Bilal Little:
Welcome to another edition of ETF Central. I'm your host, Bilal Little, and I'm excited about today's guest because she's a friend, a colleague, and someone that has a tremendous history in the ETF business. Her name is Holly Framsted. She is the Head of Product at Capital Group. And with that, welcome to the show.
Holly Framsted:
Thank you, Bilal. It's so great to be here.
Bilal Little:
When was the last time you were at the Exchange?
Holly Framsted:
Oh my gosh. Probably a year ago.
Bilal Little:
Oh, really? Okay.
Holly Framsted:
Yeah, we've been here a number of times. We've done a few bell ringings a year, and I don't make all of them, but I think I was here almost exactly a year ago.
Bilal Little:
It's always a memorable experience when people come down.
Holly Framsted:
I love it. And the girl outside staring at, I take picture with her every single time.
Bilal Little:
Absolutely.
Holly Framsted:
It never gets old.
Bilal Little:
Motivation.
Holly Framsted:
Exactly.
Bilal Little:
Well, Holly, for the guests that don't know you, I always like the guests to actually tell their own background and story so it's important for me to let you level set just how you got into investing and how you actually got your role at Capital Group.
Holly Framsted:
Yeah. Happy to share. I happened into, stumbled into investing, if you will. I studied psychology at UCLA and I wanted to become a criminal psychologist. I thought I was going to get into forensics and I wanted to be the person that came in and found who the serial killer was and made sure that the crime stopped there kind of thing. And I interned in Washington DC in a summer, one summer, and realized very quickly that law enforcement, which is the job you have to have before you can become a crime scene investigator or a criminal profiler was definitely not what I wanted to do.
And so when I graduated, I moved across the country because I felt like that was a fun thing to do that I had not contemplated before and ended up getting a job as a receptionist at a private equity fund, which was my first introduction into anything investing. And it ignited a learning agility in me that I appreciated as a continuation straight out of university. And so I decided I was going to start digging into what is this investing thing? And ultimately ended up moving to Barclays Global Investors and had a number of roles in risk management and then portfolio management and got my CFA charter along the way so that I could acquire the education I had not gotten in college.
Bilal Little:
Yeah, absolutely.
Holly Framsted:
But I have found a passion for it, and it was entirely unexpected. So yeah, I feel so fortunate to be here and I would never have thought growing up very middle class in Southern California that this is what I would be doing now.
Bilal Little:
I wasn't going to hold this against you because you went to UCLA, and the fact that I'm a Trojan and my wife's a Trojan.
Holly Framsted:
Oh, gosh, but you're wearing blue.
Bilal Little:
This is true. But that's actually really cool, I did not know that. That's how you got your start.
Holly Framsted:
Indeed.
Bilal Little:
Talk a little bit about your specific role at Capital Group and what you're doing now and how long you've been there.
Holly Framsted:
Yes. I joined Capital five years ago on Monday so it's just past an anniversary.
Bilal Little:
Wow, happy anniversary.
Holly Framsted:
Thank you. I lead product for Capital. And so when I think about what product means to investment organizations, it really is the team that is sitting at the intersection of our investments, our client needs, and what it takes operationally to deliver those investments to the clients in the form of their choosing. My team specifically is responsible for designing and developing with our investors new investment strategies, packaging them in vehicles of our clients' choice, so SMAs or ETFs of course, and making sure that we have a way to commercialize them. So we also are responsible for bringing those investment concepts and how they manifest in a portfolio to our clients and helping support them through the sales and servicing process after the fact.
Bilal Little:
Wow, that's pretty neat. That's a broad role.
Holly Framsted:
It is.
Bilal Little:
And you stepped into this role five years ago. Capital Group has significantly grown their ETF suite. So maybe take a step back and talk a little bit about that because I guess when you stepped in, it was at Neil, right? I mean, we're talking zero.
Holly Framsted:
It was zero, yeah.
Bilal Little:
And now you're over 50 plus billion dollars and growing rapidly.
Holly Framsted:
I know, it's exciting. When I think about... I started my career in portfolio management. I was an portfolio manager at BlackRock for a number of years in those early days I ultimately moved to product because what I realized is I find passion in connecting investments concepts to solving client problems.
Bilal Little:
Gotcha.
Holly Framsted:
And so when you think about what it means then to be a leader in a product group or leader of a product group at an asset management organization, our whole job is to solve problems for clients.
Bilal Little:
Absolutely.
Holly Framsted:
And find unique ways to solve problems. And so when we set out to launch our ETFs, what we knew is a lot of our clients in our mutual funds, our American Fund Mutual Fund lineup had been asking us for many, many years to launch ETFs. And they wanted ETFs because they wanted them to be tax efficient, they wanted them to be tradable on an exchange, really just make sure that they could use the same vehicle across the entirety of their client portfolios. And many were already using ETFs on the passive side, and so they really wanted that structure in active as well.
And it took us a long time. It took the market a long time to be ready for active management in the ETF vehicle. We in fact had that wait for regulatory change to happen so that we could use the same custom basket process that delivers tax efficiency on the passive side. And so when we started, we started small. We started with five ETFs, and we knew that we were going to grow the portfolio because theoretically, if what our clients are saying is that for some of their underlying investors, so we're mostly working with financial advisors, if those advisors, investors have taxable and tax deferred assets in the taxable pool of money, they want to manage an entire portfolio with ETFs, which means if they really like Capital Group, they need a full suite of offerings in that ETF framework.
Bilal Little:
Absolutely.
Holly Framsted:
So we decided that we were going to grow. We're now at 25 ETFs in the US-
Bilal Little:
Wow.
Holly Framsted:
... and four in Canada. So continuing to grow and just over $120 billion in assets under management.
Bilal Little:
In the ETF suite.
Holly Framsted:
In the ETF suite.
Bilal Little:
North of three trillion as a firm.
Holly Framsted:
North of three trillion as an organization.
Bilal Little:
Yeah. I think this is important too. And thank you for that overview. I think this is important for you to unpack is Capital Group is a story that most people... I'd say in the US, they just don't know, and here's a three trillion plus dollar manager that's been delivering for investors for decades. Could you talk a little bit about the story, just who Capital Group is and how it's actually shifted and changed? Because it's now a global brand, not just a US-based household name.
Holly Framsted:
You are right about that. We are the largest active asset manager globally, which isn't the largest asset manager clearly, but funny side note, I decided I wanted to AI Capital Group before I came down here just to see what do other people when they look it up. And I'm pretty sure I may have just made a verb out of that, but you can't say Google anymore because Gemini delivers the results.
Bilal Little:
No, you can't. Absolutely.
Holly Framsted:
What Gemini told me was that Capital Group is the largest active asset manager globally, which we knew. We don't offer passive. So it also described us and I like this term as focused, meaning we really specialize in long-only fixed income and equity fundamental active management. Our style of investing is fairly unique. We take a multiple portfolio manager approach. We call it the Capital system, which means unlike most other firms, you don't have star PMs, which means there's not a lot of risk as our portfolio managers decide to retire with turnover in the funds.
Bilal Little:
Great point.
Holly Framsted:
Each portfolio manager manages a slice of the fund to the overall objective of the fund, and that means you have many very intelligent PMs' views and their highest conviction ideas manifesting in every portfolio. So when you think about Capital, why do clients come and why do clients invest with us for 95 years and $3 trillion and around the world, as you said, all those great things, that loyalty comes because we have a legacy of being incredibly consistent about who we are and who we are not.
Everything that we do leverages the Capital system. There are multiple PMs and every portfolio manager is making their investment decisions based on deep fundamental research, collaborative perspectives coming out in the portfolio, and really a long-term view toward investing. And that combination of deep research, diverse perspectives and long-term underpins everything. And so what you tend to see is that our portfolios don't swing for the fences most of the time, but they deliver incredibly consistently, and in particular in down markets tend to be far more resilient than you would traditionally.
Bilal Little:
I think that would be probably the best way to describe the brand as well as consistent. The loyalty that I've known just being in the industry around American Funds and Capital Group has been that and people feel confident and they build trust with the brand. Talk a little bit about, if you can, just how you guys have expanded globally, right? Because to your point, I mean, you guys had focused on the mutual fund business and the United States, servicing the advisor community for retail. Talk a little bit about the exponential growth that you guys have had outside of the US.
Holly Framsted:
Yeah. It's a funny footprint if you think about it because... So again, I'll take you on a little side tangent. MSCI, the index provider, Capital, Capital International in MSCI came from Capital Group. We actually founded the first global indexes and then ended up selling them to MSCI. And when you think about what we do, we have 33 offices and 9,000 associates globally. We have investors and analysts all around the world and always have. I mean, obviously we were creating benchmarks when they didn't exist based on our deep research.
And so then when you think about our client footprint, and yet you think about our investor footprint and our global knowledge, it only makes sense that we would be focusing on expanding our client footprint outside of the United States. We have a very large, actually newly built office in London at Paddington Station. It's beautiful. We have very large offices in Tokyo and Singapore and Hong Kong and Sydney and all around the world, and a large business in Canada as well, and are really looking to expand. But you are right, the $3 trillion we manage today, a lot of that is in the US, because that's really where our origins began almost 95 years ago.
Bilal Little:
I think that's fascinating. I met one of your colleagues not too long ago, John Finneran.
Holly Framsted:
John's great.
Bilal Little:
John was here, former colleague of mine as well at BlackRock. And John was talking about how you guys are seeing exponential demand from the Asian market as well, which you sit here and you say, "Well, Capital Group, like American funds growing out in Asia." I mean, it's just something that you typically wouldn't have seen five or seven, even 10 years ago. So it's actually a kudos to the organization and the firm for seeing the leadership and opportunity to grow outside of the US.
Holly Framsted:
It's interesting when you think about vehicle structures, and this is why I love product, because it's all about the engineering and the manufacturing of something that someone who needs what we have to offer can consume.
Bilal Little:
Yeah.
Holly Framsted:
There are two really globally viable investment domiciles, the 1940 Act in the US, and the UCITS structure in Europe. And what you'll find is that investors all around the world can consume product in each of these jurisdictions. The challenge is when you just have mutual funds, that requires a lot of piping, but the second you have ETFs, anyone can purchase them if they have access to a global exchange. We as an organization are learning the global reach of our investment capabilities because we now have a structure that enables that access that just didn't really exist before. And you're right, we've branded them Capital Group ETFs and not American funds to recognize the global reach.
Bilal Little:
That's extremely valuable. But so you have seen leadership or you've led leadership across the spectrum, but particularly I want to talk about the advisor community for a moment.
Holly Framsted:
Yeah.
Bilal Little:
You've been building product in this space for a long time, and the folks that don't know Holly, she's been doing this for a while and she's well respected in the industry. But I want you to talk a little bit about what you've seen and heard from the advisor community that's now shifted from mutual funds to the ETF and this wrapper that has been somewhat transformative.
Holly Framsted:
Well, so I've spent almost my whole career working with ETFs, and I wouldn't say that that is because I choose to be an ETF specialist. I think really, and the reason why I'm at Capital is because I like transformative technologies. I mean, I want to solve problems. And it just so happens that at the time I started my career, ETFs were beginning to take off and there was a ton of innovation and expansion in that vehicle. Financial advisors like ETFs because they deliver a very tax efficient outcome. I mean, full stop in the US, that is the primary driver of the reason to buy an ETF.
Bilal Little:
Love that.
Holly Framsted:
And ETFs are growing outside of the US where the tax benefit doesn't exist. So you layer in the fact that you can trade in the moment on the exchange at any time of day, and that adds a layer of benefit. You know precisely what value you have when you trade intraday because that market struck. You don't have to wait for the nav at the end of the day and you have to got far fewer true up trades. So for advisors and investors who have moved to that kind of transparent, easier to access, easier piping structure, having active and passive in the same vehicle makes all the sense in the world.
I'm at Capital because what I was realizing is in my prior life, I had always focused on innovating the next investment solution in this ETF wrapper because it was still solving problems and the thing that was missing was true active. And so now that we have active management in the ETF structure, I think it really becomes universal and you can build an entire investment practice around that particular vehicle and it's powerful. Yeah, absolutely. And it doesn't stop there. I mean, we're obviously focused on all the ways that we can innovate, but the ETF structure is just a really unique vehicle.
Bilal Little:
One of the unique things about Capital Group is your ability to educate the advisor. I think that's a hallmark of what you guys have done for a very long time and why you've built brand loyalty. The ETF wrapper still seems to be difficult for the advisor to understand the active component versus passive.
Holly Framsted:
Totally.
Bilal Little:
Talk a little bit about what you guys are doing to communicate the unique value proposition of active and why they need to move past just this passive index-based investment philosophy.
Holly Framsted:
It's endlessly fascinating to me because I grew up with this vehicle, and in my adult life, I've grown up and matured with this vehicle so I understand deeply how it works, and I forget how the marketplace makes assumptions on why the ETF works. Until active was available in the ETF vehicle and we started this journey of education, I think most users of ETFs thought they were tax efficient because they were predominantly indexed.
Bilal Little:
Right.
Holly Framsted:
I mean, to this day, I'll hear the logic of, "Well, since you don't really trade or since the turnover's really low," and I was an index portfolio manager for a while and turnover can still be higher in indices.
Bilal Little:
Right.
Holly Framsted:
But it's not widely appreciated, and so there was this belief that ETFs were tax efficient because they were indexed. And so the education that we've had to go on is to say, "No, it's actually about the way that you transact in the vehicle that makes the ETF tax efficient."
And you can put active management in there, transact in all the same ways an index does and deliver a potentially more tax efficient outcome than the mutual fund because you're in doing an in kind transaction on those trades. We're also having that same education on ETFs as a share class because those same advisors now, we've taught the marketplace that you can package active and passive in an ETF vehicle and it makes it tax efficient and they're still just hearing, "Okay, so ETF means tax efficient."
Bilal Little:
Absolutely.
Holly Framsted:
And ETFs as a share class, they have their own nuances and it's nothing is automatic in this world. You just have to take the time to look a layer deeper. And so yes, if you asked John five years in, he's been talking about ETFs from Capital Group for five years with us and every day still involves a lot of education. And we're willing to spend the time to do that because it's so important that our clients understand what they're buying and the value it's bringing and why.
Bilal Little:
Thank you so much for clarifying.
Holly Framsted:
I guess that will help them make better decisions.
Bilal Little:
It's actually refreshing to hear because most issuers are not spending the time upfront to educate and add actual value to the advisor as they go on to communicate with their end clients so it's good that you guys are doing that.
Did you know that there are 4,600 ETFs in the market? There's a lot of product and there is a lot of complexity. That is why we built etfcentral.com. It's the only resource that you can go and monitor your portfolio, properly compare products, and unpack what's underneath each ETF. Please visit etfcentral.com.
Let's switch gears if we could, just broadly speaking, and touch on, I would say Capital Group's house views of where the market is today, and what are some of the opportunities that you guys are utilizing to express your views and the investment vehicles of your ETFs.
Holly Framsted:
Yeah. I think unique to other asset managers, Capital doesn't produce a house view.
Bilal Little:
Love that.
Holly Framsted:
We don't produce a house view because the whole purpose of the Capital system is that we want diverse perspectives to manifest themselves in their portfolios. And as a result, we're not telling our PMs how they should invest. And we don't tend to make very top-down tactical moves where we're packaging our funds together in solutions. Our solution, so Capital manages about $250 billion of model portfolios. We have a team that's job is to combine funds together. And so you would think, okay, what's the top down macro view that manifests in that?
We tend to be far more strategic in our asset allocation decisions because our belief and what we see in reality is that our portfolio managers, so the bottoms up portfolio design process are expressing the more tactical view in the stocks that they're looking to invest in. And so you may see our funds shift their exposures over time, but you will tend not to see us from a top down perspective say that investors should be moving because we're very focused on the long term, and we think that let the experts make the decisions that are more tactical.
Bilal Little:
That's really good because what it does is it keeps you away from chasing the headline conversation.
Holly Framsted:
Totally.
Bilal Little:
And then allow the expertise to manifest throughout the portfolio to tactically move, that makes total sense.
Holly Framsted:
Well, and so one thing that we're seeing now is that you can't really express in a tactical asset allocation view is a broadening of the markets.
Bilal Little:
Absolutely.
Holly Framsted:
Right? You no longer are the mach seven driving all decisions. And if you were really focused tactically from a macro perspective on mitigating your large stock risk in the US, then you'd have to choose to invest outside the US. And we've had a pretty strong US bias in our portfolios for a while. Our view was still the US is a great place to be, or you'd have to choose to go down the cap spectrum and instead of buying a large cap company or large cap fund, buy a small or a mid-cap fund. And again, that's making a very different tactical bet.
Instead, our portfolios have been far more diversified and as markets have broadened, and as our clients are really understanding the risk that they're taking in that mega cap portion of their portfolio, they're appreciating the diversity. You can only get that view expressed through bottoms up stock selection choices in the portfolio. That's just an example of how our views we prefer to have manifest bottoms up versus top down.
Bilal Little:
Talk a little bit about flows and where you're seeing the adoption from the advisor community, right? So are they allocating more to US large cap or are they starting to broaden out and even look at foreign and international exposure?
Holly Framsted:
Well, I think this year's been a shift and finally investors are interested in international investing. I say that because as an organization, we have a hallmark and a very storied history of being a premier global investment manager. I mean, our global strategies are some of our most well-known. EuroPacific Growth Fund is in almost every retirement plan in the United States. And so we're very well known for global investing and yet investing outside of the US has been very out of vogue.
Bilal Little:
Ironic.
Holly Framsted:
Our ETF franchise, if you look at the growth there, our largest exchange traded fund is CGDV, our Dividend Value ETF. The results there are phenomenal, and I would say that is classic Capital and it's a US-focused investment service. It's designed to deliver more resilient returns over time through a focus on dividend investors. Our second-largest ETF is CGGR, our US equity growth ETF. So call it growth and value, I think that tells you-
Bilal Little:
Absolutely.
Holly Framsted:
... investors are still introducing a lot of, US investors are still introducing a lot of home country bias into their asset allocations, but they're using the component pieces of growth and value to help them figure out where to focus. And the fact that CGDV, which would not have been very strongly weighted towards those heavy growth names is the largest fund over this five-year time horizon or four years since we launched the products, I think that tells you that investors are coming to us for the diversification.
Bilal Little:
I'm going to ask a random question here.
Holly Framsted:
Please.
Bilal Little:
Because anyone can purchase the ETF wrapper and the dividend conversation is really, really big in retail, do you guys have a thought or a view on how do you incorporate your messaging to include retail at all? Do you think about that?
Holly Framsted:
Meaning end investor or?
Bilal Little:
Yeah, the end investor.
Holly Framsted:
Are we going direct to consumer?
Bilal Little:
Correct.
Holly Framsted:
We don't spend really any time or any marketing dollars targeting direct to consumer. Where you will see our brands show up are in areas where we believe financial advisors are more likely to engage with the content. So we aren't spending a lot of time focused on that individual investor message in part because we believe really, really strongly in the power of advice.
Bilal Little:
Yeah, absolutely.
Holly Framsted:
And we want to make sure that our funds are being utilized in ways that are well understood and we think financial advisors can help.
Bilal Little:
No, I love that. I wasn't pulling you away from it. The reason I ask is because you see the massive growth of the finfluencer and the content creator online. And to your point about the value of advice, these folks are vetted, if you will, meaning folks who have licenses and financial advisors who actually spend the time with people who talk about risk and diversification and the benefits of portfolio that's properly constructed. I'm glad you clarified that. One area that we haven't talked a lot about is fixed income, and I believe that's the greatest opportunity, particularly on the ETF side, to continue to see growth. What are your views there and just express your overall views?
Holly Framsted:
Yeah, so I agree with you. I think fixed income is an under penetrated opportunity for ETFs as a vehicle. I think that's for a couple of reasons. If I think back historically, ETFs are equity instruments and you had teams of investment decision makers that knew how to operate in bond world. And the second you asked them to buy an ETF, they're moving over to the equity world just in terms of structure and how you would engage with the fund. So I think equities were an obvious first place for adoption to start.
Secondly, fixed income is just a far more tax efficient asset class. You're getting most of those returns coming to you in income, which is not... The tax impact of that is not mitigated by the ETF vehicle. The need for the structure is less than on the equity side, and so I think that has resulted in an under adoption of fixed income in the ETF structure.
And, I also think that a large reason, my view is a majority of the reason why fixed income has grown less than equities in ETFs over the long history that ETFs have existed is because in fixed income, investors largely favor active management over passive. And because you couldn't really have active in that structure and it wasn't appreciated in that structure, I think that you saw investors sticking with the mutual funds, they could get active management. And so again, enter our entrance in the marketplace and our franchise, and now we're seeing very strong growth in our fixed income ETFs alongside our equity ETFs, I think because investors realize it's easy.
Bilal Little:
I think you continue to see that actually, given the volatility over the course of the remainder of the year. Let's switch gears a little bit. Let's think about some of the partnerships that have been announced in the news as far as public-private opportunities. What are your views there and how are you guys expressing those views?
Holly Framsted:
Well, we have announced a partnership with KKR, so we are in the public-private space. We're leveraging the interval fund vehicle there, not the ETF, and I can touch a bit on why, but at a macro level, what we realize is our clients want to work with fewer asset managers, which means the asset managers they work with need to offer a broad array of investment capabilities. At the same time, when you look at capital markets, we are seeing a blurring of the lines between what is public and what is private and clearly information disclosure. There are clear differences between those two marketplaces, and a lot of really large companies are private right now.
And to wait until all that value creation happens and a stock can IPO to be able to get invested, I think over the longer run, the marketplace will see as a miss. Our view is that over time, you will continue to see a blurring of the lines. When I think about the public private credit interval funds that we've launched with KKR, the way that I think about that is you can take a multi-sector portfolio and just add another sleeve of private credit, not dissimilar to adding a sleeve of high yield to a portfolio to get broader diversification, potentially higher levels of income in that portfolio, and a more complete view of the investment landscape.
We believe that investors do want access to private markets. We think we can give them a very palatable entry point for those who aren't using it today. The interval fund structure like the ETF structure is democratizing, which is what makes me really excited about innovation in this space is it's about solving the access problem for the non-accredited investor.
Bilal Little:
I don't want to lose this because I think it's a very salient point, why do you believe the interval structure is much more appropriate for the private access? Just explain that a little bit more because let me tell you why. I want to be very clear on why. Because you have an opportunity to differentiate yourself, right? Meaning there's a lot of strategies that are coming to the market that actually have privates and they're saying, "You know what? The ETF structure is appropriate."
And then other managers that say, "No," and I like to play.
Holly Framsted:
Devil's advocate.
Bilal Little:
Yeah, I like to allow people to have the opportunity to make their own arguments, so talk a little bit about that.
Holly Framsted:
I've spent my whole career in the ETF structure. The thought of bringing private markets into an ETF can have a lot of appeal. When we think about what clients want, the value that private markets bring in the portfolio, and the what's in it for them, I think there's two important elements that we were considering as the problems we're trying to solve or the access we're trying to find a way to grant. First was investor accreditation. So first job is find a structure that doesn't require investor accreditation, and the interval fund and the ETF both allow for that.
The second was recognize what clients are expecting and what they're being rewarded for in the investment, and private markets are inherently illiquid. Part of the investment results you should expect to get from private markets are attached to an illiquidity premium. And so the second you increase the amount of liquidity, you'd have to assume you're sacrificing returns somewhere. And so when we thought about the ETF structure, I think part of our initial recognition was if investors are expecting to be compensated for an asset that is otherwise illiquid, we need to acknowledge that they have to be willing to tolerate some illiquidity.
And in addition to that, I mean, the underlying assets are not liquid. I think the market right now is starting to see what happens when more investors want to sell than are able to, given the underlying liquidity in the marketplace. And ETFs have come through this. We saw that in high yield and ETFs and the on exchange price discovery was a really, really important mechanism and tool in the financial crisis. So I think we'll come through this, but I don't know that investors fully understand the implications yet. And so for us, interval funds were that right marrying of broadening of access while recognizing and respecting the illiquidity of the asset class.
Bilal Little:
You said that in a very poetic way, I like it. So Holly-
Holly Framsted:
It was long-winded.
Bilal Little:
No, that was good, I like it. So look, as head of product, there's another very important part of the portfolio that I want to make sure that we touch, and that's actually model portfolios. That's probably one of the more exciting areas, at least for me, because I like to see how people are expressing those views. Talk a little bit about what Capital Group is doing on the model portfolio side.
Holly Framsted:
A lot. I would say since we launched ETFs, the number one next question we got from financial advisors was, "Fantastic. When are you going to bring this in models?" And it took us a little bit to build out the ETF suite enough sufficiently enough that we could launch a cohesive set of ETF model portfolios. What we've done in the space is we've launched a suite of all ETF active and active passive model portfolios. We have also started incorporating our ETFs in our existing tax aware model portfolios.
And when you zoom back out, Capital Group manages $250 billion of model assets today. About one in five financial advisors in the United States today are using our active ETFs in some form. And we've seen exponential growth really over the last year when our models have become more widely adopted, both home office models and those that we create ourselves. And I think what that is telling us is that advisors want a packaged solution. They don't want to have to sit here and say, "What's happening in the markets and how should I adjust my client allocation?"
Bilal Little:
For sure.
Holly Framsted:
They want to spend their time acquiring that next client, servicing the client that's going through meaningful life change. And so the outsourcing of the portfolio construction decisions to asset managers like Capital, I think it's been a very big trend. And we're starting to see that in the flows of our ETFs since we've launched ETF models in the marketplace.
Bilal Little:
So these are 100% ETF models.
Holly Framsted:
Yes.
Bilal Little:
Is there a vision at some point to possibly, and obviously I'm not asking you to front run this conversation, but to add maybe the interval funds in the future, explore those options as well.
Holly Framsted:
Yeah. So when I think about the power of a model portfolio, the easiest answer for Capital would be to say, "We're going to give you all Capital Group products."
Bilal Little:
Yeah, of course.
Holly Framsted:
All active management, that of course we think active management is the best and we think we are the best at it.
Bilal Little:
Yeah.
Holly Framsted:
And we know our clients want more than that. We launched a suite of active passive models because we acknowledged that most of our clients are also using passive. And if they want a one-stop shop solution, we are probably best positioned to help drive that for them. We launched active passive models, and so you continue down that path and you could see a world where you want passive and you want active public and you want private all in one portfolio. That's where I think the product innovation matters so much because that's where the vehicle choice matters. If we were to take existing private markets, evergreen funds, which are available in the marketplace today, what we would be introducing is an accreditation requirement on a portfolio that otherwise doesn't require it.
Bilal Little:
Absolutely.
Holly Framsted:
Ensuring that you have broad enough access for the target audience in the vehicle first is important. I think the next big step is helping investors understand how to incorporate funds that are inherently liquid every day and those that don't have daily liquidity. And that is a barrier in the marketplace right now to adoption. It is why most clients are creating a core portfolio of public markets and then they've got this satellite allocation up there. The problem with that is you can't look across the risk metrics of the whole portfolio if you're managing them as two separate funds. So for me, I hear that, I see that in the conversations I have with advisors, and that's a problem I'd love to solve.
Bilal Little:
If you had to summarize who is Capital Group in a very succinct manner for people to know exactly who we are, what we stand for, what would you say?
Holly Framsted:
Capital Group is a long-term oriented, very old, active asset manager in the US. We are focused on diverse perspectives, deep fundamental research, and a very long-term view when we think about constructing portfolios. What we are not going to do is swing for the fences, but what we are aiming to do is drive very consistent results. And just to give you a flavor of what this looks like, our American balanced portfolio, so it's a portfolio that's combining stocks and bonds together, and it's meant to be effectively a one-stop shop if you wanted to buy one fund, if you will. If you think about the tech bubble during the tech crisis, what you found is that for 98 and 99, those two years, the market was up 35%. In AmBal, American Balanced Mutual Fund was up 14%. So that doesn't sound great, right?
Bilal Little:
No.
Holly Framsted:
2000 to 2002, AmBal was up 18% while the market was down 14%. So over the entirety of that timeframe, the American Balanced Mutual Fund outperformed the market by 30%. And so that's the power of thinking long-term, not getting caught in the current craze, focused on that kind of balance and macro picture and recognizing that if we can save on the downside, that can have meaningful impact on the long-term upside potential of a portfolio. And so that is who we are in a nutshell. We are aiming to deliver very consistent, deep research-oriented investment results.
Bilal Little:
Your leadership should know that that product and it's, by itself was so difficult to dislodge when I was out as a wholesaler competing against Capital Group. That product was just extremely well known for that story because that actually helped people sleep at night and it provided confidence in the decision-making that the advisor was making on behalf of those clients so you guys should love that.
Holly Framsted:
Thank you.
Bilal Little:
Holly, I have to end with a question that is just a curveball, and I'm not going to ask you your favorite song because you probably looked that up. This one is different. I want to know what's your first childhood memory of money?
Holly Framsted:
Oh, gosh. I'm not going to give you my first childhood memory of money because I think an even better story comes to mind.
Bilal Little:
Sure.
Holly Framsted:
I mentioned we grew up very blue collar household, and I didn't even really understand what investing was until I joined a private equity fund after college. I have been a shareholder or stock owner since the age of probably nine, because one year for Christmas, so I grew up in LA, one year for Christmas, my parents gave my sister and I each one share of Disney stock. And at the time, if you had a share of Disney stock, you could go to the annual shareholders meeting. And if you went to the annual shareholders meeting, because lots of people are flying in from out of town, they give you tickets to Disneyland, and you could go through that line twice.
And so every single year for probably six or seven years before the Orlando theme park blew became big, and then Disney decided they needed to do their shareholder meeting in lots of different locations, for a whole bunch of years in my elementary and middle school days, I would annually go to a shareholders meeting for Disney. I would vote on the president and the board of directors, and then I'd get my tickets to Disneyland, and we lived in LA so we could go back to Disneyland every single year, anytime we wanted basically, because I was a shareholder of Disney stock.
Bilal Little:
Wow, that is a phenomenal story.
Holly Framsted:
Still have that stock certificate framed, you don't even get them anymore.
Bilal Little:
Holly, thank you so much for joining ETF Central.
Holly Framsted:
Thanks, Bilal. So great to be here.