00:00So let's start with the broader geopolitical environment, because it's interesting to see XLE, the run it's been on, because
00:06when it comes to geopolitical events, typically you don't see too much of a sustained move.
00:11But when you take a look at your historical flows, what does that tell you about how ETF investors tend
00:17to trade big macro events such as this one?
00:20So this is a good question, Katie, because this is not a crisis that we have not seen before.
00:27This type of geopolitical event has dominated some of the flows in the past.
00:33But it would be a mistake to take a page from the old playbook and apply it to today's events,
00:39because the geopolitical landscape is very different.
00:42For one thing, the U.S. is now not so oil dependent as it used to be.
00:47But when we look at the sector ETFs or flows into ETFs, responding to geopolitical events, one thing that we
00:55suspect is that you are going to see positive flows into, you know, the usual suspects.
01:00Energy, you called XLE, which is a great example of that, but also aerospace and defense, oil and gas.
01:08These tend to be, these strategies tend to outperform in the short term and then normalize in the medium to
01:15long term.
01:16So, Ana, I use a lot of your ETFs to determine fear.
01:20I think ETFs are like the people's fear gauge.
01:22The more they see volume, the more people are freaking out.
01:25So we have a table here showing SPY, TLT, GLD, XLE and EIS, which is the Israeli ETF.
01:34And it looks like SPY, no big deal.
01:37Twenty seven billion.
01:38It's around the average.
01:39That is really interesting.
01:40That means that generally U.S. investors are not that worried here, which kind of tracks with past geopolitical events.
01:47However, the volume in XLE is 218 percent already over the norm.
01:52That tells me that ETF is in play, as you said, Katie.
01:55And then GLD, 35 percent over the norm.
01:58And the Israeli ETF is 480 percent.
02:01So clearly what I think is happening here, and I want to get your take on this, is traders are
02:06kind of picking their battle here.
02:09They're not trading the whole U.S. market, but they're finding spots.
02:12How important is that for you as sort of the liquidity trading issuer to have this kind of uptick when
02:20you have these events?
02:21Yeah, I agree.
02:22I agree with you.
02:23I think that you are spot on in instances like the current one.
02:29Investors react by, I mean, you said freaking out.
02:33I don't think it's only fear.
02:34I think it's a fear and opportunity.
02:38Investors look at the short-term gains and the long-term ways to mitigate volatility.
02:43And this is why you see these almost neutral trades in spies, spies like my bet on the U.S.
02:50market.
02:51We haven't seen anything incredibly positive or negative when it comes to investor confidence in the U.S. markets.
02:57But we are seeing opportunities for, you know, short-term gain in exposures like energy.
03:04And when it comes to gold, gold broke all-time records last year.
03:08And it is breaking new records this year.
03:11We had $10 billion in gold only in the first two months of the year.
03:15And gold has always been the historical hedge.
03:18Hedge against volatility, hedge against inflation fears, inflation risk, and geopolitical events.
03:24So I suspect that we are going to see more records being broken this year with gold.
03:29Well, certainly we're going to be keeping an eye on trading volumes in some of those ETFs as the next
03:33couple of weeks unfold, going to be consequential.
03:36I do want to switch gears here, though, and talk about PRIV.
03:39PRIV, as I mentioned, it's reaching – it just reached, actually, its one-year anniversary.
03:44That is the State Street IG public and private credit ETF.
03:48And what an interesting time to talk about private credit.
03:51That is the other big story in the market.
03:53And I wonder, you know, this is an actively managed ETF.
03:57And with that in mind, how is State Street sort of evaluating what does due diligence look like when it
04:03comes to the securities that you hold?
04:05Since one of the big fears out there is that we're going to see an uptick in bad loans, if
04:10you want to call them that.
04:11And I don't think you're wrong with that.
04:14I think that private credit is that segment of the market where you cannot generalize and that you have to
04:21handle with care because quality is incredibly important, where selection matters.
04:28And if you look at the way we built this portfolio, it has been incredibly deliberate.
04:35At least 80% of the portfolio is invested in investment-grade assets, which means our portfolio management team really
04:42looks at the quality of those assets.
04:45Quality, liquidity, price discovery, and transparency – this is all going to contribute to providing, you know, returns in excess
04:54of traditional fixed-income portfolios.
04:56And, you know, the portfolio is behaving exactly as we intended it to behave.
05:02And we are also observing very positive flows, which really gives us an indication about investors' understanding of the portfolio
05:11and also investor adoption of this strategy.
05:14Clearly, you sold somebody because the portfolio just went, like, triple.
05:18It's now got $800 million.
05:19Somebody big went in.
05:20We don't know who.
05:21We'll find out the 13F.
05:22But did Blue Owl – you know, when they halted – they kind of halted redemptions and decided to give
05:27everybody their money back.
05:28That was a big story.
05:29Did that affect your situation here?
05:32Did you sell more priv?
05:34It did not.
05:35It did not.
05:36This is a process of education that we have been undertaking for one year.
05:41I'm not surprised to see big investors coming into the fund at this particular point in time, unless age matters
05:50for active strategies.
05:51Crossing one year means that right now we have a one-year of performance history that institutional investors and wealth
05:59investors, like advisors, can really review in their due diligence process.
06:03So, yeah, the convergence of different things was interesting, but I don't think that there is a correlation between Blue
06:10Owl and recent flows into private.
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