January 15, 2025 • 31 mins
Will the first private credit exchange-traded fund launch in 2025? How many new crypto-related ETFs will come to market this year? And how will the battle of the S&P 500 funds shake out? Will BlackRock’s iShares Core S&P 500 ETF cut fees in an effort to stop Vanguard’s S&P 500 ETF from passing State Street’s SPDR S&P 500 ETF in assets?
On this episode of Trillions, the discussion leaves no stone unturned. Eric Balchunas and Joel Weber—along with cross-asset reporter Vildana Hajric—grill Nate Geraci, president of The ETF Store, over his five big predictions for 2025. The heated debate also explores single-stock ETFs and a maneuver called “351 exchanges.”
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Well, CNA trillions.
Speaker 2 (00:06):
I'm Joel Webber and I'm Eric Alchunas.
Speaker 1 (00:11):
He sounds like you've maybe even a little sick. Something's
off in your voice.
Speaker 2 (00:15):
Yeah, I got a I caught something probably from my youngest.
Who knows what these kids bring home. But I was
kind of down for the count for about forty eight hours.
And then I love that feeling when your immune system
starts to take the lead and you're like, oh, yeah, here, right,
here we come. And then I also had some antibiotics
left over from the dentist. It's like dropping bombs on
(00:35):
that thing.
Speaker 1 (00:36):
Okay, well, welcome back in Happy twenty twenty five because
it's still new in the year and I know predictions
are a thing and the market has not been off
to a great start, but it felt like a good
moment to actually still talk about what might happen with
the little crystal ball.
Speaker 2 (00:54):
Yeah, everybody has predictions in the cell sid It's like, oh,
the market has a forty per chance of going up,
and it's also opaque, and I don't know, it's like safe.
There's a couple of people out there that make very
specific predictions and they end up going back and like
saying was I right or wrong? I love that because
you don't get that a lot from a lot of
the prognosticators out there. This guy, Nate jerrasi from the
(01:16):
ETF Store, fellow ETF nerd veteran of the industry, has
five predictions every year, and he these are really interesting predictions.
I agree with three of the five, only Joel, but
I think it's gonna be fun to unpack these because
they all really tap into some huge themes that we're
probably gonna cover us of the year as well.
Speaker 1 (01:33):
So joining us on this episode Nate Jersey, president of
the ETF Store. He's also the host of ETF Prime,
another ETF podcast, as well as Vildonna Hirich of Bloomberg News.
She's a crossasser reporter. This time on Trillions. Nate Jerrasey's
predictions for twenty twenty five. Nate, Vildona, Welcome to Trillions.
Speaker 3 (01:58):
Thanks for having us, a pleasure to be here.
Speaker 1 (02:01):
Okay, so, Nat, you've been doing predictions since twenty eighteen.
According to this little helpful memo, you started really strong,
you were like five for five, but then last year,
well ever since then, things have been kind of trending.
Downward and last year one for five. Why should we
listen to you in your predictions.
Speaker 4 (02:23):
Well, first of all, I will say, from twenty eighteen
to twenty twenty two, I went nineteen for twenty four
or twenty five, which is pretty darn good. You're right.
The past two years have been brutal overall. Actually I've
gone two for ten though, I will say, and Eric
knows this, I did predict last year that spot Bitcoin
ETFs would obliterate every single ATF launch record, which I
(02:44):
clearly nailed out one that should be worth at least
an extra point or two. But Joel, I feel good
this year. I'm ready to get back on track.
Speaker 1 (02:50):
Okay, Well, past performance not indicative of future performances. As
we know. Eric tell us about Nate because you go
on his podcast a lot, right, Like, what statue does
he have in the industry?
Speaker 2 (03:01):
Well, I met him because I heard there was this
like radio show about ETFs that was delivered through ESPN
Radio or something, and this was back in like two
thousand and nine when it was very nascent industry, and
I listened to it and it opens with the who's
won't get fooled again? You know that it's a great intro,
and I was like, who are these guys? And they
they would they came in from like the Midwest, and
(03:23):
they would they would go back and forth about ETFs,
and I was like, Oh, this is great. But what
made them extra level was they are managing money.
Speaker 5 (03:30):
They are advisors, so.
Speaker 2 (03:32):
They have that interaction with the actual investor, which to
me helps their opinion of ETF's actually resonate more. And
so I think both of us, in separate places, me
and Philadelphia, him and Kansas City sort of like saw
the ETF as being a big deal, you know, early,
and so we had that sort of kindred spirit. And
(03:54):
then when I met him, it was obviously like you know,
mutual appreciation society.
Speaker 1 (03:58):
All Right, Nate, you're gonna wan to drop your predictions
on us, and then we're gonna comment on them, and
we'll try and be friendly about it, but maybe critical too.
Speaker 3 (04:08):
Uh.
Speaker 1 (04:08):
Okay, let's hear your first prediction. Okay.
Speaker 4 (04:12):
Prediction number one is that either the I Shares s
and P five hundred ETF TICK or IVV or the
Vanguard S and P five hundred ETF TICK or VO,
either one or both will chot fees this year in
an attempt to capture the ETF crown.
Speaker 1 (04:28):
That ETF chrowme belongs to Spy.
Speaker 4 (04:32):
The spider S and P five hundred ETF.
Speaker 1 (04:34):
Okay, so within the S and P five hundred ETFs
you're predicting this is this is a year that it's
gonna get fierce, even fiercer.
Speaker 4 (04:45):
Yeah. And look, people have predicted for several years, including myself,
that either IVV or VU would overtake SPY in assets.
But that's not my prediction here. I think that having
the largest ETF buy assets actually means something to these issuers.
And the way that I alloy out this prediction to
you is I spoke with Black Rocks Rachel Laguire back
(05:05):
in December and she told me that the I shares
Bitcoin ETF, which we can talk about crypto in a minute,
but she said that was attracting a lot of new
investors who were then actually looking at other I shares ETFs.
So in other words, the bitcoin ETF was serving as
like a magnet to bring in investors who then bought
other I shares ETFs. I think it's a similar situation
(05:28):
with these S and P five hundred ETFs. Right if
an investor chooses, say IVV, I think they're much more
likely to look at other I shares ETFs, and the
issuers know this, And since these ETFs all do the
same thing, they invest in the S and P five hundred.
I think it really comes down to fees, And so
I think one of these issuers is going to chop
fees because they want that ETF crowd but want.
Speaker 1 (05:50):
These back already, like just like barely existent, like they're
so cheap to begin with.
Speaker 2 (05:55):
Yeah, they're three basis points. I don't think investors really
trust zero or want zero, but two or one maybe.
I think it has to be Blackrock. Vanguard probably doesn't
need to do it, and I've actually advised them, instead
of cutting fees anymore, put that money towards customer service
next time you have that extra profit that you need
to spend. But I could see Blackrock doing it in
(06:15):
your I think, so I agree with this probably, I
definitely agree.
Speaker 5 (06:20):
That VU will take over a spy this year.
Speaker 2 (06:23):
Right now, WU is ninety five percent of the way
to spy at the beginning of the year. Last year
it was ninety percent. It makes up five percent every year,
So do the math. It's probably going to pass it
this year. IVV probably can't catch VU in this because
they don't take in as much flows. So they to
me if they cut the fee, and you know Blackrock
is very motivated by beating Vanguard. I could see IVV
(06:47):
cutting the fee, then then he may see Vanguard tie.
I could see it. So I'm eighty percent I agree
with the fee cut. I'm one hundred percent that I
think VU will pass Spy this year.
Speaker 4 (06:59):
A wildcard that's out there is SPLG, which is a
spider portfolios and P five hundred ETF, so we call
this mini Spy and its expense ratio is only two
basis points, so it's actually cheaper than both IVV and VU,
and it finished in the top ten of ETF inflows
last year. I just don't think that I shares in
Vanguard like a competitor being out there who is lower cost.
(07:22):
The other thing I'll mention, I agree with you Eric
in terms of Vanguard allocating money towards technology and customer service.
But that Vanguard flywheel, it's like they can't help themselves.
Speaker 1 (07:31):
Right.
Speaker 4 (07:31):
We know that as their funds grow that allows them
to further leverage their back office economies of scale. That
allows them to run the fund even cheaper, and then
they pass those savings on to investors. With Vanguard's mutual
ownership structure. I just think you have to assume that
as VU grows, they're going to reach a point where
investors will get a fee cut. I think it's a
matter of time. So maybe I'm cheating a little bit
(07:52):
with this prediction because I just think that's going to happen.
Speaker 2 (07:55):
My only counter to that is they're really pushing their
active move because they were late, and they may choose
to use that to cut the fees on those funds
to be the cheapest vandguard Vanguard. Yeah, but again we'll
see if black Rock cuts. I just I could see
Vanguard responding. But again, we're at three already, maybe two.
I think once you get to one or zero, it
(08:16):
starts to look like gimmicky, Like the customer's almost like,
you know, I don't want to have be like I
don't want to pay nothing, because then I got to
worry about how you're going to like screw me somewhere else.
Speaker 1 (08:26):
Phil Donna, what do you think?
Speaker 3 (08:27):
I have a couple thoughts. One is just conversationally based,
Like if I'm talking to non market civilians. Maybe we
can call it like my high school friends. If they're
talking about the market, they say I'm buying vou like
they don't. I never hear IVV in conversations. But the
other point that Nate makes and his predictions is that
(08:48):
even if they do cut, one way for them to
offset is through securities lending, which a bunch of these
issuers do, maybe almost all of the issuers do, so
that it's one way for them to make up for
cutting the fees, which is really interesting. It's an interesting trend.
But if SBOG already is at point two, you know,
(09:11):
it's been like that for a while, why if change
or if for IVV wanted to cut, why haven't they yet.
Speaker 1 (09:16):
Yeah? Yeah, so take that, Nate, Take that, Nate, Okay,
we'll see what happens. Okay. Prediction number two, Nate, Okay.
Speaker 4 (09:32):
Prediction number two is that this will be the year
of crypto ETFs. Notice I'm not saying spot bitcoin ETFs.
That was twenty twenty four. I think twenty twenty five
will be the year of crypto ETFs. And I have
ten predictions. I won't go through all of these, but
they range everything from spots Salona ETFs will be approved
to Vanguard, will allow clients Brokeragje access to Spot Bitcoin
(09:56):
and ethere ETFs. Spot ethere ETF staking is a proved
It's really a cornucopia of predictions here that I think
all tie into a huge tailwind behind crypto ETFs.
Speaker 1 (10:10):
So do you think to kind of summarize, are these
going to be coin specific ETFs or are we going
to start to see the indexing of crypto into a product.
Speaker 4 (10:22):
I think it will be both. So I think we
will see spot Salona ETF's Spot XRP ETFs, their filings
from both Grayscale and Bitcoin for index based ETFs. I
think we're going to see everything, and I'll just tell
you in a nutshell, really, this is all one huge
bet on the Trump administration that they're actually going to
deliver on their campaign promise or the innuendo that we
(10:45):
heard that they're going to be pro crypto, and if
you look right now, the early indications are that they will.
Right we have Paul Atkins set to succeed Gary Gensler's
SEC chair. He's clearly viewed as being pro crypto. David Sachs,
who he runs a VC fund he's sought to be
very tech savvy. He's filling this new crypto's our role.
(11:06):
There's also a Crypto Advisory Council being formed. The point
here is that it does look like the Trump administration
will be much more supportive of crypto. And if that's
the case, then I'm highly optimistic on all ten of
these crypto predictions, or I should say nine to ten.
The vanguard one we can talk about. Not quite as
confident there.
Speaker 2 (11:26):
Yeah, I agree with that, he says, fifty launches. Yeah,
it's going to be like instead of the coin Tucky
Derby was just Bitcoin, it's gonna be like this all
out like Derby Derby. Yeah, universal alt coin Derby. It's
gonna get crazy.
Speaker 3 (11:40):
Now.
Speaker 2 (11:40):
A lot of this stuff is just going to get ignored.
I mean, you still think bitcoin ETFs take the lion's
share of this category. But you know, one of these
coins is going to have a nice run and gonna
be like the playful thing for a minute. But it's
still going to be prominently Bitcoin bringing in the big
boy flows.
Speaker 1 (11:54):
So are you two for two with are you like
is it one and a half or no?
Speaker 2 (11:57):
No, No, I'm gonna agree with this one. Too, except
number ten, So I guess I'm one tenth. This isd
Vanguard capitulation allows clients broker j access to spot bitcoin
and E three ETFs. I think it happens. I just
think you're early. I think it takes. It's gonna take
a littlehile because remember Vanguard's pretty proud and they came
out and said, we don't like this. It doesn't have
it can wreak havoc in portfolios, it has no real
(12:19):
world usage, and they let GLD trade. That's a total
slap in the face the bitcoin. The crypto people are
so pissed off by this, and I tell them, listen,
she's just not that into you, you know what I mean,
Like you got to get over it. Because they they're like, no,
Vanguard will bend the knee, and I'm like, Ben, what
are you talking about. Vanguard is doesn't need you.
Speaker 3 (12:39):
So they guards not thinking about you.
Speaker 5 (12:41):
They're not thinking about you yet.
Speaker 2 (12:42):
It's like that meme, so Joel, I think in time,
Vanguard may relent simply because if bitcoin becomes a strategic
preserve for the US, if there's more advisory assets in
Vanguard that demand crypto is part of the portfolio. If
Selim Ramsey has more time to like grow his influence there.
I know he launched I a bit at black Rock,
(13:04):
so the new CEO there is clearly a fan. There's
a couple of things that will germinate. I just think
they take longer than the year, Nate.
Speaker 1 (13:11):
Okay, Joe, Well, you should know.
Speaker 4 (13:14):
Any time that I'm wrong on a prediction, I always
say I'm just too early. Eric knows that, and Eric
and I tend to be very early on a lot
of predictions.
Speaker 2 (13:22):
Right on say I don't do these, but I do
bets with Todd Rosenblue. That's my version of the predictions.
And I'm early. I've never been wrong. I've just been early.
Speaker 3 (13:30):
But Nate himself in his prediction sites Howard Mark saying
being too far ahead of your time is indistinguishable from
being wrong, So being too early could mean you're wrong.
Speaker 1 (13:41):
Okay, yeah, so no rebuttal date that's what you get.
What do you think of more crypto ETFs?
Speaker 3 (13:46):
I think I agree with Eric and Nate in that
we'll see, you know, like throw all the jargon words
in covered call zero DT, inverse leverage two x X,
all kinds of weird stuff. I don't know about the
Vanguard part. I mean, I'm gonna trust what Eric says here,
because he's like the Vanguard whisperer.
Speaker 1 (14:08):
Okay, Nate, now go ahead, proceed with here Rebut.
Speaker 4 (14:10):
Okay, so Eric said the magic words, which is Selim Ramji,
the new Vanguard CEO. So before he came over to Vanguard,
he was instrumental in moving the eyes Shares BITCOINYTF forward
while he was at Black Rock. And look, it's one
thing for Vanguard to not offer their own spot crypto ETFs.
That's perfectly fine, but it's another thing to treat clients
(14:32):
like their kids, like they can't have ice cream or whatever.
And I think Selim knows that he can't just withhold
access to these products. I think Vanguard will capitulate on
this decision to gate access to crypto ETFs. And the
other thing that I would say is, like myself, I
love Vanguard's investment approach. I personally invest in low cost
(14:52):
stock and bond funds, as do our clients, but I
also like a little crypto, a little hot sauces Eric call.
I don't think I'm alone. Yeah, well, I just think
Vanguard is actually alienating younger investors who view crypto as
a normal part of a portfolio, and at some point
I think that's going to impact their business. And I
(15:13):
think somebody like Salim's going to see the bigger picture.
Speaker 1 (15:16):
Okay, all right, all right, speaking of bigger picture private markets,
what's your prediction? Your third prediction?
Speaker 4 (15:22):
Yeah, So, private credit ETFs received a tremendous amount of
attention last year. There was this filing from State Street
for the Spider Apollo Public and Private Credit ETF, and
a lot of people in the industry are saying this
is going to be the next big thing. I just
can't get my head around this and how this will work.
(15:43):
And you know, very simply, what State Street is trying
to do is partner with Apolo, where Paula would be
the sole liquidity provider. In other words, they're going to
be both the buyer and the seller of the private
credit for this private credit ETF. They'd obviously determine the
value of this stuff as well. That seems like a
clear conflict of interest to me. Right, if they own
(16:06):
private credit that they believe, say is overvalued, how do
we know that's not what they're selling to State Street
or vice versa. If State Street needs to redeem shares.
How do we know Apollo isn't buying the most attractive
private credit out of the ETF, especially if you were
in a market where it's under duress. So I just
think this whole thing is simply a conflict. And I'm
telling you that the SEC hates conflicts of interest like this.
(16:29):
So even if we have a more lenient SEC under
the Trump administration, I just don't see them getting comfortable
with this. And then the other piece that I'll add
here is private credit is by definition private right because
it doesn't trade on a public exchange. It's essentially a
liquid whereas ETFs or daily liquidity vehicles, and so you
(16:49):
have a true mismatch here. I just don't see how
that can work where you put investor's best interest first.
Speaker 3 (16:57):
We have to add. So Bloomberg reported a month ago
that Apollo is already the desk that they have set
up to try to facilitate the creation of the CTF.
It's already up and running. They're already trading this stuff.
Speaker 2 (17:10):
I mean, I think Nate's point about being conflict of interests,
it's a good point. And there's been some people saying that,
like Apollo will be able to dump all the stuff
they don't want to actually own into the ETF. But
I would think that State Street, to me, is the
offset of that conflict of interest. That's who's on the label,
and State Street is going to make sure that their
investors don't get screwed.
Speaker 5 (17:32):
So I trust State.
Speaker 2 (17:33):
Street enough, and they're thirty two year history of running
ETFs well, and I just don't want my crap any
other way.
Speaker 5 (17:43):
I want it in an ETF.
Speaker 2 (17:45):
You may say that privates are better in an interval
fund or even a mutual fund or a hedge fund,
but I don't trust any of those. I'm not I
don't want to pay that money, and I'm right now
I'm in a character of all the investors.
Speaker 5 (17:57):
I'm not actually me.
Speaker 2 (17:58):
That's how investors have decided to like That's what they've
been showing with their feet. They just wanted an ETF
and Nate. There's plenty of ill liquid stuff in ETFs.
Speaker 5 (18:07):
Currently.
Speaker 2 (18:08):
There's times where stock markets close. In the ETF trades
HYD which is high yield muni's during COVID trade at
twenty nine percent discount. I think ETF investors would rather
have this in an imperfect way with discounts or stretched
arbitrage bands and even a potential for conflict of interest.
Then go to some interval fund and I will show
(18:30):
you proof. The XOVR, which is the private equity public
equity crossover fund that owns SpaceX, has ten percent SpaceX.
Speaker 5 (18:38):
That has two hundred million already.
Speaker 2 (18:40):
That's double Kathy Wood's Arc Venture Fund, which was launched
at the height of arcmania, and that has one hundred million.
Speaker 5 (18:46):
But it's an interval fund.
Speaker 2 (18:48):
That's like making a great album, but you're only putting
it on eight track cassette tapes.
Speaker 5 (18:53):
Who's going to buy it?
Speaker 3 (18:54):
So, but Nate isn't saying that this ETF will never come, right,
He's just saying it won't come in twenty twenty five.
Speaker 2 (19:01):
Well, he's saying that this filing as it is. I
will okay, I mean, I'll bet you. I will bet
that the Apollo State Street ETF will launch this year.
Speaker 5 (19:11):
You're betting, Nate, Yeah, steak dinner.
Speaker 4 (19:14):
I will take that, okay, because I stand behind my
my predictions. Hey, here's here's my question, though, where do
we draw the line? Right? I think we would agree
private credit is a liquid So what else can we
put in an ETF wrapper? Is it art baseball cards?
Speaker 5 (19:30):
Yes, wine, Yes, where do you draw the line?
Speaker 2 (19:33):
So I just think ETF's sometimes trade like clothes unfunds
in crisis. I just think you're gonna see a situation
where ets become hybrid clothes und funds and they just
trade away from the NAV. But people are like, I'll
take that over getting screwed on these other kinds of vehicles.
Speaker 1 (19:53):
Do we still think this is the next big thing, Nate?
Speaker 4 (19:56):
I don't. And part of that is I'm not so
sure that the average invest really needs access to private credit.
I would make that argument right now that that's a
frothy area of the market in general. But even if
it wasn't, I don't know that the average sixty to
forty investor needs the ability to access private credit. I
don't know what this really adds to a portfolio other
(20:18):
than complexity.
Speaker 3 (20:20):
That doesn't adding bitcoin to your portfolio also add complexity
or a ton of crypto.
Speaker 4 (20:26):
That's a fair point, But I would say bitcoin is
a much more transparent market, okay, all right, a lot
more liquidity there paying.
Speaker 1 (20:36):
It forward in some sort of prediction. Let's hear number
four Nate.
Speaker 4 (20:41):
Okay, Prediction number four is that three point fifty one
exchanges go mainstream and this definitely gets on the weed.
Speaker 1 (20:46):
So what that means.
Speaker 4 (20:49):
Okay, So in December, an issuer by the name of
Cambria launched this Cambria Attacks Aware ETF and basically the
way that it takes it's a great ticker. The way
this worked was that investors of a certain size, so
they had to be a bit larger, they could contribute
their individual stock portfolio into the ETF. Okay, so they
(21:12):
provide their individual stocks to Cambria and in return, they
receive shares of the Cambria ETF. At a high level,
this is called a three p fifty one exchange. And
there are a lot of nuances to this because you're
dealing with a tax code. But as long as these
investors met certain criteria, this was not a taxable event.
(21:32):
And so let me just give you a real quick example.
So let's say an investor owned a portfolio of Tesla
and Nvidia and micro Strategy and some other stocks that
have gone up a lot and where maybe the valuations
are elevated. Well, that investor may want to reduce their
risk now, but the problem is if they own those
stocks in a taxable account, they obviously have to pay
(21:54):
taxes if they sell. So what this three to fifty
one exchange allows them to do is diversify into an
ETA and then they can defer taxes until when they
sell the ETF shares. Plus they get all the benefits
of the ETF rapper right that tax efficiency and low
cost and all of those things. So my prediction is
that we are going to see more issuers pursue this.
(22:15):
I think this is going to become pretty popular.
Speaker 1 (22:17):
Huh So, and do you think it's more relevant for
people who have been acquiring shares of late or do
you think it could be more impactful for people who, say,
like have owned Microsoft since the nineties or Apple.
Speaker 4 (22:32):
I think more impactful for people who have owned shares
for a while. But I think it just depends on
the composition of the portfolio. I also think this is
going to be more applicable to higher net worth investors. Right,
investors who have a higher net worth, they're probably in
a higher tax bracket, they have a larger portfolio. This
is going to make more sense. I also think this
could make sense for some advisors who are running separately
(22:54):
managed accounts.
Speaker 5 (22:56):
Advisors will tell you.
Speaker 2 (22:59):
I'm not sure if will agree, but I've heard that
real rich people hate paying taxes more than they actually
like getting like good returns, and so I think avoiding
taxes is going to is.
Speaker 5 (23:10):
There's the demand there. And there's an ETF mouth.
Speaker 2 (23:12):
Architect called Box, which does I won't go into it,
but it does a tax maneuver and I think it's
got four point seven billion, and that's from a small
indie issuer. There's going to be tax innovation in the ETFs,
and I agree with Nate on this one. I think
we'll see more of this.
Speaker 3 (23:30):
Godana, I love this, I love tax I think this
is the big theme, the big story, the ways that
ETFs are being utilized to help offset your big tax bills.
The one caveat is that tax the ETF that Nate
was talking about it it has already launched, but it
only got thirty one million dollars, which isn't huge. It's
(23:53):
a it's a nice sum, but it's not huge. So
we'll see how that grows, if it grows. But the
guy behind mind all of these, including Box, the one
Eric just mentioned is Wes Gray, and he's really his
white label company ETF architect is really like coming up
with these ways or coming or innovating the way that
(24:15):
people are doing tax aware conversions. If we can call
them from SMAs or you know, family office stuff hedge
funds into ETFs. So I think it's very interesting. I
love it.
Speaker 1 (24:31):
Are they going to bock at anything, Nate like if say,
like I bring them something from you know, somewhere in
my portfolio, like they don't have to take anything, right.
Speaker 4 (24:40):
Yeah, there are some very specific rules and requirements in
terms of how you conduct these three fifty one exchanges,
So you can't just take any portfolio and do this
with and to what Viil Donna was saying with the
thirty million or so into the Cambria TAXIWARYTF, I think
a reason for that is and that's not bad, but
I think a reason it's not more is there is
(25:02):
a huge educational hurdle surrounding all of this. There's a
lot that investors and advisors have to get their head around.
Speaker 1 (25:08):
So let's just try and make your prediction be a
little bit more specific, which is okay, you say the
three fifty one exchanges go mainstream, can you actually put
something quantifiable there for.
Speaker 4 (25:22):
Us, I will say five ETF issuers who we all
know will pursue this approach. And as a matter of fact,
I saw last week Alpha Architects, so that's the ETF
side of ETF Architects white label. They're actually launching one
of these. So I'm cheating a little bit, So we'll
(25:43):
say four others. All right, four other issuers?
Speaker 1 (25:46):
Eric, are you four for four right now? No?
Speaker 2 (25:49):
I didn't agree with the him saying that Apollo we
already better staked dinner on it.
Speaker 1 (25:53):
So three for four, three for four though, okay number five, Nick,
go ahead, Okay.
Speaker 4 (26:07):
Last prediction is that a leverage single stock ETF implodes.
And what this comes down to is that issuers are
launching a boatload of leverage single stock ETFs on the
most popular companies, which, if you think about this, that
makes sense from the issuer's perspective, right, because they want
people to buy their ETF, they need interest, and so
(26:29):
of course they're going to pick the most popular stocks.
The problem is that a lot of these stocks are
also many of the high flyers. So again it's the
micro strategies and NVIDIAs Tesla's right, Paletaire and I'm not
here to make any investment calls. I'm trying to make
ETF predictions. But there is absolutely a case to be
made that some of these companies are significantly overvalued. And
(26:52):
even if we put that aside, So let's put the
valuations aside. These stocks are very volatile. If you look
at something like micro Strategy, this thing moves around a
tremendous amount, and so I just think it's a matter
of time before one or even more of these stocks
drops fifty sixty seventy percent over a few days or
a week. And if you just do the math on that,
(27:13):
that would be enough for one of these leveraged ETFs
to implode.
Speaker 1 (27:16):
And your point is that there's going to be one,
at least one or one.
Speaker 4 (27:22):
I'm saying one, but I wouldn't be surprised if we
see more than that.
Speaker 2 (27:28):
So I disagree with this one, but not enough. I
don't feel strong enough to better steak dinner, but I
lightly disagree. I just think in this Trump era, especially
with limit up, limit down, a stock can go down
seven percent right then they halt it.
Speaker 5 (27:41):
And I just see the.
Speaker 2 (27:43):
Trump administration leaning on the FED and basically like coddling
the market. So I don't see a stock having fifty
percent draw down in like three days. If I'm wrong,
you're right, and that would be like a COVID type
sell off. It would take a black Swan event, in
my opinion, not a routine pullback. But I also think
that you know, if you look at MSTU and MSTZ,
(28:04):
these would be the canaries in the coal mine. I
think these are the most volatile ETFs on planet or
in the US, and they have twenty percent up twenty
percent down days, but not too much more than that.
So they can handle again, a couple serious pullbacks with
being fined. They couldn't handle COVID right, and we saw
(28:24):
a bunch of leverge gtfs blow up in COVID. So
I just don't think we get another COVID with Trump.
Is he's just too into the stock market.
Speaker 1 (28:32):
Final word, I don't want.
Speaker 3 (28:33):
To call out any one of these, but you so, Eric,
you don't think one of them can drop forty without
an exogenous event. I could see it happening.
Speaker 2 (28:44):
It would have to be it would have to be
something specific to like micro Strategy or Navidia, But Navidia
has got so much going on even if it sells off,
it might solve twenty per I mean, it's not going
to self eighty percent unless the whole thing's a fraud.
Micro strategy Okay, I mean what we know everything about
Michael sit he's clearly into bitcoin.
Speaker 5 (29:01):
What if he got a new interest maybe I don't know.
Speaker 2 (29:05):
Micro Strategy is high beta to the stock market, and
these are high bata to micro strategy. So the key
is the stock market. If the stock market goes into
a COVID freefall, then micro strategy is really in trouble
because bitcoin is high beta to the stocks. So that's
my point on you got to really have a negative
view of the stock market having a COVID like month
to think this is going to blow up.
Speaker 4 (29:26):
I will just add if you look in December the
leverage micro strategy ETFs, those are down like forty percent
plus and that was just a run of the mill pullback.
In the broader market.
Speaker 2 (29:36):
Negative went up forty percent and that these people already
love that. That's like a good day for these traders.
But again it would take us sustain like a couple
of days, a couple of weeks I think, before this
thing's But that's why I'm not betting steak dinner, Nate.
I would just say I would take the under.
Speaker 4 (29:53):
Okay, So how about we bet we bet a nice
glass of wine along with the steak dinner.
Speaker 5 (29:57):
On this one?
Speaker 2 (29:58):
Okay, dessert there any I'll get you. I'll get you
a Chief's cake. No, not a whole cake, just the
slice with the Chiefs colors. He's cake, He's look. The
Chiefs are the new Yankees and Duke the most annoying
sports fan on earth are aren't you sick of Patrick
mahomes stupid snake farm commercials? And then Andy Reed completely
(30:19):
embarrassing himself coming in, Oh, where's the chicken nuggets? It's like,
get these people off TV?
Speaker 5 (30:24):
Yes, all right, hey, Jola.
Speaker 4 (30:26):
Fun fact is that Eric has lost another bet to
me in the past, and I am the proud owner
of a Patrick Mahomes.
Speaker 5 (30:34):
That's why I'm like, I am bloodthirsty.
Speaker 2 (30:37):
All right?
Speaker 1 (30:38):
On that note, Nate Jracy, thanks so much for joining
us on Trillions, Phil Donna, welcome back.
Speaker 3 (30:43):
Thank you go Bills.
Speaker 1 (30:50):
Thanks for listening to Trillions. Until next time. You can
find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify,
or wherever you'd like to listen. We'd love to hear
from you. We're on Twitter. I'm at Joel Webber Show.
He's at Eric Balchunas. This episode of Trillions was produced
by Magnus Hendrickson. Bye.
Well, CNA trillions.
Speaker 2 (00:06):
I'm Joel Webber and I'm Eric Alchunas.
Speaker 1 (00:11):
He sounds like you've maybe even a little sick. Something's
off in your voice.
Speaker 2 (00:15):
Yeah, I got a I caught something probably from my youngest.
Who knows what these kids bring home. But I was
kind of down for the count for about forty eight hours.
And then I love that feeling when your immune system
starts to take the lead and you're like, oh, yeah, here, right,
here we come. And then I also had some antibiotics
left over from the dentist. It's like dropping bombs on
(00:35):
that thing.
Speaker 1 (00:36):
Okay, well, welcome back in Happy twenty twenty five because
it's still new in the year and I know predictions
are a thing and the market has not been off
to a great start, but it felt like a good
moment to actually still talk about what might happen with
the little crystal ball.
Speaker 2 (00:54):
Yeah, everybody has predictions in the cell sid It's like, oh,
the market has a forty per chance of going up,
and it's also opaque, and I don't know, it's like safe.
There's a couple of people out there that make very
specific predictions and they end up going back and like
saying was I right or wrong? I love that because
you don't get that a lot from a lot of
the prognosticators out there. This guy, Nate jerrasi from the
(01:16):
ETF Store, fellow ETF nerd veteran of the industry, has
five predictions every year, and he these are really interesting predictions.
I agree with three of the five, only Joel, but
I think it's gonna be fun to unpack these because
they all really tap into some huge themes that we're
probably gonna cover us of the year as well.
Speaker 1 (01:33):
So joining us on this episode Nate Jersey, president of
the ETF Store. He's also the host of ETF Prime,
another ETF podcast, as well as Vildonna Hirich of Bloomberg News.
She's a crossasser reporter. This time on Trillions. Nate Jerrasey's
predictions for twenty twenty five. Nate, Vildona, Welcome to Trillions.
Speaker 3 (01:58):
Thanks for having us, a pleasure to be here.
Speaker 1 (02:01):
Okay, so, Nat, you've been doing predictions since twenty eighteen.
According to this little helpful memo, you started really strong,
you were like five for five, but then last year,
well ever since then, things have been kind of trending.
Downward and last year one for five. Why should we
listen to you in your predictions.
Speaker 4 (02:23):
Well, first of all, I will say, from twenty eighteen
to twenty twenty two, I went nineteen for twenty four
or twenty five, which is pretty darn good. You're right.
The past two years have been brutal overall. Actually I've
gone two for ten though, I will say, and Eric
knows this, I did predict last year that spot Bitcoin
ETFs would obliterate every single ATF launch record, which I
(02:44):
clearly nailed out one that should be worth at least
an extra point or two. But Joel, I feel good
this year. I'm ready to get back on track.
Speaker 1 (02:50):
Okay, Well, past performance not indicative of future performances. As
we know. Eric tell us about Nate because you go
on his podcast a lot, right, Like, what statue does
he have in the industry?
Speaker 2 (03:01):
Well, I met him because I heard there was this
like radio show about ETFs that was delivered through ESPN
Radio or something, and this was back in like two
thousand and nine when it was very nascent industry, and
I listened to it and it opens with the who's
won't get fooled again? You know that it's a great intro,
and I was like, who are these guys? And they
they would they came in from like the Midwest, and
(03:23):
they would they would go back and forth about ETFs,
and I was like, Oh, this is great. But what
made them extra level was they are managing money.
Speaker 5 (03:30):
They are advisors, so.
Speaker 2 (03:32):
They have that interaction with the actual investor, which to
me helps their opinion of ETF's actually resonate more. And
so I think both of us, in separate places, me
and Philadelphia, him and Kansas City sort of like saw
the ETF as being a big deal, you know, early,
and so we had that sort of kindred spirit. And
(03:54):
then when I met him, it was obviously like you know,
mutual appreciation society.
Speaker 1 (03:58):
All Right, Nate, you're gonna wan to drop your predictions
on us, and then we're gonna comment on them, and
we'll try and be friendly about it, but maybe critical too.
Speaker 3 (04:08):
Uh.
Speaker 1 (04:08):
Okay, let's hear your first prediction. Okay.
Speaker 4 (04:12):
Prediction number one is that either the I Shares s
and P five hundred ETF TICK or IVV or the
Vanguard S and P five hundred ETF TICK or VO,
either one or both will chot fees this year in
an attempt to capture the ETF crown.
Speaker 1 (04:28):
That ETF chrowme belongs to Spy.
Speaker 4 (04:32):
The spider S and P five hundred ETF.
Speaker 1 (04:34):
Okay, so within the S and P five hundred ETFs
you're predicting this is this is a year that it's
gonna get fierce, even fiercer.
Speaker 4 (04:45):
Yeah. And look, people have predicted for several years, including myself,
that either IVV or VU would overtake SPY in assets.
But that's not my prediction here. I think that having
the largest ETF buy assets actually means something to these issuers.
And the way that I alloy out this prediction to
you is I spoke with Black Rocks Rachel Laguire back
(05:05):
in December and she told me that the I shares
Bitcoin ETF, which we can talk about crypto in a minute,
but she said that was attracting a lot of new
investors who were then actually looking at other I shares ETFs.
So in other words, the bitcoin ETF was serving as
like a magnet to bring in investors who then bought
other I shares ETFs. I think it's a similar situation
(05:28):
with these S and P five hundred ETFs. Right if
an investor chooses, say IVV, I think they're much more
likely to look at other I shares ETFs, and the
issuers know this, And since these ETFs all do the
same thing, they invest in the S and P five hundred.
I think it really comes down to fees, And so
I think one of these issuers is going to chop
fees because they want that ETF crowd but want.
Speaker 1 (05:50):
These back already, like just like barely existent, like they're
so cheap to begin with.
Speaker 2 (05:55):
Yeah, they're three basis points. I don't think investors really
trust zero or want zero, but two or one maybe.
I think it has to be Blackrock. Vanguard probably doesn't
need to do it, and I've actually advised them, instead
of cutting fees anymore, put that money towards customer service
next time you have that extra profit that you need
to spend. But I could see Blackrock doing it in
(06:15):
your I think, so I agree with this probably, I
definitely agree.
Speaker 5 (06:20):
That VU will take over a spy this year.
Speaker 2 (06:23):
Right now, WU is ninety five percent of the way
to spy at the beginning of the year. Last year
it was ninety percent. It makes up five percent every year,
So do the math. It's probably going to pass it
this year. IVV probably can't catch VU in this because
they don't take in as much flows. So they to
me if they cut the fee, and you know Blackrock
is very motivated by beating Vanguard. I could see IVV
(06:47):
cutting the fee, then then he may see Vanguard tie.
I could see it. So I'm eighty percent I agree
with the fee cut. I'm one hundred percent that I
think VU will pass Spy this year.
Speaker 4 (06:59):
A wildcard that's out there is SPLG, which is a
spider portfolios and P five hundred ETF, so we call
this mini Spy and its expense ratio is only two
basis points, so it's actually cheaper than both IVV and VU,
and it finished in the top ten of ETF inflows
last year. I just don't think that I shares in
Vanguard like a competitor being out there who is lower cost.
(07:22):
The other thing I'll mention, I agree with you Eric
in terms of Vanguard allocating money towards technology and customer service.
But that Vanguard flywheel, it's like they can't help themselves.
Speaker 1 (07:31):
Right.
Speaker 4 (07:31):
We know that as their funds grow that allows them
to further leverage their back office economies of scale. That
allows them to run the fund even cheaper, and then
they pass those savings on to investors. With Vanguard's mutual
ownership structure. I just think you have to assume that
as VU grows, they're going to reach a point where
investors will get a fee cut. I think it's a
matter of time. So maybe I'm cheating a little bit
(07:52):
with this prediction because I just think that's going to happen.
Speaker 2 (07:55):
My only counter to that is they're really pushing their
active move because they were late, and they may choose
to use that to cut the fees on those funds
to be the cheapest vandguard Vanguard. Yeah, but again we'll
see if black Rock cuts. I just I could see
Vanguard responding. But again, we're at three already, maybe two.
I think once you get to one or zero, it
(08:16):
starts to look like gimmicky, Like the customer's almost like,
you know, I don't want to have be like I
don't want to pay nothing, because then I got to
worry about how you're going to like screw me somewhere else.
Speaker 1 (08:26):
Phil Donna, what do you think?
Speaker 3 (08:27):
I have a couple thoughts. One is just conversationally based,
Like if I'm talking to non market civilians. Maybe we
can call it like my high school friends. If they're
talking about the market, they say I'm buying vou like
they don't. I never hear IVV in conversations. But the
other point that Nate makes and his predictions is that
(08:48):
even if they do cut, one way for them to
offset is through securities lending, which a bunch of these
issuers do, maybe almost all of the issuers do, so
that it's one way for them to make up for
cutting the fees, which is really interesting. It's an interesting trend.
But if SBOG already is at point two, you know,
(09:11):
it's been like that for a while, why if change
or if for IVV wanted to cut, why haven't they yet.
Speaker 1 (09:16):
Yeah? Yeah, so take that, Nate, Take that, Nate, Okay,
we'll see what happens. Okay. Prediction number two, Nate, Okay.
Speaker 4 (09:32):
Prediction number two is that this will be the year
of crypto ETFs. Notice I'm not saying spot bitcoin ETFs.
That was twenty twenty four. I think twenty twenty five
will be the year of crypto ETFs. And I have
ten predictions. I won't go through all of these, but
they range everything from spots Salona ETFs will be approved
to Vanguard, will allow clients Brokeragje access to Spot Bitcoin
(09:56):
and ethere ETFs. Spot ethere ETF staking is a proved
It's really a cornucopia of predictions here that I think
all tie into a huge tailwind behind crypto ETFs.
Speaker 1 (10:10):
So do you think to kind of summarize, are these
going to be coin specific ETFs or are we going
to start to see the indexing of crypto into a product.
Speaker 4 (10:22):
I think it will be both. So I think we
will see spot Salona ETF's Spot XRP ETFs, their filings
from both Grayscale and Bitcoin for index based ETFs. I
think we're going to see everything, and I'll just tell
you in a nutshell, really, this is all one huge
bet on the Trump administration that they're actually going to
deliver on their campaign promise or the innuendo that we
(10:45):
heard that they're going to be pro crypto, and if
you look right now, the early indications are that they will.
Right we have Paul Atkins set to succeed Gary Gensler's
SEC chair. He's clearly viewed as being pro crypto. David Sachs,
who he runs a VC fund he's sought to be
very tech savvy. He's filling this new crypto's our role.
(11:06):
There's also a Crypto Advisory Council being formed. The point
here is that it does look like the Trump administration
will be much more supportive of crypto. And if that's
the case, then I'm highly optimistic on all ten of
these crypto predictions, or I should say nine to ten.
The vanguard one we can talk about. Not quite as
confident there.
Speaker 2 (11:26):
Yeah, I agree with that, he says, fifty launches. Yeah,
it's going to be like instead of the coin Tucky
Derby was just Bitcoin, it's gonna be like this all
out like Derby Derby. Yeah, universal alt coin Derby. It's
gonna get crazy.
Speaker 3 (11:40):
Now.
Speaker 2 (11:40):
A lot of this stuff is just going to get ignored.
I mean, you still think bitcoin ETFs take the lion's
share of this category. But you know, one of these
coins is going to have a nice run and gonna
be like the playful thing for a minute. But it's
still going to be prominently Bitcoin bringing in the big
boy flows.
Speaker 1 (11:54):
So are you two for two with are you like
is it one and a half or no?
Speaker 2 (11:57):
No, No, I'm gonna agree with this one. Too, except
number ten, So I guess I'm one tenth. This isd
Vanguard capitulation allows clients broker j access to spot bitcoin
and E three ETFs. I think it happens. I just
think you're early. I think it takes. It's gonna take
a littlehile because remember Vanguard's pretty proud and they came
out and said, we don't like this. It doesn't have
it can wreak havoc in portfolios, it has no real
(12:19):
world usage, and they let GLD trade. That's a total
slap in the face the bitcoin. The crypto people are
so pissed off by this, and I tell them, listen,
she's just not that into you, you know what I mean,
Like you got to get over it. Because they they're like, no,
Vanguard will bend the knee, and I'm like, Ben, what
are you talking about. Vanguard is doesn't need you.
Speaker 3 (12:39):
So they guards not thinking about you.
Speaker 5 (12:41):
They're not thinking about you yet.
Speaker 2 (12:42):
It's like that meme, so Joel, I think in time,
Vanguard may relent simply because if bitcoin becomes a strategic
preserve for the US, if there's more advisory assets in
Vanguard that demand crypto is part of the portfolio. If
Selim Ramsey has more time to like grow his influence there.
I know he launched I a bit at black Rock,
(13:04):
so the new CEO there is clearly a fan. There's
a couple of things that will germinate. I just think
they take longer than the year, Nate.
Speaker 1 (13:11):
Okay, Joe, Well, you should know.
Speaker 4 (13:14):
Any time that I'm wrong on a prediction, I always
say I'm just too early. Eric knows that, and Eric
and I tend to be very early on a lot
of predictions.
Speaker 2 (13:22):
Right on say I don't do these, but I do
bets with Todd Rosenblue. That's my version of the predictions.
And I'm early. I've never been wrong. I've just been early.
Speaker 3 (13:30):
But Nate himself in his prediction sites Howard Mark saying
being too far ahead of your time is indistinguishable from
being wrong, So being too early could mean you're wrong.
Speaker 1 (13:41):
Okay, yeah, so no rebuttal date that's what you get.
What do you think of more crypto ETFs?
Speaker 3 (13:46):
I think I agree with Eric and Nate in that
we'll see, you know, like throw all the jargon words
in covered call zero DT, inverse leverage two x X,
all kinds of weird stuff. I don't know about the
Vanguard part. I mean, I'm gonna trust what Eric says here,
because he's like the Vanguard whisperer.
Speaker 1 (14:08):
Okay, Nate, now go ahead, proceed with here Rebut.
Speaker 4 (14:10):
Okay, so Eric said the magic words, which is Selim Ramji,
the new Vanguard CEO. So before he came over to Vanguard,
he was instrumental in moving the eyes Shares BITCOINYTF forward
while he was at Black Rock. And look, it's one
thing for Vanguard to not offer their own spot crypto ETFs.
That's perfectly fine, but it's another thing to treat clients
(14:32):
like their kids, like they can't have ice cream or whatever.
And I think Selim knows that he can't just withhold
access to these products. I think Vanguard will capitulate on
this decision to gate access to crypto ETFs. And the
other thing that I would say is, like myself, I
love Vanguard's investment approach. I personally invest in low cost
(14:52):
stock and bond funds, as do our clients, but I
also like a little crypto, a little hot sauces Eric call.
I don't think I'm alone. Yeah, well, I just think
Vanguard is actually alienating younger investors who view crypto as
a normal part of a portfolio, and at some point
I think that's going to impact their business. And I
(15:13):
think somebody like Salim's going to see the bigger picture.
Speaker 1 (15:16):
Okay, all right, all right, speaking of bigger picture private markets,
what's your prediction? Your third prediction?
Speaker 4 (15:22):
Yeah, So, private credit ETFs received a tremendous amount of
attention last year. There was this filing from State Street
for the Spider Apollo Public and Private Credit ETF, and
a lot of people in the industry are saying this
is going to be the next big thing. I just
can't get my head around this and how this will work.
(15:43):
And you know, very simply, what State Street is trying
to do is partner with Apolo, where Paula would be
the sole liquidity provider. In other words, they're going to
be both the buyer and the seller of the private
credit for this private credit ETF. They'd obviously determine the
value of this stuff as well. That seems like a
clear conflict of interest to me. Right, if they own
(16:06):
private credit that they believe, say is overvalued, how do
we know that's not what they're selling to State Street
or vice versa. If State Street needs to redeem shares.
How do we know Apollo isn't buying the most attractive
private credit out of the ETF, especially if you were
in a market where it's under duress. So I just
think this whole thing is simply a conflict. And I'm
telling you that the SEC hates conflicts of interest like this.
(16:29):
So even if we have a more lenient SEC under
the Trump administration, I just don't see them getting comfortable
with this. And then the other piece that I'll add
here is private credit is by definition private right because
it doesn't trade on a public exchange. It's essentially a
liquid whereas ETFs or daily liquidity vehicles, and so you
(16:49):
have a true mismatch here. I just don't see how
that can work where you put investor's best interest first.
Speaker 3 (16:57):
We have to add. So Bloomberg reported a month ago
that Apollo is already the desk that they have set
up to try to facilitate the creation of the CTF.
It's already up and running. They're already trading this stuff.
Speaker 2 (17:10):
I mean, I think Nate's point about being conflict of interests,
it's a good point. And there's been some people saying that,
like Apollo will be able to dump all the stuff
they don't want to actually own into the ETF. But
I would think that State Street, to me, is the
offset of that conflict of interest. That's who's on the label,
and State Street is going to make sure that their
investors don't get screwed.
Speaker 5 (17:32):
So I trust State.
Speaker 2 (17:33):
Street enough, and they're thirty two year history of running
ETFs well, and I just don't want my crap any
other way.
Speaker 5 (17:43):
I want it in an ETF.
Speaker 2 (17:45):
You may say that privates are better in an interval
fund or even a mutual fund or a hedge fund,
but I don't trust any of those. I'm not I
don't want to pay that money, and I'm right now
I'm in a character of all the investors.
Speaker 5 (17:57):
I'm not actually me.
Speaker 2 (17:58):
That's how investors have decided to like That's what they've
been showing with their feet. They just wanted an ETF
and Nate. There's plenty of ill liquid stuff in ETFs.
Speaker 5 (18:07):
Currently.
Speaker 2 (18:08):
There's times where stock markets close. In the ETF trades
HYD which is high yield muni's during COVID trade at
twenty nine percent discount. I think ETF investors would rather
have this in an imperfect way with discounts or stretched
arbitrage bands and even a potential for conflict of interest.
Then go to some interval fund and I will show
(18:30):
you proof. The XOVR, which is the private equity public
equity crossover fund that owns SpaceX, has ten percent SpaceX.
Speaker 5 (18:38):
That has two hundred million already.
Speaker 2 (18:40):
That's double Kathy Wood's Arc Venture Fund, which was launched
at the height of arcmania, and that has one hundred million.
Speaker 5 (18:46):
But it's an interval fund.
Speaker 2 (18:48):
That's like making a great album, but you're only putting
it on eight track cassette tapes.
Speaker 5 (18:53):
Who's going to buy it?
Speaker 3 (18:54):
So, but Nate isn't saying that this ETF will never come, right,
He's just saying it won't come in twenty twenty five.
Speaker 2 (19:01):
Well, he's saying that this filing as it is. I
will okay, I mean, I'll bet you. I will bet
that the Apollo State Street ETF will launch this year.
Speaker 5 (19:11):
You're betting, Nate, Yeah, steak dinner.
Speaker 4 (19:14):
I will take that, okay, because I stand behind my
my predictions. Hey, here's here's my question, though, where do
we draw the line? Right? I think we would agree
private credit is a liquid So what else can we
put in an ETF wrapper? Is it art baseball cards?
Speaker 5 (19:30):
Yes, wine, Yes, where do you draw the line?
Speaker 2 (19:33):
So I just think ETF's sometimes trade like clothes unfunds
in crisis. I just think you're gonna see a situation
where ets become hybrid clothes und funds and they just
trade away from the NAV. But people are like, I'll
take that over getting screwed on these other kinds of vehicles.
Speaker 1 (19:53):
Do we still think this is the next big thing, Nate?
Speaker 4 (19:56):
I don't. And part of that is I'm not so
sure that the average invest really needs access to private credit.
I would make that argument right now that that's a
frothy area of the market in general. But even if
it wasn't, I don't know that the average sixty to
forty investor needs the ability to access private credit. I
don't know what this really adds to a portfolio other
(20:18):
than complexity.
Speaker 3 (20:20):
That doesn't adding bitcoin to your portfolio also add complexity
or a ton of crypto.
Speaker 4 (20:26):
That's a fair point, But I would say bitcoin is
a much more transparent market, okay, all right, a lot
more liquidity there paying.
Speaker 1 (20:36):
It forward in some sort of prediction. Let's hear number
four Nate.
Speaker 4 (20:41):
Okay, Prediction number four is that three point fifty one
exchanges go mainstream and this definitely gets on the weed.
Speaker 1 (20:46):
So what that means.
Speaker 4 (20:49):
Okay, So in December, an issuer by the name of
Cambria launched this Cambria Attacks Aware ETF and basically the
way that it takes it's a great ticker. The way
this worked was that investors of a certain size, so
they had to be a bit larger, they could contribute
their individual stock portfolio into the ETF. Okay, so they
(21:12):
provide their individual stocks to Cambria and in return, they
receive shares of the Cambria ETF. At a high level,
this is called a three p fifty one exchange. And
there are a lot of nuances to this because you're
dealing with a tax code. But as long as these
investors met certain criteria, this was not a taxable event.
(21:32):
And so let me just give you a real quick example.
So let's say an investor owned a portfolio of Tesla
and Nvidia and micro Strategy and some other stocks that
have gone up a lot and where maybe the valuations
are elevated. Well, that investor may want to reduce their
risk now, but the problem is if they own those
stocks in a taxable account, they obviously have to pay
(21:54):
taxes if they sell. So what this three to fifty
one exchange allows them to do is diversify into an
ETA and then they can defer taxes until when they
sell the ETF shares. Plus they get all the benefits
of the ETF rapper right that tax efficiency and low
cost and all of those things. So my prediction is
that we are going to see more issuers pursue this.
(22:15):
I think this is going to become pretty popular.
Speaker 1 (22:17):
Huh So, and do you think it's more relevant for
people who have been acquiring shares of late or do
you think it could be more impactful for people who, say,
like have owned Microsoft since the nineties or Apple.
Speaker 4 (22:32):
I think more impactful for people who have owned shares
for a while. But I think it just depends on
the composition of the portfolio. I also think this is
going to be more applicable to higher net worth investors. Right,
investors who have a higher net worth, they're probably in
a higher tax bracket, they have a larger portfolio. This
is going to make more sense. I also think this
could make sense for some advisors who are running separately
(22:54):
managed accounts.
Speaker 5 (22:56):
Advisors will tell you.
Speaker 2 (22:59):
I'm not sure if will agree, but I've heard that
real rich people hate paying taxes more than they actually
like getting like good returns, and so I think avoiding
taxes is going to is.
Speaker 5 (23:10):
There's the demand there. And there's an ETF mouth.
Speaker 2 (23:12):
Architect called Box, which does I won't go into it,
but it does a tax maneuver and I think it's
got four point seven billion, and that's from a small
indie issuer. There's going to be tax innovation in the ETFs,
and I agree with Nate on this one. I think
we'll see more of this.
Speaker 3 (23:30):
Godana, I love this, I love tax I think this
is the big theme, the big story, the ways that
ETFs are being utilized to help offset your big tax bills.
The one caveat is that tax the ETF that Nate
was talking about it it has already launched, but it
only got thirty one million dollars, which isn't huge. It's
(23:53):
a it's a nice sum, but it's not huge. So
we'll see how that grows, if it grows. But the
guy behind mind all of these, including Box, the one
Eric just mentioned is Wes Gray, and he's really his
white label company ETF architect is really like coming up
with these ways or coming or innovating the way that
(24:15):
people are doing tax aware conversions. If we can call
them from SMAs or you know, family office stuff hedge
funds into ETFs. So I think it's very interesting. I
love it.
Speaker 1 (24:31):
Are they going to bock at anything, Nate like if say,
like I bring them something from you know, somewhere in
my portfolio, like they don't have to take anything, right.
Speaker 4 (24:40):
Yeah, there are some very specific rules and requirements in
terms of how you conduct these three fifty one exchanges,
So you can't just take any portfolio and do this
with and to what Viil Donna was saying with the
thirty million or so into the Cambria TAXIWARYTF, I think
a reason for that is and that's not bad, but
I think a reason it's not more is there is
(25:02):
a huge educational hurdle surrounding all of this. There's a
lot that investors and advisors have to get their head around.
Speaker 1 (25:08):
So let's just try and make your prediction be a
little bit more specific, which is okay, you say the
three fifty one exchanges go mainstream, can you actually put
something quantifiable there for.
Speaker 4 (25:22):
Us, I will say five ETF issuers who we all
know will pursue this approach. And as a matter of fact,
I saw last week Alpha Architects, so that's the ETF
side of ETF Architects white label. They're actually launching one
of these. So I'm cheating a little bit, So we'll
(25:43):
say four others. All right, four other issuers?
Speaker 1 (25:46):
Eric, are you four for four right now? No?
Speaker 2 (25:49):
I didn't agree with the him saying that Apollo we
already better staked dinner on it.
Speaker 1 (25:53):
So three for four, three for four though, okay number five, Nick,
go ahead, Okay.
Speaker 4 (26:07):
Last prediction is that a leverage single stock ETF implodes.
And what this comes down to is that issuers are
launching a boatload of leverage single stock ETFs on the
most popular companies, which, if you think about this, that
makes sense from the issuer's perspective, right, because they want
people to buy their ETF, they need interest, and so
(26:29):
of course they're going to pick the most popular stocks.
The problem is that a lot of these stocks are
also many of the high flyers. So again it's the
micro strategies and NVIDIAs Tesla's right, Paletaire and I'm not
here to make any investment calls. I'm trying to make
ETF predictions. But there is absolutely a case to be
made that some of these companies are significantly overvalued. And
(26:52):
even if we put that aside, So let's put the
valuations aside. These stocks are very volatile. If you look
at something like micro Strategy, this thing moves around a
tremendous amount, and so I just think it's a matter
of time before one or even more of these stocks
drops fifty sixty seventy percent over a few days or
a week. And if you just do the math on that,
(27:13):
that would be enough for one of these leveraged ETFs
to implode.
Speaker 1 (27:16):
And your point is that there's going to be one,
at least one or one.
Speaker 4 (27:22):
I'm saying one, but I wouldn't be surprised if we
see more than that.
Speaker 2 (27:28):
So I disagree with this one, but not enough. I
don't feel strong enough to better steak dinner, but I
lightly disagree. I just think in this Trump era, especially
with limit up, limit down, a stock can go down
seven percent right then they halt it.
Speaker 5 (27:41):
And I just see the.
Speaker 2 (27:43):
Trump administration leaning on the FED and basically like coddling
the market. So I don't see a stock having fifty
percent draw down in like three days. If I'm wrong,
you're right, and that would be like a COVID type
sell off. It would take a black Swan event, in
my opinion, not a routine pullback. But I also think
that you know, if you look at MSTU and MSTZ,
(28:04):
these would be the canaries in the coal mine. I
think these are the most volatile ETFs on planet or
in the US, and they have twenty percent up twenty
percent down days, but not too much more than that.
So they can handle again, a couple serious pullbacks with
being fined. They couldn't handle COVID right, and we saw
(28:24):
a bunch of leverge gtfs blow up in COVID. So
I just don't think we get another COVID with Trump.
Is he's just too into the stock market.
Speaker 1 (28:32):
Final word, I don't want.
Speaker 3 (28:33):
To call out any one of these, but you so, Eric,
you don't think one of them can drop forty without
an exogenous event. I could see it happening.
Speaker 2 (28:44):
It would have to be it would have to be
something specific to like micro Strategy or Navidia, But Navidia
has got so much going on even if it sells off,
it might solve twenty per I mean, it's not going
to self eighty percent unless the whole thing's a fraud.
Micro strategy Okay, I mean what we know everything about
Michael sit he's clearly into bitcoin.
Speaker 5 (29:01):
What if he got a new interest maybe I don't know.
Speaker 2 (29:05):
Micro Strategy is high beta to the stock market, and
these are high bata to micro strategy. So the key
is the stock market. If the stock market goes into
a COVID freefall, then micro strategy is really in trouble
because bitcoin is high beta to the stocks. So that's
my point on you got to really have a negative
view of the stock market having a COVID like month
to think this is going to blow up.
Speaker 4 (29:26):
I will just add if you look in December the
leverage micro strategy ETFs, those are down like forty percent
plus and that was just a run of the mill pullback.
In the broader market.
Speaker 2 (29:36):
Negative went up forty percent and that these people already
love that. That's like a good day for these traders.
But again it would take us sustain like a couple
of days, a couple of weeks I think, before this
thing's But that's why I'm not betting steak dinner, Nate.
I would just say I would take the under.
Speaker 4 (29:53):
Okay, So how about we bet we bet a nice
glass of wine along with the steak dinner.
Speaker 5 (29:57):
On this one?
Speaker 2 (29:58):
Okay, dessert there any I'll get you. I'll get you
a Chief's cake. No, not a whole cake, just the
slice with the Chiefs colors. He's cake, He's look. The
Chiefs are the new Yankees and Duke the most annoying
sports fan on earth are aren't you sick of Patrick
mahomes stupid snake farm commercials? And then Andy Reed completely
(30:19):
embarrassing himself coming in, Oh, where's the chicken nuggets? It's like,
get these people off TV?
Speaker 5 (30:24):
Yes, all right, hey, Jola.
Speaker 4 (30:26):
Fun fact is that Eric has lost another bet to
me in the past, and I am the proud owner
of a Patrick Mahomes.
Speaker 5 (30:34):
That's why I'm like, I am bloodthirsty.
Speaker 2 (30:37):
All right?
Speaker 1 (30:38):
On that note, Nate Jracy, thanks so much for joining
us on Trillions, Phil Donna, welcome back.
Speaker 3 (30:43):
Thank you go Bills.
Speaker 1 (30:50):
Thanks for listening to Trillions. Until next time. You can
find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify,
or wherever you'd like to listen. We'd love to hear
from you. We're on Twitter. I'm at Joel Webber Show.
He's at Eric Balchunas. This episode of Trillions was produced
by Magnus Hendrickson. Bye.
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