June 27, 2019 • 33 mins
As the second quarter comes to a close, Trillions reflects on some of the interesting trends and takeaways that have emerged so far this year -- and also explores a few things that may yet come to pass. Joel and Eric are joined by Todd Rosenbluth, ETF analyst for CFRA, and Sarah Ponczek, an ETF and markets reporter for Bloomberg News and co-host of the new What Goes Up podcast. Topics discussed by the group include fixed-income ETFs, sectors, new launches, ESG, marijuana, the non-transparent active ETF model, Michigan sports, Tom Hanks, and Family Ties.
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Episode Transcript
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Speaker 1 (00:07):
Welcome on Trillians. I'm Joel Weber and I'm Eric bel Chernis. Eric.
We're halfway through the year and it's time for a
halftime report, the first you know what we're doing today? Okay,
half the report podcasts, and we brought some people to join.
One of them is a regular, Todd Todd rosen Bluth,
(00:28):
who if people anyone listening who's in THETF industry knows
this guy very well and knows some of his great
work both for cf R A and on Twitter, which
he uh coming like a recurring character. I like it, right,
and and here he is again. Yeah, he's kind of
like Tom Hanks on Family Ties. You know how he
came in once in a while, is the Yes, that
(00:48):
is exactly pretty good reference. Right. Yeah. We also have
another character who is also a frequent guest, Sarah Ponzac
from Bloomberg News also has a podcast of our own,
now hosting a podcast called Welcomes Up Channel's Plague. So
what we want to do is talk to Todd and
Sarah about a couple observations from the first half of
the year, and maybe even a couple I don't know
(01:10):
of corystal Ball style predictions exactly this weekend Brilliance twenty
nineteen halftime report. Todd Sarah, thanks for joining on Trilliance
observation number one big observation. Who wants it? Yeah, I'll start.
So this has really been the year of fixed in
(01:31):
comm ETFs. More than half of the net inflows have
gone into fixed in comm ETFs this year. It's about
of the overall et F pie. But what's quite compelling
to us at t F A is a couple of things.
One is the range of products that have gained interest.
You've got high yield, you've got long term treasuries like
t L T and I e F. You've got the
(01:53):
ultra short products that were popular in two thousand and
eighteen have stayed popular bill SHV along with the active
ones like mint and jps T. And then the second
part of this is again the range of products. So
using Bloomberg datly earlier this week, I saw, you know,
more than a hundred fixed in com ETFs have gathered
(02:14):
over a hundred million dollars of net new money this year.
So it's not just the big boys that are gathering assets,
but we're seeing a range of products, both large and small,
that are popular and that's a great sign for ETF adoption.
Why what's happening, Well, you've got a couple of things happening.
Many investors are expecting the Fed to not only have paused,
but actually cut interest rates. We had see afraid don't
(02:34):
think that's going to be happening as aggressively as the
broader market does. But you have investors that are willing
to take on risk in order to get the yield.
We've seen credit the fault risk be relatively low. And
then you've got folks that don't believe that aren't willing
to hide under the mattresses, uh the way they did
in two thousand and eighteen. And so both both camps
are winning out again, a sign that e t F
(02:55):
s are held, not often just traded. I'll jump in
on this because the love for fixed income was part
of one of my observations. To put a number on it.
We've seen about seventy billion dollars go into fixed income
so far in the first half, and that's the most
for any half ever, So that gives you an idea.
And now the amount of assets under management across fixed
(03:17):
income products is now at an all time high, so
around seven hundred and fifty billion dollars, and as Todd said,
it's unbelievable. You see love for short term products, you
see love for long term products, even in the belly
of the curve. And it just goes to show that
at this point in time, yes, a lot of people
do believe that interest rates will be lower for longer,
(03:38):
but it's still not set in stone. And I'll jump
in here too with a couple of comments. Fixed income
relative to itself, these et f s are definitely it's
a banner year their own record to have their most
flows ever. But when you use it relative to US equities,
I find sometimes that numbers are touch distorted because of
the January outflows that were a result of tax loss harvesting.
If you take those away, it's not quite as drum attic.
(04:00):
But that said, it is dramatic and it's worth pointing out.
What's also interesting is active fixed income mutual funds have
also been hauling in the cash. I think they could
be right around the seventy billion mark based on the
numbers we have so far extrapolating into June, so that
would be a banner year all around for fixed income
and the idea that it's across the curve is also interesting.
(04:21):
Normally it was all ultra short and short. Some years
it's all long term, some years it's high yield. It
this the diversity is interesting. Geo VT is a ticker
that to me represents this year. Geo VT is the
I Shares Treasury et F which invest in all treasuries
(04:42):
across the curve right from A to Z, and that
is taking in four point six billion. It's uh. I
think it's just squeeze into the top ten of inflows
and it's not that big, so that one's punching way
above its weight. And to me, that's representative of this year.
If I had to pick a sort of poster child
for this year and flows, it would probably geo VT.
And what do we think the second half of the
gear is gonna look like for fixed income? We're getting
(05:05):
to the predictions already on it. So we think that
we think money is going to continue to pour in,
so even if the FED does not, So we don't
believe that the FED is going to be conversation ultimately
is about the FED. Well, it's it's about the FED,
and it's also about investors using e t f s uh,
and fixing comm ETFs from more of a strategic perspective.
(05:26):
So you do see a tactical shift based on what's
going to happen with the FED and the dot plots
and things to that effect. But you are seeing some
of these low cost core products continue to gather assets
regardless of what's going on with the yield curve. And
so we think we're seeing products like A G, G
and B and D from ice Shares in Vanguard respectively,
(05:46):
among other products that are just increasingly being used as
a replacement in the institutional marketplace and being being a
replacement for some mutual funds or for individual bonds as well.
I mean, and all of these are products that have
been around for a little bit in fixed income space.
Is there any is there any new products that have
been kind of a shocker or a surprise for you? Well,
(06:09):
I mean when the fixed incomes. Yeah, Well, we're seeing
more and more of these ultra short active products that
gained some traction in two thousand eighteen that likely we're
gonna be just parking money and I think we expected
that and others did as well, and we've seen investors
continue to move into those products. So Wisdom Tree has
a floating rate UH treasury oriented product that that skyrocketed
(06:31):
in two thousand and eighteen. Us f R has really
somebody say floating rate. Yeah, but you know what, it's
continued to pour in money. And we've seen JPST from
JP Morgan other products. These are relatively new products, these
are not three years old, and yet they're gathering significant assets.
And the fact of the matter is, yes, a lot
of this has to do with where interest rates are going,
(06:53):
but it also has to do with where we are
in the economic cycle and where we are in the
market cycle, because as Todd mentioned, people also use these strategically.
So people now, if they truly believe that we are
towards the end of the economic cycle, which pretty much
is consensus at this point in time, you could say,
although there's people who don't believe in the economic cycle either,
I think it will go on forever. This this time
(07:15):
is different. This time is different, but still people are
going to these products to use as a hedge. So yes,
positioning regarding interest rates, but also just a strategic hedge.
And if the FED is accommodative as they have been,
it's gonna be good for all all of this. But
if they do get hawkish suddenly and people start freaking out,
it's going to as as everybody said, you will see
(07:36):
flows two different products, but it probably will take down
the overall number in my opinion. So the seventy billion
we saw to me could double to one forty if
the Feds, you know, relaxed accommodative. If the Fed turns
hawk ish, I could see that struggling, maybe ending up
ending up the year a hundred as people as the
outflows from t LT and those guys maybe get offset
by the inflows to the short duration stuff. All right,
(07:59):
who's another big observation I can come in. It kind
of ties in with the whole fixed income bent because
even if you look at equity flows so far this year,
where we have seen the focus is unbelievably defensive if
you look on a sector level, and then also if
you look at factors as well. So to give you
an idea, the top sectors flow wise so far this
(08:20):
year our real estate, communications, utilities, and consumer stables. Now communications,
yes it holds some of those bang names, but also
those dividend yielding telecom names as well. Every other sector
has seen outflows. So it's pretty amazing that there is
just a unison want for defense. And then on the
smart beta side, we have just seen massive flows into
(08:42):
low volatility funds. It's like the first half is the
first half year of the low volatility funds because so
far they've taken in more than eleven billion dollars. It's
the most for any half going back to I believe.
So it just shows you that on the equity side
where we are seeing flows is the defensive side. And
to I'm in on that. Two things on that just
to first of all, low volatility ETFs are the most
(09:04):
sellable thing ever created. What person who's like sixty doesn't
want like the market with like a smoother ride. It's
like you could sell the correct Yeah, it's like diet coke, right,
It's like zero calorie. It's such a sellable thing. So
there's an evergreen nature to low vall sweeping the world.
The other thing was on those sectors though, I will
say that the real estate to me is also maybe
(09:26):
FED related as well. And yeah, so you get this
because at the beginning of the year, when the FED
got dovish around January fourth ish, right at the beginning,
we saw this thirst for yield trade comeback, whether that
be those sectors, the fixed income ETFs UH, junk bond ETFs,
inflows UH, and that was kind of dying. We actually
wrote a note in late about how the thirst for
(09:48):
yield trade was possibly over um and then boom, it
came right back. Even if you look in smart beta,
so low ball is your number one, but below that
is multi factor, so diversification at its best. And then
it's dividend yields. So these dividend e t f s.
And that's just another case to be made that when
you have really low interest rates, you have a ten
year two percent or below, people want yield and if
(10:12):
you can go to the equity market, still take a
little bit of risk, but be guaranteed a payout, that's
clearly attractive at this point in time. What I think
is also interesting is you cited this is strong since
two thousand seventeen. What that means also is two thousand
sixteen was a great year for the first half for
low volatility ETFs. But what was happening in two thousand
the first half two thousand and sixteen is the broader
(10:34):
market and the financial press outside of Bloomberg was freaking
out that there was too much money going into low
folatility ets they were actually driving the overall market, which
is of course absurd given how small these e t
F products are. Three fast forward three years, we're seeing
the money going into it, and people are now applauding
e t F investors for taking more of a lower
(10:55):
risk approach, even though we're up seventeen percent in the
broader market. That's a sign of some maturity that's out there.
And I think it's also just a sign that investors
are willing to wanting to have their cake and needed too.
So you still want to be part of the marketplace
and be up, but be down less. And and these
products held up quite well in May, you know, when
the market became much more volatile. I will point out
(11:17):
though that one of the most popular low volatility funds
us m V. Eric and I were talking about this
the other day because actually outperformed the SMP this year.
So when you think of low vall, you think of safety.
You're tracking the market, but maybe you get a little
bit less of a return. This year, you're actually getting
more than the SPRED So it's pretty amazing. Yeah, I mean,
that's got a heavy weighting still relatively high weighting, and
(11:38):
technology for a defensive portfolio because it reduces the risk
within each of those sectors. So you do have exposure
to some of the growthier sectors, just in a more
defensive way, so companies like MasterCard instead of Apple, for example,
within technology. And but just to go back to the
craze of where low Ball took in like forty billion
(11:59):
or something. Um, don't quote me on that. It's it
was a lot, uh, you know, relative to its size
that year, they were outperformed by eight nine. This year
it's two. So it's interesting that they've taken in so
much money despite not not crushing it per se. So
to me, this is more about the psychology of hey,
we're late in the market. How long can the FED
(12:20):
keep the party going. It's like the party feels like
it's four in the morning now, and I know the
FED just brought some new beer, but it's like, dude,
I gotta get some sleep. This thing is gonna this
thing is gonna bust up soon. So I think there's
a general defensiveness despite the returns to talk about your
rave days, is that what you're trying to say, The
late nineties. Oh yeah, So this defensive posturing, though, how
(12:40):
much your investors missing out on? What they what we've
seen so far this year, So it's pretty amazing because
you look at the SMP five and the SMP is
up sevent or so we just recently hit new highs. However,
much of that has been driven at least in the
back half of the half, So I guess the second
quarter of the year you would say, has been driven
by gines and defensive sectors. So by positioning in these areas,
(13:03):
they're actually don't seem to be missing out on all
that much. Because if you look at since May, and
May was when everything related to trade started to fall
apart a bit, we saw a little bit of a
pullback since then, where the outperformance really has been is
in utilities, is in real state, is actually in consumer staples.
So by positioning in these places that you would think
(13:24):
maybe you're not going to get that much of a
return on the upside, but you get protection on the downside,
we're actually seeing participation in the upside as well. Yeah,
and with utilities and real estate in particular, I will
leave consumer stables to the side for this. They are defensive,
They offer the yield, but these are also US centric
place so we've had the trade fears that have been
going on pretty much all of the first half of
(13:45):
the year. The easiest way to hide from that is
just to stay as local as possible, and you're local
utility or your assignment property. You're not getting the same
international exposure that you would within technology, which was has
been a strong performer, but oviously has been much more
volatile in the last couple of months. So which sectors
have been the biggest losers from an outflow protective well,
(14:08):
from an outflow perspective, the worst our financials, energy and materials.
So that is just a clear cyclical play. I mean,
you want to look at the areas that are tied
in with the economy vs. Are them, and it shows
you that E t F investors are a little bit
worried at the moment. They don't want to be anywhere
near these three because we've seen some pretty sizable outflows
(14:30):
in those areas as well. Okay, Eric, do you have
an observation from the first half. I do, uh, and
I'll go a different track. We just did flows. I
think we covered a lot. Let's go to launches we'd
like to see what's launching. It gives us a flavor
of what's going on in the ETS space. There was
more launches than I thought, hundred and twenty nine this year.
That puts us on track for what to six the
ish that would about about tie the record for annual launches.
(14:53):
I'm surprised by this, given how rough the fee war
has gotten and how some we saw some launches that
came out at zero fee and negative fee. I thought
this would put a little more fear into the bones
of people who had e t F s lined up,
But they're coming out like crazy still, probably because the
e t F continue to take in most of the flows. Uh.
Interesting on the top ten list, like so the new launches,
(15:15):
which are the rookies of the year, Which ones are
taking in the most cash? Barely any big names? I
mean yes, the top two are E s G. That's
also a shocker. Um I've been barished on E s G,
but these two have overcome that. It's the I Shares
and the Deutsche Bank, mostly because all that money came
from one investor, a European pension funds, so institutions could
be the way for E s G. Four that's interesting
(15:36):
observation from those. Also two big thematic ETFs in the
top ten, the global X cloud computing. There was already
one of the market, but the global X came in
and it's already got four hundred million. That is a
shocker to me. It charges the sixty eight basis points
and it shows you can still innovate and win because
this one is much more targeted than Sky the first
trust one, and it's doing a lot better this year.
(15:58):
I think it's up six percent for the Sky flat
because it goes after the smaller, more pure play companies.
That's interesting. And then finally on the list, you've got Yolo,
which is the marijuana et F. I was shocked it
took people so long to do a me too potty
t F. I was this is probably the most no
brainer launch you could ever think of, because there's definitely
enough interest. Mj is now a billion dollars ish, I
(16:20):
would be not I wouldn't be surprised if we see
a couple more potty tfs come out all out of
the robotics craze of a year ago. Um, but as
they keep coming out, they're gonna law of diminishing returns
will kick in, but the tickers should be really something.
I'm anticipating some crazy tickers in that space. But anyway,
on the flip side, there's been ninety one closures. That's
also shockingly high. If you extrapolate that, you get to
(16:43):
one eight and one eighty would crush the record. I
think the old records about a hundred and twenty five.
So this tells me that yes, there's a lot of
innovation and a lot of excitement, but there's a lot
of Darwinism going on, and you have an industry I
think that's maturing. That's my takeaway on that. Well, you've
got two camps in that you you kind of glossed
for the cheap products that have come out this year,
and for understandable reasons, because they haven't been gathering as
(17:05):
much assets the ultra cheap or free products. Maybe we'll
come back to that one later on, but thematic has
really been the way of investing for launching new products
because you can be differentiated in how you interpret the
themes we now have. I think now our third and
our fourth related gaming et F will probably see ten
at some point because that's such a broad open area.
(17:29):
I triggered myself on this. I just don't get it.
But what I do get. But but you're a fan
of the five quality large cap smart Beta fund, I
am because it's the in house expertise that puts me
to sleep. I will, I will blow your mind right
now if you don't get the gaming thing. I have
a younger brother, actually he was a professional gamer. Well
(17:50):
now he's retired, but believable, and this is a this
is a thing. I'm sure, this is I'm sure, but
we now again we have now more gaming related et
s out there than home building related e t f s.
What I just think is interesting is that we're seeing
a lot of these innovations that are out there. I
(18:10):
shares his launched products in the thematic and trend oriented space.
We've seen State Street launch it. We're seeing some of
the bigger boys come in, and that's gonna against spur
additional innovation and adoption because you've got to find where
the puck is going to uh to skate to it
and and these smaller firms are really doing a good
job of launching these products. In my view, the real
(18:31):
reason thematics are are becoming big business is the modern
portfolio is real low cost core. Right, you know, you've
got this building block of like a baby five bits
for the whole thing, International, Developed, emerging markets, US equity bonds.
Then to have fun on the outside, to try for
a little outfit, you could do a factor factor e
T F. You could do a single country or thematics
(18:53):
and I think thematics again for advisors, are easy to explain.
You can buy into the story and then you put
them on top. That's why we like the hardcore thematic
ones because we're assuming you're using it as a little
hot sauce on top of the portfolio, so we say
you might as well go all the way and try
to really capture. So that's why that thematic capture score
that we create I think is crucial and hopefully you know,
helps people navigating because now a lot of these categories
(19:16):
have three or four e T s to pick from. Robotics, cybersecurity,
cloud computing, you name it. But what the other part
of that from an asset management perspective is you can
charge forty five, fifty sixty eight basis points for these
products and still be able to gather assets as opposed
to even though we've seen competition the floor is considerably
higher for these products overall, whereas I Shares has three
(19:40):
and four and five basis point products. It's a lot
harder to become profitable if you're a public company that way.
That's true, and that gets us to the shiny object
stuff we've talked about. If you're hardcore and concentrated, you
have the shiny object potential because you're in smaller companies.
And when some of these products hit, they hit big.
I mean, they don't perform by two or three percentage points,
(20:01):
they are performed by twenty percentage points, so nobody cares
that it charges sixty And that's the beauty of a
thematic et F from an issuer standpoint and from the
investor that said, the problem with thematic et f s
if they are concentrated is you really have to buy
into the story because you will see volatility. Like if
you're into robotics, are you really into robotics? Are you
into performance chasing? How many people can stomach when those
(20:21):
things have a rough run because say, hi, beta stocks
are selling off currently you have to buy and solar
energy is happening with that this year right Look at
tannis Yere, one of the best performing ets out there. Yeah,
but if you're gonna swing for the fences, you better
make contact because you're gonna you're gonna strike out quite
a lot. So there is a catch twenty two in
going for the goal with thematic ETFs. You need a
stomach for it. But it probably makes more sense to
(20:42):
go and pure and capture the industry because a lot
of those stocks typically when they go pure, they're not
in other big indexes, so you're getting unique exposure. Yeah.
I mean, well, Eric talked about from a flows perspective,
the E s G products and they got the money
(21:03):
from institutional investors, but US s G, which is that
was the cheapest of those two products. I believe that
s USL cut the fee as well, but ten basis
points for E s G exposure that's broadly diversified across
the sectors. E s G has been off on the
sidelines in part because they charge a premium fee. If
you're going to compete on price for an E s
(21:25):
G product, you're likely to get further adoption. And I
think we're gonna see that throughout the year. And let
me bring up one other new launch that this is
the e t F to watch b b U S.
Todd and I have a bet on this one and
how fast it will grow. It's only thirty million now,
but JP Morgan launched this thing, and if yeah, I
mean it could grow quickly. And here's this is fascinating.
B b US is literally a straight knockoff of the
(21:47):
SMP five hundred. Have you ever seen coming to America
McDonald's versus McDowell's. This is McDowell's of the SMP. It's
so close that they literally have the same, like ten
point performance through the first core or the stocks are
almost the same. I mean, there's almost no overlap. Why
are they doing that? Why would they do that? The
Golden arcs, the Golden arcs, the Golden arches right. Anyway,
(22:11):
if you look, JP Morgan is the largest owner of SPY.
They own something like I want to say, twenty billion
dollars or the v S p Y. That's a lot
of their advisor business. It's very likely some of that
is going to be converted over to b b U S.
And this is this b y O a bring your
own assets. Thing we talk about is more and more
(22:31):
issuers that hold SPY and i VV these companies that
have large advisor networks. If they launched their own McDowell's
versions of these, you could see a big ceiling on
the black Rock Vanguard juggernaut. I'm not sure will happen widespread,
but if b bus starts to take off and everybody
accepts it as not like having a huge conflict of interest,
which I don't think it does because it's cheaper, does
(22:53):
the same thing. It's not like you're putting your clients
into something more expensive or different. Um, but b b
us is want to watch this could be a ten
billion dollar et F in a couple of years. Yeah,
I mean the JP Morgan is launching or expanding a
retail oriented program for investments later on the summer. I
forgot the exact date, and that's the time period. You know,
you're gonna have an asset allocation strategy that has b
(23:16):
bus as as the core for the US. You're gonna
have a your product b b EU, which is out
there from them. They've got Canada, they've got Japan. You
could build an asset allocation strategy using JP Morgan's owned products,
and it's highly likely that JP Morgan is the one
who's going to make that available for their client, and
if I didn't mention b bus charges two basis points,
(23:36):
that's just under VOO and IBV cheapest, cheapest like the
Big the Big Mick, Okay, Sarah, any other observations. So
I have one more observation that I just find really
strange or not strange, but very unexpected. And two reporters
(23:57):
that were on the new side, Rachel Evans and build
on a hazrec found that if you look at the
ten top performing e t s this year, eight of
the ten of them have less than a hundred million
dollars in assets. So it goes to show you you
don't have to be big to be great. Now, Yes,
a lot of these funds are leveraged three times leveraged
products you could imagine, but one of them is are
(24:17):
you s L So that's a direction daily Russiable three
times shares fund. When a lot of people think about
investing outside of the US, you hear about India a lot,
of course, you hear about China, emerging markets, Europe. You
don't hear about Russia too often. But there is this
fundamentally good, strong economic story for Russia, and the fund
(24:38):
is up or more this year, so pretty amazing and
I think it's something people wouldn't really expect. That reminds
me of last episode where we had Sylvia Jablonsky on
maker of the three x E t F. So just
a warning, these are power tools daily usage. Uh, Sarah
just did a great job promoting the return. But let's
just they're not supposed to hold on to it for
(24:58):
the whole ser second series months. They could be zero.
But Todd, how's yours? There's a good reason that this
product has little assets. Three times leveraged a country that
the United States is not on good terms with stuff.
He doesn't like it. He could serve him a Davis
large cap and he's happy. Everyone should go to take back. Okay,
(25:26):
so if it's half time, we got to talk about
the second half? What are you guys watching? Yeah, I
mean the exciting thing to us is that in the
first half we didn't touch on it, but in the
first half of the year we've got the regulatory approval
for non transparent et f s. I think you guys
may have covered that beforehand on the show. Uh. These
are e t fs that will be disclosed as infrequently
(25:48):
of the holding's perspective as mutual funds, and there's a
number of big boy asset managers that are lining up
to work with Presidian that have have a license agreement.
I think there's a couple of dozen firms out there
that are doing this them that have not offered ETFs
to begin with, and I think that's going to cause
not you know, not only new products to launches, as
Eric touched on of breaking the record, but we're gonna
(26:09):
see some of these firms dip their toe in or
more aggressively move into the e t F market. From
like American Century that has already e t f s
today is likely to expand their lineup we have from
like American Funds, it doesn't have anything to do that.
And so I know, the easy argument is nobody wants
these products, but people want mutual funds. Easy it though,
(26:29):
it's the correct argument. I mean, look, I feel I
don't want to be barrassed on these because I'm willing
to be open minded in surprise. But here's the question
to ask you, Look, some of these a lot of
these firms you just mentioned already have transparent active ETFs
and nobody's buying them, and obviously they are mutual funds
are seeing outflows a lot of them. So it's like
the metaphor I uses, You've just made this incredibly awesome, new,
(26:54):
state of the art dog food ball, but the dog
doesn't want the food in it. The dog has to
want the food in the bowl. Yeah, but I think
who's gonna want it in the part of why that
the issue is is that the firms are not committing
to it, so that many of these firms that have
a small et F presence within a larger asset management
company are not putting the resources, the marketing, the distribution
(27:16):
teams to support those efforts. If they're can work directly
connected with the mutual funds UH and the people who
are advocating and educating about those mutual funds. I really
think you're gonna see greater adoption that's out there. And
there's a whole host of advisors that would be very
happy to buy an American funds e t F because
they love American funds. There just isn't an ETF available
(27:37):
for for them. That's the advisor I'm not sure I
think is A is A I don't think that demand
is interesting to me. The distribution, the relationships, the hey,
this is better than the old thing. I get that,
but grassroots, organic demand from that sort of classic et
F investor, I'm not sure. The other question is could
they convert their mutual funds to this or will they
(27:58):
move money over? And I just don't think some of
these firms have the stomach to move something from a
higher revenue source to a lower revenue source. You know,
I could be wrong. I just I see these struggling
over time, Sarah, I will go the complete opposite direction.
And something that's amazed me all year long has been
the I p o E t F. Because it feels
(28:20):
like everyone hears names like Uber, you hear names like Lift,
which didn't have the best I p s, and people
think that it's been a rocky start, but it really
has it. I mean I p o s are off
to an unbelievable year. The I p o E t
F up more than thirty and I think that this
is really going to be a very hot area going forwards.
We're supposed to see more launches, and if the environment
(28:44):
that we have seen so far this year continues, where
people are actually willing to really reach for risk and
get on on these funds, we could see more well
from a performance standpoint, they're likely to be driven more
because some of these companies will have to have to
wait a little bit of time before they get added
to the SMPI index or other indexes that have much
(29:04):
more money behind it. And so you'll it's still surprising
that there's one kind of a second one from First
Trust that's an i p o E t F given
the range of products that are at, the new stocks
that are out there, and the and demand four I
p o s. So I think we're gonna see I
think we should see more of them and again surprising
I p s that still could happen in the second
(29:25):
half of the year. We work among them fp X
to me, at these they're underrated. Um, they hold these
stocks them anywhere else. Yeah, they hold them for the
two or three I call catch and release. You know,
they grab the top releases really long. It's four years
for for that one, and you only need to be
right a couple of times because like you only need
a couple of facebooks to totally make up for the deads.
But yeah, that that et F. Look at the performance
(29:46):
of FPX over the past fifteen years, unbelievable. My prediction
is that US equity e t f s are going
to regain control and knock out this fixed income narrative
and and lead the year in flows by the end
of the year. And I'll tell you why. It's it
is bold. Wait, that's something that's sent of the overall
et F pie is gonna continue to do that. It's
(30:08):
been it's against like your last twenty tweets, it's against
the whole narrative we've been hearing now is it's fixed
income fixed and come US equity sucks. I just don't
see it happening. Here's what I I just think Trump's
desire to use the stock market as a campaign item
a big one, is going to make him make the
trade deal happen. It's going to make him sort of
coerce the FED to keep right slow. And that's going
(30:30):
to get the trading crowd involved. Because if you look
at flows, we've divided them from allocators buying whold ETFs
to the ones that traders use. The ones that traders
use have seen a negative outflows of fifteen billion this year.
The allocators are doing their thing forty five. They're going
to continue. But if the trading crowd comes back in
and buys like the I w M s and the spies.
That's what's missing from this year and a little bit
from last year. If that crowd comes in hard, I
(30:51):
think that's when you see US Equity E t F
sort of regain that sort of um, you know, lead
dog aspect that they're normally used to. But we'll it
could go the other direction. That's elections in over a year.
We still got plenty of time for him to make
but he's gonna be seeing the debates and people talking
trash and he's gonna I'm telling you this is just
a complete theory by me, and that it also indicates
(31:12):
that that the fete is an independent which is kind of,
you know, blasphemy, But I'm just saying my thoughts. Todd.
I I think there's no question that US Equity ETF
are going to dominate in the second half of the year.
I think what we saw thus far in June is
that's been UH investors have gravitated towards it. But when
you're seventy of the overall marketplace, it's like saying you
think Golden State is going to return to the finals,
(31:34):
which they have done in the last three years. Yes,
and I was rooting for them, and that's great. But
the underdog that's out there, it's like perhaps picking the
Philadelphia seventies six years a year ago and rooting for
them is as some of them Michigan to lose the
World Series. So we're taping this for everybody's purposes. We're
taping this on the eve of what is the last
game of the College World Series and Michigan. I have
(31:55):
to admit that I'm Sarah and I are both proud
in Michigan alums. It's Michigan had a baseball team. He
went a few months ago. I wasn't paying attention to it,
but I'll happily jump on that bandwagon. Of course. Yes,
but they don't play in June. It ends the season's over.
These guys are spoiled rotten. They've got baseball now on
top of basketball and football. I got Runners is like
(32:18):
and everything is including like field hockey. That's me complaining
you guys. You guys are spoiled rotten. Go Blue Todd, Sarah,
thanks for joining us, and Trillion, thanks for having it,
Thanks a lot, Thanks for listening to trillions. Until next time,
you can find us on the Bloomberg Terminal, Bloomberg dot com,
(32:40):
Apple Podcast, Spotify, and wherever else you like to listen.
We'd love to hear from you. We're on Twitter, I'm
at Joel Webber Show, He's at Eric ball Tunis. You
can get Todd at Todd c f r A and
Sarah at Sarah Ponzack. Trillions is produced by Magnus Hendrickson.
Princessica Levie is the head for Bloomberg podcast Tit
Welcome on Trillians. I'm Joel Weber and I'm Eric bel Chernis. Eric.
We're halfway through the year and it's time for a
halftime report, the first you know what we're doing today? Okay,
half the report podcasts, and we brought some people to join.
One of them is a regular, Todd Todd rosen Bluth,
(00:28):
who if people anyone listening who's in THETF industry knows
this guy very well and knows some of his great
work both for cf R A and on Twitter, which
he uh coming like a recurring character. I like it, right,
and and here he is again. Yeah, he's kind of
like Tom Hanks on Family Ties. You know how he
came in once in a while, is the Yes, that
(00:48):
is exactly pretty good reference. Right. Yeah. We also have
another character who is also a frequent guest, Sarah Ponzac
from Bloomberg News also has a podcast of our own,
now hosting a podcast called Welcomes Up Channel's Plague. So
what we want to do is talk to Todd and
Sarah about a couple observations from the first half of
the year, and maybe even a couple I don't know
(01:10):
of corystal Ball style predictions exactly this weekend Brilliance twenty
nineteen halftime report. Todd Sarah, thanks for joining on Trilliance
observation number one big observation. Who wants it? Yeah, I'll start.
So this has really been the year of fixed in
(01:31):
comm ETFs. More than half of the net inflows have
gone into fixed in comm ETFs this year. It's about
of the overall et F pie. But what's quite compelling
to us at t F A is a couple of things.
One is the range of products that have gained interest.
You've got high yield, you've got long term treasuries like
t L T and I e F. You've got the
(01:53):
ultra short products that were popular in two thousand and
eighteen have stayed popular bill SHV along with the active
ones like mint and jps T. And then the second
part of this is again the range of products. So
using Bloomberg datly earlier this week, I saw, you know,
more than a hundred fixed in com ETFs have gathered
(02:14):
over a hundred million dollars of net new money this year.
So it's not just the big boys that are gathering assets,
but we're seeing a range of products, both large and small,
that are popular and that's a great sign for ETF adoption.
Why what's happening, Well, you've got a couple of things happening.
Many investors are expecting the Fed to not only have paused,
but actually cut interest rates. We had see afraid don't
(02:34):
think that's going to be happening as aggressively as the
broader market does. But you have investors that are willing
to take on risk in order to get the yield.
We've seen credit the fault risk be relatively low. And
then you've got folks that don't believe that aren't willing
to hide under the mattresses, uh the way they did
in two thousand and eighteen. And so both both camps
are winning out again, a sign that e t F
(02:55):
s are held, not often just traded. I'll jump in
on this because the love for fixed income was part
of one of my observations. To put a number on it.
We've seen about seventy billion dollars go into fixed income
so far in the first half, and that's the most
for any half ever, So that gives you an idea.
And now the amount of assets under management across fixed
(03:17):
income products is now at an all time high, so
around seven hundred and fifty billion dollars, and as Todd said,
it's unbelievable. You see love for short term products, you
see love for long term products, even in the belly
of the curve. And it just goes to show that
at this point in time, yes, a lot of people
do believe that interest rates will be lower for longer,
(03:38):
but it's still not set in stone. And I'll jump
in here too with a couple of comments. Fixed income
relative to itself, these et f s are definitely it's
a banner year their own record to have their most
flows ever. But when you use it relative to US equities,
I find sometimes that numbers are touch distorted because of
the January outflows that were a result of tax loss harvesting.
If you take those away, it's not quite as drum attic.
(04:00):
But that said, it is dramatic and it's worth pointing out.
What's also interesting is active fixed income mutual funds have
also been hauling in the cash. I think they could
be right around the seventy billion mark based on the
numbers we have so far extrapolating into June, so that
would be a banner year all around for fixed income
and the idea that it's across the curve is also interesting.
(04:21):
Normally it was all ultra short and short. Some years
it's all long term, some years it's high yield. It
this the diversity is interesting. Geo VT is a ticker
that to me represents this year. Geo VT is the
I Shares Treasury et F which invest in all treasuries
(04:42):
across the curve right from A to Z, and that
is taking in four point six billion. It's uh. I
think it's just squeeze into the top ten of inflows
and it's not that big, so that one's punching way
above its weight. And to me, that's representative of this year.
If I had to pick a sort of poster child
for this year and flows, it would probably geo VT.
And what do we think the second half of the
gear is gonna look like for fixed income? We're getting
(05:05):
to the predictions already on it. So we think that
we think money is going to continue to pour in,
so even if the FED does not, So we don't
believe that the FED is going to be conversation ultimately
is about the FED. Well, it's it's about the FED,
and it's also about investors using e t f s uh,
and fixing comm ETFs from more of a strategic perspective.
(05:26):
So you do see a tactical shift based on what's
going to happen with the FED and the dot plots
and things to that effect. But you are seeing some
of these low cost core products continue to gather assets
regardless of what's going on with the yield curve. And
so we think we're seeing products like A G, G
and B and D from ice Shares in Vanguard respectively,
(05:46):
among other products that are just increasingly being used as
a replacement in the institutional marketplace and being being a
replacement for some mutual funds or for individual bonds as well.
I mean, and all of these are products that have
been around for a little bit in fixed income space.
Is there any is there any new products that have
been kind of a shocker or a surprise for you? Well,
(06:09):
I mean when the fixed incomes. Yeah, Well, we're seeing
more and more of these ultra short active products that
gained some traction in two thousand eighteen that likely we're
gonna be just parking money and I think we expected
that and others did as well, and we've seen investors
continue to move into those products. So Wisdom Tree has
a floating rate UH treasury oriented product that that skyrocketed
(06:31):
in two thousand and eighteen. Us f R has really
somebody say floating rate. Yeah, but you know what, it's
continued to pour in money. And we've seen JPST from
JP Morgan other products. These are relatively new products, these
are not three years old, and yet they're gathering significant assets.
And the fact of the matter is, yes, a lot
of this has to do with where interest rates are going,
(06:53):
but it also has to do with where we are
in the economic cycle and where we are in the
market cycle, because as Todd mentioned, people also use these strategically.
So people now, if they truly believe that we are
towards the end of the economic cycle, which pretty much
is consensus at this point in time, you could say,
although there's people who don't believe in the economic cycle either,
I think it will go on forever. This this time
(07:15):
is different. This time is different, but still people are
going to these products to use as a hedge. So yes,
positioning regarding interest rates, but also just a strategic hedge.
And if the FED is accommodative as they have been,
it's gonna be good for all all of this. But
if they do get hawkish suddenly and people start freaking out,
it's going to as as everybody said, you will see
(07:36):
flows two different products, but it probably will take down
the overall number in my opinion. So the seventy billion
we saw to me could double to one forty if
the Feds, you know, relaxed accommodative. If the Fed turns
hawk ish, I could see that struggling, maybe ending up
ending up the year a hundred as people as the
outflows from t LT and those guys maybe get offset
by the inflows to the short duration stuff. All right,
(07:59):
who's another big observation I can come in. It kind
of ties in with the whole fixed income bent because
even if you look at equity flows so far this year,
where we have seen the focus is unbelievably defensive if
you look on a sector level, and then also if
you look at factors as well. So to give you
an idea, the top sectors flow wise so far this
(08:20):
year our real estate, communications, utilities, and consumer stables. Now communications,
yes it holds some of those bang names, but also
those dividend yielding telecom names as well. Every other sector
has seen outflows. So it's pretty amazing that there is
just a unison want for defense. And then on the
smart beta side, we have just seen massive flows into
(08:42):
low volatility funds. It's like the first half is the
first half year of the low volatility funds because so
far they've taken in more than eleven billion dollars. It's
the most for any half going back to I believe.
So it just shows you that on the equity side
where we are seeing flows is the defensive side. And
to I'm in on that. Two things on that just
to first of all, low volatility ETFs are the most
(09:04):
sellable thing ever created. What person who's like sixty doesn't
want like the market with like a smoother ride. It's
like you could sell the correct Yeah, it's like diet coke, right,
It's like zero calorie. It's such a sellable thing. So
there's an evergreen nature to low vall sweeping the world.
The other thing was on those sectors though, I will
say that the real estate to me is also maybe
(09:26):
FED related as well. And yeah, so you get this
because at the beginning of the year, when the FED
got dovish around January fourth ish, right at the beginning,
we saw this thirst for yield trade comeback, whether that
be those sectors, the fixed income ETFs UH, junk bond ETFs,
inflows UH, and that was kind of dying. We actually
wrote a note in late about how the thirst for
(09:48):
yield trade was possibly over um and then boom, it
came right back. Even if you look in smart beta,
so low ball is your number one, but below that
is multi factor, so diversification at its best. And then
it's dividend yields. So these dividend e t f s.
And that's just another case to be made that when
you have really low interest rates, you have a ten
year two percent or below, people want yield and if
(10:12):
you can go to the equity market, still take a
little bit of risk, but be guaranteed a payout, that's
clearly attractive at this point in time. What I think
is also interesting is you cited this is strong since
two thousand seventeen. What that means also is two thousand
sixteen was a great year for the first half for
low volatility ETFs. But what was happening in two thousand
the first half two thousand and sixteen is the broader
(10:34):
market and the financial press outside of Bloomberg was freaking
out that there was too much money going into low
folatility ets they were actually driving the overall market, which
is of course absurd given how small these e t
F products are. Three fast forward three years, we're seeing
the money going into it, and people are now applauding
e t F investors for taking more of a lower
(10:55):
risk approach, even though we're up seventeen percent in the
broader market. That's a sign of some maturity that's out there.
And I think it's also just a sign that investors
are willing to wanting to have their cake and needed too.
So you still want to be part of the marketplace
and be up, but be down less. And and these
products held up quite well in May, you know, when
the market became much more volatile. I will point out
(11:17):
though that one of the most popular low volatility funds
us m V. Eric and I were talking about this
the other day because actually outperformed the SMP this year.
So when you think of low vall, you think of safety.
You're tracking the market, but maybe you get a little
bit less of a return. This year, you're actually getting
more than the SPRED So it's pretty amazing. Yeah, I mean,
that's got a heavy weighting still relatively high weighting, and
(11:38):
technology for a defensive portfolio because it reduces the risk
within each of those sectors. So you do have exposure
to some of the growthier sectors, just in a more
defensive way, so companies like MasterCard instead of Apple, for example,
within technology. And but just to go back to the
craze of where low Ball took in like forty billion
(11:59):
or something. Um, don't quote me on that. It's it
was a lot, uh, you know, relative to its size
that year, they were outperformed by eight nine. This year
it's two. So it's interesting that they've taken in so
much money despite not not crushing it per se. So
to me, this is more about the psychology of hey,
we're late in the market. How long can the FED
(12:20):
keep the party going. It's like the party feels like
it's four in the morning now, and I know the
FED just brought some new beer, but it's like, dude,
I gotta get some sleep. This thing is gonna this
thing is gonna bust up soon. So I think there's
a general defensiveness despite the returns to talk about your
rave days, is that what you're trying to say, The
late nineties. Oh yeah, So this defensive posturing, though, how
(12:40):
much your investors missing out on? What they what we've
seen so far this year, So it's pretty amazing because
you look at the SMP five and the SMP is
up sevent or so we just recently hit new highs. However,
much of that has been driven at least in the
back half of the half, So I guess the second
quarter of the year you would say, has been driven
by gines and defensive sectors. So by positioning in these areas,
(13:03):
they're actually don't seem to be missing out on all
that much. Because if you look at since May, and
May was when everything related to trade started to fall
apart a bit, we saw a little bit of a
pullback since then, where the outperformance really has been is
in utilities, is in real state, is actually in consumer staples.
So by positioning in these places that you would think
(13:24):
maybe you're not going to get that much of a
return on the upside, but you get protection on the downside,
we're actually seeing participation in the upside as well. Yeah,
and with utilities and real estate in particular, I will
leave consumer stables to the side for this. They are defensive,
They offer the yield, but these are also US centric
place so we've had the trade fears that have been
going on pretty much all of the first half of
(13:45):
the year. The easiest way to hide from that is
just to stay as local as possible, and you're local
utility or your assignment property. You're not getting the same
international exposure that you would within technology, which was has
been a strong performer, but oviously has been much more
volatile in the last couple of months. So which sectors
have been the biggest losers from an outflow protective well,
(14:08):
from an outflow perspective, the worst our financials, energy and materials.
So that is just a clear cyclical play. I mean,
you want to look at the areas that are tied
in with the economy vs. Are them, and it shows
you that E t F investors are a little bit
worried at the moment. They don't want to be anywhere
near these three because we've seen some pretty sizable outflows
(14:30):
in those areas as well. Okay, Eric, do you have
an observation from the first half. I do, uh, and
I'll go a different track. We just did flows. I
think we covered a lot. Let's go to launches we'd
like to see what's launching. It gives us a flavor
of what's going on in the ETS space. There was
more launches than I thought, hundred and twenty nine this year.
That puts us on track for what to six the
ish that would about about tie the record for annual launches.
(14:53):
I'm surprised by this, given how rough the fee war
has gotten and how some we saw some launches that
came out at zero fee and negative fee. I thought
this would put a little more fear into the bones
of people who had e t F s lined up,
But they're coming out like crazy still, probably because the
e t F continue to take in most of the flows. Uh.
Interesting on the top ten list, like so the new launches,
(15:15):
which are the rookies of the year, Which ones are
taking in the most cash? Barely any big names? I
mean yes, the top two are E s G. That's
also a shocker. Um I've been barished on E s G,
but these two have overcome that. It's the I Shares
and the Deutsche Bank, mostly because all that money came
from one investor, a European pension funds, so institutions could
be the way for E s G. Four that's interesting
(15:36):
observation from those. Also two big thematic ETFs in the
top ten, the global X cloud computing. There was already
one of the market, but the global X came in
and it's already got four hundred million. That is a
shocker to me. It charges the sixty eight basis points
and it shows you can still innovate and win because
this one is much more targeted than Sky the first
trust one, and it's doing a lot better this year.
(15:58):
I think it's up six percent for the Sky flat
because it goes after the smaller, more pure play companies.
That's interesting. And then finally on the list, you've got Yolo,
which is the marijuana et F. I was shocked it
took people so long to do a me too potty
t F. I was this is probably the most no
brainer launch you could ever think of, because there's definitely
enough interest. Mj is now a billion dollars ish, I
(16:20):
would be not I wouldn't be surprised if we see
a couple more potty tfs come out all out of
the robotics craze of a year ago. Um, but as
they keep coming out, they're gonna law of diminishing returns
will kick in, but the tickers should be really something.
I'm anticipating some crazy tickers in that space. But anyway,
on the flip side, there's been ninety one closures. That's
also shockingly high. If you extrapolate that, you get to
(16:43):
one eight and one eighty would crush the record. I
think the old records about a hundred and twenty five.
So this tells me that yes, there's a lot of
innovation and a lot of excitement, but there's a lot
of Darwinism going on, and you have an industry I
think that's maturing. That's my takeaway on that. Well, you've
got two camps in that you you kind of glossed
for the cheap products that have come out this year,
and for understandable reasons, because they haven't been gathering as
(17:05):
much assets the ultra cheap or free products. Maybe we'll
come back to that one later on, but thematic has
really been the way of investing for launching new products
because you can be differentiated in how you interpret the
themes we now have. I think now our third and
our fourth related gaming et F will probably see ten
at some point because that's such a broad open area.
(17:29):
I triggered myself on this. I just don't get it.
But what I do get. But but you're a fan
of the five quality large cap smart Beta fund, I
am because it's the in house expertise that puts me
to sleep. I will, I will blow your mind right
now if you don't get the gaming thing. I have
a younger brother, actually he was a professional gamer. Well
(17:50):
now he's retired, but believable, and this is a this
is a thing. I'm sure, this is I'm sure, but
we now again we have now more gaming related et
s out there than home building related e t f s.
What I just think is interesting is that we're seeing
a lot of these innovations that are out there. I
(18:10):
shares his launched products in the thematic and trend oriented space.
We've seen State Street launch it. We're seeing some of
the bigger boys come in, and that's gonna against spur
additional innovation and adoption because you've got to find where
the puck is going to uh to skate to it
and and these smaller firms are really doing a good
job of launching these products. In my view, the real
(18:31):
reason thematics are are becoming big business is the modern
portfolio is real low cost core. Right, you know, you've
got this building block of like a baby five bits
for the whole thing, International, Developed, emerging markets, US equity bonds.
Then to have fun on the outside, to try for
a little outfit, you could do a factor factor e
T F. You could do a single country or thematics
(18:53):
and I think thematics again for advisors, are easy to explain.
You can buy into the story and then you put
them on top. That's why we like the hardcore thematic
ones because we're assuming you're using it as a little
hot sauce on top of the portfolio, so we say
you might as well go all the way and try
to really capture. So that's why that thematic capture score
that we create I think is crucial and hopefully you know,
helps people navigating because now a lot of these categories
(19:16):
have three or four e T s to pick from. Robotics, cybersecurity,
cloud computing, you name it. But what the other part
of that from an asset management perspective is you can
charge forty five, fifty sixty eight basis points for these
products and still be able to gather assets as opposed
to even though we've seen competition the floor is considerably
higher for these products overall, whereas I Shares has three
(19:40):
and four and five basis point products. It's a lot
harder to become profitable if you're a public company that way.
That's true, and that gets us to the shiny object
stuff we've talked about. If you're hardcore and concentrated, you
have the shiny object potential because you're in smaller companies.
And when some of these products hit, they hit big.
I mean, they don't perform by two or three percentage points,
(20:01):
they are performed by twenty percentage points, so nobody cares
that it charges sixty And that's the beauty of a
thematic et F from an issuer standpoint and from the
investor that said, the problem with thematic et f s
if they are concentrated is you really have to buy
into the story because you will see volatility. Like if
you're into robotics, are you really into robotics? Are you
into performance chasing? How many people can stomach when those
(20:21):
things have a rough run because say, hi, beta stocks
are selling off currently you have to buy and solar
energy is happening with that this year right Look at
tannis Yere, one of the best performing ets out there. Yeah,
but if you're gonna swing for the fences, you better
make contact because you're gonna you're gonna strike out quite
a lot. So there is a catch twenty two in
going for the goal with thematic ETFs. You need a
stomach for it. But it probably makes more sense to
(20:42):
go and pure and capture the industry because a lot
of those stocks typically when they go pure, they're not
in other big indexes, so you're getting unique exposure. Yeah.
I mean, well, Eric talked about from a flows perspective,
the E s G products and they got the money
(21:03):
from institutional investors, but US s G, which is that
was the cheapest of those two products. I believe that
s USL cut the fee as well, but ten basis
points for E s G exposure that's broadly diversified across
the sectors. E s G has been off on the
sidelines in part because they charge a premium fee. If
you're going to compete on price for an E s
(21:25):
G product, you're likely to get further adoption. And I
think we're gonna see that throughout the year. And let
me bring up one other new launch that this is
the e t F to watch b b U S.
Todd and I have a bet on this one and
how fast it will grow. It's only thirty million now,
but JP Morgan launched this thing, and if yeah, I
mean it could grow quickly. And here's this is fascinating.
B b US is literally a straight knockoff of the
(21:47):
SMP five hundred. Have you ever seen coming to America
McDonald's versus McDowell's. This is McDowell's of the SMP. It's
so close that they literally have the same, like ten
point performance through the first core or the stocks are
almost the same. I mean, there's almost no overlap. Why
are they doing that? Why would they do that? The
Golden arcs, the Golden arcs, the Golden arches right. Anyway,
(22:11):
if you look, JP Morgan is the largest owner of SPY.
They own something like I want to say, twenty billion
dollars or the v S p Y. That's a lot
of their advisor business. It's very likely some of that
is going to be converted over to b b U S.
And this is this b y O a bring your
own assets. Thing we talk about is more and more
(22:31):
issuers that hold SPY and i VV these companies that
have large advisor networks. If they launched their own McDowell's
versions of these, you could see a big ceiling on
the black Rock Vanguard juggernaut. I'm not sure will happen widespread,
but if b bus starts to take off and everybody
accepts it as not like having a huge conflict of interest,
which I don't think it does because it's cheaper, does
(22:53):
the same thing. It's not like you're putting your clients
into something more expensive or different. Um, but b b
us is want to watch this could be a ten
billion dollar et F in a couple of years. Yeah,
I mean the JP Morgan is launching or expanding a
retail oriented program for investments later on the summer. I
forgot the exact date, and that's the time period. You know,
you're gonna have an asset allocation strategy that has b
(23:16):
bus as as the core for the US. You're gonna
have a your product b b EU, which is out
there from them. They've got Canada, they've got Japan. You
could build an asset allocation strategy using JP Morgan's owned products,
and it's highly likely that JP Morgan is the one
who's going to make that available for their client, and
if I didn't mention b bus charges two basis points,
(23:36):
that's just under VOO and IBV cheapest, cheapest like the
Big the Big Mick, Okay, Sarah, any other observations. So
I have one more observation that I just find really
strange or not strange, but very unexpected. And two reporters
(23:57):
that were on the new side, Rachel Evans and build
on a hazrec found that if you look at the
ten top performing e t s this year, eight of
the ten of them have less than a hundred million
dollars in assets. So it goes to show you you
don't have to be big to be great. Now, Yes,
a lot of these funds are leveraged three times leveraged
products you could imagine, but one of them is are
(24:17):
you s L So that's a direction daily Russiable three
times shares fund. When a lot of people think about
investing outside of the US, you hear about India a lot,
of course, you hear about China, emerging markets, Europe. You
don't hear about Russia too often. But there is this
fundamentally good, strong economic story for Russia, and the fund
(24:38):
is up or more this year, so pretty amazing and
I think it's something people wouldn't really expect. That reminds
me of last episode where we had Sylvia Jablonsky on
maker of the three x E t F. So just
a warning, these are power tools daily usage. Uh, Sarah
just did a great job promoting the return. But let's
just they're not supposed to hold on to it for
(24:58):
the whole ser second series months. They could be zero.
But Todd, how's yours? There's a good reason that this
product has little assets. Three times leveraged a country that
the United States is not on good terms with stuff.
He doesn't like it. He could serve him a Davis
large cap and he's happy. Everyone should go to take back. Okay,
(25:26):
so if it's half time, we got to talk about
the second half? What are you guys watching? Yeah, I
mean the exciting thing to us is that in the
first half we didn't touch on it, but in the
first half of the year we've got the regulatory approval
for non transparent et f s. I think you guys
may have covered that beforehand on the show. Uh. These
are e t fs that will be disclosed as infrequently
(25:48):
of the holding's perspective as mutual funds, and there's a
number of big boy asset managers that are lining up
to work with Presidian that have have a license agreement.
I think there's a couple of dozen firms out there
that are doing this them that have not offered ETFs
to begin with, and I think that's going to cause
not you know, not only new products to launches, as
Eric touched on of breaking the record, but we're gonna
(26:09):
see some of these firms dip their toe in or
more aggressively move into the e t F market. From
like American Century that has already e t f s
today is likely to expand their lineup we have from
like American Funds, it doesn't have anything to do that.
And so I know, the easy argument is nobody wants
these products, but people want mutual funds. Easy it though,
(26:29):
it's the correct argument. I mean, look, I feel I
don't want to be barrassed on these because I'm willing
to be open minded in surprise. But here's the question
to ask you, Look, some of these a lot of
these firms you just mentioned already have transparent active ETFs
and nobody's buying them, and obviously they are mutual funds
are seeing outflows a lot of them. So it's like
the metaphor I uses, You've just made this incredibly awesome, new,
(26:54):
state of the art dog food ball, but the dog
doesn't want the food in it. The dog has to
want the food in the bowl. Yeah, but I think
who's gonna want it in the part of why that
the issue is is that the firms are not committing
to it, so that many of these firms that have
a small et F presence within a larger asset management
company are not putting the resources, the marketing, the distribution
(27:16):
teams to support those efforts. If they're can work directly
connected with the mutual funds UH and the people who
are advocating and educating about those mutual funds. I really
think you're gonna see greater adoption that's out there. And
there's a whole host of advisors that would be very
happy to buy an American funds e t F because
they love American funds. There just isn't an ETF available
(27:37):
for for them. That's the advisor I'm not sure I
think is A is A I don't think that demand
is interesting to me. The distribution, the relationships, the hey,
this is better than the old thing. I get that,
but grassroots, organic demand from that sort of classic et
F investor, I'm not sure. The other question is could
they convert their mutual funds to this or will they
(27:58):
move money over? And I just don't think some of
these firms have the stomach to move something from a
higher revenue source to a lower revenue source. You know,
I could be wrong. I just I see these struggling
over time, Sarah, I will go the complete opposite direction.
And something that's amazed me all year long has been
the I p o E t F. Because it feels
(28:20):
like everyone hears names like Uber, you hear names like Lift,
which didn't have the best I p s, and people
think that it's been a rocky start, but it really
has it. I mean I p o s are off
to an unbelievable year. The I p o E t
F up more than thirty and I think that this
is really going to be a very hot area going forwards.
We're supposed to see more launches, and if the environment
(28:44):
that we have seen so far this year continues, where
people are actually willing to really reach for risk and
get on on these funds, we could see more well
from a performance standpoint, they're likely to be driven more
because some of these companies will have to have to
wait a little bit of time before they get added
to the SMPI index or other indexes that have much
(29:04):
more money behind it. And so you'll it's still surprising
that there's one kind of a second one from First
Trust that's an i p o E t F given
the range of products that are at, the new stocks
that are out there, and the and demand four I
p o s. So I think we're gonna see I
think we should see more of them and again surprising
I p s that still could happen in the second
(29:25):
half of the year. We work among them fp X
to me, at these they're underrated. Um, they hold these
stocks them anywhere else. Yeah, they hold them for the
two or three I call catch and release. You know,
they grab the top releases really long. It's four years
for for that one, and you only need to be
right a couple of times because like you only need
a couple of facebooks to totally make up for the deads.
But yeah, that that et F. Look at the performance
(29:46):
of FPX over the past fifteen years, unbelievable. My prediction
is that US equity e t f s are going
to regain control and knock out this fixed income narrative
and and lead the year in flows by the end
of the year. And I'll tell you why. It's it
is bold. Wait, that's something that's sent of the overall
et F pie is gonna continue to do that. It's
(30:08):
been it's against like your last twenty tweets, it's against
the whole narrative we've been hearing now is it's fixed
income fixed and come US equity sucks. I just don't
see it happening. Here's what I I just think Trump's
desire to use the stock market as a campaign item
a big one, is going to make him make the
trade deal happen. It's going to make him sort of
coerce the FED to keep right slow. And that's going
(30:30):
to get the trading crowd involved. Because if you look
at flows, we've divided them from allocators buying whold ETFs
to the ones that traders use. The ones that traders
use have seen a negative outflows of fifteen billion this year.
The allocators are doing their thing forty five. They're going
to continue. But if the trading crowd comes back in
and buys like the I w M s and the spies.
That's what's missing from this year and a little bit
from last year. If that crowd comes in hard, I
(30:51):
think that's when you see US Equity E t F
sort of regain that sort of um, you know, lead
dog aspect that they're normally used to. But we'll it
could go the other direction. That's elections in over a year.
We still got plenty of time for him to make
but he's gonna be seeing the debates and people talking
trash and he's gonna I'm telling you this is just
a complete theory by me, and that it also indicates
(31:12):
that that the fete is an independent which is kind of,
you know, blasphemy, But I'm just saying my thoughts. Todd.
I I think there's no question that US Equity ETF
are going to dominate in the second half of the year.
I think what we saw thus far in June is
that's been UH investors have gravitated towards it. But when
you're seventy of the overall marketplace, it's like saying you
think Golden State is going to return to the finals,
(31:34):
which they have done in the last three years. Yes,
and I was rooting for them, and that's great. But
the underdog that's out there, it's like perhaps picking the
Philadelphia seventies six years a year ago and rooting for
them is as some of them Michigan to lose the
World Series. So we're taping this for everybody's purposes. We're
taping this on the eve of what is the last
game of the College World Series and Michigan. I have
(31:55):
to admit that I'm Sarah and I are both proud
in Michigan alums. It's Michigan had a baseball team. He
went a few months ago. I wasn't paying attention to it,
but I'll happily jump on that bandwagon. Of course. Yes,
but they don't play in June. It ends the season's over.
These guys are spoiled rotten. They've got baseball now on
top of basketball and football. I got Runners is like
(32:18):
and everything is including like field hockey. That's me complaining
you guys. You guys are spoiled rotten. Go Blue Todd, Sarah,
thanks for joining us, and Trillion, thanks for having it,
Thanks a lot, Thanks for listening to trillions. Until next time,
you can find us on the Bloomberg Terminal, Bloomberg dot com,
(32:40):
Apple Podcast, Spotify, and wherever else you like to listen.
We'd love to hear from you. We're on Twitter, I'm
at Joel Webber Show, He's at Eric ball Tunis. You
can get Todd at Todd c f r A and
Sarah at Sarah Ponzack. Trillions is produced by Magnus Hendrickson.
Princessica Levie is the head for Bloomberg podcast Tit
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