Ollie Smith: Now, if you thought that you were having a bad day, get a load of this. This week, a high court judge struck out legal action by a man who was attempting to sue a local council in order to re-obtain a hard drive buried in a landfill site that he claimed contained as much as £6 million of Bitcoin. A bad day indeed.
It’s the latest twist and turn in the phenomenal story of Bitcoin. As eyes turn towards a second Donald Trump presidency, it’s worth thinking about what that presidency could do to the price of Bitcoin in 2025. Here to discuss that and some of his predictions for this year is Kenneth Lamont from Morningstar’s manager research team. Kenneth, thanks for joining me. Is it time that we simply give up the ghost and accept that Bitcoin is a mainstream part of finance?
Kenneth Lamont: Well, I suppose the best way to answer that is by taking one step back and saying that most investors will have some exposure either more or less indirectly to Bitcoin already, whether that’s they hold Coinbase or the hold something like Tesla TSLA or Mastercard MA or PayPal PYPL that have at least some price exposure to the price of Bitcoin. So it’s already here. I mean, it walks amongst us. The question is, will it really go mainstream? Will you be able to buy it and put it in your portfolio alongside the rest of your fund holdings? That’s not the case yet and regulatory authorities understandably are quite reluctant to sort of okay this. But it does ask some further questions as well. If all of us can go and buy Bitcoin outside of the financial system, is that actually safer if it’s unregulated and outside of the system or would it actually be safer to sort of regulate it and pull it into the system? That’s still an open question.
Smith: Brilliant. Okay, let me pivot briefly to the topic of active ETFs because I do want to ask you about this. You have a bit of a contrarian view on this, don’t you? You think that active ETFs are becoming more popular but perhaps won’t go quite as far as people think in terms of that popularity. Can you tell us a little bit more about that?
Lamont: Yes, well just for some context, active ETFs have been around for a long time actually in Europe but they’ve become a small but significant portion of the overall ETF market. ETFs have traditionally been a passive fund wrapper. A lot of people just intrinsically immediately think of passive investing when they think of ETFs but of course you can package up an active strategy and put it in that ETF. And in fact, recently, Luxembourg, again, without getting too technical, has just changed its role. So now you can have a semi-transparent ETF. So an active manager can launch their active strategy into an ETF, and they don’t have to show their hand every day. At the moment, you have to show your holdings sort of every day. And that was seen as one of the barriers to entry. So that’s one of the reasons managers wouldn’t sort of launch into the ETF wrapper. And actually, many participants in the market are looking to the US, where we’ve seen even more growth and even more excitement in this space. But I’ve dampened my expectations because in the US, ETFs have an explicit tax advantage, whereas actually in Europe they don’t. So I think we will see greater adoption, but there isn’t a huge incentive for us, asset managers to sort of pile in at the moment. So it’s a bit early to get too excited just yet in Europe.
Smith: And then finally, just thinking about the asset management world as a bigger picture, I mean, we’re going to see more consolidation in the asset management world, aren’t we? We’re going to see more price pressure, more mergers of different asset management businesses. Correct?
Lamont: So as far as predictions go, this is quite a safe one. This is a very long-term trend that we’ve seen. We’ve seen a sort of consolidation in the market. And a lot of this is just simply to do with price pressures, which I think is great for the end investor. It’s good news and it will continue to be good news. A lot of it is connected with the rise of passive investing, which has really held active managers to account.
Smith: Yes, you could say that. That’s one way of putting it.
Lamont: And so over the years, you’ve seen this price pressure. And one way if you’re an asset manager to deal with this is to build scale. And some parts of the market, like the passive part of the market, scale where you can just stack on top and it works quite well. You can integrate and grow quite quickly. The fixed costs stay, but your asset base rises. But in the active space, it’s a bit more complicated when it comes to sort of growing and integrating businesses. So they don’t always work quite as well. I’m sure there are certain mergers that you can think of in that sphere, which haven’t gone quite as well.
Smith: Yes, thoughts and prayers with your colleagues and the people pillar. Thank you so much, Kenneth. That’s absolutely brilliant. For more on the future of fund management, asset management, funds, passive, active and otherwise, do stay tuned for more from Kenneth and me. Until next time, I’ve been Ollie Smith for Morningstar.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
