The Renaissance of ETFs

Moderator: Welcome, everyone. Thank you for joining our webinar regarding recent ETF Renaissance. I’ll now hand it off to my colleague Paul Heffernan to kick things off.

Panelist introductions

Paul: Great, thanks. My name is Paul Heffernan, and I’m CEO of the Waystone ETF Division and we help asset managers and finance institutions bring ETFs to market through a white-label platform. I’m delighted to be joined by two specialist panelists today. First, we have Kamil Kaczmarski. Kamil is a partner in Oliver Wyman’s asset management practice, and he’s based in Frankfurt. Kamil is leading Oliver Wyman’s work with asset managers and is a key author of the report we are analyzing today. You’re very welcome, Kamil.

Kamil: My pleasure.

Paul: And next we have Douglas Yones who needs no introduction in ETF circles. Douglas spent a large part of his career with Vanguard, having played a key role building out the Vanguard ETF business right across the U.S., Canada, Europe, and Hong Kong. In his current role, he’s head of exchange-traded products at the New York Stock Exchange, the largest listing venue for ETFs in the world, and the well-recognized home of ETFs. You’re very welcome, Doug.

Douglas: Thank you, Paul. Thank you for having me here today. I’m looking forward to the discussion.

Paul: Super. Thanks. So, we are here today to discuss the findings in the Oliver Wyman report, which was commissioned by Waystone titled, “The Renaissance of ETFs.” And if you’re looking for a copy of this report, please do visit waystone.com. It’s freely available on our website. And I wanna start with some of the detail in that report if I may, and maybe opening up to you, Kamil, as the key author of this report and key researcher. So, I love a good statistic, and there’s some fascinating statistics that are drawn out in the report in terms of the growth of ETFs across the U.S., Europe, and the UK. Can you tell us some of your findings, please?

The Renaissance of ETFs report findings

Kamil: Absolutely. And so, as you just said, I think it’s pretty fascinating to look at the ETF evolution over the last couple of years, actually, decades. If you’re honest, I think the growth exchange funds has been the single most disruptive trend in the entire industry for the last 10, 15 years. We wrote this report with the intake for our analysis of 2022, and we focus on European domicile funds and also U.S. funds. So, the total market for us in the report, we sized at 6.7 trillion and growing approximately at 15% Pega for the last 10 years. So, this is significant growth, basically three times faster than mutual funds. And there’s a lot of fascinating things going underneath. Clearly obvious, the U.S. market is more advanced and larger, something like four times the size of the European market, but nonetheless, it is a market where the European side is catching up.

There’s definitely, I would say a transfer of this trend towards the European continent. Some of these things we will double click in the report in more detail. But overall, if you think about our projection and our conclusion of this report, we still remain very positive about the ETF landscape. We believe it’ll continue growing. Today, it accounts for something like 17% of the invested landscape. We think this number will increase to 24% by 2027. So, definitely an avenue of growth for the entire industry for the next couple of years.

Paul: And Doug. you’ve been in the industry a long time. You’ve lived through some of this growth. Can you talk through what’s driven and accelerated this growth over the last 10 or 15 years, please?

What has accelerated the growth of ETFs?

Douglas: Yeah, you know, Paul, it’s interesting. We’ve known each other a long time and ETFs have always just sort of been amazing in terms of their growth, their capability, how they transcend distribution channels. When I look at this year, I mean, you know, whereas we’re recording this, the equity markets have done much better in the last month, but majority of the year was actually quite poor. So, when we think about the general broad market and environment, it hasn’t been great for capital markets. Yet, if you look at ETFs, it’s the exact opposite. We’ve launched over 222 ETFs here in the U.S. year to date, bringing in a sizable amount of new assets under management. And you look across the whole landscape, U.S. alone, we now have well over 3,100 ETFs and $7.5 trillion in assets under management.

So, the industry is far from suffering from poor equity markets. In fact, it’s been the opposite. Cash flow has been, you know, almost breaking records this year. And when we look at the pipeline going forward, it’s similar and I’ll probably…you know, we’ll talk to that. But it’s interesting that, you know, some of the conversations that we were having 10, 15 years ago are still the same. People love to talk about the product structure, the wrapper, it tends to be lower cost for the asset manager, so therefore, for the end investor, it tends to be lower cost. We tend to talk a lot about the taxation and how they’re much more tax efficient, particularly here in the U.S. markets, but also globally as well for some of the dividend tax drag. But for distribution purposes, they really solve a lot of problems.

They cut a lot of the middlemen, if you will, out, and it allows for global distribution. If you’re UCITS, you can take those funds almost anywhere. If you’re U.S.-based, you can hit the other markets. And so, for a lot of asset managers, they’re rethinking the way they reach advisors, they’re rethinking the way in which they reach end investors, and they’re offering investment strategies that some of those groups have never had access to. So, we’re seeing increasingly higher capability, maybe, you know, somewhat more institutional-like products wrapped in an ETF wrapper. And for asset managers, they’re able to launch a UCITS business, a U.S. business, and between the two, they can cover the entire world in terms of distribution. So, I’ve been at this for a lot of years, and I would say, you know, right now I’m more excited about the forward 10 years than I have been at any other point in the growth rate of ETFs. So I think there’s just so much opportunity right now.

Paul: Yeah, I couldn’t agree more. I mean, last year was one of the first years in spite in the UCITS world, ETFs accounting for less than 10% of the overall AUM, yet we saw almost 100 billion of net inflows into ETFs while we saw 200 billion of outflows into mutual funds. And those are rates in terms of the net creations and inflows from investors into ETFs. They’ve accelerated in the first half of 2023. And we see that continuing, so couldn’t agree more. It’s hitting all-time highs in terms of the AUM of the market here in Europe for ETFs. So, that excitement in terms of the growth is absolutely translates across here in Europe too.

Douglas: Yeah, and one thing that I noticed, Paul, a couple of quick things. One is most people would assume here in the U.S. that most money’s going into equity products, and that would actually be a bad assumption. Almost half of all AUM is actually coming cash flow into fixed income. The second is, you know, if you’re an asset manager and you’re thinking, well, I missed it, you haven’t. I mean, just off the top of my head, I could probably rattle off 5 or 10 investment asset class locations where people really haven’t launched yet and it’s still just complete white space, both here in the U.S. and across overseas throughout the UCITS marketplace. So, you know, to me, the opportunity still exists, even for someone brand new and, in particular, the actively managed side of the business. You know, the passives have been around for quite some time. They’re still growing. But I looked this year, I mean, at one point a third of all cashflow here in the U.S. was going into actively managed ETFs, and that’s probably one of the smallest sections of the ETF marketplace. So, for active managers that are thinking about coming into this business, I mean, the time has never been better.

Paul: I couldn’t agree more. You raised some really interesting points there, Doug. So, Kamil, in your research, I mean, sometimes when people think of the ETF market, because I mean, it’s still whatever, 30…depending what country you’re in, it’s still a 20, 30-year-old market, right? And its origin started as, sort of, market cap-weighted beta products, right? Your S&P500s, your [inaudible 00:08:29], etc. And it’s remarkable that you talk to people today who are not in the ETF industry and you say, you know, “Have you considered getting into the ETF space?” And they say, “Oh, isn’t it just a passive market cap-weighted industry?” What does your research find?

How did the ETF evolve?

Kamil: It’s, I think, probably one of the most interesting findings when we compare to the history of a longer time period, how did the ETF evolve? As just said Paul, it started on the passive side, pure passive index replication, and this was basically the majority of the entire ETF landscape. Over time, suddenly we saw the rise of smart beta. So, you know, basically some of the investment strategies with a more quantitative approach behind it. At some, we saw also the rise of thematic investments. And going back to just Doug, explained what’s happening already in the U.S., the rise of really active ETFs. If you look at the most recent numbers alone in 2022, 70%, 7-0 of all fund launches, mutual funds, ETFs, 70% went to ETFs. That’s the interesting part. That’s literally right now, the growth engine when it comes to innovation, when it comes to new product launches, what is happening across the product landscape in the U.S. but also picking up in Europe.

Interesting to see that those active ETFs, this one element is simply conversion of traditional mutual funds, exactly for the reason we just discussed. Like, for instance, the tax benefits predominantly, of course, in the U.S. but other reasons is simply also time to market being faster, being more innovative, launching or allowing yourself to launch a thematic or some new products that right now are on top of the mind of your advisors, of your end clients and go to the market with. And I think this is one of the reasons that we actually are pretty bullish also on the path forward for this market segment, and see actually that the active ETF we’re just really in the early days of this strong growth that will continue over the next years.

Paul: That’s great, Kamil, thank you. And the rise of actives is definitely a theme that we’re seeing accelerating both in the U.S. and Europe, and there are some significant trends in this space. Doug, what are you seeing in the U.S. right now?

ETF trends in the U.S.

Douglas: Yeah, maybe I’ll start with, as Kamil said, the conversion space, this idea that you take a mutual fund and you convert directly to an ETF. You know, starting with funds only, we’ve converted about $60 billion here in the U.S. direct from mutual funds to ETFs, and we’ll actually surpass that if I look forward for the next 12 months at the pipeline. So, the initial wave in, you know, was, I’ll call it a research wave. It was, you know, a lot of different asset managers sort of figuring out the process, the steps, what are the key decision points, and then how do I actually execute? Now on the back end, they’re starting to take their larger funds and bringing them straight to the market. And there’s a real good reason for that.

First is you start immediately in the ETF industry with size and scale. You also bring your track record with you. So, if you’re an active manager and you’ve 5, 10, 15 years of track record, you’re able to bring that performance alongside this brand new ETF because a lot of times it’s not new. You’ve been running this strategy for a long time. There’s another part of the market that I think was off my radar, but is now very much on my radar, which is the investment advisor, the RIA here in the U.S. that has watched the ETF market happen and is actually thinking, “Hey, can I actually outsource a bit of my operational functions? Can I outsource a bit of my CIO function and can I actually change the way I think about business practices?” And we’re starting to see these advisors take various SMA models, wrap them up, and then convert them directly to an ETF. And now they have a series of ETFs for themselves. And I think this is an emerging but will be a very growing trend for the next decade of advisors building ETFs for themselves.

Great if other investors find out about them, but at the end of the day, they can say, you know, “Oh, Paul, let me meet with you, your family. I’m helping you invest your wealth,” rather than have to build you and your family and your aunts and your uncles, and anybody who adds on, that’s not a very easily scalable practice. They keep adding a new and new, more SMAs, instead, let me have a meeting with you and invest you directly into my ETFs. And so, there’s a lot of different places in which the ETF industry is extending that I think was a little bit off the radar for a long time. But these are real growth opportunities, and they’re ways for people to reduce their costs, increase their tax efficiency, and ultimately help their clients save a lot of money while they’re also still investing in a way that’s hitting the exact spots where they meant to as part of the individual, you know, let’s call it estate planning.

Paul: And some of those conversions, they’ve achieved a lot of headlines. I mean, DFA was a big one that popped three years ago now, became one of the largest ETF issuers overnight because of that conversion. It’s funny here in Europe, you don’t hear about it, but actually, conversions and mutual funds have happened over a decade ago here in the U.S., in Europe, rather, we’d have State Street SSGA did some conversions over a decade ago. We had Credit Suisse did some conversions in the last few years. So, that conversion concept and idea to bringing strategies into the more efficient ETF wrapper. That’s been happening, but it’s just not well known.

Douglas: Yeah, it has been, and it’s more and more names. I mean, this week alone, Monday we did three conversions here at the New York Stock Exchange. Two of them were JP Morgan who hasn’t really hit the headlines yet for conversions but probably will. So, you mentioned Dimensional, of course, Dimensional really entered this space in a big way with their conversions. But what’s interesting is post-conversion, a lot of those funds are actually performing better in terms of cash flow than pre-conversion. And so, it sort of raises new questions for a lot of asset managers just to say, hey, can I stop, as you mentioned, this sort of net negative cash flow on my fund side as we saw in 2022? And can I reengage clients in a new way because I’m now distributing an ETF? Even though it’s the same asset model, it’s the same portfolio manager, but it’s wrapped in a different way. And it’s frankly meeting investors where they are, investors are asking for ETFs. That’s what they want to invest in.

Kamil: Yeah. And then it’s also happening already in the U.S. Exactly. Paul, you just said. I think we haven’t seen large-scale conversions, like maybe saw them in the U.S. Very often we see in the European side is rather mirroring of a similar strategy. So, you allow yourself to keep still a couple of your mutual funds, but then launch the ETF simply because you realize there’s a different client segment, different client you want to target with your offering. And that’s basically a strategy that more and more of the active asset managers are actually embracing on.

Paul: Yeah. They see the ETF wrapper as an extension of their distribution status strategy. It’s not a cannibalization of it, it’s an extension. And that’s a really important point you make there, Kamil. Let’s just moving from the issuer’s perspective as well. I mean, if you are a budding ETF issuer, you’re an asset manager, you run different portfolios and you’re not familiar with the ETF market, you look at the market structure and quite often say, well, isn’t it just dominated by the big three and there’s no room for new issuers? Is that a fair observation? Kamil, maybe opening that one up to you.

ETF concentration of the market

Kamil: Well, there wouldn’t be a good report on ETFs if we wouldn’t comment on the concentration of the market. You’re absolutely right, right? Like, the top 3 players, they capture more than 50% of the market. But what we did in the report, we also looked at different tiers. So basically, cut the issuers by size, and then we compared them in terms of growth rates. And it was very interesting to see that actually the growth rate in terms of how much assets they collect, these different tiers, the growth for the smaller players, so somebody 50 billion and smaller, was actually larger than for the very large names. There are more than 200 institutions that actually launch ETFs in this tier, bucket, and they are the ones that can afford themselves to be faster to the market, more innovative, actually have more bets on some of the themes, some of the, I would say more nuanced products very often also in relation to, for instance, thematics or some digital themes, even cryptocurrencies. And they do it pretty successfully. So, definitely, it’s interesting to see that, yes, is the market dominated or is there a concentration among the top three players? There is one, but there’s enough room, enough growth in the lower tiers to actually see a very nice dynamic how this is changing over time.

Douglas: And Paul, I’m gonna add two comments, but I’m gonna tell you a bit of a story first. First is a very interesting statistic. You said you love statistics. Seventy percent of all actively managed ETFs this year are net cash flow positive in the U.S. So, 7 outta 10 are winning, which is a fantastic number. I think if you’re an asset manager, you’re pretty happy with that stat, especially given the first half of the year, how equity markets have performed, how fixed-income markets have performed. These have not been very friendly markets to investors, yet 70% of those are cash flow positive. By the way, as an aside, where am I getting all these statistics? My team here at the New York Stock Exchange, we publish an ETF report. It comes out fortnightly, you can grab it, it’s free. Subscribe to it @homeofetfs.com. That’s a lot of where my data’s coming from, so you can grab these stats.

The second thing that I think is sort of worth noting is, you know, as Kamil was mentioning, you can look at the largest asset managers in the space. You can look at their history of growth. But when you start to weight things differently, meaning if you revenue weight the industry and you say, where is growth? As Kamil mentioned, some of the small, mid-size ETF managers, not only are they growing faster than other pockets of the market, their revenue line-weighted measures are actually historically at all-time highs. And why is that? Well, it’s because as an active manager, as an example, and this is where my story is, you might be running an investment strategy, and maybe you’re running that for 150 basis points. And we know there’s a lot of research on this that says the higher your cost of your active fund, the more likely it is you will not beat your benchmark. But if you can reduce your costs, the likelihood of beating your benchmarks goes up dramatically.

What does the ETF wrapper do?

Well, what does the ETF wrapper do? It knocks down a lot of your costs so that your operating costs go way down, which allows you to drop your expense ratios dramatically on the same strategy, yet your revenue weight might have actually increased. So, by cutting out all the middlemen, if you will, you’ve dropped your expense ratio significantly. That allows you to perform better, potentially beating your benchmarks. You’ve made your investors happier. You’ve become…you know, maybe showed up in their screens now. So, you’re bringing in net new cash flow that you weren’t before. Oh, and by the way, your net revenue has actually gone up. And so, your profitability has increased.

And so, these all kind of come together for an asset manager to, sort of, be the perfect storm in a positive way of why you’re seeing all these asset managers come into the space. They’re not giving anything up. They’re not fighting against the industry and saying, oh, it’s just the big three. They’re saying, this is actually great for my business, it’s great for my end clients. It’s win-win. They’re making more money. I am too. And everybody is sharing in that differential, and it really just comes down to a more efficient wrapper.

Paul: Yeah, there’s some great points in there, Doug, and I think, you know, having been in the ETF industry for over 20 years, you know, one of the big, big benefits to the end investor is ultimately the pricing point of the ETFs. And Kamil, you’ve got some great research in your paper there in terms of what the price analysis comparing ETFs to some mutual funds. Can you talk us through some of the highlights, particularly on the retail side?

ETFs vs. Mutual Funds

Kamil: Yeah, so it’s interesting to see that, as we just discussed, of course, there’s a price difference between ETF and mutual funds. I think if you look at the entire universe, simply, if you take the entire sample of ETFs and mutual funds, no surprise that the difference is pretty significant. If you take actually apple to apple comparison to extent possible, so if you compare what an active ETF and an active mutual fund for a similar strategy managed by the same portfolio manager, what the total expense ratio is, the difference actually turns out that purely for the kind of the total expense ratio for the fund is actually pretty, pretty small. It is basically something like four or five basis points that you actually save because you don’t have the middleman, you don’t have the transfer agent in between, as an example. But many, actually, of the manufacturers still don’t want to cannibalize to that extent their product shelf, so they keep them actually pretty equally priced. Overall, however, if you look at the, I would say wider universe, of course, many investors still to do the ETFs simply also expecting a price difference or a price benefit from investing into them.

Paul: And in terms of, you know, we are hearing about it’s the more efficient wrapper, which you hear in the growth trends you’re talking through, you talk about conversions, you know, there’s a lot of, let’s call it environmental goodwill behind the ETFs that will continue to see it grow, and you’re thinking about entering this space. So, you’re an asset manager, you’re trying to figure out what this ETF thing is. You’ve been managing mutual funds for decades or indeed hedge funds for a long time. How should they think about coming into the ETF market? I mean, you could potentially buy another ETF shop. You could build from organically or you could partner. What is your research saying, Kamil, in terms of the different entry options that managers should be considering, and what are the pros and cons of each?

Different entry options that managers should consider

Kamil: Yeah, so basically, as you just said, it’s actually pretty simple, either you think about doing it yourself or you think about the partner, a white label service provider who can help you in this journey. And the report, we also have some statistics when it comes to the break-even point and so and so forth. But very often the number one step is simply is that something where you believe you will have all the required resources to do it yourself. You need to establish a platform from the IT perspective, from the systems, from the connectivity. You have to find the right talent, not just the portfolio manager, but also the capital market expertise that actually will work together with the authorized parties, with the market makers. And then finally, of course, just have the entire set of regulatory requirements and the entire trust set up already in place to do that. And for many players who are maybe advisors or who are more wealth managers, or actually smaller asset managers, all of those items are actually pretty difficult for them to establish themselves internally. It’s the reason they’re looking for somebody who can help them in this journey, but they can find a white label platform, plug into it, and leave it to them to actually solve all these problems.

Second aspect is also time to market. It takes time to establish a platform, find the talent, and build everything to have it in place. We ended up with a couple of players, and even for our own project history, it’s not uncommon that actually you need more than one year to do everything, especially for a large organization, or more bureaucratic organization very often, and simply go to the approval process and so and so forth. Rely on external party, we have everything in-house can reduce this time significantly. And suddenly you speak only about months, not anymore about years. So, well, I think still, of course, there are larger players who will do it themselves because they have the potential and they expect this platform to grow over time. But if you’re new to the market, and especially it’s something you add, time to market is also something that you value, the white label platform is an option to choose.

Douglas: And, you know, Paul, maybe I’ll add a couple comments because here at the New York Stock Exchange for the last 3 years, we’ve launched roughly 55 to 60 brand new asset managers per year that never had an ETF before then they launched that year. So, we are having this conversation weekly, and we’re talking to asset managers, and I agree with the majority of Kamil’s points because, you know, time to market is real and costs to deliver are very real. And so, these end up becoming pretty straightforward net present value, you know, conversations and data points. How long is it going to take you to build a board, build a trust? You know, most firms, that’s one to two years, you’re gonna have to hire a lot of expertise. That expertise is still somewhat limited. The industry hasn’t been around that long. So, in order to get that expertise, it’s very expensive and time-consuming, which adds to the delay.

And all of a sudden, you know, okay, you fast forward a year or two years, you’ve done this and you still have zero net AUM. So, the breakeven rate is pretty long-winded. So, when I look at the last three years and I say, how many of those brand new asset managers built their own completely on their own? The numbers are very, very small. The majority are coming in through what we would, you know, label white label. Hopefully, that’s not an offensive term to Waystone. But the reality is, you know, firms like Waystone, they get you to market immediately. You’re not worrying about going out and hiring a lot of people. You’re not going out and trying to build a board from scratch. You’re not taking in an unbelievable amount of expenses, which then you have to turn around and try and justify internally when the AUM just isn’t there yet.

The reality is, we talked a big game, talked about all the cash flow moving into ETFs, it’s all true. But for a brand new asset manager, the number one word for success is patience. When you’re brand new, it’s going to take some time to develop your long-term strategy with respect to distribution. It’s going to take time for asset managers to know who you are, learn about your ETFs. And so, how do you be patient? You reduce your costs as much as possible and you get in market as fast as possible. And so, for us in the U.S., I can tell you, I mean, the majority of new asset managers come in via white label firms, via platforms. They immediately have expertise. They have size and scale when negotiating downstream with all the vendors and all the market bankers and all the people that help support liquidity. They’re taking on the platform’s brand name, if you will, and capability. They’re not hiring a lot of people. They’re immediately in market, and then they take their time.

And we do see sometimes firms will graduate up and off of a white label platform, but 9 times outta 10, maybe more than that, they stay, even though they could graduate off, they stay because of all the things we talked about. And it just frankly reduces their operating expense and then they can focus on what they do best, running the fund, running their strategy, and helping to distribute the strategy. And so, it’s a very interesting and unique model, and I think a lot of the most well-known ETFs in my marketplace, people don’t realize that those are sitting on a white label platform because it doesn’t really matter. The net result for the end customer is they’re very happy and so is the asset manager.

Paul: Yeah, and look, that’s exactly what we do on Waystone, right? I mean, it’s allowing clients, allowing asset managers to build ETFs, bring them to market in their own name, their own branding, but doing it in a time-effective way and a cost-effective way. We often use the phrase that, you know, asset raising, it’s a marathon, it’s not a sprint, right? And you need to lower your costs as much as you can as you go through that marathon and you graze the AUM to the critical break-even points. And look, we’ll be biased to say partnership is one way of doing it. It’s efficient way. There are other options out there, but definitely please come talk to us if you’re thinking about entering the space. I told you at the start, I love a good stat and I also love predictions, right? Predictions are a hobby of mine. And I’m gonna put you on the spot here and I’m gonna ask you, do you have any predictions you have on the ETF industry, maybe over the next sort of 18 or 24 months? Maybe, Kamil, starting with you.

ETF industry predictions

Kamil: All right. So, I’ll go with two shots. One, I think we discussed already, simply the rise importance of active ETFs. I think this is something where really in the early days we see the strong growth, we see the momentum, but wouldn’t be surprised in a couple of years time, we’re not discussing anymore mutual funds. We actually talk purely about ETFs. And the second one, I think it’s simply the rise of innovation. So, simply the ability to innovate in this space. So, I think we’re gonna see far, far more innovative investment strategies wrapped in ETF wrappers, some even with some underlying structured products underneath promising certain payoffs, protecting against certain scenarios. So, more often outcome-oriented, solution-oriented product offering within an ETF wrapper. That’s my second bet for the next couple of years.

Douglas: I suppose, yeah, I’m asked to look into my crystal ball. I mean, I’ll start with the boring stuff and then maybe try and really go out on a limb here. So, you know, the more boring things are, you know, look, we’re gonna add probably another 500 ETFs into the U.S. marketplace over the next 2 years. I think that’s probably spot on. If multi-share class as a filing goes through…which we’re seeing happen right now in the U.S. There’s two product managers that have filed. I’m aware of at least two more coming in the next few months. If that goes through, I’m gonna double that and I think we see a thousand new ETFs into the ETF marketplace. The growth rate will increase, not decrease.

And even though the equity markets are finally performing, and hopefully they continue to do so, I actually think fixed-income ETFs outpace the growth of equity ETFs over the next three years. I think fixed income is about to really take off. There are still not enough fixed-income ETFs. They don’t cover all the segments or asset classes and fixed income. And then the other piece is the growth rate of, I’ll just call them smart ETFs, ETFs with option strategies built in, ETFs with extra income built-in, ETFs that sort of solve for these extra factors, if you will, that you and I as an individual investor would be so difficult to manage a covered call strategy for our portfolio, things like that, but they can add a couple of percent of extra income per year. I think those will dramatically take off here in terms of both AUM and number of offerings over the next three years. Those were sort of, like, my boring ones.

I’m gonna go out on a limb though, and say that there’s a chance that a few things culminate all at once. One is the amount of strategists that are trying to combine their settlements continues to grow, and so they no longer want to utilize mutual funds because mutual funds aren’t settling alongside stocks and ETFs. And so, they’ll completely, as Kamil said, move away from mutual funds and go all ETFs. And then you also have this, sort of, growing younger investment group of demographic and they’re buying only ETFs. So, I actually think, you know, the $7.5 trillion could double here in the next 2 to 3 years. That’s probably a little bit faster than other people are thinking, but there’s just such a good chance that we’ll see so many conversions and so many alignment of these model portfolios that investors are gonna continue to ditch mutual funds. I mean, last year net cash flow in mutual funds was negative $1 trillion here in the U.S. That’s a big number. And that could accelerate. So, there’s my, sort of, aggressive growth prediction.

Paul: And I’m gonna give you a few from Europe then from my side. So, we’re at just over $1.6 trillion here in Europe right now. I think by the end of next year, we can easily hit $2.5 trillion. I’m with Kamil. We’re talking to asset managers all day, every day. There’s gonna be an explosion of the active ETF market here in Europe, significant number of new entrants. We’re starting to see those coming through. They’ve been here for a while, but they’re accelerating in terms of those coming in, and that’s gonna exponentially accelerate. And then digital platforms are gonna scale massively here in Europe. We are already seeing some real good success stories out there. We’re seeing some asset managers partnering with some of those digital platforms. And then as a direct result, just on the points you’ve touched there, Doug, the retail adoption rates in Europe are gonna uptick massively. I think by the end of next year, there’s gonna be over 30% of the overall ETF investor market, the overall retail investment market that consumes the AUM and ETFs will be retail. So, that’s really starting to take off and it’s gonna accelerate again.

Towards the end of your predictions, both of you touched on mutual funds versus ETFs and where they’re gonna be in the next few years. I’m gonna leave you with this thought that someone somewhere is working on something that will disrupt your business and you better be the one working on it or you’ll be the one ended up who’s gonna be disrupted. So, I’ll leave you with that thought. Thank you, Doug and Kamil, for joining me today. It’s been a great discussion. I really enjoyed it. I hope you, the listener, that you’ve enjoyed it as much as I did. Doug, give us a shout on the website for that data points that you talked to earlier.

Douglas: Yep. Head to either homeofetfs.com or etfcentral.com and you’ll find everything that I’ve referenced.

Paul: Fantastic. And then again, if you want a copy of the report that we just discussed, there’s some fantastic research that Kamil and the team have done on Oliver Wyman. So, thank you for that. So, please go to waystone.com or, indeed, Oliver Wyman’s website. So, thank you all for listening. Goodbye.