Latest / Trillions / ETF of the Moment: Software Isn't Dead, Yet

Transcript

ETF of the Moment: Software Isn't Dead, Yet · Trillions

• 0:02
  Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
• 0:20
  Speaker 2: I'm Joel Webber and I'm Eric Balchunas Eric, we do
• 0:23
  Speaker 2: these episodes ETF of the Moment regularly. Now there's a
• 0:29
  Speaker 2: little bit of art and science that goes into it.
• 0:31
  Speaker 2: What does that entail?
• 0:32
  Speaker 3: Yeah, we do this because we've found people like tickers,
• 0:35
  Speaker 3: and so a way to deliver Tickers is looking at
• 0:37
  Speaker 3: the new launches, which we do. And here's one of
• 0:40
  Speaker 3: just we called ETF of the Moment. We write it
• 0:42
  Speaker 3: once a month, and we basically derive it from both
• 0:45
  Speaker 3: quantitative and qualitative means. So we look at Okay, we
• 0:51
  Speaker 3: want to catch a wave before it's a wave, So
• 0:53
  Speaker 3: we look for swells out in the ocean. How do
• 0:56
  Speaker 3: you get a swell? You look at percent short term
• 0:59
  Speaker 3: ori versus its longer term average, like is it having
• 1:03
  Speaker 3: a little bit of a short term moment, And then
• 1:05
  Speaker 3: we look at volume in the short term versus its
• 1:08
  Speaker 3: rolling average? Is it having a little more popularity? So
• 1:11
  Speaker 3: if it's seeing a little recent run up in volume,
• 1:14
  Speaker 3: in return, we're saying okay people, it's happening and people
• 1:18
  Speaker 3: are noticing it. Then we look at that list and
• 1:20
  Speaker 3: we say okay, which one of these is just most
• 1:22
  Speaker 3: interesting and connected to news right now. And so the
• 1:25
  Speaker 3: one we're going to go over this week has to
• 1:26
  Speaker 3: do with the software resurrection. You know, a lot of
• 1:29
  Speaker 3: people thought software was going to be.
• 1:32
  Speaker 2: I was one of them. I thought AI killed software
• 1:34
  Speaker 2: earlier this year.
• 1:35
  Speaker 3: Now they were called the SaaS apocalypse. Yeah, I heard that.
• 1:39
  Speaker 2: I thought that was a great name. Yeah, And frankly,
• 1:42
  Speaker 2: I thought it killed it and it was still down.
• 1:45
  Speaker 2: So one of the things that surprised me about andre
• 1:48
  Speaker 2: Yapp's research at Bloomberg Intelligence, where he's an ETF associate,
• 1:53
  Speaker 2: was that there not only is the sector up, but
• 1:57
  Speaker 2: one ticker in particular is really crushing it. Which ticker
• 2:01
  Speaker 2: is that? Andre Sure?
• 2:02
  Speaker 4: So that ticker is cloud. That's the themes cloud computing ETF.
• 2:07
  Speaker 2: And the ticket is and the ticker is c l
• 2:11
  Speaker 2: O D that's correct, which.
• 2:13
  Speaker 3: Is kind of ugly clod cloud.
• 2:15
  Speaker 2: It's just a little almost cloud, which you kind of
• 2:19
  Speaker 2: could be great, but claude.
• 2:20
  Speaker 3: It's it's close to crud too. But no, no, there's
• 2:22
  Speaker 3: something rough about cloud. Doesn't matter like it's close to
• 2:25
  Speaker 3: anthropic cloud either.
• 2:27
  Speaker 4: It's close enough, you know, I think you can kind
• 2:29
  Speaker 4: of bend it so and it sounds like cloud. I mean,
• 2:31
  Speaker 4: how are you going to remember it? Otherwise it's gonna
• 2:33
  Speaker 4: stick in your head as cloud like cloud cloud.
• 2:36
  Speaker 2: Okay, ry, So software's death may be slightly premature, but
• 2:43
  Speaker 2: how is this not dead already?
• 2:45
  Speaker 4: I think initially people kind of were in a state
• 2:48
  Speaker 4: of unknowing, so they kind of aired on the side
• 2:51
  Speaker 4: of caution where they avoided the risk as opposed to fully.
• 2:54
  Speaker 2: Get me out of here pretty much.
• 2:55
  Speaker 4: You know, you just say, oh, that looks a little
• 2:57
  Speaker 4: bit sketchy, let's avoid that street. So they kind of
• 2:59
  Speaker 4: bailed on it a little bit. So I think that's
• 3:01
  Speaker 4: what happened with software. So if you think about it,
• 3:03
  Speaker 4: software devins was really three prong It was stemming from
• 3:07
  Speaker 4: essentially people thinking, well, we have AI. AI is likely
• 3:10
  Speaker 4: going to shrink or workforce. That basically means that there's
• 3:13
  Speaker 4: going to be less software licenses that we have to sell.
• 3:15
  Speaker 4: So that's prong number one.
• 3:17
  Speaker 2: The second bring we think software it's enterprise scale of
• 3:20
  Speaker 2: like how many desks are these contracts tethered? Two exactly.
• 3:25
  Speaker 4: Also, software guys, software companies, they are users of AI,
• 3:29
  Speaker 4: and they're spending a crap ton of money on that,
• 3:32
  Speaker 4: so there was also concerns off to the ROI on
• 3:35
  Speaker 4: that investment. Is it going to be positive? Is it
• 3:37
  Speaker 4: going to be negative? There's really nothing to benchmark that
• 3:39
  Speaker 4: against because we're in essentially like the biggening of it,
• 3:43
  Speaker 4: we don't really know, So there's a bit of uncertainty
• 3:45
  Speaker 4: and fair there. And the third prong is just general
• 3:48
  Speaker 4: macro environment. If you think about in the first quarter
• 3:51
  Speaker 4: the sky was falling, everybody was kind of a little
• 3:53
  Speaker 4: bit panic. There's a little bit of a shift towards value,
• 3:56
  Speaker 4: so that kind of contributed as well to that kind
• 3:59
  Speaker 4: of risk stance when it came to software. However, that
• 4:02
  Speaker 4: seems to have been overblown because in the second quarter
• 4:05
  Speaker 4: when software companies actually reported their earnings, cloud computing companies
• 4:09
  Speaker 4: as well, they actually crushed it. So that's the reason
• 4:12
  Speaker 4: we're seeing a resurgency cloud at the moment.
• 4:15
  Speaker 2: Okay, now, there are other ETFs that do this and
• 4:20
  Speaker 2: have done it for a long time. Why is cloud?
• 4:24
  Speaker 3: Yeah, and let me jump in here here. Most people
• 4:26
  Speaker 3: think of IGV. Yeah. IGV is the software etf. It
• 4:30
  Speaker 3: trades billions. It's been the one most people have reached
• 4:33
  Speaker 3: for if they think they want to buy software, and
• 4:36
  Speaker 3: that's an I shares, that's an I shares product. This
• 4:40
  Speaker 3: is interesting because it's not called software, but you think
• 4:43
  Speaker 3: it's actually even maybe a better way to do it,
• 4:47
  Speaker 3: even if it's called the cloud computing ETF Yeah.
• 4:50
  Speaker 4: I think so. I think there's a good bit of
• 4:52
  Speaker 4: overlap between the two where there's both software and cloud computing,
• 4:55
  Speaker 4: but the two go hand in hand because software companies
• 4:57
  Speaker 4: are some of the biggest users off cloud computing services.
• 5:00
  Speaker 4: So if one goes, it's kind of like they're tethered together.
• 5:04
  Speaker 4: If one goes, both goes. If one pops, both pops,
• 5:07
  Speaker 4: And that's what we're seeing with cloud.
• 5:08
  Speaker 3: One of the things in your note that I thought
• 5:10
  Speaker 3: was really interesting and really powerful and positive was that
• 5:15
  Speaker 3: you looked into the holdings and you found a large
• 5:18
  Speaker 3: percentage of them beat earnings recently, which again kind of
• 5:22
  Speaker 3: goes against the narrative that software is dying.
• 5:25
  Speaker 4: Yeah, So to add on to that, like when we
• 5:27
  Speaker 4: look at the top twenty holdings, it counted for about
• 5:30
  Speaker 4: eighty percent of the portfolios. Wait, and then when we
• 5:32
  Speaker 4: broke it down even further by the GIGS classification, about
• 5:35
  Speaker 4: seventy percent of those companies were software companies with about
• 5:38
  Speaker 4: ninety three percent of those companies actually beat in earning expectations.
• 5:42
  Speaker 4: So the narrative that software is dead, I think the
• 5:45
  Speaker 4: numbers kind of defied that's crazy.
• 5:47
  Speaker 2: Ninety three percent, it's not crazy of these of these holdings.
• 5:50
  Speaker 3: And by the way, I was working with anarag Rana
• 5:53
  Speaker 3: who's our tech analyst, and I did a similar note
• 5:56
  Speaker 3: on why software worries were overblown about IGV and one
• 6:00
  Speaker 3: thing he brought up, which is something I thought, is
• 6:02
  Speaker 3: that these companies are not run by idiots. I mean,
• 6:06
  Speaker 3: they know what's going on, they know there's AI, and
• 6:08
  Speaker 3: they have a ton of money. And I thought the
• 6:11
  Speaker 3: metaphor worked well. Ten years ago there was the death
• 6:13
  Speaker 3: of them all. Amazon was going to kill all the
• 6:15
  Speaker 3: brick and mortar companies. Well, it killed a lot of malls,
• 6:19
  Speaker 3: but it did, but most of the stocks came rising
• 6:22
  Speaker 3: back because they figured out how to do like the Internet.
• 6:24
  Speaker 3: It's not that hard. So I think, here you have
• 6:26
  Speaker 3: this overreaction to something, but you realize these are like smart,
• 6:30
  Speaker 3: innovative companies. That's why they got to be big in
• 6:32
  Speaker 3: the first place. And if the death of the mall
• 6:35
  Speaker 3: is any precursor, XRT had a good run. That's the
• 6:38
  Speaker 3: retail ETF after the Amazon effect, although it did struggle
• 6:42
  Speaker 3: for a couple of years, but then it found its
• 6:43
  Speaker 3: footing and went up.
• 6:44
  Speaker 2: It reminds me a little bit of our smart beta
• 6:46
  Speaker 2: conversations through the years, which is like a human goes ah, no, no, no,
• 6:50
  Speaker 2: and then like a smart beta robot comes in and
• 6:53
  Speaker 2: is like, actually, this is all these numbers look great?
• 6:55
  Speaker 2: What are you humans doing?
• 6:57
  Speaker 3: Yeah? I think I really think God loves punishing midwits.
• 7:02
  Speaker 3: You know, on that bell curve, the guy who's like
• 7:05
  Speaker 3: and he's in the middle, and on the right hand
• 7:07
  Speaker 3: side you have like the dumb dumb who's like, you know,
• 7:10
  Speaker 3: software companies are run by smart people, and then the
• 7:13
  Speaker 3: Jedi is like, software companies are run by smart, smart people,
• 7:16
  Speaker 3: but the midwit loves complicating this stuff. It really works
• 7:20
  Speaker 3: for the overall stock market. I've seen it happen over
• 7:22
  Speaker 3: and over and sometimes it just pays to like have
• 7:26
  Speaker 3: a little dumb dumb degen and just be like, you know,
• 7:29
  Speaker 3: this is good. You know, stay long and I don't know,
• 7:34
  Speaker 3: let's shift gears real quick for just what claud is
• 7:37
  Speaker 3: made of. I think you have these software companies but
• 7:40
  Speaker 3: you looked at how it it's factors, like what is
• 7:43
  Speaker 3: it really exposed to beyond the certain stocks that it owns,
• 7:46
  Speaker 3: which are companies like CrowdStrike, Oracle, Palo Alto, Salesforce.
• 7:51
  Speaker 2: Which some would would would call cloud computing.
• 7:53
  Speaker 4: Well, they are, but they're very highly interconnected. So the
• 7:58
  Speaker 4: way the GIGS classification work is that it combines them
• 8:01
  Speaker 4: all into software and services services basically being cloud computing
• 8:05
  Speaker 4: and services, so it still falls under the umbrella, and
• 8:09
  Speaker 4: they're very much interconnected. Because, like I said earlier, if
• 8:12
  Speaker 4: software goes down, cloud will also go down because the
• 8:16
  Speaker 4: two are so highly interconnected, with software being its major clientele.
• 8:20
  Speaker 2: So can the good times last for cloud specifically? This
• 8:26
  Speaker 2: is not a big etf I would.
• 8:29
  Speaker 4: Like to say it could. I mean, it's up twenty
• 8:31
  Speaker 4: percent since the end of the first quarter. I think
• 8:35
  Speaker 4: that the ernings kind of shifted the mindset and I
• 8:38
  Speaker 4: think investors are a little bit more risk on at
• 8:40
  Speaker 4: this point in time. I think the major driver will
• 8:43
  Speaker 4: be how the overall economy performed and how investors kind
• 8:47
  Speaker 4: of see the market and how they want to position themselves,
• 8:49
  Speaker 4: because like I said earlier, I don't really think they
• 8:51
  Speaker 4: abandoned software because they necessarily thought it was definitely going down.
• 8:56
  Speaker 4: It was just a risk that was there. And they're like,
• 8:58
  Speaker 4: at this point in time, off stepping aside, kind of
• 9:02
  Speaker 4: seeing what's going on, and then the side later. So
• 9:05
  Speaker 4: the midwis pretty much did what I just said. You know,
• 9:08
  Speaker 4: they're gonna I don't know what's going on, so I
• 9:09
  Speaker 4: stepped aside instead of staying. And I think that's a
• 9:12
  Speaker 4: viable strategy. I don't think the midwits are necessarily over
• 9:15
  Speaker 4: complicating things. I think they're kind of avoiding risk at
• 9:18
  Speaker 4: the moment. They don't know what's going on going on,
• 9:21
  Speaker 4: and a viable strategy in the space of uncertainties to
• 9:24
  Speaker 4: kind of withdraw. You know, we see that happen in
• 9:26
  Speaker 4: battlefields all the time. Sometimes the generals that advance their
• 9:29
  Speaker 4: troops into the unknown other ones that get slaughtered, while
• 9:32
  Speaker 4: the ones that retreat they like to say and say,
• 9:34
  Speaker 4: lift the fight another day. And I think that's what's
• 9:36
  Speaker 4: happening with investors. So we're kind of waiting to see
• 9:38
  Speaker 4: what's happening.
• 9:38
  Speaker 3: And Joel, just to give you an idea, Claude is
• 9:42
  Speaker 3: flat this year, so it's gone down. Yeah, yeah, no, no,
• 9:45
  Speaker 3: for return return. Okay, smh. The semiconductor ETF is up
• 9:49
  Speaker 3: fifty eight percent, so there is a huge and they're
• 9:52
  Speaker 3: they're both in the same sector, so a huge dispersion.
• 9:57
  Speaker 3: So that's why I think there is some room to run.
• 10:00
  Speaker 2: So Claude got totally hammered when there was a cell off.
• 10:02
  Speaker 3: It came back just to get flat. Though. Meanwhile there's
• 10:06
  Speaker 3: like mania going on in other parts of the tech world.
• 10:09
  Speaker 2: And what happened to its assets? They've just been consistently flat.
• 10:14
  Speaker 2: It's like humming along here.
• 10:15
  Speaker 3: Well it doesn't really I mean has two million in assets,
• 10:18
  Speaker 3: so it didn't really have any assets to get or
• 10:21
  Speaker 3: like this is a ride by anybody listening, This is
• 10:23
  Speaker 3: a very small ETF. This is the kind of ETF
• 10:25
  Speaker 3: you probably want to use a limit order on because
• 10:27
  Speaker 3: it's going to have a slightly wider spread. But I
• 10:30
  Speaker 3: like this idea of coming up with ETFs before they're popular.
• 10:36
  Speaker 3: You know, this is like tomorrow stars today. Andre if
• 10:40
  Speaker 3: we had done this special I know it's new, but
• 10:42
  Speaker 3: if we had done it a few months ago. He
• 10:44
  Speaker 3: identified the South Korea ETF a month before d RAM
• 10:48
  Speaker 3: was launched, and the reason he identified is he said
• 10:50
  Speaker 3: they've got two of the big d rams thoughts in there.
• 10:54
  Speaker 3: And that's why that is why we do this, is
• 10:58
  Speaker 3: you want to get this swell because we cover DRAM Now, okay, fine, yeah,
• 11:02
  Speaker 3: it's already up a million percent. Like this is trying
• 11:04
  Speaker 3: to find stuff before it happens, so that tends to
• 11:07
  Speaker 3: get smaller funds sometimes or unusual funds. So be it.
• 11:10
  Speaker 3: This is like a fishing expedition to get some different
• 11:14
  Speaker 3: species that aren't obvious.
• 11:16
  Speaker 4: Yeah, I mean, I think we naturally have this bias
• 11:18
  Speaker 4: and this inclination to look towards the things that we
• 11:21
  Speaker 4: know the largest larger market cap etf the quantitative approach,
• 11:26
  Speaker 4: it earths things that you wouldn't ordinarily look at. You'd
• 11:29
  Speaker 4: probably think if you filter by size, it'd be at
• 11:32
  Speaker 4: the bottom and you're not scrollingto four thousand plus ets
• 11:36
  Speaker 4: actually see what's down there. If you're not up in
• 11:39
  Speaker 4: the top one hundred, then I don't want to see you.
• 11:41
  Speaker 4: By taking a quantitative approach, you screen by the quantities
• 11:44
  Speaker 4: and it gives everyone an even play and field to
• 11:47
  Speaker 4: kind of compete against. And you on earth goodies.
• 11:49
  Speaker 3: Like this, and also if somebody's coming out with a
• 11:52
  Speaker 3: theme ETF now a cloud computing in particular software, there's
• 11:56
  Speaker 3: like twenty on the market, maybe even thirty. This person
• 11:59
  Speaker 3: knows that, and they've designed something they think is better
• 12:02
  Speaker 3: than those thirty. Sometimes that's why the thirty first one
• 12:05
  Speaker 3: is actually really cool. So it's just tough for them
• 12:08
  Speaker 3: because everybody goes the first couple that came out. But
• 12:10
  Speaker 3: I always tell people that's like using an iPhone model one, Like,
• 12:13
  Speaker 3: there's so many interesting models that have come out since.
• 12:16
  Speaker 3: If you could just like dig around the toolbox a little.
• 12:18
  Speaker 3: You know who does this as ETF strategists. You know
• 12:20
  Speaker 3: the cooking show we did that. Those are the kind
• 12:21
  Speaker 3: of people who look through and look for these gems.
• 12:24
  Speaker 3: But that's why we're doing it now. We're trying to
• 12:25
  Speaker 3: get those kind of products out into the wilds so
• 12:28
  Speaker 3: people know they're there.
• 12:29
  Speaker 2: Andre. Yeah, thanks for joining us on Trillions. Thank you.
• 12:32
  Speaker 4: That's for having me.
• 12:39
  Speaker 2: Thanks for listening to Trillions until next time. You can
• 12:42
  Speaker 2: find us on the Bloomberg terminal, Bloomberg dot com, Apple podcasts,
• 12:45
  Speaker 2: and Spotify, or wherever else you'd like to listen. We'd
• 12:49
  Speaker 2: love to hear from you. Hit us up on social media.
• 12:52
  Speaker 2: Trillions is produced by Magnus Hendrickson and Kishov Pundia bie
• 13:01
  Speaker 2: this is the this is it