Tokenization is paving the way to ETF transformation
Lou Maiuri: Jono, welcome and thank you for joining us.
Jonathan Steinberg: Thank you, Lou. A pleasure to be here.
Jonathan Steinberg: We're celebrating the 30th anniversary. So I remember WisdomTree, in its prior incarnation, was called Individual Investor Group. It was a financial media company, a research-based media company for the masses. And we did a story on the SPDR in 1997, and it changed my life. I saw that the new wrapper, and at that time it's pre-iShares, pre-Vanguard ETFs; it's really just you and the Qs, 40bn of AUM in the wrapper. But the functionality that it delivered – liquidity, transparency, tax efficiency, and the convenience of it – that anyone with a brokerage account could buy any ETF without any paperwork, it struck me as the future of asset management and, quite frankly, I have devoted my life to it since. So thank you. You've changed my life.
Lou Maiuri: And just to put that in perspective, how long did it take for you to switch into and create WisdomTree?
Jonathan Steinberg: So it was in ‘97 that we did the first story on the SPDR. And then our first ETFs came out, actually, in 2006. It was a long, hard journey to go from media company to asset manager.
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Text: Opportunities for global growth
Lou Maiuri: So, as you look into the future a little bit, what are the regions around the world that you think are opportunities for growth for the next 30 years? Because ETFs aren't done, right? They've been a phenomenon here in the US and in certain parts of the world, but what do you see as the future in the regions that could really unlock more?
Jonathan Steinberg: Well, I think that ETFs will continue to overwhelm other structures. Everything in liquid assets will move to the ETF–ETP structure. So I think the areas that are most important are the US and Europe, and Europe because of UCITS, which allow you to go to the rest of the world. And so I think we'll continue to move into every market around the world because it's just where all the energy is, not just for the consumer experience, but the largest asset managers in the world are all heavily focused on the wrapper itself.
Lou Maiuri: Jono, you've been a pioneer in the ETF industry, and you've been recently leaning into tokenisation, and can you elaborate a little bit how tokenisation and ETFs will power that business going forward?
Jonathan Steinberg: Well, active fixed income mutual funds collapsed over the last 24 months from a flow perspective. And so ETFs really took over that corner of the world. And, more recently, many big mutual fund companies have converted their mutual funds into ETFs. I think, active, even though we’ve been around since 2008, [has] been discriminated against a little bit on the platforms. Alpha was really a mutual fund orientation, ETFs were indexing, I think, recently, we are being accepted by the platforms more as a true alpha generating structure, not just an indexing structure.
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Text: The next big thing in ETFs
Lou Maiuri: One final question, for you, being a pioneer and someone who’s seen the promise and capabilities of ETFs, what does the future look like? What’s that next big thing in ETFs that are in front of us?
Jonathan Steinberg: The functionality that drove ETF success – liquidity, transparency, tax efficiency – it overwhelmed the other structures. If you are going to expect something to maybe one day dethrone ETFs, it would take that enhanced functionality. So, right now, ETFs are the best wrapper in the world. We have the least friction in the world. So you have to be able to see something that could, potentially, be better. We think there is a chance, through tokenisation and blockchain-enabled finance, to make the experience even greater. So as an example, GLD, your big gold fund, is a US product. I have gold in Europe, but European investors can't really buy – if they trade on the US they can – but really they're regional products. Tokenised, physically backed gold can travel globally, can travel like bitcoin around the world in a wallet, can offer peer-to-peer exchange, tied to payment rails. So gold could evolve from the structure, ETPs, where it's by far the best way to hold gold today, as an investment, but gold could be currency. Gold could be: save in gold, pay in gold. So that kind of additional functionality we see in treasuries, equities, what have you, we see that potential. I saw a way – wrapping transparent exposures in these compliance-aware tokens – that you could get the kind of functionality to take it beyond where ETFs are today so that savings, investing in payments, could be a much more seamless experience. And so that's a direction that WisdomTree has invested heavily in.
Lou Maiuri: Thank you so much for your time. We explored a little bit about the past 30 years, but you just gave us a little bit of a glimpse of the next 30 years. So I want to thank you for your time, thank you for your insights, thank you for your pioneering of the industry. So with that, thank you again, Jono.
Jonathan Steinberg: Thank you so much, Lou, for the opportunity. A real pleasure.
State Street’s Lou Maiuri and ETF industry pioneer Jonathan (Jono) Steinberg discuss key developments in the 30 years since the launch of the first US ETF ꟷ and how tokenization will lead the market’s transformation and growth during the next 30 years.
Established in 2006, investment manager WisdomTree is well known for its ETF innovation, having launched smart beta ETFs in 2016, and introduced currency hedged ETFs to the market. Today the firm is leading the way on ETF tokenization, which Steinberg describes as “the wrapper of the future.”
Much as active ETFs gained traction over time as investors recognized the funds’ ability to generate alpha, Steinberg believes that blockchain-enabled finance and tokenization will help move local products such as GLD into global markets, enhancing functionality to where savings, investment and payments are seamless.
Celebrating 30 years of ETF innovation
2023 marks the 30th anniversary of the launch of the industry’s first US-listed exchange-traded fund. Co-created by State Street Global Advisors, the Standard & Poor’s Depositary Receipts ꟷ better known as the SPDR® S&P 500® ETF, or SPY ꟷ revolutionized index investing, liquidity, asset allocation, intermediary distribution, portfolio construction and overall market access.
Today, among the nearly 12,0001 ETFs in existence, SPY is the largest2, most liquid3 and most heavily traded4 ETF in the world. Our ETF@30 video series examines the past, present and future of ETFs ꟷ and their impact on the world’s financial markets and industries.
1 ETFGI Global ETF & ETP Insights May 2023 report
2 Bloomberg Finance L.P., as of December 12, 2022
3 Bloomberg Finance L.P., as of December 12, 2022
4 Bloomberg Finance L.P., as of December 12, 2022
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