“I hope we’ll see increasing interest in and more thoughtful use of some of the really smart multifactor products and more strategic fixed income betas. We could see some spicy stuff in the bond ETF world. These types of products offer a really great opportunity for issuers to work with advisors and participate more in the portfolio construction and idea gathering process.”
Jobs in ETFs (JiE): From degrees in journalism and political science to investment director at WST Capital Management, tell us about your career path.
Elizabeth Marchetti (EM): Born and raised in Jackson, Mississippi, mine has been a slightly unusual career path – you can thank Mississippi for Rock & Roll and the modern American novel but it’s not at all a hub for Financial Services and definitely not the institutional Asset Management world that I eventually ended up in.
Graduating from Boston University at 20 with political science & journalism degrees, the plan was to be a lawyer at some point, but I landed in the industry through an entry level client service admin job at Wellington a large private, global asset management firm. At the time I had little or no personal history with investing, had never taken a business class and was literally vague on the differences between a stock and a bond and knew nothing about capital markets but the Wellington approach is to find the right people for their organization and go from there.
I fell totally in love with the industry which had a lot to do with the way Wellington looks at the world and how they approach research which was fascinating to me. My time there formed my concept of investing and problem solving and, most importantly, a belief that integrity can and must exist even at a firm of that size.
Personal circumstances prompted my next 2 moves, first to San Diego, where I joined a small cap boutique firm called Rice Hall James, starting my transition towards the investment side in a role bridging the gap between portfolio management and business development and subsequently to WST in Norfolk, Virginia. I joined in a business development role but have pretty much worn every hat over the past 4 years every front office role in both business development and investments, and become deeply involved in strategy, management and operations.
From a very random and fortunate introduction to the industry, I’ve been lucky to land at three firms that are very different in terms of focus, approach and size but where I worked under really competent, generous, leadership, benefitting from their interest in my development.
JiE: Biggest challenge of your career to date and how did you navigate?
EM: The biggest challenge in my career has been at my current role related to learning the type of client we deal with. WST Capital Management is the tactical ETF strategists division of Wilbanks Smith & Thomas Asset Management which is an almost $4 Bn RIA where thecore business is wealth management and provision of sub advisory service for taxable clients.
At both Wellington and Rice Hall James I had worked almost exclusively with institutional clients with little or no exposure to taxable clients and literally did not understand taxes as a friction that has to be considered in investment thinking. An investment idea is only as good as it is suitable and worth the cost or consequences implementing it and taxes completely alter the case for an investment idea. You can have a really intuitive macro story or a great investment case but I’ve had to learn a lot about balancing my sense of what’s worthwhile and implementable in taxable portfolios – I’m still learning a ton every single day thanks to some very patient, colleagues and peers.
JiE: What is the best bit of advice you’ve received in your career?
EM: From an investment perspective – the classic one, don’t fight the fed! In terms of career advice, my current mentor and boss at WST, our CIO Roger Scheffel who – if he comes across this interview will be pleased to learn I listened to him once at least – gave me some great advice when I was considering a couple of paths at the firm.
He suggested that I picture my resume 10 – 20 years from now with my current role at the bottom, my dream job at the top and then a blank space in between. As you fill in the blank space with whatever opportunity you’re considering, take a step back, consider what story the resume is telling and whether or not it makes sense? Does the middle piece get you to your dream scenario and does it get you what you want in the meantime? It’s incredibly simple but very powerful advice that I acted on then, and I consider relevant to anyone whether changing roles or considering what additional work to take on in an existing role.
JiE: What do you work on, what are some of the challenges that you face in your role and what do you enjoy the most?
EM: My role as investment director is pretty extensive, as I sit in the middle of a firm that offers both wealth management and tactical, actively managed solutions that use ETFs. I’d say my focus is divided between product management and distribution for our tactical strategist and serving as investment strategist for the firm overall. Often that takes the shape of playing devil’s advocate for macro ideas I encounter or interesting investment vehicles that we find. I research and write the firms markets & economic content and I troubleshoot portfolio construction through a couple of lenses, fund selection specialized reporting, taking the lead on our efforts to integrate ESG or deliver thematic impact solutions, especially for our growing business advising small endowments and foundations. I really enjoy being the gatekeeper of sorts for our asset management partners and try to take a collaborative approach there.
JiE: Has being a woman in the industry ever had any positive or negative impact?
EM: This will sounds like a punt but it isn’t something I think about much.Otherwise I think it has been a positive – I’m a sub-30 year old female working in a mature male dominated industry. There’s a natural and very encouraging interest in different perspectives and it’s assumed that I bring one, so I’ve never felt challenged or unwelcome on the basis of being female. That said, I recognise that I may have had a different experience 10 years ago. I’m very grateful to both women and men who’ve made it so I don’t have to be wary of the less appealing side of culture in this industry, and I’m lucky to have worked at firms whose cultures center on respect and competence.
JiE: How have you seen asset management change during your time in the industry and what trends will shape the future?
EM: In a ‘word’ . . . ETFs . . . and not because they’re so central to my day-to-day, although my shift from traditional asset managers to an ETF focused RIA has definitely made me much more ETF aware.
In recent years, ETFs have bridged the role between a retail vehicle and occasional tool for institutions. They have exploded in the context of a challenging environment for active management in general – a very lucrative beta environment. There has also been an ongoing cost competition driving the environment in general.
Looking forward I expect a moderation of that beta market trend. Given what we’re seeing with the development of active ETFs, different types of mousetraps from an indexing perspective and the emerging conversation around non-transparent, I think we’ll see ETFs mature in pace with what feels like an inevitable rotation in style and factor favouritism in markets generally.
JiE: Fixed Income ETFs were one of the big stories of 2019 – will that continue into 2020 and beyond?
EM: It was a huge year for fixed income ETFs and for fixed income in general, though the 4th quarter somewhat took the wind out of the sails of what was really shaping up to be a lights-out bond rally. At a point in the 3rd quarter the 30 was outperforming an S&P that was up very solid double digits!
Going forward, I expect that the passive fixed income ETF buying spree will mean revert in tandem with the general bond market softening, especially as people get more confident in the apparent global economic recovery and they begin to pull money from bond market ETFs or bond ETFs to deploy more bullish views.
That’s going to create a big opportunity in 2020 for some of the more niche stuff. There are areas of carry in markets, in ideas like emerging local and bank loans and a few other ideas that are appealing and accessible through ETFs and through many cuts on that market segment – those types of tickers will get interesting in the coming year especially.
JiE: What other trends do you think are going to define the next few years in the ETF space?
EM: I hope we’ll see increasing interest in and more thoughtful use of some of the really smart multifactor products and more strategic fixed income betas. We could see some spicy stuff in the bond ETF world. These types of products offer a really great opportunity for issuers to work with advisors and participate more in the portfolio construction and idea gathering process. There’s an opportunity with these more sophisticated products to really educate alongside advisors and allocators.
JiE: Tell us about some of the biggest challenges you see for ETFs moving forward.
EM:Execution!!! Through our tactical asset management business, execution as a competitive advantage and best execution as a responsibility are things I’ve worked to get better educated on and have become passionate about as an aspect of delivering our investment solutions.
Just for context, for nearly ten years we have leveraged institutional execution partners for all of our tactical trading, that is – in accounts we manage and where we control execution. This is the best way we’ve found to deliver our concept of best execution as it relates to our strategy.
Model delivery – where we don’t control execution – is an increasing share of that business and obviously a big part of distribution strategy. In working to get up and running on platforms and figuring out how to deliver our solution I’ve become really focused on differences in execution approach as it relates to delivery of our solution. Everybody seems to tackle it differently and client experience can reflect that. As a tactical shop we are especially sensitive to the topic but I think literally everyone should be invested in this conversation.
It is an industry “macro” thing. Platforms and technology have been a big driver of ETF distribution at scale and likewise a huge pathway for asset management solutions that use ETFs. All of us – platforms, tech, model managers, allocators and product providers – need to consider whether or not we are being thoughtful about how we deliver model-based solutions, about how we view the client’s investment experience, both in the ETF and in whatever the framework for using the ETF is.
It’s not a super fun conversation to have but I think issuers and asset managers who use ETFs really should make an effort to educate on the impacts of execution, demystify capital markets concepts as they relate to primary and secondary market liquidity and really educate on the difference in trading mutual funds versus ETFs especially at substantial sizes.
As we drive more and more advisors towards managed money solutions and use of models there are going to be opportunities to trade more efficiently at the RIA level, but it’s going to require a lot of education.
It can be a very collaborative conversation and, at the end of the day, it’s about making sure that, through a combination of execution support, education and conversation with the platforms, the client gets the optimal end experience both in the ETF and in the strategy around it.
We’re all stakeholders in that discussion and I’d love to see it happen in the near term.
JiE: If you had a superpower what one thing would you change in the ETF industry today?
EM: So my superpower is to get the ETF Genie with 3 wishes and I would go with:
1. Execution – did I mention execution:-)?
2. More support for ETF entrepreneurs/independent ETF issuers/would be asset managers. A group of guys that quit their day jobs at 30 to go launch the one of the first eSports ETF come to mind. It’s brilliant and they are amazing, but I think they’d say there are barriers to entry and big barriers to achieving scale. We should have some sort of advocacy group or think tank for the little guys to foster small but really disruptive ideas.
3. Dogs at Inside ETFs – I have two dogs and am a clearer thinker and better human when they are around. A million dogs.
JiE: You will be speaking at the upcoming Inside ETFs 2020 event in Florida. Tell us a bit about your session on Fixed Income in Uncertain Times and what attendees can expect to take away.
EM: 2019 was a very robust and unique year for bond markets. We saw quote “bull market for everything” and that reflected pretty extraordinary monetary policy moves and I’ll argue, and I don’t think anybody’s going to disagree too rigorously with me, that last year reshaped the global rates paradigm for a long time to come.
So what does it mean to people trying to build portfolios and allocate? We want attendees to walk away with a good grip on the concept of investment versus trades – meaning long or intermediate term strategic playbooks versus tactical one-offs for your next couple of quarters.
Now that the dust has settled on 2019 you will hear that those playbooks should be focused on total return rather than yield since real positive rates barely exist and yield is hard to come by – so be focused on total return rather than yield in strategic portfolio building.
We’ll also review a plate of “trade ideas” that we think investors can capitalize on with some unique ETFs, things like emerging local debt, bank loans, interesting plays on inflation that might not be part of the day to day playbook but that we really like for the next few months and that advisors can access through some really great products whose sponsors I am sure will be present.
JiE: Staying happy and positive at work, any secrets you can share?
EM: Stress is part of any job. We work in a competitive, fast moving industry and long term I think that happiness is going to be a function of whether you are doing the right job at a place you believe in with people you trust and respect. Long term you should be able to figure out if your work is an obstacle to your happiness.
Positivity to me is more of a day to day thing which rests on perspective and as I’ve matured in my career I think I’ve learned to maintain perspective better. Dogs help.
JiE: Work-life Balance. What is it for you and how do you achieve it?
EM: If you asked my parents they would say I don’t have it:-) but my husband would say “she’s just getting after it.”
I believe strongly that people should not be hard on themselves about this. I am lucky that I have a job that I don’t want to strictly disconnect from for ‘x’ hours of the day and I think the lines have faded anyway given constant connectedness and desire for flexibility.
Overall I’ve learned to take my own pulse relative to my concept of what makes me happy and as long as I’m literally jumping out of bed in the morning, or most mornings at least, I feel that’s fair. Work-life balance is whatever feels healthy and sustainable to you and I would say don’t apologise for getting after it.