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Transcript

The 2025 ETF Mailbag · Trillions

• 0:06
  Speaker 1: Welcome to Trillions.
• 0:06
  Speaker 2: I'm Joel Webber and I'm Eric Belchunas.
• 0:12
  Speaker 1: Eric, we have not done a mail bag episode in
• 0:15
  Speaker 1: a really long time, and people have questions.
• 0:18
  Speaker 2: Yeah, and we have all kinds of vacation schedules that
• 0:21
  Speaker 2: we're managing around, so this is a good time to
• 0:23
  Speaker 2: just phone one in.
• 0:25
  Speaker 1: Joel, Well, when we never phone anything in, I happen
• 0:29
  Speaker 1: to be remote in the off while we're recording this,
• 0:32
  Speaker 1: and I'm still gonna ask some questions on behalf of
• 0:36
  Speaker 1: many of our listeners and some of your Twitter followers
• 0:39
  Speaker 1: and your LinkedIn followers and anybody else who had some
• 0:42
  Speaker 1: questions that they want to get answered to help us
• 0:46
  Speaker 1: wade through some of the weeds. We're also going to
• 0:48
  Speaker 1: be joined by Athanasio Sarah Figus, an ETF analyst with
• 0:51
  Speaker 1: Bloomberg Intelligence, this time on Trillians bail Bag. Athanasos, Welcome
• 0:58
  Speaker 1: back to Trillions.
• 1:00
  Speaker 3: Hey, thanks for having me on.
• 1:01
  Speaker 1: Okay, so you know how this works. We've asked for
• 1:03
  Speaker 1: a bunch of questions and we're going to rattle through
• 1:05
  Speaker 1: as many of them as we can this episode. You're
• 1:08
  Speaker 1: going to hop in whenever warranted. Eric, the first question,
• 1:11
  Speaker 1: I'm going to ask of you comes from John Andrew
• 1:14
  Speaker 1: Carter Junior, who asked, what's the next big tech innovation
• 1:20
  Speaker 1: in exchange traded funds that will affect the way I invest?
• 1:27
  Speaker 2: I mean i'd have to go with eat the ETF
• 1:29
  Speaker 2: share class which is coming out this summer, probably later
• 1:32
  Speaker 2: this summer or early fall, where a mutual fund will
• 1:37
  Speaker 2: just be able to bolt on an ETF share class.
• 1:40
  Speaker 2: Only Vanguard does that currently, but there's I think over
• 1:43
  Speaker 2: sixty different active managers that have filed for this basically
• 1:49
  Speaker 2: exception to a rule, and if they get approved, which
• 1:54
  Speaker 2: we heard they will, we're looking at basically all mutual
• 1:57
  Speaker 2: funds will I mean not all of them, but a
• 1:59
  Speaker 2: lot of them. You'll be able to just transfer from
• 2:01
  Speaker 2: your mutual fund share to your ETF share. So I
• 2:04
  Speaker 2: think for people out there who are you know, have
• 2:06
  Speaker 2: been wanting to leave and not have a tax hit
• 2:09
  Speaker 2: when they leave, they can now do that and it
• 2:12
  Speaker 2: should be very interesting. I think it will be a
• 2:15
  Speaker 2: drain from the mutual fund to the ETF, but that
• 2:18
  Speaker 2: money was probably going to go over there anyway. This
• 2:20
  Speaker 2: just makes it a little easier, more tax efficient, and lets
• 2:24
  Speaker 2: some of these old legacy active managers save a client
• 2:27
  Speaker 2: rather than losing one. So that's I would it's not
• 2:31
  Speaker 2: the most interesting tech innovation. I think that's what they're
• 2:33
  Speaker 2: talking about tech with the structure, would you do something different?
• 2:36
  Speaker 4: No, I think that's spot on. I was thinking maybe
• 2:39
  Speaker 4: like tokenization, which is like what Robinhood's trying to do.
• 2:42
  Speaker 4: They just announced that that could be something, you know,
• 2:46
  Speaker 4: maybe allowing access to things that were not able to
• 2:50
  Speaker 4: fit into the ETF, like private equity. But that might
• 2:54
  Speaker 4: be a tall order, right. ETFs give you a really
• 2:56
  Speaker 4: good deal. You have pretty much access to everything. But
• 2:59
  Speaker 4: I think that the tokenization stories can be around for
• 3:03
  Speaker 4: some time.
• 3:04
  Speaker 1: Okay, as long as we're talking about tokenization, Alvarro Martinez asks,
• 3:09
  Speaker 1: as tokenization of real world assets gains traction, how do
• 3:13
  Speaker 1: you envision tokenized ETFs transforming the traditional ETF structure, particularly
• 3:19
  Speaker 1: in terms of settlement efficiency, investor access, regulatory oversight. Could
• 3:25
  Speaker 1: this technology catalyze the emergence of twenty four to seven
• 3:28
  Speaker 1: ETF markets or fractional ownership beyond what's already achievable with
• 3:32
  Speaker 1: standard ETFs.
• 3:34
  Speaker 2: So it's very interesting, it's exciting to Robinhood just announced
• 3:39
  Speaker 2: their tokenizing everything for Europeans who want to get easier
• 3:43
  Speaker 2: access to US equities, and they even said, oh, we're
• 3:47
  Speaker 2: going to tokenize VU. But there's already a Vanguard SMPO
• 3:51
  Speaker 2: five underd ETF in Europe called v USA, which is
• 3:54
  Speaker 2: easily accessible and cheap. So I think, you know, when
• 3:57
  Speaker 2: you think about tokenization, what is it actually do? If anything,
• 4:02
  Speaker 2: it cleans up the back office a little. Using the blockchain,
• 4:05
  Speaker 2: you can have faster settlement times, you could do twenty
• 4:08
  Speaker 2: four to seven, But I mean, how many people really
• 4:11
  Speaker 2: need that. I think the big thing for tokenization is
• 4:14
  Speaker 2: for people who don't have access to a stock market,
• 4:17
  Speaker 2: right So for the developing countries, tokens can be a
• 4:21
  Speaker 2: life saver, especially stable coins, which are just basically tokenized dollars.
• 4:25
  Speaker 2: There I'm very bullish on that. But for the developing world,
• 4:28
  Speaker 2: for the developed world, where we all have the ability
• 4:33
  Speaker 2: to roll out of bed in our underwear, still roll
• 4:37
  Speaker 2: over to Schwab, open up the Internet and hit by
• 4:43
  Speaker 2: and we can own almost anything under the sun in
• 4:45
  Speaker 2: one second for almost no fee. I just don't really
• 4:49
  Speaker 2: know how you're going to disrupt that. That's about is
• 4:52
  Speaker 2: clean and easy and low cost as you could possibly get,
• 4:56
  Speaker 2: and convenient so I think the tokenization story will be
• 4:59
  Speaker 2: one of a back office story. I think they'll use
• 5:01
  Speaker 2: the blockchain to maybe streamline some stuff in the back office,
• 5:05
  Speaker 2: but you, as the user, probably won't know that notice
• 5:08
  Speaker 2: the difference. But I could be wrong. So I'm bullish
• 5:13
  Speaker 2: tokenization as a back office a disintermediator, but I'm bearished
• 5:19
  Speaker 2: tokenization in terms of killing the ETF at least for now.
• 5:23
  Speaker 2: I'm evolving on this issue, but I just don't see
• 5:26
  Speaker 2: enough to disrupt what I just described in the rolling
• 5:30
  Speaker 2: out of bed visual.
• 5:32
  Speaker 4: I mean, I mostly aligned with Eric on this, like
• 5:35
  Speaker 4: the back end, Like do people really care about that
• 5:37
  Speaker 4: for the most part, Like it's for the you know,
• 5:40
  Speaker 4: it's pretty good already we already have you know, they're
• 5:42
  Speaker 4: already trying to move the T one settlement.
• 5:43
  Speaker 3: Anyways, I think.
• 5:44
  Speaker 4: The benefits are marginal, like okay, twenty four seven trading whatever,
• 5:49
  Speaker 4: So just it's not it's not enough benefits to be
• 5:51
  Speaker 4: a disruptor like the ETF was to the mutual fund.
• 5:55
  Speaker 4: You know, I might give you act some cool stuff,
• 5:57
  Speaker 4: but I'm still I'm with Eric on this one.
• 6:00
  Speaker 2: The other thing is, what is an etfis that would
• 6:04
  Speaker 2: be cool if it was tokenized. Okay, private equity maybe art,
• 6:08
  Speaker 2: you know, stuff like this, but a lot of that,
• 6:11
  Speaker 2: like private equity, let's take that. You can't really like
• 6:14
  Speaker 2: sidestep to the regulations and just have a token out
• 6:18
  Speaker 2: there for retail. I believe that the regulators won't really
• 6:21
  Speaker 2: appreciate that. So even if something seems like, oh it
• 6:25
  Speaker 2: hasn't been etfised, a token would fill in. I don't
• 6:28
  Speaker 2: know how cleanly you can get that done without dealing
• 6:32
  Speaker 2: with regulations. So the regulatory issue is a whole nother
• 6:35
  Speaker 2: problem here that will have to be surmounted. That said,
• 6:39
  Speaker 2: this particular sec somebody had commented to me when I
• 6:42
  Speaker 2: was basically saying, I don't I'm not really bullish on
• 6:45
  Speaker 2: robin Hood. And also, you see the guy from robin
• 6:48
  Speaker 2: Hood with it looks like Johnny Depp from the movie
• 6:50
  Speaker 2: Blow Yeah, and he's out there talking about tokenization and
• 6:55
  Speaker 2: in like in con Paris or whatever, and I mean
• 6:58
  Speaker 2: it was pretty showy. And I'm I'm not saying he's
• 7:00
  Speaker 2: not smart, But when I think about that company trying
• 7:05
  Speaker 2: to advertise is like, oh, we're going to give you
• 7:07
  Speaker 2: all this stuff for low cost, And then I think
• 7:09
  Speaker 2: of like Jack Bogel and Vanguard. I just don't know
• 7:12
  Speaker 2: if people are going to leave that boy Scout, trust
• 7:15
  Speaker 2: the Vanguard and black Rock and move over to Robinhood
• 7:19
  Speaker 2: at least the big giant blob of money. Maybe some
• 7:21
  Speaker 2: of the younger people. I don't really see that being
• 7:25
  Speaker 2: that attractive. And if something's free, if Robinhood's saying it free,
• 7:29
  Speaker 2: don't trust me. They are charging you somewhere else. It's
• 7:32
  Speaker 2: probably going to pay for orderflow. They're probably selling your
• 7:35
  Speaker 2: order flow to like Citadel, getting money there and you
• 7:38
  Speaker 2: don't know it. So be careful out there when it
• 7:41
  Speaker 2: comes to those kind of pitches, in my opinion, And
• 7:44
  Speaker 2: so I don't know. I'm just skeptical because the US
• 7:47
  Speaker 2: ETF market is the terroor dome. It is so hard.
• 7:51
  Speaker 2: I've seen so many legacy companies come here and get humbled.
• 7:55
  Speaker 2: It's hell for issuers but heaven for investors. And that
• 7:59
  Speaker 2: hell is something that I feel like Robin Hood's trying
• 8:02
  Speaker 2: to sidestep here. I just I have more faith in
• 8:06
  Speaker 2: a more bullish on companies that have come into the
• 8:08
  Speaker 2: ETF terrodome and figured out a way to survive and
• 8:11
  Speaker 2: thrive in an honest fashion. I'm just so I'm not
• 8:15
  Speaker 2: willing to like let go of all that and be like, oh,
• 8:17
  Speaker 2: token to the new thing.
• 8:18
  Speaker 3: Can't do it now, I'm with you, okay.
• 8:21
  Speaker 1: Just on the topic of tokenization, Brian Tovar asks, from
• 8:25
  Speaker 1: a custody ownership perspective, what's the difference between owning a
• 8:29
  Speaker 1: tokenized stock versus an ETF stock?
• 8:35
  Speaker 4: I mean, that's kind of where I get hung up,
• 8:36
  Speaker 4: is I don't understand the difference. Like, if Microsoft is
• 8:40
  Speaker 4: Microsoft stock and you knowing that in a token form,
• 8:42
  Speaker 4: why not just own the ETF owned Microsoft stock unless
• 8:45
  Speaker 4: they're issuing tokens like Microsoft tokens. Why I don't Still
• 8:50
  Speaker 4: I'm struggling to wrap my head around. Besides the back
• 8:53
  Speaker 4: end benefits and maybe twenty four hour trading, those sort
• 8:56
  Speaker 4: of marginal benefits, what's the real meaningful difference between the two.
• 9:01
  Speaker 2: The other problem is, you know, you got all these
• 9:02
  Speaker 2: market makers and aps involved that people don't see. And
• 9:05
  Speaker 2: this is like heavy duty liquidity and financial institutions, and
• 9:08
  Speaker 2: they're smart. They arbitrage the price and the underlying all
• 9:12
  Speaker 2: the time. And I've asked people, what's gonna happen if
• 9:16
  Speaker 2: people start using tokens? Well, will the whole Wall Street
• 9:19
  Speaker 2: apparatus just move over? Because then what about exchanges too,
• 9:24
  Speaker 2: And there's some people say all that's gonna go away
• 9:26
  Speaker 2: and everything's gonna be on the blockchain. But a couple
• 9:29
  Speaker 2: of things. A. I think you're gonna find percent prems
• 9:33
  Speaker 2: and discounts. Some people say we can automate the market making.
• 9:36
  Speaker 2: I don't know, Like I think the system right now
• 9:38
  Speaker 2: is what we call antifragile. You can call somebody, people
• 9:41
  Speaker 2: have experience, there's many of them. The token world seems like, okay,
• 9:46
  Speaker 2: we could like save a little time on the settlement.
• 9:50
  Speaker 2: You can trade twenty four to seven. Costs are gonna
• 9:52
  Speaker 2: be the same. It's not like token to be cheap.
• 9:53
  Speaker 2: It can't be cheaper than ETFs. So again, it's marginal
• 9:56
  Speaker 2: benefit for a lot more fragility, it seems to me.
• 10:00
  Speaker 2: And as I've joked about with somebody on Twitter, centralization
• 10:04
  Speaker 2: has its benefits, which is meaning you can call somebody
• 10:07
  Speaker 2: if there's a real problem, you can take legal action.
• 10:11
  Speaker 2: There's prospectuses. This is where I think centralization has its
• 10:15
  Speaker 2: perkss you go full DeFi it's a little while west.
• 10:19
  Speaker 2: So I don't actually know how all these questions will
• 10:23
  Speaker 2: be answered again. The reason ETFs were such a big
• 10:27
  Speaker 2: hit is because mutual funds were slow, expensive, not that liquid,
• 10:33
  Speaker 2: and a lot of the costs were internalized. The taxes
• 10:35
  Speaker 2: weren't good. ETFs corrected like five things. I mean, it
• 10:39
  Speaker 2: was like five evolutionary steps. Tokenization seemed like one little baby,
• 10:44
  Speaker 2: like a little mouse step.
• 10:45
  Speaker 4: Yeah, I feel it doesn't change the experience, right, go
• 10:49
  Speaker 4: one to your schwabap whatever you buy Microsoft boom, and
• 10:51
  Speaker 4: I feel like when the market's open, I get a
• 10:53
  Speaker 4: fail fair price on Microsoft. I don't know what I'm
• 10:55
  Speaker 4: doing if I'm trading at like three am right like
• 10:58
  Speaker 4: on the blockchain, it just feels like I don't understand
• 11:01
  Speaker 4: how that really like improves the user experience.
• 11:06
  Speaker 1: Okay, there are a number of things in there to
• 11:08
  Speaker 1: follow up on, but I want to start with one
• 11:10
  Speaker 1: from an ex username discover Lightcoin, who asks how profitable
• 11:15
  Speaker 1: are ETFs really to the issuers and what variables determine
• 11:20
  Speaker 1: if a new ETF launches a success or failure.
• 11:24
  Speaker 2: ETFs are not that profitable for the assets they have.
• 11:27
  Speaker 2: So they have like eleven trillion in assets and they
• 11:31
  Speaker 2: bring in what like ten billion in revenue every year, right,
• 11:35
  Speaker 2: so maybe a little more, and then market makers make
• 11:38
  Speaker 2: about that too. So but to contrast, I believe mutual
• 11:41
  Speaker 2: funds pulling like one hundred and twenty five billion in revenue,
• 11:45
  Speaker 2: so it's just like and hedge funds pulling like triple ETFs,
• 11:50
  Speaker 2: and they have less assets, so every other structure makes
• 11:53
  Speaker 2: way more money. That's why when I go to these
• 11:54
  Speaker 2: crypto conferences and they think they're like the big disruptor,
• 11:57
  Speaker 2: and I'm like, dude, ETFs are way more punk rock
• 11:59
  Speaker 2: than you think. That's why all the money goes into
• 12:01
  Speaker 2: the bitcoin ETF is because it's so cheap and easy
• 12:05
  Speaker 2: that the ETF has a lot of disruptive power because
• 12:09
  Speaker 2: the consumers know it's a good deal and they will
• 12:15
  Speaker 2: sell you out for an ETF that's like two basis
• 12:17
  Speaker 2: points cheaper. I mean, they are brutal consumers, but when
• 12:21
  Speaker 2: you service them, and like you said, if you can
• 12:22
  Speaker 2: make it there, you're going to do well. Now, there's
• 12:25
  Speaker 2: certainly room for some etf to be profitable. You know,
• 12:28
  Speaker 2: you can carve out a good living there. Black Rock
• 12:31
  Speaker 2: probably the best example. And then there's some hail mary's
• 12:35
  Speaker 2: that do well, like the two X Navidia that makes
• 12:38
  Speaker 2: six million a year. So there's been some like one
• 12:41
  Speaker 2: off Hail Mary ones that have really done well. But
• 12:43
  Speaker 2: for the most part, it's a hard business. It's tough.
• 12:47
  Speaker 2: Wall Street would rather ETFs have not been this successful.
• 12:50
  Speaker 2: I can tell you that.
• 12:51
  Speaker 1: Okay, follow up question from the same user, what will
• 12:54
  Speaker 1: happen to see a bitcoin or Ethereum etf sell off
• 12:58
  Speaker 1: their assets and shut down and say they're on the
• 13:00
  Speaker 1: bottom of the list for flows. Are they still profitable?
• 13:03
  Speaker 2: So at Bitcoin ETF, even the lowest one of the
• 13:07
  Speaker 2: spots is totally profitable. That's why this was such a
• 13:11
  Speaker 2: crazy launch, is that I think wisdom Tree might have
• 13:13
  Speaker 2: the least of the eleven or twelve out there, maybe hashtacks,
• 13:17
  Speaker 2: but they're all in profit mode already. That's rare. Now
• 13:20
  Speaker 2: on ether, I believe the couple towards the bottom are
• 13:23
  Speaker 2: maybe not profitable. I would say, if you're going to
• 13:26
  Speaker 2: charge twenty five thirty BIPs, which is what they most charge,
• 13:29
  Speaker 2: you would need like about eighty million right to be profitable,
• 13:33
  Speaker 2: and I don't know if all the ether have that.
• 13:35
  Speaker 2: So over the next five years, you know, the spot
• 13:39
  Speaker 2: ETFs look pretty good, but there's going to be some
• 13:41
  Speaker 2: like you know, option overlay. It's not going to try
• 13:43
  Speaker 2: all kinds of stuff. And there will be closures that
• 13:45
  Speaker 2: are in the crypto ETF space for sure. And if
• 13:48
  Speaker 2: a closure happens, if it's a company like Wisdom Tree
• 13:50
  Speaker 2: and they close a fund, there's the company's still profitable.
• 13:54
  Speaker 2: They just choosing to close that fund rather than sort
• 13:56
  Speaker 2: of like you know, put more money into to try
• 13:58
  Speaker 2: to sell it to make it profitable. It's really no
• 14:00
  Speaker 2: different than any other business.
• 14:02
  Speaker 3: You know.
• 14:02
  Speaker 2: You you attempt all these products, you hope some of
• 14:05
  Speaker 2: them hit. Usually have a couple of blockbuster hits, a
• 14:09
  Speaker 2: couple in the middle, and then maybe a couple duds,
• 14:12
  Speaker 2: and some issuers will keep those duds alive longer than others.
• 14:16
  Speaker 2: Some close quicker. But I'd imagine in the crypto space,
• 14:19
  Speaker 2: since it is so fledgling and new, you'll probably have
• 14:23
  Speaker 2: them hang in a little longer than if they were
• 14:26
  Speaker 2: trying some random theme ETF.
• 14:28
  Speaker 4: Oh okay, you now understand, Yeah, you're Right's probably punched
• 14:30
  Speaker 4: his way above its weight, like profitability wise and some
• 14:32
  Speaker 4: other categories. And I think Bloomberg News just covered this
• 14:35
  Speaker 4: right that black rocks ibit is like one of their
• 14:38
  Speaker 4: most profitable. I think third or second. It makes more
• 14:42
  Speaker 4: than their SMP product, So yeah, it definitely it speaks
• 14:45
  Speaker 4: to the demand there too, and the ability to be
• 14:47
  Speaker 4: able to charge a little bit more.
• 14:48
  Speaker 3: Yeah.
• 14:49
  Speaker 2: Joel Ethan actually helped News with this data. Ibit is
• 14:52
  Speaker 2: third in profitability out of twelve hundred ETFs that Blackrock has, Joel,
• 14:56
  Speaker 2: it's number three, and if it gets nine billion more
• 15:00
  Speaker 2: based on the fee, it will be the most profitable.
• 15:02
  Speaker 2: And nine billion is only a ten or eleven percent
• 15:06
  Speaker 2: increase in Bitcoin's price, so it doesn't even need any
• 15:09
  Speaker 2: new flows, just a nice little run in bitcoin. It
• 15:11
  Speaker 2: will be the number one most profitable et from black
• 15:14
  Speaker 2: Rock at a year and a half old. It's it's
• 15:16
  Speaker 2: absolutely bonkers. So that said, people are like, oh, Blackrock
• 15:21
  Speaker 2: is getting away with murder. He I'm like not really.
• 15:23
  Speaker 2: Twenty five BIPs for that is pretty fair. Up until
• 15:25
  Speaker 2: Blackrock came out, you had to pay two percent or
• 15:28
  Speaker 2: one point five percent at best in Europe or in
• 15:31
  Speaker 2: hedge funds, so twenty five is dramatically cheaper. I think
• 15:35
  Speaker 2: this is a win win. You know, in capitalism, you
• 15:38
  Speaker 2: want to if somebody's first has a good idea, has
• 15:40
  Speaker 2: a good price, point, it's okay to make some money.
• 15:43
  Speaker 2: I just so, I think this is a case where
• 15:45
  Speaker 2: everybody won here.
• 15:47
  Speaker 3: Yeah, I agree.
• 15:47
  Speaker 4: I mean they're giving you IVV at three BIPs, right,
• 15:49
  Speaker 4: like everything can't be free. But yeah, overall, it's a
• 15:53
  Speaker 4: tough business. It's not even for these ascid managers. ETFs
• 15:56
  Speaker 4: are such a small part of their revenue. Like JP Morgan,
• 15:58
  Speaker 4: who's killing it, it's still like one percent of their
• 16:01
  Speaker 4: total revenue.
• 16:02
  Speaker 2: They're so lucky. Some jol some of these companies. I
• 16:06
  Speaker 2: always said, the Wall Street banks probably have the best position.
• 16:11
  Speaker 2: If you have other things that make you money, you
• 16:13
  Speaker 2: can afford to get guts when it comes to your
• 16:16
  Speaker 2: ETF business. And JP Morgan did. They had the guts
• 16:18
  Speaker 2: to get cheap. They sold active at vanguardian fees and
• 16:21
  Speaker 2: they're killing it. But it's harder for a company to
• 16:24
  Speaker 2: do that when that's your only thing, because then you're
• 16:27
  Speaker 2: instantly cannibalizing. But for JP Morgan, because they got so
• 16:30
  Speaker 2: much going on, it's a little easier to have that
• 16:34
  Speaker 2: intestinal fortitude.
• 16:40
  Speaker 1: Okay, next question from pick god on X looking forward,
• 16:47
  Speaker 1: is there ever going to be a product that catches
• 16:51
  Speaker 1: or matches VU, which is obviously vanguards just and P
• 16:54
  Speaker 1: five ETFs interesting.
• 16:59
  Speaker 2: I think VO will be king for I don't want
• 17:02
  Speaker 2: to say ever, but I'd say at least ten years.
• 17:06
  Speaker 2: So Michael Saylor, famous for micro Strategy CEO, replied to
• 17:10
  Speaker 2: one of my tweets colored weeks strategy. Sorry, yeah, it's
• 17:14
  Speaker 2: just hey, it's cleaner, that's okay. Anyway, strategy, he said,
• 17:22
  Speaker 2: mark my words, ibit will be the biggest ETF. So
• 17:25
  Speaker 2: I did the math on this, and I think he
• 17:27
  Speaker 2: said within ten years. I did the math, Joel. It
• 17:30
  Speaker 2: would have to like Quinn triple its flows. WU would
• 17:35
  Speaker 2: have to chill, and the S and P would have
• 17:37
  Speaker 2: to stop going up, and Bitcoin would have to rally.
• 17:40
  Speaker 2: So a lot would have to happen in that scenario.
• 17:44
  Speaker 2: I think you have a case where maybe the US
• 17:47
  Speaker 2: stock market has real issues and somehow Bitcoin is looked
• 17:50
  Speaker 2: at as the savior asset like and it just goes
• 17:52
  Speaker 2: up and up while the stock market goes down. That
• 17:54
  Speaker 2: scenario hasn't really happened. Bitcoin tends to have a little
• 17:57
  Speaker 2: more correlation to stocks, So as long as it's correlated,
• 18:00
  Speaker 2: I stn't see how that's possible, but I bits rise.
• 18:03
  Speaker 2: It's now the twenty third biggest ETF of all time
• 18:06
  Speaker 2: at one point four years old, which is insane to
• 18:08
  Speaker 2: be that high that quickly. I will never say never
• 18:11
  Speaker 2: with IBIT. I thought vt I would be bigger one
• 18:15
  Speaker 2: day because VOO and IVV be fighting over that same
• 18:17
  Speaker 2: assets and the total market. But it turns out people
• 18:20
  Speaker 2: want the S and P so bad, especially over any
• 18:22
  Speaker 2: other index or the total market that they just VU
• 18:25
  Speaker 2: and IVV can actually split some of that money and
• 18:28
  Speaker 2: VOU will still be the biggest. So I don't see
• 18:31
  Speaker 2: anything passing VU for at least a decade.
• 18:34
  Speaker 4: Yeah, it's too it's too big, and we can't live
• 18:36
  Speaker 4: in a world where ibit is the biggest ETF. VU
• 18:38
  Speaker 4: keeps us in check, right, It's like it is going
• 18:41
  Speaker 4: to quit.
• 18:42
  Speaker 2: He yeah, I will quit if I'm going to retire
• 18:44
  Speaker 2: if I BIT passes VU. It's like you know that
• 18:46
  Speaker 2: phrase no country for old analysts roll like this is
• 18:49
  Speaker 2: another one of the If I bid is the biggest ETF,
• 18:52
  Speaker 2: it's like a whole generation of people are just gonna
• 18:55
  Speaker 2: be like, I'm out.
• 18:57
  Speaker 3: Yeah, VU VO gives us some hope.
• 19:00
  Speaker 4: But all the point you said, though, they're spot on
• 19:02
  Speaker 4: that people you know, ibit's still always going to be
• 19:05
  Speaker 4: like a satellite position, so it's got to all come
• 19:08
  Speaker 4: from price, which vol you know, people can have sixty percent,
• 19:11
  Speaker 4: seventy percent allocations to VOO.
• 19:14
  Speaker 2: There's one black sheep here and that is a Fidelity
• 19:18
  Speaker 2: We're to do a conversion of its index SMP five
• 19:21
  Speaker 2: entered ETF. I believe right now that's already bigger than SPY,
• 19:25
  Speaker 2: So that would come in almost that where VU is.
• 19:28
  Speaker 2: And if Fidelity were to really you know, put in
• 19:31
  Speaker 2: its advisor network and Vanguard, you know, stumbled a little.
• 19:34
  Speaker 2: There's an outside chance that could be something is the
• 19:37
  Speaker 2: Fidelity conversion of an index mutual fund to an ETF,
• 19:41
  Speaker 2: But that's a little out.
• 19:42
  Speaker 1: There, okay. Next question comes from Liz Simmy who asked,
• 19:45
  Speaker 1: since active is the coolest thing in ETFs, can you
• 19:49
  Speaker 1: break down the difference between flows to traditional active strategies
• 19:53
  Speaker 1: in ETFs versus thematic in ets and how the flows
• 19:57
  Speaker 1: have changed over time.
• 19:58
  Speaker 4: Yeah, Active is a pretty fluid turn and ETFs, and
• 20:01
  Speaker 4: it's not traditional stock picking like, so flows to that
• 20:05
  Speaker 4: type of stuff is pretty pretty low. When we say active,
• 20:10
  Speaker 4: it's more things like single stock ETFs option overlays buffers,
• 20:15
  Speaker 4: which technically get classified as active. I get it that
• 20:18
  Speaker 4: it's not the traditional like stock picking, but I feel
• 20:22
  Speaker 4: like with all these ETF options single stocks, people are
• 20:25
  Speaker 4: their own active managers now, right, So instead of like
• 20:28
  Speaker 4: going to Kathy Wood to buy these like stocks, there's
• 20:31
  Speaker 4: like single stock versions of all these so they're just
• 20:34
  Speaker 4: ended up doing on themselves. So the breakdown if you
• 20:37
  Speaker 4: if you really look at it closely, it's not going
• 20:40
  Speaker 4: to like the how we think active traditionally. It's sort
• 20:43
  Speaker 4: of like this new generation of active, like mostly derivatives
• 20:47
  Speaker 4: usage and things like that.
• 20:49
  Speaker 2: Yeah, I think active is taking in forty percent of
• 20:52
  Speaker 2: all the flows, and that sounds like, oh my god,
• 20:55
  Speaker 2: active is back. It's a I could see a reporter
• 20:57
  Speaker 2: a tempted to write that headline, But as Ethan's said,
• 21:00
  Speaker 2: most of it is buffers and sort of you know,
• 21:02
  Speaker 2: derivative using stuff that is more solution oriented. That said,
• 21:06
  Speaker 2: there is some traction with traditional grandpa stockpicking active. You've
• 21:12
  Speaker 2: got Capital Group DFA, JP Morgan JP Morgan in particular,
• 21:17
  Speaker 2: and one of the reasons it's finally working is they
• 21:20
  Speaker 2: got cheap. Most of the products that take in money
• 21:22
  Speaker 2: from the grandfather active are now got their fun under
• 21:25
  Speaker 2: forty basis points. So I think there's a definitely a
• 21:28
  Speaker 2: group of advisors out there that still believes in Active,
• 21:31
  Speaker 2: but they want it served up a little cheaper. I
• 21:33
  Speaker 2: just want to pay for the active, not all the
• 21:36
  Speaker 2: beta which you can get for free and a Vanguard fund.
• 21:38
  Speaker 2: So I think Active is going through this repricing of
• 21:41
  Speaker 2: how much it's actually worth, and as it goes through
• 21:44
  Speaker 2: that it gets a little cheaper. I think it will
• 21:45
  Speaker 2: see actual real flows, But there's all the new fangled
• 21:50
  Speaker 2: stuff that kind of makes the active rebound story a
• 21:54
  Speaker 2: little more complex and just on thematic ETFs. I just
• 21:56
  Speaker 2: looked today. Actually they've taken in two billion this year
• 21:59
  Speaker 2: out of five hundred sixty billion to flows, so not
• 22:01
  Speaker 2: a lot when you look at themes. If you look
• 22:03
  Speaker 2: like some themes are on fire, like defense, everyone's taking
• 22:07
  Speaker 2: you money. It's a feeding frenzy. But then like ARC
• 22:10
  Speaker 2: and UH, the US infrastructure and the natural resources have
• 22:15
  Speaker 2: seen outflows, and so you tend to have like whatever's
• 22:19
  Speaker 2: going on in the market, there's always some theme ETF
• 22:21
  Speaker 2: like killing it, and there's always some that's suffering. So
• 22:24
  Speaker 2: them ETFs have a lot going on underneath and they're
• 22:26
  Speaker 2: they're they're viable to me. I think they'll be around
• 22:28
  Speaker 2: for a while, but I don't know if they're going
• 22:30
  Speaker 2: to like grow to any more than say, two to
• 22:33
  Speaker 2: three percent of all ETF assets.
• 22:35
  Speaker 1: Okay, next question comes from a next user named market Wizard.
• 22:38
  Speaker 1: What do you think of multi asset ETFs?
• 22:42
  Speaker 2: Oh, this is a good question. This is when you
• 22:45
  Speaker 2: combine like stock bond like it would be like a
• 22:47
  Speaker 2: target day fund essentially. I share just trying it. Everybody's
• 22:50
  Speaker 2: tried it, it it here's you know, eighth and alluditude early.
• 22:54
  Speaker 2: I think for the most part, when people invest in ETFs,
• 22:58
  Speaker 2: they want to be the decider. To quote w remember
• 23:02
  Speaker 2: in that movie W He's like, Dick, I'm the decider anyway,
• 23:08
  Speaker 2: great movie, underrated movie about George the b Bush. But
• 23:11
  Speaker 2: that word the decider always stuck with me, and I
• 23:13
  Speaker 2: think that the advisor wants to be the decider how
• 23:16
  Speaker 2: much goes in equity bonds. You can't be an advisor
• 23:19
  Speaker 2: and have one ticker and client portfolio because the client's
• 23:23
  Speaker 2: going to be like, why do I need you? I
• 23:24
  Speaker 2: think for four to one k is they're great, but
• 23:26
  Speaker 2: ETFs have don't really have an easy time penetrating four
• 23:30
  Speaker 2: one k, so outside of the form one k market,
• 23:32
  Speaker 2: I just think most people want to assemble the pieces,
• 23:34
  Speaker 2: and therefore a multi acid ETFs will always be relegated
• 23:38
  Speaker 2: to the fringe. Yeah.
• 23:39
  Speaker 4: I agree, And I think people are just in general
• 23:40
  Speaker 4: questioning that sixty forty model with bonds and they like, well,
• 23:44
  Speaker 4: they don't want to own bonds as much. They want
• 23:45
  Speaker 4: to own alternatives like crypto or whatever, and I think
• 23:49
  Speaker 4: those haven't caught up yet. Like if you're buying one
• 23:51
  Speaker 4: of these funds, it's just a pretty traditional model. So
• 23:54
  Speaker 4: maybe if they start getting a little bit, you know,
• 23:57
  Speaker 4: more innovative in the allocations, but overall, Eric, I think
• 24:00
  Speaker 4: it's just the category that's never really taken off.
• 24:05
  Speaker 1: The next question from Carrie Presley, who asks there are
• 24:09
  Speaker 1: a few clear explanations for the kind of redemption and
• 24:13
  Speaker 1: the tax efficiency of ETFs. Eric, a clear metaphor example
• 24:17
  Speaker 1: would be swell.
• 24:19
  Speaker 2: Okay, I've I've spent years on this. I used to
• 24:23
  Speaker 2: teach the new higher class and I go over crash
• 24:25
  Speaker 2: redemption and their eyes would glaze over. And in my survey,
• 24:28
  Speaker 2: that's when they'd say that part sucked. Everything else is interesting.
• 24:32
  Speaker 2: So I actually reframed it and I told the story
• 24:35
  Speaker 2: of how the ETF was designed. And I start with, like,
• 24:38
  Speaker 2: you know, the American Stock Exchange was in third place.
• 24:40
  Speaker 2: They were looking for a winner. And Nate most was
• 24:43
  Speaker 2: I don't know, in his sixties or seventies at the MX,
• 24:46
  Speaker 2: and he had worked at the commodity's warehouse and when
• 24:50
  Speaker 2: he was thinking about how to design the ETF and
• 24:52
  Speaker 2: make it so that costs of trading wouldn't infiltrate the
• 24:55
  Speaker 2: actual costs of the ETF, which would affect all the shareholders,
• 24:59
  Speaker 2: Like how do you say break trading costs from like
• 25:01
  Speaker 2: the shareholders? And he thought about commodity warehouse that he
• 25:05
  Speaker 2: worked at, and he thought, well, in that warehouse, you
• 25:09
  Speaker 2: have a bunch of soybean oil and you bring it
• 25:11
  Speaker 2: to the warehouse. They give you a receipt for your
• 25:13
  Speaker 2: soybean oil and they store it for you in a locker.
• 25:16
  Speaker 2: Then you can trade your receipts with other commodity traders
• 25:18
  Speaker 2: without having to move all the merchandise around. Right, it
• 25:21
  Speaker 2: makes sense. And let's you get a bunch of receipts
• 25:24
  Speaker 2: and you want actual soybean oil back. Then you take
• 25:27
  Speaker 2: your receipts and they give the exact proportion to soybean oil,
• 25:30
  Speaker 2: and then you have your goods. So all he did
• 25:33
  Speaker 2: was take that structure, that paradigm and say, instead of
• 25:37
  Speaker 2: soybean oil, what if I had the S and P
• 25:38
  Speaker 2: five hundred stocks. I could then take it to this
• 25:41
  Speaker 2: warehouse which is State Street and the custodian, and I
• 25:44
  Speaker 2: get a receipt for spy and that receipt is worth
• 25:49
  Speaker 2: fifty is fifty thousand shares worth of receipts, then I
• 25:53
  Speaker 2: can sell those in the open market. People can just
• 25:55
  Speaker 2: trade these receipts all day long, and then if there's
• 25:58
  Speaker 2: a surplus of receipts and we need to do a
• 26:00
  Speaker 2: creation or redemption, will go back to the warehouse. So
• 26:03
  Speaker 2: all it is is a commodity warehouse paradigm applied to
• 26:06
  Speaker 2: stocks and bonds. And the reason that's cool is because again,
• 26:10
  Speaker 2: when the receipts are trading, it's basically all everybody trading,
• 26:14
  Speaker 2: all the tax implifications and everything is on them. And
• 26:17
  Speaker 2: when a creation redemption happens, when you bring the stocks
• 26:19
  Speaker 2: get in exchange for the receipts or shares, there's no
• 26:23
  Speaker 2: money changing hands. And so when there's no money changing hands,
• 26:26
  Speaker 2: there's no taxation, and so there's no tax consequence in
• 26:30
  Speaker 2: the creation redemption process, which is the magic of why
• 26:33
  Speaker 2: ETFs don't kick out capital distributions capital gains distribution. So
• 26:38
  Speaker 2: that is I love stories like that because a lot
• 26:41
  Speaker 2: of times, you know, Steve Jobs always said like nothing
• 26:44
  Speaker 2: is wasted like that. You know the font he made,
• 26:47
  Speaker 2: the calligraphy and the early apple he got because he
• 26:49
  Speaker 2: just used to like skip class and go to the
• 26:52
  Speaker 2: this writing class. Things that happen in your old life
• 26:57
  Speaker 2: can come in really valuable or something you see overseas
• 27:01
  Speaker 2: you apply it to your country you're in. And that's
• 27:03
  Speaker 2: what happened here, and it was ingenius and that's the
• 27:05
  Speaker 2: secret sauce right there. Joel Eighthan, did your eyes glaze over?
• 27:08
  Speaker 3: Yeah? I fell asleep a little bit too.
• 27:10
  Speaker 4: That No, that was actually a really good explanation for
• 27:12
  Speaker 4: a topic that is kind of operational and dubba. And
• 27:16
  Speaker 4: this is why we talk about the share classes. Why
• 27:18
  Speaker 4: all met funds want to go towards that because they
• 27:19
  Speaker 4: get this benefit now, so which is why there's that
• 27:22
  Speaker 4: big push towards the ETF.
• 27:32
  Speaker 1: Okay, next question from Crypto Roy, how much notice is
• 27:37
  Speaker 1: usually required to close an ETF or move to a
• 27:40
  Speaker 1: different ETF. Are there usually fees involved with closing an ETF. Also,
• 27:45
  Speaker 1: if you move from one ETF to another, is this
• 27:47
  Speaker 1: a taxable event?
• 27:49
  Speaker 4: Oh, those are some good questions. I don't know about
• 27:51
  Speaker 4: the lead time from when they closed. There's definitely an
• 27:53
  Speaker 4: announcement they let you know, so you.
• 27:55
  Speaker 2: Have like sixty days maybe something like that.
• 27:58
  Speaker 3: Yeah, so they have a chance to get out.
• 27:59
  Speaker 4: Yeah, so give me a chance to wap you into
• 28:01
  Speaker 4: some so like etn's do this all the time. If
• 28:03
  Speaker 4: the ETN is sort of coming to a maturity date,
• 28:05
  Speaker 4: they will offer you to switch you into another one.
• 28:08
  Speaker 4: So you definitely are getting notices. If you own the fund,
• 28:12
  Speaker 4: you know the cost. Obviously there's some unwinding, paying some
• 28:15
  Speaker 4: some of the fun administration costs, but you're pretty much
• 28:17
  Speaker 4: gonna get what.
• 28:18
  Speaker 3: Nav is at that day.
• 28:20
  Speaker 2: Yeah, but you get the tax then the tax, so
• 28:22
  Speaker 2: you're kind of Yeah, so when you if you want
• 28:24
  Speaker 2: to switch, like let's say the Wisdom Tree such and
• 28:27
  Speaker 2: such ETF clothes not to pick on them this whole show,
• 28:29
  Speaker 2: but anyway, you whether you sell or they send you
• 28:34
  Speaker 2: a check because they redeemed the funds, you got a
• 28:39
  Speaker 2: capital gains distribution if the fund went up as you
• 28:41
  Speaker 2: bought it. So that's why closure risk is like real,
• 28:45
  Speaker 2: but it's not huge. It's not like loss of principal risk.
• 28:49
  Speaker 2: You can never lose your principle in an ETF, but
• 28:52
  Speaker 2: the closure risk is just like annoying and nobody wants
• 28:55
  Speaker 2: to deal with that. Again, people hate taxes, so that's
• 28:57
  Speaker 2: the problem. So yeah, that's why you don't like to
• 29:00
  Speaker 2: see ETF's liquidate, but usually don't liquid if there's a
• 29:03
  Speaker 2: hardlybody in there. So like there's very few casualties to
• 29:06
  Speaker 2: ETF liquidations in general, but definitely, and this is part
• 29:10
  Speaker 2: of why it's hard in ETFs because a lot of
• 29:13
  Speaker 2: advisors in particular won't use you unless you've got like
• 29:15
  Speaker 2: five hundred million a billion dollars. But how do you
• 29:18
  Speaker 2: get that if you can't sell to anybody because people
• 29:20
  Speaker 2: don't want to be in there just in case you close.
• 29:22
  Speaker 2: It's a chicken and egg conundrum.
• 29:25
  Speaker 1: Final question comes from Kyle four Kid, who asks on
• 29:29
  Speaker 1: a macro level, Eric, how do you and your team
• 29:32
  Speaker 1: see the ETF landscape evolving over the next ten to
• 29:35
  Speaker 1: fifteen years? Any improvements to the ETF structure itself if needed,
• 29:39
  Speaker 1: or we see a zero fee ETF like we have
• 29:41
  Speaker 1: with zero fee index mutual funds.
• 29:45
  Speaker 2: Well yeah, I mean Bank Bank in New York alread
• 29:46
  Speaker 2: has zero that's hard that already exists. Here's the thing
• 29:49
  Speaker 2: about zero fee, they've if you talk to people, brand
• 29:53
  Speaker 2: is huge, and so unless Blackrock or Vanguard or State
• 29:57
  Speaker 2: Street did zero fee, it won't matter that much. People
• 29:59
  Speaker 2: are going to go with that brand and three BIPs.
• 30:02
  Speaker 2: In fact, I think some people like paying a little
• 30:04
  Speaker 2: because it feels less like you're gonna get like ripped
• 30:07
  Speaker 2: off somewhere else. So I think three BIPs, five BIPs.
• 30:12
  Speaker 2: You know, people are gonna want to build portfolios with
• 30:15
  Speaker 2: ETFs under ten basis points for the next ten to
• 30:18
  Speaker 2: twenty years. The only again, the tokenization is certainly one thing.
• 30:23
  Speaker 2: Perhaps tokenization can improve some of the back office stuff,
• 30:26
  Speaker 2: but again that wouldn't totally affect anybody. If anything, that
• 30:29
  Speaker 2: would just help the issuers more maybe save a little money.
• 30:33
  Speaker 2: But I you know, look, I think what's going to
• 30:37
  Speaker 2: be tested is that they're gonna put stuff in ETFs
• 30:40
  Speaker 2: that's just not liquid, and that's I think where we're
• 30:43
  Speaker 2: going to find some experimentation where I guess private equity,
• 30:47
  Speaker 2: private credit. Maybe they'll try to put something like I
• 30:52
  Speaker 2: don't know, farmland and Nebraska, you know, something that's just
• 30:55
  Speaker 2: like like that an endowment would invest in. We'd call
• 30:57
  Speaker 2: those real assets. I would be fine with that. I think,
• 31:01
  Speaker 2: you know, it's okay to break an egg once in
• 31:03
  Speaker 2: a while to get the omelet. So I'm okay with
• 31:07
  Speaker 2: experimenting with ets But it could get very interesting in
• 31:10
  Speaker 2: terms of testing the durability of the ETF. But the
• 31:13
  Speaker 2: other thing is you got to look overseas. That's where
• 31:16
  Speaker 2: a lot of a growth opportunity is. They're just waking
• 31:18
  Speaker 2: up to like what fees are and like how to
• 31:21
  Speaker 2: make money long term. And so to me, the ETF
• 31:24
  Speaker 2: story is like maybe fifth sixth inning in the US,
• 31:26
  Speaker 2: but it's like second third overseas. So that's what I
• 31:30
  Speaker 2: would look for. But I do think we're gonna see
• 31:34
  Speaker 2: a lot of crazy because the vanilla is so hard
• 31:38
  Speaker 2: to compete in that you will see more people launching
• 31:41
  Speaker 2: stuff that's pretty out there and it will get a
• 31:44
  Speaker 2: lot of copy because it's interesting. But just relax, almost
• 31:49
  Speaker 2: all the money is going to go to the VU
• 31:51
  Speaker 2: type stuff, and that's probably for the best. But some
• 31:54
  Speaker 2: of that experimentation will be interesting and there'll be some
• 31:58
  Speaker 2: evolutions there that will probably be pretty good in my opinion.
• 32:01
  Speaker 2: But I'm generally optimistic. I have some colleagues that worry
• 32:04
  Speaker 2: more than I do.
• 32:06
  Speaker 3: Nathan, are you one of those colleagues.
• 32:08
  Speaker 1: Yeah, I think see what do you see evolving in
• 32:11
  Speaker 1: the YouTube landscape.
• 32:12
  Speaker 4: I think sometimes someone will push it too far at
• 32:14
  Speaker 4: one point, but overall, these are fringe products, right, it's
• 32:18
  Speaker 4: not gonna I don't think it's gonna dislodge industry at all.
• 32:21
  Speaker 4: It's like absolutely on fire. But I think we'll see
• 32:24
  Speaker 4: every type of combination you can possibly think of. We
• 32:27
  Speaker 4: did max seven single stocks. Now there's like stocks pinned
• 32:30
  Speaker 4: against each other. Then there might be like five portfolio stocks.
• 32:33
  Speaker 4: So I just think it's gonna be any possible combination
• 32:36
  Speaker 4: of things you can think of. We'll be etf e's
• 32:39
  Speaker 4: and then it's on to the next frontier, whether it's
• 32:41
  Speaker 4: private equity, all coins, whatever. So I think that's just
• 32:45
  Speaker 4: how it's gonna gonna evolve, which is gonna you know,
• 32:48
  Speaker 4: products are gonna keep coming at a really rapid pace.
• 32:51
  Speaker 3: Yeah, we probably might see a product blow up at
• 32:53
  Speaker 3: some point, but I.
• 32:54
  Speaker 4: Don't think it's gonna be a big deal like one
• 32:55
  Speaker 4: of these single stock ones quantum stocks or something like that.
• 32:58
  Speaker 4: But I don't think it's gonna be up a bruise
• 33:02
  Speaker 4: on the industry at all.
• 33:04
  Speaker 1: Pathan, As always, thank you for joining us on Trillions,
• 33:07
  Speaker 1: Thanks for having me on, Thanks for listening to Trillions.
• 33:16
  Speaker 1: Until next time. You can find us on the Bloomberg terminal,
• 33:18
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• 33:22
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• 33:24
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• 33:27
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• 33:31
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• 33:34
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