Lytle Michael John Tabula

ETFWorld Interviews: Michael John Lytle CEO Tabula IM

ETFWorld: 2020 was a complicated year for a number of reasons, but often these situations also bring opportunities to light. Can you tell us what were the positive aspects of 2020 and why?

Michael John Lytle CEO – Tabula IM

2 February 2021 ETFWorld – All rights reserved

ETFWorld: 2020 was a complicated year for a number of reasons, but often these situations also bring opportunities to light. Can you tell us what were the positive aspects of 2020 and why?

Michael John Lytle : For me, positives from 2020 include a change in the way we work and communicate as well as a validation of the fixed income ETF market place.

Last year showed us the ability for humans to adapt and overcome. In the asset management space we saw an almost immediate shift to working from home, the rapid adoption of new technologies, and a change in the way we interact with our clients and investors. One positive consequence of all this was that COVID has forced us to communicate more efficiently.

Because meetings take place virtually we have eliminated the logistical challenges that used to delay meetings for weeks until a collection of people could be together in the same physical place. Therefore, when counterparts are motivated, there is the opportunity to speed up the due diligence/sales process. From a resources perspective it is also far more efficient for people’s time if they are attending virtually and don’t have to set aside days for international travel, not to mention the positive carbon impact. At Tabula we believe that face-to-face meetings remain important for relationship development, but once you have a strong relationship with a client, the pageantry of physical meetings may be less important.

In terms of the ETF marketplace, March 2020 provided a litmus test for fixed income ETFs – one which they passed with flying colours. Fixed income ETFs did not “blow up” during the COVID crisis. In fact, they provided a clear market for diversified credit risk where it had been severely impaired in idiosyncratic credit. This can commute through to the liquidity on underlying bonds. Notably, fixed income ETF underlying holdings become an off balance-sheet pool of assets available to market makers, and these holdings are transparent and available daily. Using the physical creation/redemption process, market makers can easily access the bonds held by the fund, providing a layer of liquidity and pricing otherwise absent in times of market stress.

ETFWorld: What themes do you see developing in the year and why?

Michael John Lytle : There are some very key investment themes on all investors’ radars in 2021. The first is whether 2021 will signal a return to growth and a recovery from the economic shrinkage of 2020. Secondly, at a sector level, which sectors will benefit and which will continue to suffer is key. It is clear that the difference between sector performance will diverge in 2021. As a corollary, as investors think about these questions around GDP and sectoral balances, volatility will likely peak and trough throughout the year.

Another key theme is ESG. It is clear that 2020 was a tipping point for investor’s focus on environmental, social and governance issues, with a particular focus on climate. It would seem that these issues have gone from being “something to focus on when you have time” to being a vital element of all investments.

And finally the continued shift to passive, and in particular increasing demand for passive fixed income and passive ESG. There is still much more active than passive management of assets, so the pendulum has further to swing and the quantum of the potential swing is much greater in fixed income than equities. Passive fixed income could end up growing at twice the rate of equities, supported by its much bigger range of returns to tap into. At the same time, the cross-section of ESG and passive investing will continue to play an increasing role in demand.

ETFWorld: The term ESG has now become a commonly used term, in fact many instruments adopt such underlyings. Besides the popularity of the term, is there any real value in these instruments and why?

Michael John Lytle : There are now a many more ESG data providers, with companies such as MSCI, Sustainalytics and ISS making it possible to evaluate a company’s ESG characteristics in the same way that we have analysed balance sheets and determined debt ratings for decades. ESG characteristics will likely become as much a part of financial analysis as revenue, net income and EBIDTA, but with an increasing understanding of which factors have the greatest impact on the long-term performance of companies. We believe that the specific investment opportunity comes from focusing on more impact-oriented investing (i.e. investing with a specific objective). With respect to the environment, Paris-aligned benchmarks will be the best passive way of expressing the need to shift from the old to the new economy.

ETFWorld: What do you expect in 2021 from the market? What are your goals and how do you plan to achieve them?

Michael John Lytle : The trend for sustainable investing will likely see ESG characteristics integrated into all major products, and as a consequence we will stop counting the growth in funds with broad-ranging ESG screens. ESG will splinter into different value sectors: climate; energy; natural resources; social responsibility; healthcare and more. These sector investments will move from the thematic periphery to becoming the core building blocks in portfolios.

The recent introduction of the EU climate benchmarks provides a practical example of the direction of travel. Amid a multitude of ESG products and ratings, the EU has set out criteria for two new benchmarks designed to help investors align their portfolios with the 1.5°C Paris goal, while preventing “greenwashing” and misleading carbon claims. But these benchmarks aren’t just about climate. Importantly, they also incorporate broader ESG screening, including global norms like the UN Global Compact (UNGC), providing a clear direction for passive investors.

In 2021, Tabula will continue to innovate in the fixed income space, providing solutions to help investors achieve greater control of the risks and rewards inherent in institutional investing. The recent launch of our EUR IG bond Paris-aligned Climate ETF, the first passive Paris-aligned fixed income fund, illustrates how we set out to plug gaps in the fixed income landscape. So too does our enhanced US Inflation ETF, which provides investors with exposure to both expected and realized inflation in one index. We plan to bring more unique fixed income products to market over the coming months.


Related Articles

ETF World Interviews: Olivier Paquier- J.P. Morgan Asset Management