Episode 1: SSgA's Rory Tobin Discusses the ETF Industry & SPY Turning 30 Years Old

• The industry transformation as a result of the launch of SPY in 1993
• Product innovation in today’s markets
• Opportunities in the capital markets
• Long term investment approaches for meeting financial goals

TRANSCRIPT

Douglas Yones: 

Hello and welcome to ETF Central, the podcast where we bring the latest and greatest ETF industry perspectives directly to you through in-depth conversations with key thought leaders from across the ETF ecosystem. I'm your host, Douglas Yones, the Head of Exchange Traded Products at the New York Stock Exchange, the Home of ETFs. Now today I'm joined by Rory Tobin. Rory is the head of State Street Global Advisors, EMEA and the Global SPDR ETF businesses. He is Executive Vice President and Head of Business in Europe, the Middle East, in Africa at State Street Global Advisors. And in this capacity, Rory is responsible for the executive management of the business and operations of State Street Global Advisors in EMEA and acting as the primary interface with regulators and governing boards. Of course, with respect to the global SPDR exchange traded fund business, which we're going to talk about a lot today. He is responsible for defining, leading and executing the growth strategy for the global SPDR ETFs. He's also a member of the State Street Global Advisors executive management group. Rory, thank you so much for being here and spending your time with us today. 

Rory Tobin: 

Doug, it's a pleasure and thank you for that long intro. I'm very humbled by it, but it's a real pleasure to be here and I'm looking forward to our conversation over the next hour or so. Thank you. 

Douglas Yones: 

Yeah, let's talk a bit about that, Rory. I mean, a lot of us in ETF world, it's not like when we graduated school ETFs were around. I mean, this has sort of grown up around us and we've grown up within it. Could you share a bit about your background and a little of the like, hey, how'd you get here? 

Rory Tobin: 

Absolutely. Sure. And you're absolutely right. I mean, ETFs weren't around when I graduated. I'm Irish first and foremost, but I graduated university in 1988, Trinity College in Dublin. I graduated, believe it or not, with a engineering degree, computer science, and I got recruited by Goldman Sachs at a university that might sound a little bit of strange that they were recruiting an engineer. Believe you me, I didn't know that much about finance at the time, but if you go back to 1988, it was the time when the financial services world was starting to look at using technology to aid essentially financial innovation, risk management, trading systems, et cetera. And so I was hired initially with a computer science background to do a lot of macros, excel macros. Actually, it was excelled on an Apple at that point in time, which is I was aware of. But when I got to Goldman, the whole environment was the PC DOS world, which for those who are listening to the podcast is now a museum piece. 

Rory Tobin: 

But I was brought in basically to help traders and other senior people at Goldman at the time build models such that we could evaluate risk and do various different calculations, particularly around options, futures and derivatives and things like that, where you've got an underlying and an asset trading on top of that, and you're looking at the modeling around that. I was at Goldman for about 14 years from 1988 until 2002 and 2003, that's our timeframe and loved it, but I was always on the trading floor at Goldman on the capital market side, initially working as an analyst, as I said, a financial modeler. But then I moved across to get trained in New York and become a salesperson, and I worked in the equity derivatives world, and that's when I first encountered ETFs. In 1993, SPY was launched. I was working on the Goldman Sachs Equity Derivatives desk at the time, and we were involved in making markets in SPY initially, but it was one of those products that had a slow burn from an investor perspective. 

Rory Tobin: 

It wasn't clear what the use case was, it wasn't clear who would use it, and we started to develop some use cases. Clearly as SPY started to get more trading and liquidity characteristics, we started to see applications for this instrument called an ETF in areas of program trading and I guess risk management and derivative underlying hedging, et cetera. In the mid nineties, the world, there was quite a lot of innovation taking place in basketing technologies, if I can put it that way. There was ETFs, which was SPY, which had just been launched, but before that, you had things like OPALS, which was an optimized portfolio as a listed security. Then you had something called WEBS, which was part of BGI in the West Coast, that was World Equity Benchmark Securities. They were Morgan Stanley and BGI at the time. So there was quite a lot of innovation around people looking to get baskets of securities and take them, put them in a central wrapper and have them trade in one common location. 

Rory Tobin: 

So I was involved in that in my time at GS working through program trading and derivative trading, et cetera. And then ultimately one of my clients was Barclay's Global Investors, which was headquartered on the West Coast, but it was clearly owned by Barclays in London, and they were one of my bigger clients at the time. And they were talking about this innovation that they had, which was ETFs and taking it to the next level, and this is in the early parts of two thousands, and I got the chance to join here in Europe at the early stages. The iShares business, which is part of BGI at that point in time, was just getting to a hundred billion dollars of assets under management, which is if you look back at it now, look where iShares is today. It's a huge growth story. But I got in around that period of time, 2003, and started essentially working as part of the global iShares team, particularly focused on building an ETF business in Europe. 

Rory Tobin: 

And I've always loved building businesses, so even, what is that, Goldman Sachs in the nineties, we were building an equity derivative platform across Europe at a time when it was really kind of pioneering activities. You'll be familiar with this with your exchange background, but believe it or not, you didn't have many futures exchanges across Europe in the early nineties. 1992 was when you had the DAKs get developed. 1993 was when Spain developed their exchange. '94 I think was Italy. And so you started creating a lot of these derivative exchanges that were trading clearly options and futures based on underlying cash markets. And I was part of that kind of pioneering journey with Goldman. When I joined BGI I started building the iShares business in Europe. The key message at that point in time was can you actually build an ETF business in Europe given the fragmentation of liquidity across many different countries? 

Rory Tobin: 

You had different, not just different languages and different regulatory environments, different tax environments, but different trading mechanism. There's different trading protocols, et cetera. And there was a real question mark in the early part of the 2000 is whether or not you could build a liquid business in Europe, and slowly but surely we started to do that. There was a lot of time spent on investor education, and we started off about 2003 with about $6 billion of ETF assets. By the time we got to 2009, 2010 in Europe, there was about a hundred billion dollars of ETF assets in Europe. By that time, I was co-head of the global iShares business, and that was when BGI got sold to BlackRock and I stayed with BlackRock for a year to integrate that business and then left. 

Rory Tobin: 

And then ultimately I landed here at State Street in about 2014, and I've been building the State Street business both in Europe and in Asia and in the US since then. And thankfully we've made some really good progress. As you know State Street was the original pioneer of SPY and the original pioneer of the first US listed ETF, the largest and the most significant still. And since we've had a number of firsts after that, I'm sure we'll talk more about that in this podcast, but it's been a real pleasure to kind of see a category like ETFs grow from what really was a little acorn back in 1993 to a 10 trillion dollar business, which is where it is today. 

Douglas Yones: 

Yeah. And I mean, wow, so many very important items that we have to stop and look back that you've brought up, Rory. First is for any of our younger listeners or whether you're someone like my daughter graduating and moving into college, you don't really know what you need to know when you're entering the workforce, right? I mean, you take things where they take you. Clearly, right? I mean, you're coming out of school as an engineer. Look at the role you're doing now. And in no way you would be able to predict that. Just keep doing what you or another successful people do, right? Smile on your face, work hard, take opportunities as they come to you. The industry's going to change. Things are going to change. You roll with them and you continue to grow and learn. Just your story there about showing up your first day of work, and it's like everything you've ever worked on is in the wrong PC language just shows- 

Rory Tobin: 

Exactly. 

Douglas Yones: 

Right. I mean, we know this now because we're older. 

Rory Tobin: 

Totally, totally, totally right. I think, you're absolutely, you hit the nail on the head, Doug. I think we have conversations here with our entry level graduates, et cetera as well. And one of the comments I always say is, you've got to stay inquisitive, try, even no matter what background you come from, I think if you are inquisitive and you're focused on wanting to do the best you can do, look for those opportunities and be courageous at times to take a leap and to jump into something. I totally agree with you. I got into Goldman and it was basically a PC DOS environment. Everything I'd done before that had been either on a SUN Micro workstation or a PC Mac, and my first year was spent trying to translate A to B to work on the DOS environment. Ultimately, we moved to a SUN system, which was great for a period of time, and then ultimately we moved then to a full Window system. 

Rory Tobin: 

But there was a period of time when there was a transition journey there, and that was interesting. The biggest transition I made though was to leap from kind of modeling into actually frontline activities. And that was another big leap. Thankfully, I had managers and leaders who invested in me and who saw some potential, and ultimately I built on from that. So I think for young people the key thing is stay inquisitive, look for opportunities, be prepared to take a leap on something, be a little bit brave. And you know that adage where you can train for skill, but it's very hard to train for attitude. If your attitude is positive and you're got a can-do spirit about you somehow that really helps in terms of building a successful career. 

Douglas Yones: 

Yeah. Without a doubt. And you and I are both in the same boat of when we're hiring people, particularly someone who might not have the skillset, we'll teach you skills, but you just can't teach attitude and grit and how people feel going into their day. People who wake up in the morning with a smile on their face and a willingness to learn, you can't teach that. One of the most important lessons I learned at a young age was this really powerful leader I'd come across who said one of the greatest responses you can have when someone above you says, do you know how to do this? Whatever that this is, whether it's like you said, working with a computer or this new marketing piece or whatever it was, the answer is never yes or no. The answer was, I've either had that experience or I'm going to go figure it out. And that can be so so powerful for young people in their career. 

Douglas Yones: 

The other thing you brought up, which is so important, we sit here these days and we say, wow, the US has over 3000 ETFs and the ETF industry is this massive industry, and it's growing so quickly and last year over 600 billion in cash flows regardless of the markets. But people don't have to go that far back in time. And you brought it up in a few reflection points there, Rory, where ETFs were not a slam dunk. And for those of us coming through, there was a lot of work being done saying, I hope this works out and I'm going to work as hard as I can to make this successful, and there's going to be a little luck maybe, and there's going to be a little elbow grease, but that's still going on today. And so when we talked to new asset managers coming into the space and people thinking about ETFs, it was never a sure thing. Don't think if you go back in time 10, 15, 20 years, the leaders at that time were saying, oh, this is a slam dunk. It never has been. 

Rory Tobin: 

Absolutely right, Doug. I mean, I can give a couple of more kind of stories on that. SPY was launched, but when SPY was launched in '93, it was not like there was a big fanfare about the SPY launched. It was a little bit the SPY, the Genesis behind SPY came out of a report that the SEC had commissioned on the 1987 stock market crash. And essentially the report kind of outlined that it would be useful to have some type of instrument that was a collective basket of securities that was not necessarily a future, or was not necessarily an underlying portfolio of securities, but was an instrument in its own right. But at that point in time, it was just an idea. It was just it presented in a small paragraph in the report. 

Rory Tobin: 

And some great people got together, Nate Most at the American Stock Exchange, Jim Ross at State Street, et cetera, and some others, Kathleen Moriarty, and ultimately what they came up with was this idea, and they borrowed the idea, and I think not many people know this, but they actually borrowed the idea from the commodities industry, which was around having warehouse receipts where you actually have commodities sitting in a warehouse, and what actually trades are these receipts back and forth that give you the right to own a certain number of commodities sitting in the warehouse. And that ultimately was there, that concept got blended over into the launch of SPY back in 1993. But even then when it was launched, it was a slow burn. I mean, for a period of time, I told you we were looking for use cases. I was at Goldman on the derivative desk, and we started building some use cases around program trading. We started building some use cases around underlying Delta hedging for options and futures, et cetera. 

Rory Tobin: 

But it was a very slow burn. QQQs got launched, I'm giving you a little bit of industry background here, but they got launched. They really took off probably in 1997, which is a really big year for the NASDAQ And that saw some incremental growth. 1998 State Street launched the sectors, and that was about putting baskets of securities that mapped the S&P sectors. And again, it was a slow burn. I got to BGI, which was BGI iShares, and I'll tell you that I think it's reasonably public information at this stage, but for the first three years of the iShares business, it was loss making. I said it was headquartered in San Francisco. There was a tremendous amount of DNA and creativity in San Francisco about trying to build this business that the firm believed in. But each year, the leaders of iShares had to go to the head of BGI at the time, and then ultimately the head of Barclays and asked for cash to invest in the business. 

Rory Tobin: 

And what were we investing at the time? At the time we were investing in investor education. And it was about getting in front of people, talking to them about what was an ETF, how you would use it, how it trades, what are the advantages and so forth. And it was a lot of pushing closed doors. It was a lot of knocking on doors, pushing doors, getting our goal in those early days was to get people to their first trade in the ETF. We knew if we got them to a do a first trade, that trade two and trade three would come on after that. But it really was, it was a three difficult years, loss making for those three years. And in 2004 was the year that iShares crossed a hundred billion dollars in ETF AUM. 

Rory Tobin: 

And I know I'm talking here as a State Street rep, but I'm giving you some of the long history here, but that was when the iShares business really then believed that there was an opportunity. Once you got to a hundred billion dollars of AUM in a category, there was now something to go and build on. And so iShares looked to step up from that. State Street was doing the same thing with SPY and the sector funds. 2004 was when State Street launched their product, Gold Product GLD, and then went on to do... And for a period of time, essentially, you had two big players in the US, which was iShares and State Street. In Europe, you had iShares and Amundi, well, which is now Amundi. It was Lyxor in those days. And then Vanguard didn't really enter the business until 2009, 2010. Vanguard entered it by the time it was pretty much a scale business, and they've taken it and taken it on much further from a low entry level position in 2009, 2010. 

Rory Tobin: 

But to your early premise, yes, it was not a slam dunk in '93 when SPY was launched, it was definitely not a slam dunk in 2000, 2001, when BGI acquired the WEBS business and started recreating that into iShares. And it really was around 2004, 2005 when you started to get real momentum. And that was then when you had real momentum in the us. You stepped into Europe, and then also you started stepping up into Asia Pacific, which was, it's always been a slower burn, but it's now starting to get real momentum around that. But yes, no slam dunk. But look now we are at a stage where we have $10 trillion asset management business. We're stepping into active, we're stepping into fixed income, we've done a lot in commodities in an equity space, and there's a lot of new things and creative things going on. So a phenomenal success story. 

Douglas Yones: 

Yeah. And I want to stay on that topic for a bit, Rory. And by the way, for those listening that are launching new businesses, boy, that three year J-curve sounds familiar, doesn't it? 

Rory Tobin: 

Oh, yeah. 

Douglas Yones: 

But let's talk about SPY, right? SPY turns 30 this year, just turned 30 at the beginning of this year. What does that mean? You sort of rattled off quickly a few different things, but SPY has really transformed the investment industry. When you sit back and look at the last 30 years, what has SPY done for everyone? 

Rory Tobin: 

SPY has created a category, and I think all of us who work here should feel really good. I'd say to many people in our team, I feel really good going home from work every single day because I'm a hand in heart and I can say that I work on a product with ETFs where I can recommend them to my parents, to my grandparents, to my kids, et cetera, because it does what it says on the tin. What SPY did, and it created this ETF category that's now $10 trillion globally, but what it really did was it democratized access to institutional quality investment capabilities, and it made that available to everybody at the same price. And that was just a wonderful democracy proposition. Behind that then you have propositions around transparency, propositions around liquidity, around value for money. But the fundamental principle was if you go back to those early days of ETFs, you did have this distinction between the institutional investor that got institutional quality asset management capabilities at an institutional price, but the retail investor tended to get a different quality of investment capability at a very different price point. 

Rory Tobin: 

And so ETFs came along and they said, regardless of who you are, you're going to get the same portfolio management capability wrapped up in the same instrument at the same price point, whether you're a large asset owner, pension fund insurance company, or your mom and pop. SPY was the same price for everybody. And that really was the breakthrough event from my perspective, that democracy proposition. What it also then gave people was a transparency proposition that became really valuable, and it's still the case today, that each time you have a crisis in the financial services world, it tends to be good for ETFs. And this may sound counterintuitive, but it's actually true. If you look at the volume of inflows into the ETF industry post a major crisis, it has grown each time. 

Rory Tobin: 

After the GFC in 2008, the years '9, '10, '11 and '12 were very, very significant years for the ETF industry. We had the COVID crisis in March of 2020, and the two record years we've had are 2021 and 2022. And why is that? Well, a real reason for the success of ETFs post a crisis is that investors really gravitate towards many other components of the ETF value proposition. It's not just the democracy proposition, but it's things like liquidity. ETFs, as you'll know from an NYC perspective, ETFs trade very liquidly on exchanges. They trade during the day, at all times during the day. They trade in line with the underlyers. They even trade when some of the underlyers are not open. And that's what we really saw in 2020 when the COVID crisis happened, and you saw fixed income ETFs trading on exchange even though some of the underlying bonds were not actually trading and not very liquid. 

Rory Tobin: 

So you have a value proposition here that's been created by SPY around democracy, around liquidity, around transparency. This was really valuable in 2008, 2009, because a lot of instruments were opaque at that point in time, and people got caught. They weren't able to trade out of certain funds that they had or certain structured products. And didn't even know what they had in some of those products. But with the ETF, you have it line by line accuracy of what's in your portfolio every single day. And that transparency proposition became very, very valuable to people. And that also drove increase SPY activity post to crisis. 

Rory Tobin: 

So to your opening question, what did SPY do? SPY was the first, and it created a category. It proved that the ETF has a value and has many different use cases. And as it scaled, it led the way for many different other instruments to come along behind it. And now I think you've got a situation where the proposition ETFs, dare I say it, are really looking to move ahead of all sorts of other types of fund wrappers, be it mutual funds or other instruments, whereas the simplicity of the ETF really is getting a lot of adoption and a lot of acceptability. 

Douglas Yones: 

Yeah, I think your point, Rory, around retail is so valuable. Many people for many, many years have said, "How do we create, fix this dilemma?" Less and less people in the world tend to invest over the long-term. We know people need to invest early, but for years, most of us growing up, if you didn't have three or $5,000 in the US, you couldn't even have access to a mutual fund. And now all of a sudden SPY comes along and it's like, hold on a second here, I can buy in the hundreds of dollars. And then of course, you guys have followed on with SPLG, a lower price version of it where retail can really get in. I mean, it's just unbelievable the power. Could you talk a little bit more from your side how that transformation has occurred for both the investment industry as well as the capital markets? Because I think you talked about that at a very high level, but this is something that your team actually spends very quality strategic time working on because you're trying to drive this every single day. 

Rory Tobin: 

Absolutely. So the way I talk about that, Doug, is it's somewhat in the name, it's exchange traded and it's fund. And now that I've been 20 plus years in this industry, I can say that success in building an ETF business is around spending as much time on the exchange traded element as you spend on the fund element. So State Street Global Advisors, we're a very large global asset manager. We manage about three and a half trillion dollars for a whole host of investors around the world. We've managed for asset owners, asset managers, pension funds, intermediaries, mom-and-pops, et cetera. And so I think as a firm and as an asset manager, we're pretty good at managing assets versus a benchmark. And we are hugely appreciative of the trust that clients placed in us to manage those assets. So when it comes to the fund part of ETFs, that's our core competence. 

Rory Tobin: 

But the element of ETFs that might not necessarily be a core competence for an asset manager per se, is the exchange traded element. That's where we're not a broker dealer and we are an asset manager, but we've got to basically work with the broker dealers, we've got to work with the exchanges, and we've got to work with all elements of the capital markets ecosystem to really make sure that we're not just talking to clients about the asset management proposition, which is essentially give us your money and we'll manage that money to track the index, plus or minus a small tolerance for a fee. That's the asset management proposition, and we do that pretty well. But the other part of the proposition that's really, really critical is what everybody wants. They want to know that they can trade into and trade out an ETF at all times during the day. 

Rory Tobin: 

They want to know that the bid as spread on the exchange is as tight as possible, and they want to know that regardless of the crisis, there will be a liquid market there. And so we do spend time with those, the broker dealers, the large investment banks, and the newer entities, the liquidity makers, et cetera, to really day by day check in and what's happening on the spreads. And we have a team of people that's devoted to that. They're looking at the spreads on exchange, they're looking at what's happening. They're having conversations daily with the market makers around creation, redemption baskets, about what we're seeing in terms of liquidity and flow, et cetera. 

Rory Tobin: 

Market makers are raising issues to us about, have you looked at this? Have you looked at that? And it really is a very, very active ecosystem, and it's an area of the business that we spend a lot of time on, but it might not be obvious because we're an asset manager, but that exchange traded portion is just as important. And actually in a time of crisis, it's even more important to get that element right, because that's where people get their initial pain in a time of crisis. And if that's not working, then the customer experience of trading an ETF or owning an ETF is severely compromised. And we would never want that to happen. 

Douglas Yones: 

And I know it's a podcast, so people can't see me blushing, but I am, because it's a reality of me, my team, the exchange, what are we focused on? We're focusing on liquidity in and out every single moment of the day and moments to us are measured in microseconds. We'll let people Google that, and that's what we're facing off with your team on every day. We're making sure that when an investor goes and invests, they're not thinking about it. And frankly, when we do our job well, they'll never think about it. But we want to make sure the liquidity match is always there and it's just such a new thing that just didn't exist with funds. Rory, take us, when you sort of look back and we're talking about some of the highlights, but of course over the years, the SPDR business has just grown dramatically. You've been the first in so many ways, what are some of the items that maybe internally every once in a while you sit back and you say, boy, we're pretty proud about that. 

Rory Tobin: 

Doug, do you mind if I just make one other point before you get off the liquidity elements? 

Douglas Yones: 

Yeah, please let's go. 

Rory Tobin: 

Because I think it's really important. And so I totally, totally appreciate what you've said about NYSE and the important role that you and your team play, and it's absolutely critical. But this is actually a little bit building on some of the comments we were talking about earlier on this podcast around the little acorn of the industry and who would've thought it? And in a similar vein, if you had sat back in 1993 or even in 2000, and you had said that 25 to 35% of all training activity in US exchanges will be comprised of ETFs, I think people would've laughed you out of the room. But what you've now seen is that the growth of ETFs, we've had growth in terms of the assets under management in the global ETF category to $10 trillion and growing rapidly since then. 

Rory Tobin: 

But the volume of ETF's trading on exchanges, which is this liquidity proposition, has grown very dramatically. And in our range alone last year, the SPDR ETF range, we had I think $16 trillion traded, and that's the third year running that we have had total volume in excess of $10 trillion. On your exchange I think ETFs comprised probably 30, 32% of total volume last year. And that's an extraordinary number, when you think about the big stories that make the front page headlines like the FANG stocks, Apple, Microsoft, Google, et cetera. If you think about what's happening in terms of an ETF trading perspective and the liquidity proposition, that is truly extraordinary. So I think that's worth thinking about as well. It's not just around the asset side of the equation, which is really important, but that liquidity side is really, really critical as well. 

Douglas Yones: 

Yeah. And we saw it in the last few weeks. I mean, we've just had crisis after crisis, whether it be moves across banking, regional banks, broad industry, now commodities, right? I mean, ETFs continue to provide an outlet and provide liquidity where in the past it was the primary markets that really took the brunt of it. And somebody said this recently, I watched a panel and they said, "ETFs are like a pressure release valve. We can allow for some trading to occur. We can allow for risk management hedging, all these different things to occur without having to overload the primary markets as a result of ETFs." And a lot of people don't tend to think of them like that. 

Rory Tobin: 

Exactly. Right. Exactly. I think there's another, before you get onto the other question, but there's another really great case study in that, which is the evolution of fixed income ETFs. I think coming into the COVID crisis, a lot of people were concerned that fixed income ETFs might not have been tested in a crisis. Equity ETFs were tested in the global financial crisis in 2008 and 2009. Fixed income ETFs were gathering there. It was a second phase development after some of the equity ETFs. But coming into March, 2020, it's fair to say that there was a question in parts of the industry about what happens when you have the real challenge. And what happened was that the fixed income ETF in its own right became the source of price discovery. And from that, people reversed engineered what the fair value for underlying bonds would be because those underlying bonds were not trading and they're not liquid. So that's one of those kind of situations where the liquidity proposition and the growth that we've seen has just been, nobody had predicted that on day one, and it evolved over time. 

Douglas Yones: 

So I want to get into the future state, but to get there, we always have to go backwards. So let's go back to the question. When you look back and look at the various innovation that SSGA, I mean you really haven't stopped for over 30 years. Are there accomplishments in there that you say, boy, I'm really proud of my team? 

Rory Tobin: 

I think so. Listen, it's being proud of the team and it's also being proud of those who've gone before us because the business we built today is built on the shoulders of greatness of those who've been here before. No doubt about it. The State Street organization should feel very proud about the launch of SPY. SPY has been the fund that started it all off. It's still the largest, most liquid ETF, some extraordinary characteristics. So we can talk more about that later. So definitely we're proud of SPY. I think we're also proud of this democracy proposition that I've talked to you about in this podcast. 

Rory Tobin: 

The fact that you give this institutional quality asset management product to everybody at the same price, whether you're in a large institution or a mom-and-pop, I think that's something that you should just be proud about. You get, everyone who works in this industry can go home at the end of the day, hand in heart and say, what I do is good for everybody. It's transparent, it's liquid, it's a very attractive value proposition, and it does exactly as it says. And that's something to be proud of. So that the democracy proposition. I think we are also proud here at State Street about our ability to work in partnership. And I don't ever want to take this for granted, but yes, we are a large asset manager. But to make the ETF ecosystem work or to make, let's just say keep it very simple, to make ETFs work, a lot of people have got to come together and a lot of people have got to, it's a great big relay race, not four by 100. 

Rory Tobin: 

It's actually kind of your end by 100 because a lot of people have got to catch the baton and pass the baton to each other. And so we partner with you from a exchange perspective. We partner with the capital markets partners, we partner with the index license vendors, et cetera, and you put all that together, it's absolutely critical that that partnership is held and we're nurturing those relationships on a day-to-day basis. And I'm really proud that here at State Street, we spend a lot of time on partnering across the full ecosystem. 

Rory Tobin: 

We also partner, and this is something that we've done ever since the start of the State Street SPDR ETF business, but we have a number of firsts in terms of ETF innovation, working in partnership with other asset managers or other entities. So if you think about something like our Gold ETF, GLD that was launched in partnership with the World Gold Council and it's become the leading Gold ETF. We would position ourselves at State Street as the authority on ETFs and the World Gold Council are the authority on gold, who are the buyers and sellers of gold? What's the future of demand for gold? Where are you seeing what's happening from a mining perspective? So that's a beautiful partnership that works really well. They're the industry thought leader on gold, and we are the industry leader on Gold ETFs. 

Rory Tobin: 

We've also partnered very effectively with third party asset managers. So not just State Street asset management capability, but we've partnered with firms such as DoubleLine, Nuveen, Blackstone, and these are really high quality asset management capability firms. And we've basically worked with them to wrap their underlying asset management capability in a SPDR ETF and take that to market where we see opportunities and where we're helping clients solve some of their ultimate investment needs. So the things I'm proud about is definitely SPY, is that democracy proposition, is partnering across the ecosystem, it's partnering with other asset managers. And those things, I think if we stay true to what we're doing there, we'll continue to offer a really good business here at State Street. And we have to reflect that ultimately we have to be listening to our clients. And that's something that we don't ever want to take for granted, but we need to be innovative for a purpose. We need to innovate to solve client needs. 

Rory Tobin: 

And we're not the type of firm that innovates just to throw something against the wall to see if it works. So we stayed away from some innovations. I think you're aware of this. So we haven't done leverage or inverse products, for example, because we just never got comfortable with some of the risk characteristics of that. We're not calling them bad products per se, but they're not necessarily suitable for everybody. They're certainly very suitable for a professional investor who fully understands the past dependent nature of the profiles, but they're not necessarily suitable for mom-and-pops. And so when you think about a democracy proposition, we want to put products on the shelf that are democratic for everybody, and particularly that mom-and-pop investor. So those are some of the things we're proud of and hopefully we'll continue to have more moments of pride going forward. 

Douglas Yones: 

So let's open up the hood, if you will. Are there things that you and your team are working on today that get you excited? 

Rory Tobin: 

Absolutely. I mean, I never thought, if I go back to my situation back in 2000, 2003, that's where a timeframe, I never would've seen the growth we're seeing in active ETFs. But now the new dimension of growth for the ETF category is active. In those early years, it was very difficult for the ETF providers to get a look in because we were seen as these passive players to a degree. We were kind of in a dark corner, and as long as the ETF industry stayed in that dark quarter it was okay. But now you've had, with the adoption of the ETF rule in 2019, et cetera, you've now got migration of mutual funds to active capabilities. You've got, as you said, $600 billion of inflows into the ETF category last year. A trillion dollars of out outflows from mutual funds. You really have a whole sea change of growth taking place in terms of active. 

Rory Tobin: 

And so we here at State Street are looking at active both in terms of we have some active fixed income products, we have some active equity products, we have some products that are active with partners such as Blackstone and Nuveen and DoubleLine. We have some active capabilities out of our own. And so we're looking at opportunities to do more in the active ETF space, either with our own SSGA portfolio managers or with those best in class third party active managers. And we're having a lot of time with and having a lot of conversations with them. Secondary that I'm excited about, I continue to believe that we're in the early stages of development of the global fixed income ETF market. In the US you talk about the seventh innings, and I still think we're in the second or third innings in terms from a baseball technology perspective in terms of what's happening with fixed income ETFs because there's a lot more opportunity for us to get before we get to the ninth innings in total. 

Rory Tobin: 

We're still at that stage where fixed income ETFs, we're looking at new opportunities, new elements, new slicing and dicing. We're looking at optimizing on ETFs for underlying portfolio liquidity, et cetera. And I think that's a significant opportunity. And then I'm also excited about what's happening from a regional development perspective. So I think ETFs are certainly at scale in the US. They're also at scale across Europe. But in Asia, there's still a lot to play for. We have a very big domestic ETF market in Japan. We have a big domestic ETF market in Australia, but outside of that, it's still at the early stages of development. Countries like Hong Kong, there's a lot of potential around what will happen with Hong Kong and China. You're thinking about Singapore, this presents opportunities for a significant amount of wealth management activities that are taking place there, Korea. 

Rory Tobin: 

So these are areas that we're spending more time on it as well in terms of extending the ETF capability from a geographic perspective in addition to what's happening in terms of extending it around active and fixed income. Outside of that, there's definitely innovation taking place in terms of looking to put some protected payoff profiles inside an ETF. Some like using some option overlay strategies to give people some downside protection in ETF. And that's some things that we're spending some time on as well in terms of new sources of innovation and new potential avenues of growth of the industry. So yeah, it's surprising that we're still here 30 years on from the early days of SPY, and we're still finding new growth opportunities and new innovation opportunities that nobody would've even dreamed of back in 1993. 

Douglas Yones: 

And when you look at these markets, Rory, they can be tough for a lot of investors. Do you sit back with a different view, right? You've been through this few times before. Do you look back and say, hey, there's actually opportunity here for investors and advisors? 

Rory Tobin: 

You mean in terms of the moment or you mean overall in terms of the ETF category? 

Douglas Yones: 

Overall, right? I mean, you sit at the top, you've got a lot of different people on your team that look at the markets, they advise clients. You're talking to advisors all the time. You're talking to institutions all the time. Do you look out and do you say, hey, there's real opportunity in this type of market, or how do you engage with those types of conversations? 

Rory Tobin: 

In my experience there's always opportunity. The opportunity may go for a little bit of a pause for a period of time when you've got some market turbulence like we've just had in the last month or so. But I think ETFs, first and foremost, you've got to consider them as building blocks. And they allow the advisor to get very precise in terms of how he or she wants to build portfolios for their end clients. And this was a capability we did not have 30 years ago. But if you look at things like our sector suites, and we have this and we see this last year and the year before that, you can adopt a quite defensive profile if you're concerned about the market and about the path of interest rates and about the path of inflation, et cetera. You can go towards healthcare and more defensive areas like utilities, et cetera, and you can trade some of our sector ETFs. 

Rory Tobin: 

We have 11 sector ETFs, so we give you those precise exposures into sectors. That being said, similarly, if you really are interested in financials, you can go along some of our financial ETFs. That's by the same token. If you are concerned about risk in financials over the last couple of months, or last couple of weeks, you could do something different in terms of your ETF exposure, leveraging financials. Technology, some of the technology ETFs give you the opportunity to get very precise in terms of which segment of the technology market you want to focus on and which stocks you want to invest in. And then if you're building portfolios, you clearly will have some element of your portfolio in equities. But now you can also get those discreet trading instruments in fixed income space that 20 or 30 years ago, it just wasn't possible. 20 or 30 years ago, an advisor would have to trade individual bonds and have a dedicated trading desk for that. 

Rory Tobin: 

Now trading the ETF, it trades on the same exchange using the same pipes and plumbing as an equity ETF. And that's a real value proposition. So we are really talking to advisors and all sorts of investors around what's their attitude to risk, return and cost. And ultimately what you want to do is get the greatest optimization of that. You want to get exposure to the exposures you want to invest in, whether it's US large-cap, US small-cap, US mid-cap, technology, financials, industrials, healthcare, et cetera. And then you want to get that exposure in the size that's relevant for you. Large asset owners move in tens and $50 million elements of our clips as it were. But mom-and-pops may move a much smaller elements and advisors move in smaller elements too. But the ETF gives you that ability to go in small elements. You get access to the fixed income side of the equation. And so you put it all together, ETFs have become really powerful tools from an asset allocation perspective. They allow investors to really fine tune their portfolio to maximize that trade off between return, cost and risk. 

Douglas Yones: 

So I'm going to hit you with a tough one. This might be the toughest question yet, Rory. Do you have a favorite ETF? 

Rory Tobin: 

Well, I think you get to this stage of the conversation, I do, and I can say this because I'm here at State Street, but I think I would've said it even in my previous career as well. For me, the favorite ETF has got to be SPY. The first one back in 1993. It's still the largest most liquid ETF. And when I say it's the largest most liquid, last year, and we looked at these, this data, SPY traded an average daily volume of $39 billion. It trades at a 408, $409 share price, but it trades at 1 cent bid-ask spread. That's less than a basis point of a bid-ask spread. So you've got an extraordinary amount of liquidity. You've got an extraordinary amount of underlying assets of maybe $350 billion of underlying assets. You've got a fund that's become the go-to fund for exposures in terms of S&P 500 exposure. 

Rory Tobin: 

And I think, and you'll correct me if I'm wrong on this, Doug, because the volume is on your exchange. Last year, the peak of SPY, I think it was January of 2022, it peaked out in one day at $107 billion of secondary market turnover, which I think is the largest and most liquid security that's traded on NYSE ever. And so you put all those components together, the asset management side of SPY, $350 billion, tracks the S&P 500, you put the exchange traded element of it, $39 billion of average daily volume, $107 billion at the peak. We as the asset manager have creation and redemption days that can be five, six, $7 billion of inflow into the fund, or five or six or $7 billion of outflow from the fund. And it trades just like a calm juggernaut or battleship on our, I guess, oil freighter on the seas. It just is, regardless of the market volatility, regardless of what's happening on a day-to-day basis, SPY trades and it gives you extraordinary liquidity for one penny a share. And I just think for me, it's an extraordinary instrument. 

Douglas Yones: 

It is. It is unbelievable what SPY has become globally, right? I mean, you could go anywhere and it just feels like everybody knows SPY. Rory, as we start to wrap here, could you talk a little for investors, for advisors, anyone who's out there and there saying, hey, I actually want engage with your team. I want to talk more. I want to learn more about your ETF lineup. Where do they go? What's the right entry point? 

Rory Tobin: 

We have teams of people based in Boston, in Arizona, all around the US, et cetera. The entry point is, I mean, I don't know if you're going to give my details after this, but I can point to anybody there. But I think what people should be looking to engage with us on is we engage with advisors, we engage with institutional investors, asset owners, asset managers, pension funds, insurance companies, et cetera. But what clients or potential clients should be looking for is they want to go to an organization that will listen to what they're looking for and understand their requirements, and then tailor our service proposition, our engagement to help solve those needs. We think we have a wide range of ETFs, a wide range of building blocks. We have significant strength and depth from an asset management perspective. We have significant strength and depth in terms of capital markets and understanding the liquidity aspects and understanding how you can trade in and trade out. 

Rory Tobin: 

And so when you're looking for advice in the ETF industry and you're looking for guidance, we have various different professionals, whether they're salespeople, capital markets people, portfolio managers, risk managers, et cetera. And we want to make sure that we're bringing that capability together on a daily basis to understand what the needs of clients are and then deliver that, those different solutions to clients and help them navigate that. So feel free to a ask questions. There are no bad questions in this industry. Everybody starts somewhere, if you're just starting off in the ETF business. 

Rory Tobin: 

But even if you're an experienced ETF player, you might be looking at what's happening in the new world of active ETFs or a new world of fixed income ETFs. And your expectation of the State Street organization is that you'll get a person who will deal with you, who will be knowledgeable, and if they're not knowledgeable, they'll go and find out the answer like how we started off this podcast, help us an hour ago. But they'll find the answer and they'll get back to you with the answer in terms of what you are looking for and how we can help you build your portfolio consistent with how you're thinking about return, risk and cost. 

Douglas Yones: 

Thank you, Rory. It seems like we kind of closed out where we began with a lot of tips and tricks for people who are coming up through the industry or frankly, advisors out there, don't stop asking questions. We're here to answer them for you. Now, that is a wrap on this edition of ETF Central, the podcast. As a reminder, you can find this episode as well as many other episodes all on the website, etfcentral.com. You can go there, utilize the free ETF screener, you can type in State Street, you'll see all their ETFs. You can type in SPY, and all that data, of course, is absolutely free, brought to you by the New York Stock Exchange. I want to thank you again, Rory, for being here to share your insights, to share your background, tips for young people, tips for advisors, all available here in the podcast. Please stay tuned for upcoming episodes featuring thought leaders from across the ETF ecosystem. I'm Douglas Yones, Head of Exchange Traded Funds at the New York Stock Exchange, the Home of ETFs.