00:00We just witnessed the largest IPO in history with SpaceX.
00:03We might have Anthropic and OpenAI go public later in the year,
00:07all of which is kind of reigniting a familiar debate.
00:11When a company becomes so large, index inclusion matters immediately.
00:17It already mattered, but it's going to matter even more now.
00:20So some of those indexes are fast-tracking newcomers.
00:23Others are waiting.
00:25Either way, demand is enormous.
00:27And the FOMO is real.
00:30So how existential are mega-cops to passive investing?
00:35Jonathan?
00:37Look, so when you think about the SpaceX IPO,
00:41I think it's a good example of over the long run,
00:44you're going to want exposure to these types of firms.
00:49But at the IPO level,
00:53I think when you look at the float adjustment,
00:56which is basically an adjustment of the weight of a stock in the index
00:59for the amount that's traded publicly,
01:02it's actually a pretty small component of most of the indices.
01:06So I think for the total U.S. market,
01:09the SpaceX turns out to be about 15 basis points of total exposure.
01:14So when you think about the market cap of the firm,
01:19it's enormous.
01:19But when you think about what's the actual exposure that you can get access to,
01:23it's a much smaller piece of the total pie.
01:26But clearly, over the long run, these stocks are going to matter.
01:30I mean, you don't need to look much further than some of the research that's been done by Hendrik Bessenbinder.
01:36Many of you would be familiar with that,
01:38basically finding that only 4% of securities account for the entirety of returns over a 100-year period.
01:47You need to own the entirety of the market over the long run.
01:50Here's where we're going to get them to disagree a little.
01:52Okay.
01:53Now that they've become friends.
01:55Okay.
01:57Vanguard does not do themes.
01:59BlackRock does.
02:00I think, BlackRock, there is a line where I think you'd both probably trash a lot of the hot sauce
02:05products out there as being worthless.
02:07But themes are kind of like a sober version of hot sauce.
02:10They're long-only equity, but they're volatile.
02:13And you launched the thematic products.
02:16I've got to be honest, Vanguard, I'm with you.
02:19Because if you have this sort of like boring vanilla cord, and that's great,
02:23don't you want to speculate a little with stuff that's not in the index yet?
02:26So you can add a little 1%, 2%.
02:29That way you can participate in more of the teenage years,
02:32or something that you are really passionate about, like memory, AI, or space.
02:36What's wrong with that?
02:38Yeah.
02:38It's funny.
02:39You know, I had a boss who once told me,
02:42your job when you're working at Vanguard is to try to figure out how to make eating your broccoli interesting.
02:48And how do you respond?
02:50Yeah, exactly.
02:52You've got to pour a little cheese on it, I suppose.
02:54Maybe that's to your point, Eric.
02:57You know, I think the, you know, for us, the challenge with thematics is thematics have been around for decades.
03:05The challenge of it is figuring out which themes are actually going to matter.
03:10Because the themes that matter today aren't the same themes we were talking about five years ago.
03:14We were talking about green energy, and you're talking about batteries,
03:18and you're talking about, you know, emerging market e-commerce five years ago.
03:22You look back, you know, 20 years ago, 30 years ago, you had a different set of themes 40, 50
03:27years ago.
03:27I think there was a television ETF in the 40s, or a television fund in the 40s.
03:32So, you know, that's the challenge with the themes, is how do you choose them?
03:39I mean, our philosophy is you just buy them all,
03:42and you will end up winning because you've got exposure to everything.
03:46That theme's called capitalism.
03:48Yeah, yeah, yeah, yeah, there you go.
03:49So, VU is one big theme ETF.
03:51One big theme ETF.
03:52That's interesting the way you spun that.
03:55I would say it's true.
03:56I mean, you're right.
03:57I think thematic investing has been around.
03:59I mean, we launched the first thematic benchmarks 10 years ago
04:02because we're excited about the better data to capture some of these themes.
04:06And, you know, this notion of, for example, owning AI is not only owning the technologies,
04:10it's about owning the stack, really owning, like, all materials powering AI.
04:16So I think, really, what we've seen changing over the years is that,
04:20while there is nothing new about themes,
04:22they started as really professional and, you know, portfolio management tools.
04:28But I think now they're really opening up a whole new set of investors.
04:32This notion of thematic investing capturing, like, the retail imagination
04:37is something very recent, especially here in Europe.
04:40And then I really, again, I would really argue that there is a real opportunity
04:44for some of these themes to really unlock a new segment of the investment spectrum.
04:49You know, I was speaking with my colleagues in the U.S.
04:51I'm actually, you know, discretionary model portfolios.
04:54There are still, like, only 10% of their equity allocation is in theme.
04:59So it is, you know, it's meaningful.
05:00But I think there is still a lot of growth and opportunity.
05:03And again, especially now the indices, they're just so rich
05:06in terms of the ability to be very targeted on some of these nascent themes
05:10that I actually think there is still a big runway for thematic ETF.
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