How do you think ETFs have changed the indexing industry?
ETFs are leading the charge for indexing. Indexing has been around only since 1975—that first Wells Fargo fund years ago, but it took ETFs to really make it a retail product. That has been a great thing. We have given investors low-cost, tax-efficient vehicles that highlight even further that most active managers can't beat an index fund. Then you also add in tax advantages and low expense ratios—all features of ETFs, and it's easy to see what spurred this revolution. I think the indexing revolution will continue not just through ETFs, but through index mutual funds that lend themselves better to 401(k)s and through structured products and equity-linked notes and other products. However, ETFs were the big catalyst that got it going.
Do you think ETFs will eventually overshadow or maybe even replace mutual funds?
I don't think they will overshadow or replace mutual funds. What they will do is they will take their rightful place. ETFs will have their role, but so will mutual funds, so will structured products, etc. There is no "one size fits all," but I do think the world is going to tilt much more toward index products of all kinds than in the past.
I do not at all foresee the demise of mutual funds. I just see ETFs kind of taking their rightful place as side by side with them.
What do you think is left for indexing? What's next?
Indexing is very strong in the U.S. and it's strong in Europe. I think Asia is still a big opportunity, as well as India, Africa and Latin America. Equity index products are very comprehensive today, but the other asset classes such as fixed income, commodity, currency, alternatives are still in early stages. There is also ample opportunity in different distribution channels such as defined contribution (401(k)s, etc.). There are still tremendous opportunities to grow geographically, by asset class and by product.
What role does indexing play in your own portfolio?
I have a financial advisor and we actually sit down and look across the asset classes at my asset allocation model and we pick benchmarks that I am going to use to measure the return of each category. I always require my financial advisors to not just tell me what the product returned or what that part of the portfolio returned, they must also tell me how it returned versus a benchmark that is relevant. Indexing is an absolutely critical tool for me.
You're about to retire; what do you see as your biggest accomplishment in your career or the thing you are proudest of?
I have been very lucky and have the benefits of a truly wonderful career at the best company I could have imagined. I have been lucky to work with the smartest and most dedicated and passionate team here at Nasdaq. I have helped build Nasdaq from when I was among the first 80 employees to where we are today and helped us grow into a global company. I will always [be proud of] starting and launching QQQ, and being able to build this world-class index business and brand.