Latest / Trillions / Tour de Headlines: A Roundtable About Recent ETF Stories of Note

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Tour de Headlines: A Roundtable About Recent ETF Stories of Note · Trillions

• 0:05
  Speaker 1: Bulcan Intrilliance.
• 0:06
  Speaker 2: I'm Joel Webber and I'm Eric Belchunas.
• 0:11
  Speaker 1: So, Eric, it's August. We've been desperate to find guests
• 0:16
  Speaker 1: to uh to join us on the podcast, and then
• 0:20
  Speaker 1: somebody got a new job, Dave Nadig, and we were like,
• 0:23
  Speaker 1: you know what, he's gonna go to ETF dot com.
• 0:26
  Speaker 1: We should bring the competition on the podcast. Let him
• 0:29
  Speaker 1: promote himself a little bit, kick some themes around. Also,
• 0:32
  Speaker 1: get somebody who works for you who can't say no, Athanasia,
• 0:36
  Speaker 1: Sarah Fagas, and and basically we'll run through some headlines.
• 0:39
  Speaker 1: How does that sound?
• 0:41
  Speaker 2: That sounds good to me?
• 0:42
  Speaker 1: Okay, so I gave it all away already, but we're
• 0:45
  Speaker 1: gonna have Athanasio, Sarah Fegas of Bloomberg Intelligence, and Dave Nadik,
• 0:50
  Speaker 1: who's now the president and director of research of ETF
• 0:53
  Speaker 1: dot com, a site that no doubt he's gonna tell
• 0:56
  Speaker 1: us all about because he's been there for multiple jobs
• 1:00
  Speaker 1: through the years. But Eric, the biggest thing is that
• 1:03
  Speaker 1: there's been a ton of the interesting headlines about ETFs
• 1:06
  Speaker 1: su late.
• 1:07
  Speaker 2: Yeah, Bloomberg News has been on fire. And not to
• 1:11
  Speaker 2: pat ourselves on the back, but so is bi and
• 1:14
  Speaker 2: there's a lot of things to just go through. So
• 1:16
  Speaker 2: we had all these ideas for topics, but there's no
• 1:19
  Speaker 2: way they would take three months to do separately. So
• 1:22
  Speaker 2: we're gonna cram a lot of the recent news activity
• 1:24
  Speaker 2: into sort of one of our McLachlin group type episodes
• 1:27
  Speaker 2: where we or maybe a ESPN first take would be
• 1:30
  Speaker 2: a more modern example, but where we just roundtable these
• 1:33
  Speaker 2: things and just real quick. Jow, I go, I gotta
• 1:36
  Speaker 2: say something. I think we've been doing this for like
• 1:38
  Speaker 2: ten years. ETFs this year are on pace to take
• 1:41
  Speaker 2: into trillion dollars for the second year in a row.
• 1:45
  Speaker 2: And I put out on X earlier that the name
• 1:48
  Speaker 2: of this podcast has aged very well, so good job
• 1:51
  Speaker 2: you picked it. I wanted to call it data mail line,
• 1:54
  Speaker 2: and I'm glad we want with trillions.
• 1:57
  Speaker 1: YEP, I will take credit for that. It's time on
• 2:04
  Speaker 1: Trillions Roundtable. Athanasios, Dave, welcome back to Trillions.
• 2:11
  Speaker 3: Thanks for having me.
• 2:12
  Speaker 4: Thanks, even though I couldn't say no, glad to be back,
• 2:16
  Speaker 4: that's true, h.
• 2:18
  Speaker 1: Dave, congrats on the new role.
• 2:19
  Speaker 3: Thank you very much. It does feel a little bit
• 2:21
  Speaker 3: like a like a return. I left as CEO and
• 2:23
  Speaker 3: I'm back as president. So you know, nothing nothing changes
• 2:27
  Speaker 3: but stays the same.
• 2:28
  Speaker 1: Is that is that better or different or what? Yeah?
• 2:31
  Speaker 3: Like, what's better is that? The better is that the
• 2:35
  Speaker 3: new CEO is Matt Middleton, who you may know from
• 2:37
  Speaker 3: running the future Proof conference series, who really knows what
• 2:40
  Speaker 3: he's doing when it comes to making big events that
• 2:43
  Speaker 3: move the needle. And that's what we're gonna do. We're
• 2:45
  Speaker 3: gonna do a lot of multimedia content. We're gonna build
• 2:47
  Speaker 3: content around ETFs people can trust, like some people may
• 2:50
  Speaker 3: be around this table, and we're gonna put on a
• 2:53
  Speaker 3: big event. That's what we're gonna do. It's gonna be fun.
• 2:55
  Speaker 2: Yeah, Joel, let me just chime in here, because you know,
• 2:59
  Speaker 2: one of the reasons I got excited about ATS was
• 3:01
  Speaker 2: Dave Nating and Matt Hogan had a podcast when they
• 3:04
  Speaker 2: were on Index when they called it Index Universe, which
• 3:07
  Speaker 2: was later named ETF dot com. So Dave, honestly like
• 3:12
  Speaker 2: this is like twenty years ago, founded this website and
• 3:15
  Speaker 2: then they went to ETF dot com. And then people
• 3:19
  Speaker 2: started to slowly like disperse, you know, and they went
• 3:22
  Speaker 2: to ETF, Isshoers, other media companies, Crypto, you name it,
• 3:27
  Speaker 2: and ETF dot com you know, carried on, but you know,
• 3:31
  Speaker 2: and there's some good stories now and then, but it's
• 3:34
  Speaker 2: it's not nearly the magnet it was. And so to me,
• 3:37
  Speaker 2: this is like Steve Jobs returning to Apple, maybe on
• 3:40
  Speaker 2: a smaller scale, but similar situation here. So the pressure
• 3:44
  Speaker 2: is on Dave to come up with the iPod, the iPhone.
• 3:48
  Speaker 2: His third act better be good.
• 3:51
  Speaker 3: I'll be sure. I'll do my best. But look, the
• 3:53
  Speaker 3: ETF industry has changed. I think the the url that
• 3:56
  Speaker 3: is etf dot com can mean something different now than
• 4:00
  Speaker 3: it did twenty years ago, right, I think. I think
• 4:02
  Speaker 3: we've got and we're going to talk about it. We've
• 4:04
  Speaker 3: got over forty six hundred ETFs now, back then we
• 4:07
  Speaker 3: had four hundred and fifty. It's a different world, so
• 4:09
  Speaker 3: we'll make a different website, all right.
• 4:12
  Speaker 1: So we've got a handful of themes that we're going
• 4:14
  Speaker 1: to talk about. The first one that I want to
• 4:16
  Speaker 1: start with is a headline from Vildanna Hirich that really
• 4:21
  Speaker 1: made me sit up new this week. There are now
• 4:25
  Speaker 1: more ETFs in the United States than there are individual stocks.
• 4:31
  Speaker 1: So the number that she has in the story, there
• 4:33
  Speaker 1: are forty three hundred exchange traded funds versus forty two
• 4:38
  Speaker 1: hundred stocks. Ethan, Yeah, I mean, I guess what do
• 4:44
  Speaker 1: you what do you think of that?
• 4:45
  Speaker 4: It's yeah, definitely mind blowing, but I guess it was
• 4:49
  Speaker 4: if you just kind of look at the nature of
• 4:51
  Speaker 4: the stuff that's being brought out now, so like it's
• 4:53
  Speaker 4: a lot of single stock stuff. So you have like Tesla,
• 4:56
  Speaker 4: then you have so many ETFs like long own like
• 5:00
  Speaker 4: long Tesla, then short Tesla, then option income Tesla, so
• 5:03
  Speaker 4: on one ticker you have like twenty ETFs that are
• 5:06
  Speaker 4: being launched. So I guess it's not it probably would
• 5:10
  Speaker 4: have happened eventually, but it's definitely a really surprising stat
• 5:12
  Speaker 4: that there are more ETFs than stocks. And maybe the
• 5:16
  Speaker 4: bigger problem is we just don't have enough stocks, right,
• 5:18
  Speaker 4: Maybe that's a whole other debate, but like we're just
• 5:21
  Speaker 4: there's so few stocks and so many products being launched
• 5:23
  Speaker 4: off of like a very you know, tight list.
• 5:26
  Speaker 2: Just real quick on that you had to piece out
• 5:29
  Speaker 2: a note about ETFs being the new IPO and the
• 5:33
  Speaker 2: exchange is really just trying to get ETFs now more
• 5:36
  Speaker 2: than companies to list.
• 5:37
  Speaker 4: Yeah, we looked at that, and I think you know,
• 5:40
  Speaker 4: if you look, there's not a lot of IPOs anymore, right,
• 5:42
  Speaker 4: and you look at something like I hate to admit it,
• 5:45
  Speaker 4: but like I bit right, that is worth more to
• 5:47
  Speaker 4: NASAC than like an IPO trades more than a lot
• 5:50
  Speaker 4: of new IPOs. So I get why the exchanges they're
• 5:54
  Speaker 4: they're backing, like the share class ruling and things like that,
• 5:58
  Speaker 4: Like if there's not IPO's coming, they ETFs are just
• 6:02
  Speaker 4: as good. So and just given how much you know,
• 6:05
  Speaker 4: the percentage of trading that's going up in ETFs, I
• 6:08
  Speaker 4: get that they want to really lean into this and
• 6:11
  Speaker 4: sort of fill that gap for the drought and IPOs.
• 6:14
  Speaker 3: Yeah, I'd add a couple of things there. One, You're right,
• 6:17
  Speaker 3: they're not enough companies ipoing. So that's a that's a
• 6:20
  Speaker 3: whole problem by itself that has nothing to do with ETFs.
• 6:22
  Speaker 3: That's just how we structure the capital markets right now,
• 6:25
  Speaker 3: So all the interesting capital formation actually happens privately, and
• 6:28
  Speaker 3: then when things are big enough, they ipo straight into indexes. Right,
• 6:32
  Speaker 3: That's that's the pattern that we've seen over and over.
• 6:35
  Speaker 3: But you know, I'm not sure that I'd be a
• 6:37
  Speaker 3: lot of hand wavy about the fact that they're now
• 6:39
  Speaker 3: more ETFs, Like I think samro made the comment this
• 6:41
  Speaker 3: morning on Twitter, they're also more recipes than there are ingredients,
• 6:45
  Speaker 3: and I think that's also true. I mean, look, we
• 6:47
  Speaker 3: have one hundred and fifty thousand indexes tracked by the
• 6:50
  Speaker 3: Index Industry Association. Obviously that's insane. But you can just
• 6:54
  Speaker 3: add one stock, get rid of another, and now you
• 6:56
  Speaker 3: have a brand new index, right, So of course we're
• 6:58
  Speaker 3: going to end up with that proliferation. And I think
• 7:00
  Speaker 3: they're issues, right. It makes figuring out what ETF to
• 7:03
  Speaker 3: buy a lot harder than it was twenty years ago.
• 7:06
  Speaker 1: As we were saying, yeah, actually, I find that I
• 7:09
  Speaker 1: find that to be like this prevailing problem just in
• 7:12
  Speaker 1: my life in general, Like I call it the bread
• 7:14
  Speaker 1: ale as my wife loot tests like you get in
• 7:17
  Speaker 1: the bread ale, and it's like, how am I supposed
• 7:18
  Speaker 1: to make a decision? All of these things are basically
• 7:21
  Speaker 1: the same.
• 7:22
  Speaker 2: Yeah, isn't that the paradox of choice? I think that's
• 7:27
  Speaker 2: the term for it. So I agree, it's just the
• 7:31
  Speaker 2: way it goes when something's successful, and especially in asset management,
• 7:35
  Speaker 2: if the fish are biting in a certain you know, lake,
• 7:38
  Speaker 2: they're going to launch products to try to get bites.
• 7:41
  Speaker 2: So it's a natural part of capitalism. I did look
• 7:45
  Speaker 2: and there are almost six thousand mutual funds, so there's
• 7:48
  Speaker 2: been more mutual funds than stocks for thirty years. The
• 7:52
  Speaker 2: ETFs of the four thousand and whatever five hundred, there are,
• 7:55
  Speaker 2: half of them are below one hundred million dollars. So
• 7:59
  Speaker 2: most of these live in oblivion, and only a couple
• 8:03
  Speaker 2: really catch on. And so the UH I think in
• 8:06
  Speaker 2: my first book, I've used the metaphor of there are
• 8:12
  Speaker 2: I forget how many notes. There are like seven notes,
• 8:15
  Speaker 2: and then there's a you know, maybe a couple hundred chords,
• 8:18
  Speaker 2: but there's like one hundred million songs right right, or
• 8:22
  Speaker 2: as met Favor puts it, there's definitely more words than letters.
• 8:26
  Speaker 2: So I don't care. I think it's just a sign
• 8:29
  Speaker 2: of the industry growing. But I agree it is harder
• 8:32
  Speaker 2: and hard to make a choice. I think that gives
• 8:34
  Speaker 2: all of us here some job security, which is good.
• 8:36
  Speaker 3: It's going to get so much worse too. Between the
• 8:38
  Speaker 3: single stockraft that you were pointing out, you know, there's
• 8:41
  Speaker 3: going to be seven to twenty ETFs for every single
• 8:44
  Speaker 3: ticker at some point, and we've got the share class
• 8:47
  Speaker 3: conversions coming down the pipe, which could be anywhere from
• 8:50
  Speaker 3: zero to a couple thousand new ETFs, depending on how
• 8:53
  Speaker 3: aggressive that industry wants to get.
• 8:55
  Speaker 2: Yeah, I mean, Dave Nadig, where do you think we
• 8:58
  Speaker 2: end up? Like, if you had to pick a plateau number,
• 9:01
  Speaker 2: what would you pick?
• 9:04
  Speaker 3: Eight thousand?
• 9:05
  Speaker 2: Okay? How about you?
• 9:06
  Speaker 3: I mean, if if you figure every stock in the
• 9:09
  Speaker 3: S and P five hundred is going to have a
• 9:11
  Speaker 3: few varieties, right, at least a leveraged, at least a
• 9:14
  Speaker 3: covered call strategy, probably a short So there's probably two
• 9:18
  Speaker 3: to three thousand ETFs just on the Stingle stock you know,
• 9:22
  Speaker 3: Djen Shenanigan side, and then the four thousand we've already gotten,
• 9:27
  Speaker 3: not one thousand or two that are going to showup
• 9:28
  Speaker 3: because people want to, you know, do the share class
• 9:30
  Speaker 3: spoking end thing? Eight thousand?
• 9:33
  Speaker 2: I'm you know we last time we had Joe on
• 9:36
  Speaker 2: we had that note that we wrote earlier in the year.
• 9:38
  Speaker 2: No no industry for old analysts, because Dave, you and
• 9:42
  Speaker 2: Ethan are very similar that when there's one of these
• 9:45
  Speaker 2: crazy like you know, single stock covered call yield max
• 9:49
  Speaker 2: that launches, especially if they combined two or three things
• 9:51
  Speaker 2: like now there's a two x buffer.
• 9:55
  Speaker 3: Stock and withering idiots with drool running out of our mouths.
• 10:00
  Speaker 2: I understand Ethan puts the picture of Tommy Lee Jones
• 10:04
  Speaker 2: looking over the paper in No Country for old men,
• 10:06
  Speaker 2: Like what? Anyway, I get it. I'm probably the most
• 10:12
  Speaker 2: liberal of you guys because I just find the trading
• 10:16
  Speaker 2: wing of the ETF tent okay, given that there are
• 10:20
  Speaker 2: plenty of ways to gamble. This is America, it's a
• 10:23
  Speaker 2: you know, it's just I think I just look at
• 10:26
  Speaker 2: the ETF as a technology, not as an index fund,
• 10:29
  Speaker 2: and I think that's where I might be more liberal.
• 10:33
  Speaker 3: I think you and I agree more than we disagree
• 10:35
  Speaker 3: on this. I'm not anti people trading these vehicles to
• 10:38
  Speaker 3: run their cowboy accounts or hedge funds using them to
• 10:41
  Speaker 3: run their exposures. But they're good and bad ones of
• 10:43
  Speaker 3: those two rights. That's really I think the key thing
• 10:47
  Speaker 3: is that there are good single stock leverage funds and
• 10:50
  Speaker 3: there are bad single stock leverage funds. And it tends
• 10:52
  Speaker 3: to have to do with things like how much got
• 10:54
  Speaker 3: buried in the swap contract. You're not paying attention to
• 10:57
  Speaker 3: how much do these things actually cost? Do they trade it?
• 11:00
  Speaker 3: Two percent spreads on high vol days, like there are
• 11:02
  Speaker 3: good and bad ones even in the hottest of hot sauce.
• 11:05
  Speaker 2: And I would argue there are good of bad ones,
• 11:07
  Speaker 2: even the most in the most vanilla areas.
• 11:10
  Speaker 3: Yeah, yeah, there's the wrong s and P five hundred
• 11:13
  Speaker 3: ETF to buy. Which one is that, Dave? The one
• 11:17
  Speaker 3: that costs too much? Probably Shi, I.
• 11:19
  Speaker 2: Will say it's Hi. Yeah, it probably is. Spy. In
• 11:24
  Speaker 2: the mutual fund world, the second ever index mutual fund
• 11:27
  Speaker 2: as well as Fargo, and that still charges like thirty
• 11:30
  Speaker 2: five to forty BIPs.
• 11:31
  Speaker 3: There's there's still a two percent SMP mutual fund trading.
• 11:33
  Speaker 3: It's got hundreds of millions of dollars in it, like
• 11:35
  Speaker 3: it should be illegal by design. I don't know, Okay.
• 11:39
  Speaker 3: Topic number two.
• 11:40
  Speaker 1: This is a headline a note from James uh A
• 11:45
  Speaker 1: Safer at Bloomberg Intelligence headline, Passive ownership is rising and
• 11:50
  Speaker 1: more complex than meets the eye, Dave, Is that true?
• 11:54
  Speaker 3: Yes? Both of those things are true. You guys track
• 11:57
  Speaker 3: the passive stuff better than most people. I mean, what
• 11:58
  Speaker 3: are you got thirty five percent measurable, fifty percent probable
• 12:02
  Speaker 3: something like that?
• 12:02
  Speaker 2: Well, well it's a lot. Let's just define passive. In
• 12:05
  Speaker 2: James's note, it's he says the average stock has twenty
• 12:09
  Speaker 2: percent of its shares owned by passive, which is defined
• 12:12
  Speaker 2: by the way as index something ETF or mutual fund,
• 12:16
  Speaker 2: which can include smart beta. So it's a pretty wide array.
• 12:19
  Speaker 3: Yeah, but that misses the problem with that institutional separate recounts.
• 12:24
  Speaker 2: So where should we go twenty to what thirty?
• 12:26
  Speaker 3: I would say, thirty five, thirty five?
• 12:28
  Speaker 2: Okay, let's say it's thirty five.
• 12:30
  Speaker 3: The academic research points okay, the thirty five to forty range.
• 12:33
  Speaker 2: So your take is should we worry?
• 12:36
  Speaker 3: So my take is, yes, it matters, but not for
• 12:39
  Speaker 3: the reasons everybody thinks it does. It's too complicated to
• 12:41
  Speaker 3: be a blanket good or bad. What really matters is
• 12:45
  Speaker 3: the flow in and out of these big block products.
• 12:48
  Speaker 3: It actually doesn't matter whether they're quote unquote index. But
• 12:51
  Speaker 3: if you build a giant block trade based on cap weighting,
• 12:54
  Speaker 3: that has real impacts on price discovery because the elasticity
• 12:58
  Speaker 3: of big stocks is different than elasticity of small stocks.
• 13:01
  Speaker 3: So you end up with this kind of runaway winner,
• 13:04
  Speaker 3: runaway loser problem at the top of the cap table,
• 13:07
  Speaker 3: which we see every week when we get allocations into
• 13:09
  Speaker 3: TDFs and the four andin K money flowing in, all
• 13:12
  Speaker 3: of which can turn around. Everybody could decide to pull
• 13:14
  Speaker 3: all their money out of their target day funds and
• 13:16
  Speaker 3: buy cash tomorrow. Right, So sentiment overrules all of this.
• 13:20
  Speaker 3: But until you see some of those numbers change, the
• 13:24
  Speaker 3: constant drumbeat of money flowing through passive into the market
• 13:28
  Speaker 3: does disturb price discovery. And there's been some amazing deep
• 13:32
  Speaker 3: academic research in the last eighteen months on this that's
• 13:35
  Speaker 3: pretty difficult to argue with. I mean, it's not fufu ideas.
• 13:39
  Speaker 3: It's like, no, we looked at millions of data points
• 13:42
  Speaker 3: over twenty years, and you can kind of prove it.
• 13:45
  Speaker 3: Things like bitcoin are great. Sort Petrie dishes for this
• 13:49
  Speaker 3: because you know, absolutely limited supply flow is the only
• 13:51
  Speaker 3: thing that changes price. It's kind of proved all our points.
• 13:56
  Speaker 2: Well, I get that. And obviously a bunch of money
• 14:00
  Speaker 2: is going in and buying vou and voo like products.
• 14:03
  Speaker 2: It's going to push the prices up there, that's a fact.
• 14:05
  Speaker 2: But the voo waitings are totally determined by active Because
• 14:12
  Speaker 2: Athanasios I'll turn to you on this, he did a
• 14:15
  Speaker 2: deep dive and found that, you know, when Tesla has
• 14:18
  Speaker 2: a bad earnings, it sells off, its market cap goes down.
• 14:23
  Speaker 2: Navidia was the one hundred and fiftieth stock in the
• 14:25
  Speaker 2: S and P only like five years ago, and it's
• 14:28
  Speaker 2: index didn't do that. Active likes Navidia and it hates Macy's,
• 14:33
  Speaker 2: which got kicked out of the S and P.
• 14:34
  Speaker 3: So for sure, but I'm not saying that that's the
• 14:37
  Speaker 3: reason in Nvidia rockets to the top. I'm saying it's
• 14:40
  Speaker 3: the reason that the market in general becomes slowly more
• 14:44
  Speaker 3: top heavy because the incremental dollar goes into a stock
• 14:47
  Speaker 3: like Nvidia, which is much less elastic than public storage ink. Right,
• 14:53
  Speaker 3: So public storage inc. Anybody can swap that out for
• 14:55
  Speaker 3: another industrial Nobody cares. If you don't have Nvidia in
• 14:59
  Speaker 3: your portfolio, have a problem as an active manager. So
• 15:02
  Speaker 3: that for that reason, a dollar going into Invidia moves
• 15:05
  Speaker 3: in video more than a dollar going into a company
• 15:08
  Speaker 3: at the bottom of the cap table. And that's math.
• 15:10
  Speaker 3: We can prove that that's just actually what's happened. So yes,
• 15:14
  Speaker 3: price discovery still happens, but it actually happens violently with
• 15:17
  Speaker 3: a smaller number of players, which rockets things either up
• 15:21
  Speaker 3: or down, and then the next thing that comes in
• 15:24
  Speaker 3: reinforces that either up or down.
• 15:27
  Speaker 4: I think you brought up a good point, and honestly,
• 15:29
  Speaker 4: I don't want to cop out. I don't think anyone knows.
• 15:31
  Speaker 4: I've seen good research on both sides. I get that
• 15:35
  Speaker 4: the system is structurally set up that yet flows are
• 15:37
  Speaker 4: going to come in. It's going to keep going to
• 15:39
  Speaker 4: these stocks. I'm not fully convinced that it's like a
• 15:42
  Speaker 4: problem yet. I think there's still too many like holes
• 15:44
  Speaker 4: you can poke in it.
• 15:46
  Speaker 3: Oh, I don't think anybody should do anything about it.
• 15:48
  Speaker 3: Like I don't think the answer is don't buy passive.
• 15:50
  Speaker 3: I think that this actually means, for the love of God,
• 15:54
  Speaker 3: stay in cap weighted products and stay invested. Because these
• 15:58
  Speaker 3: are tailwinds to the market. They can whipsaw. But I
• 16:02
  Speaker 3: actually can't point to the thing that's going to make
• 16:04
  Speaker 3: it whipsaw. It's not the it's not old people retiring
• 16:07
  Speaker 3: that's not going to do it. That's actually going to
• 16:09
  Speaker 3: help because all those young people who inherit it buy
• 16:11
  Speaker 3: more right. So I don't think this means you do
• 16:15
  Speaker 3: something different. I think it explains what we've been witnessing
• 16:18
  Speaker 3: for the last ten years.
• 16:19
  Speaker 2: Yeah, I would also just say that one thing that
• 16:23
  Speaker 2: may change this, and probably it's also good for everybody,
• 16:26
  Speaker 2: is that active is getting cheaper. And so the more
• 16:29
  Speaker 2: that the capital groups and fidelities and trows lower their fees,
• 16:34
  Speaker 2: the more they see organic flows. I think advisors do
• 16:36
  Speaker 2: want active, they just want to pay us a lighter
• 16:38
  Speaker 2: fee for it, and that would obviously introduce more price
• 16:42
  Speaker 2: discovery based on fundamentals because those active funds do hold
• 16:47
  Speaker 2: different stocks with different weightings. So in a way, and
• 16:50
  Speaker 2: we debate this with Mike Green from Simplify all the time,
• 16:53
  Speaker 2: one of the things that is just an inconvenient truth
• 16:56
  Speaker 2: here is that active managers were caught in a very
• 17:01
  Speaker 2: disruptible position charging one percent for mostly Beta and Vanguard
• 17:05
  Speaker 2: disrupted the crap out of them. They never passed on
• 17:08
  Speaker 2: economies of scale during the fifty years they had a
• 17:10
  Speaker 2: chance to, and if they had, they'd have more upperformance,
• 17:13
  Speaker 2: more customer goodwill. But because they didn't, I find that
• 17:17
  Speaker 2: sin is still haunting them. But as they adapt, Yeah,
• 17:22
  Speaker 2: it as they adapt, though, and money shifts back to active,
• 17:25
  Speaker 2: because active's taken in twenty five percent of the flows
• 17:27
  Speaker 2: this year, some of this will possibly be sorted out
• 17:30
  Speaker 2: by the market.
• 17:32
  Speaker 3: Yeah, and look, we've got folks like Baron coming in.
• 17:34
  Speaker 3: I mean, the thing that's shocking to me is that
• 17:36
  Speaker 3: we've got classes of active managers that have been crushing
• 17:39
  Speaker 3: it for one, three, five, ten, twenty, like Barn like
• 17:43
  Speaker 3: bridge Haven. Like there's a bunch of active managers you
• 17:46
  Speaker 3: can look at and be like, no, they've done everything
• 17:47
  Speaker 3: they said they were going to do and they're crushing
• 17:49
  Speaker 3: and they all have outflows. Yeah, well, bananas.
• 17:53
  Speaker 2: The Barren guy coming into ETFs is capitulation. I bet
• 17:56
  Speaker 2: he didn't want to. But Joel, this is the only
• 18:00
  Speaker 2: in fifteen years to beat the cues. Beating the cues
• 18:03
  Speaker 2: is like it's like beating Michael Jordan his prime, Like,
• 18:06
  Speaker 2: how did you do that? Right? And uh, it brings me.
• 18:10
  Speaker 2: I always think of that quote from the Tim Burton Batman.
• 18:12
  Speaker 2: Remember when Michael Keaton's like, oh, you want to get nuts,
• 18:14
  Speaker 2: let's get nuts.
• 18:16
  Speaker 3: Yeah, let's go.
• 18:18
  Speaker 2: You got to get more crazy than the cues And
• 18:20
  Speaker 2: he did, Oh yes he did. It's like it's the half.
• 18:23
  Speaker 2: The half the mutual fun is Elon Musk companies. It's
• 18:27
  Speaker 2: like SpaceX and Tesla. So that's part of I think
• 18:31
  Speaker 2: what worked is discarding the CFA brain and getting a
• 18:35
  Speaker 2: little crazy and Baron did it. Now he's coming into ETFs,
• 18:39
  Speaker 2: we'll see what happens. Like the timing is interesting. Would
• 18:42
  Speaker 2: this be a signal that maybe now is the time
• 18:44
  Speaker 2: that he underperforms? I don't know. But also he's coming
• 18:48
  Speaker 2: in at one percent. I think that's a pretty hefty fee.
• 18:50
  Speaker 3: Did we get it? Did we get an actual fee?
• 18:52
  Speaker 3: I didn't see that.
• 18:53
  Speaker 2: That's what Katie Greifeld reported. I think it was like
• 18:55
  Speaker 2: one of them was seventy BIPs, one was one percent.
• 18:57
  Speaker 2: Either way, those are all that said. If he has
• 19:00
  Speaker 2: active share of like ninety five or percent of review, yeah,
• 19:04
  Speaker 2: then it's in this sort of arch thematic bucket. People
• 19:06
  Speaker 2: pay more, people have less price sensitivity for stuff that
• 19:10
  Speaker 2: has a high active here.
• 19:11
  Speaker 3: Even a one percent, it's a bargain compared to like
• 19:13
  Speaker 3: the age some of his mutual fund shared classes are
• 19:16
  Speaker 3: one point nine. Yeah, So like there's some real bang
• 19:18
  Speaker 3: expensive stuff out there.
• 19:20
  Speaker 2: Yeah. And like, by the way, Tom Lee also had
• 19:22
  Speaker 2: great success with Granny the Granny shots ETF. Now he's
• 19:25
  Speaker 2: launching two new ones. Dan ives have come in, so
• 19:28
  Speaker 2: it's not just that big old school manager getting cheaper.
• 19:30
  Speaker 2: You've got these stars, you know, I say, yeah, one
• 19:33
  Speaker 2: of our themes is ETFs Go Hollywood. Some of these
• 19:35
  Speaker 2: star managers are coming in. And I'm going to say
• 19:37
  Speaker 2: right now in the show, I believe Bill Ackman will
• 19:40
  Speaker 2: launch an ETF at some point. I don't think Buffett will.
• 19:43
  Speaker 2: I think he's he Berkshire's kind of that for him.
• 19:46
  Speaker 2: But I do think if you are in this industry
• 19:50
  Speaker 2: and you want to be where the fisher biding, you
• 19:53
  Speaker 2: kind of have to come into ETFs now, especially Tom
• 19:55
  Speaker 2: Lee in particular, seeing the success he's had. Two billion
• 19:57
  Speaker 2: in less than a year is pretty good, and his
• 20:00
  Speaker 2: fee isn't cheap either, So that's a good sign I
• 20:03
  Speaker 2: think for active and maybe the people who are worried
• 20:05
  Speaker 2: about passive growing so much.
• 20:13
  Speaker 1: Okay, next topic, Eric, this one's gonna put you in
• 20:17
  Speaker 1: the hot seat. Magnificent seven. Question mark was the beginning
• 20:22
  Speaker 1: of a note, the headline for a note that you wrote,
• 20:24
  Speaker 1: think of them more as the Magnificent seventy. Okay, I'm
• 20:27
  Speaker 1: really interested in this because you can't you can't talk
• 20:30
  Speaker 1: about markets without talking about AI and the Magnificent seven.
• 20:34
  Speaker 1: Right now, there's four hundred and ninety three other companies,
• 20:37
  Speaker 1: except you say, maybe maybe that math is off, maybe
• 20:40
  Speaker 1: there's maybe there's many more that should be considered magnificent
• 20:44
  Speaker 1: seven companies. What's you're reasoning?
• 20:46
  Speaker 2: Yeah, so, and you brought Sam ro up earlier. I
• 20:49
  Speaker 2: actually got this idea from him. He talked about the
• 20:52
  Speaker 2: idea that many of these companies are like multiple companies
• 20:55
  Speaker 2: inside of one, and I thought, yeah, you know, he's right,
• 20:57
  Speaker 2: Like it feels right that. So I look, did the
• 21:00
  Speaker 2: amount of acquisitions the mag seven companies have made, and
• 21:04
  Speaker 2: it's eight hundred and fifty eight between the seven of them,
• 21:09
  Speaker 2: Google and Microsoft are like two fifty each. Yeah, here's
• 21:12
  Speaker 2: the thing. Like one of Google's acquisition was YouTube. That's
• 21:15
  Speaker 2: one of two fifty. YouTube would be the nineteenth biggest
• 21:18
  Speaker 2: thought in America if it were spun off. And so
• 21:22
  Speaker 2: the amount of brand names, actual capital cash these companies.
• 21:28
  Speaker 2: I talk to our analyst on Rugrana who covers some
• 21:31
  Speaker 2: of these tech stocks, and he says, they're like countries,
• 21:34
  Speaker 2: they're that big. So I almost think you kind of
• 21:37
  Speaker 2: have to throw your CFA brain out a little bit
• 21:39
  Speaker 2: here too. The mag seven should be looked at as
• 21:42
  Speaker 2: seventy So if.
• 21:43
  Speaker 3: You, well, isn't this GE, I mean, are we just
• 21:45
  Speaker 3: basically talking about Jack Welchi or a GE where it's like,
• 21:48
  Speaker 3: are you a finance company? Are you a tech company?
• 21:49
  Speaker 3: Or you defense contract with Berkshire? Yes, we're all of
• 21:52
  Speaker 3: those things.
• 21:52
  Speaker 2: Yes, well Berkshire.
• 21:53
  Speaker 3: I see more as like actually kind of a holding company, true,
• 21:56
  Speaker 3: versus something like Microsoft, which actually integrates these things and
• 22:00
  Speaker 3: like and I think they are like countries. I mean
• 22:03
  Speaker 3: Microsoft is also doing things like building water systems, like
• 22:06
  Speaker 3: it's crazy buying nuclear Yeah.
• 22:10
  Speaker 2: Yeah, I went back and looked at GE, and I
• 22:12
  Speaker 2: think they're total acquisitions. I you know, I don't want
• 22:16
  Speaker 2: to get hate mail if I'm wrong, But I think
• 22:17
  Speaker 2: it was like sixty.
• 22:18
  Speaker 3: Five, So it was it was a lot not this wasn't.
• 22:21
  Speaker 2: On the same level. But let's just say we consider
• 22:23
  Speaker 2: them to be seventy companies, all of a sudden, they're
• 22:26
  Speaker 2: thirty four percent waiting in the S and P. Isn't
• 22:28
  Speaker 2: that bad? So I guess part of the reason I
• 22:31
  Speaker 2: wrote this was Ethan and I talk about this all
• 22:34
  Speaker 2: the time in the team. It's I just not into
• 22:37
  Speaker 2: scaring people out of these companies. There's so many people
• 22:40
  Speaker 2: like it's time to rotate. These companies are valued. I'm like, yeah,
• 22:43
  Speaker 2: but people said that two hundred percent ago. And these
• 22:46
  Speaker 2: companies kick so much ass that you can't not own them,
• 22:52
  Speaker 2: Like these are the leaders of the world in what
• 22:55
  Speaker 2: they do, and it just seems crazy to me. This
• 22:58
  Speaker 2: is where I think you never want to go full CFA.
• 23:01
  Speaker 2: You only go half CFA. You know what I mean.
• 23:05
  Speaker 2: If you fill CFA, you will lose and lag and
• 23:08
  Speaker 2: be miserable.
• 23:10
  Speaker 3: I agree that I think this is a useful framework.
• 23:13
  Speaker 3: I think you're correct in that. From an economic perspective,
• 23:17
  Speaker 3: thinking about Microsoft as being a singular company the same
• 23:19
  Speaker 3: way that John Deere is a singular company is wrong. However,
• 23:24
  Speaker 3: it's a single security, and so from a risk management,
• 23:28
  Speaker 3: market structure, capital flow perspective, MSFT is still a single stock.
• 23:33
  Speaker 3: And when some big whale decides to fat finger an
• 23:37
  Speaker 3: options trade and it gets tanked by nine percent, which
• 23:41
  Speaker 3: seems like a ridiculous amount of value to extract from
• 23:44
  Speaker 3: the market, it's because it's still just one stock. There
• 23:47
  Speaker 3: is some danger in having more and more and more
• 23:50
  Speaker 3: economic activity in fewer and fewer tradable tickers. That's a
• 23:55
  Speaker 3: different problem than are these companies too big, and will
• 23:57
  Speaker 3: they be bad economically? I'm with you on that. I
• 24:01
  Speaker 3: think the AI thing is an interesting use case here
• 24:04
  Speaker 3: because I think you can make the case that the
• 24:06
  Speaker 3: benefits of AI may actually benefit the bottom two fifty
• 24:10
  Speaker 3: in the S and P more than the top two fifty,
• 24:13
  Speaker 3: because that's where the boring, low hanging fruit of Like,
• 24:16
  Speaker 3: can we, you know, replace these three boring processes in
• 24:20
  Speaker 3: a back office with an AI. I think that's going
• 24:22
  Speaker 3: to happen more there than Nvidia is going to have
• 24:24
  Speaker 3: blowout earnings for eight quarters?
• 24:27
  Speaker 1: Eric, what are those seventy? And how do you get it?
• 24:29
  Speaker 3: No?
• 24:29
  Speaker 2: No, what I'm saying is if you opened up Google,
• 24:32
  Speaker 2: you're going to find YouTube a cloud company. I mean
• 24:35
  Speaker 2: I'm talking Google has about seven to ten actual legitimate
• 24:39
  Speaker 2: large caps within it.
• 24:40
  Speaker 3: Yeah, you're buying a conglomerate.
• 24:42
  Speaker 2: Yeah, you're buying again like at Arog says a small country.
• 24:46
  Speaker 2: I mean, if you look at the market cap, these
• 24:49
  Speaker 2: would be bigger than most of the countries on Earth.
• 24:54
  Speaker 2: But to Dave's point, I wrote in my note that
• 24:56
  Speaker 2: that isn't to say this is not antitrust issue, and
• 25:00
  Speaker 2: that may be a fact these companies, you know, how
• 25:03
  Speaker 2: big should they get should they get broken up? I
• 25:05
  Speaker 2: feel like that's a fine debate to have because should
• 25:08
  Speaker 2: Google have that much going on inside of it? That's
• 25:11
  Speaker 2: just different to me than index concentration in terms of
• 25:15
  Speaker 2: what you're buying that. So it's a very interesting, complicated issue.
• 25:19
  Speaker 2: But I just wanted to get people to look at it,
• 25:22
  Speaker 2: you know, from this alternative way. And I wasn't alone,
• 25:26
  Speaker 2: although he's biased. Dave Masa from Roundhill, who has the
• 25:29
  Speaker 2: ETF MAGS, he wrote a piece similar about there being
• 25:34
  Speaker 2: more more to it and the valuations, you know, might
• 25:37
  Speaker 2: be worth it given how many other companies are inside.
• 25:40
  Speaker 2: So I sort of ripped off from both those guys
• 25:44
  Speaker 2: in my note, although none of them mentioned the amount
• 25:47
  Speaker 2: of total acquisitions, which again I thought I was going
• 25:50
  Speaker 2: to find like twenty to thirty in each and I
• 25:52
  Speaker 2: was like, oh my god, eight fifty.
• 25:54
  Speaker 3: Now a lot of those are really small companies that
• 25:56
  Speaker 3: were part of a tech stack, right, true, like a
• 25:58
  Speaker 3: lot or companies got bought, but because their calendar plugin was.
• 26:02
  Speaker 2: Crazy, you know, no, I hear you, But I went
• 26:06
  Speaker 2: into Google. They bought some company I never heard of
• 26:08
  Speaker 2: for thirteen billion dollars. Oh, you know, the numbers of
• 26:11
  Speaker 2: cloud stuff like like, there's stuff. I agree, there's small
• 26:14
  Speaker 2: stuff that is bullsh doesn't count, but there's some big
• 26:18
  Speaker 2: stuff we never even heard of the company, like Slack yes,
• 26:22
  Speaker 2: and like ways you know that app which I used constantly, constantly,
• 26:26
  Speaker 2: I forget.
• 26:27
  Speaker 3: Where owns that?
• 26:29
  Speaker 1: Google?
• 26:29
  Speaker 3: Google? Google owns that?
• 26:30
  Speaker 1: Now?
• 26:30
  Speaker 3: Yeah, I can't keep it has forever?
• 26:33
  Speaker 1: Okay, next topic, Katie Greifel's headline earlier in August, Vanguard
• 26:39
  Speaker 1: plans for its costliest ETFs yet an active push. Uh Ethan,
• 26:46
  Speaker 1: I want to talk to you. The new number one
• 26:49
  Speaker 1: at Vanguard is point four zero percent, followed by zero
• 26:53
  Speaker 1: point three five percent. This is on top of their
• 26:57
  Speaker 1: current costlyest ETF, which is point three Yeah. I love
• 27:01
  Speaker 1: And what do you make of this push into active?
• 27:03
  Speaker 4: They're playing offense now right, Like we looked at, Vanguard
• 27:06
  Speaker 4: doesn't launch ETFs that often, and so this year I
• 27:09
  Speaker 4: think it's the most they've had in like ten years.
• 27:11
  Speaker 4: Obviously they have a new CEO. But there we were
• 27:15
  Speaker 4: looking at this last week. I think if Blackrock didn't
• 27:19
  Speaker 4: have the bitcoin and crypto stuff, Vanguard would only be
• 27:22
  Speaker 4: like forty billion behind them. So that gap is gonna close.
• 27:26
  Speaker 4: But yeah, I think, you know, they're they're you know,
• 27:29
  Speaker 4: they're still a large active manager, right, so it kind
• 27:32
  Speaker 4: of guess it kind of makes sense that they're they're
• 27:34
  Speaker 4: pushing into that, but.
• 27:35
  Speaker 1: They have active in the name now. These are called
• 27:38
  Speaker 1: the Vanguard Wellington Dividend Growth Active ETF. That's like, this
• 27:42
  Speaker 1: is like how Vanguard became Fidelity and Fidelity became Vanguard.
• 27:47
  Speaker 4: Like David alluded to, THETF dot com means different things now, right, Yeah,
• 27:52
  Speaker 4: this is yeah, that the whole era is changing. So
• 27:55
  Speaker 4: I love that they're playing, you know, offense. They're they're
• 27:58
  Speaker 4: getting more aggressive on the product front, you know, and
• 28:01
  Speaker 4: it's fine. You know, they've they've basically given away their
• 28:03
  Speaker 4: ETFs for free for such a long time. Now it
• 28:07
  Speaker 4: looks like, you know, they want they want to charge
• 28:08
  Speaker 4: a little bit more. They're probably still going to be
• 28:10
  Speaker 4: cheaper than most a lot of active stuff anyways, So
• 28:13
  Speaker 4: it's still kind of a win win.
• 28:14
  Speaker 3: But I'm a huge fan because it feels like, you know,
• 28:17
  Speaker 3: I'm a big fan of like bringing your authentic self
• 28:19
  Speaker 3: to work every day. I feel like Vanguard's finally bringing
• 28:21
  Speaker 3: the authentic Vanguard to market because Wellington's been just raking
• 28:26
  Speaker 3: in cash for them for decades. I mean, you talked
• 28:29
  Speaker 3: a little bit about about this in your book, you know,
• 28:32
  Speaker 3: the the active thing that lives inside the giant passive enterprise.
• 28:37
  Speaker 3: But I think at some point, I don't know whether
• 28:38
  Speaker 3: it was you guys or somebody else, did the rundown
• 28:41
  Speaker 3: on how much revenue they actually generate from the active
• 28:44
  Speaker 3: side of the business versus the ETF side of the
• 28:46
  Speaker 3: business before they got any of the active product over
• 28:49
  Speaker 3: and it was like four times as much money that
• 28:51
  Speaker 3: they make off the active products. It's like they're actually
• 28:54
  Speaker 3: huge in that business. So it's about f and time
• 28:57
  Speaker 3: that they show up and bring those products to the ETFE.
• 29:01
  Speaker 2: Two things on this one, I agree. Will they have
• 29:04
  Speaker 2: success though it's not a guarantee. Normally when Vanguard comes in,
• 29:07
  Speaker 2: you're like, oh, this is just going to take in
• 29:09
  Speaker 2: a billion dollars within a couple months. But they're really
• 29:12
  Speaker 2: late here. You know, they ranked nineteenth in active ETFs
• 29:16
  Speaker 2: and they're like one or two in everything. This is
• 29:19
  Speaker 2: a category they're ridiculously low in and everybody has come
• 29:23
  Speaker 2: in for the past ten years and vanguarded the category already.
• 29:27
  Speaker 2: So you got JP Morgan, Capitol Group, DFA Avantis. They're
• 29:30
  Speaker 2: all well below twenty basis points, if not ten in
• 29:34
  Speaker 2: some cases, so Vanguard comes in a little late. We
• 29:37
  Speaker 2: have a note that a recurring theme we talk about,
• 29:39
  Speaker 2: which is the Vanguard effect, has outrun Vanguard, and they're
• 29:44
  Speaker 2: actually stepping into a category that's already had the Vanguard effect, ironically,
• 29:49
  Speaker 2: and they're going to suffer from it. I think I
• 29:51
  Speaker 2: don't see these being that big. And Dave, I'd like
• 29:54
  Speaker 2: to ask you, do you think they'll ever make the
• 29:57
  Speaker 2: Wellington fund though, the one that's one hundred years old,
• 29:59
  Speaker 2: the one that Bogi save like a firstborn child, that
• 30:01
  Speaker 2: balance fund. Do you think they'll ever etfiz that because
• 30:04
  Speaker 2: it's not in this mix right now.
• 30:06
  Speaker 3: I I'm very skeptical. I'm with you. I don't think
• 30:08
  Speaker 3: these are going to be big money winners for them.
• 30:10
  Speaker 3: I don't think they're gonna get a ton of assets.
• 30:12
  Speaker 3: I think it's a service to those people who already
• 30:15
  Speaker 3: know the Wellington brand and are in those mutual funds
• 30:17
  Speaker 3: generally had a little bit more money. So I think
• 30:20
  Speaker 3: they'll get some transfer money from advisors. I think that's
• 30:23
  Speaker 3: what they'll get, and they may even get some from institutions.
• 30:26
  Speaker 3: Because some institutions use those, they have a pretty big
• 30:28
  Speaker 3: business on the active institutional side. So for people who
• 30:31
  Speaker 3: want a liquidity sleeve on a similar strategy, that whole shtick,
• 30:34
  Speaker 3: they'll get some traction. But I absolutely do not think
• 30:37
  Speaker 3: this is their next big thing. Like there's not going
• 30:40
  Speaker 3: to be hundreds and hundreds and hundreds of billions of
• 30:43
  Speaker 3: dollars in these things. No way.
• 30:44
  Speaker 4: Maybe you've looked at this, Eric, but let's say, if
• 30:46
  Speaker 4: you take out fees, is Vanguard like a good active manager,
• 30:49
  Speaker 4: Like would you rather like you say, if you were
• 30:51
  Speaker 4: to go active, would you rather want a capitol group
• 30:53
  Speaker 4: or a deals Okay, well, hold.
• 30:55
  Speaker 2: On fees are a matter because actually at work with
• 30:58
  Speaker 2: US S and P, they ran the number. Vanguard's beat
• 31:01
  Speaker 2: rate is higher, I see than the average company, and
• 31:06
  Speaker 2: it's directly related to fees. And the further out you go,
• 31:09
  Speaker 2: the higher that beat rate gets, because fees matter more
• 31:11
  Speaker 2: ten to fifteen years. This is why my Bogel effect book,
• 31:14
  Speaker 2: I premise that if the index, the index or index
• 31:17
  Speaker 2: fund was never an invention, if you just pretend we
• 31:20
  Speaker 2: live in a society without indexing, Vanguard would be the
• 31:23
  Speaker 2: biggest active manager six seven times over because they would
• 31:26
  Speaker 2: have brought their fees down, and that's like giving their
• 31:29
  Speaker 2: managers a huge head start in the race because they
• 31:33
  Speaker 2: have lower hurdle to overcome and over long stretches of time.
• 31:37
  Speaker 2: All the Vanguard funds would have been on the cover
• 31:39
  Speaker 2: of Forbes in Fortune as the top managers just because
• 31:42
  Speaker 2: they're cheap, because I call it bogo metrics instead of sabermetrics.
• 31:47
  Speaker 2: Even Bogel in his books, in his books, by the way,
• 31:50
  Speaker 2: he does brag about active a little bit, but he
• 31:52
  Speaker 2: he kind of brings the credit back to himself. He's like, yeah,
• 31:55
  Speaker 2: this guy ran this, he did okay, but honestly, I
• 31:57
  Speaker 2: made the fun cheap and I told him not a
• 32:00
  Speaker 2: lot of trading, and therefore that's why it really outperformed.
• 32:03
  Speaker 3: And he was not a man without ego in my experience.
• 32:07
  Speaker 2: So I always think, like the Vanguard secret is the cheapness.
• 32:10
  Speaker 2: But with these funds, they're forty there's a dozen cheaper. Yeah.
• 32:15
  Speaker 3: Yeah, although a lot of those funds are really very
• 32:19
  Speaker 3: low turnover, low active share, I mean like the advance
• 32:23
  Speaker 3: to stuff. Most of the active share on that is
• 32:25
  Speaker 3: measured and you know, ten fifteen percent, like I mean,
• 32:29
  Speaker 3: it's not a lot. It's compared to something like Ron
• 32:31
  Speaker 3: Parrin coming in with something that's just crazy and wild.
• 32:34
  Speaker 3: I agree. I think these are going to struggle at
• 32:35
  Speaker 3: this price point.
• 32:43
  Speaker 1: Next topic Isabella Lee, Bloomberg News reporter cross Assets often
• 32:48
  Speaker 1: on the show, writes tokenization boom. Wall Street still isn't biting.
• 32:54
  Speaker 1: GP Morgan says, So this is ultimately about the idea
• 32:58
  Speaker 1: that we're going to see the assets go on to
• 33:01
  Speaker 1: the blockchain. JP Morgan says that that's beginning to happen,
• 33:06
  Speaker 1: but really it's twenty five billion so far, and that's
• 33:09
  Speaker 1: really being driven by crypto NATA firms rather than Wall
• 33:12
  Speaker 1: Street incumbents. Dave, have we already reached peak blockchain here?
• 33:21
  Speaker 3: God? No, I think we're Mike Philbrick from Resolve posted
• 33:27
  Speaker 3: a thing saying like, where are we on the comparison
• 33:29
  Speaker 3: to the fiber rollout or the railroads or all of
• 33:32
  Speaker 3: that stuff, And I put up a picture of Stevenson's rocket, Like,
• 33:35
  Speaker 3: I think we are still at the very early innings
• 33:39
  Speaker 3: on both crypto and AI, and I think they are
• 33:42
  Speaker 3: related unfortunately, but like we're actually starting to see things
• 33:45
  Speaker 3: like bonds issued on chain held on chain, redeemed on
• 33:50
  Speaker 3: chain without ever touching secondary systems. That's like very recent.
• 33:54
  Speaker 3: It's really in the last month we've had some of
• 33:56
  Speaker 3: these entirely on chain but still fully regulated institutional securities,
• 34:02
  Speaker 3: issuance and settlement things going on. That's exciting, Like we
• 34:06
  Speaker 3: should all be excited about that. That's the future. We're
• 34:08
  Speaker 3: gonna get rid of DTCC eventually, right, So that I
• 34:12
  Speaker 3: think is just starting to kick in. That's part of
• 34:14
  Speaker 3: the I would call regulatory halo effect of this administration,
• 34:18
  Speaker 3: as people are now just trying things and figuring they
• 34:20
  Speaker 3: won't get sued into oblivion later, and that's great. I
• 34:23
  Speaker 3: think we're seeing the same thing with like the trial
• 34:26
  Speaker 3: that's going on in New Jersey to take all the
• 34:28
  Speaker 3: real estate records and put all that information on chain
• 34:30
  Speaker 3: so you can do like instantaneous real estate settlement. It's
• 34:34
  Speaker 3: all really cool. So I'm a seller on the idea
• 34:36
  Speaker 3: that somehow that part is peaked. That doesn't mean prices
• 34:39
  Speaker 3: don't come down and bitcoin could still be worth fifty grand.
• 34:41
  Speaker 3: What the heck do I know? But from a blockchain
• 34:43
  Speaker 3: in real world assets and tokenization perspective, I am very bullish,
• 34:47
  Speaker 3: very very bollish.
• 34:49
  Speaker 2: My take on this is if you're younger or in
• 34:52
  Speaker 2: a emerging market and you are have a wallet, you
• 34:56
  Speaker 2: have a digital wallet right now, and you've grown up
• 34:59
  Speaker 2: with it. I think tokens of stocks and ETFs will
• 35:02
  Speaker 2: be what you buy because the plot that's the universe
• 35:06
  Speaker 2: you want to be in. I just don't think that
• 35:09
  Speaker 2: is going to absorb the entire financial ecosystem. I think
• 35:13
  Speaker 2: it will be another avenue. And I think ets especially
• 35:18
  Speaker 2: in develop markets, simply because the customers are just so happy,
• 35:22
  Speaker 2: it's just tough to get people to move and if
• 35:24
  Speaker 2: they're happy campers. But anyone who's digitally native the ETF
• 35:31
  Speaker 2: industry and the all the exchanges and whatnot, who want
• 35:36
  Speaker 2: to get more money into stocks and ETFs should tokenize
• 35:41
  Speaker 2: this stuff. It's just another way to reach a new
• 35:43
  Speaker 2: audience who's used to this other way to get them,
• 35:46
  Speaker 2: which is a digital wallet. The good thing about that
• 35:50
  Speaker 2: is it does open them up to the whole world.
• 35:53
  Speaker 2: It does open them up twenty four to seven if
• 35:55
  Speaker 2: that's your thing, although I think that's a little overrated.
• 35:58
  Speaker 2: And so people who don't otherwise have access, which is
• 36:01
  Speaker 2: about half the world, can now easily buy shares of
• 36:04
  Speaker 2: Microsoft or voo or spy or whatever. So I'm all
• 36:07
  Speaker 2: for it. I just think that half of the world
• 36:10
  Speaker 2: has such a small percentage of the global money that
• 36:14
  Speaker 2: the motive to serve them is less than serving the
• 36:16
  Speaker 2: people who are already happy in low cost ETFs and whatnot.
• 36:19
  Speaker 2: And he'd be a mutual fund, so I just see
• 36:22
  Speaker 2: it as some If it does take over, it will
• 36:26
  Speaker 2: be twenty years from now when the wallet people grow
• 36:29
  Speaker 2: up and get all the money inherited, you know. So
• 36:32
  Speaker 2: this is very interesting. I'm evolving on it constantly. I
• 36:36
  Speaker 2: still think nature Acy should have kept his name ETF
• 36:38
  Speaker 2: Store at least for Do you have any plans to
• 36:41
  Speaker 2: change ETF dot com?
• 36:43
  Speaker 3: I think that would be dumb. I think that would.
• 36:44
  Speaker 2: Be good job. So I just think at least for
• 36:48
  Speaker 2: us we're middle aged, I would call us we're probably
• 36:51
  Speaker 2: good covering ETFs until we retire. I think the next
• 36:55
  Speaker 2: generation is going to figure out what to call themselves.
• 36:58
  Speaker 4: It would be a new job title, for sure.
• 37:00
  Speaker 3: I completely agree on the stock and I ETF side.
• 37:03
  Speaker 3: The problem is that the way we're talking about doing
• 37:06
  Speaker 3: it right now, even the people are doing it really well.
• 37:08
  Speaker 3: And i'd probably highlight wisdom Tree prime as the folks
• 37:11
  Speaker 3: I think have kind of figured this out the best,
• 37:13
  Speaker 3: like have your own wallet, put gold in it, put
• 37:15
  Speaker 3: crypto in it, and then put some tokenized funds in
• 37:18
  Speaker 3: alongside of it, so you kind of create a whole
• 37:20
  Speaker 3: on app ecosystem. Even that, I think the problem is
• 37:24
  Speaker 3: you're still rapping Tesla shares, you're still wrapping VU and
• 37:28
  Speaker 3: if you're wrapping something, you're not actually changing anything. You're
• 37:32
  Speaker 3: adding a layer of complexity and failure to an existing
• 37:35
  Speaker 3: ecosystem that's got pretty good backstops for things like a
• 37:38
  Speaker 3: blown trade or a fat finger. So I think we'll
• 37:41
  Speaker 3: head that direction. But until we get serious about solving
• 37:44
  Speaker 3: the plumbing, like until this comes from the NSCC or
• 37:47
  Speaker 3: the DCCC, it's kind of just fairytale land.
• 37:51
  Speaker 4: Remember when they first start talking about like the metaverse
• 37:54
  Speaker 4: and they were like showing those like kind of like
• 37:56
  Speaker 4: those lame like videos of like like you couldn't really
• 37:59
  Speaker 4: see and this kind of how I still see tokenization,
• 38:02
  Speaker 4: Like ETFs are already so frictionless, Like what are you gonna
• 38:05
  Speaker 4: how much of the process actually going to get improved
• 38:08
  Speaker 4: unless Microsoft is launching tokens like you said, but to
• 38:11
  Speaker 4: buy a token on Microsoft Stock. I just don't see
• 38:13
  Speaker 4: the point. So you're you're adding layers again.
• 38:15
  Speaker 2: It would be for people who don't have access to
• 38:17
  Speaker 2: brokerage accounts but have Internet access, which is the stable
• 38:21
  Speaker 2: coin argument. So in other words, to me, the token
• 38:23
  Speaker 2: argument is very similar to the stable coin argument. It's
• 38:26
  Speaker 2: for the same audience, but that's a small percentage of
• 38:30
  Speaker 2: the global money. The other thing that was brought up
• 38:32
  Speaker 2: was and because of this crypto book I'm working on,
• 38:35
  Speaker 2: we interviewed Jim Bianco, who has been somewhat hesitant of
• 38:39
  Speaker 2: the bitcoin ETFs, and he said that the more the
• 38:42
  Speaker 2: ETFs get popular, they'll it hurts the bitcoin case because
• 38:46
  Speaker 2: it keeps people in the regular system as opposed to
• 38:49
  Speaker 2: moving on chain, and that is an interesting point. But
• 38:53
  Speaker 2: I also think that point shows you just how badass
• 38:56
  Speaker 2: the ETFs are and how convenient they are that people
• 38:59
  Speaker 2: would rather just click by then go on to this
• 39:02
  Speaker 2: new thing. So the blockchain world, also, I think, has
• 39:06
  Speaker 2: a lot of work to do to get the interface
• 39:08
  Speaker 2: is a little easier because you've got to make it
• 39:10
  Speaker 2: McDonald's easy to get a wallet and move your money.
• 39:13
  Speaker 2: I've tried it. It's not that easy. There is some
• 39:16
  Speaker 2: friction to it. You can do it, but it's not
• 39:18
  Speaker 2: McDonald's easy yet.
• 39:19
  Speaker 3: Nobody's gonna move. They're just going to get it on
• 39:21
  Speaker 3: their existing platform, right, I as a Schwab customer, I'm
• 39:24
  Speaker 3: just going to wake up in a year and I'll
• 39:26
  Speaker 3: be able to do all of this with my Schwab
• 39:28
  Speaker 3: app on my phone without having had to do anything
• 39:30
  Speaker 3: except click okay on another terms of service. I didn't read.
• 39:33
  Speaker 1: Okay, last story that we're going to talk about. Last topic.
• 39:37
  Speaker 1: Amazing headline from Bloomberg News nuclear weapons pass esg test
• 39:42
  Speaker 1: as war redefines ethical investing. WHOA, there's lots unpacked there.
• 39:49
  Speaker 3: I saw that headline and I was like, this has
• 39:50
  Speaker 3: got Eric all.
• 39:52
  Speaker 2: Oh yeah, iled it on a Sunday night, and I
• 39:55
  Speaker 2: really don't do I don't not use Twitter on Sunday
• 39:57
  Speaker 2: nights because I don't want that my brain when I
• 40:00
  Speaker 2: trying to get the most important night's sleep. But I
• 40:02
  Speaker 2: couldn't resist.
• 40:04
  Speaker 1: Okay, here's the lead, Dave, and I'll let you take
• 40:06
  Speaker 1: it from here. The deadliest weapons ever manufactured are becoming
• 40:10
  Speaker 1: a regular feature of Europe's nearly nine trillion dollar ESG
• 40:14
  Speaker 1: fund industry. How does that make you feel.
• 40:19
  Speaker 3: Well. Look, Eric and I have debated ESG many times
• 40:22
  Speaker 3: in many forums over the years, and I've always been
• 40:24
  Speaker 3: a little bit more on pro and Eric's been always
• 40:26
  Speaker 3: been a little bit more skeptical. So I was reading
• 40:28
  Speaker 3: this and I was like, Okay, Eric, I can't wait
• 40:31
  Speaker 3: to read Eric's crow about this. Look. I think where
• 40:34
  Speaker 3: we probably agree is trying to one size fits all
• 40:37
  Speaker 3: something like a values based investment system just doesn't actually work.
• 40:42
  Speaker 3: And I think we mostly agreed on that part for
• 40:45
  Speaker 3: a long time. I do think it's very easy to
• 40:48
  Speaker 3: say nobody cares about ESGA, it's all scam, And I
• 40:51
  Speaker 3: would point out that we just had a quarter of
• 40:54
  Speaker 3: a trillion dollars issued in green bonds that are all
• 40:57
  Speaker 3: certified and going to climate projects in the first half
• 40:59
  Speaker 3: first quarter of this year. So we've got a trillion
• 41:02
  Speaker 3: dollars a year in new security issuance that is the
• 41:05
  Speaker 3: most woke green stuff you can imagine. So to say
• 41:09
  Speaker 3: it's a dead industry would deny the fact that it's
• 41:12
  Speaker 3: actually the hottest part of the bond issuance market that
• 41:15
  Speaker 3: has nothing to do with ETFs owning a bunch of equities.
• 41:18
  Speaker 3: And I think for most people if they've got got
• 41:21
  Speaker 3: real wealth, whether they're a sovereign wealth fund or just
• 41:24
  Speaker 3: a millionaire, you're better off in a DII or a
• 41:27
  Speaker 3: separate manage, separately managed account type process, because then you
• 41:30
  Speaker 3: can say, Okay, it's a little ridiculous, I don't want
• 41:32
  Speaker 3: to buy nuclear weapons in my ESG fund. Or maybe
• 41:36
  Speaker 3: you say, hey, you know what I'm really doing is
• 41:37
  Speaker 3: I'm voting based on my political ethos, and yeah, right
• 41:40
  Speaker 3: now I do want to do that. But I don't
• 41:43
  Speaker 3: think you can package that up into some like MSCI
• 41:45
  Speaker 3: index and say this is for everybody. I think that's ridiculous.
• 41:49
  Speaker 2: I agree. This was taking something that was subjective even
• 41:52
  Speaker 2: between index makers, let alone people and investors, and making
• 41:57
  Speaker 2: it objective. What is good? Is a nuclear weapon good
• 42:03
  Speaker 2: if you're taking out a bad guy? Well? Yeah, well
• 42:08
  Speaker 2: then isn't the fossil fuel good that supplies that nuclear
• 42:11
  Speaker 2: weapon or the tanks that you're going to get the
• 42:13
  Speaker 2: bad guys? What about the smokes the soldiers need or
• 42:16
  Speaker 2: the alcohol they need to drink after they have trauma? Like,
• 42:18
  Speaker 2: if you want to go to the line nothing is
• 42:21
  Speaker 2: ESG or everything is ZESG. You can take this to
• 42:24
  Speaker 2: a place where I think you throw your hands up
• 42:26
  Speaker 2: and go screw it. I'm just gonna buy the S
• 42:28
  Speaker 2: and P five hundred. The problem, the reason I have
• 42:32
  Speaker 2: some touchdown dance with this is that the problem I
• 42:37
  Speaker 2: had with ESG wasn't that it existed. It should have
• 42:41
  Speaker 2: just pitched itself as another form of active Hey, we're
• 42:44
  Speaker 2: gonna pick stocks based on this stuff. We may or
• 42:46
  Speaker 2: may not perform. I'd have no problem with that. The
• 42:48
  Speaker 2: problem was it was sort of pitched in the media
• 42:51
  Speaker 2: has a lot to blame for this as like this
• 42:53
  Speaker 2: new thing that was going to take over. It was
• 42:56
  Speaker 2: gonna make everybody feel good. It was the wave of
• 42:58
  Speaker 2: the future, and it was all got your morals mixed
• 43:01
  Speaker 2: up in it. And the European government in particular, they've
• 43:04
  Speaker 2: really pushed people into ESG. And the problem with getting
• 43:08
  Speaker 2: all virtue signally out there is that at some point
• 43:11
  Speaker 2: you're going to be a hypocrite. Now Europe wants to
• 43:13
  Speaker 2: build up its defense industries because it's not NATO is uncertain,
• 43:19
  Speaker 2: and it has Russia right next to it, and so
• 43:21
  Speaker 2: the war in Ukraine has made Europe into defense. But
• 43:25
  Speaker 2: the people that are they want the money from are like, wait,
• 43:28
  Speaker 2: we can't buy those thucks because they're not ESG. You
• 43:31
  Speaker 2: told us that we have to be ESG. And then
• 43:34
  Speaker 2: Europe's like no, no, no, wait, it's okay now because
• 43:39
  Speaker 2: these are we're fighting Russians, you know. It's just like
• 43:42
  Speaker 2: I just think that once you get on your moral
• 43:45
  Speaker 2: high horse, you're destined to fall. And I just say,
• 43:48
  Speaker 2: don't get on the moral high horse. Just say that
• 43:51
  Speaker 2: these are new metrics to track companies. This fund is
• 43:54
  Speaker 2: going to pick based on them. Look at the holdings
• 43:57
  Speaker 2: you may or may not perform. I'm fine with that
• 43:59
  Speaker 2: sales pace. But I think ESG got hijacked by this
• 44:03
  Speaker 2: moral morality issue. And I think part of it was
• 44:07
  Speaker 2: because people who normally would vote for these things if
• 44:12
  Speaker 2: their party isn't in power, they feel like powerless. So
• 44:16
  Speaker 2: they applied a lot of that wanting power to the
• 44:19
  Speaker 2: corporate world. And I just think this isn't the right avenue,
• 44:22
  Speaker 2: Like an index fund is not the right avenue to
• 44:24
  Speaker 2: fix some of these problems. In my opinion, I think
• 44:27
  Speaker 2: the other locally and in your government, you need completely
• 44:32
  Speaker 2: new rules around types of energy and all this stuff.
• 44:35
  Speaker 2: So I just find that the other thing is that
• 44:38
  Speaker 2: Dave mention is the bonds. Also, bonds are a better
• 44:41
  Speaker 2: way to be ESG in my opinion, because if you're
• 44:44
  Speaker 2: getting more money from bonds that are green, that's directly
• 44:48
  Speaker 2: going to impact your financial situation. If your stock happens
• 44:54
  Speaker 2: to be sold by an ESG fund and then bought
• 44:56
  Speaker 2: by a value investor, it doesn't really matter. It's just
• 44:59
  Speaker 2: the stock trading on the secondary market, indifferent than your operations.
• 45:02
  Speaker 2: So I will say just a couple things. Bonds are
• 45:05
  Speaker 2: the better way to be ESG if you're going to
• 45:07
  Speaker 2: do it locally even better, voting even better. And then
• 45:11
  Speaker 2: if you're gonna invest, just know that this is an
• 45:13
  Speaker 2: active strategy that will underperform and outperform, and you better
• 45:18
  Speaker 2: be prepared for that. And that's all we're saying.
• 45:20
  Speaker 3: Yep, I think we agree. I think it's an active
• 45:23
  Speaker 3: management decision that people make, and hey, sometimes it works out. DSi,
• 45:26
  Speaker 3: which is the oldest DTF we've got in the space,
• 45:29
  Speaker 3: actually has beaten the S and P since inception by
• 45:31
  Speaker 3: a couple percent, So you can't say it's a horrible,
• 45:33
  Speaker 3: horrible idea, but it's absolutely an active bet. And in general,
• 45:37
  Speaker 3: I think most people are better off leaving their politics
• 45:40
  Speaker 3: out of their brokerage account. You know, and you know,
• 45:43
  Speaker 3: I'm pretty vocal about the stuff I believe, and I
• 45:45
  Speaker 3: don't buy ESG products. I just invest in a very
• 45:49
  Speaker 3: very boring way because it seems to work.
• 45:52
  Speaker 2: Rick Ferry is like, just buy a cheap index fund,
• 45:54
  Speaker 2: use the money you would have spent on the ESG
• 45:57
  Speaker 2: fund and take that cash and do it.
• 46:00
  Speaker 3: No kid hungry or something.
• 46:01
  Speaker 1: Yeah, you go, all right, We're gonna leave it there
• 46:06
  Speaker 1: at the nacios. Dave, thanks for joining us on Trillions. Dave,
• 46:10
  Speaker 1: congrats in the new game.
• 46:11
  Speaker 4: Thank you, thanks having me on.
• 46:18
  Speaker 1: Thanks for listening to Trillions. Until next time. You can
• 46:21
  Speaker 1: find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify,
• 46:26
  Speaker 1: or wherever else you'd like to listen. We'd love to
• 46:28
  Speaker 1: hear from you. Hit us up on social I'm at
• 46:30
  Speaker 1: Joel Weber Show, He's at Eric Balcina's. Trillions is produced
• 46:33
  Speaker 1: by Magnus Hendrickson. Brendan Newman is our executive producer. Sage
• 46:37
  Speaker 1: Bauman is the head of Bloomberg Podcast