August 28, 2025 • 46 mins
A relentless barrage of headlines in recent weeks have all centered on exchange-traded funds. For the first time, there are now more ETFs than stocks (4,300 versus 4,200). Also of note, ETFs have also become prized listings for exchanges—perhaps even more than IPOs—because they trade so much.
On this episode of Trillions, Eric Balchunas and Joel Weber speak with Dave Nadig, president and director of research at ETF.com, and Athanasios Psarofagis, an analyst with Bloomberg Intelligence. They discuss those stories as well those on passive ownership's increasing complexity; a different way to think about the Magnificent Seven; Vanguard's push into active management; Wall Street not seeing a need for tokenization; and the irony of European ESG equity funds having exposure to the nuclear arms industry.
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Episode Transcript
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Speaker 1 (00:05):
Bulcan Intrilliance.
Speaker 2 (00:06):
I'm Joel Webber and I'm Eric Belchunas.
Speaker 1 (00:11):
So, Eric, it's August. We've been desperate to find guests
to uh to join us on the podcast, and then
somebody got a new job, Dave Nadig, and we were like,
you know what, he's gonna go to ETF dot com.
We should bring the competition on the podcast. Let him
promote himself a little bit, kick some themes around. Also,
(00:32):
get somebody who works for you who can't say no, Athanasia,
Sarah Fagas, and and basically we'll run through some headlines.
How does that sound?
Speaker 2 (00:41):
That sounds good to me?
Speaker 1 (00:42):
Okay, so I gave it all away already, but we're
gonna have Athanasio, Sarah Fegas of Bloomberg Intelligence, and Dave Nadik,
who's now the president and director of research of ETF
dot com, a site that no doubt he's gonna tell
us all about because he's been there for multiple jobs
through the years. But Eric, the biggest thing is that
(01:03):
there's been a ton of the interesting headlines about ETFs
su late.
Speaker 2 (01:07):
Yeah, Bloomberg News has been on fire. And not to
pat ourselves on the back, but so is bi and
there's a lot of things to just go through. So
we had all these ideas for topics, but there's no
way they would take three months to do separately. So
we're gonna cram a lot of the recent news activity
into sort of one of our McLachlin group type episodes
(01:27):
where we or maybe a ESPN first take would be
a more modern example, but where we just roundtable these
things and just real quick. Jow, I go, I gotta
say something. I think we've been doing this for like
ten years. ETFs this year are on pace to take
into trillion dollars for the second year in a row.
And I put out on X earlier that the name
(01:48):
of this podcast has aged very well, so good job
you picked it. I wanted to call it data mail line,
and I'm glad we want with trillions.
Speaker 1 (01:57):
YEP, I will take credit for that. It's time on
Trillions Roundtable. Athanasios, Dave, welcome back to Trillions.
Speaker 3 (02:11):
Thanks for having me.
Speaker 4 (02:12):
Thanks, even though I couldn't say no, glad to be back,
that's true, h.
Speaker 1 (02:18):
Dave, congrats on the new role.
Speaker 3 (02:19):
Thank you very much. It does feel a little bit
like a like a return. I left as CEO and
I'm back as president. So you know, nothing nothing changes
but stays the same.
Speaker 1 (02:28):
Is that is that better or different or what? Yeah?
Speaker 3 (02:31):
Like, what's better is that? The better is that the
new CEO is Matt Middleton, who you may know from
running the future Proof conference series, who really knows what
he's doing when it comes to making big events that
move the needle. And that's what we're gonna do. We're
gonna do a lot of multimedia content. We're gonna build
content around ETFs people can trust, like some people may
be around this table, and we're gonna put on a
(02:53):
big event. That's what we're gonna do. It's gonna be fun.
Speaker 2 (02:55):
Yeah, Joel, let me just chime in here, because you know,
one of the reasons I got excited about ATS was
Dave Nating and Matt Hogan had a podcast when they
were on Index when they called it Index Universe, which
was later named ETF dot com. So Dave, honestly like
this is like twenty years ago, founded this website and
then they went to ETF dot com. And then people
(03:19):
started to slowly like disperse, you know, and they went
to ETF, Isshoers, other media companies, Crypto, you name it,
and ETF dot com you know, carried on, but you know,
and there's some good stories now and then, but it's
it's not nearly the magnet it was. And so to me,
this is like Steve Jobs returning to Apple, maybe on
(03:40):
a smaller scale, but similar situation here. So the pressure
is on Dave to come up with the iPod, the iPhone.
His third act better be good.
Speaker 3 (03:51):
I'll be sure. I'll do my best. But look, the
ETF industry has changed. I think the the url that
is etf dot com can mean something different now than
it did twenty years ago, right, I think. I think
we've got and we're going to talk about it. We've
got over forty six hundred ETFs now, back then we
had four hundred and fifty. It's a different world, so
we'll make a different website, all right.
Speaker 1 (04:12):
So we've got a handful of themes that we're going
to talk about. The first one that I want to
start with is a headline from Vildanna Hirich that really
made me sit up new this week. There are now
more ETFs in the United States than there are individual stocks.
So the number that she has in the story, there
(04:33):
are forty three hundred exchange traded funds versus forty two
hundred stocks. Ethan, Yeah, I mean, I guess what do
you what do you think of that?
Speaker 4 (04:45):
It's yeah, definitely mind blowing, but I guess it was
if you just kind of look at the nature of
the stuff that's being brought out now, so like it's
a lot of single stock stuff. So you have like Tesla,
then you have so many ETFs like long own like
long Tesla, then short Tesla, then option income Tesla, so
on one ticker you have like twenty ETFs that are
(05:06):
being launched. So I guess it's not it probably would
have happened eventually, but it's definitely a really surprising stat
that there are more ETFs than stocks. And maybe the
bigger problem is we just don't have enough stocks, right,
Maybe that's a whole other debate, but like we're just
there's so few stocks and so many products being launched
off of like a very you know, tight list.
Speaker 2 (05:26):
Just real quick on that you had to piece out
a note about ETFs being the new IPO and the
exchange is really just trying to get ETFs now more
than companies to list.
Speaker 4 (05:37):
Yeah, we looked at that, and I think you know,
if you look, there's not a lot of IPOs anymore, right,
and you look at something like I hate to admit it,
but like I bit right, that is worth more to
NASAC than like an IPO trades more than a lot
of new IPOs. So I get why the exchanges they're
they're backing, like the share class ruling and things like that,
(05:58):
Like if there's not IPO's coming, they ETFs are just
as good. So and just given how much you know,
the percentage of trading that's going up in ETFs, I
get that they want to really lean into this and
sort of fill that gap for the drought and IPOs.
Speaker 3 (06:14):
Yeah, I'd add a couple of things there. One, You're right,
they're not enough companies ipoing. So that's a that's a
whole problem by itself that has nothing to do with ETFs.
That's just how we structure the capital markets right now,
So all the interesting capital formation actually happens privately, and
then when things are big enough, they ipo straight into indexes. Right,
That's that's the pattern that we've seen over and over.
(06:35):
But you know, I'm not sure that I'd be a
lot of hand wavy about the fact that they're now
more ETFs, Like I think samro made the comment this
morning on Twitter, they're also more recipes than there are ingredients,
and I think that's also true. I mean, look, we
have one hundred and fifty thousand indexes tracked by the
Index Industry Association. Obviously that's insane. But you can just
add one stock, get rid of another, and now you
(06:56):
have a brand new index, right, So of course we're
going to end up with that proliferation. And I think
they're issues, right. It makes figuring out what ETF to
buy a lot harder than it was twenty years ago.
Speaker 1 (07:06):
As we were saying, yeah, actually, I find that I
find that to be like this prevailing problem just in
my life in general, Like I call it the bread
ale as my wife loot tests like you get in
the bread ale, and it's like, how am I supposed
to make a decision? All of these things are basically
the same.
Speaker 2 (07:22):
Yeah, isn't that the paradox of choice? I think that's
the term for it. So I agree, it's just the
way it goes when something's successful, and especially in asset management,
if the fish are biting in a certain you know, lake,
they're going to launch products to try to get bites.
So it's a natural part of capitalism. I did look
(07:45):
and there are almost six thousand mutual funds, so there's
been more mutual funds than stocks for thirty years. The
ETFs of the four thousand and whatever five hundred, there are,
half of them are below one hundred million dollars. So
most of these live in oblivion, and only a couple
really catch on. And so the UH I think in
(08:06):
my first book, I've used the metaphor of there are
I forget how many notes. There are like seven notes,
and then there's a you know, maybe a couple hundred chords,
but there's like one hundred million songs right right, or
as met Favor puts it, there's definitely more words than letters.
So I don't care. I think it's just a sign
(08:29):
of the industry growing. But I agree it is harder
and hard to make a choice. I think that gives
all of us here some job security, which is good.
Speaker 3 (08:36):
It's going to get so much worse too. Between the
single stockraft that you were pointing out, you know, there's
going to be seven to twenty ETFs for every single
ticker at some point, and we've got the share class
conversions coming down the pipe, which could be anywhere from
zero to a couple thousand new ETFs, depending on how
aggressive that industry wants to get.
Speaker 2 (08:55):
Yeah, I mean, Dave Nadig, where do you think we
end up? Like, if you had to pick a plateau number,
what would you pick?
Speaker 3 (09:04):
Eight thousand?
Speaker 2 (09:05):
Okay? How about you?
Speaker 3 (09:06):
I mean, if if you figure every stock in the
S and P five hundred is going to have a
few varieties, right, at least a leveraged, at least a
covered call strategy, probably a short So there's probably two
to three thousand ETFs just on the Stingle stock you know,
Djen Shenanigan side, and then the four thousand we've already gotten,
(09:27):
not one thousand or two that are going to showup
because people want to, you know, do the share class
spoking end thing? Eight thousand?
Speaker 2 (09:33):
I'm you know we last time we had Joe on
we had that note that we wrote earlier in the year.
No no industry for old analysts, because Dave, you and
Ethan are very similar that when there's one of these
crazy like you know, single stock covered call yield max
that launches, especially if they combined two or three things
like now there's a two x buffer.
Speaker 3 (09:55):
Stock and withering idiots with drool running out of our mouths.
Speaker 2 (10:00):
I understand Ethan puts the picture of Tommy Lee Jones
looking over the paper in No Country for old men,
Like what? Anyway, I get it. I'm probably the most
liberal of you guys because I just find the trading
wing of the ETF tent okay, given that there are
plenty of ways to gamble. This is America, it's a
(10:23):
you know, it's just I think I just look at
the ETF as a technology, not as an index fund,
and I think that's where I might be more liberal.
Speaker 3 (10:33):
I think you and I agree more than we disagree
on this. I'm not anti people trading these vehicles to
run their cowboy accounts or hedge funds using them to
run their exposures. But they're good and bad ones of
those two rights. That's really I think the key thing
is that there are good single stock leverage funds and
there are bad single stock leverage funds. And it tends
to have to do with things like how much got
(10:54):
buried in the swap contract. You're not paying attention to
how much do these things actually cost? Do they trade it?
Two percent spreads on high vol days, like there are
good and bad ones even in the hottest of hot sauce.
Speaker 2 (11:05):
And I would argue there are good of bad ones,
even the most in the most vanilla areas.
Speaker 3 (11:10):
Yeah, yeah, there's the wrong s and P five hundred
ETF to buy. Which one is that, Dave? The one
that costs too much? Probably Shi, I.
Speaker 2 (11:19):
Will say it's Hi. Yeah, it probably is. Spy. In
the mutual fund world, the second ever index mutual fund
as well as Fargo, and that still charges like thirty
five to forty BIPs.
Speaker 3 (11:31):
There's there's still a two percent SMP mutual fund trading.
It's got hundreds of millions of dollars in it, like
it should be illegal by design. I don't know, Okay.
Topic number two.
Speaker 1 (11:40):
This is a headline a note from James uh A
Safer at Bloomberg Intelligence headline, Passive ownership is rising and
more complex than meets the eye, Dave, Is that true?
Speaker 3 (11:54):
Yes? Both of those things are true. You guys track
the passive stuff better than most people. I mean, what
are you got thirty five percent measurable, fifty percent probable
something like that?
Speaker 2 (12:02):
Well, well it's a lot. Let's just define passive. In
James's note, it's he says the average stock has twenty
percent of its shares owned by passive, which is defined
by the way as index something ETF or mutual fund,
which can include smart beta. So it's a pretty wide array.
Speaker 3 (12:19):
Yeah, but that misses the problem with that institutional separate recounts.
Speaker 2 (12:24):
So where should we go twenty to what thirty?
Speaker 3 (12:26):
I would say, thirty five, thirty five?
Speaker 2 (12:28):
Okay, let's say it's thirty five.
Speaker 3 (12:30):
The academic research points okay, the thirty five to forty range.
Speaker 2 (12:33):
So your take is should we worry?
Speaker 3 (12:36):
So my take is, yes, it matters, but not for
the reasons everybody thinks it does. It's too complicated to
be a blanket good or bad. What really matters is
the flow in and out of these big block products.
It actually doesn't matter whether they're quote unquote index. But
if you build a giant block trade based on cap weighting,
that has real impacts on price discovery because the elasticity
(12:58):
of big stocks is different than elasticity of small stocks.
So you end up with this kind of runaway winner,
runaway loser problem at the top of the cap table,
which we see every week when we get allocations into
TDFs and the four andin K money flowing in, all
of which can turn around. Everybody could decide to pull
all their money out of their target day funds and
buy cash tomorrow. Right, So sentiment overrules all of this.
(13:20):
But until you see some of those numbers change, the
constant drumbeat of money flowing through passive into the market
does disturb price discovery. And there's been some amazing deep
academic research in the last eighteen months on this that's
pretty difficult to argue with. I mean, it's not fufu ideas.
It's like, no, we looked at millions of data points
(13:42):
over twenty years, and you can kind of prove it.
Things like bitcoin are great. Sort Petrie dishes for this
because you know, absolutely limited supply flow is the only
thing that changes price. It's kind of proved all our points.
Speaker 2 (13:56):
Well, I get that. And obviously a bunch of money
is going in and buying vou and voo like products.
It's going to push the prices up there, that's a fact.
But the voo waitings are totally determined by active Because
Athanasios I'll turn to you on this, he did a
deep dive and found that, you know, when Tesla has
(14:18):
a bad earnings, it sells off, its market cap goes down.
Navidia was the one hundred and fiftieth stock in the
S and P only like five years ago, and it's
index didn't do that. Active likes Navidia and it hates Macy's,
which got kicked out of the S and P.
Speaker 3 (14:34):
So for sure, but I'm not saying that that's the
reason in Nvidia rockets to the top. I'm saying it's
the reason that the market in general becomes slowly more
top heavy because the incremental dollar goes into a stock
like Nvidia, which is much less elastic than public storage ink. Right,
So public storage inc. Anybody can swap that out for
(14:55):
another industrial Nobody cares. If you don't have Nvidia in
your portfolio, have a problem as an active manager. So
that for that reason, a dollar going into Invidia moves
in video more than a dollar going into a company
at the bottom of the cap table. And that's math.
We can prove that that's just actually what's happened. So yes,
price discovery still happens, but it actually happens violently with
(15:17):
a smaller number of players, which rockets things either up
or down, and then the next thing that comes in
reinforces that either up or down.
Speaker 4 (15:27):
I think you brought up a good point, and honestly,
I don't want to cop out. I don't think anyone knows.
I've seen good research on both sides. I get that
the system is structurally set up that yet flows are
going to come in. It's going to keep going to
these stocks. I'm not fully convinced that it's like a
problem yet. I think there's still too many like holes
you can poke in it.
Speaker 3 (15:46):
Oh, I don't think anybody should do anything about it.
Like I don't think the answer is don't buy passive.
I think that this actually means, for the love of God,
stay in cap weighted products and stay invested. Because these
are tailwinds to the market. They can whipsaw. But I
actually can't point to the thing that's going to make
it whipsaw. It's not the it's not old people retiring
(16:07):
that's not going to do it. That's actually going to
help because all those young people who inherit it buy
more right. So I don't think this means you do
something different. I think it explains what we've been witnessing
for the last ten years.
Speaker 2 (16:19):
Yeah, I would also just say that one thing that
may change this, and probably it's also good for everybody,
is that active is getting cheaper. And so the more
that the capital groups and fidelities and trows lower their fees,
the more they see organic flows. I think advisors do
want active, they just want to pay us a lighter
fee for it, and that would obviously introduce more price
(16:42):
discovery based on fundamentals because those active funds do hold
different stocks with different weightings. So in a way, and
we debate this with Mike Green from Simplify all the time,
one of the things that is just an inconvenient truth
here is that active managers were caught in a very
disruptible position charging one percent for mostly Beta and Vanguard
(17:05):
disrupted the crap out of them. They never passed on
economies of scale during the fifty years they had a
chance to, and if they had, they'd have more upperformance,
more customer goodwill. But because they didn't, I find that
sin is still haunting them. But as they adapt, Yeah,
it as they adapt, though, and money shifts back to active,
(17:25):
because active's taken in twenty five percent of the flows
this year, some of this will possibly be sorted out
by the market.
Speaker 3 (17:32):
Yeah, and look, we've got folks like Baron coming in.
I mean, the thing that's shocking to me is that
we've got classes of active managers that have been crushing
it for one, three, five, ten, twenty, like Barn like
bridge Haven. Like there's a bunch of active managers you
can look at and be like, no, they've done everything
they said they were going to do and they're crushing
and they all have outflows. Yeah, well, bananas.
Speaker 2 (17:53):
The Barren guy coming into ETFs is capitulation. I bet
he didn't want to. But Joel, this is the only
in fifteen years to beat the cues. Beating the cues
is like it's like beating Michael Jordan his prime, Like,
how did you do that? Right? And uh, it brings me.
I always think of that quote from the Tim Burton Batman.
Remember when Michael Keaton's like, oh, you want to get nuts,
(18:14):
let's get nuts.
Speaker 3 (18:16):
Yeah, let's go.
Speaker 2 (18:18):
You got to get more crazy than the cues And
he did, Oh yes he did. It's like it's the half.
The half the mutual fun is Elon Musk companies. It's
like SpaceX and Tesla. So that's part of I think
what worked is discarding the CFA brain and getting a
little crazy and Baron did it. Now he's coming into ETFs,
(18:39):
we'll see what happens. Like the timing is interesting. Would
this be a signal that maybe now is the time
that he underperforms? I don't know. But also he's coming
in at one percent. I think that's a pretty hefty fee.
Speaker 3 (18:50):
Did we get it? Did we get an actual fee?
I didn't see that.
Speaker 2 (18:53):
That's what Katie Greifeld reported. I think it was like
one of them was seventy BIPs, one was one percent.
Either way, those are all that said. If he has
active share of like ninety five or percent of review, yeah,
then it's in this sort of arch thematic bucket. People
pay more, people have less price sensitivity for stuff that
has a high active here.
Speaker 3 (19:11):
Even a one percent, it's a bargain compared to like
the age some of his mutual fund shared classes are
one point nine. Yeah, So like there's some real bang
expensive stuff out there.
Speaker 2 (19:20):
Yeah. And like, by the way, Tom Lee also had
great success with Granny the Granny shots ETF. Now he's
launching two new ones. Dan ives have come in, so
it's not just that big old school manager getting cheaper.
You've got these stars, you know, I say, yeah, one
of our themes is ETFs Go Hollywood. Some of these
star managers are coming in. And I'm going to say
right now in the show, I believe Bill Ackman will
(19:40):
launch an ETF at some point. I don't think Buffett will.
I think he's he Berkshire's kind of that for him.
But I do think if you are in this industry
and you want to be where the fisher biding, you
kind of have to come into ETFs now, especially Tom
Lee in particular, seeing the success he's had. Two billion
in less than a year is pretty good, and his
fee isn't cheap either, So that's a good sign I
(20:03):
think for active and maybe the people who are worried
about passive growing so much.
Speaker 1 (20:13):
Okay, next topic, Eric, this one's gonna put you in
the hot seat. Magnificent seven. Question mark was the beginning
of a note, the headline for a note that you wrote,
think of them more as the Magnificent seventy. Okay, I'm
really interested in this because you can't you can't talk
about markets without talking about AI and the Magnificent seven.
(20:34):
Right now, there's four hundred and ninety three other companies,
except you say, maybe maybe that math is off, maybe
there's maybe there's many more that should be considered magnificent
seven companies. What's you're reasoning?
Speaker 2 (20:46):
Yeah, so, and you brought Sam ro up earlier. I
actually got this idea from him. He talked about the
idea that many of these companies are like multiple companies
inside of one, and I thought, yeah, you know, he's right,
Like it feels right that. So I look, did the
amount of acquisitions the mag seven companies have made, and
it's eight hundred and fifty eight between the seven of them,
(21:09):
Google and Microsoft are like two fifty each. Yeah, here's
the thing. Like one of Google's acquisition was YouTube. That's
one of two fifty. YouTube would be the nineteenth biggest
thought in America if it were spun off. And so
the amount of brand names, actual capital cash these companies.
I talk to our analyst on Rugrana who covers some
(21:31):
of these tech stocks, and he says, they're like countries,
they're that big. So I almost think you kind of
have to throw your CFA brain out a little bit
here too. The mag seven should be looked at as
seventy So if.
Speaker 3 (21:43):
You, well, isn't this GE, I mean, are we just
basically talking about Jack Welchi or a GE where it's like,
are you a finance company? Are you a tech company?
Or you defense contract with Berkshire? Yes, we're all of
those things.
Speaker 2 (21:52):
Yes, well Berkshire.
Speaker 3 (21:53):
I see more as like actually kind of a holding company, true,
versus something like Microsoft, which actually integrates these things and
like and I think they are like countries. I mean
Microsoft is also doing things like building water systems, like
it's crazy buying nuclear Yeah.
Speaker 2 (22:10):
Yeah, I went back and looked at GE, and I
think they're total acquisitions. I you know, I don't want
to get hate mail if I'm wrong, But I think
it was like sixty.
Speaker 3 (22:18):
Five, So it was it was a lot not this wasn't.
Speaker 2 (22:21):
On the same level. But let's just say we consider
them to be seventy companies, all of a sudden, they're
thirty four percent waiting in the S and P. Isn't
that bad? So I guess part of the reason I
wrote this was Ethan and I talk about this all
the time in the team. It's I just not into
scaring people out of these companies. There's so many people
like it's time to rotate. These companies are valued. I'm like, yeah,
(22:43):
but people said that two hundred percent ago. And these
companies kick so much ass that you can't not own them,
Like these are the leaders of the world in what
they do, and it just seems crazy to me. This
is where I think you never want to go full CFA.
You only go half CFA. You know what I mean.
(23:05):
If you fill CFA, you will lose and lag and
be miserable.
Speaker 3 (23:10):
I agree that I think this is a useful framework.
I think you're correct in that. From an economic perspective,
thinking about Microsoft as being a singular company the same
way that John Deere is a singular company is wrong. However,
it's a single security, and so from a risk management,
market structure, capital flow perspective, MSFT is still a single stock.
(23:33):
And when some big whale decides to fat finger an
options trade and it gets tanked by nine percent, which
seems like a ridiculous amount of value to extract from
the market, it's because it's still just one stock. There
is some danger in having more and more and more
economic activity in fewer and fewer tradable tickers. That's a
(23:55):
different problem than are these companies too big, and will
they be bad economically? I'm with you on that. I
think the AI thing is an interesting use case here
because I think you can make the case that the
benefits of AI may actually benefit the bottom two fifty
in the S and P more than the top two fifty,
because that's where the boring, low hanging fruit of Like,
(24:16):
can we, you know, replace these three boring processes in
a back office with an AI. I think that's going
to happen more there than Nvidia is going to have
blowout earnings for eight quarters?
Speaker 1 (24:27):
Eric, what are those seventy? And how do you get it?
Speaker 3 (24:29):
No?
Speaker 2 (24:29):
No, what I'm saying is if you opened up Google,
you're going to find YouTube a cloud company. I mean
I'm talking Google has about seven to ten actual legitimate
large caps within it.
Speaker 3 (24:40):
Yeah, you're buying a conglomerate.
Speaker 2 (24:42):
Yeah, you're buying again like at Arog says a small country.
I mean, if you look at the market cap, these
would be bigger than most of the countries on Earth.
But to Dave's point, I wrote in my note that
that isn't to say this is not antitrust issue, and
that may be a fact these companies, you know, how
(25:03):
big should they get should they get broken up? I
feel like that's a fine debate to have because should
Google have that much going on inside of it? That's
just different to me than index concentration in terms of
what you're buying that. So it's a very interesting, complicated issue.
But I just wanted to get people to look at it,
you know, from this alternative way. And I wasn't alone,
(25:26):
although he's biased. Dave Masa from Roundhill, who has the
ETF MAGS, he wrote a piece similar about there being
more more to it and the valuations, you know, might
be worth it given how many other companies are inside.
So I sort of ripped off from both those guys
in my note, although none of them mentioned the amount
(25:47):
of total acquisitions, which again I thought I was going
to find like twenty to thirty in each and I
was like, oh my god, eight fifty.
Speaker 3 (25:54):
Now a lot of those are really small companies that
were part of a tech stack, right, true, like a
lot or companies got bought, but because their calendar plugin was.
Speaker 2 (26:02):
Crazy, you know, no, I hear you, But I went
into Google. They bought some company I never heard of
for thirteen billion dollars. Oh, you know, the numbers of
cloud stuff like like, there's stuff. I agree, there's small
stuff that is bullsh doesn't count, but there's some big
stuff we never even heard of the company, like Slack yes,
(26:22):
and like ways you know that app which I used constantly, constantly,
I forget.
Speaker 3 (26:27):
Where owns that?
Speaker 1 (26:29):
Google?
Speaker 3 (26:29):
Google? Google owns that?
Speaker 1 (26:30):
Now?
Speaker 3 (26:30):
Yeah, I can't keep it has forever?
Speaker 1 (26:33):
Okay, next topic, Katie Greifel's headline earlier in August, Vanguard
plans for its costliest ETFs yet an active push. Uh Ethan,
I want to talk to you. The new number one
at Vanguard is point four zero percent, followed by zero
point three five percent. This is on top of their
(26:57):
current costlyest ETF, which is point three Yeah. I love
And what do you make of this push into active?
Speaker 4 (27:03):
They're playing offense now right, Like we looked at, Vanguard
doesn't launch ETFs that often, and so this year I
think it's the most they've had in like ten years.
Obviously they have a new CEO. But there we were
looking at this last week. I think if Blackrock didn't
have the bitcoin and crypto stuff, Vanguard would only be
like forty billion behind them. So that gap is gonna close.
(27:26):
But yeah, I think, you know, they're they're you know,
they're still a large active manager, right, so it kind
of guess it kind of makes sense that they're they're
pushing into that, but.
Speaker 1 (27:35):
They have active in the name now. These are called
the Vanguard Wellington Dividend Growth Active ETF. That's like, this
is like how Vanguard became Fidelity and Fidelity became Vanguard.
Speaker 4 (27:47):
Like David alluded to, THETF dot com means different things now, right, Yeah,
this is yeah, that the whole era is changing. So
I love that they're playing, you know, offense. They're they're
getting more aggressive on the product front, you know, and
it's fine. You know, they've they've basically given away their
ETFs for free for such a long time. Now it
looks like, you know, they want they want to charge
(28:08):
a little bit more. They're probably still going to be
cheaper than most a lot of active stuff anyways, So
it's still kind of a win win.
Speaker 3 (28:14):
But I'm a huge fan because it feels like, you know,
I'm a big fan of like bringing your authentic self
to work every day. I feel like Vanguard's finally bringing
the authentic Vanguard to market because Wellington's been just raking
in cash for them for decades. I mean, you talked
a little bit about about this in your book, you know,
the the active thing that lives inside the giant passive enterprise.
(28:37):
But I think at some point, I don't know whether
it was you guys or somebody else, did the rundown
on how much revenue they actually generate from the active
side of the business versus the ETF side of the
business before they got any of the active product over
and it was like four times as much money that
they make off the active products. It's like they're actually
huge in that business. So it's about f and time
(28:57):
that they show up and bring those products to the ETFE.
Speaker 2 (29:01):
Two things on this one, I agree. Will they have
success though it's not a guarantee. Normally when Vanguard comes in,
you're like, oh, this is just going to take in
a billion dollars within a couple months. But they're really
late here. You know, they ranked nineteenth in active ETFs
and they're like one or two in everything. This is
a category they're ridiculously low in and everybody has come
(29:23):
in for the past ten years and vanguarded the category already.
So you got JP Morgan, Capitol Group, DFA Avantis. They're
all well below twenty basis points, if not ten in
some cases, so Vanguard comes in a little late. We
have a note that a recurring theme we talk about,
which is the Vanguard effect, has outrun Vanguard, and they're
(29:44):
actually stepping into a category that's already had the Vanguard effect, ironically,
and they're going to suffer from it. I think I
don't see these being that big. And Dave, I'd like
to ask you, do you think they'll ever make the
Wellington fund though, the one that's one hundred years old,
the one that Bogi save like a firstborn child, that
balance fund. Do you think they'll ever etfiz that because
(30:04):
it's not in this mix right now.
Speaker 3 (30:06):
I I'm very skeptical. I'm with you. I don't think
these are going to be big money winners for them.
I don't think they're gonna get a ton of assets.
I think it's a service to those people who already
know the Wellington brand and are in those mutual funds
generally had a little bit more money. So I think
they'll get some transfer money from advisors. I think that's
what they'll get, and they may even get some from institutions.
(30:26):
Because some institutions use those, they have a pretty big
business on the active institutional side. So for people who
want a liquidity sleeve on a similar strategy, that whole shtick,
they'll get some traction. But I absolutely do not think
this is their next big thing. Like there's not going
to be hundreds and hundreds and hundreds of billions of
dollars in these things. No way.
Speaker 4 (30:44):
Maybe you've looked at this, Eric, but let's say, if
you take out fees, is Vanguard like a good active manager,
Like would you rather like you say, if you were
to go active, would you rather want a capitol group
or a deals Okay, well, hold.
Speaker 2 (30:55):
On fees are a matter because actually at work with
US S and P, they ran the number. Vanguard's beat
rate is higher, I see than the average company, and
it's directly related to fees. And the further out you go,
the higher that beat rate gets, because fees matter more
ten to fifteen years. This is why my Bogel effect book,
I premise that if the index, the index or index
(31:17):
fund was never an invention, if you just pretend we
live in a society without indexing, Vanguard would be the
biggest active manager six seven times over because they would
have brought their fees down, and that's like giving their
managers a huge head start in the race because they
have lower hurdle to overcome and over long stretches of time.
All the Vanguard funds would have been on the cover
(31:39):
of Forbes in Fortune as the top managers just because
they're cheap, because I call it bogo metrics instead of sabermetrics.
Even Bogel in his books, in his books, by the way,
he does brag about active a little bit, but he
he kind of brings the credit back to himself. He's like, yeah,
this guy ran this, he did okay, but honestly, I
made the fun cheap and I told him not a
(32:00):
lot of trading, and therefore that's why it really outperformed.
Speaker 3 (32:03):
And he was not a man without ego in my experience.
Speaker 2 (32:07):
So I always think, like the Vanguard secret is the cheapness.
But with these funds, they're forty there's a dozen cheaper. Yeah.
Speaker 3 (32:15):
Yeah, although a lot of those funds are really very
low turnover, low active share, I mean like the advance
to stuff. Most of the active share on that is
measured and you know, ten fifteen percent, like I mean,
it's not a lot. It's compared to something like Ron
Parrin coming in with something that's just crazy and wild.
I agree. I think these are going to struggle at
this price point.
Speaker 1 (32:43):
Next topic Isabella Lee, Bloomberg News reporter cross Assets often
on the show, writes tokenization boom. Wall Street still isn't biting.
GP Morgan says, So this is ultimately about the idea
that we're going to see the assets go on to
the blockchain. JP Morgan says that that's beginning to happen,
(33:06):
but really it's twenty five billion so far, and that's
really being driven by crypto NATA firms rather than Wall
Street incumbents. Dave, have we already reached peak blockchain here?
Speaker 3 (33:21):
God? No, I think we're Mike Philbrick from Resolve posted
a thing saying like, where are we on the comparison
to the fiber rollout or the railroads or all of
that stuff, And I put up a picture of Stevenson's rocket, Like,
I think we are still at the very early innings
on both crypto and AI, and I think they are
(33:42):
related unfortunately, but like we're actually starting to see things
like bonds issued on chain held on chain, redeemed on
chain without ever touching secondary systems. That's like very recent.
It's really in the last month we've had some of
these entirely on chain but still fully regulated institutional securities,
(34:02):
issuance and settlement things going on. That's exciting, Like we
should all be excited about that. That's the future. We're
gonna get rid of DTCC eventually, right, So that I
think is just starting to kick in. That's part of
the I would call regulatory halo effect of this administration,
as people are now just trying things and figuring they
won't get sued into oblivion later, and that's great. I
(34:23):
think we're seeing the same thing with like the trial
that's going on in New Jersey to take all the
real estate records and put all that information on chain
so you can do like instantaneous real estate settlement. It's
all really cool. So I'm a seller on the idea
that somehow that part is peaked. That doesn't mean prices
don't come down and bitcoin could still be worth fifty grand.
What the heck do I know? But from a blockchain
in real world assets and tokenization perspective, I am very bullish,
(34:47):
very very bollish.
Speaker 2 (34:49):
My take on this is if you're younger or in
a emerging market and you are have a wallet, you
have a digital wallet right now, and you've grown up
with it. I think tokens of stocks and ETFs will
be what you buy because the plot that's the universe
you want to be in. I just don't think that
(35:09):
is going to absorb the entire financial ecosystem. I think
it will be another avenue. And I think ets especially
in develop markets, simply because the customers are just so happy,
it's just tough to get people to move and if
they're happy campers. But anyone who's digitally native the ETF
(35:31):
industry and the all the exchanges and whatnot, who want
to get more money into stocks and ETFs should tokenize
this stuff. It's just another way to reach a new
audience who's used to this other way to get them,
which is a digital wallet. The good thing about that
is it does open them up to the whole world.
(35:53):
It does open them up twenty four to seven if
that's your thing, although I think that's a little overrated.
And so people who don't otherwise have access, which is
about half the world, can now easily buy shares of
Microsoft or voo or spy or whatever. So I'm all
for it. I just think that half of the world
has such a small percentage of the global money that
(36:14):
the motive to serve them is less than serving the
people who are already happy in low cost ETFs and whatnot.
And he'd be a mutual fund, so I just see
it as some If it does take over, it will
be twenty years from now when the wallet people grow
up and get all the money inherited, you know. So
this is very interesting. I'm evolving on it constantly. I
(36:36):
still think nature Acy should have kept his name ETF
Store at least for Do you have any plans to
change ETF dot com?
Speaker 3 (36:43):
I think that would be dumb. I think that would.
Speaker 2 (36:44):
Be good job. So I just think at least for
us we're middle aged, I would call us we're probably
good covering ETFs until we retire. I think the next
generation is going to figure out what to call themselves.
Speaker 4 (36:58):
It would be a new job title, for sure.
Speaker 3 (37:00):
I completely agree on the stock and I ETF side.
The problem is that the way we're talking about doing
it right now, even the people are doing it really well.
And i'd probably highlight wisdom Tree prime as the folks
I think have kind of figured this out the best,
like have your own wallet, put gold in it, put
crypto in it, and then put some tokenized funds in
alongside of it, so you kind of create a whole
on app ecosystem. Even that, I think the problem is
(37:24):
you're still rapping Tesla shares, you're still wrapping VU and
if you're wrapping something, you're not actually changing anything. You're
adding a layer of complexity and failure to an existing
ecosystem that's got pretty good backstops for things like a
blown trade or a fat finger. So I think we'll
head that direction. But until we get serious about solving
(37:44):
the plumbing, like until this comes from the NSCC or
the DCCC, it's kind of just fairytale land.
Speaker 4 (37:51):
Remember when they first start talking about like the metaverse
and they were like showing those like kind of like
those lame like videos of like like you couldn't really
see and this kind of how I still see tokenization,
Like ETFs are already so frictionless, Like what are you gonna
how much of the process actually going to get improved
unless Microsoft is launching tokens like you said, but to
buy a token on Microsoft Stock. I just don't see
(38:13):
the point. So you're you're adding layers again.
Speaker 2 (38:15):
It would be for people who don't have access to
brokerage accounts but have Internet access, which is the stable
coin argument. So in other words, to me, the token
argument is very similar to the stable coin argument. It's
for the same audience, but that's a small percentage of
the global money. The other thing that was brought up
was and because of this crypto book I'm working on,
(38:35):
we interviewed Jim Bianco, who has been somewhat hesitant of
the bitcoin ETFs, and he said that the more the
ETFs get popular, they'll it hurts the bitcoin case because
it keeps people in the regular system as opposed to
moving on chain, and that is an interesting point. But
I also think that point shows you just how badass
(38:56):
the ETFs are and how convenient they are that people
would rather just click by then go on to this
new thing. So the blockchain world, also, I think, has
a lot of work to do to get the interface
is a little easier because you've got to make it
McDonald's easy to get a wallet and move your money.
I've tried it. It's not that easy. There is some
friction to it. You can do it, but it's not
(39:18):
McDonald's easy yet.
Speaker 3 (39:19):
Nobody's gonna move. They're just going to get it on
their existing platform, right, I as a Schwab customer, I'm
just going to wake up in a year and I'll
be able to do all of this with my Schwab
app on my phone without having had to do anything
except click okay on another terms of service. I didn't read.
Speaker 1 (39:33):
Okay, last story that we're going to talk about. Last topic.
Amazing headline from Bloomberg News nuclear weapons pass esg test
as war redefines ethical investing. WHOA, there's lots unpacked there.
Speaker 3 (39:49):
I saw that headline and I was like, this has
got Eric all.
Speaker 2 (39:52):
Oh yeah, iled it on a Sunday night, and I
really don't do I don't not use Twitter on Sunday
nights because I don't want that my brain when I
trying to get the most important night's sleep. But I
couldn't resist.
Speaker 1 (40:04):
Okay, here's the lead, Dave, and I'll let you take
it from here. The deadliest weapons ever manufactured are becoming
a regular feature of Europe's nearly nine trillion dollar ESG
fund industry. How does that make you feel.
Speaker 3 (40:19):
Well. Look, Eric and I have debated ESG many times
in many forums over the years, and I've always been
a little bit more on pro and Eric's been always
been a little bit more skeptical. So I was reading
this and I was like, Okay, Eric, I can't wait
to read Eric's crow about this. Look. I think where
we probably agree is trying to one size fits all
something like a values based investment system just doesn't actually work.
(40:42):
And I think we mostly agreed on that part for
a long time. I do think it's very easy to
say nobody cares about ESGA, it's all scam, And I
would point out that we just had a quarter of
a trillion dollars issued in green bonds that are all
certified and going to climate projects in the first half
first quarter of this year. So we've got a trillion
dollars a year in new security issuance that is the
(41:05):
most woke green stuff you can imagine. So to say
it's a dead industry would deny the fact that it's
actually the hottest part of the bond issuance market that
has nothing to do with ETFs owning a bunch of equities.
And I think for most people if they've got got
real wealth, whether they're a sovereign wealth fund or just
a millionaire, you're better off in a DII or a
(41:27):
separate manage, separately managed account type process, because then you
can say, Okay, it's a little ridiculous, I don't want
to buy nuclear weapons in my ESG fund. Or maybe
you say, hey, you know what I'm really doing is
I'm voting based on my political ethos, and yeah, right
now I do want to do that. But I don't
think you can package that up into some like MSCI
index and say this is for everybody. I think that's ridiculous.
Speaker 2 (41:49):
I agree. This was taking something that was subjective even
between index makers, let alone people and investors, and making
it objective. What is good? Is a nuclear weapon good
if you're taking out a bad guy? Well? Yeah, well
then isn't the fossil fuel good that supplies that nuclear
(42:11):
weapon or the tanks that you're going to get the
bad guys? What about the smokes the soldiers need or
the alcohol they need to drink after they have trauma? Like,
if you want to go to the line nothing is
ESG or everything is ZESG. You can take this to
a place where I think you throw your hands up
and go screw it. I'm just gonna buy the S
and P five hundred. The problem, the reason I have
(42:32):
some touchdown dance with this is that the problem I
had with ESG wasn't that it existed. It should have
just pitched itself as another form of active Hey, we're
gonna pick stocks based on this stuff. We may or
may not perform. I'd have no problem with that. The
problem was it was sort of pitched in the media
has a lot to blame for this as like this
(42:53):
new thing that was going to take over. It was
gonna make everybody feel good. It was the wave of
the future, and it was all got your morals mixed
up in it. And the European government in particular, they've
really pushed people into ESG. And the problem with getting
all virtue signally out there is that at some point
you're going to be a hypocrite. Now Europe wants to
(43:13):
build up its defense industries because it's not NATO is uncertain,
and it has Russia right next to it, and so
the war in Ukraine has made Europe into defense. But
the people that are they want the money from are like, wait,
we can't buy those thucks because they're not ESG. You
told us that we have to be ESG. And then
(43:34):
Europe's like no, no, no, wait, it's okay now because
these are we're fighting Russians, you know. It's just like
I just think that once you get on your moral
high horse, you're destined to fall. And I just say,
don't get on the moral high horse. Just say that
these are new metrics to track companies. This fund is
(43:54):
going to pick based on them. Look at the holdings
you may or may not perform. I'm fine with that
sales pace. But I think ESG got hijacked by this
moral morality issue. And I think part of it was
because people who normally would vote for these things if
their party isn't in power, they feel like powerless. So
(44:16):
they applied a lot of that wanting power to the
corporate world. And I just think this isn't the right avenue,
Like an index fund is not the right avenue to
fix some of these problems. In my opinion, I think
the other locally and in your government, you need completely
new rules around types of energy and all this stuff.
So I just find that the other thing is that
(44:38):
Dave mention is the bonds. Also, bonds are a better
way to be ESG in my opinion, because if you're
getting more money from bonds that are green, that's directly
going to impact your financial situation. If your stock happens
to be sold by an ESG fund and then bought
by a value investor, it doesn't really matter. It's just
(44:59):
the stock trading on the secondary market, indifferent than your operations.
So I will say just a couple things. Bonds are
the better way to be ESG if you're going to
do it locally even better, voting even better. And then
if you're gonna invest, just know that this is an
active strategy that will underperform and outperform, and you better
be prepared for that. And that's all we're saying.
Speaker 3 (45:20):
Yep, I think we agree. I think it's an active
management decision that people make, and hey, sometimes it works out. DSi,
which is the oldest DTF we've got in the space,
actually has beaten the S and P since inception by
a couple percent, So you can't say it's a horrible,
horrible idea, but it's absolutely an active bet. And in general,
I think most people are better off leaving their politics
out of their brokerage account. You know, and you know,
(45:43):
I'm pretty vocal about the stuff I believe, and I
don't buy ESG products. I just invest in a very
very boring way because it seems to work.
Speaker 2 (45:52):
Rick Ferry is like, just buy a cheap index fund,
use the money you would have spent on the ESG
fund and take that cash and do it.
Speaker 3 (46:00):
No kid hungry or something.
Speaker 1 (46:01):
Yeah, you go, all right, We're gonna leave it there
at the nacios. Dave, thanks for joining us on Trillions. Dave,
congrats in the new game.
Speaker 4 (46:11):
Thank you, thanks having me on.
Speaker 1 (46:18):
Thanks for listening to Trillions. Until next time. You can
find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify,
or wherever else you'd like to listen. We'd love to
hear from you. Hit us up on social I'm at
Joel Weber Show, He's at Eric Balcina's. Trillions is produced
by Magnus Hendrickson. Brendan Newman is our executive producer. Sage
Bauman is the head of Bloomberg Podcast
Bulcan Intrilliance.
Speaker 2 (00:06):
I'm Joel Webber and I'm Eric Belchunas.
Speaker 1 (00:11):
So, Eric, it's August. We've been desperate to find guests
to uh to join us on the podcast, and then
somebody got a new job, Dave Nadig, and we were like,
you know what, he's gonna go to ETF dot com.
We should bring the competition on the podcast. Let him
promote himself a little bit, kick some themes around. Also,
(00:32):
get somebody who works for you who can't say no, Athanasia,
Sarah Fagas, and and basically we'll run through some headlines.
How does that sound?
Speaker 2 (00:41):
That sounds good to me?
Speaker 1 (00:42):
Okay, so I gave it all away already, but we're
gonna have Athanasio, Sarah Fegas of Bloomberg Intelligence, and Dave Nadik,
who's now the president and director of research of ETF
dot com, a site that no doubt he's gonna tell
us all about because he's been there for multiple jobs
through the years. But Eric, the biggest thing is that
(01:03):
there's been a ton of the interesting headlines about ETFs
su late.
Speaker 2 (01:07):
Yeah, Bloomberg News has been on fire. And not to
pat ourselves on the back, but so is bi and
there's a lot of things to just go through. So
we had all these ideas for topics, but there's no
way they would take three months to do separately. So
we're gonna cram a lot of the recent news activity
into sort of one of our McLachlin group type episodes
(01:27):
where we or maybe a ESPN first take would be
a more modern example, but where we just roundtable these
things and just real quick. Jow, I go, I gotta
say something. I think we've been doing this for like
ten years. ETFs this year are on pace to take
into trillion dollars for the second year in a row.
And I put out on X earlier that the name
(01:48):
of this podcast has aged very well, so good job
you picked it. I wanted to call it data mail line,
and I'm glad we want with trillions.
Speaker 1 (01:57):
YEP, I will take credit for that. It's time on
Trillions Roundtable. Athanasios, Dave, welcome back to Trillions.
Speaker 3 (02:11):
Thanks for having me.
Speaker 4 (02:12):
Thanks, even though I couldn't say no, glad to be back,
that's true, h.
Speaker 1 (02:18):
Dave, congrats on the new role.
Speaker 3 (02:19):
Thank you very much. It does feel a little bit
like a like a return. I left as CEO and
I'm back as president. So you know, nothing nothing changes
but stays the same.
Speaker 1 (02:28):
Is that is that better or different or what? Yeah?
Speaker 3 (02:31):
Like, what's better is that? The better is that the
new CEO is Matt Middleton, who you may know from
running the future Proof conference series, who really knows what
he's doing when it comes to making big events that
move the needle. And that's what we're gonna do. We're
gonna do a lot of multimedia content. We're gonna build
content around ETFs people can trust, like some people may
be around this table, and we're gonna put on a
(02:53):
big event. That's what we're gonna do. It's gonna be fun.
Speaker 2 (02:55):
Yeah, Joel, let me just chime in here, because you know,
one of the reasons I got excited about ATS was
Dave Nating and Matt Hogan had a podcast when they
were on Index when they called it Index Universe, which
was later named ETF dot com. So Dave, honestly like
this is like twenty years ago, founded this website and
then they went to ETF dot com. And then people
(03:19):
started to slowly like disperse, you know, and they went
to ETF, Isshoers, other media companies, Crypto, you name it,
and ETF dot com you know, carried on, but you know,
and there's some good stories now and then, but it's
it's not nearly the magnet it was. And so to me,
this is like Steve Jobs returning to Apple, maybe on
(03:40):
a smaller scale, but similar situation here. So the pressure
is on Dave to come up with the iPod, the iPhone.
His third act better be good.
Speaker 3 (03:51):
I'll be sure. I'll do my best. But look, the
ETF industry has changed. I think the the url that
is etf dot com can mean something different now than
it did twenty years ago, right, I think. I think
we've got and we're going to talk about it. We've
got over forty six hundred ETFs now, back then we
had four hundred and fifty. It's a different world, so
we'll make a different website, all right.
Speaker 1 (04:12):
So we've got a handful of themes that we're going
to talk about. The first one that I want to
start with is a headline from Vildanna Hirich that really
made me sit up new this week. There are now
more ETFs in the United States than there are individual stocks.
So the number that she has in the story, there
(04:33):
are forty three hundred exchange traded funds versus forty two
hundred stocks. Ethan, Yeah, I mean, I guess what do
you what do you think of that?
Speaker 4 (04:45):
It's yeah, definitely mind blowing, but I guess it was
if you just kind of look at the nature of
the stuff that's being brought out now, so like it's
a lot of single stock stuff. So you have like Tesla,
then you have so many ETFs like long own like
long Tesla, then short Tesla, then option income Tesla, so
on one ticker you have like twenty ETFs that are
(05:06):
being launched. So I guess it's not it probably would
have happened eventually, but it's definitely a really surprising stat
that there are more ETFs than stocks. And maybe the
bigger problem is we just don't have enough stocks, right,
Maybe that's a whole other debate, but like we're just
there's so few stocks and so many products being launched
off of like a very you know, tight list.
Speaker 2 (05:26):
Just real quick on that you had to piece out
a note about ETFs being the new IPO and the
exchange is really just trying to get ETFs now more
than companies to list.
Speaker 4 (05:37):
Yeah, we looked at that, and I think you know,
if you look, there's not a lot of IPOs anymore, right,
and you look at something like I hate to admit it,
but like I bit right, that is worth more to
NASAC than like an IPO trades more than a lot
of new IPOs. So I get why the exchanges they're
they're backing, like the share class ruling and things like that,
(05:58):
Like if there's not IPO's coming, they ETFs are just
as good. So and just given how much you know,
the percentage of trading that's going up in ETFs, I
get that they want to really lean into this and
sort of fill that gap for the drought and IPOs.
Speaker 3 (06:14):
Yeah, I'd add a couple of things there. One, You're right,
they're not enough companies ipoing. So that's a that's a
whole problem by itself that has nothing to do with ETFs.
That's just how we structure the capital markets right now,
So all the interesting capital formation actually happens privately, and
then when things are big enough, they ipo straight into indexes. Right,
That's that's the pattern that we've seen over and over.
(06:35):
But you know, I'm not sure that I'd be a
lot of hand wavy about the fact that they're now
more ETFs, Like I think samro made the comment this
morning on Twitter, they're also more recipes than there are ingredients,
and I think that's also true. I mean, look, we
have one hundred and fifty thousand indexes tracked by the
Index Industry Association. Obviously that's insane. But you can just
add one stock, get rid of another, and now you
(06:56):
have a brand new index, right, So of course we're
going to end up with that proliferation. And I think
they're issues, right. It makes figuring out what ETF to
buy a lot harder than it was twenty years ago.
Speaker 1 (07:06):
As we were saying, yeah, actually, I find that I
find that to be like this prevailing problem just in
my life in general, Like I call it the bread
ale as my wife loot tests like you get in
the bread ale, and it's like, how am I supposed
to make a decision? All of these things are basically
the same.
Speaker 2 (07:22):
Yeah, isn't that the paradox of choice? I think that's
the term for it. So I agree, it's just the
way it goes when something's successful, and especially in asset management,
if the fish are biting in a certain you know, lake,
they're going to launch products to try to get bites.
So it's a natural part of capitalism. I did look
(07:45):
and there are almost six thousand mutual funds, so there's
been more mutual funds than stocks for thirty years. The
ETFs of the four thousand and whatever five hundred, there are,
half of them are below one hundred million dollars. So
most of these live in oblivion, and only a couple
really catch on. And so the UH I think in
(08:06):
my first book, I've used the metaphor of there are
I forget how many notes. There are like seven notes,
and then there's a you know, maybe a couple hundred chords,
but there's like one hundred million songs right right, or
as met Favor puts it, there's definitely more words than letters.
So I don't care. I think it's just a sign
(08:29):
of the industry growing. But I agree it is harder
and hard to make a choice. I think that gives
all of us here some job security, which is good.
Speaker 3 (08:36):
It's going to get so much worse too. Between the
single stockraft that you were pointing out, you know, there's
going to be seven to twenty ETFs for every single
ticker at some point, and we've got the share class
conversions coming down the pipe, which could be anywhere from
zero to a couple thousand new ETFs, depending on how
aggressive that industry wants to get.
Speaker 2 (08:55):
Yeah, I mean, Dave Nadig, where do you think we
end up? Like, if you had to pick a plateau number,
what would you pick?
Speaker 3 (09:04):
Eight thousand?
Speaker 2 (09:05):
Okay? How about you?
Speaker 3 (09:06):
I mean, if if you figure every stock in the
S and P five hundred is going to have a
few varieties, right, at least a leveraged, at least a
covered call strategy, probably a short So there's probably two
to three thousand ETFs just on the Stingle stock you know,
Djen Shenanigan side, and then the four thousand we've already gotten,
(09:27):
not one thousand or two that are going to showup
because people want to, you know, do the share class
spoking end thing? Eight thousand?
Speaker 2 (09:33):
I'm you know we last time we had Joe on
we had that note that we wrote earlier in the year.
No no industry for old analysts, because Dave, you and
Ethan are very similar that when there's one of these
crazy like you know, single stock covered call yield max
that launches, especially if they combined two or three things
like now there's a two x buffer.
Speaker 3 (09:55):
Stock and withering idiots with drool running out of our mouths.
Speaker 2 (10:00):
I understand Ethan puts the picture of Tommy Lee Jones
looking over the paper in No Country for old men,
Like what? Anyway, I get it. I'm probably the most
liberal of you guys because I just find the trading
wing of the ETF tent okay, given that there are
plenty of ways to gamble. This is America, it's a
(10:23):
you know, it's just I think I just look at
the ETF as a technology, not as an index fund,
and I think that's where I might be more liberal.
Speaker 3 (10:33):
I think you and I agree more than we disagree
on this. I'm not anti people trading these vehicles to
run their cowboy accounts or hedge funds using them to
run their exposures. But they're good and bad ones of
those two rights. That's really I think the key thing
is that there are good single stock leverage funds and
there are bad single stock leverage funds. And it tends
to have to do with things like how much got
(10:54):
buried in the swap contract. You're not paying attention to
how much do these things actually cost? Do they trade it?
Two percent spreads on high vol days, like there are
good and bad ones even in the hottest of hot sauce.
Speaker 2 (11:05):
And I would argue there are good of bad ones,
even the most in the most vanilla areas.
Speaker 3 (11:10):
Yeah, yeah, there's the wrong s and P five hundred
ETF to buy. Which one is that, Dave? The one
that costs too much? Probably Shi, I.
Speaker 2 (11:19):
Will say it's Hi. Yeah, it probably is. Spy. In
the mutual fund world, the second ever index mutual fund
as well as Fargo, and that still charges like thirty
five to forty BIPs.
Speaker 3 (11:31):
There's there's still a two percent SMP mutual fund trading.
It's got hundreds of millions of dollars in it, like
it should be illegal by design. I don't know, Okay.
Topic number two.
Speaker 1 (11:40):
This is a headline a note from James uh A
Safer at Bloomberg Intelligence headline, Passive ownership is rising and
more complex than meets the eye, Dave, Is that true?
Speaker 3 (11:54):
Yes? Both of those things are true. You guys track
the passive stuff better than most people. I mean, what
are you got thirty five percent measurable, fifty percent probable
something like that?
Speaker 2 (12:02):
Well, well it's a lot. Let's just define passive. In
James's note, it's he says the average stock has twenty
percent of its shares owned by passive, which is defined
by the way as index something ETF or mutual fund,
which can include smart beta. So it's a pretty wide array.
Speaker 3 (12:19):
Yeah, but that misses the problem with that institutional separate recounts.
Speaker 2 (12:24):
So where should we go twenty to what thirty?
Speaker 3 (12:26):
I would say, thirty five, thirty five?
Speaker 2 (12:28):
Okay, let's say it's thirty five.
Speaker 3 (12:30):
The academic research points okay, the thirty five to forty range.
Speaker 2 (12:33):
So your take is should we worry?
Speaker 3 (12:36):
So my take is, yes, it matters, but not for
the reasons everybody thinks it does. It's too complicated to
be a blanket good or bad. What really matters is
the flow in and out of these big block products.
It actually doesn't matter whether they're quote unquote index. But
if you build a giant block trade based on cap weighting,
that has real impacts on price discovery because the elasticity
(12:58):
of big stocks is different than elasticity of small stocks.
So you end up with this kind of runaway winner,
runaway loser problem at the top of the cap table,
which we see every week when we get allocations into
TDFs and the four andin K money flowing in, all
of which can turn around. Everybody could decide to pull
all their money out of their target day funds and
buy cash tomorrow. Right, So sentiment overrules all of this.
(13:20):
But until you see some of those numbers change, the
constant drumbeat of money flowing through passive into the market
does disturb price discovery. And there's been some amazing deep
academic research in the last eighteen months on this that's
pretty difficult to argue with. I mean, it's not fufu ideas.
It's like, no, we looked at millions of data points
(13:42):
over twenty years, and you can kind of prove it.
Things like bitcoin are great. Sort Petrie dishes for this
because you know, absolutely limited supply flow is the only
thing that changes price. It's kind of proved all our points.
Speaker 2 (13:56):
Well, I get that. And obviously a bunch of money
is going in and buying vou and voo like products.
It's going to push the prices up there, that's a fact.
But the voo waitings are totally determined by active Because
Athanasios I'll turn to you on this, he did a
deep dive and found that, you know, when Tesla has
(14:18):
a bad earnings, it sells off, its market cap goes down.
Navidia was the one hundred and fiftieth stock in the
S and P only like five years ago, and it's
index didn't do that. Active likes Navidia and it hates Macy's,
which got kicked out of the S and P.
Speaker 3 (14:34):
So for sure, but I'm not saying that that's the
reason in Nvidia rockets to the top. I'm saying it's
the reason that the market in general becomes slowly more
top heavy because the incremental dollar goes into a stock
like Nvidia, which is much less elastic than public storage ink. Right,
So public storage inc. Anybody can swap that out for
(14:55):
another industrial Nobody cares. If you don't have Nvidia in
your portfolio, have a problem as an active manager. So
that for that reason, a dollar going into Invidia moves
in video more than a dollar going into a company
at the bottom of the cap table. And that's math.
We can prove that that's just actually what's happened. So yes,
price discovery still happens, but it actually happens violently with
(15:17):
a smaller number of players, which rockets things either up
or down, and then the next thing that comes in
reinforces that either up or down.
Speaker 4 (15:27):
I think you brought up a good point, and honestly,
I don't want to cop out. I don't think anyone knows.
I've seen good research on both sides. I get that
the system is structurally set up that yet flows are
going to come in. It's going to keep going to
these stocks. I'm not fully convinced that it's like a
problem yet. I think there's still too many like holes
you can poke in it.
Speaker 3 (15:46):
Oh, I don't think anybody should do anything about it.
Like I don't think the answer is don't buy passive.
I think that this actually means, for the love of God,
stay in cap weighted products and stay invested. Because these
are tailwinds to the market. They can whipsaw. But I
actually can't point to the thing that's going to make
it whipsaw. It's not the it's not old people retiring
(16:07):
that's not going to do it. That's actually going to
help because all those young people who inherit it buy
more right. So I don't think this means you do
something different. I think it explains what we've been witnessing
for the last ten years.
Speaker 2 (16:19):
Yeah, I would also just say that one thing that
may change this, and probably it's also good for everybody,
is that active is getting cheaper. And so the more
that the capital groups and fidelities and trows lower their fees,
the more they see organic flows. I think advisors do
want active, they just want to pay us a lighter
fee for it, and that would obviously introduce more price
(16:42):
discovery based on fundamentals because those active funds do hold
different stocks with different weightings. So in a way, and
we debate this with Mike Green from Simplify all the time,
one of the things that is just an inconvenient truth
here is that active managers were caught in a very
disruptible position charging one percent for mostly Beta and Vanguard
(17:05):
disrupted the crap out of them. They never passed on
economies of scale during the fifty years they had a
chance to, and if they had, they'd have more upperformance,
more customer goodwill. But because they didn't, I find that
sin is still haunting them. But as they adapt, Yeah,
it as they adapt, though, and money shifts back to active,
(17:25):
because active's taken in twenty five percent of the flows
this year, some of this will possibly be sorted out
by the market.
Speaker 3 (17:32):
Yeah, and look, we've got folks like Baron coming in.
I mean, the thing that's shocking to me is that
we've got classes of active managers that have been crushing
it for one, three, five, ten, twenty, like Barn like
bridge Haven. Like there's a bunch of active managers you
can look at and be like, no, they've done everything
they said they were going to do and they're crushing
and they all have outflows. Yeah, well, bananas.
Speaker 2 (17:53):
The Barren guy coming into ETFs is capitulation. I bet
he didn't want to. But Joel, this is the only
in fifteen years to beat the cues. Beating the cues
is like it's like beating Michael Jordan his prime, Like,
how did you do that? Right? And uh, it brings me.
I always think of that quote from the Tim Burton Batman.
Remember when Michael Keaton's like, oh, you want to get nuts,
(18:14):
let's get nuts.
Speaker 3 (18:16):
Yeah, let's go.
Speaker 2 (18:18):
You got to get more crazy than the cues And
he did, Oh yes he did. It's like it's the half.
The half the mutual fun is Elon Musk companies. It's
like SpaceX and Tesla. So that's part of I think
what worked is discarding the CFA brain and getting a
little crazy and Baron did it. Now he's coming into ETFs,
(18:39):
we'll see what happens. Like the timing is interesting. Would
this be a signal that maybe now is the time
that he underperforms? I don't know. But also he's coming
in at one percent. I think that's a pretty hefty fee.
Speaker 3 (18:50):
Did we get it? Did we get an actual fee?
I didn't see that.
Speaker 2 (18:53):
That's what Katie Greifeld reported. I think it was like
one of them was seventy BIPs, one was one percent.
Either way, those are all that said. If he has
active share of like ninety five or percent of review, yeah,
then it's in this sort of arch thematic bucket. People
pay more, people have less price sensitivity for stuff that
has a high active here.
Speaker 3 (19:11):
Even a one percent, it's a bargain compared to like
the age some of his mutual fund shared classes are
one point nine. Yeah, So like there's some real bang
expensive stuff out there.
Speaker 2 (19:20):
Yeah. And like, by the way, Tom Lee also had
great success with Granny the Granny shots ETF. Now he's
launching two new ones. Dan ives have come in, so
it's not just that big old school manager getting cheaper.
You've got these stars, you know, I say, yeah, one
of our themes is ETFs Go Hollywood. Some of these
star managers are coming in. And I'm going to say
right now in the show, I believe Bill Ackman will
(19:40):
launch an ETF at some point. I don't think Buffett will.
I think he's he Berkshire's kind of that for him.
But I do think if you are in this industry
and you want to be where the fisher biding, you
kind of have to come into ETFs now, especially Tom
Lee in particular, seeing the success he's had. Two billion
in less than a year is pretty good, and his
fee isn't cheap either, So that's a good sign I
(20:03):
think for active and maybe the people who are worried
about passive growing so much.
Speaker 1 (20:13):
Okay, next topic, Eric, this one's gonna put you in
the hot seat. Magnificent seven. Question mark was the beginning
of a note, the headline for a note that you wrote,
think of them more as the Magnificent seventy. Okay, I'm
really interested in this because you can't you can't talk
about markets without talking about AI and the Magnificent seven.
(20:34):
Right now, there's four hundred and ninety three other companies,
except you say, maybe maybe that math is off, maybe
there's maybe there's many more that should be considered magnificent
seven companies. What's you're reasoning?
Speaker 2 (20:46):
Yeah, so, and you brought Sam ro up earlier. I
actually got this idea from him. He talked about the
idea that many of these companies are like multiple companies
inside of one, and I thought, yeah, you know, he's right,
Like it feels right that. So I look, did the
amount of acquisitions the mag seven companies have made, and
it's eight hundred and fifty eight between the seven of them,
(21:09):
Google and Microsoft are like two fifty each. Yeah, here's
the thing. Like one of Google's acquisition was YouTube. That's
one of two fifty. YouTube would be the nineteenth biggest
thought in America if it were spun off. And so
the amount of brand names, actual capital cash these companies.
I talk to our analyst on Rugrana who covers some
(21:31):
of these tech stocks, and he says, they're like countries,
they're that big. So I almost think you kind of
have to throw your CFA brain out a little bit
here too. The mag seven should be looked at as
seventy So if.
Speaker 3 (21:43):
You, well, isn't this GE, I mean, are we just
basically talking about Jack Welchi or a GE where it's like,
are you a finance company? Are you a tech company?
Or you defense contract with Berkshire? Yes, we're all of
those things.
Speaker 2 (21:52):
Yes, well Berkshire.
Speaker 3 (21:53):
I see more as like actually kind of a holding company, true,
versus something like Microsoft, which actually integrates these things and
like and I think they are like countries. I mean
Microsoft is also doing things like building water systems, like
it's crazy buying nuclear Yeah.
Speaker 2 (22:10):
Yeah, I went back and looked at GE, and I
think they're total acquisitions. I you know, I don't want
to get hate mail if I'm wrong, But I think
it was like sixty.
Speaker 3 (22:18):
Five, So it was it was a lot not this wasn't.
Speaker 2 (22:21):
On the same level. But let's just say we consider
them to be seventy companies, all of a sudden, they're
thirty four percent waiting in the S and P. Isn't
that bad? So I guess part of the reason I
wrote this was Ethan and I talk about this all
the time in the team. It's I just not into
scaring people out of these companies. There's so many people
like it's time to rotate. These companies are valued. I'm like, yeah,
(22:43):
but people said that two hundred percent ago. And these
companies kick so much ass that you can't not own them,
Like these are the leaders of the world in what
they do, and it just seems crazy to me. This
is where I think you never want to go full CFA.
You only go half CFA. You know what I mean.
(23:05):
If you fill CFA, you will lose and lag and
be miserable.
Speaker 3 (23:10):
I agree that I think this is a useful framework.
I think you're correct in that. From an economic perspective,
thinking about Microsoft as being a singular company the same
way that John Deere is a singular company is wrong. However,
it's a single security, and so from a risk management,
market structure, capital flow perspective, MSFT is still a single stock.
(23:33):
And when some big whale decides to fat finger an
options trade and it gets tanked by nine percent, which
seems like a ridiculous amount of value to extract from
the market, it's because it's still just one stock. There
is some danger in having more and more and more
economic activity in fewer and fewer tradable tickers. That's a
(23:55):
different problem than are these companies too big, and will
they be bad economically? I'm with you on that. I
think the AI thing is an interesting use case here
because I think you can make the case that the
benefits of AI may actually benefit the bottom two fifty
in the S and P more than the top two fifty,
because that's where the boring, low hanging fruit of Like,
(24:16):
can we, you know, replace these three boring processes in
a back office with an AI. I think that's going
to happen more there than Nvidia is going to have
blowout earnings for eight quarters?
Speaker 1 (24:27):
Eric, what are those seventy? And how do you get it?
Speaker 3 (24:29):
No?
Speaker 2 (24:29):
No, what I'm saying is if you opened up Google,
you're going to find YouTube a cloud company. I mean
I'm talking Google has about seven to ten actual legitimate
large caps within it.
Speaker 3 (24:40):
Yeah, you're buying a conglomerate.
Speaker 2 (24:42):
Yeah, you're buying again like at Arog says a small country.
I mean, if you look at the market cap, these
would be bigger than most of the countries on Earth.
But to Dave's point, I wrote in my note that
that isn't to say this is not antitrust issue, and
that may be a fact these companies, you know, how
(25:03):
big should they get should they get broken up? I
feel like that's a fine debate to have because should
Google have that much going on inside of it? That's
just different to me than index concentration in terms of
what you're buying that. So it's a very interesting, complicated issue.
But I just wanted to get people to look at it,
you know, from this alternative way. And I wasn't alone,
(25:26):
although he's biased. Dave Masa from Roundhill, who has the
ETF MAGS, he wrote a piece similar about there being
more more to it and the valuations, you know, might
be worth it given how many other companies are inside.
So I sort of ripped off from both those guys
in my note, although none of them mentioned the amount
(25:47):
of total acquisitions, which again I thought I was going
to find like twenty to thirty in each and I
was like, oh my god, eight fifty.
Speaker 3 (25:54):
Now a lot of those are really small companies that
were part of a tech stack, right, true, like a
lot or companies got bought, but because their calendar plugin was.
Speaker 2 (26:02):
Crazy, you know, no, I hear you, But I went
into Google. They bought some company I never heard of
for thirteen billion dollars. Oh, you know, the numbers of
cloud stuff like like, there's stuff. I agree, there's small
stuff that is bullsh doesn't count, but there's some big
stuff we never even heard of the company, like Slack yes,
(26:22):
and like ways you know that app which I used constantly, constantly,
I forget.
Speaker 3 (26:27):
Where owns that?
Speaker 1 (26:29):
Google?
Speaker 3 (26:29):
Google? Google owns that?
Speaker 1 (26:30):
Now?
Speaker 3 (26:30):
Yeah, I can't keep it has forever?
Speaker 1 (26:33):
Okay, next topic, Katie Greifel's headline earlier in August, Vanguard
plans for its costliest ETFs yet an active push. Uh Ethan,
I want to talk to you. The new number one
at Vanguard is point four zero percent, followed by zero
point three five percent. This is on top of their
(26:57):
current costlyest ETF, which is point three Yeah. I love
And what do you make of this push into active?
Speaker 4 (27:03):
They're playing offense now right, Like we looked at, Vanguard
doesn't launch ETFs that often, and so this year I
think it's the most they've had in like ten years.
Obviously they have a new CEO. But there we were
looking at this last week. I think if Blackrock didn't
have the bitcoin and crypto stuff, Vanguard would only be
like forty billion behind them. So that gap is gonna close.
(27:26):
But yeah, I think, you know, they're they're you know,
they're still a large active manager, right, so it kind
of guess it kind of makes sense that they're they're
pushing into that, but.
Speaker 1 (27:35):
They have active in the name now. These are called
the Vanguard Wellington Dividend Growth Active ETF. That's like, this
is like how Vanguard became Fidelity and Fidelity became Vanguard.
Speaker 4 (27:47):
Like David alluded to, THETF dot com means different things now, right, Yeah,
this is yeah, that the whole era is changing. So
I love that they're playing, you know, offense. They're they're
getting more aggressive on the product front, you know, and
it's fine. You know, they've they've basically given away their
ETFs for free for such a long time. Now it
looks like, you know, they want they want to charge
(28:08):
a little bit more. They're probably still going to be
cheaper than most a lot of active stuff anyways, So
it's still kind of a win win.
Speaker 3 (28:14):
But I'm a huge fan because it feels like, you know,
I'm a big fan of like bringing your authentic self
to work every day. I feel like Vanguard's finally bringing
the authentic Vanguard to market because Wellington's been just raking
in cash for them for decades. I mean, you talked
a little bit about about this in your book, you know,
the the active thing that lives inside the giant passive enterprise.
(28:37):
But I think at some point, I don't know whether
it was you guys or somebody else, did the rundown
on how much revenue they actually generate from the active
side of the business versus the ETF side of the
business before they got any of the active product over
and it was like four times as much money that
they make off the active products. It's like they're actually
huge in that business. So it's about f and time
(28:57):
that they show up and bring those products to the ETFE.
Speaker 2 (29:01):
Two things on this one, I agree. Will they have
success though it's not a guarantee. Normally when Vanguard comes in,
you're like, oh, this is just going to take in
a billion dollars within a couple months. But they're really
late here. You know, they ranked nineteenth in active ETFs
and they're like one or two in everything. This is
a category they're ridiculously low in and everybody has come
(29:23):
in for the past ten years and vanguarded the category already.
So you got JP Morgan, Capitol Group, DFA Avantis. They're
all well below twenty basis points, if not ten in
some cases, so Vanguard comes in a little late. We
have a note that a recurring theme we talk about,
which is the Vanguard effect, has outrun Vanguard, and they're
(29:44):
actually stepping into a category that's already had the Vanguard effect, ironically,
and they're going to suffer from it. I think I
don't see these being that big. And Dave, I'd like
to ask you, do you think they'll ever make the
Wellington fund though, the one that's one hundred years old,
the one that Bogi save like a firstborn child, that
balance fund. Do you think they'll ever etfiz that because
(30:04):
it's not in this mix right now.
Speaker 3 (30:06):
I I'm very skeptical. I'm with you. I don't think
these are going to be big money winners for them.
I don't think they're gonna get a ton of assets.
I think it's a service to those people who already
know the Wellington brand and are in those mutual funds
generally had a little bit more money. So I think
they'll get some transfer money from advisors. I think that's
what they'll get, and they may even get some from institutions.
(30:26):
Because some institutions use those, they have a pretty big
business on the active institutional side. So for people who
want a liquidity sleeve on a similar strategy, that whole shtick,
they'll get some traction. But I absolutely do not think
this is their next big thing. Like there's not going
to be hundreds and hundreds and hundreds of billions of
dollars in these things. No way.
Speaker 4 (30:44):
Maybe you've looked at this, Eric, but let's say, if
you take out fees, is Vanguard like a good active manager,
Like would you rather like you say, if you were
to go active, would you rather want a capitol group
or a deals Okay, well, hold.
Speaker 2 (30:55):
On fees are a matter because actually at work with
US S and P, they ran the number. Vanguard's beat
rate is higher, I see than the average company, and
it's directly related to fees. And the further out you go,
the higher that beat rate gets, because fees matter more
ten to fifteen years. This is why my Bogel effect book,
I premise that if the index, the index or index
(31:17):
fund was never an invention, if you just pretend we
live in a society without indexing, Vanguard would be the
biggest active manager six seven times over because they would
have brought their fees down, and that's like giving their
managers a huge head start in the race because they
have lower hurdle to overcome and over long stretches of time.
All the Vanguard funds would have been on the cover
(31:39):
of Forbes in Fortune as the top managers just because
they're cheap, because I call it bogo metrics instead of sabermetrics.
Even Bogel in his books, in his books, by the way,
he does brag about active a little bit, but he
he kind of brings the credit back to himself. He's like, yeah,
this guy ran this, he did okay, but honestly, I
made the fun cheap and I told him not a
(32:00):
lot of trading, and therefore that's why it really outperformed.
Speaker 3 (32:03):
And he was not a man without ego in my experience.
Speaker 2 (32:07):
So I always think, like the Vanguard secret is the cheapness.
But with these funds, they're forty there's a dozen cheaper. Yeah.
Speaker 3 (32:15):
Yeah, although a lot of those funds are really very
low turnover, low active share, I mean like the advance
to stuff. Most of the active share on that is
measured and you know, ten fifteen percent, like I mean,
it's not a lot. It's compared to something like Ron
Parrin coming in with something that's just crazy and wild.
I agree. I think these are going to struggle at
this price point.
Speaker 1 (32:43):
Next topic Isabella Lee, Bloomberg News reporter cross Assets often
on the show, writes tokenization boom. Wall Street still isn't biting.
GP Morgan says, So this is ultimately about the idea
that we're going to see the assets go on to
the blockchain. JP Morgan says that that's beginning to happen,
(33:06):
but really it's twenty five billion so far, and that's
really being driven by crypto NATA firms rather than Wall
Street incumbents. Dave, have we already reached peak blockchain here?
Speaker 3 (33:21):
God? No, I think we're Mike Philbrick from Resolve posted
a thing saying like, where are we on the comparison
to the fiber rollout or the railroads or all of
that stuff, And I put up a picture of Stevenson's rocket, Like,
I think we are still at the very early innings
on both crypto and AI, and I think they are
(33:42):
related unfortunately, but like we're actually starting to see things
like bonds issued on chain held on chain, redeemed on
chain without ever touching secondary systems. That's like very recent.
It's really in the last month we've had some of
these entirely on chain but still fully regulated institutional securities,
(34:02):
issuance and settlement things going on. That's exciting, Like we
should all be excited about that. That's the future. We're
gonna get rid of DTCC eventually, right, So that I
think is just starting to kick in. That's part of
the I would call regulatory halo effect of this administration,
as people are now just trying things and figuring they
won't get sued into oblivion later, and that's great. I
(34:23):
think we're seeing the same thing with like the trial
that's going on in New Jersey to take all the
real estate records and put all that information on chain
so you can do like instantaneous real estate settlement. It's
all really cool. So I'm a seller on the idea
that somehow that part is peaked. That doesn't mean prices
don't come down and bitcoin could still be worth fifty grand.
What the heck do I know? But from a blockchain
in real world assets and tokenization perspective, I am very bullish,
(34:47):
very very bollish.
Speaker 2 (34:49):
My take on this is if you're younger or in
a emerging market and you are have a wallet, you
have a digital wallet right now, and you've grown up
with it. I think tokens of stocks and ETFs will
be what you buy because the plot that's the universe
you want to be in. I just don't think that
(35:09):
is going to absorb the entire financial ecosystem. I think
it will be another avenue. And I think ets especially
in develop markets, simply because the customers are just so happy,
it's just tough to get people to move and if
they're happy campers. But anyone who's digitally native the ETF
(35:31):
industry and the all the exchanges and whatnot, who want
to get more money into stocks and ETFs should tokenize
this stuff. It's just another way to reach a new
audience who's used to this other way to get them,
which is a digital wallet. The good thing about that
is it does open them up to the whole world.
(35:53):
It does open them up twenty four to seven if
that's your thing, although I think that's a little overrated.
And so people who don't otherwise have access, which is
about half the world, can now easily buy shares of
Microsoft or voo or spy or whatever. So I'm all
for it. I just think that half of the world
has such a small percentage of the global money that
(36:14):
the motive to serve them is less than serving the
people who are already happy in low cost ETFs and whatnot.
And he'd be a mutual fund, so I just see
it as some If it does take over, it will
be twenty years from now when the wallet people grow
up and get all the money inherited, you know. So
this is very interesting. I'm evolving on it constantly. I
(36:36):
still think nature Acy should have kept his name ETF
Store at least for Do you have any plans to
change ETF dot com?
Speaker 3 (36:43):
I think that would be dumb. I think that would.
Speaker 2 (36:44):
Be good job. So I just think at least for
us we're middle aged, I would call us we're probably
good covering ETFs until we retire. I think the next
generation is going to figure out what to call themselves.
Speaker 4 (36:58):
It would be a new job title, for sure.
Speaker 3 (37:00):
I completely agree on the stock and I ETF side.
The problem is that the way we're talking about doing
it right now, even the people are doing it really well.
And i'd probably highlight wisdom Tree prime as the folks
I think have kind of figured this out the best,
like have your own wallet, put gold in it, put
crypto in it, and then put some tokenized funds in
alongside of it, so you kind of create a whole
on app ecosystem. Even that, I think the problem is
(37:24):
you're still rapping Tesla shares, you're still wrapping VU and
if you're wrapping something, you're not actually changing anything. You're
adding a layer of complexity and failure to an existing
ecosystem that's got pretty good backstops for things like a
blown trade or a fat finger. So I think we'll
head that direction. But until we get serious about solving
(37:44):
the plumbing, like until this comes from the NSCC or
the DCCC, it's kind of just fairytale land.
Speaker 4 (37:51):
Remember when they first start talking about like the metaverse
and they were like showing those like kind of like
those lame like videos of like like you couldn't really
see and this kind of how I still see tokenization,
Like ETFs are already so frictionless, Like what are you gonna
how much of the process actually going to get improved
unless Microsoft is launching tokens like you said, but to
buy a token on Microsoft Stock. I just don't see
(38:13):
the point. So you're you're adding layers again.
Speaker 2 (38:15):
It would be for people who don't have access to
brokerage accounts but have Internet access, which is the stable
coin argument. So in other words, to me, the token
argument is very similar to the stable coin argument. It's
for the same audience, but that's a small percentage of
the global money. The other thing that was brought up
was and because of this crypto book I'm working on,
(38:35):
we interviewed Jim Bianco, who has been somewhat hesitant of
the bitcoin ETFs, and he said that the more the
ETFs get popular, they'll it hurts the bitcoin case because
it keeps people in the regular system as opposed to
moving on chain, and that is an interesting point. But
I also think that point shows you just how badass
(38:56):
the ETFs are and how convenient they are that people
would rather just click by then go on to this
new thing. So the blockchain world, also, I think, has
a lot of work to do to get the interface
is a little easier because you've got to make it
McDonald's easy to get a wallet and move your money.
I've tried it. It's not that easy. There is some
friction to it. You can do it, but it's not
(39:18):
McDonald's easy yet.
Speaker 3 (39:19):
Nobody's gonna move. They're just going to get it on
their existing platform, right, I as a Schwab customer, I'm
just going to wake up in a year and I'll
be able to do all of this with my Schwab
app on my phone without having had to do anything
except click okay on another terms of service. I didn't read.
Speaker 1 (39:33):
Okay, last story that we're going to talk about. Last topic.
Amazing headline from Bloomberg News nuclear weapons pass esg test
as war redefines ethical investing. WHOA, there's lots unpacked there.
Speaker 3 (39:49):
I saw that headline and I was like, this has
got Eric all.
Speaker 2 (39:52):
Oh yeah, iled it on a Sunday night, and I
really don't do I don't not use Twitter on Sunday
nights because I don't want that my brain when I
trying to get the most important night's sleep. But I
couldn't resist.
Speaker 1 (40:04):
Okay, here's the lead, Dave, and I'll let you take
it from here. The deadliest weapons ever manufactured are becoming
a regular feature of Europe's nearly nine trillion dollar ESG
fund industry. How does that make you feel.
Speaker 3 (40:19):
Well. Look, Eric and I have debated ESG many times
in many forums over the years, and I've always been
a little bit more on pro and Eric's been always
been a little bit more skeptical. So I was reading
this and I was like, Okay, Eric, I can't wait
to read Eric's crow about this. Look. I think where
we probably agree is trying to one size fits all
something like a values based investment system just doesn't actually work.
(40:42):
And I think we mostly agreed on that part for
a long time. I do think it's very easy to
say nobody cares about ESGA, it's all scam, And I
would point out that we just had a quarter of
a trillion dollars issued in green bonds that are all
certified and going to climate projects in the first half
first quarter of this year. So we've got a trillion
dollars a year in new security issuance that is the
(41:05):
most woke green stuff you can imagine. So to say
it's a dead industry would deny the fact that it's
actually the hottest part of the bond issuance market that
has nothing to do with ETFs owning a bunch of equities.
And I think for most people if they've got got
real wealth, whether they're a sovereign wealth fund or just
a millionaire, you're better off in a DII or a
(41:27):
separate manage, separately managed account type process, because then you
can say, Okay, it's a little ridiculous, I don't want
to buy nuclear weapons in my ESG fund. Or maybe
you say, hey, you know what I'm really doing is
I'm voting based on my political ethos, and yeah, right
now I do want to do that. But I don't
think you can package that up into some like MSCI
index and say this is for everybody. I think that's ridiculous.
Speaker 2 (41:49):
I agree. This was taking something that was subjective even
between index makers, let alone people and investors, and making
it objective. What is good? Is a nuclear weapon good
if you're taking out a bad guy? Well? Yeah, well
then isn't the fossil fuel good that supplies that nuclear
(42:11):
weapon or the tanks that you're going to get the
bad guys? What about the smokes the soldiers need or
the alcohol they need to drink after they have trauma? Like,
if you want to go to the line nothing is
ESG or everything is ZESG. You can take this to
a place where I think you throw your hands up
and go screw it. I'm just gonna buy the S
and P five hundred. The problem, the reason I have
(42:32):
some touchdown dance with this is that the problem I
had with ESG wasn't that it existed. It should have
just pitched itself as another form of active Hey, we're
gonna pick stocks based on this stuff. We may or
may not perform. I'd have no problem with that. The
problem was it was sort of pitched in the media
has a lot to blame for this as like this
(42:53):
new thing that was going to take over. It was
gonna make everybody feel good. It was the wave of
the future, and it was all got your morals mixed
up in it. And the European government in particular, they've
really pushed people into ESG. And the problem with getting
all virtue signally out there is that at some point
you're going to be a hypocrite. Now Europe wants to
(43:13):
build up its defense industries because it's not NATO is uncertain,
and it has Russia right next to it, and so
the war in Ukraine has made Europe into defense. But
the people that are they want the money from are like, wait,
we can't buy those thucks because they're not ESG. You
told us that we have to be ESG. And then
(43:34):
Europe's like no, no, no, wait, it's okay now because
these are we're fighting Russians, you know. It's just like
I just think that once you get on your moral
high horse, you're destined to fall. And I just say,
don't get on the moral high horse. Just say that
these are new metrics to track companies. This fund is
(43:54):
going to pick based on them. Look at the holdings
you may or may not perform. I'm fine with that
sales pace. But I think ESG got hijacked by this
moral morality issue. And I think part of it was
because people who normally would vote for these things if
their party isn't in power, they feel like powerless. So
(44:16):
they applied a lot of that wanting power to the
corporate world. And I just think this isn't the right avenue,
Like an index fund is not the right avenue to
fix some of these problems. In my opinion, I think
the other locally and in your government, you need completely
new rules around types of energy and all this stuff.
So I just find that the other thing is that
(44:38):
Dave mention is the bonds. Also, bonds are a better
way to be ESG in my opinion, because if you're
getting more money from bonds that are green, that's directly
going to impact your financial situation. If your stock happens
to be sold by an ESG fund and then bought
by a value investor, it doesn't really matter. It's just
(44:59):
the stock trading on the secondary market, indifferent than your operations.
So I will say just a couple things. Bonds are
the better way to be ESG if you're going to
do it locally even better, voting even better. And then
if you're gonna invest, just know that this is an
active strategy that will underperform and outperform, and you better
be prepared for that. And that's all we're saying.
Speaker 3 (45:20):
Yep, I think we agree. I think it's an active
management decision that people make, and hey, sometimes it works out. DSi,
which is the oldest DTF we've got in the space,
actually has beaten the S and P since inception by
a couple percent, So you can't say it's a horrible,
horrible idea, but it's absolutely an active bet. And in general,
I think most people are better off leaving their politics
out of their brokerage account. You know, and you know,
(45:43):
I'm pretty vocal about the stuff I believe, and I
don't buy ESG products. I just invest in a very
very boring way because it seems to work.
Speaker 2 (45:52):
Rick Ferry is like, just buy a cheap index fund,
use the money you would have spent on the ESG
fund and take that cash and do it.
Speaker 3 (46:00):
No kid hungry or something.
Speaker 1 (46:01):
Yeah, you go, all right, We're gonna leave it there
at the nacios. Dave, thanks for joining us on Trillions. Dave,
congrats in the new game.
Speaker 4 (46:11):
Thank you, thanks having me on.
Speaker 1 (46:18):
Thanks for listening to Trillions. Until next time. You can
find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify,
or wherever else you'd like to listen. We'd love to
hear from you. Hit us up on social I'm at
Joel Weber Show, He's at Eric Balcina's. Trillions is produced
by Magnus Hendrickson. Brendan Newman is our executive producer. Sage
Bauman is the head of Bloomberg Podcast
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