John Roppolo, CFA, CIMA, ETF Specialist at Manulife John Hancock Investments, weighs in on ETF versus mutual fund demand, the firm’s tactical approach to bond ETFs, and why active management matters the most in bonds.
Transcript
Opening: No One is Asking for Mutual Funds
Roppolo: Dave, maybe I’m a little bit biased, but I have not had one client meeting telling me that they’re adding more mutual funds to their portfolio. I think the mutual fund is a great vehicle. It’s had a nice run.
Nadig: Great for your 401(k).
Roppolo: Right. Great for your 401(k). But, I mean, we’ll see what happens there
Active ETFs Take Off
Nadig: Hi there, I’m here with John Roppolo, who’s an ETF Specialist at Manulife John Hancock Investments. John, I’m hearing a ton about active management. It’s been a flood of money coming in this year so far. You guys were both early and very present across the spectrum in active management. How do you guys fit into this puzzle?
Roppolo: Yeah, Dave, thanks for your time. Really just astronomical growth in actively managed ETFs. If you look at it, actively managed ETFs actually just surpassed passive ETFs as far as availability in the marketplace, so it’s a train that’s not stopping. I’m glad that we hopped on early. You know, we are a fundamental active shop, and we’re able to use those expertise and package them into ETFs. So, it’s pretty crazy.
My job, talking ETFs all day, I get really fired up just the growth in the industry. What we’re at, over $12 trillion in ETF assets? 20 years ago, that was probably sub a trillion, you know? So, very exciting time for us at Manulife John Hancock, and, yeah, looking forward to what’s to come.
Getting Selective About Your Types of Bond Exposure
Nadig: Well, what’s to come is clearly moving that active management into other pockets. You guys have done something a little bit different on the fixed income side. Most of the folks we’ve seen enter the active fixed income area have been pretty much just total return. That’s what they focused on. You guys have kind of sliced and diced a little bit. Walk me through that.
Roppolo: Yeah, so, when you look at the propensity of active managers to outperform, fixed income is one of those spots where active management really pays off. We all know the efficiency of the market and equities, especially large-caps, really hard to beat, right? So, maybe lean toward passive there. But active managers are really able to outperform in fixed income.
At Manulife John Hancock, we have a long lineage of really great fixed income managers. You know, our flagship bond mutual fund, John Hancock Investment Grade Bond, done really well for clients. So, what we’ve done is kind of tap those managers and say, “Hey, investor demand is in ETFs. They like the tax efficiency of it, fees of it. Is there any reason why you can’t do what you’re doing in some of our largest flagship products and package it into an ETF?”
We have products where we’ve kind of been able to slice and dice what we’re doing in our core and core plus bond fund. So, a perfect example is our securitized managers are very good, actually, at what they do. So, we’ve been able to carve out kind of the securitized sleeve of our core plus bond fund, offer that a la carte, agency MBS, ABS in there, little bit of other securitized, CLOs, cell tower leases, things like that.
Nadig: So, are advisors using that to kind of make their own positioning decisions in this sort of crazy interest rate environment where nobody really knows what’s going on?
Roppolo: Right. Yeah, exactly that. You know, you could do a tactical overweight to securitized right now. And I think if you read the investment outlooks of a lot of asset managers, broker-dealers, everybody’s really high on securitized assets. And in agency mortgage-backed securities trading at attractive valuations, good spreads right now.
So, we offer a product where you can tactically overweight that. And personally, I think it’s going to be a great spot to be, especially – we saw the jobs numbers, the revisions come out today. Could have a 50 basis point cut baked in for September. Let’s see. I know there’s whispers of that. But maybe we’ll see money start moving from the front end of the curve – money markets, into some high-quality duration products and some relief for investors.
“It’s All About ETFs”
Nadig: Now, as an ETF specialist, I feel like that’s one of the face-of-the-coal-mine jobs, because you actually talk to advisors all day about how ETFs can fit into their portfolios. We talked a bit about active management, particularly in this fixed income market. What else are you hearing from advisors, whether it necessarily leads to a John Hancock Manulife product or whether it’s just what they’re hearing and you need to respond to that because that’s the environment?
Roppolo: Dave, maybe I’m a little bit biased, but I have not had one client meeting telling me that they’re adding more mutual funds to their portfolio. I think the mutual fund is a great vehicle. It’s had a nice run.
Nadig: Great for your 401(k).
Roppolo: Right. Great for your 401(k). But, I mean, we’ll see what happens there, too. I’m seeing advisors start to use ETFs there as well. Approval process, but, like I said, it’s all about ETFs. They want to know about ETFs. They don’t want to know about mutual funds.
Nadig: Well, it sounds like you’re in the right job. Thanks so much. Thanks for joining us, John.
Roppolo: Appreciate it. Thank you.