ETF Stars – Todd Rosenbluth, Senior Director of ETF and Mutual Fund Research @ CFRA

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Todd Rosenbluth is senior director of ETF and mutual fund research at CFRA, where he leads the firm’s holdings-based research efforts within the Equity Research and Fund group. Rosenbluth publishes regular thought leadership content on equity and fixed-income products, maintains the quantitative fund models and supports client needs.
 
Jobs in ETFs caught up with Todd in advance of Inside Fixed Income to discuss calling it as he sees it, where he sees growth coming from, his concerns for ETFs and challenges ahead.
“I started out as a financial advisor but realized that I didn’t enjoy it, it didn’t fit my skill set. The market told me that – investors told me that by not putting money directly to work with me at the firm. That was a challenge.”

Jobs in ETFs: Where does your interest in finance and research come from and how did that lead you to ETFs?

Todd Rosenbluth: My entire career has been in finance. I took finance classes at the University of Michigan and always had a general interest in the overall markets when I was growing up. My skill set was math and communications focused so a fit for finance. I actually started out as a financial advisor but spent much more time doing research on investments than trying to bring in new clients so when that role ended very abruptly I moved directly into research and found that to be a much more enjoyable use of my time. I started out in the mutual fund world – when I was starting out on my professional career ETFs were not widely known and weren’t on my radar. I focused on the mutual fund space but over time found myself moving more and more into the ETF world and leading the research effort now tied to ETFs.

JIE: In addition to your natural skill set, are there core values that have served you throughout your career, taking you to where you are today?

Todd: Calling it like I see it! CFRA is an independent research company. We don’t have an asset management business, we aren’t providing opinions only to a subset of our universe – we have a broad independent opinion. My complete research career has been in the independent research space. My mother is a public school teacher, my father was a judge and I have been trying to serve the community as best as I can through the financial services space and being independent and calling it like I see it is fundamental. It’s part of who I am and why it’s worked out for me at CFRA and within the ETF industry. I wish more people had the freedom to say what they think about ETFs and investments. I’m happy to be on the side I’m on.

JIE: Is there anything in particular at CFRA in terms of the culture that attracted you and keeps you there? I suppose it has a lot to do with that being able to call it as you see and being independent.

Todd: As a moderately sized independent research company, there’s a great entrepreneurial spirit here which I like. The research team has grown and the focus on ETFs has made it exciting. CFRA recently acquired First Bridge, an ETF data and analytics company, which is exciting. I’m like a kid in a candy store right now with access to more data than I had before – it’s a great sign of the investment that CFRA is making into the space. We are primarily a stock research provider, but investors are increasingly using ETFs and it’s exciting to be here. In full disclosure, I myself was acquired. I joined CFRA as part of the acquisition of S&P’s equity and fund research business 3 years ago. I chose to make that move and I chose to stay here because it’s a great growing firm.

JIE: Any major challenges, obviously you mentioned you were acquired, and that in itself can be a tough thing to go through. Any other challenges to date and, if so, how have you navigated them?

Todd: I started out as a financial advisor but realized that I didn’t enjoy it, it didn’t fit my skill set. The market told me that – investors told me that by not putting money directly to work with me at the firm. That was a challenge. I moved to research, starting my career at S&P as a mutual fund research analyst and when that business was restructured I found myself looking for a new opportunity and moved on to being a stock analyst covering tech and telecom companies for S&P. I had to figure out what I was good at and how I could use those skills to take on a different role and then move my way back into the fund space. I had to reinvent myself, transfer to a new role and then continue to learn and grow from within it.

JIE: Figuring out what you’re good at and being able to reinvent yourself are key strengths. Is there any advice you’d give to somebody entering the ETF industry today?

Todd: Even though the industry is growing, now close to $6 Trn. globally, more than $4 Trn. in the U.S., we are still at the early stages of ETF adoption. There’s a lot of room for growth, room for more people to enter the space, bringing skills that they can transfer from within the broader mutual fund world, the equity world, and from sales and distribution in general. I’d say welcome in, come with an open mind, figure out how your skill set can fit in well with where the industry is going, which is increasingly focused on active management and smart beta strategies. Some folks have been in the industry for a decade or two, but there’s certainly room for more to join us.

JIE: You touched briefly on the size of the industry at just over $5.5 TRn. and continuing to eat into the $45 Trn. global mutual fund market and the fact that we’re still in the early days. Where do you see future growth coming from both in terms of strategies and regional opportunities?

Todd: ETFs are still largely dominated by the U.S., most of the assets are U.S. listed products so I think that non U.S. adoption is going to increase. In the U.S. we’re going to see further adoption too as there is still a large percentage of investors that don’t use ETFs at all, favoring individual securities and mutual funds. This year in particular we’re seeing fixed income ETF adoption which is roughly 20% of the ETF universe in the U.S. and more than half of the inflows in 2019. We’re unlikely to see a 50/50 split of fixed income and non-fixed income on a perpetual basis, but I do think we’re going to see broader adoption of fixed income ETFs in the U.S. as well as globally.

JIE: Tell us about some of the biggest challenges that you see for ETFs moving forward. Then, if you have a concern, what’s your biggest concern for ETFs?

Todd: My concern is that investors are continually focusing on the cheapest products tied to the largest asset managers and they’re stopping there. There are excellent products from iShares, Vanguard and State Street that cost 10 basis points or less, but there are also great products offered by others for a slightly higher premium, that are worthy of attention. There’s nothing wrong with buying simple broad asset allocation products, but there are other choices that investors should at least be considering and then determining either that it’s not worth the risk or that it is worth the fee. My concern is that investors are often just choosing the easy button with ETFs.

JIE: Any other big challenges for ETFs moving forward?

Todd: Being able to stand out and highlight what makes your product unique is a challenge. At CFRA we do research and ratings on 1500+ ETFs and AUM is not a criteria that we use for coverage. On a variety of products both large and small tied to an investment theme this helps alleviate some of the challenges that smaller firms or firms that were relatively late to enter the market have in terms of getting their products noticed by investors, if they perform strongly in our ratings.

JIE: What’s on ‘Rosenbluth’s Radar’ today? What has caught your attention recently whether regulatory, regional or just in general?

Todd: We touched on fixed income earlier, about how popular they’ve been this year. It has been interesting to see that investors are both willing to take on risk with fixed income products, interest rate risk or some credit risk this year, as well as hunkering down and putting money in short-term bond products. It will be the first year in 10 in the U.S., if it happens, that fixed income ETFs out gather new money over equity ETFs. 

I’m focused on the pending launch of actively managed non transparent or semi-transparent, depending on how people want to phrase it, ETFs tied to the Precidian model. We should have our first products in the coming month, and I think that there’s going to be some adoption of those products. It will take some time to gather traction and we’re going to see more products. 

We’ve also been reviewing thematic oriented ETFs. There’s a growing supply of thematic oriented ETFs tied to video gaming, cybersecurity, cannabis, so it’s becoming a more and more crowded space. When you have four, five or six products tied to a theme that’s where our work at CFRA can shine in terms of differentiating between products – they don’t all own the same stocks and they’re not all going to perform the same way. What’s inside matters. Our work is useful when there’s one or two ETFs tied to a theme but it’s all the more useful when the industry becomes more crowded.

JIE: I recently saw you on ETF Edge with Bob Pisani and Tom Lydon, discussing a vegan ETF. My kids will look at that, dive into it and say okay, where’s all the vegan stuff? In fact it was Apple, Microsoft, etc. It’s so important for all of us to lift up and look under the hood to understand what’s in there.

Todd: The name of the ETF is only going to get you so far. If you don’t look at the underlying holdings and understand what you are getting or not getting, you’re going to miss out on the great things that are actually happening inside the portfolio.

JIE: One thing to look out for in ETFs in 2020, in U.S., Europe, Asia or Australia.

Todd: In full disclosure, our coverage of ETFs is U.S. listed only at this time. The data set that we acquired from First Bridge is global in nature, so I would expect that in the coming years we’ll have more to say about non U.S. listed ETFs. My remarks tend to be U.S. focused because that’s where my research coverage happens to be. 

What haven’t we talked about? It’s been hard for active management to beat the S&P 500 or do so on a consistent basis. This happens to be an odd year where money continues to pour out of actively managed mutual funds despite the fact that actively managed mutual funds are holding up quite well. It will be interesting to see if the bleeding slows down in 2020 once people get a closer look at how their active managed funds hold up. I don’t think the bleeding will stop but I think they’ll have a much more compelling story to tell even if it is an ETF wrapper.

JIE: If you had one piece of advice to give ETF industry looking forward into the next five years, what would it be?

Todd: We’re increasingly seeing more narrowly focused products come to market and not the broad asset allocation product, so thematic, smart beta, ESG, if I can put that in its own category, and each of these has a different approach. Asset managers need to better embrace and educate what makes their product unique based on what’s inside the portfolio. They can stand out from their peers by doing a better job telling the story of what makes their product different. 

For example, the differences between two popular low volatility products – SPLV and USMV. USMV is more sector diversified, SPLV can be more concentrated in the more defensive sectors, but there’s strength in both of those approaches. This is a straightforward example – there are many others that I think the industry should be educating investors about.

JIE: Talking about education, you regularly speak and share your wisdom at the major industry events and you will be speaking at the upcoming Inside Fixed Income event in San Diego. Tell us a bit about your sessions and what ETF users can expect to take away from the event.

Todd: I’m fortunate to be kicking off the conference as part of the ETF University on fixed income ETFs presenting on where the money has gone, or where it hasn’t gone in 2019 and putting it in perspective versus other years.

I’ll highlight the importance of understanding credit quality and duration or interest rate sensitivity in relation to a fund’s yield. There’s a variety of products but they really boil down to where you get your income from or what risk is being taken on to generate the income.

Then I’ll bust a couple of myths that are out there. Fixed income ETFs, despite being very small in terms of the fixed income universe and the fixed income bond market, get a lot of negative press about how they’re going to bring down the bond market. That’s far from the truth so I’ll be poking holes in that.

The second session that I’m doing is a panel moderated by Drew Voros of ETF.com, involving an active manager from Janus Henderson Investors, John Kerschner, and Rochelle Shelly Antoniewicz from ICI who’s on the research side like myself. We’ll talk about how we got to fixed income ETFs having such significant influence this year. We’ll touch on where the money is gone again, but also talk about the generational shift and the benefits of fixed income ETFs and perhaps talk about active management – the virtues and challenges of active management from within. 

I’m excited about the conference because there’s going to be a selection of advisers and other ETF users on panels – a diverse mix of experts which should provide a fresh perspective for the audience, instead of just hearing from the industry.

JIE: It doesn’t end there! Inside ETFs 2020 is getting closer and you’re a stalwart on the best new ETFs panel. It’s a high-energy kill-or-be-killed, kick-ass, audience favorite. How competitive does it really get? Have you lost any friendships?

Todd: Not at all! My connections and friendships with the panellists that I’ve had the pleasure of sharing the stage with have actually improved as a result. They’re good people who know their stuff and I learn from them, plus it’s just a fun time for us to talk about ETFs and one of the few parts of the conference historically that does not have any asset management involvement so we’re not selling (not that there’s anything wrong with active managers educating about their respective products), but we’re not selling anything.

At the 2019 event I decided to try to up my game a little bit. Eric Balchunas had referred to the session in jest as an ‘ETF Rap Battle’, so I decided to actually make a bad attempt at rapping on stage. I enjoyed it despite the fact that I think I made a little bit of a fool of myself. 10 months after having rapped people continue to bring it up so I guess I made an impression. I’m looking forward to the 2020 event, getting on stage and seeing how we can up our game.

JIE: Work-life balance – how do you achieve it?

Todd: I’m fortunate and happy to have a puppy at home that I get some form of exercise with each morning taking her to Central Park. My son is nine and enjoys playing baseball – I’m head coach of his little league team and that helps give me a different perspective. It’s enjoyable to spend time with him, my wife and my dog.

JIE: Staying happy and positive at work – any secrets you can share?

Todd: What I like about being in the ETF industry and heading up research here is that there’s an ETF for almost everything it seems which lends itself well towards writing and talking about a wide range of topics. Within a given month, I’ll cover international equity, U.S. equity products, fixed income, I’ll talk about sectors, I’ll talk about themes so each day is different. I’m fortunate enough to have good relationships within the financial press, and they regularly want to talk to me about something completely unrelated to what I’ve been working on and that keeps me on my toes, fresh and makes the day fly by.

It’s important to go to work loving what you do and enjoying what you do, but being able to come home and, as much as possible, shift out of that mode and enjoy the time that you can with family, especially with my son at the age where he is interested in doing sports and playing with me – something that won’t last forever – is fundamental.

 

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