Transcription
To kick off, I read that by the end of 2022, the global ETF space had reached around 11 trillion dollars. So, an increasingly significant driver of that growth is the recent acceleration in active ETF flows, with about 33% of overall flows going into those active ETF products in Q1 this year.
So, we'll return to this subject, as I say, but perhaps you can just briefly sum up the value proposition for these products. What's the elevator pitch?
Sure, it's a great question, and I actually think the answer is pretty simple. What active ETFs are doing is really opening up an entirely new avenue of choice for investors. You know, they no longer have to decide between active management and ETFs. And if you think about it, active ETFs have the potential to be an epic combination. With our new active ETFs, which, you know, I know we're going to go into a bit more later, what we're doing is really bringing the best of two worlds together. We're providing access to strategies that are managed by our active investors. At the same time, we're providing all of the features that, uh, you know, we've all come to love about ETFs: liquidity, transparency, and tax efficiency.
Yeah, absolutely. And as you say, we'll get into a few of those points in more granular detail further on. But they're circled back and introduce you to the listeners. And interestingly, I actually read, uh, before the call, that you studied music at university with the intention of becoming a classical pianist. So, I'm always interested to understand those formative years of our guests to, I guess, work out whether there are any skills that you did learn during that time that you can now leverage as part of your day-to-day job.
Yeah, yeah. Well, let me just start by saying, I had zero intention of going into finance when I started at university. It was not in my life plans, it was not on my radar. And actually, I knew literally nothing about Wall Street or investing at the time. And, you know, honestly, that could be its own topic, maybe for another day, on, you know, just the need for greater financial education. But I had every intention of becoming a concert pianist, like, like you mentioned. And I actually studied both music and math at university. Talk about, you know, quite, quite the combination there.
But what's interesting to me is, I absolutely believe that, you know, the skills that I picked up in music, and math for that matter, those those apply to what I do today. And I think perhaps more than anything, it's the ability to take something that appears incredibly complex and turn it into something simple. And in the case of music, turn it into something beautiful. You know, I remember being at university, I'd be staring at this new piece of music, maybe it was a Rachmaninoff Prelude or a Beethoven Sonata, whatever it was. You know, what I'd see was just an ocean of black notes all over the page. It would oftentimes feel overwhelming. But then the work was breaking it down bit by bit, piece by piece, until eventually, that complexity would become so natural that to the listener, you know, it would sound effortless. And whether we're talking about a melody, a math problem, or, like I do today, building new products, you know, it takes that skill of breaking down the complex to find those elegant, simple solutions. And I actually think that's a skill that applies in so many different fields.
Yeah, I completely agree. I think you're very right, man. And particularly actually in product development. I think, I think if we spoke to more product developers on this podcast, we'd see a similar sort of thread throughout their career. But let's take us, take the listeners up to present day, then. I mean, your current title, I think, is Head of US iShares Product. So perhaps to make, perhaps make that, um, title less abstract for the listeners, talk us through what a typical day looks like for you.
Sure. Um, well, I'd love to, except I actually think a typical day doesn't exist.
Yeah, fair enough. But that, in and of itself, pretty much is the defining aspect of any given day. You know, I know that today is not going to look anything like the previous day. But that actually, that's actually one of the most exciting parts of my job. I love it. You know, the ETF industry is so dynamic. The inherent nature of innovation is that you're constantly doing something new. You know, and, um, but that being said, there are certainly certain recurring rhythms in my day-to-day. You know, I'm based in San Francisco, so my day typically begins well before the sun comes up. We're a global product business, so there's a lot of collaboration that takes place with other regions in my early morning hours. And product is just at the center of so much. So I might be in discussions talking about regulatory change in one moment. The next, I might be working with our partners in trading about how to best structure an option strategy. And then, you know, I might end the day speaking to clients or even getting the opportunity to be on a podcast like this one. But, you know, I'll tell you what I love about the job more than anything is, um, the connection that I feel to our purpose. And that's, you know, to help people, to help them achieve financial well-being. And I know that at the end of the day, what we're collectively doing here is really making a difference for everyday people.
Yeah, absolutely. And again, I, I hope we come back to that, that mission, I suppose, when we talk about your new products. But before we do, let's start from a top-level perspective and discuss the ETF industry as a whole. It'd be great to get your take, given your role, on the ETF industry more broadly, and perhaps you can point us to any fundamental trends or shifts in its dynamics in recent years.
Yeah, I mean, like I mentioned earlier, it is an incredibly dynamic space, the ETF industry generally speaking. But, you know, if we had to boil it down to, you know, what are kind of some of those top trends, I think there's really two fundamental trends that we've been seeing play out, and this has been over the course of many years now within the ETF industry. And I'd say, you know, the first one is the types of investment strategies themselves that are being put into the ETF wrapper. And then the second major trend is changes in the types of investors that are using ETFs.
So, if we go back 20 years, when ETFs were first introduced to the market, they tracked well-known market cap-weighted indexes, right? So they gave exposure to pretty simple markets like US large-cap stocks. It was the ETFs themselves that were the new and novel thing, but the underlying investments were pretty basic. But over time, what we've seen is just this tremendous evolution and expansion in the types of strategies and exposures that are now available in an ETF. And so, you know, we could talk about the wide range of ETFs that follow factor indexes that seek to enhance returns. There's an increasing landscape of thematic indexes, those are meant to help target, and what we like to call these powerful mega forces of long-term growth. And then, you know, more recently, we've been seeing a lot of development in ETFs that are designed to target certain outcome-oriented strategies, you know, whether we're talking about income or protection. But the common thread through all of this is, it's really been the availability of new types of data and data sets that have allowed, you know, the creation of new indexes that have opened up these just entirely new ways to invest. It's, it's really exciting.
The second fundamental trend that we've seen play out is that of just the general adoption of ETFs, and specifically in the types of investors that are using ETFs. And the catalysts here have really been commission-free trading combined with the growth of digital platforms. And that's making investing more accessible, more affordable, and ETFs have really become the vehicle of choice. And it's introduced, um, a new era of investing in many ways, with, you know, what I like to call the rise of the self-directed investor. If we look at the US market alone, there were more than 40 million new self-directed investment accounts opened since 2020. And it's really the simplicity of these digital platforms and the convenience of ETFs combined that are making them feel empowered in terms of investing. And then, you know, this is also not just a US story. We see very similar dynamics playing out in Europe and around the globe. And, you know, we believe that this growth is only going to continue. There's tremendous opportunity for even greater ETF adoption in this space. And that's, you know, really a result of as more and more investors experience the benefits of ETFs firsthand.
Yeah, absolutely. Can you point to any sort of, well, macro, I guess, tailwinds or drivers of ETF adoption? Why are retail investors in particular keen to get their hands on self-directed products like active ETFs, for example?
Well, certainly active ETFs have been, you know, one area of interest. But I would say even more so than that, one doesn't need to look any further than just bond ETFs in terms of a story of growing adoption in the ETF landscape. But not only that, it's a story of, you know, complete transformation of the underlying markets themselves. And, um, how bond ETFs have actually made the bond markets themselves more liquid, more affordable, more accessible. And it goes back to, you know, the simplicity and the convenience of ETFs are empowering your everyday investor to be able to gain access to these types of markets that were historically hard, hard to reach.
Yeah, absolutely. And from that broad range of new products coming online, then, what, which of those are your clients most excited about? Where are you seeing the most inflows at the moment?
Yeah, well, okay, well, let's talk about bonds a little bit more, right? Like, I think when, when you hear the word exciting, bonds may not naturally be the first thing that could come to someone's mind. Yeah. But I have to say, you know, what we're seeing play out in the markets today is what many are calling a once-in-a-generation opportunity in yields. And bond ETFs truly are one of the most incredible growth stories that we're seeing play out. So, a couple of interesting stats for you: more than 70% of fixed income sectors right now are yielding 4% or greater. So, an ETF like our iShares Core US AG, that ticker AGG, that yields close to 4.7% right now. And so, what we're seeing is investors are taking notice, right? They're taking this opportunity to reduce what are some long-standing underweights to fixed income allocations in their overall portfolios. And this is part of the broader adoption story that we're seeing in in bond ETFs.
Just to give you some context, when we first launched the first US-listed bond ETF, this was back in 2002. It took 17 years for the global bond ETF industry to reach a trillion in assets. That happened just in 2019. So, 17 years later, the category has since taken off from there, even faster than we anticipated. So, it has essentially doubled again in less than four years. So, we're just almost at 2 trillion in AUM in in bond ETFs as an industry today globally. And again, it goes back to the reason's pretty simple: the ETFs themselves have made the bond markets more liquid, more efficient, and much more easily accessible for your average investor. And we've actually increased our target for bond ETFs. We now believe they will reach 6 trillion by 2030, not just because of, you know, the existing opportunity in yields today, but just because again, more clients are experiencing the benefits of ETFs, they're choosing ETFs at an accelerating pace.
Got it. Okay. Well, there's, there's come back to, uh, on your new bond, uh, ETF in a second. But before we do, just to finish off that conversation about active ETFs, um, a lot of investors currently use ETFs due to their tax efficiency. That's something broadly known as a key benefit of the ETF vehicle. But to what extent does that apply to active ETFs?
Yeah, well, and if it's okay, maybe I'll just take a moment to talk about active ETFs broadly speaking, right? Because active ETFs, it's more than just fixed income. The active ETF landscape is evolving so quickly. You know, in a matter of just a few short years, it's emerged as one of the fastest-growing categories within the ETF industry. So, a couple of, a couple of sizing, you know, stats for you: there's over 430 billion in AUM in active ETFs in the US alone today. It's experienced 50% organic growth over the last three years. But what we know is that active ETFs are still in the early innings of adoption. They represent only 6% of total ETF assets. And we also know that assets don't tell the whole story here, because while they're, you know, still a relatively small portion of industry assets, they represent an outsized share of new product launches. We've seen, you know, 60, if you look at over the last three years, more than 62% of new ETFs listed in the US were active. So that's 770 out of, you know, roughly 1200 new ETF listings. I mean, that's pretty incredible. And then when you look at who's participating in this space, there's a growing number of fund providers here. So much so that at the end of last year, there were actually more issuers of active ETFs than index ETFs, which to me, kind of blew my mind. So, it's definitely a fast and, you know, incredibly changing, uh, landscape, if you will, just in terms of ETFs generally.
You know, if we kind of dive into tax efficiency for a moment, um, when we spoke to clients about ETF tax efficiency in the past, I think there was always kind of this question around, well, are ETFs really more tax efficient, or is it just that ETFs are typically passive strategies that tend to have lower turnover? Right? But now that active ETFs have been around for some time, they have live track records to point to. What's been interesting to observe is how the ETF structure is absolutely demonstrating an ability to improve tax efficiency, even in higher turnover strategies. So, there's data that exists today. If you look over the last 10 years, an average of 14% of active ETFs have paid a capital gain in a given year. That compares to about 6% of index equity ETFs. But when you compare it to equity mutual funds, that number goes up to 60%. So, clearly, there's a difference being experienced due to the wrapper itself. And, you know, this is going to be an area to watch for sure as the industry keeps growing. You know, there's, like I mentioned, hundreds of active ETFs in the market today, much more so than there were, you know, 10 years ago. So, we do believe that interest among those tax-sensitive investors may very well continue to grow if we see active ETFs, you know, keep capital gain distributions low.
Yeah, great. Okay. I think that perfectly sets us up then to talk about your two new funds. I want to hear about the two new active ETFs that BlackRock have recently launched. Let's start with the BlackRock Flexible Income Fund, ticker BIMC. Give us the overview and the value proposition here.
Yeah, well, this has been an exciting, um, launch for us. Um, in fact, we just recently, um, hit a hundred million in terms of assets gathered in just a matter of a few short weeks. So, this, this product is clearly resonating with clients. Um, so, what we like to refer to as BIM, that is the ticker, but the name of the product is the BlackRock Flexible Income ETF. It's managed under the leadership of Rick Reader. He's our CIO of Global Fixed Income. And what this product pursues is enhanced yield opportunities, and it does so using a diversified, a nimble approach. And it gives investors exposure to those harder to reach fixed income sectors. What's unique though, what we love about it, is that it's specifically designed to be able to sit alongside core bond exposures within a portfolio. So, what that does, if you're an investor or an advisor, you can customize exactly how much yield enhancement you want complementing, you know, core bond holdings. What we like to often refer to as bar-belling. And we've seen a lot of investors blending active and index strategies. And so they, you know, get exposure using a core bond index ETF for that diversified, kind of core holding. They then pair that with an alpha-seeking fund like that delivers, you know, a unique source of return. So, this approach has really been resonating with clients. It's a great way to both, you know, improve diversification, lower cost, and not sacrifice return at the same time. So, yeah, we're really excited about this new product.
Yeah, absolutely. And you mentioned the, the fund's day-to-day in which to deliver long-term income by allocating to harder to reach fixed income sectors. Talk to us about those harder to reach sectors in particular. Can you name a few and give us a few examples?
Yeah, sure, absolutely. So, when, you know, when I talk about harder to reach fixed income sectors, those are really areas like high yield, emerging market debt, or securitized assets like, you know, CLOs. And, and these are just parts of the bond market that are generally less liquid and are harder for retail investors to source. So, you know, there are also areas that tend to have more volatility. So, retail investors in particular may benefit from that professional investment management that they get with a product like BIM. Um, and then, you know, when we look at the cost of, of the product itself, of course, it's not just for retail investors. A lot of institutions and advisors find it just more cost-effective to access these types of sectors, um, through ETFs. And that really speaks to the value of the liquidity that the ETF brings.
Yeah, and I like to quote from your CIO that talks about again, kind of, uh, the practical purpose, I guess, of, of the fund, which was to make a little bit of money, a lot of the time. So, talk to us about how exactly the fund delivers on that.
Yeah, and this is, you know, certainly a quintessential saying from Rick Reader. I love it. Um, it is, it is core to his investment approach. Um, you know, we, we've really entered a new investment regime. I think investors are beginning to really recognize that it's a much more challenging market environment. And so, how a portfolio is built really matters. And what Rick and his team are focused on is remaining active and remaining flexible. So, rather than relying on outsized positions or concentrated bets, or even, you know, difficult to predict macro trends, what his team is doing, and what this saying is talking about, is they're making these smaller opportunistic moves. BIM today targets a yield of roughly 7%. It has, you know, somewhere around 600 unique positions. So, it's diversified and it's nimble. And that's really a crucial aspect in, you know, what our fast-moving markets today.
And how nimble was the portfolio management, uh, in that respect? Just because, I, I guess, if you are offering exposure to these harder to reach sectors, some of which are relatively volatile compared to other asset classes, do you have to be particularly active in the portfolio management of the product to offer a safe or less risky return than maybe peer products in this space?
Well, and therein lies the, the value proposition of going active in this space. You know, I think you said it perfectly well. Um, that combined with the fact that it's a diversified approach, it is those small bets that make it nimble, um, and make it, you know, able to be agile and flexible and move where the markets are moving. So, I think that's absolutely right. You hit it on the, hit the nail on the head.
Great. Okay, cool. Well, let's, let's move on to the second new, uh, family of active ETF space that you've just launched, the BlackRock Large Cap Value ETF, ticker BLCV. Let's start again with the general overview of the product and the value proposition.
Yeah, so, um, very similar in the sense that also an active product, also a product that is really designed to sit at the core of an investor's portfolio. BLCV is managed under, um, the leadership of Tony Desperado. He's our Global CIO of Fundamental Equities. And so, this expands our premier value platform now into the ETF space. And it really delivers a value and income-focused, um, exposure, and one that can sit kind of at that core of, of an investor's portfolio.
So, how then does the fund maximize total return by offering exposure to US companies typically found in that Russell 1000 Value Index? Right? So, in addition to gaining exposure to those large US value stocks within that universe, um, the fund also seeks to maximize total return primarily through fundamental research, and then also bottom-up stock selection. And where the fund aims to really drive its outperformance from is through selection of value stocks that have higher quality characteristics. So, those companies that have strong balance sheets, strong cash flows, low leverage. It's really that combination of value with quality that we believe is, you know, the edge in terms of how we maximize return for this strategy.
Got it. Okay. And I've read in the, I think it was the press release, and I was reading before the call, and it said that you harnessed the expertise of BlackRock's 220 billion dollar Fundamental Equities platform. So, just give us a bit more detail on how exactly you embed that within your process.
Yeah, absolutely. And, and so to just bring this to life a little bit, um, how does this actually work in practice, right? Well, Tony's team is focused on value and income, but they sit within BlackRock's larger Fundamental Equities team. And that team has expertise, you know, across the entire broad swath of the market, right? So, for example, right now, healthcare is our largest overweight within, um, BLCV. Tony and his team believe it's a high-quality sector, it has good long-term trends, reasonable valuations. You know, if we look at the US, for example, we believe healthcare is really poised to benefit from some of those longer-term demand tailwinds that are resulting from aging demographics. So, now that we know that's an area that he loves, we're overweight that. So, when they analyze companies for stock selection, Tony's team is tapping into all of the research that has been generated by the healthcare analysts across the broader platform. So, in addition to benefiting from Tony's team, shareholders are also benefiting from the broader capabilities of our Fundamental Equities platform in its totality.
Got it. Okay. And you mentioned healthcare there. Do you consider sector exposure at all? Do you ensure a minimum level of diversification at a sector level, for example?
I mean, diversification is always important, as we balance that with also wanting to have purity, um, in terms of exposure to value. So, both things are, are considered, absolutely.
Great. And, um, just for people considering products in the space, are there any direct peers, uh, in terms of products being offered by other, other businesses in this space?
Absolutely. I mean, it's one of the largest categories from a Morningstar perspective. So, there are, you know, clearly a number of different competitor products offered in the market today. That being said, we really do believe that our approach is unique, and there really is no other provider who has that breadth of expertise that can be combined in such a way that really provides some unique insights, um, in terms of investment capabilities.
Yeah, fantastic. And that's why I asked the question. I was keen to just pull out what, what you guys believe the differentiator is, and it certainly seems like that really offers some value. Um, let's move on to the second category of products, uh, the BlackRock have recently launched, and that is your buffer ETF strategies. So, um, I think a lot of listeners won't be too familiar with, with the nature of this product. So, before we get into the specific individual funds, talk to us about what buffer ETFs are and how they work.
Yeah, absolutely. So, the value proposition here, you know, to make it as, kind of, simple as possible, what it boils down to is that these products, buffered strategies, are really for investors who are interested in equity growth, but at the same time, they're looking for some degree of downside protection should markets experience negative returns. That's really what they're all about. And, um, you know, these products in particular, in the ETF space, what's so exciting about them to me is that this is, this is another story of access, right? Because historically, options-based strategies have been difficult for your average investor to gain access to. They're either limited to really expensive products or complex structures. The introduction of option-based ETFs has really entirely changed all of that. So, there's now a convenient and efficient way to access these types of outcome-oriented solutions.
Got it. And, uh, you've brought out two funds in this space. So, uh, the first of which is the iShares Large Cap Moderate Buffer ETF, and then you've got the Large Cap Deep Buffer ETF. So, what's, what's the difference between those two funds?
Yeah, well, both of them are, you know, let's talk about what's the same, what's different. Both of them give investors exposure to US large-cap equities, so specifically the S&P 500. Both of them also provide a buffer against those drawdowns, and they come in exchange for a return cap. So, our Moderate Buffer ETF, that seeks to protect against the first 5% of quarterly losses. Then our Deep Buffer ETF seeks to protect against quarterly losses between 5% and 20%. So, that means investors participate in the first 5% drawdown, but then they receive protection against those deeper losses. So, that's really the primary difference between the two is the level of protection that each offers. And, you know, there's really three reasons that we're excited about these products that we think that investors really should take a look at these. You know, the first is just market relevance, right? I mean, volatility continues to be a top concern for many investors, and that's one of the reasons why we're seeing such a massive amount of cash sitting on the sidelines. You know, in some estimations, we, we've seen that close to a trillion dollars has flooded into cash products in the last year alone. So, what's going on? You know, investors are facing a dilemma. They want to invest, they know they should invest, but they don't want to experience those large drawdowns that can come with volatility. And so, what we love about these products is that they're giving really an entirely new set of tools to investors to confidently begin to reinvest again. So, they can position themselves to capture some of that equity growth while still managing for volatility. And then, like I mentioned before, we love the access that this is creating, right? We're delivering institutional quality risk management in the convenience of an ETF. But then the third, and probably the most differentiating aspect, is the way in which we've built our products. And we've built our products not just to buy, but to hold. And, you know, we do believe that our products are distinctly different from some of the competitors that are in the market today because we've specifically designed ours with a buy-and-hold investor in mind. And there's really two features here. You know, the first is that they reset quarterly rather than annually. By resetting options positions on a quarterly basis, that allows the strategy to more frequently adjust to what our prevailing market conditions. So, we know that when markets are volatile, those buffer and cap levels can become stale relatively quickly. And so, the feature of these more frequent resets removes the need for an investor to trade in and out of a product. It really remains evergreen in that, in that sense. And then the second feature here is really just how we've priced them. We've priced them at 50 basis points. So, they are, you know, the lowest cost ETFs in the market, again, because we've designed it for the buy-and-hold investor in mind.
Yeah, fantastic. And where does a product like this sit within a standard or traditional retail investment portfolio?
I think that there's, um, a few different ways that we see clients use these products today. Um, we certainly see some who choose to use them tactically, you know, they want to express a short-term view on the market. But we actually see many more who are starting to use these products at the core of a portfolio as part of, you know, longer-term portfolio construction.
Yeah, so for some investors, the products are used to reduce risk within a portfolio, right? And that's a very clear use case. So, you can take a portion of your equity exposure, replace it with a buffered ETF, and reduce your overall risk. But it can also be a great tool, and we've started to really, you know, hone in on this, and we think it's very exciting for investors who are nearing retirement who want to actually add to their equity allocation while keeping their risk in line. Again, you can take a portion of your portfolio and allocate it to a buffered ETF position yourself to capture some of that equity growth. And then the other thing that's, you know, particularly, uh, uh, kind of relevant this year, is that we're seeing investors who are using these products as a way to step out of cash back into the equity market. So, that downside protection is helping investors regain that confidence to re-enter the market.
Yeah, fantastic. And if we talk about time horizons, then you've talked about it being potentially a buy-and-hold strategy or suitable to buy-and-hold investors. Perhaps is this fund or product more effective over a longer-term time horizon?
Yeah, you know, and, and maybe what we could do is even just break down, I think, I think it's helpful to first know what are the different market environments and how do these products perform, right? So, if you kind of break it into three distinct market environments, um, starting with, you know, environments where we have these rapidly rising markets, right? So, in those cases, we do expect that buffer ETFs will underperform. And the reason for that is the funds will likely reach their upside cap and would give up some of that positive return, right? But, um, in times of more modest positive returns, to think between kind of, you know, under 6%, call it within a quarter, in those types of more modest return environments, we'd expect our buffer ETFs are going to perform more or less in line with the underlying markets. And then the third market environment are times when the market's selling off, right? And this is when the buffer ETFs really demonstrate their value prop. The buffers kick in, they begin to protect against drawdowns, and we'd expect the products to outperform here.
Yeah, but I think someone could, you know, probably ask the question, well, why bother with the buffered strategy at all? Like, why not just hold something like the S&P 500? And certainly, for many investors, that will be a perfectly fine and good answer. Yes, we believe in, you know, broad-based market investment. But for some investors, and I'd argue actually for quite a number of investors, there's something that stops them from getting started at all, and that's the uncertainty of the market and the fear that that can create. And so, in that context, buffered ETFs can actually play a really important role in an investor's portfolio. Um, and so, if we go back to, you know, how a lot of investors right now are sitting in cash, they're remaining on the sidelines because of concern around uncertainty. And so, the beauty of these ETFs is that the guardrails that are built in can help investors get over that hurdle, and and give them, you know, the confidence to enter or re-enter the market.
Yeah, really interesting. And it's early days for the product, obviously, but you're seeing it actually being used in that way, as a gateway for early investors, novice investors, to get from cash into the market?
Yeah, I mean, we're certainly seeing that in general industry flows, um, in this space, absolutely. And we're having lots of, you know, great conversations with clients, uh, to this effect.
Yeah, fantastic. Okay, well, um, I want to finish with a question that we ask all of our guests, which is essentially for their next big idea. This might be an under-reported theme, an instrument, or a particular strategy type, perhaps. So, if you did have to leave our listeners with one idea, one thing, what, what would it be?
Okay, well, I think I'm gonna go with something that maybe is not under-reported, but arguably under-invested, and that's AI, artificial intelligence. I mean, of course, we know it's been blasted all over, you know, the news, people are talking about it non-stop. We know that AI has the potential to just completely, you know, upend and disrupt many parts of the economy. But I actually don't think that investors have yet fully seized the opportunities that exist in this space yet. There's an estimate by Bloomberg Intelligence that the generative AI market alone will grow to 1.3 trillion in 2032. It was at, it was at 40 billion last year. I mean, that's massive growth, right? But other AI use cases, yeah, whether we're talking about self-driving cars, innovative healthcare, that's going to further expand the market opportunity even more so. And so, we believe that the opportunity in AI is quite broad. There are dozens of companies across, across the entire AI value chain that are likely to benefit, you know, from a materialization of this theme. You know, whether we're talking about companies who are actually producing the AI programs themselves, or the technologies that are enabling the development, you know, cloud services or semiconductors, it's really the entire value chain where we see a tremendous opportunity here. And, you know, investors have multiple ways they can access access these companies. Um, again, through ETFs, we have Robotics and AI ETF, ERBO, is a great way to kind of do a pure play in this space. Our Semiconductor ETF, SOXX, is another way that you can access the value chain of AI. So, we think there's a just tremendous opportunity all across the board in this area.
Yeah, I mean, it's not something I planned to ask about, but it's such an interesting topic. I would love to dig into it for five minutes or so. But, um, the, the funds that you, you offer at the moment, you mentioned one of them, uh, offers, I guess, pure play exposure, and that's something that I think a lot of investors will be looking for, because AI is one of those pervasive themes or trends that tends to kind of impact every industry in some way, shape, or form. So, how do iShares products, BlackRock products, offer, kind of, purer play exposure to such a pervasive theme, which, I guess, in essence, capitalizes on the convergence of lots of different trends rather than being one trend in and of itself?
Yeah, and this really goes to our general philosophy, you know, in terms of how we build and and design thematic products. So, you know, we're, we're balancing purity, um, to a theme, and wanting to, at the same time, make sure that we're capturing, you know, again, what we like to refer to is the entire value chain of a theme.
Yeah, so when we talk about a theme, you know, AI could certainly be one, or even look at something like electric vehicles, right? When you have a trend, we believe there's going to be this massive adoption in electric vehicles, for example. Well, it's not only the vehicle producers themselves that stand to benefit from a trend like that. And so, for the investor, we want to make sure that what we're captured measuring are also the underlying component parts that will be required, or some of the, you know, aspects of the underlying materials that will be needed. And and that's what we mean when we say investing in the entire value chain. So, certainly the same is true here for AI. So, when we think about and analyze a given theme, we're looking across broadly speaking at who and which areas, which sectors, which companies stand to benefit from growth in this given theme. Those are the companies that we want to give targeted. So, we talk about pure play, it's really targeted exposures to those companies.
And given that we've talked about active ETF products today, can that more targeted exposure be offered by a passive product, or do these also, these automatic plays also need to be more active in their portfolio, portfolio manager?
Well, and, you know, this is what we love about offering both, because both represent, um, really great ways to get exposure. And I'd say, you know, it, it kind of goes back to what we're talking about, the evolution of available data. The available data sets that exist today have really unlocked the ability and power to be able to, in index form, you know, systematic rules-based indexes, be able to capture what are very dynamic and evolving, you know, themes and trends. At the same time, we are also big believers in the active approach, right, in terms of being agile and nimble and having that, you know, overlay of, um, discretion and tapping into our deep expertise in research in these themes as well. So, but we think both approaches work very well, and we offer both today for investors based on, you know, what their preferences are. We want to give choice.
Yeah, fantastic. Well, and that's, I mean, we could have spent a whole podcast talking about that big idea. So, maybe we'll have to get you back on to do just that. But that just leaves me to say, thank you very much for joining me on the podcast, Rachel. It's been a real pleasure.
Thanks so much for having me.