What BlackRock, State Street's rival QQQ ETFs mean for investors

00:00 Speaker A

Wall Street’s largest ETF issuers are set to launch rivals to the dominant Invesco QQQ, which tracks the Nasdaq 100. Black Rock and State Street both filed this week to launch ETFs that track the Nasdaq 100 as well. The move is set to challenge Invesco’s grip on the Nasdaq, which has traditionally been selective about licensing out its index. Let’s look at what this means for investor exposure to tech ETFs. Ben Slavin, BNY Global Head of ETFs is joining me right now for this week’s ETF report brought to you by PIMCO. And this has been the hot topic, it feels like in the ETF space.

00:37 Ben Slavin

It’s really incredible to watch. You’ve seen the QQQ, which has been around since 1999 and now the competition is intensifying. We’ve seen this before in the ETF space. We’ve seen it with other broad benchmark indexes like the S&P, for example. We’ve seen this even in commodities like gold. And here we are with the Nasdaq 100 seeing more competition. And we expect, you know, this, you know, to continue as we see like, you know, BlackRock and State Street looking to to join the party, so to speak, alongside Invesco. But ultimately, this is a good thing for investors. More choice and it’s continuing to drive fees down, which has been a trend we’ve seen in the industry for a while.

01:21 Speaker A

So, I want to dig more into that. But first, I’m curious, in those past instances, like you say to me S&P 500 ETF, I say SPY. You say to me um, gold ETF, I say GLD, right? So even though there are competitors to those, there are still dominant players. Do you think that that’ll be similar for this one?

01:43 Ben Slavin

It’s a great way to frame it because really ETFs in general are a battle of tickers when you think about competition. You just rattled off those that have the mind share for those benchmark indexes like GLD, like SPY. But since then, there’s been a lot of other choices in the market. So for S&P 500, there’s several, VOO, IVV and others and other variants, and many of them have come in, obviously under different brands, but at different price points. And the fees, um generally speaking, have really mattered to capture those investor flows. Those who have offered cheaper prices have tended to start to eat away at market share in some cases in a pretty big way.

02:40 Speaker A

So when you say that this could be good for investors, because better choice tends to be good for investors, part of that has to do with getting lower fees potentially.

02:50 Ben Slavin

Yeah. Well, more choice is always great. I mean, I think everybody likes more choice. I would say, you know, from an ETF standpoint, it’s been incredible to see how much choice is being offered. I mean, we had more than 1,100 products listed just last year. It’s a lot of choice in a very short period of time. But the fees are also uh really important to investors, having the ability to access these institutional quality managers, institutional quality benchmark indexes for investors, and at these incredibly cheap price points is a good thing. It helps your after tax, after fee return, and ultimately that bottom line goes right to the investor.

03:25 Speaker A

So as somebody at BNY who is helping institutions and individuals make decisions on ETFs, so say these new products do get approved and they come out. How do you then, you know, because institutions also sometimes are slow to move money and they, you know, you kind of default to where you’ve got that allocation. Like what would convince you to actually then change some of the allocation to some of these new products? Would it be a fee change?

03:57 Ben Slavin

Look, again, fees are always important and you have to look at it. But, you know, like most ETFs and almost any investment you can think of, there’s a number of factors. So for example, in ETFs, certainly the ability um for those products to have the liquidity that certain investors need, especially institutional investors. Is there enough depth and liquidity to be able to place large trades? You know, there are other um other factors such as the tracking against the benchmark. How good is the manager actually doing? Are they replicating the benchmark and is it effectively delivering the returns that you’re expecting? You know, those are a couple other factors. So the important point here is, yes, fees are always important, but it’s not only about fees. There are these other factors that really do make a difference.

05:08 Speaker A

And and it’s and it sounds like it’s not going to be like a switch flipping on day one if these things start trading that lots of capital, you know, all of a sudden flees from the QQQs to the others.

05:16 Ben Slavin

No, in all the other examples that we’ve seen in the market, um this is not what we’ve seen. This trend is going to play out over the quarters, probably the next few years. So it’ll be an interesting space to watch. And remember, even for some investors who may have uh embedded gains, so they’ve bought a while ago, and they’re, you know, ultimately the the ETF is up. You know, just even selling and switching out to another ETF could incur capital gains if you, you know, bought obviously bought low and you’re thinking about selling high, um there’s that implication. So you have to weigh that against, you know, the potential uh advantage on fees.

05:58 Speaker A

Makes sense. Ben, I’m so glad you were here to talk to me about this. It’s an it’s an interesting topic. Thank you.

06:05 Ben Slavin

Thanks for having me.