In this episode, Douglas Yones, Head of Exchange Traded Products at the New York Stock Exchange, is joined by Eric Pollackov, Global Head of ETF Capital Markets at Invesco on this episode of ETF Central’s The Podcast to discuss his role at Invesco, evolution of ETFs and his market outlook for 2024.

Douglas and Eric discuss:

His role at Invesco, implementing capital market strategies and the importance of ETF liquidity

• How he got started in the ETF indsustry
• The Invesco ETF lineup
• Mentoring initiatives
• And more!

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. Today, I am joined by none other than Mr. Eric Pollackov, the Global Head of ETF Capital Markets for Invesco's lineup of ETFs. In this role, Eric proactively develops relationships with sell-side trading desks.

He implements capital market strategies for Invesco's ETFs and develops and measures the success of client business plans. Now, many of us in the industry are friends with Eric, but before joining Invesco in 2016, Eric was also the Head of ETF Capital Markets for Charles Schwab, and previous to that, he served as Managing Director of Exchange Traded Products at where else? None other than the New York Stock Exchange, although back then, it was NYSE Euronext. Eric, thank you so much for being here today.

Eric Pollackov:

Thank you, Douglas. So, happy to be here as always.

Douglas Yones:

For those of us who are, instead of calling us old, I'll just say veterans of the ETF industry, there's nothing greater than doing something like this because a lot of us have become true friends. These aren't colleague relationships anymore. They're friends. Especially with Eric, because for me, it's always so cool because we flipped lives a little bit in that I used to come here to the building to 11 Wall Street and walk into this so cool institution and walk into this place to meet with Eric Pollackov. So, I love when the roles are reversed a little bit.

Eric Pollackov:

So true, so true, Doug. I mean, I feel like we've grown up together as adults, talking about having kids and now colleges, right? I mean it's fun to create friendships in a space where you really enjoyed the business.

Douglas Yones:

It is. We'll talk about this a little bit, because a lot of times, I know you're very involved in mentoring and you do a lot of that for not just the industry, but really outside of the industry, a lot of times people think about mentors as being up and down hierarchy mentors, but one of the things I think about with our relationship is we mentor each other. You talk about the kids, but it's also work and work lives and things. So, for those of you who are listening in and thinking about mentoring, it doesn't always work up and down.

It works sideways a lot where you end up being friends and figuring out things together. But before we get to all that, let's start at Invesco. Could you tell people a little bit about your role, what you do day to day, where do you tend to spend a lot of your time, and maybe share a little day in the life if you would?

Eric Pollackov:

Yeah. Invesco runs about a $500 billion globally in ETFs, and we've got 220 in the United States. We've got 36, not counting hedge share classes in Canada. We've got over 175, not counting different ISINs per country in Europe, two in India, five in Mainland China. So, we really run a global ETF business. When I think about my team and our role, it's really around the ET part of the ETF acronym is the part that we're taking on, the exchange traded part, making sure that our products are liquid, making sure that we are explaining how our products work to the sell-side, to trading firms, to authorized participants here in this country, designated brokers up in Canada, et cetera.

So, it's a complex lineup when you have that money type of products. So, you need to have a really strong team that understands how trading works, understands the motivations of transactions, and understands the motivations of investors to help solve for their need by using one of our ETFs. Ultimately, the transactional nature of ETFs, unlike mutual funds, is really a cost, and we need to make sure that those costs are minimized as best as possible. That's ultimately what the team is doing on a day-to-day basis.

Douglas Yones:

Yeah, it's so funny, the liquidity story of ETFs. I mean, geez, this comes up everywhere. Last year, I think we launched something like 50 new asset managers here at the New York Stock Exchange. Number one question every asset manager coming into the space asks about is this capital markets piece and the role of capital markets. They talk about liquidity and this idea of having persons such as yourself that are waking up every day and making sure my ETF is liquid and focusing on the nuances to keep liquidity as tight as it possibly can.

How important is it when you start to think about the liquidity profiles of your ETFs? I mean, do you think about it as a make or break, meaning a product idea could be so good, but if you can't get the liquidity down, could it potentially kill an ETF?

Eric Pollackov:

It is fascinating. Some of the things and some of the projects that we've developed here at Invesco are pretty unique and wrapping something in an ETF wrapper has been fun to do, but there's also that liquidity provision conversation we have to have. For example, in 2011, we launched BKLN, which holds bank loans, which generally are illiquid, but yet that product is so liquid as it's grown to over five billion in assets that it has become the benchmark for bank loans right now. Then that's really an interesting story to watch. Same thing with collateralized loan obligations, for example, and we've launched a product that holds Singapore iron ore futures or cobalt futures. There are less than 10 firms in the United States that have the capabilities to transact in cobalt futures or even Singapore iron ore that has connectivity to Singapore.

So, we have to think about in the product development perspective, "What is that liquidity profile going to look like?" And then you also have to then go find the partners that can help you provide that liquidity on exchange or off exchange. So, those are really the conversations that we're having during the product development perspective. Then once you do get listed on hopefully NYSE, we ultimately need to now maintain that liquidity.

So, we're working with our portfolio managers to understand if they make certain changes to either the create redeem cycle or the methodology around that or the edge of securities that may not be deemed liquid, we need to have those conversations to maintain that product. So, those are constantly ongoing. We're always evaluating our lineup on a daily basis, but ultimately, those are the responsibilities that fall to me and my team.

Douglas Yones:

It's interesting. I don't think people realize that not only does Eric and his team have to have that depth of knowledge, plus the relationship management, plus the skills that go into all those pieces, but in many cases, you've got all the knowledge and capability of a lawyer, because you end up having to learn all the listing rules, all the exchange rules, all the SEC rules and have to be able to communicate that back into product plans. Just thinking about what you were talking about there, some of the underlying pieces that end up in ETFs, they're not an automatic approval.

I mean the amount of probably countless hours you put into the launch of your Bitcoin ETF because it didn't fit the standard listing rules both with the SEC as well as with the exchanges. So, the knowledge set, it seems like, is always additive. Does that feel like a true thing? Do you feel like you have to learn every single day?

Eric Pollackov:

Every single day. My two years at NYSE, which was Euronext back then, as you stated, was phenomenal for me from a legal perspective, a listings perspective, to understand the rule set. Then fast forward 2019 and 6c-11 or the ETF rule gets passed, and it makes things even easier for us as an industry to produce products and less burdensome from a legal perspective. But what I will say is we've launched products that don't fit the mold of what 6c-11 has defined, and Bitcoin was a perfect example. Those goalposts kept moving.

That was a three-year project for me and the team, but it was also helpful to understand the motivations of the regulators, whether they'd be the SEC or even the exchanges like yourself to understand your rule sets as well in order to get a product like that to fruition, which we did. But ultimately, yeah, you're right. I do have a legal background that you have to have to understand the concepts in order to get a product into production.

Douglas Yones:

Yeah, I think that's what makes your role so unique for our industry is that you slice every single category. You have to be a product expert, you have to be a legal expert, you have to be an exchange expert, you have to be a trading expert, not necessarily someone that has personally traded, even though I know you have some background there, but you need to actually understand the ins and outs of it, how it works, the motivations. It's so fascinating, especially because your role didn't exist when you were in college.

Eric Pollackov:

It's very true.

Douglas Yones:

I think that that's really unique for young people when they're coming up and saying, "Well, what do I want to do when I graduate, or what do I want to do with my career?" Well, a lot of jobs won't exist when you're in college, your job in particular, my job in particular. So, where did it all start for you? I mean if we take you back in time and the young strapping Eric Pollackov in college, did you want to get into this industry? Were you thinking trading? Where does it all begin?

Eric Pollackov:

Yeah, so I had a little bit more hair. I was still probably the same weight, so I'm happy about that at least. I was an English major in college, didn't really know what I wanted to do with my life, and my father worked on the American Stock Exchange for over 30 years before he retired. I remember just going there as a child when I was 5, 8, 10, 15, whatever, just going there to hang out, get to meet the people, feel the exchanges. Back then in 1999 was when I started in the industry. There was a lot more buzz. There was a lot more people. There was a lot more of a mentality of me versus you thing. Back then, listen, the minimum increment to trade a security was an eighth of a dollar, 12 and a half cents. So, just to where we've come.

Then when I started working at Susquehanna International Group in 1999, I fell in love with trading and it became a passion of mine to figure out how to do it well and how to understand making markets in ETFs futures options. That's what I did. Then when I moved to the New York Stock Exchange in 2001 from the AMEX, I headed up a brokerage unit at Susquehanna to help trade ETFs there. Even though you weren't allowed to make markets back then on the floor of the New York Stock Exchange, we were allowed to have directional order flow in order to participate in trading there. But what I saw in 2006, 2007 was really this drastic change to post-decimalization and the rise of high-frequency trading and the make or take model that we now sit in currently.

There was this whole movement towards computer programming for transactions and for trading. The human aspect of it was becoming less and less important, so I could see that writing on the wall and trading was becoming more difficult and margins were getting compressed with decimalization, et cetera. I decided that's where I left to go to the New York Stock Exchange to work for them and walk through the ETF listings process. So, that's how I early started my career.

I will share this, a product based on the Nasdaq-100 Index is going to be 25 years old this year, which means that I am 25 years old in this industry, which is scary now that I think about it, because I started three weeks after that product listed on the American Stock Exchange in 1999. So, it's an interesting anniversary that we're going to be celebrating in March, but nonetheless, it is what it is.

Douglas Yones:

Yeah, I mean, the time flies by. It's crazy. I know a lot of us, you included, when we were involved in our very first ETF launches, I don't think any of us thought we'd be making a career out of it, but as it grew, we grew. As it grew, I think we all got more excited to the level... I don't know how you feel. I feel like when I started this year, every year is my most exciting year. Every year feels like it's going to be even bigger and better than the year before, which is amazing. Before we leave your background, because I know you went through that, but you made some pretty big leaps in there and you left firms that you loved but also left for good reason and you talked to different people.

Could you share a little bit about the work you do now mentoring? Because you work with a really unique organization where you work with military veterans, but maybe you could share a little bit about that, but what do you suggest when people are coming... I know you do a lot of transitional work, right? People coming out of the military into the finance profession. What are some of those conversations like and some of the best practices that you've found?

Eric Pollackov:

The name of the corporation is called American Corporate Partners or ACP that I've been with now for over eight years, which means that I've had a minimum of eight different mentees. They vary vastly. You have some that have served in combat in the Middle East, for example, that were enlisted right out of high school, right? Then I have a gentleman that I'm currently with now who's my age, is retired after 25 years in the Army in Hawaii and moved back to Virginia to get back into the swing of public life and just help walking him through some of the things that he should be thinking about with regards to work-life balance now is an option, right? He grew a beard, right? He's like, "I haven't shaved in three months." You know what his favorite thing was?

He can wear white socks, just crazy stuff like that, because he wasn't allowed to when he was in the army. He was like, "I just appreciate a white sock now more than anything in the world." So the point here though is that giving some time back to people that have given their entire lives or portions of their lives in order to facilitate the things that we take somewhat for granted sometimes in this country is very gratifying for me, just personally. I also do a lot of mentoring within Invesco. Invesco offers a mentoring program as well. There are just certain people that have gotten the job at Invesco, but then they need the guidance on how to navigate Invesco.

So, I do a lot of that as well, but just mentoring in general. If you're young and out there and you don't have a mentor, I suggest you get one because I wish I had had one when I was 20. Well, I'm not going to tell what time I got into the industry, but I will say I wish I had a mentor very early in my career. Not that I'm upset with where I'm at, but I just think it would've been helpful to help guide me through some of the decisions that I made throughout my early career.

Douglas Yones:

Are there commonalities where you've found, hey, here are some key themes that just almost anyone coming up through should be aware of? I don't know if it's an area they should just focus on for themselves or ways to find better balance or ways to get ahead? Do you have things that you've found over the years? Because I know you personally, so I think you make light of how much time you spend in your life helping other people with their careers.

Eric Pollackov:

One of the early pieces of advice I got from one of my first bosses at Susquehanna back in early 1999, 2000, was never stop being a sponge. It always resonated with me. I love exchange traded funds. I actually enjoy the work that I do. It doesn't feel like work to me even when you get some bad days and some bad trades and so on and so forth, but I love what I do and I never want to stop learning. I think if you can have those two things in your life, you're going to be successful, I promise. But those are some of the pieces of advice that I got when I was a young guy. Then the other one I always remember too from a partner at Susquehanna back in the day, he goes, "Do you want to know a little about a lot or a lot about a little?"

I didn't know at the time when he asked me the question, but what I've come to learn by being a sponge and really enjoying what I do, I know a lot about something very small. Although it's not going on $11 trillion in assets under management, but that's really the concept that... My wife, I'm married 25 years, 24 years will be this year in October. She still has no idea what I do, but I love the ETF business. I love the ecosystem that's developed over the course of the last 20+ years and really enjoy being that sponge, so to speak.

Douglas Yones:

Okay, yeah, fair enough. Thank you for the work that you're doing to help so many as they exit the military. Can you remind the listeners if they're like, "Hey, I'm listening and maybe I want to help the organization as well," walk us through where they can find out more information?

Eric Pollackov:

acp.com, apple, Charlie, Paul, .com. It's a wonderful organization. It's free other than your time. You can also donate physical US dollars and cents if you want to, but you don't have to. It's not a requirement, and it really is an inspirational type. Hopefully, you can affect someone's life.

Douglas Yones:

Excellent. For the mentees that are listening in from acp.com, please help your mentor with his alphabet when it comes to military code because he did not use alpha, Charlie, papa. He used, what was it, something wrong. So, acp.com. Okay, Eric, let's come back to trading. For those that are out there listening in, I want to ask the same question. I know it's a hard one, because I'm going to say best practices for trading, but I know it matters depending on whether you're an institution or you're an advisor or you're retail. But generally speaking, I know you spend a lot of time on this. I've watched you on panels talk about this. Could you share some of those most important items when it comes to trading ETFs?

Eric Pollackov:

Sure. So, what's interesting is this advice has drastically changed since I got into the industry, right? When we think about reg NMS implementation or regulation in National Market System in 2005, 2006, that changed a lot of the market structure. Even since then, we've evolved with things like limit up and limit down protocols, the flash crash, things like that have evolved our market structure to a place where it's pretty envious by people not in the United States. I can promise you that by a particularly managing teams outside the US. But what I say is for ETFs, to your point, depending on the type of access you have is part one is one piece of advice. Part two is what I always talk to clients about is, "What's most important to you?"

Not everybody says price, sometimes price is not the most important thing to you. If it is, well, then you've got to use potentially what they call an RFQ platform or have access to a liquidity provider that can actually transact on your behalf. If you don't have things like that, then you want to think about, "Okay, what's my goal here? Do I need one price? Can I spread out over the course of time? Can I spread over the course of a week, a month, a day, an hour?"

Those types of things need to be considered as well. One of the things that's drastically changed is when I got into the buy side of the business or the asset management side of the business at Schwab, we would always tell clients, "Don't trade in the last 15 minutes of a trading day and don't trade at the beginning of a trading day. Because if you look at an intraday volatility curve, it's a smiley face. It's highest at the open, tends to lull down during eastern lunch hours, and tends to ramp back up at the close." That's changed, the rise of indexing investments, whether it's ETFs or mutual funds, because mutual funds index based have taken in many assets as well, has caused this liquidity provision perspective that gets very liquid at the last 10 minutes of a trading day.

Liquidity providers understand that asset managers need to either buy or sell securities to match as closely to that index as they can, and therefore there's a lot more transactions and trading that are occurring in the last 15 minutes of a trading day. So, my point here now is that we'd still say in ETFs to generally avoid the open, they're generally the most inefficient transactions that occur, and then put it into midday or towards the end of a trading day. You'll find generally most highly liquid products will be transacting then. So, it's changed over the course of time. Now, if there's potential regulatory changes as Gensler has proposed at the SEC level, it's going to evolve even further. We're going to have to have those conversations to talk about that too. That's a big if. We'll see how that plays out. I'm sure you have an opinion there too.

Douglas Yones:

Yeah, absolutely. I won't necessarily ask you to comment, but I'll add on just because it's relatively new, but one of the, in my mind, coolest new things that have come back to ETFs is taking the market. So, you mentioned ETFs on the floor, right? Historically, they started on the American Stock Exchange floor, as you mentioned, moved off floor away from what we call the specialist model to the electronic markets. Now about a year ago was PIMCO launched their first ETF onto the NYSE floor with humans. We now have 22 ETFs. The newest one went down there this morning. It is fascinating, because the market structure, probably not for this venue, but for those listening in that want to learn more, please reach out or you could follow me on LinkedIn.

I published an article recently showing what happens when an ETF goes to the floor. Not only do spreads and depth get better, but you can actually trade the auctions. The auctions themselves become one of the least volatile times of the day. It's like the reverse of what we've all known for the better part of 20 some years, I think, since ETFs moved away from the specialist model. So, it is interesting, and this goes back into where we started, which is something new is coming along for the ETF markets almost every single day.

Eric, when you look out at the Invesco lineup of ETFs, let's say your wife does knock on the door and say, "Hey, after all these years, I want to know what's going on," how do you describe the lineup? How do you describe the way Invesco thinks about ETFs and the products you do build or don't build and how you engage with your clients?

Eric Pollackov:

Well, it does depend upon region and decisions on what we think about there, but I'll focus on the US for now. We have over 220 products in the United States, and what we think about mostly is where are our investors in the economic life cycle of the United States, right? If it's a downly trending economy, we have a product for that. If it's an upwardly trending economy, we have a product for that. We run a very diverse lineup that includes US equities, non-US equities, commodities, Bitcoin now, a huge, fixed income lineup with over $47 billion in assets under management there. Even there, we try not to be very general. So, we don't do an aggregate bond type product. We don't do corporate bond product. We do different types of strategies such as CLOs, bank loans, et cetera.

So, that's how we think about the lineup. At the end of the day, Invesco is pure asset management and asset management only. We don't do checking accounts. We don't do credit cards. We don't do home equity lines of credit like many other issuers out there. We are strictly pure asset management, which means that we need to design products that benefit our investors, and that's the whole goal here. Whether they're saving for retirement, trying to buy a second house, college education, whatever the case may be, we try to build a product for them. That's really the culture and the conversation that we think about when we're developing products in each region.

Douglas Yones:

I know you guys focus a lot on education. We spent a lot of time with your team recently talking a little bit about the certified ETF advisor designation, but what opportunities for education do you see out there, right? You've been at this for the better part of two decades. Are there focus areas that you and your team Invesco lean into with respect to the advisor community?

Eric Pollackov:

Totally. I mean, particularly advisors, what's great about it is there's always an advisor that you haven't gotten a chance to speak with yet. When I was at Schwab, I had a very good access to advisors, because a lot of advisors, independent custody there. Here at Invesco, almost 60% of our lineup is owned by RIAs down, so RIAs down to retail. We've had a lot of access, which has been great. What I would say is that every year, there's a new wave of new advisors that want to be taught and want to listen. When you have that captive audience, the education just rolls off you. It just becomes part of the process of developing product, managing product, and talking about this huge rise of assets that has happened over the last 20, 20+ years.

I used to ask a question, because this was back in, let's call it 2010. I would go to a CFA event. So, you're all CFA's out there, and most of them advisors. You would ask them, this is 2010, "How many people in this room own an ETF?" It'd be like 100 advisors there, and you'd have maybe 20, 25 raise their hand. Now, it's completely flipped. If I ask the question now when I go to these types of things, I say, "Who doesn't own an ETF in the room?" You maybe have three to five hands. It's just become human nature and the technology is better. I think about going from a landline with a wire to a landline where it's cordless to now an iPhone and no landline. It's just the evolution of technology and the ETF wrapper has proven that as well.

Douglas Yones:

So let's talk a little bit about 2024, I mean, the markets, boy, we've got everything on our plate. We've got an election cycle. We've got inflation, fed interest rate decisions, which seemingly every day some news, comment comes out. We've got geopolitical risks, wars. I mean, the list pretty much goes on and on. When you're having those conversations at Invesco, I mean, how are the investors that you're talking to positioning themselves this year?

Eric Pollackov:

What I can say is where have we seen flows? That's the main conversation that we've had. We've seen large cap, we've seen mega cap, and we've seen outflows unfortunately into equal weight, which is surprising based upon how the Big Seven are basically driving our stock markets specifically. The equal weight conversation is the S&P 500 equal weight, RSP. It gives you broader exposure at just that, about half a percent of every stock in there. So, we think overall that there will be some volatility as we can all predict going into this election and wins.

I don't know if we're going to know on election day, so that provides even broader volatility. But from now until then, it's going to be interesting to watch how big things like Nvidia and Microsoft can get in this stock market, because it's unbelievable, some of these runs that we're seeing there. But to your point, there is a lot going on, and Two Sigma events seem to be coming more common as opposed to being Two Sigma anymore. So, we'll see how this works.

Douglas Yones:

So looking out at the market right now, Eric, do you look at the lineup and do you have any favorite ETF or set of ETFs that you're excited about?

Eric Pollackov:

Yeah, I mean, RSP is really one that I love. It provides us that market exposure at a less momentum mentality. I feel like the market being driven by these six or seven securities is really momentum driven right now. So, that's one. Then the bank loan conversation is another one. BKLN is a product that is steady, has a nice yield, and just slowly grows over the course of time based upon those distributions that occur on a monthly basis. So, those are the two products that I would say right now are in my favorites list.

Douglas Yones:

By the way, if you're listening in and you forgot to write it down, let's say you're driving and you're like, "Oh, what did Eric just say? What was it BKLN? How am I going to remember that? I'm driving." You don't need to worry. You can go to etfcentral.com, just go into the search bar, type in Invesco, and it will give you every single Invesco ETF. You'll be able to find the Bank Loan ETF, RSP. It's just the equal weight S&P 500. Of course, you can go to Invesco's website as well. Don't want to discount that, but that was the whole point of building that search screener to make it super easy for you.

Eric, let's say an advisor's listening in. They caught this and they said, "Hey, I'm one of those advisors. You haven't engaged with me yet, but I think we should be talking." What's the process for that, right? I see you a lot. You speak at panels. People come up to you afterwards and they say, "Hey, I'm managing money," or "I'm a strategist. I want to engage." What do they do?

Eric Pollackov:

So there's a couple of ways. I mean, first off, we do have an 1800 number that goes off to my entire team. Based upon where you are, whether you're in the US, Europe, Canada, or APAC, there is a different number there. That's the easiest way. Email is another, first name, last name@invesco.com. That's all of us here at Invesco. So, that makes it easier, but ultimately, those are normally the ways that we engage with our clients.

Douglas Yones:

I can tell you, Eric is one of the most easily accessible people out there. Reach out to them on social media. If you need, you can come in through me. I'll connect you. I can't tell you how many times people have just reached out and said, "Hey, can you connect me with someone at Invesco?" I connect them to Eric, and it's like minutes, not even hours by the time they're connected. So, well done to you and the team for working so hard to keep everyone happy. Eric, I want to thank you so much for taking the time to engage with us today. That is a wrap on today's edition of ETF Central, the podcast. As a reminder, you can find this episode as well as many other episodes and you can learn more about that Certified ETF Advisor, CETF designation, all at our website, etfcentral.com.

Eric, thank you again for all the time and the service you're doing in the organizations that you support with mentoring. Please stay tuned for upcoming episodes featuring thought leaders from across the ETF ecosystem. I'm your host, Douglas Yones, Head of Exchange Traded Funds at the New York Stock Exchange, the home of ETFs.