Alison Hennessy: Welcome back to another episode of Just for Funds here at Nasdaq MarketSite. I'm Alison Hennessy, head of ETF listings at the Nasdaq and today we are joined by Matt Bartolini, who is head of Americas Research at State Street Global Advisors. So State Street recently launched a new suite of digital assets ETFs that we are here to talk to Matt about. So Matt, thank you so much for being here in the studio.
Matthew Bartolini: Thank you for having me.
Alison Hennessy: So, like I said, you just launched these new three digital assets ETFs here on the Nasdaq. Can you tell us a little bit about the suite and kind of what each product brings to the market?
Matthew Bartolini: Yeah, so, this suite of funds is meant to provide investors an opportunity to pursue the long-term growth potential of disruptive technologies. And they do it in different ways. So, for instance, TEKX is focusing on these sort of value chains supporting innovative technologies like blockchain and AI. It gives you that sort of deep-rooted fundamental exposure to the firms and the leading edge and the suppliers to the innovative structures like blockchain and AI.
Then DECO and HECO are different variants of each other. They both own the underlying companies that are the same. However, DECO and HECO, both own the same underlying firms, and those firms are focused on the digital asset ecosystem — so blockchain, cryptocurrencies, and they’ll own some cryptocurrency spot futures or ETFs as well. But the difference is HECO will provide an option overlay program to mitigate some of the volatility within the digital asset space. So all three together provide investor solutions to really pursue that long-term growth potential in disruptive technologies like cryptocurrency, blockchain, and of course, artificial intelligence.
Alison Hennessy: So, all three of these ETFs are actively managed. We're seeing a lot of active ETFs coming to market now. Why does SSGA think active management in this specific space is particularly beneficial?
Matthew Bartolini: Yeah. So, it’s a very fast and developing space. There’s also a lot of complexity. There’s also a lot of regulation that can all of a sudden, maybe, decide winners and losers. And you need unique insights to find that. But wrapped around that, these markets are largely inefficient. There are some potential mispricings. And active management works really well when there’s a significant amount of inefficiencies and mispricings. The ability to harness those long-term opportunities that are either overlooked or under researched is why active management can potentially propel in an area that is fast developing, complex, so, really inefficient overall.
Alison Hennessy: Okay, so if State Street is interested in, you know, getting into the digital asset space, why not launch a spot bitcoin ETF or spot Ethereum ETF?
Matthew Bartolini: Yeah, I mean there's already a lot of those out there. And I think what we have heard as we've gone on this path to launching these three funds is that there's a challenge from an investor perspective. They want to own cryptocurrency but they also want to own the broader ecosystem because many of these investors have a positive view on cryptocurrencies overall.
And with that positive view, how do you invest in the full ecosystem to reach your full potential in terms of the digital asset space? So that's why we've launched these funds. They hold cryptocurrency exposure and they hold the stocks that are potentially on the innovative edge of developing these new technologies. So, these exposures really meet clients where they're at and provide a sort of solution to their challenge of how to invest in that broader digital asset ecosystem.
Alison Hennessy: Yeah, those are good points. And so, how does the active management specifically in the SPDR Galaxy ETFs suite differ from the active management in some of their competitors that are already out there?
Matthew Bartolini: Yeah. So, first and foremost, it is because of Galaxy. Galaxy is a deep-rooted firm within the cryptocurrency and blockchain space. They have a full depth and bench of experts that know the space well, know the regulatory landscape, and they can really bring those unique insights from their other legacy businesses within the broader Galaxy firm, that's first and foremost. That's a true differentiator within these structures. The other part is just how they're going to manage the portfolio, using those insights to understand the fundamental drivers, how the different macro and regulatory landscape may impact certain stocks, but also different sectors and industries that are affected within the digital asset space. Then, combined with that, the prudent risk management of just being an active manager alongside, within HECO, the ability to sort of bifurcate single stocks and overlay that options program is a really true differentiator for all the different strategies.
Alison Hennessy: Now, from your perspective, where do you see the SPDR Galaxy ETFs fitting best in an investor's portfolio?
Matthew Bartolini: So, I think you have to take them differently. So, for TEKX particularly, that is something that you'd want to replace your traditional growth exposure — not all of it — because, you know, there's still a reason to be a core investor. But what we do know is that a lot of those traditional core exposures, they don't have this type of innovative exposure in it. They’re really sort of mis-weighted and they're not overly reflected in the broad market. So there's an ability to diversify your traditional core growth holdings with something like TEKX that is going to give you a different, differentiated long-term growth profile.
The other two, HECO and DECO, this is where you can start to get more into the liquid alternative space and digital assets, because there is a sort of correlation structure that does not appear in a traditional market sense. And you can start to utilize these to pursue some potential long-term growth, but in an uncorrelated or lower correlated manner than you have in the traditional markets. And of course with HECO, there is the options overlay program that can also help you manage risk along the way.
Alison Hennessy: Last question for you, Matt. Can you share a fun fact about State Street Global Advisors?
Matthew Bartolini: Well, we have a lot of fun facts at State Street Global Advisors, but I think one of the more interesting ones is that we've launched 18 funds in just the last 30 days on Nasdaq alone, which is a really impressive achievement for both our firms and everyone overall because, at the end of the day, investors are able to use these products.
Alison Hennessy: I couldn't agree with you more. I think that is a great fun fact. So, I want to thank you, Matt, for being here in the studio with us. And thank you so much for watching.
