Stephanie Pierce – CEO of BNY Mellon Investment Management’s ETF and Index Business joins Yahoo Finance’s On The Move panel to discuss how ETFs are faring amid the pandemic.
Video Transcript
ADAM SHAPIRO: Before the pandemic, in fact, for several years now, we’ve been watching a large flow of money into ETFs. We want to find out the state of ETFs, as well as the index business, and we’re going to do that with Stephanie Pierce. She’s BNY, Bank of New York Mellon’s Investment Management CEO of ETF and Index Business. And wanted to ask you something, because you point out that fixed income ETFs proved value as a source of price discovery and liquidity right now. I think a lot of people would be afraid of fixed income. So why would the ETF be a perhaps safer venue than actually buying a bond?
STEPHANIE PIERCE: Sure. I think you need to look no further than what we saw in March, Adam, in terms of how ETFs performed in the illiquid market, in delivering both liquidity and price discovery. If you think about that market, we saw underlying fixed income securities essentially frozen. And discounts and premium to net asset value in ETFs were a very effective tool in helping market participants actually understand where the bonds themselves should trade when liquidity returned.
Probably more important was that orderly trading of ETF markets actually enabled investors to manage their fixed income exposure, notwithstanding the inability to buy or sell individual fixed income securities. If you think about a functional fixed income market, most liquid corporate bonds trade approximately a dozen or maybe two dozen times a day.
ETFs trade much more frequently. And so when you saw the liquidity issue in March, ETFs became the only tool of price discovery. So as an example, if an ETF were trading at a 5% discount to net asset value, that told you that the bond prices themselves were stale, and we’re actually 5% higher than where the market really thinks they should trade when things go back to normal.
JARED BLIKRE: Jared Blikre here. I’m wondering if you’re seeing any trend changes this year. Everybody’s familiar with the Robin Hood story and individual investors tending to buy individual stocks now, becoming stock pickers. Is that something that you’re seeing? And is it affecting any flows into more passive investments?
STEPHANIE PIERCE: I would actually say ETFs broadly have experienced phenomenal growth from a variety of those trends that you mentioned. If you just look at the numbers today, ETFs represent over $4 trillion just in the US, and have just reached $7 trillion globally. So to your point, at the current rate, ETFs are set to outpace mutual fund assets, which have been around a lot longer, in just over three years. So we are seeing ETFs becoming the investment vehicle of choice for many investors, both at the advisor level, as well as retail and institutional clients.
JULIE HYMAN: Stephanie, it’s Julie here. If I’m not mistaken, BNY Mellon got into the ETF business what, this year, right? In April?
STEPHANIE PIERCE: That’s correct.
JULIE HYMAN: What took you so long, if you don’t mind? I mean, ETFs have been seeing this enormous growth for years now. Why did you guys make that strategic decision? And how important a part of your business do you expect it to be?
STEPHANIE PIERCE: It’s a critical part of our business. As you may know, Julie, ETFs have been a big part of BNY Mellon’s business across all of what we call, the ETF ecosystem, places that we play, for many years. So we have been a leader in ETF sub advisory, which is done by our Mellon index business. We are a leader in, of course, custody and clearing and fund administration, capital markets, and a variety of other functions. So this was a natural extension of those other businesses.
And it was really our response to, as I mentioned earlier, the growth in the industry, and particularly our clients looking for a way to diversify from the several big issuers and not have all of their eggs in one basket. So when clients ask us to respond and deliver for them, that’s something that we’re going to do. And that was why we entered the market this year.
ADAM SHAPIRO: Welcome to the ETF party. Stephanie Pierce, BNY Mellon’s Investment Management CEO of ETFs. Thank you so much for being here. We look forward to having you back.
