Firms will have to spend more time explaining their ESG investment principles and explaining to the regulator why they have selected certain companies to include in their ESG portfolios over others. But existing ESG funds will be exempt from the heightened scrutiny.
Where climate change meets business, markets and politics. However, industry participants say the main reason for the surging number of new ESG ETF launches is that fund firms are facing pressure from both investors, who are demanding more ESG-compliant investments, and from their parent companies, which have pushed their asset management subsidiaries to churn out more ESG products. At the same time, more investment-linked policies that appeal to ESG themes have been issued.
These policies usually operate with a fund-of-funds model and seek long-term investments or retirement-oriented funds, so the connection with the ESG theme is stronger, Mu said. Although the total assets under management of ESG-themed funds, both active and passive, jumped fourfold last year, they still accounted for only about 2. It covers everything from new product launches to regulations and industry trends.
Trials and subscriptions are available at ignitesasia. Click here to visit the ETF Hub. Get alerts on Exchange traded funds when a new story is published. Manage cookies. Your guide to a disrupted world Start a 4-week trial. Latest news on ETFs. Currently reading:. UK financial advisers still shun ETFs, data show. European sustainable index fund flows surpass all others for first time. ETF Hub Exchange traded funds.
Share on twitter opens new window Share on facebook opens new window Share on linkedin opens new window Share on whatsapp opens new window. Receive free Exchange traded funds updates. Interested in ETFs? Video: Why sustainable ETFs are on the rise. Climate Capital Where climate change meets business, markets and politics. And there is no mention of their flights anywhere in the New York Times.
This kept going for days. It kept going for weeks. It kept going for years. Two years after the Wright Brothers first flew, the New York Times did an interview with a German hot air balloon tycoon and they asked this German hot air tycoon — oh. Looks like I may have frozen here. And they asked this — okay. So here we are. They asked this German hot air balloon tycoon if humans would ever fly, if men would ever fly in an airplane.
And the German air balloon, hot air balloon tycoon said, quote, in the very, very, very far future there may be flying machines but not now, not now. And this is how they cover the first flight: Dayton boys solve problem. Years later, the editor of this newspaper, his name was Luther Beard, was asked why he was the only journalist in the world to cover the Wright Brothers first flight.
And Luther Beard said, quote, I used to chat with them in a friendly way because I sort of felt sorry for them. They seemed like decent enough young men and yet here they were wasting their time day after day on that ridiculous flying machine. After Kitty Hawk, the Wright Brothers went back to Dayton, Ohio where they were from and this is where they truly mastered flying. They mastered the two most difficult parts, which were turning and landing. So, look.
In due time the Wright Brothers got the credit that they deserved, the recognition that they deserved. But it took decades. It took about five years for the Wright Brothers to build the airplane and another six or seven years for them to get any credit for what they were doing. And look, when we think about the traits of successful entrepreneurs, we might think of things like ingenuity, their engineering ability, the creativity. Rarely do we think of patience and time horizon as a competitive advantage.
But for the Wright Brothers it absolutely was. And to the extent that we do think about patience and time horizon as a competitive advantage, we often massively underestimate how much time is needed to put the odds of success in your favor. And that is also true in investing. Let me show you what I mean. And two things should stick out from this chart. One is that it scales down perfectly over time, so that the longer you hold Now, most investors that you ask will tell you that they are long-term investors.
Most investors think they are long-term investors. But if you actually ask most investors what is your definition of long-term, some of them will tell you one year. Historically, I think a pretty good definition of what long-term investing is, that definition being just every holding period finishes with a positive real return, is something between 10 and 20 years. That is just how compounding works. Two takeaways from this is that we should realize that when progress is measured generationally, results should not be measured quarterly.
And I think the single biggest, the central problem that investors have with investing in stocks is underestimating the amount of time that is necessary to put the odds of success in your favor. And this too is a story that has nothing to do with investing. I want to tell you a story about Harry Houdini, the famous magician that did most of his work in the United States about years ago.
Houdini was, of course, known for his escape acts. He would tie himself up in chains or a straitjacket. He would throw himself in a river and escape and the crowds would love it. But Houdini actually had another trick that he played on stage whenever he performed. It was the last trick that he performed during every show, which is that he would invite the largest, strongest man in the audience onto stage and he would tell that man to punch him in the stomach as hard as he could.
Harry Houdini would stand there, and he would let people punch him in the stomach as hard as they could. One day in , Harry Houdini had finished a show in Canada, and he went backstage after the show and he invited a group of students to come backstage and meet him. One of the students was a guy named Robert Whitehead and Robert Whitehead walked up to Harry Houdini and started punching him in the stomach as hard as he could.
He just thought he was performing the same trick that he just saw on stage. Harry Houdini was not prepared to be punched. He was not flexing his solar plexus. He fell to the ground in pain. He said what are you doing? Harry Houdini woke up the next morning, doubled over in pain. This was how he died. Wrap him up in chains and he set himself up in chains, throw himself in the East River. He could survive that because he was prepared for it. He had a plan.
He knew what was coming. The one thing that he did not see coming, just a college student jabbing him in the stomach, literally killed him. In almost every field, how risky something is depends on whether you are prepared for it, not how big the event is, not how traumatic the event looks is, but just whether people are prepared for it or whether they are surprised for it. The biggest risk to the economy is what no one is talking about, because if no one is talking about it, they are not prepared for it and if they are not prepared for it, its risk will be amplified when it arrives.
We learned this firsthand in kind of blunt force terms in when the biggest risk was something that no one was talking about until it arrived. You know, we spent, the whole industry spent the better part of the last decade talking about what was the biggest risk to the economy. And we tend to personify these risks. So, people talked about for most of the last decade was this the biggest risk to the economy? Was it Barack Obama and the stimulus packages, the tax hikes of ?
Was that the biggest risk to the economy? Maybe it was this guy. Was it Ben Bernanke? Was it the money printing after the financial crisis? Was he the biggest risk to the economy? Was it this guy? Was it the trade wars and the policies the last four years? Was Trump the biggest risk to the economy?
We now know that the answer was none of those three things was the biggest risk to the economy. The biggest risk by far was this guy. It was a virus that no one was talking about until it happened, caught almost everyone off-guard and became by far by order of magnitude the biggest risk that we had dealt with in the last decade, if not during our lifetimes.
And I think if you look historically, this is almost always how it works that the biggest risk in hindsight is the thing that no one was talking about until it arrived. It was never in the newspapers. It was never in — it was never discussed until it arrived.
They by and large have some insight into what might happen. The common denominator in all these is that no one was talking about them until they occurred. They came out of the blue. So, we were not prepared for it. Now this can kind of be disheartening for investors to hear that the biggest risk always is what no one is talking about. One is to think about risks the way that Californians think about earthquakes, which is the idea of having expectations rather than forecasts.
Look, if you live in California you know that earthquakes will be a big part of your future. The other thing to think about here is the difference between getting rich and staying rich. They are two very different skills that I think need to be nurtured on their own. Getting rich requires taking a risk, being an optimist, you know, being really optimistic about the future as an investor.
Staying rich requires almost the exact opposite. It requires a certain degree of paranoia and conservatism and a realization that historically the short run is almost this continuous chain of bad news and bad — and surprises that are going to hit us, a continuous chain of bear markets and recessions and pandemics that we need to be able to survive long enough financially so that we can enjoy the long-term compounding that comes from our optimistic side.
The third story is that you can be wrong half the time and still do great. And this is a story about baby brain development, again nothing to do with investing but this will all come back around. The average baby is born with about billion brain neurons. By two, by two-years-old, that has increased from about 6, to 10, synaptic connections.
By the time the average child is six years old, they have lost about one-third of the connections that they had inside their brain when they were two. This keeps going on throughout childhood into adolescence into early adulthood. By the time the average person is 25 years old, they have half of the synaptic connection density that they had when they were two. Why does this happen? Well, it turns out that a lot of the growth and development taking place inside of your brain in your earlier years in life are connections inside of your brain that are redundant, that are not necessary, that are inefficiently wired.
And so, you go through your early years of life getting rid of A four-year-old is smarter than a two-year-old and a year-old is much smarter than a four-year-old most of the time. We all know a few exceptions. Something feels broken. And one of the fields we see it very often is in investing. This is a great return for an index. But if you look at what went on inside of the index during this period, how these 3, individual components performed during this period, you get a completely different view.
The majority of those lost all of their money. They went to zero. This also has a big impact on how we think about volatility as investors. If we can do this again over the next 60 years, no one can hope for any better. Let me see if I can get it here. There we go. This is, of course, accentuated if we are talking about individual stocks for a stock picker. This is Netflix returns going back to and this, again of course, is like the picture of success for any large company.
Netflix went up four hundredfold during this period. This is truly as good as it gets for any large cap company. But these are the losses that you had to endure in percentage terms to achieve those returns over time. And this is why the percentage of investors who have actually held Netflix stock over these 16 years rounds to zero. And so, look, I think, you know, one of my favorite quotes comes from Dwight Eisenhower, the famous General and President, who was once asked the definition of a military genius.
And Dwight Eisenhower said a military genius is the man who can do the average thing when everyone else around him is losing his mind. Charlie Munger has a great quote that I think summarizes this where he says the first rule of compounding is to never interrupt it unnecessarily. I almost think that the best, a better definition of risk is just what you do to yourselves.
So, I want to end my remarks today with a quote from one of my favorite investors, Bill Bonner, who says that investors do not get what they want or what they expect from markets, they get what they deserve. So, thank you for listening to these remarks today. Sorry we had some technical issues there. So, thank you. Agree, stories are such a great way to communicate with clients, especially around behavioral challenges. First off, with, you know, I mentioned time of the book. Last year it was published.
Anything that was surprising in the reaction? But was there anything surprising in the reaction to the book last year? And I wrote about that in the book and I finished writing that in January of without knowing that at that very moment there was a virus just starting to spread around the world that virtually no one was talking about back then. So, that was kind of, you know, that kind of reiterated the point in ways that I did not attend. You know, and I was joking last year that was like a combination of and at the same time.
And I think that whiplash for people was just hard to wrap your head around. Going from panic to euphoria in weeks or months was really difficult and just kind of reiterated how much our own mindsets and our own views about money and risk and investing returns really matter all the time, but especially in a year like Another thought and question as I read through the book is and I know a lot of advisors would love to put their own stamp on stories.
Like, you do a great job coming up with the stories and the book has a ton of them. Any tips or any insight on your process on how you come up with these stories and how you connect them back to investing topics? Thank you, Morgan. Appreciate the time today. We here at BlackRock he a lot of support for advisors and their clients around a variety of investing topics and investor behavior resources.
First off, we have a client approved seminar on the Psychology of Investing, so a little bit different title. But the Psychology of Investing, which is really the beginning course on behavioral finance. We got great response from advisors and clients across the country.
It often has a behavioral tilt to it. And that comes out monthly, something that is client-approved, so something you can share with your end client. And third and finally, a lot of our client-approved one pagers and certainly folks have this across the industry. I have some on my bulletin board here today that you can see. Normally I have more pasted up, but that looks a little bit hacky. But a lot of these on pagers do have a behavioral tilt to them, help you tell the stories tied back to the markets and how clients might behave or at least behave wrongly over time.
So, all those things can be resourced or found on the BlackRock website, of course, or in the Resources tab in the webinar environment. So, with that, let me turn it back to Martin. Thanks, everybody, for the time today. Appreciate it.
That was a really, really terrific session. Those stories are great. Amber Selking, a performance coach shares the science behind on how advisors can perform at their best in an uncertain world — and prepare for a new future. As a global investment manager and fiduciary to our clients, our purpose at BlackRock is to help everyone experience financial well-being.
Since , we've been a leading provider of financial technology, and our clients turn to us for the solutions they need when planning for their most important goals. Investing involves risk, including possible loss of principal.
But they also don't have a maturity date. This means you will have no guarantee that all of your principal will be there at a certain point in the future. This is not the case with individual bonds. You can also create a "ladder" out of five or more individual bonds. A ladder is a series of bonds with different maturity dates. This option allows you to manage interest rate risk and ensure predictable cash flows.
It also helps mitigate the risk of principal loss associated with bond funds. But this approach also results in a lower degree of portfolio diversification. You can address all of these needs by investing in target maturity bond exchange-traded funds , or ETFs. These funds behave like regular ETFs.
But all of the bonds mature in the same year. As each bond matures , the funds move the proceeds into cash or cash equivalents rather than reinvesting them. At the funds' maturity dates, they cease operations. Their value at the time is returned to shareholders.
In this way, you can earn income, own a liquid investment, and have a known date at which their principal will be returned. This is a plus for those who are investing with a specific goal in mind. Bond ETFs can help you build bond ladders. At the same time, it can also help you maintain a high level of diversification.
Target maturity funds aren't without risks. They don't seek to return a predetermined amount of cash to investors at the maturity date. That means the principal that gets returned may be less than the original investment if one or more of the bonds in the portfolios default. This risk can be mitigated by investing in target maturity funds that invest only in the highest-rated bonds.
Also, these funds will fluctuate, just as any fund would. So buying and selling throughout the life of the fund carries the risk of loss. The further away from the maturity date, the more volatile the fund. As a result, if you need an absolute guarantee that all your principal will be returned, you should look elsewhere.
In fact, there are no guarantees that the fund will generate a certain amount of income or gains at all. A target-date fund is an investment, not an annuity. As with all investments, these funds are subject to risk and underperformance. Furthermore, as investments go, target-date funds can be expensive.
They are technically a fund of funds FoF —a fund that invests in other mutual funds or exchange-traded funds—which means you have to pay the expense ratios of those underlying assets, as well as the fees of the target-date fund. Of course, an increasing number of funds are no-load, and overall, fee rates have been decreasing. Still, it is something to watch out for, especially if your fund invests in a lot of passively managed vehicles. Why pay double fees on index funds , when you could buy and hold them on your own?
Also, it's worth bearing in mind that similarly named target-date funds are not the same—or, more specifically, their assets are not the same. Yes, all target-date funds will be heavily weighted toward equities, but some might opt for domestic stocks, while others look to international stocks. Some might go for investment-grade bonds, and others choose high-yield, lower-grade debt instruments.
Make sure the fund's portfolio of assets fits your comfort level and own appetite for risk. Vanguard is one investment manager offering a comprehensive series of target-date funds. As of Q2 , the portfolio allocation was It holds other Vanguard mutual funds to achieve its goals. It had Because it matures" 20 years in advance of the fund, it is more conservative. As of Q2 , its portfolio is weighted It has allocated Both funds invest in the same assets.
However, the Fund is more heavily weighted toward stocks, with a relatively smaller percentage of bonds and cash equivalents. The Fund has greater weight in fixed income and fewer stocks, so it is less volatile and more likely to contain the assets the investor needs to begin making withdrawals in However, it may behave differently depending on the type of target-date fund you have.
A " through fund " will continue adjusting its asset allocation toward more conservative holdings as time passes; a " to-fund " will retain its final asset allocation as of its maturation date indefinitely. In general, a target-date fund will have somewhat higher expense ratios compared to a standard mutual fund. This is because the target-date fund, even if it is an index target-date fund, is essentially a fund-of-funds that invests in other mutual funds. Moreover, the fund has to rebalance its portfolio regularly to match the glide path so it is more active than a standard index fund.
That said, many target-date index funds available today have low expense ratios of 0. Most plan providers today offer access to target-date funds. However, for these to work properly be careful to only use a target-date fund for nearly all of your allocations. This is because if you allocate money to other investments it may defeat the purpose of the glide path provided in the target-date fund. Most target-date funds are established in 5-year intervals e. There is no set rule if you plan to retire in say, You can round up to the fund, or if you have a lower risk tolerance, use the nearer-term one.
ETF Database. Retirement Savings Accounts. Retirement Planning. Roth IRA. Top Mutual Funds. Your Money. Personal Finance. Your Practice. Popular Courses. Table of Contents Expand. Table of Contents. What Is a Target-Date Fund? How It Works. Risk Tolerance. Advantages and Disadvantages. Investing Mutual Funds. Part of. Financial Advisor Guide to Client Management. Part Of. Finding Your Clients. Talking to Clients.
Working with Client's Money. Talking about Difficult Topics. Key Takeaways A target-date fund is a class of mutual funds or ETFs that periodically rebalances asset class weights to optimize risk and returns for a predetermined time frame.
The asset allocation of a target-date fund is typically designed to gradually shift to a more conservative profile so as to minimize risk when the target date approaches. The appeal of target-date funds is that they offer investors the convenience of putting their investing activities on autopilot in one vehicle.