Transcript

Is Japan Back? · Trillions

0:05
Speaker 1: Booking a trillions.
0:06
Speaker 2: I'm Joe Webber and I'm Eric Altunas.
0:12
Speaker 1: Eric, there's a country that is actually like big in
0:18
Speaker 1: ETFs and we actually don't really talk about it enough,
0:22
Speaker 1: but you're heading to Asia on a trip, and then
0:25
Speaker 1: all of a sudden we started talking about Japan and
0:27
Speaker 1: I was like, well, you know what, we should actually
0:29
Speaker 1: do a Japan episode. And to do that, we're going
0:32
Speaker 1: to have Jeremy Schwartz, who's the global Chief investment Officer
0:37
Speaker 1: at Wisdom Tree joining us. What are we going to
0:39
Speaker 1: talk to him about?
0:40
Speaker 3: Eric?
0:40
Speaker 2: Yeah, well, beyond those reasons, there's also a new prime
0:45
Speaker 2: minister there who, by all accounts is very like Abbe
0:50
Speaker 2: and Abe Nomis was a whole thing from about ten
0:52
Speaker 2: years ago where this guy just cut He did a
0:56
Speaker 2: lot of you know, currency manipulation in order to exports
1:01
Speaker 2: and that created what was called the fee wars for
1:03
Speaker 2: a couple of years there. And DXJ, which is the
1:07
Speaker 2: Wisdom Tree Japan hedged DTF was like a total rock star.
1:11
Speaker 2: In fact, remember the trivia episode we did. One of
1:13
Speaker 2: the trivia questions was what was the LASTDTF that wasn't
1:17
Speaker 2: Vanguard or I shares to win the annual flow crown
1:19
Speaker 2: and the answer is DXJ. In twenty thirteen, it took
1:22
Speaker 2: a nine billion, but then it started to underperform the
1:27
Speaker 2: non hedged, a lot of people left. It was like
1:30
Speaker 2: a rise and then a fall. Then it actually had
1:33
Speaker 2: a good run again, but people didn't really come back
1:35
Speaker 2: like they did. It was like it didn't get a
1:37
Speaker 2: second bite at the apple, which we've seen on occasion.
1:40
Speaker 2: But with this leader in here, maybe we'll get a
1:43
Speaker 2: third bite at the apple. Maybe this time it will work.
1:45
Speaker 2: I can already see some of the assets growing in it,
1:48
Speaker 2: but it's still, you know, basically a shell of what
1:51
Speaker 2: it was ten years ago. But the design of DXJ
1:55
Speaker 2: should be perfectly fit for this prime minister. Of what
1:59
Speaker 2: I'm reading is true.
2:01
Speaker 1: That prime minister is Sanai Takeishi, the first female prime
2:04
Speaker 1: minister in Japan's history. Her nickname is a throwback to
2:08
Speaker 1: Margaret Thatcher, the Iron Lady. And joining us is Jeremy
2:12
Speaker 1: Schwartz of Whitstry this time on trillions is Japan back. Jeremy,
2:21
Speaker 1: Welcome back to Trillians.
2:23
Speaker 4: Thanks so much for having me.
2:24
Speaker 3: One of my favorite topics to talk about with Eric
2:27
Speaker 3: from first episode of ETFIQ to back.
2:30
Speaker 4: Japan might be coming back.
2:32
Speaker 1: Oh so, Jeremy, we did a check.
2:34
Speaker 4: You were on in April of twenty twenty two.
2:38
Speaker 1: It's been a second so excited to have you back.
2:41
Speaker 1: So let's hear you answer the question, is Japan back?
2:43
Speaker 1: I'm gonna guess you're gonna say the affirmative.
2:47
Speaker 3: Well, the thing is that Japan never left. I mean,
2:50
Speaker 3: the thing is people might have traded it wrong. But
2:53
Speaker 3: you know, if I look at the performance of DXJ
2:56
Speaker 3: compared to the S and P five hundred since twenty twelve,
3:01
Speaker 3: how many international funds can you say have beaten the
3:04
Speaker 3: S ANDB five hundred since twenty twelve. EFA by the way,
3:07
Speaker 3: MSCI EFA, the broader national benchmark that everybody buys for
3:11
Speaker 3: international has returned like seven percent a year. The S
3:16
Speaker 3: and P has done fifteen percent a year, okay, and
3:19
Speaker 3: so seven versus fifteen for thirteen years, by the way,
3:23
Speaker 3: compounds to like one hundred and fifty percent versus five
3:27
Speaker 3: hundred percent. So this is how much international has beaten.
3:31
Speaker 3: What has beaten the S and P since that time.
3:36
Speaker 4: D x JET.
3:38
Speaker 3: So it's like that now there's a period where it
3:40
Speaker 3: wasn't but as of today. That's you know, and we're
3:43
Speaker 3: recording early October. That is true, and so there's been
3:47
Speaker 3: I think, you know, this comes back to a fundamental
3:49
Speaker 3: problem through international I mean, Eric, this is something I've
3:52
Speaker 3: talked about for a long time.
3:54
Speaker 4: This is somewhat a.
3:55
Speaker 3: Branding problem, but you know, it also just a sequencing
3:59
Speaker 3: problem that people think hedging is this exotic thing, when
4:03
Speaker 3: like betting on currencies is actually a much more interesting,
4:06
Speaker 3: more exotic thing. Like why are you going to go
4:07
Speaker 3: long the en? You know, if you had to say default,
4:10
Speaker 3: should it be long the en or should just be
4:12
Speaker 3: neutral the en? Most people would have been neutral, but
4:15
Speaker 3: they default to being long v en all the time.
4:17
Speaker 3: It's kind of a crazy thing. But I'd say DXJA
4:19
Speaker 3: never left, but people left and they made a mistake.
4:24
Speaker 1: So what's interesting about that timeline that you lay out
4:26
Speaker 1: is just how much has actually changed in Japan. You know,
4:30
Speaker 1: this huge monetary policy experiment. It was they had like
4:34
Speaker 1: negative interest rates forever year and change ago. They left
4:39
Speaker 1: that and like re entered sort of the normalcy. Now
4:42
Speaker 1: there's inflation and even Japanese are starting to have to
4:45
Speaker 1: invest differently because they can't just keep cash under the
4:48
Speaker 1: Mattress anymore. So is this is dxj's success. Is it
4:53
Speaker 1: really like the the international investment opportunity or is there
4:59
Speaker 1: a domestic story there or too.
5:00
Speaker 3: Yeah, people do ask that question about if it's also
5:04
Speaker 3: one of the oldest populations of declining populations. So like
5:07
Speaker 3: when when we talk about it, is it really about
5:09
Speaker 3: the local Japan story or just their global you know,
5:13
Speaker 3: sort of footprint. I have said that it's not about
5:16
Speaker 3: just the local economy, that it's Japan is generally like
5:19
Speaker 3: a global growth play that it sort of exports all
5:22
Speaker 3: around the world. They have some of the you know,
5:24
Speaker 3: they're they're the infrastructure from their their semiconductors can find
5:28
Speaker 3: their way. Soft Bank is like an AI play. Tokyo
5:31
Speaker 3: Electron feeds into a lot of the other global AI stories,
5:34
Speaker 3: you know, so they are components. They don't have like
5:36
Speaker 3: a they'd say the mag seven like we have these
5:40
Speaker 3: tech leaders, but they have things that support a lot
5:43
Speaker 3: of that, you know, I'd say. The other person who's
5:45
Speaker 3: brought the most interest to Japan has been Buffet. So
5:48
Speaker 3: like you think about world's premier best value investers. Five
5:51
Speaker 3: years ago, I was telling people follow Buffet in Japan
5:54
Speaker 3: I've probably done six or seven different pieces follow Buffet
5:57
Speaker 3: into Japan, and in fact, they actually then created a fund.
6:02
Speaker 4: To buy half the stocks.
6:04
Speaker 3: You know, half of its weight basically is in the
6:07
Speaker 3: Buffet stocks, so OP j OPBJ Japan Opportunities, which we
6:11
Speaker 3: took a smaller fund to do that. We had a
6:14
Speaker 3: small cap fund. That's the more local that was the
6:17
Speaker 3: more local story. I just said, you know, people don't
6:20
Speaker 3: care much enough about the small caps. As much as
6:22
Speaker 3: I cared, people didn't care.
6:24
Speaker 4: But the Japan.
6:24
Speaker 3: Opportunity story with Buffet tagging along actually is is just
6:28
Speaker 3: as interesting today.
6:29
Speaker 2: Actually, when we look at the year today returns, it's
6:33
Speaker 2: pretty close. So the non hedged is up eighteen percent,
6:37
Speaker 2: d XJ is up about the same, and the SMP's
6:39
Speaker 2: up thirteen percent. Now, the dollar has been weakening, and
6:43
Speaker 2: usually if the dollar's weakening, it's not good for currency
6:46
Speaker 2: hedged international ATFS, right, you want the dollar strengthening and
6:50
Speaker 2: Japan's currency getting weaker.
6:52
Speaker 5: That's the perfect trade for d XJ.
6:54
Speaker 2: Is this prime minister going to do what Abe did
6:57
Speaker 2: and like really purposely make the current see worthless in
7:00
Speaker 2: order to jack up exports, and how much is left
7:04
Speaker 2: in that trade because when I just went back and
7:06
Speaker 2: looked at five year, d XJ is destroying the non hedged.
7:11
Speaker 2: So I guess that would be my two questions as
7:13
Speaker 2: somebody thinking about going in now.
7:16
Speaker 4: Yeah, it's a very tricky question.
7:18
Speaker 3: These cursies can be very unpredictable, which goes back to
7:21
Speaker 3: like do you really want to bet on the end
7:23
Speaker 3: going up? You know, which it's a it's a high
7:26
Speaker 3: bar to say, like do I really want to bet
7:28
Speaker 3: on the end?
7:29
Speaker 4: You know what d XJA you're basically getting today.
7:32
Speaker 3: You're getting called three and a half to four percent
7:35
Speaker 3: on top of the local market or this is an
7:38
Speaker 3: important distinction because when you hedge, you get the interest
7:42
Speaker 3: rate differentials on top of the local market return.
7:45
Speaker 4: Like you hear about the end carry trade. You hear
7:47
Speaker 4: about these carry trades.
7:48
Speaker 3: When you're hedging, you're paid the interest rate differentials between
7:52
Speaker 3: the local you know, between the US and local market. So, yes,
7:55
Speaker 3: the Feds bring rates down, Japan's been hiking a little
7:58
Speaker 3: bit for a little while. We're getting five to six
8:00
Speaker 3: percent carry on top of the local market return, which
8:03
Speaker 3: is again is how much the end has to go
8:05
Speaker 3: up to break even with the hedge, right, so they're
8:07
Speaker 3: starting out four percent behind the eight ball is how
8:11
Speaker 3: much the unheedged has to go up now the end
8:13
Speaker 3: had the dollar had beginning week, A lot of people
8:15
Speaker 3: are think the dollar had peeked out and things go.
8:19
Speaker 3: So it is not just in Japan's control. I mean,
8:21
Speaker 3: for sure, when AB came in, you had eighty en
8:24
Speaker 3: to the dollar. Today we're over one fifty end to
8:27
Speaker 3: the dollar. So it's definitely a very different starting point.
8:29
Speaker 3: It was a very overly strong end when ABI came in.
8:32
Speaker 3: You wouldn't say it's an overly strong end today. But
8:37
Speaker 3: it sort of comes back to the policies, like if
8:39
Speaker 3: she's trying to get them to delay raising rates, if
8:43
Speaker 3: they do a lot more physical spending. They've got some
8:46
Speaker 3: the highest debts to GDP. You know, there's just the questions.
8:50
Speaker 3: It's like what you know, Now, she might be pro
8:52
Speaker 3: growth and that might be good for the currency, but
8:55
Speaker 3: it's it's sort of an it's it's unpredictable, so it's like,
8:58
Speaker 3: is that your thesis?
8:59
Speaker 4: The thesis is is she's.
9:00
Speaker 3: Good for the equities, she might not be good for
9:03
Speaker 3: the currency, or at least it adds extra noise and
9:06
Speaker 3: extra volatility when you know, you could buy the stocks
9:08
Speaker 3: and get paid over three percent today to hedge it.
9:20
Speaker 5: One thing you mentioned was the debt to GDP.
9:23
Speaker 2: As Joel knows, I've been deep in this bitcoin book,
9:27
Speaker 2: and one of the things that you have to cover
9:29
Speaker 2: when you're covering this is deficit debt inflation. And I
9:33
Speaker 2: think the US is like one thirty percent. I have
9:37
Speaker 2: to double check out, but I believe Japan's double two
9:39
Speaker 2: hundred and fifty percent. They're basically like the highest in
9:42
Speaker 2: the world for a big country. That seems crazy to me,
9:46
Speaker 2: But as some people pointed out, that doesn't necessarily mean
9:48
Speaker 2: you're going to get a lot of inflation. And Japan
9:51
Speaker 2: is also you know, there's a famous like kind of
9:55
Speaker 2: meme on social media where somebody starts talking about US
9:59
Speaker 2: stocks and somebody comes in, now do Japan, And it's
10:03
Speaker 2: usually looking at like the Lost Decade of Japan, like,
10:05
Speaker 2: which was a couple decades ago, about how a stock
10:08
Speaker 2: market can just do nothing.
10:10
Speaker 5: So I guess with I don't know as.
10:13
Speaker 2: An investor, and I'm thinking, like, hey, this is a
10:15
Speaker 2: debt ridden country. I don't hear a lot of things
10:18
Speaker 2: about mag seven type stocks there. What am I really
10:23
Speaker 2: buying here is it just to trade on monetary policy?
10:27
Speaker 2: And how much more monetary policy can be dubbish or
10:32
Speaker 2: loose given they're already at that debt to GDP level.
10:36
Speaker 3: My friends at all Star Charts j C, PERETZTI, Strasa
10:39
Speaker 3: do these like thirty year breakout charts on Japan, Like,
10:43
Speaker 3: you know, like they has been building this base for
10:45
Speaker 3: thirty years and you just got like the Nieka breakout
10:47
Speaker 3: of forty eight thousand, and it's you know, nineteen eighty
10:49
Speaker 3: nine was the peak. It's just catching up to the
10:52
Speaker 3: nineteen eighty nine peak.
10:54
Speaker 4: But it was like one of the.
10:55
Speaker 3: Greatest bubbles of all time. Like international stocks were sixty
11:00
Speaker 3: percent Japan in nineteen eighty nine. It was one of
11:03
Speaker 3: the most expensive markets. You thought the tech bubble in
11:05
Speaker 3: two thousand was expensive, more of Japan was more expensive
11:09
Speaker 3: than tech bubble of two thousand, Right, That's how big
11:11
Speaker 3: it was. Now it's the inverse today. If I look
11:15
Speaker 3: at that, you know, I've got two different Japan foots.
11:18
Speaker 3: But let's just stay with di XJA the flagship fourteen
11:21
Speaker 3: and a half pe when the S and P's twenty
11:23
Speaker 3: three pe. Okay, so SMP selling at a four to
11:28
Speaker 3: five percent earning sield. We've got a two and a
11:30
Speaker 3: half percent equity premium. Let's call it, you know, like
11:32
Speaker 3: we look at the earning zield versus a tipshield, so
11:35
Speaker 3: you know'll take you over forty years to w your
11:37
Speaker 3: money in bonds today in perching power terms, under two percent,
11:41
Speaker 3: tip shield stocks might take you fourteen to fifteen years.
11:44
Speaker 3: In the US at a five percent earnings field, Japan
11:47
Speaker 3: at a fourteen pe is like an eight seven to
11:52
Speaker 3: eight percent earning yield. It's more like a eight to
11:54
Speaker 3: nine year doubling of your perching power.
11:56
Speaker 4: It's a much.
11:57
Speaker 3: Better value than is like the call it the inverse bubble,
12:01
Speaker 3: Like people just have lack of apathy. You know, there's
12:05
Speaker 3: not any interest. International has been out of favor for
12:07
Speaker 3: this fifteen twenty years at the US Max seven have
12:11
Speaker 3: been in favor, and so nobody cares, and so the
12:14
Speaker 3: valuations support that. The Japan Opportunities Fund, which has all
12:17
Speaker 3: those buffet stocks, is a twelve and a half pe
12:20
Speaker 3: eight percent earn ex zield, very high quality stocks, doing
12:23
Speaker 3: a ton of buybacks, growing the dividends. I mean, it's
12:27
Speaker 3: such a good value story.
12:28
Speaker 4: In my opinion.
12:29
Speaker 3: And if you get any positive catalyst that taik these
12:33
Speaker 3: takaichi trades. If she is, you know, there's there's questions
12:37
Speaker 3: on how effective she's going to be. She's got to
12:39
Speaker 3: get her coalition together. But if she is productive in
12:42
Speaker 3: lowering tax, if you're talking about doing a ten percent consumption,
12:45
Speaker 3: like bringing a flatter tax to ten percent to try
12:48
Speaker 3: to restimulate demand, that could be a very very big deal.
12:53
Speaker 3: And it's a cheap market. So you know, I obviously
12:57
Speaker 3: I like the market.
12:58
Speaker 1: How big are these challenges that that she faces, just
13:01
Speaker 1: to kind of lay out the landscape tough.
13:04
Speaker 3: Man, I mean, it's a tough set of politics. She's
13:06
Speaker 3: got to figure out who's going to to go with her,
13:09
Speaker 3: how she brings it. They do have these inflation problemts,
13:12
Speaker 3: but people are somewhat Eric's when you talk about the
13:15
Speaker 3: currency before versus abe. You know, the end was way
13:18
Speaker 3: too strong before. Now people are worried that their yen
13:21
Speaker 3: aren't going as far and there's inflation, and so the
13:24
Speaker 3: week end makes it a hamster. One of our former
13:27
Speaker 3: strategies said she needs to go for.
13:28
Speaker 4: A strong end policy.
13:30
Speaker 3: So there's there's questions, but that is one of the
13:33
Speaker 3: things she's got to confront. But she's definitely being trying
13:38
Speaker 3: to bring a pro growth mindset the battle. Like I
13:41
Speaker 3: call it, Eric, we launched an Asia Defense fund, and
13:45
Speaker 3: Eric was giving me a hard time in the name
13:47
Speaker 3: of like, well is it why you know? Is there
13:49
Speaker 3: China in that Asia Defense fun? And I said, well, no, no,
13:51
Speaker 3: this is with the battle for China and.
13:54
Speaker 2: Joel I told him they need to run with that
13:57
Speaker 2: and call it.
13:59
Speaker 5: I forget the name.
13:59
Speaker 2: We came out with defending ourselves from China, Asia Defense
14:03
Speaker 2: etf versus.
14:05
Speaker 5: Just like Asia Defense.
14:06
Speaker 2: I'm like, you should own the fact that it's a
14:08
Speaker 2: specific situation there.
14:10
Speaker 1: I don't know if Jeremy wants to comment on that.
14:13
Speaker 3: I mean, it is the battle with China fun in
14:15
Speaker 3: some ways. I mean we called it Asia Defense. I
14:17
Speaker 3: thought I was implied that it was for the battle
14:19
Speaker 3: for China. Yes, I understand his point, like is it
14:21
Speaker 3: with China or for the battle? But that is very
14:24
Speaker 3: topical too. In ta Kaichi, one of the ta Kayuchi trades,
14:29
Speaker 3: I wrote a piece that the ta Kaichi trades, and
14:32
Speaker 3: one of the trades is a defense positioning like she
14:36
Speaker 3: is very strong against China and she thinks they if
14:39
Speaker 3: there were to be a conflict with Taiwan. She wants
14:43
Speaker 3: to defend Taiwan and she wants to increase spending, and
14:47
Speaker 3: so she you know, now, if you think back to
14:50
Speaker 3: the US politics and geopolitics, there is you know, Trump
14:54
Speaker 3: is negotiating hard with China. Maybe by the time people
14:57
Speaker 3: hearing this, they negotiate some grand bargain, but it's it's hot,
15:01
Speaker 3: you know, the China US has been one of the
15:02
Speaker 3: big hot topics this year. Abe was one of Trump's
15:07
Speaker 3: close allies, and then you had sort of a fledgling
15:10
Speaker 3: of prime miships that weren't you know, doing as well
15:13
Speaker 3: with Trump. The idea was Takaichi might be a better
15:17
Speaker 3: negotiator with Trump on some of these issues, more friendly
15:20
Speaker 3: with Trump because she is kind of viewed as this
15:22
Speaker 3: abbe two point zero in some ways. But the defense
15:25
Speaker 3: story is one of the big stories, and so I think,
15:28
Speaker 3: you know, the European defense was one of the hot
15:30
Speaker 3: ETFs this year. Like we somehow in our European team
15:34
Speaker 3: launched a European Defense Fund like the week Zelenski was
15:37
Speaker 3: in the White House, and that fun just took off
15:39
Speaker 3: like like.
15:40
Speaker 4: You would expect.
15:41
Speaker 3: But we actually think this Asia defense today is the
15:45
Speaker 3: hotspot actually for where things could go over the next
15:48
Speaker 3: few years. And Takichi is very supportive for Asian defense.
15:53
Speaker 1: As long as we're talking about China and Trump and
15:56
Speaker 1: Japan sort of in the middle, but maybe leaning a
15:58
Speaker 1: little bit more towards Trump, I just want to go
16:01
Speaker 1: back to trade, which has obviously been the backdrop for
16:04
Speaker 1: so much of what we've been talking about all year.
16:08
Speaker 1: Japan very much an export economy. I'm curious specifically about
16:13
Speaker 1: the automotive industry and sort of your exposure to it
16:17
Speaker 1: and how it's going to try and navigate what's to
16:21
Speaker 1: come and how that might impact your investments.
16:24
Speaker 3: Yeah, that that is why I've been highlighting this second fund.
16:27
Speaker 3: I have this Japan Opportunities Fund because it's much more
16:29
Speaker 3: in the industrials, the five buffet stocks than just betting
16:33
Speaker 3: on the car companies.
16:34
Speaker 4: Now I'm not saying that DXJ is just.
16:36
Speaker 3: The car companies, but in terms of the sectors, you know,
16:39
Speaker 3: DXJ fourteen a half pe it has, it's going to
16:43
Speaker 3: have more exposure to like Toyota, which is its second
16:46
Speaker 3: largest holding, or Honda, which is in the top ten.
16:49
Speaker 3: You know, so it's going to have twenty five percent
16:53
Speaker 3: may be closer to twenty percent in conservatives. Grechary's industrial
16:56
Speaker 3: is still a big sector there twenty five percent, So
16:58
Speaker 3: it's more tied to that. The autos has been a sector,
17:02
Speaker 3: you know, that China's rise has been competing with. Like
17:05
Speaker 3: my colleague Sam was just in Mexico coming off of
17:08
Speaker 3: a Mexico trip. Everywhere, everywhere, like everything is all China cars,
17:13
Speaker 3: and Elon had said, you know, nine of the ten
17:16
Speaker 3: largest car kept are gonna be Chinese, you know, because
17:18
Speaker 3: of the competition that they are so strong. It's global
17:22
Speaker 3: competitive that the car industry has been under pressure everywhere,
17:25
Speaker 3: and so that is China a big China competitive dynamic.
17:37
Speaker 2: I got an ETF NERD question for you here a
17:39
Speaker 2: little bit d XJ again. When I wrote my first book,
17:43
Speaker 2: The ETF Toolbox, it.
17:45
Speaker 5: Was like DSJA had taken over the industry.
17:46
Speaker 2: So I have a whole chapter called currency hatching, which
17:48
Speaker 2: isn't that big of a deal anymore like, but at
17:50
Speaker 2: the time, that's how big it was. I made a
17:52
Speaker 2: whole chapter for it, and I just thought, you guys
17:55
Speaker 2: really set the bar for how to market an ETF
17:59
Speaker 2: I called speedboat marketing. Instead of acting like an aircraft carrier.
18:02
Speaker 2: If you have one of these ETFs that gets hot,
18:04
Speaker 2: you drop everything and you rally around this one product.
18:08
Speaker 2: They had ads Jrol on Bloomberg TV and elsewhere.
18:12
Speaker 5: Take the yen out of Japan. I mean that is good, right.
18:16
Speaker 2: Jeremy was everywhere, and Deutsche Bank had a competing product
18:20
Speaker 2: that had actually launched earlier, but DXJ got all the money.
18:24
Speaker 5: Now.
18:24
Speaker 2: DXJ then saw some outflows since and it's had great performance,
18:29
Speaker 2: but it hasn't able to kind of get back to
18:31
Speaker 2: that peak.
18:33
Speaker 5: What do you make of that?
18:34
Speaker 2: We on a team have this phrase called like it's
18:36
Speaker 2: hard to get a second bite at the apple. If
18:38
Speaker 2: you look at high flyers and history past, especially active managers,
18:42
Speaker 2: these shooting star types like the Janus twenty, it's just
18:45
Speaker 2: hard to come back. Even if you come back performance wise,
18:48
Speaker 2: it's hard to come back in a sort of zeitgeist way.
18:51
Speaker 2: How do you get DXJ back on people's radars, given
18:55
Speaker 2: that they might have been like, well, I did that
18:56
Speaker 2: ride already and it was a little and I'm not
19:01
Speaker 2: doing that again yet.
19:03
Speaker 4: It's very interesting.
19:04
Speaker 3: I'll say I probably talked more Curtsey Hedging than anybody
19:07
Speaker 3: of the industry for the last fifteen years.
19:09
Speaker 4: I did my first one in nine.
19:11
Speaker 3: I think I was the first ETF actually, and the
19:14
Speaker 3: first one was broad EFA and now, interestingly in the
19:18
Speaker 3: history folklore, HDJ, which became Europe, was the first one
19:22
Speaker 3: we converted. It's fascinating. I remember talking about a market maker.
19:26
Speaker 3: We had a client who wanted to buy it, and
19:28
Speaker 3: the market maker didn't want to make this is we're
19:30
Speaker 3: talking two thousand and nine, enty ten, and they didn't
19:33
Speaker 3: want to quote all the spreads because you had to
19:35
Speaker 3: put on these hedges and it was too wide of
19:39
Speaker 3: a thing. And the broad EFO just didn't take off.
19:43
Speaker 3: And then it was April twenty ten we had DXJ unhedged.
19:47
Speaker 3: From six April twenty ten, I added the hedge. We
19:51
Speaker 3: added the hedge to the end, and then it took
19:53
Speaker 3: off during the earthquake in twenty eleven, so the end
19:56
Speaker 3: really went up and people were starting to say, oh,
19:58
Speaker 3: this was a going up too much, and so it
20:02
Speaker 3: started to work for the end. So we probably talking
20:03
Speaker 3: about five hundred million and twenty eleven timeframe after the earthquake,
20:07
Speaker 3: and we saw that it was working for a single
20:09
Speaker 3: currency with Japan, and then we made hedge the European one,
20:12
Speaker 3: which we should have just launched a broad EFA one
20:14
Speaker 3: versus converting.
20:15
Speaker 4: But you know, who know you're going back in time.
20:17
Speaker 3: But then then both of those took off, you know,
20:19
Speaker 3: as you said, Eric, like the single currencies did take off,
20:22
Speaker 3: the broad EFAs took off. We've started doing a little
20:26
Speaker 3: bit below the radar now some more active hedging, Like
20:30
Speaker 3: we have a multi factor family that's actively hedging.
20:32
Speaker 4: We have a dynamic family.
20:34
Speaker 3: Probably our big our fund that's raising the most in
20:37
Speaker 3: the international marks this year has been a dynamic fund
20:40
Speaker 3: that does it just as part of the factors.
20:42
Speaker 4: So it does seem scary.
20:45
Speaker 3: I get it comes back to branding, Like people think
20:47
Speaker 3: dynamic currency hedge, Oh it's a scary thing, but dynamic
20:50
Speaker 3: international the branding I think is a bit better in
20:53
Speaker 3: multi factors just one of the factors. And so we're
20:56
Speaker 3: trying to win the longer game.
20:58
Speaker 4: But you know, for sure, it.
20:59
Speaker 3: Real juice is volatility taking the taking out this noisy thing.
21:03
Speaker 3: Currency moves seven eight percent a year. Do you really
21:05
Speaker 3: want that volatility? I think most people wouldn't accept that.
21:10
Speaker 3: It comes back to benchmarking questions and all right, AQUI
21:13
Speaker 3: or EFA have the currency, so they feel like they're
21:16
Speaker 3: going to make an active call to hedge, but really
21:20
Speaker 3: the active call is to bet on the currency.
21:21
Speaker 4: It's like, really, do you want to bet on the euro?
21:23
Speaker 4: Really you have the long term strong bealon the Euro.
21:25
Speaker 2: This is the challenge with currency hedging. You have to
21:28
Speaker 2: actually change the way your mind works. You have to
21:31
Speaker 2: see almost the way I would describe a Jeremy, I
21:33
Speaker 2: would say this lets you invest as if you're a
21:36
Speaker 2: person in Japan investing in the stock market. It takes
21:40
Speaker 2: out this other element. So when you buy EWJ, you're actually.
21:44
Speaker 5: Buying two things.
21:45
Speaker 2: And I hear you because I remember I used to
21:47
Speaker 2: say this was an A minus b ETF and you're like, no,
21:50
Speaker 2: it's just a the other one, asked me, yeah, and
21:54
Speaker 2: you got me.
21:55
Speaker 5: It took a while.
21:56
Speaker 2: Some of this stuff takes a couple of years. But
21:58
Speaker 2: I also think you guys, that are great job of
22:00
Speaker 2: diversifying away. You've got you had like this huge hit song,
22:04
Speaker 2: but instead of just like relying on this one, like
22:06
Speaker 2: your next couple products over the next decade, you've got
22:10
Speaker 2: some huge hits that really diversified the product line. D
22:14
Speaker 2: XJ is still up there for you. But like you've
22:16
Speaker 2: got USFR and dg RW both seventeen sixteen billion. We've
22:21
Speaker 2: written about that a couple times. But anyway, it's just interesting.
22:24
Speaker 2: Wisdom Tree has always been like an interesting case study.
22:27
Speaker 2: Puer ETF company, publicly traded ETF company, and you know
22:31
Speaker 2: how to like survive after you know your big hit
22:35
Speaker 2: and not make sure you're not just living off of that,
22:37
Speaker 2: which I think is a good lesson for all the
22:39
Speaker 2: issuers out there.
22:41
Speaker 1: Well, just as we as we come to the end here,
22:43
Speaker 1: Jeremy like, what's next.
22:46
Speaker 3: Well, in some ways it's interesting, Eric, you talked about
22:48
Speaker 3: the A plus B ETFs and A minus BUS test,
22:52
Speaker 3: the one that's gaining a lot of traction.
22:54
Speaker 4: Now that should be so much bigger.
22:55
Speaker 3: You know that we if you said, go back to
22:57
Speaker 3: the TV the TV days.
22:59
Speaker 4: You know what we have TV right now is our
23:01
Speaker 4: gold stack. You know, are sort of.
23:03
Speaker 3: Capital fishing gold funds where you put gold on top
23:05
Speaker 3: of things. As gold up fifty percent year to date,
23:08
Speaker 3: we have it basically US equities plus gold futures on
23:11
Speaker 3: top of it GD and then we have gdm N,
23:13
Speaker 3: which is miners plus gold that competes with that, those
23:16
Speaker 3: are now you know, the miners are taken one hundred
23:18
Speaker 3: and fifty million this year the gold overlay to the
23:21
Speaker 3: S and P kind of stocks, to our own basket
23:23
Speaker 3: of five hundred stocks.
23:24
Speaker 2: But gd is, oh my god, run is up one
23:28
Speaker 2: hundred and eighty percent.
23:29
Speaker 3: Top performing compared to your standard miners.
23:32
Speaker 2: That's efficient gold plus miners.
23:33
Speaker 5: So that's gold miners.
23:34
Speaker 2: Is that like leverage at one hundred and fifty or something.
23:36
Speaker 3: Well, it's it's ninety ninety. So ninety percent the stocks,
23:40
Speaker 3: ninety percent the futures. So it's say, you know, it's
23:44
Speaker 3: adding the gold futures on top. And we do the
23:46
Speaker 3: same thing with core stocks. So if you go back
23:47
Speaker 3: to your deficit problems, the debt and deficits, you know,
23:51
Speaker 3: people worried about the dollar.
23:52
Speaker 4: You don't have to go to.
23:53
Speaker 3: International to do that. Just add gold on top of
23:55
Speaker 3: your US large stacks with GDE. So that's our that's
23:59
Speaker 3: that is really a p This is you know, this
24:02
Speaker 3: is a good a good family.
24:03
Speaker 2: By the way, Joel, they got a China X state
24:06
Speaker 2: owned enterprises and so that I told them that should
24:10
Speaker 2: be take the communism out of China. But they didn't
24:14
Speaker 2: run with that, I said, that's on the house.
24:19
Speaker 5: It's pretty good.
24:20
Speaker 4: Bring it back.
24:21
Speaker 2: Then they have one EM that's X state owned EM companies,
24:25
Speaker 2: and I said, probably can't. I'd say take the socialism
24:27
Speaker 2: out of the emerging markets.
24:29
Speaker 4: I'm gonna go back with that.
24:30
Speaker 3: I'm gonna bring that back to the marketing team after
24:31
Speaker 3: we get off.
24:32
Speaker 4: This call here.
24:33
Speaker 1: All right, Well, you clearly have a way of surfing
24:36
Speaker 1: some interesting situations. Uh so, Jeremy, thanks for coming back
24:40
Speaker 1: on Trillions and looking forward to having you back again soon.
24:43
Speaker 4: I always do to show with you guys.
24:50
Speaker 1: Thanks for listening to Trillions. Until next time. You can
24:52
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Speaker 1: or wherever else you'd like to listen to. I'd love
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Speaker 1: to hear from you. Hit us up on social I'm
25:01
Speaker 1: at Joel Weber Show, He's at Eric Balchino's. Trillions is
25:05
Speaker 1: produced by Magnus Hendrickson. Sage Bauman is the head of
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Speaker 1: Bloomberg Podcast