, plain vanilla, market cap. index funds are just a lot cheaper, right?

I mean, you can essentially buy broad U.S. stock market exposure for four basis points now, even for free at some brokerages. And then it's just the performance side, which I think a lot of people still don't really realize that in the long run, the index beats the vast majority of professional money managers across virtually every major asset class. I mean, in areas like equities, we're talking 90%, But still in fixed income and high yield, most fund managers still can't be in the index in a 10 or 15-year performance period. You know, it is rather remarkable of the evidence here.

You know, indexing goes back a very long way. I keep reminding people that Dow Jones Industrial Index started in, what, 1896, with 12 stocks in it, I guess. But modern indexing didn't really start until the S&P 500 was updated in 1956. And what's interesting, and you talk about this in your book, there was a real problem. calculating indexes prior to computers. How do you calculate 500 stocks in an index when you don't have a computer around? It was a real issue just doing this. No, I break out in a sweat just thinking about the work that people had to do to do this back in the day.

I mean, when they first started at the University of Chicago to try and find out what the U.S. stock market returned in the long run, nobody really knew the answer. It wasn't until Merrill basically handed a wedge of money to the University of Chicago to find that out. They spent four years going through magazine clippings, spools, everything like that, and piece together what the U.S. stock market yielded in the long run. And that was, you know, not until the mid-60s, really, that we really had an answer to that question. So, you know, everything is easy today, but we forget that, you know, we all stand on the shoulders of giants that spent a lot of work on this.

Yeah, you know, the evidence that active managers are pretty poor stock pickers, It really goes back into the 1930s with the Coles Commission here. But the evidence really started mounting up in the 1970s and the 1980s. And yet, active stock picking is still popular as ever. How do you explain that anomaly despite the evidence? Hope springs eternal. I mean, it's kind of in our nature that nobody wants to settle for mediocrity, really. This was one of the most potent attack lines of people.

in the 70s and 80s when indexing first started to set routes. That, you know, who wants to be operated on by mediocre surgeon? Who wants a mediocre lawyer? You want the best, right? You want to be the best. So this wasn't just seen as lazy and passive. It was kind of seen as giving up. I think for a lot of people, it's still the boring thing, right?

It's not exciting to say you're invested in a low-cost, well-diversified Vanguard index fund, right? That's not the kind of thing you roll out at parties and you're the coolest person, there. No, you want to talk about the individual stocks you've picked, the derivatives you're trading, you're the fund manager that's managing your family's money. That's the kind of stuff that's cool. And that's just sadly human nature. Yeah, and it wasn't really until the advent of behavioral finance that we started to understand that scratch that edge. Bogal even had to address this issue many times where we talked about the idea that, okay, you should put 90% of your money in index funds, but if you have to scratch that ish, go ahead and do 10% and try to pick

stocks or pick funds, but he said he'd be very clear. He thought it was a pretty fruitless endeavor. So I guess the important point here is behavioral economics tells us a lot about why people still want to scratch that particular itch, I guess. You know, it's one thing to have an index, but one of the things I found amazing is nobody actually had an investable index until Jack Bogel started up Vanguard and created the first S&P 500 fund in what was that, 1973, I guess. He faced a lot of opposition from people in the industry. And even then, there were people who thought this was a waste of time. You spent some time explaining that in your book, and Jack's uphill battle to try to figure out how to get people interested in this business.

No, it's easy to forget now that the Vanguard 500 fund is now one of the biggest investment funds in the world. I mean, it's bigger than many standalone asset managers. It's as big as many sovereign wealth funds. But when it launched in the mid-70s, it was known as Bogel's folly because it was such an abject failure, just a colossal failure. I mean, they thought they might be able to raise 300 million at the time, and they kept lowering their projections until they thought it might raise 20, 30 million.

And when it launched, it only raised $11 million, which wasn't even enough to buy all the stocks from the SEP 500. This goes to show that sometimes, you know, from tiny acorns, mighty oaks can grow. Yeah. You know, we know about the oceans of money moving from active to passive management, and much of it's going into ETSs, that's what we cover here on this show. Is the evidence still supportive that low-cost indexing outperforms active management when fees and expenses are taken into account?

Is the evidence still there? Yes, very much so. I mean, just recent we had the latest snapshot of active versus passive come out from Morningstar, which is one of the more comprehensive studies of this alongside the S&P Dow Jones, and again shows that the majority of active managers over the last year have failed to beat their benchmarks. In some years, you know, you might even see that number go above 50%. Some years it might be around 30%. But I think the thing to really remember is that, you know, the data can change from year to year.

but overwhelmingly, less than half managed to beat the index in any given year. And in over any rolling 10-year period that you care to look at, I think these data is around 10 to 15% of managers managed to beat the index. And that's basically what you'd expect from this random chance. Yeah, the two companies who put out the data on this, Morningstar and S&P, pretty much agree. And the most recent data came out just on Friday from Morningstar only of, large-cap fund managers only 11% outperform over 10-year periods, 11% outperform their benchmark. I think what's important about these new data sets is that they adjust for survivorship bias,

Robin, which is something that's very important. Lousy fund managers tend to go out of business, so the funds tend to go out of business, and they drop out of these indexes. So comparing them is difficult because they're not there anymore. So you have an upward bias because only the winners actually survive. And S&P and Morningstar, to their credit, have adjusted for survivorship bias. It's a very important discovery that they had over the last 20 years or so. Simeon, you're an old hand in the ETF business.

You're listening to this. Your thoughts on the growth of this ETIF business that we cover. I think I'd like to just share a thought on what maybe you call kind of ETF 2.0, We like to think of as rules-based strategies. So there are some anomalies in the market, things that are persistent patterns over time. And you can capture them in an index, but not necessarily one that's sort of a plain vanilla S&P 500. We sometimes like to call them rules-based strategies. You know our flagship, ticker NOBL, tracks the S&P 500 dividend aristocrats.

And those are companies within the S&P 500 that have grown their dividends for 25 straight years. Among the things you're capturing from that is a little bit of earning surprise, almost, because every time a company increases its dividend, it's telling you that its prospects are a little bit better than you might have thought they were because nobody likes to cut a dividend. So this is also part of the ETF revolution, systematic rules-based strategies that have a role to play alongside those market cap-weighted indices like the S&P 500.

And Robin, send me an indirect. directly referenced the smart beta story indirectly. And I wonder if you can get some thoughts on that. The community, the investing community has tied itself into pretzels in the last 20 years, trying to figure out if there is anything other than just buying standard indexes that might outperform. And as you noted, beginning with Eugene Fama several decades ago, there was some evidence that, for example, small caps tended to outperform over long periods, value tended to outperform. There's even been other indications that perhaps momentary. strategies might outperform. For the average investor, is it worth pursuing these kinds of strategies?

Because the minute I bring up, oh, historically small cap is outperformed and outperform large cap and values outperform growth, the investors point out in the last 10 years that hasn't happened. You have any conclusions that you've had from your book and your study on this? No, it's a great question. And I struggle with this as well because the, The data is the data, and it does show that there are certain factors that can, over time, yield market beating gains. You know, even Gene Farmer, the father of efficient markets, has done seminal work on this. But the problem is that the key is obviously in the long run. And if you've been holding a value fund for the past 10, 15 years, you know, that feels too long. That's too painful.

And I think a crucial thing is that a lot of investors actually do worse than the market, not just because they try and pick hot stocks or hot fund managers, is because they typically bail when something goes wrong or they jump on momentum. So actually, the problem with Smart Beta is that it can be really hard to hold through those long, painful drawdown periods, which is why, although I am convinced by the weight of the evidence that it does work, I think in practice it's really hard for investors to capture that because the discipline needed is almost superhuman at times. I mean, being a value investor in the past decade has been awful, right? Yeah, you would expect some reversion to the mean.

I believe in reversion to the mean because I don't think the laws of investing have been repealed all of a sudden. I think the same things that motivate men and women, fear, love, you know, greed for the net. half a millennia have are still there and haven't gone away. And yet, we would ask what's the conclusion here? It's still certainly very clear, would you say, that the concept of market timing does not work, that the problem with market timing is that you have to be right twice. You have to be right going in, and then you have to be on an exit strategy. You have to be right going out.

And the probability that you will be able to do that consistently over time, not once, but consistently over many, many years, is very small. At least the academic evidence indicates it's very small. Am I correct? No, that's right. And frankly, even practically as well, I'm sure you've talked to tons of investors that will admit this willingly,

that they might be phenomenal security selectors. They might be even great at constructing a portfolio, that market timing is essentially a fool's errand. And even pedigreed active managers I've spoken to, admit that that is something they do extremely warily, just because the data and the history is pretty grim. And I think every big active manager has some sort of horror story about sometimes getting a call right,

but the timing horrifically wrong, or sometimes getting a call wrong, but they just got lucky on timing, for example. So I think it is one of those perils that, as Bogel used to say, it's time in the market rather than timing the market, that matters. Bogle also used to famously say, don't just do something, stand there, which is one of my favorite lines ever, because it goes to your point earlier about the impossibility of just not doing anything.

Most of the time, if you have a long-term strategy, again, I'm just parroting Bogle, this isn't me talking, if you have a long-term strategy you believe in, most of the time, the answer to do most quandaries about what to do is nothing most of the time. But human, this is why I go back to behavioral economics, human behavior argues against doing that. So you're constantly fighting your own nature. And that's part of the problem that we've had for these decades trying to convince people to simply, generally staying pat, if you have a strategy, is better than trying to fiddle around. You know, the active community, Robin, has thrown everything at indexing. First, it was un-American.

Remember that? To go for the average return. that was in your book from Luthold. Now they're saying that if too many people go into indexing, it's going to distort the market somehow. How important is individual stock trading for the health of the market and how much passive investing can the market bear, or is that a silly question at all?

I mean, I get thrown this all the time from the active guys. It's going to take over, Bob. No, I think it's a valid question to ask. I mean, I think it's important that even though we can celebrate The boons of passive investing and index investing, you know, you'd be mad to not accept that even positive innovation can have negative externalities. I think, though, in practice, I am extremely unconvinced by arguments that the market efficiency is being eroded by the growth of passive. Most people, frankly, a lot of active managers throughout history were in practice closet indexes. They just charged money as if they were trading actively.

but, you know, generally hugged the index anyway. I think, you know, there are more mutual fund managers than ever before. There are more day traders than ever before. We're still more hedge fund managers in the US than there are Tarko Bell managers. I actually checked that data point recently, and it's true. So the idea that somehow the market is dying, I find that a little bit fatuous. But there are other issues around passive that I think we do need to keep an eye on at least, to not be blind to that there could be some problems here and there.

Yeah, I agree. Can we put any numbers on this? It's kind of hard to figure out, but how big is the passive investing versus active? Is passive investing 30% of the market? Do we have any sort of sense of this overall? It's about, the ETFs are almost 30% of the volume, by share volume, in the United States right now. But I'm wondering about the actual dollar value. Well, by assets on the management, if you look at the investment industry in the U.S.,

passive is around half of the US equity investment universe. But actually, of course, there's lots of shares that like Jeff Bezos owns in Amazon and so on that don't actually trade. If you look at the overall equity universe, it becomes a little bit different. So I've tallied up the international and the US and the global numbers on index funds and ETFs. And broadly speaking, there's around 17 trillion in various index funds, formal index funds. But then there's all sorts of in-house strategies as well. Big sovereign wealth funds. They don't want to pay.

I don't need to pay BlackRock and Vanguard a few basis points even to do it. They can do it in-house because it's pretty simple. And by reverse engineering some numbers I've got from BlackRock and others, I'll calculate that there's probably around $26 trillion in passive strategies. So that's globally and in both stocks and bonds and a few other asset classes. And that is, you know, still, you know, a small minority of the global, investable, tradable public market, but it's growing fast by probably north of a trillion a year. Yeah, it's hard to figure out.

I constantly ask S&P this question, and they estimate there's $13 trillion directly indexed to the S&P 500. The S&P 500 is probably 36 trillion now, something like that, close to 40. But they freely admit there are, we don't know how many people who are closet indexers that don't pay us, to directly index that are out there as well. But it's certainly a fairly large number. It's growing, and it's just a terrific book, Rob, and I really appreciate it. I think you made a very important contribution to the literature. 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 Robin Wigglesworth from the Financial Times and author of the terrific new book, Trillions. Robin, thanks again for joining us. I'm wondering what the genesis of this book was. How did you get the idea to write a history of indexing and the ETF community? Well, it started off years ago, really, when I was leading the market's coverage for the financial times in New York.

Passive was clearly and unambiguously one of the biggest, if not the biggest, if not the biggest force reshaping. shaping markets. I mean, you can see it all over the place. It was becoming increasingly controversial as well. The backlash was growing. And I'm not just a bit of a financial nerd, but also a bit of a history nerd. So I started scratching around on the backstory and discovered that not just was, you know, this is an important story. It was just a really, really interesting story with fun, riveting characters, fights, argument, disruption. The whole worked really. So I just thought that actually this might make a good book and luckily some people agreed with me. Yeah, I'm glad they did. You know, there's a lot of hyperbole in the world,

like what's the most important innovation in finance? I think it was Volker who said it was the ATM machine you quoted in the book, which is very funny. But right up there, to me, number one would be financial futures. I'm interviewing Leo Malamond, who was one of the founders of financial futures, the CME in a few weeks for the Museum of American Finance. But I would certainly put number two, the birth of passive investing. And I think you nailed the development really, really well. One thing that really struck me is the style that you used for the book. So phrases like John Smith strode into the most important meeting of his life, pushing back

his bushy eyebrows. He was distracted because his daughter had a terrible cold that day, but he was determined to go through with the meeting. In sentences like that, there is tremendous amounts of information and tremendous amounts of research. So when you try humanizing these people, you have to confirm the guy's got bushy eyebrows. You've got to confirm that his daughter really was sick that day and he really was worried about it.

It's actually terrifically difficult to get these details right to make it sound human. I'm wondering, were people cooperative for you with you to get the kind of personal background that was necessary for you to write something like this? clearing degrees, but I'd say everybody was open to it. I mean, essentially, there is, writing that kind of a history, there's an awful lot of cross-checking, fact-checking, what's written down, what can you find contemporaneous accounts of, and talking to lots of different people all the time.

So it's back-breaking work, but fun when it comes together. And I think it was just important because I wanted to bring this story to life, right? We know that narrative matter, even in the indexing world, even in finance where people are so quantitative. And I think everybody has, that cares a lot about this, might have read this for a dummies guy to ETFs or index funds. But I wanted the people to get a finer appreciation for just how fascinating the people were and kind of maybe look at the history of investing over the past 100 years through the prism of the index fund. That is the hero of my book. And I wanted to tell it in the most human way possible, as it

Yeah. Just on the history, it's quite amazing how little information actually there really was about what worked and what didn't work in stock investing. There was always respect for the great stock investor who supposedly always made a lot of money. We never knew how many of them there actually were. There was the legendary Jesse Livermore who supposedly made millions and millions of dollars and then lost millions and billions of dollars. It's hard to verify. any of that, became very famous, and he was sort of like the great hero. And yet, evidence was very scant up until even the 1930s that stock picking didn't really work very well. And that's what's amazing to me, how long it just took for anybody to realize that this actually was very, very difficult to do. It was the Coles Commission, as you noted, in the 1930s that first really highlighted the difficult. Keynes himself, John Manor Keynes, also generically said it was probably not a successful

way to stay in the markets by picking stocks. But really, the evidence didn't get very empirical until the 1960s, as you point out. I find that really remarkable. Yeah, it all comes down to the University of Chicago Economics Department, and that's kind of probably the most important institution here in the history of index funds for all sorts of reasons. But, you know, in the 60s, the Merrill Lynch wanted to start selling stocks to ordinary Americans. And it made the argument in an ad that stocks were a great long-term investment for ordinary Americans. And as crazy as it sounds today, the SEC nixed that. They said, no, you can't do that.

You have to prove that it's a good investment. It was at the time people remembered the Great Depression, people remember that stocks did terribly, and people thought that, you know, serious people invest in bonds, not stocks. Stocks was a little bit spivy, almost. But Merrill Lynch needed somebody to prove that stocks were good. So they went to a professor called Jim Lorry, and he basically spent years and years and hundreds of thousands of Merrill's money to prove this. And, you know, it sounds crazy to us today, but when I see the amount of work that went into it, it doesn't surprise me.

Because this is, they had computers, they had no data. They had to literally go and find, you know, old Barron's copies, Wall Street Journal copies, and piece together, you know, daily stock market data for all sorts of stocks and just decide what was a stock, what was a common stock, what was a preferred stock, what was called a stock, but it was actually a stock. Yeah, a debt security. So, you know, this was phenomenal undertaking. But thanks to that, that was like the fuel for the first index funds. The first people that described that data set, crisp it was called, they all use it to start index funds. So I think that's maybe the genesis moment, or at least one of them.

Yeah. Did you say stocks prior to this was a bit of a spivvy business? Is that a Britishism? Yeah. It wasn't serious people. You know, think of the Great Gatsby, right? Nick Carrow and the Gatsby, he was a bond salesman, not a stock salesman, probably because he was upper middle class. Spive meaning...

Spive meaning a little sketchy, you mean, SPIVY, how would you spell that? Yeah, SPIVVY, I think, WB. It's made up Britishism that you can kind of choose to write whatever. way you want to think. A wonderful word. Let me ask you about a new development, and that is the essential elimination of commissions. Now, one of the things that has always gone into these calculations about active management is the high cost of the fees as well as commissions that had to be paid.

And yet here in the United States, we've gone almost towards frictionless trading where there are essentially, it's not a zero cost, but essentially zero commissions as exhibited in the Robin Hood recently. And I'm wondering if there is any evidence that this might narrow the gap, perhaps, between active and passive management, since fees and commissions have always been, as Bogle pointed out, one of the factors in the underperformance of active management. No, it's a great point, and it is something that I think remains to be seen. Clearly, the huge cost of trading back in the day was one of the major headwinds for active managers. So there's basically two components.

It's the cost of the portfolio manager themselves, the team of traders and analysts and backoffice people that you need to run an investment group. And then there's just the cost incurred in the process of investing as well. And back in the day, the cost of trading was probably even way greater than the cost of the sales. of the people doing it. But that has clearly dropped down. So do we see any evidence that performance is getting better? Actually, we don't. Despite the cost of trading falling dramatically to basically zero for most big institutional investors

and even retail investors lately, actually the data keeps getting grimmer, most of all, because the market seems to be, despite some of the skirmongering, to be getting harder to beat and more efficient. rather than the opposite. And is this because the people who are left trading are the very best of the best, and so it's harder and harder to essentially compete against those people?

Yeah. Well, so Mike Maboussen, one of my favorite Wall Street analysts, has a really thoughtful metaphor for this. He imagines a poker game. If you get 10 of your best friends over for a game of poker, you'll chip in 100 bucks. Broadly speaking, some people might get lucky, some people, some good players might get unlucky, but broadly speaking, you'd expect that the worst players, your worst friends, are the ones that drop out first,

that lose all the money and just have to go home. Does that mean that the game is getting easier as they leave? No, it's getting harder because the remaining players are the sharpest car players. And we can see this in markets where, you know, it wasn't that long ago that, you know, Having a CFA was considered cutting edge. This was something that, you know, if you had a CFA or an MBA or something like that, you had a heads up on most of the streets. But these days, it's table stakes.

You know, you can have a PhD in computer science and not necessarily get a job at the big Quant hedge fund. So I think actually things are getting harder. So a lot of people saying, you know, active managers are bad at their job. I don't actually think so. I think they're getting better at their job. It's just the hurdles they have to clear are just so high. It's so, so difficult.

I have a lot of sympathy and respect for active managers that, you know, have skin in the game and try and do this. I'm just very skeptical that most people can succeed in the long run. And not only do you have to pick stocks in a harder environment against tougher people who are really good, but you have to do it while the costs are going down. You know, I mean, imagine the pressure on the community. Even a BlackRock and a vanguard, these guys are gigantic.

A basis point can make a difference, but when you go buy the S&P 500 for three basis points, that's $3 for every $10,000 invested, you better run a pretty mean operation, mean lean operation. And even actively managed funds in ETFs these days, I see them at, you know, 40-50 basis points. You know, if you're running something at 40 basis points and you're doing action. You've got a staff to hire. You better have a substantial amount of assets under management within a few years, or you're going to have some problems. So I sympathize with the investment community, even though investors have been the beneficiaries. Robin, thank you for coming on.

I think you've made a very substantial contribution to the literature. These stories are known. They have floated around for a long time, but what I think you've done so beautifully is put them all into a coherent narrative and humanized a lot of the people as well. I've been doing this for 25 years, and I learned an awful lot. So thank you for your contribution. I really do appreciate it very much. Robin Wigglesworth is the Financial Times Global Finance Correspondent and author of the new book, Trillions, How a Band of Wall Street Renegades invented the index fund and changed finance forever.

It's now out, and I highly recommend it. Everybody, thank you for joining us on ETS Edge. Invesco QQQ believes new innovations create new opportunities. Here's the greater possibilities together. Learn more at investco.com slash QQ, Invesco Distributors, Inc.