The Trillions of Dollars tracking Three Million Indices, with F.T.’s Finance Correspondent, Robin Wigglesworth

Interesting times in the world bring interesting guests to the show. And, there’s no better time than now to sit down with a global finance correspondent, especially with the U.S. unleashing their USD financial war against Russia. Robin Wigglesworth @RobinWigg, a Financial Times journalist, joins us all the way from Oslo, Norway, for a captivating chat about his home country, the current turmoil between Ukraine and Russia and its impacts worldwide, and why there isn’t more of an uproar over the current “tech wreck”.

We also flip the script and talk to Robin about his many fascinating interviews, from industry icons like Larry Fink, Cliff Asness, and Jack Bogle, to the infamous bet between Warren Buffet and Ted Seides, and uncovering the inside scoop from his latest book, TrillionsHow a Band of Wall Street Renegades Invented the Index Fund and changed Finance Forever. Plus, we take a deep dive into the massive growth in passive investing indices (3 million to be exact), ETFs, and more!


About Robin Wigglesworth

Robin Wigglesworth is the Financial Time’s global finance correspondent, based in Oslo, Norway. He focuses on the biggest trends reshaping markets, investing, and finance more broadly across the world, focusing on technological disruption and quantitative investing, and writing longer-form features, analyses, profiles, and columns.

About Trillions

In TrillionsFinancial Times journalist Robin Wigglesworth unveils the vivid secret history of an invention Wall Street wishes was never created, bringing to life the characters behind its birth, growth, and evolution into a world-conquering phenomenon. This engrossing narrative is essential reading for anyone who wants to understand modern finance—and one of the most pressing financial uncertainties of our time. Purchase it here.


Check out the complete Transcript from this weeks podcast below:

The Trillions of Dollars tracking Three Million Indices, with F.T.’s Finance Correspondent, Robin Wigglesworth


Jeff Malec  00:07

Welcome to the derivative by our RCM Alternatives, where we dive into what makes alternative investments go analyze the strategies of unique hedge fund managers and chat with interesting guests from across the investment world. Howdy everyone. I hope you enjoyed the first week of March Madness never at least one bracket alive as we head into the sweet 16. We’ve got a good one for you today with Robin Wigglesworth joining us from Oslo, Norway. That’s pretty far away. Robin snow global finance correspondent for The FT Financial Times where he writes about all that’s happening in the global financial world. You know, like the US unleashing massive US dollar sanctions on Russia. It gets to talk to all sorts of interesting folks like Larry Fink, Cliff Asness and Jack Bogle, all three of which we talked about in this chat. He also wrote a book not too long ago, trillions about the massive growth in passive investing indices. He mentioned there’s now about 3 million indices hard to believe and ETFs so send it This episode is brought to you maybe for the last time by our seems algo execution group, RCM x, which was acquired by TT last week. That means it was super cool algos, like prowler and touch will be native to the TT platform and available to all their clients sometimes go to Trading Technologies comm slash news dash releases. That’s news, dash releases for more. And now back to the show. All right here with Robin Wigglesworth. Welcome, Robin.


Robin Wigglesworth  01:36

Thanks for having me, Jeff. Great to be here.


Jeff Malec  01:38

Yeah. So it’s upset to be in your Twitter bio that you are not in fact part of the Harry Potter universe. That’s, that’s correct.


Robin Wigglesworth  01:46

Yes, sadly, I think there’s probably more money in being a Harry Potter character than there is in financial journalism these days. But yeah, the last name despite being the Weejun is a legacy. My English father who’s from the north of England, Cumbria.


Jeff Malec  02:00

Got it. And you’re born and raised in Norway. Yep.


Robin Wigglesworth  02:03

So my father came over here. Both hear my mother architects. They thought they’d live in Norway for a few years and then the UK for a few years. And then they kind of decided that Norway was not the worst place in the world to live. And basically stayed here. So I grew up with very Harry Potter esque name on the west side of Oslo, which was, you know, where wherever reality is called Hanson, Spencer Johnson. But, you know, was getting a bit more international these days, at least. Yeah.


Jeff Malec  02:32

And tell us a little bit more about nori never been on my list for sure.


Robin Wigglesworth  02:37

Well, I used to joke the Norwegians were the only people in the world that could go to Switzerland and think it was cheap. It changed a little bit since I was young, but still diabolically expensive. So I was it pains me to admit this, but when people say they want to visit Scandinavia, I quite often point them towards Copenhagen or Sweden because you know, Copenhagen capital, Denmark and Stockholm, the capital of Sweden, ah, beautiful cities as well. And then just cheaper. But we have the fjords. It’s a very long, beautiful country. And if you like midnight, sunlight or Northern Lights thing, Africa in a way, you can’t see that in Sweden.


Jeff Malec  03:14

Right? That’s, that’s probably how most people do it right on those little cruise ships in the fjord.


Robin Wigglesworth  03:20

Yeah. And, you know, obviously, you need to, you know, depending on your job, you have to save up for a lifetime to afford them. But it’s just, it’s beautiful. My wife is from the west coast. And it’s stunning. I mean, as much as you know, visiting the in laws can be painful at times. I just, like just look out the window. And it’s just incredible. So that’s really nice. And, you know, Norway is also incredibly boring. Which is why when I grew up here, I desperately wanted to leave Norway. But as an adult with children, you kind of realize that being boring is kind of noise superpower. It’s not, or it’s being boring, after living in the US and the UK in the Middle East. Boring, I think is underrated. So I’m glad to be back here now. And why it’s so expensive. Well, it’s just generally speaking, because of oil that pushed up the cost of everything, and very high labor costs. So I mean, certain things aren’t that much more expensive in Norway than it is in the US or the UK or elsewhere. Like if you buy an iPhone, that’s basically the same price. Except, you know, the minimum wage is 1015 20 bucks an hour, depending on the labor, labor unions. So you know, anything that touches the hand of a Norwegian woman or man, it’s gonna be a lot more expensive. And then we decide also to skew taxes towards more consumption rather than labor. So the labor taxes are the income tax isn’t actually that much higher here in Norway than what I had in New York, actually. But VAT is dramatically higher. That’s 25% And there’s extra charges on booze, cigarettes, anything the Norwegian government thinks is bad for you. So especially having a drink after work gets pretty pricey


Jeff Malec  04:59

gets pricey. And if I was respect Norway of your basically the size of Greater Chicago here, right? Five, 6 million people, right and you win the medal at the Winter Olympics almost every time that that’s amazing.


Robin Wigglesworth  05:12

Well, I call that the real Olympics. The Summer Olympics is the bullshit Olympics. The Winter Olympics is the real deal. But you know, obviously, I’m a little bit biased when it comes to being Weejun. Though I yeah, sometimes I feel bad about this. I feel I’m not leaving kind of holding up my side of the national bargain by not having any Olympic medals.


Jeff Malec  05:30

Right. And everyone’s walking around with like, a gold medal around him.


Robin Wigglesworth  05:34

Yeah, a few of them two or three, right. I mean, it’s just it’s the done thing. So yeah, I’m lagging on that respect. I’m, you know, I was like cross country skiing, but was not Olympic level quality. Put


Jeff Malec  05:45

it that way. And then I’m a big Tour de France fan. So I know Thor Hirschfeld from back in the day. Yeah. And who’s the current one? Both in Hagon? I think is your current pretty good cyclists?


Robin Wigglesworth  05:58

Yeah, we’ve had a few. And it’s kind of a weird, I mean, it comes and goes in spurts. But not always a fairly sporty country. You know, even people that aren’t into kind of athletics and sports do quite a lot from an early age. So obviously, skiing is a big thing. But across the board, people get quite into it. But it is weird how we occasionally have a really good cyclists or, you know, the world’s best chess player is Norwegian as well, that’s never happened before. And then we get very puffed up and proud and think that Norway’s best place in the world.


Jeff Malec  06:31

Yeah, you got an argument? Let’s start take us through what you’ve been writing about for ft over the past few months. Kind of what stood out to you is rather important.


Robin Wigglesworth  06:47

Well, I mean, it’s hard to get look beyond Ukraine. It’s Ukraine, Ukraine, Ukraine these days. I mean, thank God, I’m not, you know, writing the really nasty kinetic stuff. I did join the FT as a Middle East correspondent and briefly was a war correspondent in Libya and Bahrain during the Arab Spring. But, you know, I just covered the financial ramifications, and other so there’s so much going on. And I think the really huge stuff is probably going to play itself out over decades. There’s the financial sanctions the West have slapped on Russia, was way beyond anything we’ve ever done, outside of a few niche examples, like Iran and North Korea and Venezuela, and Russia is like, as a big country. So if I was, you know, a policy maker sitting at the Central Bank, in Beijing, I’d be thinking quite heavily what this might mean for my country, and frankly, for a lot of countries around the world. I mean, it wasn’t that long ago that we had a president in the White House that was actively threatening European allies as well. So now that the US is has kind of discovered that you can nuke a country’s financial system inflict immense damage without sending a single cruise missile, the temptation to do that, again, is gonna be quite significant. So I think that’s one of the main things I’m thinking a lot about writing that these days


Jeff Malec  08:11

and what are your thoughts on the unintended consequences from a US perspective? They’re like right US dollar could be in trouble people say I don’t need that much exposure if they can nuke it so easily.


Robin Wigglesworth  08:22

Yeah, and this is where I think actually why I think it’s so interesting and that I think, that is his bunker essentially you know, there are people have been calling for the doom of the US dollar for decades and obviously has been declining slowly over a long period of time. And whenever country prices on export in in a different currency people oh my god, it’s the death of the dollar. And essentially people forget that there are no alternatives. I mean, if you’re being charitable, you can say the US dollar and the US financial system is the least smelly shirt in the closet. And reality is the only thing in the closet that is realistic. The euros capital markets just aren’t deep and liquid enough there are all sorts of you know, solvency issues with all that kind of can the Eurozone keep together issues that were dogging you know that that currency for us not so long ago, and after the dollar and the euro, which the dollar is 60% of global reserves the Euro is 20% You have to drop down many notches before you found the remember your the New Zealand dollar. I’m sure the Russians would love to put all the money in like the Kiwi dollar or something like that, but it’s just not realistic. China, for example, cannot buy anything but US Treasuries. So I don’t think actually this is a threat. But actually that makes the consequences even more interesting because if the US can do this without worrying about the standing of the dollar, or not worry too much about the sending of the dollar. That’s why the temptation to do this is is going to be pretty powerful the next time some country, thumbs its nose at the US maybe doesn’t invade a neighbor, but does something reprehensible. That means that you kind of you look around for tools to punish them with,


Jeff Malec  10:14

do you feel it was a message to China as well, like, Hey, here’s what we can do stand down a little bit.


Robin Wigglesworth  10:22

Possibly. And there are many sort of secondary sanctions parts of all the aspects of the sanctions that can Russia that might still affect China, or will deter China from actively helping Russia V. The sanctions. I think, you know, they weren’t keen on on showing this off. And this has been percolating in policymaking circles for decades. And I think they were quite keen to keep this weapon up the sleeve. Knowing that the Chinese know, it’s there already, the Chinese aren’t stupid, they knew this was potential if there was ever hot or. But it certainly has demonstrated the awesome power of the US control over the dollar based global financial system, which is they’ve been careful not to misuse in the past. And in this case, also, you know, it was very multilateral. But I still think, you know, it has precedents value that, you know, we shouldn’t discount


Jeff Malec  11:20

and explain what you mean by multilateral like UK participated risk Euro? Well,


Robin Wigglesworth  11:26

so let’s say the US had done this unilaterally, that would have been incredibly painful, they could also could have sort of bombed the financial system of Russia pretty heavily. But it as long as they could sell and deal in euros without any kind of impediments, that would still be pretty powerful. The central bank reserves, you know, a lot of it isn’t dollars, but some of it again, is in euros or Swiss francs, or British Pound sterling. The fact that they got the Europeans on board, or Europeans seem to belated have actually pushed some of this, the UK, Switzerland, even countries like Singapore, means that the effect is of this kind of de facto financial and economic blockade of Russia is even more total, and harder to mitigate for the Russian authorities. So the US can still do a hell of a lot of damage to any country’s financial system that they choose to. But it’s harder to do anything about it, if it’s a multilateral, a true multi collateral attack.


Jeff Malec  12:34

And I think some of this is pushed back against the Russian oligarchs, and the Russian money, I think that you see more of in Europe than here in the US, but right of the, the, the public was like, yeah, get those guys. They’re flaunting their money all over Europe and whatnot.


Robin Wigglesworth  12:51

Well, I think that actually probably made it harder. Certainly, initially, in Russia, there is so much Russian money floating around the place, especially in the UK, for example, but also in Germany and a few other countries. I think what, frankly, even Western politicians underestimated, and Putin clearly completely missed is that, you know, sitting in Norway and having lived in the UK, and in France, and lots of German friends, you know, Russia has been acting increasingly aggressive for a very long period. You know, we had Georgia, we had Crimea in 2014, we had the interference in the US election, you know, Russia had increasingly being seen, even among the weejuns, who are very touchy about being friendly with our big neighbor, we share a border with Russia. And, you know, we’re increasingly feeling quite under the cosh, I mean, getting buzzed by Russian jets for a long time, some deliberately provoking every single neighbor. So I think when finally Russia did something so obviously wrong, that even let’s say, NATO opponents or reference of Russia, in Norway, or Sweden, or Germany or the UK, it just became indefensible. So suddenly, we reached a tipping point where essentially everybody there wasn’t like gushing of, of political sentiment the other way around. And the politicians just frankly, had to get on board with it, no matter how much Russian money might be sloshing around.


Jeff Malec  14:23

And then your recent article was talking a little bit about how it would be very, in some cases going to be very difficult to actually get at that oligarch money. Talk a little bit about what you found out there.


Robin Wigglesworth  14:34

Well, I spoke to a guy called Jay Newman, who was a senior portfolio manager at Elliott. He’s a really interesting guys now actually written a really fascinating thriller called on the money, parts of the CD money and how it runs the world, which is kind of interesting given his eviction background fiction, but I think heavily inspired by you know, some of his experience and also, you know, he’s pretty plugged in in certain foreign policymaking circles. You know, he spent over a decade suing Argentina over the terms of its 2001 restructuring and as part of that basically make life hell for Argentina, and its government led by Christina Kirschner, he went after all of her assets as well. And the assets of her husband, her predecessor, nessa Kirschner, and anything that they could try and seize of state owned occupied property around the world. So he has a lot of experience in digging out these things and trying to attach them. And his view is that, you know, even with the awesome power of the US government, these guys are very good at hiding their money. You know, I mean, the US government has always fought against organized crime as well. But we haven’t managed to eliminate that there’s still a lot of dirty money in the world. And there’s still a lot of people are very willing and able to help you hide it. So apart from seizing a few yachts, a few chairs, like a football club, here and there, he felt that, you know, we could dent their wealth, but we weren’t going to be able to eliminate the oligarch class and, and really bring that much pressure to bear on Putin because like, this is a tool for him. He doesn’t care if the Russian oligarchs lose a few billion dollars here and there.


Jeff Malec  16:14

Putin doesn’t right? No and wasn’t was Elliott, the one who sees the like state owned Argentine old sailing ship that was in London, I think right?


Robin Wigglesworth  16:25

It gonna actually discuss show how far Elliott will go. Yeah. The Liberty. The Liberty had three mastered frigates beautiful ship that was docked in New York when I lived there. And I didn’t actually get to visit it, which was a bit of a shame. But yeah, that was why.


Jeff Malec  16:44

And were they I think I was in the book too. Right. Eventually they got back something. Yeah, point they did?


Robin Wigglesworth  16:50

Well, essentially, they did manage to, you know, through some legal jujitsu, and I think a US judge called Rosae, who had grown so sick of Argentina, essentially just ignoring the US courts, that he interpreted a, frankly nothing burger clause in a very aggressive way. And essentially kind of forced Argentina deciding whether either if they wanted to keep paying all the new restructuring bondholders, which they’d been doing for over a decade, or almost a decade, then they had to pay Elliott, and Argentina decided they would rather default again, then pay Eliot assent. But eventually there was an election in Argentina, reformers called Macri came in. And he just wanted to set aside this entire saga and kind of turn Argentina as he put it into a normal country. So he, after over a decade of litigation, I think it’s close to 15 years, settle with Eliot and all the others have hold that creditors as they were called.


Jeff Malec  17:55

And we might have experienced the same thing with Russia, right. But some of the Russian bondholders


Robin Wigglesworth  18:01

Well, Russia pay their bonds recently, which was interesting, but I think it’s because frankly, they paid it, as far as I understand with money that is already frozen abroad. So their view is well, actually this money is frozen. So why not we just ask OFAC we’ll just transfer the money. And OFAC the office for financial control of the US basically let them pay that because it doesn’t help Russia in any way. Right isn’t like they’re able to unfreeze the money and use it to prop up the ruble that is paying overseas creditors, mostly US and European bondholders. But I think a default is very, very, very likely and probably April May time. And yes, that’s going to cause an all mighty messy restructuring, if we can even restructure it under the current circumstances, because under the current set of financial sanctions, you practice can’t actually restructure Russia is going to be put in the deep freeze, and there’s gonna be legal hell to pay eventually.




Jeff Malec  19:02

Have you done any reporting on who are the main bondholders so like, geographies is mainly in Europe.


Robin Wigglesworth  19:08

European us, if you look at the list of it is than the usual suspects some of this because of their size, like Blackrock has huge exposure to Russia, because, you know, they’re a huge asset management firm PIMCO had pretty hefty exposure, if you’re it’s funds, also product that they’re so big that you know, they have to be in all the big markets. And below that it gets kind of a few California pension plans is fairly standard. Russia was not a huge it Russia is not China, right? Russia is not what we remember it back in the Cold War is actually a middling size, country with vast oil and gas exports. But it was a reasonably sized chart part of the sort of global emerging markets complex. So there were very few people that escaped a tiny unscathed from it And it’s gonna be interesting to see how they deal with these assets because they’re sexy. They’re frozen that you can’t sell. You can’t get out of them now.


Jeff Malec  20:08

Yeah, and have all those firms marked it down properly. There’s a whole Gordian knot to untangle there. Switching gears a little, one of your recent pieces was on this what I call the tech wreck. I don’t know what you’re calling it. But right. There’s all these tech names, big names that are down 60 7080 90%. The apples the Microsoft had held on, but it seems to me kind of under reporting of all the carnage that’s going on under the hood. What are your thoughts?


Robin Wigglesworth  20:46

No, I think that’s a great way of looking at it actually. And I also call it a tech wreck. Because frankly, I love terms like that. I think the reason why kind of goes under appreciated, or maybe even is kind of cheered, is because like, we obviously had an insane market from 2021. And when some of the air started coming out, or some of these tech names in 2021, it was mostly the Spec Tech names, the more speculative side. So the non profitable, wildly expensive, moonshot stocks. And you know, for a lot of investors that felt like kind of justice. Like, they had like lost out all these kind of kind of stupid names that were limited to like the heavens, by central bank money and retail traders and, you know, go go growth managers like Cathy woods, so people almost kind of cheered it. But I think almost without people realizing what was initially A Spec Tech rat crack crash has kind of morphed into something far bigger. So I did some numbers on this a few weeks ago. And obviously, this is a kind of journalistic apples to pears comparison. But the NASDAQ has lost over $5 trillion worth of market cap since the peak in November 2021. That is more than its entire market cap drop from the peak in 2000, to the bottom in 2000. To 2003.


Jeff Malec  22:22

Right, just in a few months, which seems like a big deal now.


Robin Wigglesworth  22:25

Yeah, well, obviously, the market is vastly bigger now. I mean,, crash was just mammoth. But in dollar terms, I think we can’t underestimate that a lot of people are hurting. And some of these people are might just be sitting on Reddit or, you know, nursing some option trays on Robinhood. But there’s some serious people have lost out on money, like some pie cubs went very big in some of these names. Cathy word, you know, she was the queen of the bull market not so long ago. And now, you know, Ark is kind of taking on water.


Jeff Malec  22:57

So I guess, underperforming the NASDAQ as a whole? No, right.


Robin Wigglesworth  23:01

Yeah. And, frankly, is underperformed. I think, Berkshire Hathaway, the ultimate boom was stock since the beginning of 2020. So for me the question now and I still haven’t kind of made up my mind, you know, what I think and what what will happen, but to what extent will be the carnage and public markets start echo into private markets, and they start boomeranging back and forth. I mean, I think we can already see that. But I think the next stage is we if we start seeing some big, nasty, hefty down rounds in private markets, and I think we’re on the cusp of that, that’s going to slow down everything again, because there’ll be less VC money going in. That means more rounds will be down or the duration of the investments and private marks we stretched out. That means public, Marcos and probably have further come down so on. So it’s going to be interesting to watch.


Jeff Malec  23:55

And it seems to me, right private equity can kind of had could do no wrong for so long for 20 years here. And maybe finally there’s a little chink in their armor here. And everyone’s like, Oh, yeah, they’re paying, right. They were paying premiums to the public markets. It used to be you got a discount because of illiquidity. And that was the theory behind the the gains, but now they’re paying premiums and maybe it’s gonna come home to roost.


Robin Wigglesworth  24:20

Yeah, I think across the board, and this is one of my strongly held hot takes, but I think it is quantitatively backed as well is that you know, what was a private sector, private market discount, like you can buy cheap, there was an illiquidity premium, that you get harvest in private credit, private equity, growth, capital, venture capital and so on. has become a discount. You’re paying up for the artificial smoothness of private markets. When you don’t have the kind of whiplash of daily marks and institutional investors because there’s some fairly simplistic waves of how they just show their portfolio and Ask adjust stuff. I think we’re just incentivized to go over their skis on privates. Now, this still might end up being fine. But it’s definitely the longer running train wreck i or longer running thing that I might, I think might end up being a train wreck that a lot of people are going to roo kind of doubling their private quadrupling that, in some cases, their private market allocations over the past 510 years.


Jeff Malec  25:27

Do you think that’s interesting to me? Right? The artificial smoothness you called it? Right? They know they’re smart, all these institutional. So they’re kind of willingly and putting the blinders on and saying, Oh, this is smooth this as a better sharp or whatnot, because of this artificial smoothness. Like, that’s just always odd to me. Like they must know that they’re doing it, but they don’t either don’t care. What are your thoughts?


Robin Wigglesworth  25:51

It’s one of the attractions is like, I mean, frankly, if you could find a way of doing leveraged small caps, but institutional investor could only look at it once a quarter or once a year. I mean, people will beat. Yeah, yeah. They’re waiting on doors to get into them. Yeah, I mean, essentially, they know this. And I’ve talked to people, it’s not something they will say to a journalist in the first five minutes, but they’ll willingly admit that no, of course, that is one of the directions. And I don’t see that inherently as a problem. Like, fundamentally, these are long term institutional investors. A pension plan, doesn’t care that like the stock market drops 20% in a month, they just don’t really care. Because they’re long the windows, they only care so far, it becomes a really nasty headline. And a financial newspaper like the ft. And I sometimes have a lot of sympathy for them for that. The danger is when they are overpaying for this smoothness. The smoothness in itself is not potentially problematic is if they overpay for it. And also if they increase their investments to such an extent that it erodes the returns for everybody, like how much money can go into large scale LBOs and it not to crimp the overall return for the industry after fees. And that’s why I think people have seen while private equity or venture capital has delivered, you know, IRS or 15 20% year over the past 20 years, we’ll expect that from next 20 years, even though the size of those asset classes has gone just ballistic. I think that’s the fantasy that people maybe are kidding themselves a little bit about.


Jeff Malec  27:33

And now is it Blackrock that’s taking it out to the retail public?


Robin Wigglesworth  27:39

Well, Blackrock it a little bit, but Blackstone is obviously the baby. Yeah, no, I mean, that, you know, they grew out of each other. It’s pretty natural mix. I once joked to Larry Fink that, you know, he should team up with Steve Schwarzman, again, to make either black or stone rock. He didn’t find it funny at all. But yeah, Blackstone wants to go retail. And, you know, you can say, I mean, by retail, we don’t mean, kind of me, we mean people that are, you know, high net worth individuals that do have a few million of liquid assets. I can see, in theory, the argument for that, that, you know, private markets could and are a completely legitimate part of a, even an individual’s portfolio. But I can also see roughly 50,000 ways or get abused, and they’ll end up misselling, not necessarily a Blackstone or like the big firms, but smaller firms fly by night, firms will start shoving stuff down the throats of retail investors that don’t know better. So that’s kind of how it goes all the time.


Jeff Malec  28:51

But and to me, it’s more like the Ark issue, right of all this money flowing into these smaller cap companies that really can’t support the new investment. At scale in these private companies of like, say there’s 50 billion goes into some private market ETF, how are they going to deploy that?


Robin Wigglesworth  29:09

Yeah, no, I mean, it’s, it’s going to be interesting how it works. Um, some of that still makes sense to me. And that, you know, one of the things both in private and public markets that, you know, we have more actual quantitative proof for now is that the SKU or returns is just wildly greater than we ever thought before. So we all thought that maybe 20 30% of companies account for the vast majority of gains. In reality, it’s close to like 5% 5%, roughly, of all companies listed in the United States over the past century, account for $30 trillion worth of wealth creation. So that means I think it’s open sets are over half of companies lost all their money, or you would have made more money in T bills. Over the past century over those 20 30,000 companies have listened to us and then checked Capital kind of takes that to an extreme. Like it says, Look, we don’t care about we’ll invest in like 50 companies 20 will go bust 10 Will breakeven, another 10? Will do, okay. And hopefully in those kind of last cohort, we’ll have a few kind of 1000 baggers, or one Facebook or something like that. And that kind of works. So and especially if you don’t have return expectations, 2030 40% All you want to do is break double digits. That kind of does make sense. I buy if you lottery tickets, yeah.


Jeff Malec  30:37

You mentioned talking with think so have you interviewed him personally?


Robin Wigglesworth  30:42

Yeah, a few times.


Jeff Malec  30:43

Um, what was he like? What was it like? See all? Lucintel?


Robin Wigglesworth  30:49

No, he’s pretty easygoing guy. No, I mean, look, I haven’t spoken him so much that I you know, I know the contents of his soul. But he’s a smart, intelligent, chatty individual. And I think you know, one thing that I still think that people don’t realize that I really get out of it whenever he’s got one of the finest strategic minds. In the business, I think, at least in the business of the financial services world. I’ve never spoken to people like Jamie Dimon. But there are some people are just great operations people, or they’re very innovative and products and all these things. I think, Larry Fink superpower is that he has seen the way that the investment industry is going to evolve quicker. And there’s made the right moves to capitalize on that quicker than everybody else. And that really does shine through when you talk to him.


Jeff Malec  31:42

What are other some of the other big names you’ve interviewed that have stood out?


Robin Wigglesworth  31:46

Ken Griffin is an interesting guy. Yeah, I was just like, Zoom phone call, you know, during the pandemic. He’s an interesting guy. Who else God knows. Trying to remember there’s been a few over the years, I’m trying to think my favorite ones I did. The FT has a famous interview slot for lunch with the FT where we sit down for a nice meal, ideally boozy as well, and interview somebody completely on the record, and it’s very, can get quite personal. And I did one with Bill Gross. And you know, there’s nary journalists in the world who hasn’t interviewed Bill Gross at some point. But he’s still so relentlessly open and thoughtful about everything. That it was just a fascinating interview that he has no, he doesn’t hold back at all. And that was actually really interesting. No Filter, no filter at all. A bit like that Jack Bogle as well was fascinating. I mean, this his voice was incredible. He had like, even when he was very old and very sick when I spoke to him shortly before he passed away. I did want to do last interviews with him before he, you know, he died in January 2019. And, you know, he still had just immense presence. You know, you when you walk in the room or you talk to somebody, and you just there’s nobody in that room. But that person. I think that was incredible. His voice. It’s yeah, yeah. Incredible.


Jeff Malec  33:17

And I see you brushing up against the hedge fund space a lot in your articles. A lot about AQR Bridgewater, the biggest names. Do you ever go down stream a little bit and talk some about emerging managers or some of the smaller European hedge funds any managed futures stuff?


Robin Wigglesworth  33:33

Oh, yeah. I mean, although See, I’ve met Ray Dalio. I’ve spoken to a lot and Cliff Asness. And yeah, I mean, generally speaking, I’m willing to talk to everybody, because quite a lot of the best stories are not necessarily from the top people. I think that giving dishing industry dirt and public here. But you know, sometimes journalism can even financial journalism can be a little bit like celebrity journalism. We care about our celebrities, like a Bill Gross is a celebrity in our world. I remember when I when I started at Bloomberg News, I was told like, these are the people the newsmakers, the people that are so well known, if they say almost anything, you can turn into a news story saying Person X, Y, Zed, Zed, y. But essentially, it’s kind of becomes an outcome becomes thoughtless, and you end up having the same roster of kind of famous people that you talk to all the time. And that’s why I’ve always tried to talk to as many interesting people that are emerging or lesser known, or just doing something really weird and neci. And sometimes that’s Sally through let’s say, PR person, but most of the time is through word of mouth. Like I’ll know somebody said, Oh, by the way, Robin, you’ll really get a kick out of talking to Person X or Y, because she’s amazing or he’s incredible, or he’s insane or she’s mental. I mean, who’s got something interesting to say that is somehow out of the normal stuff that you Hear, was able to articulate it better, or maybe they’re terrible communicators. And the PR person doesn’t want to put them in front of a journalist to save their lives. But they’re still really interesting. I love those people, the people that you can never put on CNBC, but there’s still absolute legends in the financial field. Maybe they’re just not famous. I remember there’s one guy I interviewed called Armand ASINs, at Goldman Sachs, and he coded SEC dB, they kind of beat me their programming language and the Chi operating system and Goldman. He is now the head of their quant investing. So Q is Goldman Sachs, asset management. And he’s one of these people this like, massive brain, you know, rambles on, but just really fascinating talk to. So look, I’ve never booked him on CNBC. But I talked to him for two hours about quantum messing any day of the year,


Jeff Malec  35:57

which as a consumer of this content, right, I appreciate I think a lot of the consumers get sick of like, Oh, great. Let’s hear what Ray Dalio has to say again, right, almost tarnish their reputation, because they’re so everywhere. You’re like, you’re sick of hearing about it. Yeah. Speaking of the business of newspapers, do we even call that anymore? Right? What’s that been like for you as a reporter of like, the gating and the subscription model? And all that is it? Has it worked? Is it still in progress?




Robin Wigglesworth  36:29

My personal career that way, it’s been pretty lucky in that the I became a journalist of a small crappy trade magazine, but trade magazines, you know, if they do well, they can print money. People love reading about their own little niches and industries. And if nobody else cares about it, then you know, you can do really well, like I wrote about Islamic finance. And it’s like, it’s really esoteric stuff, but I love esoteric, kind of complicated, weird stuff. So I love kind of figuring out how Islamic reinsurance works, as opposed to normal conventional reinsurance, for example. But, and then I work at Bloomberg News, which you know, has like the best business model in the world, and that they’re subsidized by these outrageously expensive terminals. Yeah. And then the Financial Times, which had, frankly, struggled for decades. But when I arrived in 2008, had kind of just crossed kind of the tipping point, I think I feel on a successful transition to being far more completely subscriber financed, and digital. So the transition wasn’t complete. But basically, they decided that we just need to make sure that we can’t depend on advertising, because the all the arrows are pointing the wrong way, we need to live off our subscribers. And we have to then to do that, we have to sell them a product that they’re willing to pay for. So we’ve started jacking up the price quite a lot year after year after year. So it’s now one of the most expensive newspapers in the world. But they’re reinvesting that in both the journalism but also the product itself, the website, the graphics and things like that. And Touchwood, we got ahead of that big industry trend before many other places.


Jeff Malec  38:13

And last bit on before we get to the book, last bit on Norway, the largest sovereign wealth fund in the world, I think one and a half trillion isn’t.


Robin Wigglesworth  38:22

Yeah, 1.23. I mean, you can literally go onto the website and see the numbers, the Norwegian sovereign wealth fund is so outrageously transparent, they have a Daily Ticker, that text by second, you can see the money going up and down, mostly depending on whatever oil prices on the stock market is doing on that day. I think it’s 1.3 trillion. Now, last time I checked, and yeah, we think that’s the biggest in the world. If you count GPF, in Japan, so that’s a government pension plan in Japan, that’s big, that’s a bigger pool of money overall, but it’s not technically a sovereign wealth fund. And for a long time, we kind of all pretended it would probably be the Abu Dhabi Investment Authority, which I used to cover. But they’ve never said how much money they have. And I think there’s a reason for that, but it’s not quite as big is what people used to expect. And the returns haven’t been that great either. So though the returns are now being published,


Jeff Malec  39:21

and what have some of your research over the years, like is that too big to do anything meaningful, but they just have to own everything, and basically accept whatever happens.


Robin Wigglesworth  39:32

Yes, basically, is this basically a giant index fund with a few bells and whistles added on? I think it’s, it’s an interesting way that they don’t always do this as well as sometimes maybe they pretend but I think it’s a good way of showing that you can do you can be massive and lumbering, a passive player, but still add a little bit of value with tweaks. Like if they can just do smarter indexing, like a rebalancing slightly more opportunistically, for example, if you can add a couple of basis points or returns a year, on a figure that is $1.3 trillion, that adds up to a lot of like wealth for the Norwegian people. So that’s kind of what they do. And they have, like, some sleeves are our external managers, typically in areas where, you know, you know, public markets aren’t that good. So and they’ll do some real estate for partner with certain big owner operators, for example, or professional management companies to buy big properties in Boston, New York, Paris, London, so on, but just moving their 5% target allocation up, basically, they have a 5% target allocation, getting 5% of the fund into that. It’s just been slow, because it’s so big, and property is pretty illiquid asset class.


Jeff Malec  40:55

And it doesn’t work like the Alaska Permanent Fund, like did the citizens get a distribution every year?


Robin Wigglesworth  41:01

I wish? Well, we do in practice, right. So the way that the way that it was built was actually mostly to shield than we can kroner because the last is just part of the US REITs. So the problem was with when countries when they discover some sort of natural resource, boom, it quite often drives the cost of the currency up. And it makes all other exports uncompetitive so that the fund was set up to house oil revenues offshore. And it would be this gradually slip into the economy over a long time. So they kind of said that long term return that average we can expect 4% 4% was pretty conservative now, but that’s when, you know, it was mostly in bonds. And so the idea is that basically the governments of the day, whoever they are, can spend roughly 5% of the fund a year. And then some years that has in practice been close to one 2% In some years, like the financial crisis and the pandemic, the you know, the they take a lot more out of the fund. But yeah, it’s worked pretty well. And we all see the benefits indirectly in that, you know, healthcare is free education is free, universities, pretty much free. So as much as Norwegians do love to complain, having lived most of my life now abroad, I think they’re very little to complain about, actually.


Jeff Malec  42:26

Yeah, that’s a big number, like what do you what do you save it for? It’s like the endowments here in the US, right, gotten a lot of trouble during the pandemic, because they were taking PPP money and not spent spiring. cafeteria staff, it’s like you have 40 billion in your endowment. What do you use it for? If not to, you know, for those hard times?


Robin Wigglesworth  42:45

Yeah, I actually had some sympathy with that. I mean, it’s a slightly cruel joke, saying that US universities are hedge funds with schools attached to them, but only slightly cruel. And I do think that endowment is there specifically for situations like this, and taking government money and basically gouging students full time tuition fees when you know, everything’s remote, I think was in poor taste personally. But you know, I understand it. It’s like when you have a big pot of money that the patient is always keep growing it right. And that’s what the Norwegian government back in the day, kind of harnessed, that they knew it’s so tempting to spend all this money immediately. So they kind of turned it into a bit of like a civic virtue that Norwegians are proud of their big fat Oil Fund. Though we don’t call it an Oil Fund anymore. We call it the government pension fund global. Yeah, that more boring. Well, it’s gonna be growing.


Jeff Malec  43:41

Big, Bigley, recently, right. So on to the book, trillions, which I read. This week was great book. I’m not sure what I was expecting. But I really liked it. you weave in a rich history of each of the characters. And what has become this trillions of dollars behemoth of passive investing. And it’s a Chicago story in many ways, which I like taking on New York and Boston Fund world with some unbelievable connections I wasn’t really aware of. So what’s something you didn’t know going in that you uncovered? And sort of sort of couldn’t get enough of after that?


Robin Wigglesworth  44:26

Ooh, that’s a good question. Um, yeah, I mean, varies. Chicago story. I mean, half, quite say half the book is set there but a decent chunk of it happens there or is inspired by people from there. There were certain things around like, let’s say before writing the book. I was somewhat in the kind of the camp of Jack Bogle in that I thought exchange traded funds, you know, would be useful, but I worried that they were leading people were misusing them or using them stupidly. And it was an imperfect structure or a flawed structure that could lead to severe problems in a massive market crash, specifically, around, say, credit ETFs and fixed income ETFs. Now, I thought a lot of the scare mongering I’ve heard over the years has been ridiculously shrill. But I think, you know, I just instinctively was worried about, you know how this would work out in a severe stress test. But as luck would have it, you know, not quite halfway through writing the book, but not far from it. We had a massive stress tests in the form of COVID. And we saw all sorts of hell break loose in financial markets in March 2020. And a lot of people I think, still think, oh, ETS credit ETS were only saved by the Fed. And the more I looked at it then, and certainly after the fact, I’ve actually come more around to the fact that credit ETFs did an incredible job in March 2020. By pricing risk continuously, in a way that bond funds, traditional bond funds did not traditional bond funds came far closer to collapsing and causing a real systemic crisis, global systemic crisis than credit ETFs did. And that the ETF structure, I haven’t quite married this theory, but I’m flirting a little bit with it is actually an in is actually a better structure than traditional UCITS funds in Europe, or 40x funds in the US for all sorts of issues, and maybe particularly good for less liquid asset classes, which was diametrically what I would have told you two, three years ago, I say,


Jeff Malec  46:48

and dig into that what happened during COVID? There, I think we’ve talked about it on the pod before, but essentially, in some of those bond ETFs. There was a big discount to now.


Robin Wigglesworth  46:58

Well, yeah, so a huge discount to NAV and part of it. If you think back in March 2020. I mean, we’ve seen this through every major crisis, and then even smaller crises that in when a fun has outflows or when somebody wants to raise money, you don’t sell what you want to sell. Because the mark down you have to take on that if you want to sell it a portfolio of junk bonds in March 2020. The bids were just ridiculous, right? If you could get a bid to sell what you can sell. And that’s typically investment grade paper, treasuries, stuff like that. And that’s why we see actually some of the stresses happening more in the investment grade ETFs. Because then just like things got pummeled short duration stuff, stuff that was, frankly, going into material, let’s say in 2020. Anyway, maybe a few months away, people well, okay, so I might have to accept three points down on that. That’s ridiculous for something maturing a few months, but I’m least getting 97 cents on every dollar, which you wouldn’t be getting for anything else. And the ETFs, essentially, when the underlying market kind of gummed up and froze both investment grade and junk, the creation and redemption process that makes sure that the ETF prices match, the nav kind of just broke, in my view, and this is like industry, ETF Industry insiders say I’m being too sure about that. But I think it kind of broke it didn’t work, I don’t think we can be honest about that, when the bond market is not trading is very hard to create or redeem these bonds for the authorized participants that kind of lubricate the trading in this. But what happens, of course, is that the shares of the ETFs trade completely freely. So yes, when JNK and hyg, or LQDU, hyg, essentially couldn’t create or as many new shares or redeem them, you know, the nav kind of stayed roughly the same or kind of was stale, but can move around lift, but but the price just plummeted opening up these big discounts. But in my view, that actually shows how they’re able to price risk continuously. The liquidity in the secondary trading of credit ETFs was just insane. And I bet you and I’ve talked to institutional investors about this, if they wanted to sell like a portfolio of investment grade bonds, corporate bonds in March 2020. At the worst, they couldn’t do it, but you could transact in credit ETFs. And that’s why we’ve actually seen an inflection point in adoption that quite a lot of institutional investors that used to be aware of credit ETFs and fixed income ETFs have actually now started incorporating them as as some liquidity management tool and a way to get cheap, easy liquid exposure into this, you know, certain risk asset classes and more broadly and more specifically, rather, you know, in a bond fund, and we saw this with a Third Avenue credit fund that blew up in what 26 Steen exempted they sold all the stuff that they could sell to begin with. So what investors were left in this 40 Act fund was a bunch of non rated or extremely junky stuff. It was essentially a distressed debt fund in drag. And they eventually had to gate Reporting Act fun. That’s like a big deal. Yeah. And people are worried about that having a ripple effect through the tight credit ecosystem. But that’s because there’s an inherent bank run like dynamic embedded in in bond ETFs, because you know, that they sell the high grade stuff. First, you have an incentive, if you’re invested in a PIMCO fund, or Blackrock fund to get out of the door first. Because then the cost of liquidity is borne by the remaining investors, you get out, you get liquid, but the remaining investors don’t. And they’re left in a smaller, slightly junkier fund on average. But the ETF solves that. The people that had to pay the cost of liquidity, if you sold an ETF at eight percentage points below the nav, well, that’s the price of XD that’s the price of you turning that exposure into hard cash. And that cost is borne by the seller, not the remaining investors. And that seems to me, both just fairer, but also better from a financial stability point of view.


Jeff Malec  51:21

It seems the regulations for the 40 Act are in place in theory to prevent that, right. You can only have so much of your assets in liquid stuff. And yeah, but the difference is it’s liquid until it becomes illiquid. Right?


Robin Wigglesworth  51:34

Exactly. Yeah, liquidity is very much in the eye of the beholder. And, you know, it can vanish exactly when you don’t need it to.


Jeff Malec  51:42

And it’s such a weird concept you have they’re like, this thing works. It broke and it worked. Right, you’re saying to two opposing ideas at the same time? Oh,


Robin Wigglesworth  51:52

I think the the creation redemption process gummed up rather, this looks slightly less real way of putting it. But because of the pressure valve of secondary trading of shares, that was kind of fine. Now, could there have been if the Fed decided to sit on its hands and decided that the financial fires at the burn? You know, could credit ETFs have gone down the drain somehow? Yes, I think at some point, yes. But I’m pretty sure we would have seen mortgage REITs bond fortiAP funds, a lot of low relative value, hedge funds just get absolutely carted out a long time before that happened.


Jeff Malec  52:35

Right. And eventually, someone’s going to step it right. Because why would that look like the ETF is zero bid, right that there’s no price for it?


Robin Wigglesworth  52:43

Well, so the ETF, the shares, an ETF had tons of bids.


Jeff Malec  52:47

And I know I’m saying in a total collapse the ETF broke. World. Yeah, I guess they’re looking it would totally disconnect from the assets and go to zero.


Robin Wigglesworth  52:58

Well, yeah, if it went to something like I think the breaking of an ETF or credit ETFs is more that your everyday investor looks at an ETF and sees that it is radically out of whack with the market, like bond market is down 2%, my ETF is down 20%. And it starts, people start fearing about the structure. So you cause a bit of a run. That I think is kind of the worry, I mean, these things going to zero, like if somebody wants to sell me Ltd for like zero, I’ll I’ll buy that all day long. Even in a crisis at some point, someone’s going to do that. But of course, yeah, what’s the clearing price, or the claim price today is different than what it was in mid March 2020.


Jeff Malec  53:49

Tell the story, like the story in the being about BOGO. You talked about with the booming voice going out to Omaha?


Robin Wigglesworth  53:56

Yeah. Well, I wanted to tell it, you know, there’s been dummies guides written to index funds and ETFs. And if you really want to understand the mechanics of ETFs, overall, giving people a good introduction. But most people, you know, don’t want or don’t need that if they do need that there are many other parts I can do to get that I wanted like a cinematic fun story that that really kind of brought the people to life. So I think the index fund and ETFs is the next generation of it is just basically this incredible piece of American innovation is American financial technology. Long before the idea of FinTech was ever invented is one of the most disruptive inventions in the history of finance as well. And the people, people don’t really know that much about them. But the first inspirational guy was a French mathematician called Lewis Kelly, but I thought it was maybe unfair to dump readers into 19th century France, the beginning of the book. So I thought Jack Bogle and Warren Buffett’s and that the famous bet the Warren Buffett made with Ted Saturday’s approach partners at the time, that who would win over a 10 year period and index fund or a bunch of hedge funds, I thought that’d be a good way of getting like, a human story way into some of the basic concepts for some people that you know, might not be as much in the weeds as urine. I am.


Jeff Malec  55:17

And we, we still get to tell the story. But uh, we had Ted Saudis on the pod. And he was saying like, the real winner was the the T bills. Right? Yeah. Basically, where they put the collateral perform better than either side. Yeah. Which was amazing. But yeah, so the, tell the story about him going to Omaha and getting called out by by Warren there.


Robin Wigglesworth  55:39

Yeah. So Ted and Warren Buffett had made this bet. And, you know, initially, Ted Sinese did really well, because the financial crisis was, you know, really bad for a passive index tracker. And, and the passive index tracker that Warren Buffett chosen was the Vanguard 500 fund. But then over time, obviously, it was a an incredible market for for Bita. And the Vanguard 500. Basically, he’s absolutely smashed. Every single cohort or the head of the hedge funds that pet sign is effect. So at the start of the year of the year that Ted’s had officially admitted defeat threw in the towel before the battle officially closed. There was the annual meeting of Berkshire Hathaway and Omaha, and a friend of Jack Bogle, the founder of Vanguard called Steve Galbraith said, Look, I want to do something that a surprise for you so you surprise Jack Bogle by flying him into Jack Vogel’s first ever annual Berkshire Hathaway annual meeting, and Bogle thought he was fascinating, because he was a huge fan of Warren Buffett, and they’ve talked and been pen pals over the years, but I’ve never been, but he was 80 years. 88 years old that year. This was his birthday present. And he kind of wondered what the hell he was doing there because the Omaha was pretty cold. And he’s an old dude. But then Warren kind of stands out there. By the way, by the way, stop for a second. And you know, somebody I’ve been told is here is here somewhere. Oh, there is yes. Jack Bogle has done more for the American investor than anybody else alive, you saved your 10s of billions of dollars, and it’s gonna be hundreds of billions of dollars. So Jack is your birthday stand up. And please give him a big applause. And you know, for Jack Bogle that was just incredibly emotional. And I talked to him about it. And he’s, he’s very good at joking about stuff and kind of self deprecating humor. But, you know, having that kind of acknowledgement from Warren Buffett, shortly before we ended up, you know, passing away I think was just a tremendous, emotional and proud moment for kind of crystallized you know, what he built with Vanguard. He never became like a billionaire who was very wealthy, well, off guy. But, you know, he created an $8 trillion asset management company that has largely grown on saving people money.


Jeff Malec  58:17

And what are some of the stats on those trillions like how big has? So let’s back up. Is the book more about passive or about ETFs? It kind of morphs from that into ETFs. Right?


Robin Wigglesworth  58:28

Yeah. So I’d say I mean, I call the book about like, passive investing, even though I think the active and passive terms, I use them liberally, but they’re kind of the bullshit. They are imperfect terms for a meta reality. But yes, it’s about the birth of index funds. And I classify ETFs as part of that. So the last sort of third of the book goes into the invention of ETFs. And how they’ve changed as well, because I think ETFs have transcended their roots as a passive index tracker. Yeah. But the numbers are just astonishing. I mean, I call the book trillions for reason. And when I started researching what was going to become the book in 2018, we cost cross $10 trillion dollars in index funds and passive ETFs 10 trillion. By the time I started writing it in 2019. I think we’re at 14 trillion by 2020, you know, kind of finished writing it. We’re at 16 trillion, by the time the edits were through in early 2020 17 trillion. I think 17 trillion is what I have in the book. And at the end of last year, we crossed 20 trillion and 20 trillion that is just the public side, because there are tons of funds like the Norwegian sovereign wealth funds I talked about. They don’t put money in Vanguard or BlackRock, they don’t need to do this. This is plain vanila stuff. BlackRock was estimated that there was like four years ago, four or five years ago, there was another $7 trillion worth just in passive internal or separately managed accounts, index tracking strategies just in equities. So assuming a similar growth rate, we can say there’s easily, easily $30 trillion in this passive index racking strategies today.


Jeff Malec  1:00:13

And that’s not even including some of the people doing like portable alpha with s&p futures or things like that, which would probably another couple trillion to two things. One, explain what you mean active versus passive is bullshit. Just nomenclature, or you’re saying it’s morphed into more active, or it’s an index picking is an active endeavor?


Robin Wigglesworth  1:00:36

Yes. So, first of all, it is like, there’s always these slight semantic issue, but I sometimes have, like somebody from the finance industry. So well, there’s no real active because you know, somebody is making active decision to choose the s&p 500 index. Right. And that is completely true. I think that is the kind of the the hairsplitting active passive thing. That yes, of course, in every choice, somewhere along the chain, there’s somebody making a choice, whether it’s a financial advisor, use an end investor, the CIO and Investment Committee, someone is making a choice out of what index to use, or how to use it, or with tweaks, and so on. But in reality, I think it is the fact that it’s easy to think of indices as mathematical reflections of truth, a platonic ideal of what the market is. And for a lot of vast majority of time, the s&p 500 is an excellent proxy for the US stock market. But you and I know it’s not perfect. And the interesting exceptions is when stuff starts getting quite hairy, and the s&p 500, famously, you know, it is largely quantitative, but not entirely so. But even for the indices that are almost entirely quantitative, like the Russell indices, like people game all the time, because you can kind of predict what’s going up and down, you know, just the fact that there are humans choosing what metrics to use, how to weight them, like maybe the formula is set in stone when it’s done. But like humans design that formula. So I think that’s why active and passive have we’ve been messing terms anyway, also, because frankly, a lot of active managers are essentially lazy index huggers and just charged active fees for it. There’s been an issue since the 70s, Congress used to hold hearings about this closet indexing, it was called, or is still called. And then, you know, in the modern day, like with the proliferation of indices are now 3 million active indices in the world. 3 million, there’s only 3 million, there’s only around 60,000 stocks in the world. And that’s stretching the definition of what is a mainstream liquid stock. So you know, these days, I think what kind of index you use, and especially with ETFs, and the rise of direct indexing, indexing with a twist or enhance indexing or smart beater. All these things essentially mean that this always kind of messy line between active and passive, I think is kind of wiped out. And I still use those terms all the time in you know, when I talk about these things, or when I write, but I think it’s important sometimes to stress to both myself and also other people that take these terms with a pinch of salt, because like, broad terms always hide other important detail underneath. Sometimes that’s detail that isn’t vital to that moment. But sometimes it’s hugely important that there is a difference between a Vanguard Total Stock Market Fund and a Charles Schwab one and the Blackrock on and a 61, for example.


Jeff Malec  1:03:52

And in my experience in the hedge fund world, right, passive means basically just long only, right? Oh, really, we’re just holding this thing long. And passive, right? We’re gonna hold it long until something happens. versus active is I’m going long. I’m going short. I’m doing different asset allocations. And then you mentioned with respect the American financial innovation, but in America, a lot of times that term is met with some, right like it’s over done this financial innovation and we’re just creating, you know, Frankenstein’s monster, so to speak. What are your thoughts there? Is it it’s a good innovation or a bad innovation? In this case, when you mentioned Bogle saving 10s of billions? I think it’s a good one. But where do we where do we draw the line of levered ETFs? And all that becoming too cute, so to speak?


Robin Wigglesworth  1:04:41

Yeah, I mean, it’s slightly arbitrary. Like I mean, look, I write a lot about the stupid stuff that the finance industry does, but I broadly speaking think the finance industry probably gets too much stick. I mean, there’s an inherent distrust of finance that frankly, goes across everything. This idea cross every time. And it’s sometimes it’s mystifying to me that like most people don’t understand how their TV works. But they don’t think that that’s a conspiracy theory or magic either. And when it doesn’t work, it’s not because of like some hedge fund, either innovating. Yeah, it’s just kind of bit finance attracts a lot of this. And I think like some of it is quite right. But I think that all the bad aspects of finance, just mirror society, and us as a species at large. We are a very innovative species. That’s why we are where we are today. But we also overdo things, we do everything too much. So look, I I will pretty much defend almost every part of financial innovation up to limit that I know we also overdo things like securitization, actually a really good innovation actually helpful. But of course, you can see all sorts of ways that people have misused that over the years and was famous in the financial crisis, junk bonds, again, hugely important innovation that has expanded access to credit for huge new class of companies. But again, lots of dumb stuff happens because of that, or people using that ETFs and index funds, hugely beneficial. I think, broadly speaking, like, this is a case where the pros wildly outstrip the downsides. But again, we will overdo it. And for me, and this gets a little bit, you know, it’s a little bit arbitrary. But I think the leveraged and inverse ETFs are best, a rent extraction tool sold to people who don’t know better, or are actually expressly prohibited by regulations from accessing derivatives, because they’re unqualified for them. Like no legit hedge fund manager would actually like express their short position through some of these things, or the long position, they have better cheaper ways of doing it. These are tools given to day traders, that over time, just extract rent from them. And that’s the best case in the worst case, I think they’re actually dangerous or potentially dangerous for the integrity of the financial system. And I think we have March, February 2018, and the blow up of XIV as a good example of what can happen when some of these products go bad.



Jeff Malec  1:07:26

So had a blog post once on the double, double natural gas ETF and the double inverse natural gas ETF. And they both looked like the same graph, they just both went straight down into the red. I’m like they’re supposed to do the opposite thing. But they both constantly lost money because of the rebalancing. And yeah, right. But I don’t think it’s clear enough for the average retail investor of these things are to be used on a day or maybe on two days notice, right? Not it’s not buying Oh, no. Um,


Robin Wigglesworth  1:07:56

I mean, some of these aren’t used. I mean, my favorite example of this, I’m just because this is like my own personal jihad. But the VIX linked ETFs, exchange traded product universe, I say ATP, because they’re both exchange traded funds and notes. You know, I was run the numbers on those, you would have been better off investing with Bernie Madoff than investing in that ecosystem as a whole. And that’s the long vix and the short vix products, they have incinerated 10s of billions of dollars for zero societal value, and is only made money for the underlying market makers on the sponsors. And I struggled to see any sort of rally in those products. And I don’t want to be approved that says, you know, I don’t think people should buy X and Y, because like some people like this brand of beer and other people like that brand to buy beer, and all this stuff is bad for us. But those products, I think, are stupid and potentially dangerous. And the if I was the almighty SEC chair with supreme power, the VIX, or certainly the trading tool ETP ecosystem would have a site go through


Jeff Malec  1:09:03

  1. And what about on that topic of Barclays suspending the creations for the VX x and for Ohio. Without that last week, got any what’s going on there?


Robin Wigglesworth  1:09:17

Very good question. I don’t know. I haven’t spoken to Barclays about it. I have been following it just because it has been, you know, something from my world that has kind of percolated upwards, and it’s causing a bit of issues in some quarters of that market. Because suddenly, VX x is now trading at a premium because they’re not creating more shares. It’s kind of fascinating. I’ve been surprised that the banks have been willing to keep sponsoring these things giving the reputational risk. I mean, Credit Suisse didn’t lose money on the XIV blow up in 2018. But it definitely didn’t help its reputation and we don’t really know I don’t think they’d lost much or maybe made a bit of money. Well,


Jeff Malec  1:10:00

in many ways they it blew up because they didn’t lose money. Right? They exactly. They canceled it. So they wouldn’t lose money.


Robin Wigglesworth  1:10:06

Yeah, they had a kill switch on it. But I suspect that in a world where banks are more reputation aware than they used to be before 2008. I’m surprised that the remain big mainstream sponsors of these things. But I mean, just earlier this month, somebody filed for quintuple leveraged and quintuple inverse triple Q’s, like QQ ETFs. I mean, do we really need that? I don’t know. I mean, it’s just like, where does it end?


Jeff Malec  1:10:40

And I feel like investors feel like it’s their God given right. And it’s like, on Maslow’s pyramid of needs right after Wi Fi right as ETF should always be created. But there is an especially the VIX ones, or etps, or et ns, right. So they’re Exchange Traded notes that the bank basically is on the hook for. So in that case, they have to hedge it behind the scenes, there’s a lot of different mechanisms going on there. So it’s risky, they have to put capital at risk, they have to hedge it. And at some point, it becomes I think, in Credit Suisse’s, it was dwarfing the size of the entire bank. Right when it was when it was up at 80. They had to put up billions and billions of dollars. And someone said, Hey, what are we doing here? We don’t make this much fees to be putting up all this money.


Robin Wigglesworth  1:11:24

Yeah, no, exactly.


Jeff Malec  1:11:31

And then you finish the book talking about all the challenges. It’s kind of me that the important parts. So just talk a little bit about what you uncovered of some of the unintended consequences and what what the future might look like if we keep getting bigger and bigger in this passive space?


Robin Wigglesworth  1:11:45

Yeah, no. So I’m, I’m in Germany in the four concerns that either people have or I explore towards the end of the book. Because I think it’s important that even the fans of index funds like me, you know, we’re honest about what would the downsides can be. And in ascending order of importance, in my view, the first one is like our index funds, and ETFs ruining markets is the most popular thing I hear from the industry and look smarter people than me think they are. I just don’t see it. on a macro level. I think it’s Buncombe. on a micro level, clearly the growth of indexing and index funds, is having a footprint on markets. That’s just unquestionably there. Is that any worse than the footprint that let’s say hedge funds are having on the marketplace? I don’t see I don’t see it. We’re always looking, we’ll want some bogeyman, the blame, whether it’s passive funds, or central banks, or hedge funds, or whatever? And I think it’s, I think it’s taught, I think markets work a lot better than a lot of big people giving credit for including people in the finance industry. So I’m convinced by that, the second one is the index fund innovation cycle, the proliferation of products, I think there is a lot of stupid stuff going on there. Against that, you know, like you say, I mean, who am I just tell people what they’re allowed to buy or not buying? You know, if people want their Wi Fi on their triple Q, then go for it. Yeah, I think like, we are going to, at some point, if we haven’t already come up with products that are just really stupid, and probably dangerous, because that’s the product cycle we see in every other corner of finance, and frankly, every other technology. The third one is, and this is kind of the boring one. But I think people underestimate the most is that obviously we talk about the index fund providers like a Blackrock or a Vanguard a lot, but they’re underpinned by the index providers themselves. And they have their own big three and they utterly dominant in a way that even the Blackrock isn’t an asset management, s&p, Dow Jones, MSCI and footsy, Russell, controller, and 80 to 90% of all the financial indices in the world and all the assets that track them. And in a world with so much more money to slavishly tracks these indices, or is far more benchmark aware, like a lot of active managers are far more aware of their benchmarks and their indices, what happens to them than they ever were 2030 years ago, I think these kind of former utility, like companies have become first of all, wildly profitable, just insanely profitable, but also kind of quasi regulators without ever anybody kind of being aware of it or making that decision. But what these companies decide in how they construct their indices is hugely consequential to global capital flows, whether to include China, how much to include China, where to include China, what to do with Ecuador, what to do with grease, what to do with the UK. What is what makes a company a tech company versus a communications company? What makes a company A bank. I mean, all these things are things that they decide and have consequences. And I don’t think that has been grasped fully.


Jeff Malec  1:15:09

And I think you add sorry, in the book was Peru, I think of like if they fell out if they went from emerging to frontier, it was going to crater their economy. So real world consequence.


Robin Wigglesworth  1:15:20

Yeah, I mean, it could have missed it not implausible it could have triggered a financial crisis. Because essentially that the drop off between MSCI Emerging Markets, which is a widely tracked index, with several trillion dollars worth of money in it, and going to the MSCI frontier markets is just so huge, it would have inevitably meant capital outflows. And, you know, and kind of made a tricky situation worse. So, yeah, they these a huge important things. And there is discretion involved.


Jeff Malec  1:15:51

No, I’m sorry, I cut you off the fourth.


Robin Wigglesworth  1:15:54

Oh, yeah. The fourth one is, it’s the least tangible one. But I think the one and this least, it’s more the more long term one, but just the concentration that we are seeing, like, I think that like, I don’t think BlackRock and Vanguard and State Street or fidelity, which is also growing very quickly in indexing, these are companies that do try to do the right thing. But I don’t feel comfortable with the idea that in the foreseeable future, not in some sort of sci fi reality, but over the next 10 or 20 years, it’s entirely possible that just a handful, or two or three asset management companies control over half of all the votes of every major US listed company, and quite a few around the world as well. Because the economics of indexing, this inevitably mean that the big will become bigger. And already BlackRock and Vanguard between them are 13 trillion and change 18 trillion and change. I mean, a lot of that is in fixed income as well. You know, you throw in a few of the other big ones are growing quickly, like Fidelity, more on the active side, but also growing quite aggressive and passive. It’s a very top heavy industry that concentrates a lot of power in just a few hands. And you don’t need to be kind of conspiracy nuts to think that it isn’t healthy for capitalism, that just two or three asset management companies control half the capital of every major listed company right now. Even Jack Bogle


Jeff Malec  1:17:24

pushed their way onto boards and do some things. And I think well, yeah, sorry, go ahead.


Robin Wigglesworth  1:17:31

Well, yeah, I mean, it’s not even getting on the board. I mean, people used to criticize them for being lazy owners. But now with the whole ESG way, we kind of expect them to do more. The problem is, is kind of a Goldilocks, we either criticize them for doing too little or too much. But broadly speaking, they are getting dragged into some sensitive areas. And I think that’s going to cause a backlash, and, you know, they can’t really dodge it, and it’s already starting, it’s going to become even bigger in the coming decade.


Jeff Malec  1:18:00

Yet we had Dave Nadig on the pod from ETF trends and he was saying a future of right there’s not one SMP ETF, there’s the ESG SMP ETF, there’s right there’s 17 of them. And each one votes differently with each company and with the you know, and so you kind of go down a path of I’m doing it I’m passively index investing with this ETF, but it aligns with what I want the boards and the corporate structures to do, which was interesting.


Robin Wigglesworth  1:18:33

I mean, you can see a world where product proliferation also technology makes it easier for people to give the vote to the actual asset owners, which is us or pension plan and so on. And already Blackrock has said they they’re going to do that to a lot of big institutional clients. They can’t do it to the smaller ones. It’s too fiddly, but maybe in the future, it’ll just be something we’re going to iPhone, like every proxy season. I think most of the time, people won’t be bothered to vote anyway. Because then there’s a lot of really boring bureaucratic stuff. Yeah. And different index funds will become a different kind of flavors. There’s much as ESG is growing. I mean, the difference between an ESG s&p 500 funds and their variants of it, they’re not huge. And Blackrock Vanguard state three have between them, maybe 100 people that do stewardship across 1000s of companies, 10s of 1000s of companies around the world and trillions of assets. And they just can’t do that fine tuned. A decision. So it starts becoming kind of mass produced corporate governance is actually


Jeff Malec  1:19:39

awesome. I think we’ll leave it there. I was gonna get your hottest take. I think you already gave it that these Vegas ETFs or, or which calm bonkers bonkers. Yeah, good Norwegian. So we’ll put a link to the book. Everyone go out, get the book. It was great. We’ll put a link to it in the show notes. Any last thoughts before we let you go?


Robin Wigglesworth  1:20:01

No, I think yeah, that pretty much covers it even got a few hot takes. And so I appreciate


Jeff Malec  1:20:06

that. Have fun. Go visit Norway. Read the book.


Robin Wigglesworth  1:20:10

Yeah, buy the book, then visit Norway and I’ll sign it for you as well


Jeff Malec  1:20:14

done. I Ron, thanks so much. It was fun. We’ll talk to you soon.


Robin Wigglesworth  1:20:19

Fantastic. Thanks for having me

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