Five takeaways for ETF issuer marketing teams from HANetf co-CEO Hector McNeil, who's helped launch over 1,200 ETFs and ETPs across 25+ years, on Finimize's Retail Investors Decoded.

TL;DR

• Price isn't a differentiator any more. With 160 ETF issuers in Europe chasing the same handful of benchmarks, "competitive fees" is table stakes, not a story.
• Innovation is the only lever left. McNeil built HANetf's entire positioning around not competing on price – instead shipping niche, story-rich products like catastrophe bond and alien-technology ETFs.‍
• Retail is finally arriving at scale. Germany alone has 50 million ETF savings plans; Europe's ETF market grew roughly 30% last year versus about 20% in the US.‍
• Distribution beats product as the real bottleneck. McNeil says the hardest part was never launching an ETF, it was building the sales and platform relationships to move it.‍
• Active ETFs need performance stories, not fee comparisons – because once a product is judged on after-fee returns rather than cost, price-led marketing stops working.

The Problem: A Sea Of Sameness

There are 160 ETF issuers in Europe and 4,500 UCITS mutual fund issuers still sitting outside the ETF wrapper. Every one of them, eventually, wants a Euro Stoxx 50 tracker. McNeil counts "30 to 40" near-identical S&P and Euro Stoxx products already competing for the same flows.

That's the world most ETF marketing teams are operating in: not a differentiated product, but a commoditised one. As McNeil puts it, you're either competitive on fees or you're not – and once you are, that's the end of the conversation, not the start of it.

Price Doesn't Win. Innovation Does.

McNeil's answer, tested across four ETF businesses he's co-founded, is blunt: "I don't compete on price. I compete on innovation." HANetf's product list leans into things nobody else is doing – catastrophe bond ETFs, defence-themed products, preference share and covered call strategies – rather than a 41st Euro Stoxx 50 tracker.

That's a marketing brief as much as a product one. A catastrophe bond ETF yielding over 9% doesn't need a fee-comparison table; it needs a story about why the asset class is uncorrelated and why access to it used to be exclusive to institutions. The product is the campaign.

Worth noting for anyone benchmarking against BlackRock or Vanguard: McNeil argues the giants only start paying attention once a challenger has already won – iShares' gold and metaverse ETFs both followed HANetf and its predecessor to market. First-mover positioning is a genuine, defensible marketing asset in this category, not just a product one.

Retail Investors Are Finally Showing Up

For most of McNeil's 25 years in the industry, ETFs were an institutional story. That's changing fast, and the numbers are the kind of proof points worth putting straight into a campaign brief:
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• The US retail-to-professional split in ETF ownership is roughly 50/50; Europe has historically lagged at around 5%, but is closing that gap.
• Germany has around 50 million ETF savings plans, with monthly contributions of €500–€1,000 – effectively a German equivalent of an ISA, funnelled almost entirely into ETF portfolios.
• Europe's ETF market grew roughly 30% last year, against about 20% in the US – a smaller base, but a faster-compounding one.

McNeil's read on why: an e-commerce-native generation that expects Amazon Prime–style instant pricing and settlement, a growing distrust that state pensions will be enough, and social platforms such as Reddit, Discord and X doing informal investor education at scale. For issuer marketing teams, that's a mandate to build investor content and education, not just product pages.

Distribution Is The Real Bottleneck, Not Product

The most useful reframe in the whole conversation, for a marketer specifically: McNeil says the biggest stumbling block to launching an ETF was never getting the product out – it was being able to sell it. That's why HANetf built a marketing team, a physical distribution team and a database from day one, and why it's since raised $10 billion in assets through it.

The firm now sits on roughly 80–90 wealth management, private banking and execution-only platforms across Europe, plus over 30 authorised participants and market-makers. McNeil says would take a new entrant "ten-plus years" to replicate this infrastructure. For an in-house marketing team, the takeaway isn't to out-build that network; it's to recognise that platform relationships and content-led education are doing as much commercial work as the product spec sheet.

The Content Marketing Goldmine Hiding In Niche ETFs

McNeil's favourite recent examples say something useful about where investor attention is going: a "Grifters" ETF tracking politicians' trading activity, and a filing for an ETF tracking companies that would benefit from alien technology, should it exist. Neither is a joke to the issuers involved: both are proof that a sharp, ownable idea generates earned attention that a 41st index tracker never will.

The lesson for ETF issuer marketers isn't to chase novelty for its own sake. It's that a genuinely differentiated, well-told product story – catastrophe bonds, defence, arbitrage, or something stranger – travels further than a fee comparison ever will.

What This Means For Your Marketing Team

• Retire the fee-comparison as your lead message. If your product is competitively priced, that's a baseline claim, not a headline.
• Build the story around what makes the product uncorrelated, first, or genuinely different – and lead your content with that.
• Invest in distribution and platform relationships alongside product marketing – McNeil's data suggests this, not launch speed, is what actually moves assets.
• Treat retail investor education as a growth channel, not a compliance afterthought.

Episode transcript

Carl Hazeley: Hello and welcome back. Today: Hector McNeil, co-founder and co-CEO of HANetf, a white-label platform for ETFs and ETPs. It has over $9 billion in assets under management and is responsible for about a fifth of all of Europe's ETP brands. So, let's get into it. I'm Carl Hazeley, and this is Retail Investors Decoded. Hector, thank you so much for joining me here today – great to have you.
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Hector McNeil: Good to see you, too.
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Carl: I'm going to break every single rule and start by asking a big question first, because when I told people we were having this conversation, the question that came up time and time again was: HANetf – a mixture of your name, Hector, and your co-founder Nik Bienkowski's.
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Hector: Yep.
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Carl: Why do you get to go first?
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Hector: Well, it sounds better than "NAH-ETF," doesn't it? (laughs) It's pretty much as simple as that, really. I think when we looked at it, we actually initially had it as a holding name while we were coming up with the idea and establishing the companies, and I think we just felt "HAN" had a better ring to it. There could be a bit of jeopardy or confusion around the Han Dynasty and all those sorts of things, and "NAH" just doesn't sound quite as good, really.
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Carl: Fair enough.
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Hector: So yeah – there was never really a fight about it. I worked with Nik for twenty-five years, so it's been a work marriage. We tend to agree on these things pretty easily.
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Carl: Fantastic. And you've obviously got a ton of experience, so let's go back to go forward – you're making me feel old there, aren't you, calling it ten years? (laughs) Let's go back to go forward. You've obviously done a lot of work in the space – Susquehanna, ETF Securities. What's changed in the ETF space over your twenty-five-plus years of experience? And second, what was the insight, or the kernel of the opportunity, that led to HANetf?
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Hector: Yeah, it's a really good question. I think anybody who tells you they had a crystal ball and knew the ETF market would become a $25 trillion marketplace is telling lies, really. I think the natural evolution of my career has sort of brought me to here. Funnily enough, my kids are just graduating university now, and they're on that journey too – I say to them, you've got to be agile and take opportunities. And that's pretty much what I did.
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Exchanges have always been very close to my heart. I started as a graduate trainee at the London Stock Exchange – or, in those days, it was called the International Stock Exchange of the United Kingdom and Ireland, which is a bit more of a mouthful than "London Stock Exchange." Then I set up an exchange with Morgan Stanley and OM Group during the dot-com boom, and I suppose that really wet my feet with entrepreneurialism. I really understood the power of owning equity in a business, as well as having income and bonuses – just the sheer multiplier effect of equity was really exciting.
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But largely what happened was I went to Susquehanna in Ireland. They were pretty small then – only eighty people. I think they're about 1,500 in Ireland now; probably Ireland's biggest financial services company, actually, even though they've been under the radar. It was quite clear ETFs were coming down the road, and it was quite clear they were an incredibly democratic vehicle. When I talk to our potential white-label clients now, I always say it's the first time my mum can buy your product and get the same deal Fidelity gets if they buy a million shares. She can buy one share and get the same deal. So the democracy of it is fantastic. We did the first European catastrophe bond ETF last year, and there's no way my mum could access catastrophe bonds until an ETF came along – she can buy one share and get the whole deal.
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But the reality was that meant you couldn't consolidate liquidity, and we saw an opportunity at Susquehanna to go to iShares – at the time part of BGI, part of Barclays. They had fewer than ten staff and fewer than four products, and they didn't have any in-house market-making capability. So we took it to them and started doing their market making. We participated in their TR, and we got paid off the back of their assets. Best deal since sliced bread, to be honest – it's a twenty-year-plus deal, I think. But the reality is it changed the ETF market in Europe, made it viable, because it meant you didn't have to wait for trading volume to rise. Day one, you could have an agreed bid-offer spread that investors could get in and out on. There were a lot of issuers coming to market at the time, and iShares offered me a job – and that's when the ETF Securities opportunity came along.
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I was the third person in there, a 10% owner. That's where I met Nik, my current business partner. We were co-CEOs, and we built that business from zero to $36 billion at its peak.
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Carl: Got you.
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Hector: And most famous for inventing gold ETFs – we created the first gold ETF in the world, in Australia, and brought that to the UK. We invented the first ETC too, which was Gold Bullion Securities, back in 2002. What price do you think gold was when we brought that first product out, in 2002?
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Carl: Oh, that's testing me. What's it at now, roughly, an ounce? ... The first number that came into my head was $202, but I'm just picking that out of thin air.
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Hector: $369. And nobody was investing in gold then – people were lining toilets with it, right? It wasn't really an investable asset class. Now you see it as part of a core portfolio. Back then, people could buy coins, bars, or jewellery, or mining stocks, but you didn't really have gold. Actually – and this is really interesting, I was looking at it the other day – I think the only gold position larger than gold ETFs in the world now is the US Federal Reserve. All the other central banks' reserves are smaller than the gold ETFs. So I always call gold ETFs "the people's central bank," because ultimately, that's what it is.
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You're probably not aware, but back in the '30s, Roosevelt banned gold for retail, and it wasn't until 1973 that retail was allowed to buy gold in the US. So it was prohibited, and there's always been this fear that the government's going to come and get your gold – and that's what I think drives everybody into it as a store of value.
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Carl: Got you. What was the insight from ETF Securities and Susquehanna – you'd seen this massive growth in the space. What's HANetf's mission, and what's it going out to achieve?
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Hector: Yeah, I think the way I look at the world when it comes to ETFs is what I call the "ETF black hole" – everything is being pulled into the gravitational field of ETFs. What was quite clear in the early days at ETF Securities was – we invented the first platinum and palladium products; in fact, we owned more platinum and palladium than anybody else on the planet at one point. We did the first oil product, the first thematic equities, and a whole range of others.
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What that told me clearly was that was the building-block stage of the ETF market. Then you got the smart-beta story, then thematics, then broader commodities, then crypto, and now you've got active equity, active fixed income, CTA-style commodity hedge-fund products. And even recently you've got private capital – from Apollo and people like that. I thought that might be one step too far, because by definition, if you're in the private markets and want to go public, go public – don't use an ETF to do it. But actually, Apollo and State Street have made it work; they've got a billion dollars in that product.
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So there's a big gravitational pull, and I think what's colliding with that is the emergence of e-commerce, the information exchange through social media – Discord, Reddit, Twitter, whatever it is – and the e-commerce friendliness of ETFs. It's the Amazon Prime gratification. If I told my son, "You buy a mutual fund, fill in a form, attach a cheque, and wait a week to see what the price was," he'd say, "No, Dad – that went out with fax machines." But it still exists. I always say: if you go into a car garage and like the car in the corner and ask the price, and the guy says, "You've got to buy it first and I'll tell you tomorrow" – when would you ever do that? ETFs lend themselves to that world really well.
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What's really interesting is this ever-expanding smorgasbord of product – I think that's the real revolution, to the point where there are now more ETFs than equities. But then again, if you look at mutual funds, there are probably ten to twenty times as many mutual funds as there are ETFs. One interesting fact I found recently, and talk about a lot now, is that there are 160 ETF issuers in Europe. That sounds like a lot, right? There are 4,500 UCITS mutual fund issuers. So you only need 10% of those guys to come across and you've got a fourfold increase in the ETF market.
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Carl: So how have you shaped and changed with that?
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Hector: We've grown alongside it over time, Nik and I. After we left ETF Securities, we created Boost, the first short-and-leveraged ETF business in Europe. We were convinced the CFD markets were going to come under pressure – they're OTC, you trade against the house, the counterparty risk is there – whereas we felt exchange-traded products in that leveraged space would do a lot more. So we built that business, and then WisdomTree came along and said they wanted to come to Europe but didn't have any staff or a business. We said we'd JV with them, so we created a new business called WisdomTree Europe, which we co-owned with them, and rolled Boost into that. About three years later, they bought us out.
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Then Nik and I were looking at the market in 2016–2017 and asking, where's it going, what's the next big opportunity? As time went on, what was clear was that the plain-beta, cheap-beta market was done – Vanguard, iShares and the rest had won that. We've got this ridiculous situation where you've got thirty or forty Euro Stoxx 50 and S&P products in Europe, because every private bank needs its own product. So there's no real opportunity there, unless you've got a massive pool of assets with iShares you want to move into your own products – which does happen a bit – but I'd say that's not where the innovation, or the money, is.
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A lot of people talk to me about reducing TERs in the market, and surely that's hard to compete on, and I say, "Well, I don't compete on price – I compete on innovation." So I'm doing the cat bonds, or the memory chips, or the defence products – I'm not doing the Euro Stoxx 50. Although we did actually do a Euro Stoxx 50 for a big bank last year, but that's because they had an asset shift going on.
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Carl: So let's spend a bit of time on that innovation piece, because we speak to ETF issuers, and we also speak to retail investors, and we know 70% of them plan to buy ETFs in the next six to twelve months. On the issuer side, the challenge that retail investors have highlighted – and that issuers are largely struggling to solve – is that price isn't really a competitive factor: you're either competitive or you're not, you can justify your fees or you can't. Product is maybe one thing – you either have the exposure someone's looking for or you don't, and maybe it's wrapped in an ETF, maybe it's not, but let's assume it is. And then the big challenge is that "sea of sameness" you mentioned. If I want Euro Stoxx 50 exposure, I've got a laundry list of people offering me identical exposure. So where's the opportunity for innovation? When you're working with somebody launching, say, another Euro Stoxx 50 product, how do you get a retail investor to choose that ETF off the list from their broker over someone else's?
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Hector: Yeah, it's a good question. There are a few things I'd say. The first is that when we were coming up with the idea for HAN in 2016–2017, Nik and I were looking at what was missing in the ETF market. Everybody always said, "Well, iShares has won and you've got no chance." But actually, the only time we become a worry for iShares is after we've succeeded – when we're starting out, they don't worry about us. So they brought out their gold product after we brought out ours. They're in the unenviable position of being second to market and still proud of it – I remember when they brought out their metaverse product, they were second to market and were so proud of themselves. I thought, "Well, hang on, guys." That showed a somewhat broken marketplace, to a certain extent – that they felt they had such control they could do that.
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I always have a little saying in the ETF market: there are 101 things you can do with ETFs, we just haven't thought of them all yet. When we were looking at opportunities, we thought the two big ones in 2016–2017 were either crypto or white-labelling. White-labelling had been highly successful in the US. We'd played with it a little at ETF Securities with the Canvas platform, doing our own products and also products for the likes of Lombard Odier – that later got sold to Elian, so Elian's platform today is Canvas, the one we had before.
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So we looked overseas, because often in this market you look at the US – it's three to five years ahead of the UK, or Europe – and you can see what's working there and not here, and know it's coming; the question isn't whether you make the right decision, it's whether your timing is right. You could be five years too early and lose the business because it hasn't made any money, or you could time it well. We felt white-labelling was the biggest opportunity. We'd seen the likes of Tidal in the US, ETC Concepts, and others, and what it had done was let a whole bunch of entrepreneurs get into the ETF space.
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If you look at Europe – apart from Nik, myself, and a guy called Graham Tuckwell, who was our main partner at ETF Securities – we're the only entrepreneurs in the ETF space. A couple of others tried, like Rise and Tabula, but they failed pretty miserably. We're the only ones who've actually made it work. That also means we can be a lot more aggressive, quicker, more nimble, and we have a very different experience set than our competitors. If you look at people who've set up ETF businesses at, say, Deutsche Bank, or BGI, or Vanguard, they've already got compliance, marketing, sales, operations and technology in place. Nik and I literally sit down and start from scratch – no chequebook, no laptop, nothing. We've done that four times; probably only two men in the world have done that four times. It means we know that journey immeasurably better than anybody else – every rivet that's gone into the boat, we've put there ourselves. Most other people have the kit already and just put it together; we build the kit.
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With white-labelling, we felt we could bring that experience to the marketplace in a way that's unparalleled. And one thing that's absolutely unique to HAN, that nobody else can ever have, is that Nik and I invented the first ETC in Europe – and that's become two-fifths of all ETP products now, whether commodities, crypto or leveraged products. And Manooj, our COO, created the first ETF in Europe, when he was at Merrill Lynch – the Euro Stoxx 50 tracker – which iShares bought later on. So nobody else can say they were behind the creation of both of Europe's first wrappers. We have that in our business. Every time we go to see a client, we can say we've got over 500 years of experience between us. If you add up the ETFs and ETPs Nik and I have done – over 800 – plus what Manooj has done – over 400 – we've done about 11% of every ETF on the planet. Nobody else can say that. It's the old-timer factor: having been around long enough, and successful enough times, that you've built an experience set nobody else has.
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When people coming into the ETF market look at their choices, they can build organically – that's a two-to-three-year journey, five to twenty million pounds depending on headcount, five to twenty people, and that's just to get to the start line. Then you've got to get the assets in, and I always say there's another three to five years to figure out what you got wrong the first time round, because a lot of people don't know what they don't know. Or you can go and buy somebody – except there's nobody to buy, because there are no entrepreneurs in the ETF space in Europe; plenty in the US, but not here. Or you can use white-label, either to incubate or just to run with, full stop – and we can get a product out in ten weeks.
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Now, that two-to-three-year journey I mentioned – iShares is growing at 25–30% a year, so they're twice the size they were by the time you've even started. You think they're formidable today? They'll be twice as big again before you even get to the start line. The upside is they're not going to worry about a new competitor until that competitor is successful, so that gives you a bit of air cover – it doesn't give you market share, but it does buy you time. I think the reality is people want to be there as quickly as possible. Clients might come to us and say, "We're going to do five or ten products," and we'll say, "Why don't you just get one out, get out quickly, start talking to clients, learn the market, and then make the call on the next one." I think the days of people launching hundreds of products are gone anyway – most people are going to do five to twenty-five products, future-proofing their business, adding the ETF wrapper to the shelf alongside OEICs, structured products, or UCITS, whatever it is.
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It's a bit of a weird industry, actually, because people call us "ETF issuers," but nobody talks about "Cayman fund issuers" or "OEIC issuers" or "UCITS issuers" – people just see those as vehicles to distribute, and that's all they really are. ETFs aren't Harry Potter – there's nothing magic about them. But there's a bit of FOMO at the moment too, I think. Though I do think a lot of the new entrants, particularly in the active world, are doing it to future-proof the business.
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Carl: So you mentioned iShares, you mentioned Deutsche Bank, a couple of other examples – they're all going to be watching this very closely.
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Hector: Yep.
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Carl: And we might make some enemies here.
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Hector: I sense that's maybe not an issue.
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Carl: They might not be our enemies, but let's see where we go. What are they getting wrong? When you look at this route to market for people launching ETFs and ETPs, where do you think, "those guys down the road just don't get it"?
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Hector: Yeah, I think their business models are very different. What's fantastic about HAN is that we've been going for nearly ten years now and we're at scale – the horse has bolted, so the moat we have is incredible. With seventy-five people, we've probably got seven or eight hundred years of experience in the ETF white-label space between us. And uniquely in the white-label space, our competitors are all adjuncts to bigger parts of other businesses – existing issuers, fund admin businesses, whatever. Whereas all seventy-five people at HAN, that's all we do – white-label ETFs. Everybody's an expert. I'd say the comparable bolt-on teams at other shops are probably ten people, max, and once you get past that, you're not talking to experts any more. They can't compete with me because I'm too fast for them, and that's essentially what clients want.
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Plus, day one, the major difference between HAN and the US white-labellers is that we offer full distribution. The reason we did that is because we knew the biggest stumbling block to issuing ETFs wasn't actually getting the ETF out, it was being able to sell it. So we knew we had to build that from day one – we've got a marketing team, a physical distribution team, and a massive database. It's well used: over nine or ten years it's raised $10 billion of assets, so it's a very tried-and-tested story.
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Right now, the whole ETF market is just under 160 brands, and we've got 33 on our platform – so we've got 20% of the ETF market by brand. I almost see us like a multi-manager: we've got the second-largest active range in Europe, with 29 active ETFs. JP Morgan's got 44, and they're much bigger than us by AUM, but I'd argue their products are more "shy active" – benchmark-plus-1%-or-2% systematic stuff – whereas ours are proper active fund managers, whether it's catastrophe bonds, Latin American corporate bonds, preference shares or global equities. That's proper active management.
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Carl: The catastrophe bonds in particular – our analysts picked up on it and covered it on the Finimize platform, because it was new and interesting.
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Hector: Yeah, it's very rare you get an uncorrelated asset class like that, and access to it is so critical. I'd say we're fighting a different fight to those guys – we're bringing speed. What's interesting with the advent of active ETFs is that people used to conflate "passive" and "ETF" and use the terms interchangeably, but actually it's just a wrapper. The active market is less price-sensitive, because it's about after-fee performance. With systematic or "shy active," that's different – it's essentially smart beta. But with proper active, you live and die by your performance.
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Take catastrophe bonds – the fee's about 1.25%, but it's yielding over 9.5%, and it's an uncorrelated asset class, so you're buying it for that reason, not the fee. We've also got a Saba Capital ETF – you probably know those guys from the investment trust world – they've got an arbitrage ETF with us at 1.5%, and they see that as relatively cheap, because their hedge fund, which is the bigger part of their business, charges a lot more than that. So they see the ETF as the cheap alternative. It's really about that differentiation.
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I liken our approach a bit to the Oregon Trail – where a single wagon going through would get picked off pretty easily, but with thirty-three wagons, you can make the circle and defend yourselves. In this analogy, that's BlackRock, Vanguard, whoever else, up against you.
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Carl: Got you.
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Hector: And that collective strength is what I call the platform we have. For instance, we currently have over thirty APs and market-makers on the platform, and we're onboarded on around 80 to 90 wealth management, private banking, and execution-only platforms across Europe. Everybody gets that on day one on our platform. Building that yourself would take ten-plus years.
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I'd say white-labelling is now the only way you can get an outsized beta to the ETF market. Everybody else coming in on their own is coming in on a narrow, niche basis – they're either going to smash it or not get very far, but they won't get that overall beta to the market. The ETF market in Europe has actually outgrown the US from a growth perspective for the last two years – I think we were at 30% growth last year, versus about 20% in the US, albeit from a smaller base, but that compounding adds up pretty quickly. And we've had about a 70% growth rate ourselves, so we're really outperforming the market.
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Carl: You touched on distribution, so let's spend a bit of time on that. How do you think about distribution, particularly retail distribution – how do you get retail investors to notice an ETF you've helped white-label and launch, and what are the tactical things you do there?
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Hector: Yeah, well, it depends on the strategy. If you've got, say, a mortgage-backed securities active fund out of the US, is retail going to be that interested? Institutional money, or wealth management, probably will be more interested. But what's really neat now is we have just under thirty thematic products, a bunch of commodity-related products, and quite an interesting active range – things like preference shares or covered-call products. So we've got a really good active range.
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I'd say that's been the biggest revolution in the ETF market. In the twenty-five years I've been involved, we've been waiting for retail to get involved. Ultimately, the US is 50/50 retail and professional money; Europe was probably lagging at around 5% for a while. But I think there's been a trend over the last five years – the e-commerce aspect I mentioned, the message boards, the different investment channels sharing information – and I think there's also been a general feeling in the public that the social welfare system isn't going to be there for them in the next twenty or thirty years. My generation has completely screwed the kids, as far as I'm concerned, when it comes to debt and property values, and I think that'll be reflected in social welfare too. So I think there's a massive movement for people to look after themselves, and I think that's a great thing.
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You've seen that in Germany in particular, with the growth of savings plans – 50 million savings plans. Funnily enough, I was doing a savings-plan investment trust when I was younger – thirty years ago, I did an MBA and paid for it with a Claverhouse savings plan, putting in money once a month. It's actually the best way to invest, pound-cost averaging – you put the same money in all the time, you never get in at the highs or out at the lows, but it compounds over time, and I think it's a great way to invest. Savings plans have become a massive thing – 500 to 1,000 euros a month, 50 million of these accounts in Germany alone. They're bringing in the equivalent of an ISA in Germany too, and it's going to be very powerful for ETFs – almost all of that money goes into ETF portfolios.
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I think you'll find a lot more of these platforms doing ETFs themselves, because ultimately they control distribution – they can put something prominent on their own site. One of our largest new clients is KBC, out of Belgium, and they own their own neo-broker called Bolero, and an equivalent in Patria in Eastern Europe. So we're building ETFs for their platform.
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Carl: So do you think it'll be asset managers and issuers building distribution and building brokerages or front ends, or do you think it'll be the popular trading and investing apps that go upstream and build the products themselves?
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Hector: I think the latter will be part of it, but I think the big slug of money will be partnerships with issuers – either partnerships to build a product with an issuer that lives on the platform, or distributing existing products. Our flagship product is NATO – the global defence product – and we get approached all the time about partnerships on that, things like "if I buy it through this platform, I don't pay fees for a year," and we provide the content or subsidise the trading, or whatever the story is. To their credit, they tend to work with people who've got innovative, value-added products – it's not just about the nature of the money, it's the value they're going to bring to their clients, which I think is important.
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We've also got a project going where we want to create a network – almost a cooperative of neo-brokers – where we provide them product they can white-label through share classes, with exclusivity in their markets, but we provide the product pan-European. It's basically designed to cut out iShares and Vanguard. I always say to people: what IP and value are they actually bringing you, beyond scale and cost? If you control those assets, why are you writing a cheque to them every month, when you could have that cheque yourself, and provide the job yourself? Scale can be bought – you don't have to outsource it. So I think that's going to be interesting, and a big challenge to their business models, given how much AUM sits with them and how easily it can move to providers like us, giving people the spades and shovels to do it themselves. That's going to be a real challenge for them, I think.
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Carl: You mentioned earlier the rate of growth of ETFs in Europe outpacing the US. We talked about mutual funds and the scale there – it's a bit like the Coca-Cola argument: if just 1% or 10% moves, you've got a massive business over there. What's the direction of travel you see over the next, let's say, three to five years? What's good, what's bad, what's coming?
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Hector: Yeah, I'm not great on timing – I always tend to get that a little bit wrong – but I think the direction of travel is usually pretty accurate. I think there's a whole raft of things going on. The ETF black hole is going to keep gravitating. I think private markets are going to get interesting – you might see some sort of super-liquid, evergreen-type products coming through, though obviously they'll get stress-tested at some point.
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It was quite interesting – I remember when we did the iShares market-making deal, the first two products they gave us were Japan and China, and at the time, nobody could hedge that. We pretended, "Oh yeah, this'll be easy," and then were scratching our heads over how to actually do it. If you said that to people today, they'd laugh. What we think of as challenges today will look the same way in future.
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One of the biggest points we probably don't make enough of is that one of the biggest bedrocks of the ETF market is the market-makers – the likes of Jane Street, Susquehanna, Flow Traders. These guys are literally the smartest people in the room, and they have the best technology, because it's genuinely an arms race – a nuclear arms race in ETF technology. What you tend to find is, if you compare that to the mutual fund world – say the Fidelity dealing desk – I might trust them with mainstream equities, but as you get into more esoteric asset classes, I'd much rather put my money with a Susquehanna or a Flow Traders. It essentially outsources the trading to those guys.
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The way they trade is really interesting too, because they don't replicate the ETF directly. We all talk about PCFs as being about transparency, and they're needed for market-makers, but that's not really how market-makers make the market – they look at the correlation of asset classes and hedge that correlation. So they can look at a whole pool of risk in a way a Fidelity, say, can't, and that creates a very efficient marketplace.
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I just think that engineering, that technology, means that when traditional asset managers are sitting in their product development meetings now, they're probably talking predominantly about ETFs. There'll be a lot of legacy – moving legacy assets is very difficult and slow, because of tax and because people often just aren't aware of their own financial situation; they may not even know they own mutual funds. So it'll take a long time to get that old money out of the system. But new money, and new strategy products, will almost exclusively be ETFs, I'd say, over the next five years.
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Carl: Well, you say that – and I take your point on timing – but in my past life I was an equity analyst, and I used to cover a company called Neopost. Little French company, they made franking machines – mail-franking machines. So if you're BT and you're sending out a million letters a week, you've got a bunch of Neopost machines, and it was the most stable business – it printed cash. As an analyst, I knew people were sending less post, but as long as you're still sending a million letters a year, you need a Neopost. At some point that number goes to 900,000, 800,000, 700,000 – and I don't know if it's at 700, 600 or 200 – but at some point you think, "I don't need the Neopost any more." And the bottom fell right out of that business. I think it'll be something like that with mutual funds.
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Hector: I think it'll be a gradual thing rather than a cliff event, if I'm honest. It's the same with ETFs – if you bring out a better version of a very strong existing ETF, you can really only drive new money; you can't get the existing money to shift over. There's an interesting stat, still relevant today I think, that 75% of all money going into ETFs in the US goes into ETFs over fifteen years old. That means they're relatively expensive, and probably not as efficient any more, but they're part of the infrastructure – part of the plumbing. Remember what I said about the thirty APs, market-makers and platform onboarding – you could be the fiftieth issuer in the market with the best product, but the impact you can have against those incumbents is going to be marginal.
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But I do think that in those product-development meetings, people are going to be sitting there thinking, "We're no longer thinking about mutual funds as the way forward." And what's great about Europe versus the US is you've got this multiple-share-class model – you can have an unlisted share class in an ETF, which is essentially a mutual fund. We're talking to clients about whether that can fix the legacy platform issue you've got in the UK with IFAs – you create an unlisted share-class version that can sit on legacy platforms that can't do exchange trading, and you fix that. You create this hybrid situation. But I think the direction of travel is towards all-ETF, ultimately.
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Carl: That's an exciting future to look forward to.
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Hector: Yeah, it's interesting. Means more work for me too, which is good.
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Carl: There you go. I can't let you go before asking about the most interesting, wild, funny, or maybe anger-inducing story, or bit of financial practice, you've come across in the last couple of weeks.
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Hector: Yeah, there are a couple of things I always come back to – one from the past, one new. At ETF Securities, during the financial crisis, we had some of the most secure products in the world, but we also had some swap-backed products that got really stressed during that period, because the swap counterparty was AIG. Have you ever watched the film Too Big to Fail?
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Carl: Of course.
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Hector: Do you remember the bit where they think they've fixed all the US banks, Hank Paulson and everyone in the room, and then his analyst comes up with his laptop and says, "We've just got the AIG spreadsheet – there's a few more noughts than we thought in there"? We had more exposure to AIG than anybody. We were actually in a good position, though, because we could unwind the whole position the day after – everybody else was on six- or twelve-month resets. So we could genuinely have brought the whole system down back then, if we'd needed to.
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One of the funniest stories from that time – I got a call from a farmer in Yorkshire, who told me he'd had his entire pension in our leveraged wheat product. I said, "Why the hell would you ever do that?" And he said, "Well, I know the wheat market – so when you guys got into trouble, I took it all out and put it into RBS." Then RBS got into trouble too, so he put it all back into the leveraged wheat, because, as he put it, "If they survive, you survive – and I've got some upside." That was one of the funniest ones.
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The funniest thing I've come across recently, though, shows how mad the world's becoming – there are a couple of ETFs in the US now. There's a "Grifters" ETF – no bank will back it, but a custodian's approved it, purely because of the name. It's tracking politicians – Trump, Pelosi, all that sort of thing. And then someone's filed for one that I think is just genius: companies that will benefit from alien technology, if it exists.
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Carl: Oh, that's fantastic.
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Hector: That's how broad the spectrum of ideas is getting in this space. We were talking earlier about prediction markets too – I think somebody's filed for one on NHL team performance, so you can bet on Baltimore, or Miami, or whoever, based on how they perform.
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Carl: That'll be fun to see.
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Hector: Do you know what's funny, though, about prediction markets? Everyone talks about it as a new thing, and I always point out: we've had spread betting forever. The US always thinks it's invented everything first, but the reality can be quite different. Those products do concern me a bit, though, in terms of who's actually taking the other side of that exposure.
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Carl: I think with those sorts of things, my view is that if you get an incremental person who was sitting on the sidelines, not doing anything, and now they're interested and invested – that's probably a good thing. Hopefully they're not like your wheat farmer, betting the house on it –
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Hector: Or his farm.
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Carl: Or his farm, yeah – but if they do 1%, they get a bit of a ride: "okay, that was high-octane, let me go find somewhere to put my long-term money." People learn by doing. If you treat them with kid gloves, they're never going to do anything, and they'll be stuck in boring, expensive, useless products for however long it takes.
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Hector: So, let's get back to those savings plans and pound-cost averaging, right?
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Carl: Yeah, yeah, yeah. Hector, it's been great having you here. Before I let you go – where can people find out more about HANetf and the products you offer?
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Hector: Thanks for having me, it's been great. People can find out more at hanetf.com, and if they want to look at the products, hanetf.com/productlist.