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November 21, 2024 15 mins

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Dana D’Auria, Co-CIO of Envestnet, discusses managing the Trump Trade. David Botset, Head of Innovation and Stewardship at Schwab Asset Management, talks about ETF investing.
Hosts: Carol Massar and Tim Stenovec. Producer: Paul Brennan. 

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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.

Speaker 2 (00:07):
You're listening to Bloomberg Business Week with Carol Messer and
Tim Stenebek on Bloomberg Radio.

Speaker 3 (00:13):
All right, let's get to Dana Dioria.

Speaker 4 (00:14):
It's so sweet to have her actually here on site
with us. We're often talking to her remotely. Dana is
co chief investment Officer at Investment. They provide technology and
services to the wealth and asset management. They've got more
than five point eight trillion dollars in platform assets, more
than one hundred and eight thousand advisors, sixteen of the
twenty largest US banks, forty eight of the fifty largest

(00:34):
wealth management and brokerage firms, more than five hundred of
the largest RAS, thousands of companies as clients. She's all in,
and I got to say their platform sees a lot.

Speaker 2 (00:42):
Tim, Dana Dioria, good to see you.

Speaker 3 (00:44):
Welcome, Welcome to you.

Speaker 2 (00:45):
Usually usually we see you in a little screen on yeah,
exactly in our studio black, So it's good to see
you here in person. What's the tone that you're taking
away here in this first day at Schwab.

Speaker 1 (00:57):
Impact, Well, I think, and it's awesome to have you
here with the in our in our ecosystem, so to speak,
right the retail advisor. Yeah, look, it's it's all energy, right,
It's a lot of excitement, you know. The I've always
said and I often say that asset management and tech
are sort of blurring the lines a lot. And as
tech gets better and better at bringing solutions to the

(01:18):
advisory base, and we're just seeing that in these hype
conferences and impact is you know, just huge in our space.

Speaker 3 (01:23):
Tell us about flows and stuff.

Speaker 4 (01:24):
And I also think if you've seen anything different or
what you're hearing from your client base post elections, right, Uh,
you know, one one element of.

Speaker 3 (01:31):
What is it going to be? How's it going to
play out?

Speaker 4 (01:33):
Is off the table, and then there's a new set
in terms of the policies to come.

Speaker 1 (01:36):
Yeah, for sure. I mean, of course there was the
Trump trade, and you know, if you happen to get
or you I won't say, happen if you if you
made that bet and you know, uh, pharma and fossil
fuels and financials and we're gonna have lower like regulation
and everything. I mean certainly you made a buck, right
if you if you went for that trade.

Speaker 3 (01:53):
I think crypto crypto boom.

Speaker 2 (01:55):
Right, when you say pharma, do you mean shorting pharma
or no, you mean.

Speaker 1 (01:58):
Big just lower regulations right the whole.

Speaker 2 (02:00):
Like Ideak's in charge, he might get a little angry.

Speaker 3 (02:03):
With pharma, right, I mean there's new.

Speaker 2 (02:06):
We saw farming companies fall when his when he was
his name was announced.

Speaker 1 (02:10):
And there's new and every day, right, new information, especially
now that we're getting all the cabinet picks. I think,
you know, I draw the line between what was happening
prior to the election and what people were kind of
obviously taking that bet. And you know, the market price
can only reflect probabilities plus you know the outcome and
and some and it's one number to reflect all of that.
So yeah, probably if you if you made these bets

(02:32):
ahead of time, you made that buck. Uh. Now where
you stand is how well is the market pricing in
exactly that kind of information that you're talking about. Not
just do I think that you know this administration will
be good for pharma? Do I think this administration will
be good for fossil fuels? But how well is the
market pricing in that likelihood? And can I you know,
hang on for the ride.

Speaker 4 (02:51):
It's so interesting Tim brought this up our Matt Miller,
and we're anchoring just before us and just saying how
and Vidio is like the most important thing, even more
than what like the Fed's going to do next.

Speaker 3 (03:04):
Having said that, what the FED does next.

Speaker 4 (03:07):
Is important, and I think what we think today may
not be exactly what we're going to be thinking a
week before the FED meeting. So how are you thinking
about FED policy right now?

Speaker 1 (03:16):
You know, I'll tell you I have aired on the
side of they're going to need to be cautious about
these rate cuts. In fact, they didn't really expect that
fifty basis point right, And you know, I think it
was pre election and they decided to do it. I
think they thought they were behind in July. But when
you see inflation kind of sticking and you understand that,
you know, tariffs could potentially be inflationary, you know, we

(03:37):
may be looking at an administration that wants to run
the economy a bit hot. They're looking at fiscal policy
and you know, monetary policy that maybe has to counteract
some of that. So when you put that together, I
just don't think we can expect the big tailwind from
interest rate cuts in the coming year.

Speaker 3 (03:52):
Interesting Wall nothing December.

Speaker 1 (03:56):
I think December is definitely on the table, and the
base case is yes. But I also don't think it's
out of the realm of possibility that they don't do
it in December, depending on the data that comes out
between now and then.

Speaker 2 (04:06):
So does that mean a higher terminal rate? Does that
mean that the new sort of normal stance of monetary
policy is high forever?

Speaker 1 (04:14):
I think higher for longer, and we're back to this
terminology right.

Speaker 2 (04:18):
Think about what think about the round trip we did
a year ago, Carol, we were sitting here after j.
Powell gives a press conference, I'd say eleven months ago,
basically like, oh, we'll see you know, six seven rate
cuts in twenty twenty four that obviously did not happen.
Now the question is, okay, well, is the terminal rate
something higher than we thought it would be.

Speaker 1 (04:35):
I think the market has overshot the expectation of rate cuts.
You just said it, right, just going back to what
we saw. You know, of course, where did we begin
this year right with this huge expectation of rate cuts
and that was just that never made any sense depending
on you know, what the economy was doing. Anyway, I
think we've overshot I think the end point. It depends
on where you call this end point. Yes, I think

(04:55):
it could be a little bit higher than what is anticipated,
But I also think the slowness of the cuts and
the market you know, pricing that in and and you
know there there's a there's a little bit of a
case here to just stop the rate cuts all together.

Speaker 3 (05:09):
For now is amazing. You guys shared your your team
shared of.

Speaker 4 (05:14):
Some notes from you and said knowing what a candidate
favors also doesn't do much for figuring out what will
prevail over the course of the presidency from a stock
return perspective. For example, cold stocks have excelled under Biden,
while clean energy shares are performed under Trump. And you say,
that's our data, Bloomberg data.

Speaker 3 (05:28):
Yeah, so it's.

Speaker 4 (05:30):
Right, Like it's just it just reminds us there's so
much that we know that we don't know.

Speaker 1 (05:37):
It's numerator and denominator, right, you know, it's what's going
to be good for the revenue of these companies, but
also how much the market has discounted that capability and
if and if there's too much of a discount, you know,
then it can't meet that And that goes right into Nvidia.
Is it price to perfection or is it you know,
way past the price of perfection.

Speaker 3 (05:58):
So talk to us about Nvidia.

Speaker 4 (05:59):
It's our focus now and understandably, in about thirteen minutes
we're going to be breaking down those results. We were
saying that options trading right now signals that the results
will be the most significant important catalyst.

Speaker 3 (06:11):
Left this this year. How are you thinking about it?

Speaker 4 (06:14):
What you might be ultimately hearing from clients and investors later,
I don't know tie it up for us.

Speaker 1 (06:18):
The way that we think about it is when we
look at portfolios and just we look at the research
too around just what it's done to portfolios, the intense
concentration in these indexes, these big big names like in Vidia,
and so much of investor portfolios are actually sitting on
these outcomes, and I don't think a lot of investors
understand that, right. So if you say, okay, in Vidia

(06:39):
beat beat beat expectations and it does phenomenally, well, you
know that's fantastic.

Speaker 3 (06:44):
If even if in videos, I.

Speaker 1 (06:46):
Think we all know in Vidia's got a very good
product that is going to drive for a long period
of time, I'm still buying growth.

Speaker 3 (06:52):
Yeah, right, So what.

Speaker 1 (06:54):
Happens in this moment is that is not super important
for the for the course of what happens with AI
over the course of the year. But we are living
in a period of concentration where it is super important
for our client portfolios.

Speaker 4 (07:06):
People want to know right, they care, they care. There
are just certain things that are like guiding lights. Dana,
so great to catch up with you again.

Speaker 1 (07:12):
Thank you for having me.

Speaker 3 (07:13):
Yeah, thank you.

Speaker 4 (07:14):
Danna Dioria, co Chief investment Officer Evia Vestnet joining us
right here at Schwab Impact.

Speaker 3 (07:19):
We're going to talk a little bit about ETFs right now.

Speaker 4 (07:21):
A new record ninety six percent of ETFs have posted
positive returns of the past year. The majority of products
headed for double digit wins. Our Bloomberg intelligence team did
some analysis and this is what they found out and
tim the average US domiciled ETF up fourteen percent of
the past twelve months. Everybody's all in, Yeah they are.

Speaker 2 (07:40):
It's like it's like the normal thing. Are ETFs now?
I mean, get this, Schwab started in the ETF business
fifteen years ago. It's one of the dominant players. They
got thirty one ETFs, including ten fixed income offerings, making
it the fifth largest provider of ETFs with more. Let's
bring in David botset Managing director, head of Innovation in
Stewardship at Schwab here on site in Sanford, Cisco.

Speaker 5 (08:00):
Hello, good to see you. Good to see you. It's
been since last year since we talked an impact in Philadelphia.

Speaker 3 (08:05):
Nothing's gone on in the past year, nothing at all.

Speaker 2 (08:08):
Well, it's funny you think about innovation in the space,
and we've seen some big innovations this year when it
comes to crypto ETF specifically bitcoin and ether ETFs. How
do you think about innovation when it comes to ETFs.

Speaker 5 (08:17):
You know, the first thing we start with is what
are the investor needs? You know, that's at the heart
and the ethos of everything we've been doing in ETF
so the past fifteen years you mentioned, and that's really
helped compel stuff up to four hundred billion dollars in
assets in our ETFs. So we've been doing an annual
ETF investor study now for over a decade that's asking
questions of both ETF investors and non ETF investors about

(08:38):
their various views on how do they think about ETFs,
what's most important to them about what they're investing in
and what categories they may invest in the future. That
provides us a lot of great insights to help drive
our innovation in the space.

Speaker 4 (08:52):
All Right, So for non ETF investors versus ETF investors,
what they want is it different?

Speaker 5 (08:58):
You know, there are some nuances to them. So in
some cases it's very much the same. It's things that
they're looking at when they're selecting an ETF, like cost right,
that stands out in both categories. But there are other
areas where we see non ETF investors they need more education,
they need more insights because their confidence level in selecting
an ETF is much less than those that are ETF investors.

(09:20):
Makes sense, it does.

Speaker 4 (09:21):
Hey, listen, one thing that they need is a mortgage
backed security ETF, which just you guys launched this week
one day ago yesterday.

Speaker 5 (09:29):
Yes, it was so tell us about that. You know what,
We listen to our investor base. The one thing that
they tell us is we need more precise tools for
our fixed income allocation. You know, we go back a
decade and everybody was using the aggregate index to get
their fixed income exposure. But in a dynamic interest rate
environment like we're in today, they want to control for
sector exposure, they want to control for duration, they want

(09:53):
to control for the credit quality and their portfolio. Mortgage
backed securities is one of those that frequently are under
utilized in a portfolio, but they think about how do
I redynamicize that aggregate exposure. They want that precision in
an MBS ETF.

Speaker 2 (10:09):
Are you thinking about getting into what our own Eric
Beltunas over at Bloomer Intelligence calls the hot sauce ETFs. Like,
if you've got ninety five percent of your portfolio, you know,
in large cap stocks and maybe some bond funds, you
got five percent to play with, Maybe you throw some
into ARC or you throw some into Bitcoin ETF. Are
you guys thinking about getting into that sort of specialty category?

(10:31):
Maybe go leveraged in Vidia ETF.

Speaker 5 (10:34):
You know, our bread and butter largely is in the
core analyst Eric's a great guy. I'd love to work
with them, but you know, our bread and butter is
really in the core products and solutions, right because where
we see the benefit that we can provide as an
ETF provider is on cost, which is number one in
our survey year and year again, Cost number one thing

(10:56):
people look.

Speaker 2 (10:57):
At so there's a race to the bottom with those
sort of big broad ETF because there is so much competition.
And that's why I think you see a lot of
innovation happening in the Okay, well, how can we make
our product unique and also charge fifty basis points instead
of eight basis points?

Speaker 5 (11:10):
Yes, well, I think you'll see us innovating in that
space is less on those hot sauce areas, and it's
more thinking about how do we use the ETF wrapper
in other ways bring actively managed strategies. Earlier this year
we launched the Schwab Alter Short Income ETF. You know,
you look at that alter short space, it's really hard
to index that category. We also think it's an area

(11:31):
where an active manager can potentially provide alpha.

Speaker 3 (11:34):
Is it all about active going forward?

Speaker 5 (11:36):
You know, I don't think it's all about active, Yeah,
but increasingly you're seeing that in that space that's either
coming through new launches or conversions of active mutual funds
and ETFs there, and they're taking an outsized portion of
the flows this year.

Speaker 3 (11:48):
I always think about this, David. I began kind of
my career in business news.

Speaker 2 (11:51):
You had a show, an ETF show, right or mutual.

Speaker 4 (11:53):
Fund Mutual fun show not so long ago, and it's
just interesting to see the arc and how we move
to When is it that we just don't have mutual
funds and it's all about ETFs?

Speaker 3 (12:02):
Is it just a matter of time?

Speaker 5 (12:04):
I don't think so that continue. Well, I think it's
all about the benefits the ETF provides. It can provide
a cost benefit, It can provide a tax benefit because
they tend to be more tax efficient, and a trading benefit.
But in many accounts where it's a qualified account, you're
not paying taxes, that tax benefit isn't there. You also

(12:24):
see a lot of strategic allocation long longer term investors
for one K plans, retirement plans where you may not
necessarily need that tax benefit or the ability to trade
every day in your allocation. If I'm more of a
strategic investor.

Speaker 4 (12:38):
Are investors though, who are planning for the retirement missing
alpha though by doing mutual funds that way?

Speaker 3 (12:44):
Like, I mean, are they missing out on opportunities?

Speaker 5 (12:46):
Pretend? I think potentially and increasingly they may miss out
on those opportunities because the innovation is going to be
more in the ETFs than it is in mutual funds.
So in those new opportunities that arise, what.

Speaker 2 (12:57):
About money market ets versus money market mutual funds?

Speaker 5 (13:00):
You know, it's interesting. We're seeing some work by other
firms in that space. It'll be interesting to see.

Speaker 2 (13:05):
But right now, if I want to buy a money
market fund at Charles Shraub, I have to buy a
mutual fund.

Speaker 5 (13:09):
It isn't a fund structure, that's right.

Speaker 2 (13:11):
Why is that?

Speaker 5 (13:12):
Well? I mean, I think the people like the dollar
nav right, That's one of the big distinctions where we've
seen that the one product that is in the market today.
You're no longer trading at a dollar like you do
with a money market fund. It's dollar in, dollar out.
You like that known factor, and I'm not sure that
investors will necessarily want to stray for that when they
think about their cash investments.

Speaker 4 (13:32):
How does the macro play into the ETFs that you
guys are thinking about in terms of launches.

Speaker 5 (13:37):
You know, for us, it's really about the long term view.
It's less about a macro current point in time. It's
really thinking about how do we serve investors' needs for
the long haul.

Speaker 4 (13:46):
So even like you know, a new administration, new policies
that might impact the economy and various sectors.

Speaker 3 (13:52):
It's not the way you play it.

Speaker 5 (13:52):
It's not the way we play it.

Speaker 3 (13:53):
That's right, all right? Interesting does the macro view though?

Speaker 4 (13:58):
I mean, as you look at what's going on in
the space, how does it impact at all your thinking?

Speaker 5 (14:02):
Yeah? So I think where it impacts our thinking is
when we talk to investors about how to allocate their portfolios. Okay, right,
you think about our do they have lots of questions
right now? Absolutely?

Speaker 2 (14:12):
Let's say you were to just think about the universe
of ETFs in your world. How much of those ETFs
are when the money comes in? Is it about indexing
versus about something outside of indexing to try to get alpha?

Speaker 5 (14:25):
You know, I think it's the way that indexing is used,
right model portfolio strategic allocations. It's more about how do
I tilt between large cap and small cap, domestic international
looking for those alpha opportunities rather than within the asset
class itself.

Speaker 4 (14:40):
We mentioned you guys fifteen years just celebrate your anniversary
from your first ETF. How do you think about the
trajectory and kind of where the ETF market was at
the beginning. I remember a time I felt like every
guest or every other guest with somebody offering up a
new ETF. I feel like it's founded a different groove
now and it's matured.

Speaker 3 (14:59):
But tell us about you've been in it.

Speaker 5 (15:01):
Yeah, I've been in the ETF industry for nearly twenty years,
so it's it's been a long time. It's been a
great run. But we've still got a lot of innovation
to go. So I think we're just in the early
inning still of what the ATF can bring to investors
and video ATF is it coming.

Speaker 2 (15:16):
Anytimes they have? I think direction, Yes, the direction.

Speaker 5 (15:20):
There are some single stock levered ETFs in the market.

Speaker 2 (15:23):
That's what I was thinking of when I was referring
to that leveraged You were channeling your inner Eric.

Speaker 3 (15:28):
Yeah, David, thank you so much. Fun to check in
with you again.

Speaker 5 (15:32):
Thanks so much.

Speaker 2 (15:33):
I hope Eric is listening and knows that I'm giving
him all this love.

Speaker 3 (15:35):
He better I'll point it out to come on air.
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