Bant Breen:
Michael is the Co-Founder of Toroso, which is one of the pioneers and leaders of advisory services and the creation of solutions around exchange-traded funds. Today, as we think of the ETF and where it is, tell us about where the ETF is in the marketplace today, and why is it important for businesses and individuals to think about it?
Michael Venuto:
An exchange-traded fund is very, very similar to a mutual fund. It’s Reggie Brown, who they call the ETF Godfather. He likes to call ETFs mutual funds with benefits. The benefit is very simple. The fact that they trade on an exchange, instead of directly with the creation company, gives them a tax advantage over mutual funds. To define an ETF, you kind of have to define a mutual fund. All a mutual fund is, is a basket of a bunch of different stocks or bonds or assets. They’re either managed, meaning some smart woman is in there picking what should go in, or they’re passive, and they follow an index. The most famous index is the S&P 500. What happened was about 26-27 years ago, some group of people, including Burton Malkiel and Nate, got together, and said, “Hey, if we took these mutual funds, and we made them trade on the exchange, that would create more liquidity.” To do that, we need price discovery. Let’s start with the most liquid index. That was the S&P 500. Here we are today. Now we’re $5 trillion, 400 ETFs in the US, and you can slice and dice it a million different ways. At the end of the day, it’s still very simple. A mutual fund with the benefit of tax efficiency, liquidity, transparency, and costs tends to be lower.
Bant Breen:
Tell me which ones are most exciting to you right now. Which ones are you are you thinking about?
Michael Venuto:
You know, because we are a registered investment advisor, as you pointed out earlier, I can’t get into tickers. Let me talk about brat broad categories. Probably the most exciting area has been thematic ETFs. You mentioned lithium ones were involved with a blockchain, one was involved with a gig economy, and one had the ability to look at transformative things, changing our world. Megatrends are being accelerated by the response to COVID. Like the gig economy, like online retail, like cybersecurity, like blockchain, those things are super exciting. We see that engaging a whole new class of investors. That’s the Robin Hood crowd or the Wall Street bets crowds, they’re in there. We work with SoFi as well, they’re all looking for these thematic Kathy Woods firm that has been part of a beautiful revolution there. I would say I’m more excited though, about this next phase, which will be these big bad hedge funds that everybody’s chasing right now. They all realize they’re toast with these, and a lot of them are now moving towards the transparency of the ETF wrapper. They’re now embracing the lower fees. I think that the next phase is going to be the old way of doing things, embracing the new structure. Embracing the new structure, it is a form of decentralized finance that they can’t hide, they can’t overcharge. It’s democratizing access to the IP that has historically been reserved for the uber-wealthy.
Bant Breen:
Michael, thank you so much for being on UNCAGED today and we look forward to having you back.
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