Glenn Freeman: I'm here at the Morningstar Investment Conference 2018 with Jonathan Howie from BlackRock. Now, Jonathan, you were talking about the active ETF segment and it's not something that BlackRock currently offers in the Australian market. Can you just talk us through those structural issues that you alluded to in your session just earlier?

Jonathan Howie: Yeah, I think, the first thing that we would say is that the growth of ETFs generally, both passive and active, is very, very strong in the Australian market and we expect that to continue. With that growth you are going to see continued product proliferation. There's going to be more choice for investors on the exchange.

We don't currently offer nontransparent active ETFs in Australia. What we do is, we offer a range of smart beta products. Smart beta really is, I guess, a blending of both active and passive where you get the benefits of outperformance using many of the strategies that active managers have been using for many decades. But it's done so in a systematic way that allows the portfolio to stay transparent. So, that's really where we are focusing our energies at the moment.

With active-managed ETFs that are nontransparent on the ASX right now, we have some question marks about the structure of those ETFs. Ultimately, they are slightly different to your traditional exchange-traded fund. We are working very closely with other issuers and with the regulators to come up with a model that we think makes sense in terms of transparency but also in terms of liquidity. And as we work through those issues, we potentially will look at expanding our product set along active lines down the track.

Freeman: And also, on the portfolio construction side of things, you are seeing a bit of an evolution in the way that people are using ETFs as far as – some people have been using them for everything bar the local – domestic exposure within their portfolio?

Howie: Yeah, that's a great question. It's really indicative of a trend that we have seen. As the ETF market has been growing over the past few years, when ETFs got going in Australia, really, they were generally being used just to access a particular asset class, like just into U.S. equities or just into fixed income, for example. What we have seen over the last couple of years is, self-managed superannuation funds and also IFAs and the advice community generally starting to build entire portfolios out of ETFs. So, it's really an evolution in the way they have been used.

It very much is horses for courses. We are seeing some investors go from A to Z in terms of portfolio construction just using ETFs. But your question is a great one. Often what we see is investors who might already own an Aussie equities portfolio that they have potentially held for some time with companies that they believe in and that they understand the investment thesis, but they are looking to diversify across asset class and also internationally. And in often cases, they are using the ETF as the most straightforward, the lowest cost and the easiest way for them to do that.