Recorded Voices:
From the library of the New York Stock Exchange at the corner of Wall and Broad streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership, and vision and global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. And now welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
Humanity has always been obsessed with the future. In Ancient Greece, people would come from across the world to pose their questions to Pythia the high priestess of Apollo. The Oracle's cryptic messages would help emperors and farmers determine the course of their lives. The ritual encouraged scholars and sages to congregate at Delphi to debate and discuss what lies ahead. And that tradition has continued well into the 21st century. A few years ago, a group of psychologists wrote a book called Homo Prospectus. The authors argued that human beings are prospective creatures. We focus on projecting and evaluating future possibilities, which in turn drives our thoughts and actions to the present. Gleaning the future, they wrote, is central to our humanity.
Josh King:
Now on my Peloton, on a Zoom meeting, watching CNBC through my Roku stick, signing a contract on DocuSign, listening to Spotify, playing a Nintendo game, ordering a meal through GrubHub, binging on a series on Netflix, organizing a workflow on a Smartsheet, communicating with colleagues on Slack. I found myself, while doing all those things, thinking about the future. They all happen to be symbols included in the iShares Virtual Work and Life Multisector ETF. That's NYSE ARCA ticker symbol IWFH. And taken together, they represent some of that thinking about what the future will hold. How many of those names were we even familiar with five years ago? And how will they affect our lives five years from now?
Josh King:
The pandemic has altered our present in ways our past selves could hardly have imagined. What will the office look like now that working remotely is a realistic alternative? How will we leverage technology to understand the spread of future pathogens? How might more government stimulus affect the infrastructure we use and the places where we live and eat? What innovations and changes need to happen to make sure that our planet remains habitable? It's a challenging exercise trying to glimpse into the future, but the search can be incredibly rewarding and shape how we understand the world.
Josh King:
Our guest today, Jeff Spiegel spends a lot of time thinking about the future and believes that a confluence of global transformational forces is leading to structural shifts across industries and changing the way we live, work, and play. These forces are captured in BlackRock's iShares megatrend ETFs and allow investors own the future, in a manner of speaking. Our conversation with Jeff Spiegel comes right after this.
Recorded Voices:
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Josh King:
Our guest today. Jeff Spiegel is director, US head of iShares Megatrend and International ETFs at BlackRock. Jeff manages product, sales, and marketing for the Megatrend and International franchises. He previously led retail distribution strategy for BlackRock's US and Canada to find contribution groups. And before joining BlackRock in 2013, he was a vice president with a family office and an analyst to JP Morgan and Bear Stearns. Jeff earned is BA and philosophy and history from Brown. Welcome Jeff, Inside the ICE House.
Jeff Spiegel:
Awesome. Josh, thank you so much for having me today.
Josh King:
I think I got my history right in the introduction, but you can correct me on that. Something we didn't list at the top was one of your first jobs. Jeff, you were an elevator operator, not too far away from the New York Stock Exchange. In the past, Jeff, names like OTIS, Schindler and KONE transformed architecture through the elevator and could have been their own megatrend ETF at the time. What did you learn from that job, going up and down all day?
Jeff Spiegel:
Well, so it was an OTIS elevator that we were operating, to be clear. I learned a couple things. One was quite a bit about comic books because in between the rings in the elevator, I would just sit in there in a little stool reading those. But I would say the other thing I learned was the value of hard work. My father had me going down there probably when I started at seven years old, every weekend with him, to really start learning what had been a family business for two generations, started with a push cart, again, by the South Street Seaport around the turn of the 20th century. So I learned about the family, I learned about their hard work, and I learned quite a bit about Marvel comics. So my dad actually had a sporting goods business that specifically catered to the crowd around the New York Stock Exchange. So folks would come by after work golf clubs, tennis rackets, and the like. And again, longtime family business and a place that I really kind of grew up around.
Josh King:
And they trusted a seven year old kid at the switch?
Jeff Spiegel:
They did. Don't tell my father, but one of my favorite things to do when I was in there, you'd sort of turn the lever and run it down as fast as you could and then jump up into the air and feel sort of the effect of gravity keeping you down [crosstalk 00:06:44]
Josh King:
A little zero G action at the sporting good store.
Jeff Spiegel:
Exactly. Exactly. So, but don't tell him about that.
Josh King:
What became of the sporting good store?
Jeff Spiegel:
So the sporting good store closed up in the nineties. Again, talking about progress. So it was a place that I thought I would build my career, having really grown up there. But sort of a previous set of progress, I guess, prior to the e-commerce trend, the big-box stores really became his competitors, and he wasn't able to keep up as a small business owner in New York City. And I can't even imagine what it would be like for him competing today in a world of e-commerce behemoths.
Josh King:
So from seven years old work in the elevator, it wasn't long, Jeff, before you started an internship at Bear Stearns at age 16. I believe your first title was margin clerk, and people like Alan Greenberg and Jimmy Cayne made that firm famous before the financial crisis brought it down. But how does a teenager become interested in investments and mortgages? It... Was it a good segue from sporting goods at the time?
Jeff Spiegel:
I think so, personally. So you actually gave me quite a promotion there. I was an assistant margin clerk when I started out, not a formal margin clerk. And I think just getting back to the sort of point of progress, and then I'll sort of come back to the question about how I got there, I don't think assistant margin clerks or margin clerks really exist anymore. I think that job has been entirely automated away. Whereas, I was sitting there on a calculator, double checking people's margin calls before a letter went into the mail and told them that they were going to get a margin call. As to how I got there, I would say the short answer is I made the mistake of doing that instead of being something like a camp counselor, which I certainly regret all these years later. But I was always fascinated with investing.
Jeff Spiegel:
I mentioned I read comic books on a stool all day while I was running an elevator. When I was 13, actually, after my bar mitzvah, my parents gave me a little bit of the bar mitzvah gifts I had received just to use in the stock market and learn a little bit. And actually one of my early investments was Marvel, which at the time was fighting against bankruptcy. And it did great. My other two investments were Yahoo and Microsoft, which also did quite well and sort of taught me a lot about progress and frankly, investing in stories that I knew and related to because I was using these technology and services. My parents were like I don't really know what these companies do, but as a 13-year-old, they were already a big part of my life.
Josh King:
So before long, at 18 to 22, you're at Brown University pursuing your degree in history and philosophy. Curious what kind of stories come out of that and how you added to your portfolio from Yahoo and Microsoft? What kind of history did you focus on? And does your background in influence how you look at the market and investors today?
Jeff Spiegel:
So I focused on modern American and European history, so sort of 20th century on in the history space. And in the philosophy space, I focused on political and ethical philosophy in particular. And likewise, I was more interested in a lot of the modern characters, British and empiricists and the like. And I think what I really learned from those roles, which are a little bit unusual for someone who had already been working in finance for four years by the time I picked a major, was that in terms of history, I really learned how to think by analogy. What's happened in the past is often a pretty good guidepost to what will happen in the future.
Jeff Spiegel:
And in philosophy, I really feel like I learned to make a rigorous argument. And I think people sometimes think of philosophy as a sort of Eastern Zen meditation sort of an education. And that Eastern philosophy is certainly a part of it, but I was focused on the Western analytic tradition, which is really about the tightest, most rigorous analytical arguments you can make. And putting those two things together, I think, has helped me in all of my years in a lot of various capacities in the financial services industry. And I kind of felt like I got my finance or economics education on the job. So college was a great opportunity to learn a different way of thinking about the world.
Josh King:
So now that we've been talking about education for a while, Jeff, let's give our listeners a bit of an education. Can you explain what you guys mean at BlackRock by a megatrend and how to identify one?
Jeff Spiegel:
So megatrends are long-term structural transformational force. There's actually a category of ETFs and how we think about it, but a lot of people in the marketplace will call this category thematic investing. The thematic investing category we put at just under $90 billion in assets. The growth in it has been explosive, 50% cumulative annualized growth rates through the start of this year, and it's almost doubled this year alone. But what's important is this distinction between cyclical thematic opportunities and structural thematic opportunities.
Jeff Spiegel:
So on the cyclical side timing matters a lot, right? These are short-term geopolitical events. Interest rate changes, move in a given sector, when you get in, when you get out matters quite a bit. We wanted to focus on much longer term structural opportunities, and hence the term megatrends. Areas where we can help investors identify the full forces and themes that they can see and feel around them that are so natural and intuitive to us and invest in them for the long term, to capture outperformance potential in their portfolios, but also to capture some peace of mind in understanding what they're investing in, which I think is a huge behavioral finance aspect and benefit to this space. But long story short, megatrends are long-term structural opportunities that we offer in the form of ETFs.
Josh King:
So I think there are five megatrends that BlackRock believes will shape our future. I mentioned one of the ETFs, the Virtual Work and Life Multisector, but what are these five megatrends that are going to shape everything that we're going to do?
Jeff Spiegel:
So the five megatrends are technology, demographics, urbanization, climate change, and emerging global wealth. And I'll give you a quick hit on each of them. So technology is about long-term adoptions of new technologies. Certainly this year we've had a huge focus on virtualization, and that was a trend that was underway, but think robotics, cybersecurity, artificial intelligence. Demographics is really an aging population story. In the next 10 years, there'll be more grandparents than grandchildren in the US for the first time in history. And as a result, we're seeing more medical breakthroughs in areas like genomics and immunology, which are also in the forefront of fighting this virus. This is also where we would sit IWFH because it's not just about the aging populations. It's about the up and coming population behind them who are living new virtualized forms of life.
Jeff Spiegel:
In urbanization, we're talking about the rise of cities in emerging markets, cities like Delhi and Dhaka in the next 10 years will have 9 million people each. Shanghai will have 7 million. In that time, all told, we actually see a $100 trillion of infrastructure spending supporting this theme. The other 30% is developed markets, and this one's been controversial recently, given some concerns around people leaving downtown areas. But we still see Metro areas continuing to grow and frankly, need revitalization and infrastructure or repair. Fourth is climate change, consumer preferences and government spending shifting towards renewables. And in the megatrend lineup, this isn't just about sustainable investing, meaning more broader benchmarks that have screened out exposures. It's about very targeted megatrend investments in areas like clean energy or self-driving and electric vehicles.
Jeff Spiegel:
And then last, emerging global wealth. This is one of my favorite statistics ever, which is 44 people escape extreme poverty in India literally every single minute of every single day. And one to two billion will enter the global middle class over the next decade, mostly from Asia. So the rise of middle class consumers is not just fueling megatrends, but fueling the global economy. So those five together are really BlackRock's best thinking and guideposts as to how to identify themes and build products that are aligned with that long-term future and long term outperformance potential.
Josh King:
I mentioned Pythia in the introduction, but what made the oracles of BlackRock decide that these five trends were what we needed to be paying attention to? And was there a sixth that almost didn't... that almost made the list?
Jeff Spiegel:
So I'd say a lot of hard work and debate is what sort of got us there. We really brought together all parts of the firm. And I think this is, for me, what's really special about the seat that I get to sit in and to get to sit in this seat at BlackRock, is when we're trying to answer a question like this, we're bringing together some of the world's greatest active investors in technology and in healthcare, alternatives investors who are experts in renewable infrastructure and real estate and traditional infrastructure. We have our BlackRock Investment Institute weighing in on this question, and we have access to amazing external partners all around the world who can also help us try to solve some of these. And NYSE certainly is on that list.
Jeff Spiegel:
And so when we really thought about it, we made these broad categories where we could finally have consensus as to where the future was going, the five super highways, if you will. And if you talk to a portfolio manager in Tokyo or a product strategist in London, or someone like me in New York, you'll hear about these same five. There isn't a sixth that was left off, per se. I think we actually had pretty broad consensus at the end as to these being the five.
Jeff Spiegel:
But I think where the ongoing debate is, is really about the themes that underlie them. So it's hard to invest in demographics as an entire category or urbanization as an entire category. Rather, you have these underlying themes that we can offer a product to help investors access. And there we keep a pipeline of 20 to 40 new theme ideas we would like to launch at any given time. And honestly, the biggest constraint on getting them out there is really just the question of is this theme truly investable via public markets, right? We often agree that the theme is great, but unless there's a range of pure play securities, such that we could construct an index to help investors access the theme holistically, we won't put the product out there.
Josh King:
So you ask if the theme is investible, do you also sort of look at the broader environment, the regulatory, social, and economic forces that might have massive implications for these trends? How do you think these three forces shape the thought around the themes and the trends and the outlook for the future?
Jeff Spiegel:
In many ways, those three forces are everything. So they drive so much of the opportunity out there in the world, and certainly structural opportunities. So anytime that we're identifying one of these themes within the megatrend, we're going to be looking at those three areas to make sure that they are aligning for the growth potential of that theme.
Jeff Spiegel:
And we could sort of take that with an example. If you look at electric vehicles and you sort of take those one by one, start with the regulatory. China became the number one EV market in the world back in 2018. It wasn't because overnight, Chinese consumers suddenly decided to buy just more electric vehicle. Cities like Beijing that have a lot of pollution passed rules that if you wanted to buy a gas powered car, you needed to win a lottery. If you wanted to buy a, an electric vehicle, you could just go to the store and do it. That completely changed consumption patterns, and people really shifted towards EVs. That's an example of the power of regulatory force.
Jeff Spiegel:
On the societal side, we actually see this year that US consumers age 18 to 34 are willing to pay a premium for an electric or a hybrid vehicle. That's a pretty big sea change shift. And then in terms of the final piece, the economic or technological component, an EV battery is the most expensive component of an electric vehicle, and the prices for them have been dropping like mad, declining by about 90% over the last 10 years. Now, over that time period, at the start of it, EVs were much more expensive than gas powered cars, but EVs were dropping with battery costs. We've built traditional cars for a long time. Those have pretty much stayed the same in terms of production costs.
Jeff Spiegel:
And actually this year we've hit this inflection point where the average EV is about the same cost to manufacture as the average petrol vehicle, but the EV prices are still dropping. So in the near future, we'll actually see that crossover, which means that car manufacturers, if they want to offer value to consumers, will have to very strongly consider producing EVs to be cost effective in the market. So that's just a series of examples of how regulatory, societal, and economic forces support these themes. And all of the themes in the megatrend lineup have similar supports in those three areas.
Josh King:
And how should we think about international economies as part of the portfolio?
Jeff Spiegel:
So when we think about innovation around the world, we can't just think of that as a US story. And part of that certainly has to do with trade dynamics, which to your point, we certainly saw rebound faster than we did during the global financial crisis. But we are still in the midst of a very difficult time, so I don't think we want to call it bottom in terms of the impact on trade there. But innovation is happening everywhere, and frankly, consumers in many parts of the world are demanding services and goods at a level that is hitherto to unseen. This gets back to my point about the one to two billion people who are going to enter the global middle class over the next decade. Think about the consumption power of one to two billion people. Think about the untapped markets and opportunities that those folks represent.
Jeff Spiegel:
I'll give you another statistic. In the United States, there's about 300 million people who have access to the internet. About 30 million don't have access. So we're about 90% penetrated here. Take a look at a country like China. They have about 700 million people who have access to the internet, so already more than twice the number online here. They have another 600 million people who have yet to access the internet. If you look at India, you'd see very similar numbers. So just those two countries, without broader Asia in which there are a lot of big countries, that's 1.2 billion consumers who have yet to use online payments, who have yet to buy something and have it shipped to them online, who have never streamed a movie, who have never liked something on social media.
Jeff Spiegel:
Think about the size of that market opportunity, and that's what tells you, you've got to think about innovation or around the world, not just from the United States. And that's why we build our megatrend ETFs, by and large, to be global exposures. We are really unconstrained or agnostic about what sectors companies are in, what geographies companies are in. We're really looking everywhere on behalf of investors for innovation.
Josh King:
So, Jeff, BlackRock offers investors 14 different megatrend ETFs. iShares as partnered with various providers to identify benchmarks that capture different components of these megatrends. How do you go about identifying or creating a benchmark that aligns with one of your megatrends?
Jeff Spiegel:
The key is delivering this concept of theme beta. I'm going to of alluded to it a few times during the conversation, but at the highest level, the way you can think about theme beta is that if you're looking at a theme, let's say cybersecurity, and there are more and more cybersecurity services being provided and purchased, cybersecurity as a theme is growing, we want the ETF to grow with it. There should be a very high correlation between the overall market for cybersecurity and the performance of the ETF. That's the concept of theme beta. And for investors, I think this is what can give them the confidence to access these areas. They're not trying to decide whether cybersecurity company A or cybersecurity company B is going to be the winner. They're deciding whether cybersecurity will grow. So our mission therefor is to deliver that growth in the form of an ETF, really tracking that market.
Jeff Spiegel:
And in the case of IDRV, I-D-R-V, our self-driving and EV ETF, which we built with the folks at NYSE on the index side, we've identified not just electric and autonomous vehicle manufacturers, though certainly there are a number of those in the ETF, we've also identified battery producers. We've identified the folks who mine the materials that go into those batteries, software and hardware companies that build the sensors and navigation tools to help self-driving cars get around, and even the companies that are building the charging infrastructure all across the country and the world that makes the ubiquity of EVs even a possibility. So that's the concept of a value chain or ecosystem, and it's really important to these ETFs. And again, it's why build them to be unconstrained, to go anywhere around the world, across sectors, because all of those categories I just described to you, they're not just tech, they're not just industrials, they're not just com services. They cut across all aspects of the economy, and so we want our ETF to be able to do that as well.
Jeff Spiegel:
The last component, and I can't stress the importance of this one enough, is the waiting scheme. A lot of us have exposure to the FAMGA... I haven't quite figured out a way to say that elegantly yet now that we've had the N replaced by an M. But the FAMGA folks are large holdings in most of our portfolios already, right? If we own the S&P 500, those names are about 20%. And so when we're building folk's innovation exposures through megatrends, what we're really trying to do is identify the small and the mid-cap innovators who can be the large-cap leaders or mega-cap leaders of tomorrow.
Jeff Spiegel:
So the waiting schemes for these ETFs tend to significantly weight those all in mid-cap players and significantly down weight those mega-cap players. And so to kind of put it all together, we're unconstrained across geography and sector in search of a value chain. We think very hard about security selection and make sure we have the data and techniques to identify companies that really are pure plays and truly exposed to a theme. And we wait in a way that we're going to give diversified exposure to a range of companies, particularly those who have the potential to be the leaders of tomorrow, not just the ones who are the leaders today.
Josh King:
Not just the ones who are the leaders of today. We want to get into tomorrow after the break. Jeff Spiegel, who's the US head of iShares Megatrend and International ETFs at BlackRock, and I will drill into some of the individual ETFs in the megatrends ETF suite. That's all coming up right after this.
Dan Primack:
Hi, I'm Axios business editor, Dan Primack, host of Axios Re:Cap, a new weekday podcast featuring interviews that get straight to the point. My guests are business leaders, politicians, and reporters driving the day's biggest stories. We're joined now by Jalen Rose-
Jalen Rose:
Thanks a lot.
Dan Primack:
... Bill Ackman.
Bill Ackman:
Thank you so much.
Dan Primack:
... Senator Amy Klobuchar.
Senator Amy Klobuchar:
Thank you, Dan.
Dan Primack:
... Steven Soderbergh.
Steven Soderbergh:
Thanks for having me.
Dan Primack:
... Andrew Yang.
Andrew Yang:
Thank you. It's a pleasure.
Dan Primack:
You can find Axios Re:Cap on Apple or Spotify or wherever you like to listen to podcasts.
Josh King:
Welcome back. Before the break, Jeff Spiegel, the US head of iShares Megatrend and International ETFs at BlackRock, and I were discussing his background and also the megatrends that are shaping the future of the global economy. Jeff, let's dive a little deeper now into some of these megatrends, the technological breakthroughs that play a pivotal role in almost everyone of these. You talk about how tech has become so much more ubiquitous, lower barriers to entry, and this accelerates adoption. We talked about a little bit before, but the iShares US Tech Breakthrough Multisector ETFs trades on the NYSE ARCA under the ticker symbol TECB. What's the investment thesis here? What sets it apart from the Broad Tech Index ETF?
Jeff Spiegel:
So... Well, what really sets it apart from the Broad Tech Index ETF is a little bit of what we were to talking about before the break, which is this idea that we've limited the waiting of those mega-cap names in this ETF. That's not to say that they're not represented, but they're not represented at the kind of weights that you would see in an index like the S&P Select Tech Index, in which, for example, Apple and Microsoft represent about 50% of that in index. So rather, we're focused more on keeping them in a smaller weight and therefore diversifying the opportunity across a range of names, and not just across a range of names, but across a range of themes. So one of the things that we think is really neat about Tech B is that, we've talked a little bit already about IHAK, our cybersecurity ETF, about IDRV, our self-driving an EV ETF.
Jeff Spiegel:
Those are more discreet themes. Tech B gives you access to a range of themes in one ticker. So that's going to be cloud and data technology. It's going to be financial technology, FinTech. It's going to be genomics and immunology also represented in our IDNA ETF as a standalone. It's going to be cybersecurity, and it's going to be robotics and AI. Robotics and AI are also represented as a standalone in our IRBO ETF. So for an investor who's really looking for a one-stop shop solution to access megatrends, Tech B can really be that.
Josh King:
Earlier this month, Jeff, you talked to my colleague, Judy Shaw from the NYSE about IWFH. That's the Virtual Work and Life Multisector ETF. the fund that I talked about in the introduction. And I'm looking at the list now, and it begins with some names that are now sort of in popular consciousness: Peloton, Zoom, Roku. That would probably be about 10% of the weighting of the fund. But then the name get pretty obscure after that. Can you talk about what types of investments that ETF is looking to capture in some of these names?
Jeff Spiegel:
Yeah. So first of all, love getting to spend time with Judy, so please give her my best when next you two connect. And the way we invest in the ETF is really driven by some of the areas that you just hit on, this explosive growth and acceleration that we're seeing this year. The number of people, as of this year, who have ordered food through an app is 53%. The number of people who have attended a virtual social gathering, I certainly never attended one of those before this year, is 48%.
Josh King:
Me neither.
Jeff Spiegel:
Yeah. And the number of people who streamed a concert online is 23%. I don't know if you'd ever done that before, but I certainly hadn't before this year. And I think what this tells us is something really interesting about the traditional technology adoption curve. So when we think about that, you've got your first period where you've got your early adopters, right? These are the adventurous folks who are very tech-forward. It takes a little while for enough of them to adopt a new technology that you start to get some momentum and critical mass.
Jeff Spiegel:
Then you move into your sort of J curve midpoint where something becomes mainstream and you see huge growth in it. And then the final phase is really the late adopter stage, those holdouts who don't adopt so quickly. And we've kind of seen two big shifts on both sides of that J curve. So for some of those technologies like streaming and like e-commerce those folks who, and we all know them as surprising as it is, who prior to this year, never had a Netflix account, never had a Prime subscription. So many of them have signed up. Late adopters are not... They almost had no choice but to sign up at the end of this year.
Jeff Spiegel:
And likewise, if we look at the other side of the J, we effectively skipped the early adoption phase for a whole range of new technologies like the ones we were just talking about, like education tech, like health tech. And so that means we've effectively skipped the part where you've got your tentative early adopters, because we were all forced to adopt, given the circumstances of 2020, and move right into the J curve. And so I think... It goes without saying, this has been an incredibly challenging year for all of us. We would not wish for the circumstances that have led us to learn some of these lessons or adopt some of these new technologies, but for investors, I think at the same time, we can't ignore those lessons either.
Jeff Spiegel:
So I mentioned this pipeline, we keep of 20 to 40 new ideas in any given time. In 2020, we took a number of those and actually brought them together. So it's not that each one individually suddenly became a megatrend this year. The realization was much more that all of the areas I just mentioned are actually interconnected. You don't necessarily offer ETFs for each, but by putting them together, you give investors the chance to access virtualization writ large. And that is why we launched IWFH, to specifically offer exactly those areas of access. And the ETF uses some very sophisticated NYSE facts and indexing techniques that allow us, as we discussed, to make sure that we're getting companies that are truly deriving their revenue from these areas, that are focused on these areas, and you just read some of the top names yourself, to ensure that we're not just filling the ETF up with very well-known technology names.
Josh King:
An externality from all this work-from-home is that companies need to focus so much more of their energy on cybersecurity. The Wall Street Journal reported that the FBI has received around 320,000 complaints of internet crimes by the end of May, which is nearly double the rate the previous year. The iShares Cybersecurity and Tech ETF, which is NYC ARCA ticker symbol IHAK, or I-H-A-K, provides access to global companies that are at the forefront of cybersecurity. So continuing on the Greek mythology motif that we started from the intro, has a Pandora's box been opened?
Jeff Spiegel:
As I mentioned, I was more into sort of the modern British empiricists as opposed to the Greeks when I was studying. So I'll leave the Pandora's box question to the side, but I will say spending on cybersecurity has certainly exploded this year. When you enter a world in which so many of your employees are engaging online, but not just employees, your customers are engaging online, that makes cybersecurity that much more important.
Josh King:
We are spending a lot of our time listening to government officials mentioning the names of the pharmaceutical companies working on a COVID-19 vaccine. The pandemic has made these pharmaceutical and biotechnology names really household. The world's anxiously awaiting what comes next. But there's so many incredible medical breakthroughs that exist outside of that particular focus. The iShares Genomics, Immunology, and Healthcare ETF, which is NYC ARCA ticker symbol IDNA, is looking to invest in companies that use genomics. Why are people in medicine so excited about these breakthroughs? And what do they mean for patients that end up receiving this care?
Jeff Spiegel:
Genomics is enabling personalized medicine over the last number of years. So 10 years ago, it would've cost about $10 million if you or I wanted to just map our genome. Now it costs about 700. So a doctor can actually map an individual's genome and use that to prescribe the most efficacious treatment for them. In immunology, that's really about stimulating or destimulating the body's immune system to fight disease and has been paying particular dividends in immunotherapy and extending people's lives, who are afflicted with potentially terminal cancers: renal, lung, brain, and skin, but really are seeing survival rates increase where immunotherapy is applied. 32 FDA approvals through the end of last year. It's kind of no surprise then that here in 2020, when we're facing what is really a health crisis, that these are also the areas that are giving us some hope.
Jeff Spiegel:
So genomics is the domain of RNA vaccines. It's a radically new genomic-driven in treatment, where you're coding RNA synthetically in a lab and therefore creating a treatment very different than a flu or a polio vaccine. And likewise, we've all heard about monoclonal antibodies. If we hadn't, three weeks ago, we certainly did. When President Trump was sick with the coronavirus, he was given an experimental treatment, monoclonal antibodies, and so there were significant news on that. Likewise, monoclonal antibodies have never before been successful used. It's essentially replicating antibodies in a lab, so a scalable version of blood transfusions or plasma transfusions, effectively. Now, I won't sit here and be one of the people who makes a prediction for exactly when the vaccine comes or what percentage effective those monoclonal antibodies will be. But what I will say is, whether all of that takes weeks or months, it looks like we are going to crack these new forms of treatment for the very first time against COVID-19, and obviously that's exactly what we need right now.
Jeff Spiegel:
But if you think about the further possibilities of it, and I think this is the promise of IDNA, our Genomics and Immunology ETF, is not just fighting COVID now, but once we've tailored these treatments to that battle, then applying them to any number of diseases that have threatened us in years past or might threaten us in the future. And that is a huge long runway opportunity and a benefit of the fact that we've poured so much money and research and time and development into these areas of treatment. And again, as I said before, we wouldn't wish for the circumstances that have made us do that, but we can't ignore the lessons as investors and some of the opportunities that are created. And in this case, hopefully that opportunity aligns with new treatments that are frankly, going to give people longer and healthier lives.
Josh King:
As we now, I guess, Jeff, try to put some context around all of the, this ETFs have become an incredibly large part of the investment ecosystem. According to research from the Investment Company Institute, US net assets have grown sixfold over the last decade to, I think around 3.4 trillion, and BlackRock alone has over 850 iShares ETFs. ICE and BlackRock joined forces about a year ago to improve efficiency in the ETF market by connecting ETF-authorized participants, market makers, and custodians in this seamless automated workflow called ETF Hub. Can you talk about what makes ETFs an attractive wrapper for these megatrends?
Jeff Spiegel:
So I mentioned one of the privileges of being part of the megatrend business at BlackRock is the amazing thought leadership and capital that I'm able to access within the firm. It's also being part of the country and frankly, the world's leading ETF issuer. And so what's so powerful for us about putting these megatrend themes into ETFs is certainly the standard benefits of an ETF, liquidity, tax efficiency, cost, and all the benefits that really come in ETFs across our iShares lineup. But I think what's special about putting the megatrend in an ETF wrapper is a few things. One, we feel like we're democratizing access to these themes. I think historically, many of these themes in areas of growth have primarily been available to ultra-high net worth or institutional investors through the likes of venture capital or private equity or maybe a biotech hedge fund. We're bringing some of those same opportunities in public markets via an ETF to give any investor access to megatrend growth.
Jeff Spiegel:
And then I think the other important area is, in partnership with NYSE and FactSet on a number of the ETFs we're talking about here, I think we're really pushing forward the boundaries of indexing. We're delivering indexes that, as we talked about, cut across all the traditional boundaries of investing sectors and geographies, that aren't limited to a particular size constraint where the largest company by market cap has to be the largest company in the ETF, that use really sophisticated security selection techniques to ensure that the companies included are truly pure play that can help us deliver theme beta. So I think this is the evolution of access to exciting themes, and I think it's the evolution of indexes to deliver even greater value to investors, in this case, by giving them access to long-term megatrend innovation and the long-term outperformance potential that [crosstalk 00:40:49]
Josh King:
There wasn't any theme beta in what that young elevator operator found in Marvel or later on found in Yahoo or Microsoft. And now megatrends offer these investors and their advisors access to direct their capital into these targeted exposures that really are shaping the world. Versus the individual names, what role should ETFs play in a portfolio? How should investors and advisors be thinking about these funds?
Jeff Spiegel:
So one way to do it is just ride an elevator up and down, learn all the characters, read all the comics, and you can become an expert on an individual company. But for those who don't have eight hours to spend every single Saturday doing that sort of research, the ETF is really a tool to help you access these growth areas without having to be experts on individual companies. So what the ETF, in this case, is really helping you do versus the single stock is invest in a theme broadly to capture theme beta. Because an individual company has all sorts of idiosyncratic risks associated with it. I'll leave you with one last thought which is, on this point, everyone knew e-commerce. Was coming back in the late 1990s, the market preferred a little company called eToys that sold online toys to a little company called Amazon that sold online books. eTOys ultimately went out of business. Amazon became one of the biggest companies in the world. Everyone saw the e-commerce trend coming. Picking the single-stock winner was quite a bit harder.
Josh King:
There is this tension still today between the public markets and the private markets, Jeff. What makes the public market a compelling place to explore these megatrends? Why focus here as opposed to sticking in the private markets?
Jeff Spiegel:
So when you think about theme beta broadly, getting the right range of firms to truly deliver beta to a theme requires a critical mass of companies. Whereas, as we discussed with single-stock selection, venture capital, private equity, a biotech hedge fund, in those cases, you're relying on manager skill to select particular names that can deliver outperformance. And certainly there's nothing wrong with that, and BlackRock certainly offers investments like that. But in our ETF lineup, we're not trying to deliver manager skill. We're trying to deliver theme beta. It's hard to get that in such a broad sense in private markets.
Josh King:
As we wrap up, Jeff, what's in the future for megatrends and the BlackRock ETFs to track them?
Jeff Spiegel:
So we're going to keep innovating. As I mentioned, we have a long pipeline of new products. Look for more of those coming out from us. Look for us to continue to push the boundaries of what an index and what an ETF can do on behalf of investors. And, Josh, keep an eye out for me at the NYSE. It's been too long since I visited, and I hope after that vaccine comes, I'll get to see in person real soon.
Josh King:
Looking forward to it. Thanks so much for joining us Inside the ICE House. And the floor is open, have you here anytime.
Jeff Spiegel:
Thanks, Josh.
Josh King:
And that's our conversation for this week. Our guest was Jeff Spiegel, director, US head of iShares Megatrend and International ETFs at BlackRock. If you like what you heard, please rate us on iTunes so other folks can know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us @icehousepodcast. Our show is produced by Stephan Capriles with production assistance from Pete Asch and Ian Wolfe. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
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