Latest / Trillions / Want to Find the Next Nvidia? Here’s How to Watch What ‘Big Active’ Is Buying

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Want to Find the Next Nvidia? Here’s How to Watch What ‘Big Active’ Is Buying · Trillions

• 0:02
  Speaker 1: Bloomberg Audio Studios.
• 0:04
  Speaker 2: Podcasts, radio, news. With mutual funds, I remember when I
• 0:11
  Speaker 2: started in the business, it was semi-annual to see when
• 0:14
  Speaker 2: their holdings were.
• 0:15
  Speaker 3: And now it's quarterly.
• 0:17
  Speaker 2: We're still waiting for monthly. But with ETFs, the ETFs
• 0:20
  Speaker 2: give us a way to look at what these managers
• 0:23
  Speaker 2: are going to end up doing in the mutual funds.
• 0:28
  Speaker 1: Welcome to Trillions. I'm Joel Weber.
• 0:29
  Speaker 3: And I'm Eric Balchunas. Eric, there's a certain.
• 0:32
  Speaker 1: Movie from the 1980s that has factored into your work
• 0:37
  Speaker 1: at Bloomberg Intelligence recently. What is that movie?
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  Speaker 3: Yeah. So it's a famous movie for, I guess, anybody
• 0:43
  Speaker 3: over the age of 40 has definitely seen it. Wall
• 0:45
  Speaker 3: Street with Michael Douglas and Charlie Sheen. Great movie. Oliver
• 0:49
  Speaker 3: Stone directs. It inspired a ton of people, I think,
• 0:53
  Speaker 3: to want to go to Wall Street back in the day.
• 0:54
  Speaker 3: I think Big Short was like kind of replaced it
• 0:57
  Speaker 3: as the movie for the next generation. But anyway, it
• 1:01
  Speaker 3: is a movie kind of about insider trading. And Gordon
• 1:05
  Speaker 3: Gekko is the main big fish guy who's the bad guy,
• 1:09
  Speaker 3: kind of. Anyway, when Charlie Sheen is trying to get
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  Speaker 3: word out on a stock that Gordon Gekko wants to
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  Speaker 3: see the price go up, he basically calls all his
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  Speaker 3: best clients and says, Blue Horseshoe likes Anikot Steel. And
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  Speaker 3: basically that's code for Gordon Gekko is very interested in
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  Speaker 3: this stock and you should buy it now before it
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  Speaker 3: goes up. And now that is illegal. That's what the
• 1:35
  Speaker 3: movie's about. However, there are ways to get information now.
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  Speaker 3: A new development has really kind of transpired that allows
• 1:45
  Speaker 3: us to see what the best, most influential and biggest
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  Speaker 3: active managers are into. You know, the blue horseshoes of
• 1:53
  Speaker 3: the world legally would be like looking at what Fidelity
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  Speaker 3: is buying and selling. What is Capital Group buying and selling?
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  Speaker 3: What is BlackRock buying and selling? People want to know
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  Speaker 3: about this. And now with active ETFs, you can do that.
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  Speaker 3: Used to be they just weren't big enough and a
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  Speaker 3: lot of the big fish didn't have them. But now
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  Speaker 3: in the past couple of years, these active ETFs show
• 2:15
  Speaker 3: their holdings every day and they are growing into billions
• 2:19
  Speaker 3: and billions of.
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  Speaker 1: Dollars, right?
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  Speaker 3: All told, active ETFs now have $ 2 trillion in assets.
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  Speaker 3: So some of these firms have over $ 100 billion in
• 2:26
  Speaker 3: active ETF assets. And they're kind of run by the
• 2:29
  Speaker 3: same team. So you can now see what Fidelity Capital
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  Speaker 3: Group and BlackRock are like and don't like every day.
• 2:38
  Speaker 3: Used to be you'd have to wait quarterly with a delay,
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  Speaker 3: maybe monthly if you're lucky. But daily is unbelievable. So
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  Speaker 3: we made a new tool called Blue Horseshoe, which tells
• 2:49
  Speaker 3: you what they like day in and day out. And
• 2:52
  Speaker 3: I think it's really cool.
• 2:53
  Speaker 1: So the tool exists only on the Bloomberg terminal. And
• 2:57
  Speaker 1: to help... guide us through not only the tool and
• 3:00
  Speaker 1: what it reveals and what it all means. We're going
• 3:02
  Speaker 1: to be joined by Sharoon Francis, a research associate with
• 3:06
  Speaker 1: Bloomberg Intelligence, as well as David Cohn, a mutual fund
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  Speaker 1: and active manager analyst. This time on Trillions, Blue Horseshoe. Sharoon, David,
• 3:16
  Speaker 1: thanks for joining us on Trillions.
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  Speaker 4: Thanks, Joel.
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  Speaker 2: Thank you.
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  Speaker 1: Eric, can we just talk a little bit more about
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  Speaker 1: where this idea came from? Because it required a couple
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  Speaker 1: of changes within the industry. Yeah.
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  Speaker 3: So, well, first of all, The active ETFs have grown,
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  Speaker 3: like I said. That was one thing that changed. But
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  Speaker 3: I can't say it's my idea per se. We have
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  Speaker 3: something inside the terminal called a persistent chat with some clients.
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  Speaker 3: It's an anonymous chat room. And they're really cool because
• 3:43
  Speaker 3: we can interact with clients directly. Anyway, we call it
• 3:45
  Speaker 3: BI nerds, BI ETF nerds. Anyway, we're talking to clients,
• 3:51
  Speaker 3: letting them know research we wrote. And this one client said, hey,
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  Speaker 3: can you tell me what the most bought stock was
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  Speaker 3: from these active ETFs yesterday? And I was like, I
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  Speaker 3: think we can do that. And I thought about it
• 4:03
  Speaker 3: and I was like, well, we can't right now, but
• 4:06
  Speaker 3: let me get back to you. And then it actually
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  Speaker 3: dawned on me that never before in the history of
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  Speaker 3: investing have we been able to see this narrow of
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  Speaker 3: curiosity of buying and selling. And I'm like, this is
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  Speaker 3: a great idea. And then it really hit me because Athanasios,
• 4:24
  Speaker 3: two years ago, wrote a note about Nvidia, and people
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  Speaker 3: forget that Nvidia was the 387th biggest stock 10 years ago.
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  Speaker 3: And now it's the number one stock in the S &
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  Speaker 3: P 500. How did it go from 387 to one? Well,
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  Speaker 3: the beginning of that road is these active firms, these
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  Speaker 3: big guys, Capital Group, Fidelity, T. Rowe, BlackRock, these managers
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  Speaker 3: have to like the stock and they have to initiate
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  Speaker 3: positions and then add the positions. That helps the price
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  Speaker 3: go up. the market cap go up, and then it
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  Speaker 3: triggers some of the indexes because the market cap gets
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  Speaker 3: big enough, all of a sudden it gets included in
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  Speaker 3: sectors and themes, then it's eligible for the S &
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  Speaker 3: P 500, then as it gets bigger, it gets a
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  Speaker 3: bigger weighting in the S & P, but all of
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  Speaker 3: this is pushed by active. So the question is, what's
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  Speaker 3: the next Nvidia? And now I think we have an
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  Speaker 3: ability to sort of look behind the curtain at Active
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  Speaker 3: Manager's IP every day for the first time. And David
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  Speaker 3: Cohn will tell you, this is why they didn't want
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  Speaker 3: to do ETFs for a long time. They did not
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  Speaker 3: want to show their IP. This is their bread and
• 5:36
  Speaker 3: butter is what they like and don't like. And they
• 5:39
  Speaker 3: don't want anybody riding their coattails this closely. But all
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  Speaker 3: the information's out there. And we're now building a tool
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  Speaker 3: that aggregates the data, also shows you by manager. And
• 5:50
  Speaker 3: it's interesting the thing it drums up. Not everything is
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  Speaker 3: interesting in what it drums up, but there's a lot
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  Speaker 3: of interesting things in there. And we're trying to find
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  Speaker 3: really small swells before they become big waves. We're trying
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  Speaker 3: to find what is the NVIDIA that will be for
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  Speaker 3: the next 10 years. And this is, I think, where
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  Speaker 3: you want to look.
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  Speaker 1: So, Sharun, what Eric has described there is there's like
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  Speaker 1: little breadcrumbs probably across the internet, but maybe not something
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  Speaker 1: that ever has combined this all onto one tool like
• 6:21
  Speaker 1: you guys built. So how'd you go about building this?
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  Speaker 1: Sure thing.
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  Speaker 4: So for starters, we had to determine what is an
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  Speaker 4: active ETF. So there's all sorts of different ETFs, leveraged ETFs,
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  Speaker 4: buffer ETFs. We need to suss all of those things
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  Speaker 4: out and really get the traditional active smart money ETFs.
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  Speaker 4: So once we had that cohort in that group, it
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  Speaker 4: came down to chopping that up into different perspectives. One
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  Speaker 4: problem that we ran into was, okay, $ 100 million into NVIDIA,
• 6:51
  Speaker 4: that's nothing. But to a small cap stock, that could
• 6:55
  Speaker 4: be an earthquake. So really, we made this thing called
• 7:00
  Speaker 4: an impact score, which is just simply our estimate for
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  Speaker 4: how much money is going into this stock from said
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  Speaker 4: ETFs divided by its market cap. So that really lets
• 7:10
  Speaker 4: us pick out you know, where conviction is building before
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  Speaker 4: it becomes a groundswell that is NVIDIA, before it gets
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  Speaker 4: added to a big time index or things like that.
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  Speaker 4: So it was really just chopping this up into different
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  Speaker 4: perspectives that would let us get a manager's conviction and
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  Speaker 4: really display that really short in a cohesive way.
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  Speaker 1: And David, when you see that trend over time, what
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  Speaker 1: does that reveal?
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  Speaker 2: Well, if you think of a larger manager, if they're
• 7:43
  Speaker 2: buying a company, it's not like a retail investor that
• 7:46
  Speaker 2: can go and just enter in a trade. If you
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  Speaker 2: have a pretty decent-sized fund, you can't just go make
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  Speaker 2: the purchase right away. It's not just something that's going
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  Speaker 2: to happen. And so what they typically do is build
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  Speaker 2: positions in companies, and whether that's over days, weeks, or
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  Speaker 2: even months, if you track this over time, you can
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  Speaker 2: see where that conviction really is. You know, are they
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  Speaker 2: continuing to add to this position? Not just, you know,
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  Speaker 2: from today and maybe six months from now. But, you know,
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  Speaker 2: if you have that type of fund, you have to
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  Speaker 2: go slowly. You can't just, you know, make a huge
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  Speaker 2: purchase because obviously people will know that the market's going
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  Speaker 2: to watch and see what you're doing. But if you're
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  Speaker 2: doing it slowly, you know, it's not going to make
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  Speaker 2: as big of a market movement. But with this tool,
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  Speaker 2: we can go in and see what's going on there.
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  Speaker 2: And so I think it's really remarkable what we can
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  Speaker 2: do right now and watch this occur.
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  Speaker 3: And David, let me follow with you because, by the way,
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  Speaker 3: David has a great podcast called Inside Active, which you
• 8:41
  Speaker 3: can find anywhere on Spotify, et cetera. I recommend it.
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  Speaker 3: He interviews active managers all the time for years now.
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  Speaker 3: These teams of active managers, like the PM and then
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  Speaker 3: the researchers, this is the best in the business, right?
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  Speaker 3: So these people, when they all agree that a stock
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  Speaker 3: should be bought, right? It takes a lot of signing off,
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  Speaker 3: a lot of people to say yes, and then they
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  Speaker 3: have to inch into the position. Now, the ETF is
• 9:06
  Speaker 3: giving us early information, but typically just go into how
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  Speaker 3: like ETFs, like for example, the Capital Group Growth ETF
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  Speaker 3: is run by the same people who run the Capital
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  Speaker 3: Group Growth Mutual Fund, which is like hundreds of billions
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  Speaker 3: of dollars. So the likelihood is a stock that the
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  Speaker 3: ETF buys that we see in five days We'll probably
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  Speaker 3: end up in the mutual fund, but it's just we
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  Speaker 3: can't see it yet. And the mutual funds where the
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  Speaker 3: real buying occurs. it's almost like being able to see
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  Speaker 3: the tip of an iceberg.
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  Speaker 1: Am I right? No, definitely.
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  Speaker 2: If you're a mutual fund firm and you're adding ETFs,
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  Speaker 2: aside from the capital markets expertise that you bring on
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  Speaker 2: with ETF people, you already have the talent there.
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  Speaker 1: The managers are there.
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  Speaker 2: And so whether that's a clone or a similar strategy,
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  Speaker 2: or even if you have a team of growth managers
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  Speaker 2: or analysts, they're all sharing ideas on these funds. And
• 10:01
  Speaker 2: with mutual funds, I remember when I started in the business,
• 10:04
  Speaker 2: it was semi-annual to see when their holdings were.
• 10:07
  Speaker 1: And now it's quarterly.
• 10:08
  Speaker 2: We're still waiting for monthly. But with ETFs, until the
• 10:11
  Speaker 2: share classes come, the ETFs give us a way to
• 10:15
  Speaker 2: look at what these managers are going to end up
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  Speaker 2: doing in the mutual funds. Or They're probably doing it
• 10:19
  Speaker 2: at the same time, but we won't see it until
• 10:21
  Speaker 2: the end of the quarter. And even at that point,
• 10:23
  Speaker 2: we have to wait a couple of weeks until the
• 10:25
  Speaker 2: filings come out. But we're able to kind of see
• 10:27
  Speaker 2: what they're doing because, yes, these managers are running a
• 10:30
  Speaker 2: lot of the same funds from both on the ETF
• 10:33
  Speaker 2: and mutual fund side. And if it's a big enough company,
• 10:36
  Speaker 2: they typically share a lot of ideas. So even if
• 10:38
  Speaker 2: it's not the same manager, if analysts are working on
• 10:40
  Speaker 2: different funds, that company is most likely going to end
• 10:44
  Speaker 2: up in other funds in the team. So I think
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  Speaker 2: it really gives us a good view into the future.
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  Speaker 1: Okay. So we have a sense of how this works,
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  Speaker 1: what's changed, what's allowed it to happen. Eric, give me
• 10:57
  Speaker 1: something tangible from your crystal ball.
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  Speaker 3: I like to use the phrase, as I said, blue
• 11:02
  Speaker 3: horseshoe likes, right? What's the Anacost deal of the past, say,
• 11:06
  Speaker 3: 30 days? And the answer to that is Okta. I
• 11:10
  Speaker 3: think I'm pronouncing that right. I love that. I don't
• 11:11
  Speaker 3: even know how to pronounce it. Okta, which is a Okta? Yeah, Okta.
• 11:16
  Speaker 1: What company is that?
• 11:17
  Speaker 3: So this is a company, I mean, it's funny because
• 11:20
  Speaker 3: I've never heard of this company, but our fellow equity
• 11:25
  Speaker 3: research analysts do cover it and they look like they're
• 11:27
  Speaker 3: pretty favorable about it. What they like about it is
• 11:29
  Speaker 3: it's a cloud-based software company that gives AI agents access
• 11:34
  Speaker 3: to sensitive data and a secure API to take action
• 11:38
  Speaker 3: on behalf of users. And as you know, AI agents
• 11:41
  Speaker 3: are a huge potential part of how we're going to live, right?
• 11:45
  Speaker 3: And so this firm is really sitting in between all that,
• 11:48
  Speaker 3: and it's really benefited. So the ETF that bought the
• 11:51
  Speaker 3: most of it was the iShares Innovation and Tech Active ETF. Now,
• 11:53
  Speaker 3: I know you hear iShares, you think passive, but no,
• 11:56
  Speaker 3: this is an active ETF. It's $ 13 billion. The guy
• 11:59
  Speaker 3: who runs it, Tony Kim, also runs a world tech
• 12:03
  Speaker 3: mutual fund that's even more. So he's managing, I think,
• 12:06
  Speaker 3: up to $ 48, $ 50 billion. My guess is this stock
• 12:09
  Speaker 3: would be in some of the other funds, but this
• 12:11
  Speaker 3: is the first time that this iShares ETF took a
• 12:14
  Speaker 3: position in it. And as I've used the tool, I
• 12:16
  Speaker 3: like BAI a lot because I like the fact that
• 12:20
  Speaker 3: there's a tech AI manager who's really out there scouring
• 12:24
  Speaker 3: small caps, mid caps, international. And there's a couple of
• 12:27
  Speaker 3: times I haven't recognized the name that was the top
• 12:29
  Speaker 3: of the list. Another one was a Japanese laser company.
• 12:32
  Speaker 3: And anyway, Okta, since BlackRock bought it, went up 13%
• 12:36
  Speaker 3: in two weeks. And I look back, this stock went
• 12:39
  Speaker 3: from $ 11 billion to $ 33 billion in the past six months.
• 12:43
  Speaker 3: So the stock is really hot. So I'm sure anybody
• 12:47
  Speaker 3: who covers this space is probably like, oh, yeah, sure, dude.
• 12:49
  Speaker 3: I know Okta. Great. Well, I'm hoping we find other
• 12:53
  Speaker 3: things like this. But for the people who are maybe
• 12:56
  Speaker 3: not as in the tech world, This is a great
• 12:59
  Speaker 3: way to surface stocks like this. And it's not just
• 13:01
  Speaker 3: tech stocks. There's another example where JP Morgan likes Viva Systems,
• 13:05
  Speaker 3: which is a healthcare company. That's their growth fund. And
• 13:10
  Speaker 3: Capital Group likes Ryanair Holdings in their international fund. And
• 13:14
  Speaker 3: you even have Coca-Cola. So there's also some traditional stocks
• 13:17
  Speaker 3: in there. And my favorite part is when the stock
• 13:21
  Speaker 3: at the top with the most money, just absolutely, is
• 13:25
  Speaker 3: a stock I haven't heard of. And that was the
• 13:27
  Speaker 3: case with Okta. On the flip side, there's the impact score.
• 13:30
  Speaker 3: When you look at that one, you tend to see
• 13:32
  Speaker 3: a lot of no-namers, even micro-caps, with not even any
• 13:36
  Speaker 3: analyst coverage. And the impact score, again, is looking at
• 13:39
  Speaker 3: how much money is going into the stock relative to
• 13:41
  Speaker 3: its market cap. So anyway, long story short, Okta would
• 13:45
  Speaker 3: be probably the one that I'm really seizing on this month,
• 13:47
  Speaker 3: but you could find a lot of stuff in here.
• 13:50
  Speaker 3: It does take a little curating, and then you have
• 13:52
  Speaker 3: to kind of play with the stock a little, see
• 13:54
  Speaker 3: who else bought it. We actually looked at, okay, what
• 13:56
  Speaker 3: other funds that are active ETFs bought Okta? And the
• 14:01
  Speaker 3: answer is a couple other. All this is in 30 days,
• 14:04
  Speaker 3: by the way. You have JP Morgan initiated a position
• 14:07
  Speaker 3: in Okta, not as big as iShares' position. And then
• 14:10
  Speaker 3: we have Nuveen. Both of those are tech and growth funds.
• 14:13
  Speaker 3: So whatever Okta is doing and whatever they have going
• 14:17
  Speaker 3: on is clearly attracting the attention of what I call
• 14:20
  Speaker 3: big active, like big pharma. And I'm telling you, big
• 14:23
  Speaker 3: active is where you want to watch what they're doing.
• 14:27
  Speaker 3: And this is, again, unprecedented information to be able to
• 14:32
  Speaker 3: get on a daily basis.
• 14:33
  Speaker 1: So, Sharun, now that we've got a little glimpse of
• 14:36
  Speaker 1: this crystal ball, what limitations does this approach have?
• 14:42
  Speaker 4: Certainly. So, when it comes to the impacts where we
• 14:44
  Speaker 4: want to make a few different enhancements, so specifically, how
• 14:49
  Speaker 4: could we incorporate the liquidity of a stock to it? So,
• 14:53
  Speaker 4: can the stocks... liquidity support the amount of volume or
• 14:57
  Speaker 4: the buying that an ETF is kickstarting. We've seen a
• 15:01
  Speaker 4: lot of situations where some ETFs can get too big
• 15:04
  Speaker 4: for the pond that they're swimming in. So we've seen
• 15:06
  Speaker 4: cases where like these like smart index type ETFs, they
• 15:12
  Speaker 4: only invest in like mid to small cap companies with
• 15:15
  Speaker 4: high free cash flow. They'll start owning unprecedented amounts of
• 15:19
  Speaker 4: smaller stocks. and then have an excessive amount of influence
• 15:24
  Speaker 4: on those stocks. And while we've looked at this tool,
• 15:28
  Speaker 4: a handful of times impact scores surfaced the same ETFs,
• 15:34
  Speaker 4: specifically BAI, the AI and innovation ETF that Eric mentioned earlier,
• 15:39
  Speaker 4: and also another stock, arithmetic ETF, it's IDEF, which is
• 15:44
  Speaker 4: defense and industrials. So really.
• 15:48
  Speaker 4: What it can tend to do is surface the same
• 15:51
  Speaker 4: universe and group of ETFs that looks like they could
• 15:56
  Speaker 4: be getting to have an unprecedented amount of influence for
• 16:01
  Speaker 4: the pond that they're working in. So we believe that
• 16:06
  Speaker 4: if we incorporate volume into the equation, we could one,
• 16:10
  Speaker 4: suss out ETFs that could be exerting a little bit
• 16:13
  Speaker 4: too much influence. And that also extends past just active
• 16:16
  Speaker 4: ETFs and the active ETF complex in general, passive ETFs
• 16:20
  Speaker 4: could be getting too big. So we could improve the
• 16:24
  Speaker 4: impact score to use the volume of the stock and
• 16:27
  Speaker 4: also broaden our universe to passive ETFs to really look
• 16:31
  Speaker 4: at it from a different vantage point. Not just what
• 16:34
  Speaker 4: stocks does active love, but what stocks do maybe active
• 16:39
  Speaker 4: and passive ETFs love too much.
• 16:42
  Speaker 1: All right. We're going to No doubt, talk about big
• 16:45
  Speaker 1: active on Trillions more. But for now, we're going to
• 16:48
  Speaker 1: leave it there. David Cheroon, thanks for joining us on
• 16:51
  Speaker 1: Trillions and giving us a glimpse of your crystal ball.
• 16:53
  Speaker 1: Thanks for having me.
• 16:54
  Speaker 3: Thanks, Joel.
• 17:02
  Speaker 1: Thanks for listening to Trillions. Until next time, you can
• 17:05
  Speaker 1: find us on the Bloomberg Terminal, Bloomberg.com, Apple Podcasts, Spotify,
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  Speaker 1: or wherever else you like to listen. We'd love to
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  Speaker 1: hear from you. Hit us up on social. Trillions is
• 17:15
  Speaker 1: produced by Magnus Hendriksen and Keshav Pandya. Amy Keene is
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  Speaker 1: our executive producer. Cheryl Brumley is the head of Bloomberg Podcast.
• 17:23
  Speaker 3: Bye.