Founder & Head of Research @ AltaVista Research
… develop a skill-set that is as broad as possible, stretching into more areas of Finance than you think you need!
Jobs in ETFs (JE): How did you get into finance?
Michael: I’d always wanted to work on Wall Street since I was a kid. I grew up during the Reagan revolution and to me at the time finance represented the apex of free-market capitalism.
JE: What was your first job in the ETF industry?
Michael: I’d say it was when I started AltaVista Research to provide analysis of ETFs—although we didn’t really think of it as a stand-alone industry back then. There were just a handful of funds and they weren’t really covered by Wall Street, or at least not very well.
JE: In 2004 you launched AltaVista Research. Why did you decide to go the entrepreneur route and what was the pivotal moment?
Michael: That route was never part of the plan; it just became an option after I was laid off from one of the large investment banks on Wall Street, where I had realigned the research work I had been doing to be applicable to ETFs. I eventually realized that even if the bank didn’t see its value the broader market just might.
JE: What are some of the challenges that you face in your role and what do you enjoy the most?
Michael: As an entrepreneur I get to spend less time on the work I like—the actual analysis—and have to devote more towards everything else, from fixing IT problems, to legal and accounting issues, to the marketing strategy. All are important, just not my strength. On the plus side, I am able to take the research in directions that I—or my clients—want, without a vested interest in the status quo. Much of what I would call “legacy” research is tied to the declining fortunes of the actively managed mutual fund industry.
JE: If you could change one thing in this industry to make it easier for ETF entrepreneurs to adopt new ideas and run with them, what would it be?
Michael: I’m not sure there really are any. Barriers to entry are actually fairly low, and there are a few firms that can assist those with a good idea in getting a new ETF listed. That doesn’t mean there will be a flood of capital waiting to buy into your fund, but the opportunity to try new things is certainly there.
JE: At more than $4 trillion, where do you think ETF growth is coming from?
Michael: It is clearly coming from an exodus from actively managed mutual funds. According to ICI, there is still an estimated $40 trillion—ten times as much—invested in other open-end funds worldwide. What is surprising to me is the pace at which money has been fleeing actively managed funds even though we’ve been in a bull market for so long. People tend to pay more attention to performance and expenses when the market goes down, so I can only imagine what the flows out of active mutual funds and into ETFs will look like in the next bear market!
JE: What advice would you give to people entering the ETF and wealth management industry now?
Michael: Develop a skill-set that is as broad as possible, stretching into more areas of Finance than you think you need. AltaVista has become much more IT-focused than I would have imagined when I started it, because clients have asked us to slice and dice data in ways we never thought of. The industry is still relatively young, so we can’t predict what skills will be most in-demand.
JE: What do you think is the “next big thing” in terms of innovation in the ETF industry?
Michael: One of the enduring benefits of ETFs is that they democratized access to previously institutional asset classes and strategies, like commodities, mortgage-backed securities, M&A arbitrage and myriad flavors or “smart-beta.” Eventually the industry will figure out Bitcoin too. There are those who lament that average investors end up hurting themselves with products they don’t understand—no doubt it happens—but the democratization is here to stay regardless.
So I think the next big thing will be a continuation of this trend: there is almost no end to the number of options strategies that could be run around various benchmark indices, offering ordinary investors different flavors: downside protection from some, enhanced income for others, perhaps juiced risk & return for still others. This kind of “mass customization” is taking hold in so many other areas, I think it will come to ETFs as well.