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The 80/20 Portfolio, Bipartisan Stocks and Slumpy Septembers · Trillions

• 0:02
  Speaker 1: Bloomberg Audio Studios.
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  Speaker 2: Podcasts. Radio.
• 0:06
  Speaker 3: News.
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  Speaker 4: We've looked at performance of Nance and GOP. And as
• 0:14
  Speaker 4: you can imagine, when there was a Democratic president, Nance
• 0:17
  Speaker 4: was doing better. And now GOP is doing slightly better.
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  Speaker 4: But I think where it gets interesting is there are
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  Speaker 4: names that are held by both.
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  Speaker 2: Wait, there's a middle?
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  Speaker 4: And if you just build a basket of those, you
• 0:27
  Speaker 4: end up beating everything else.
• 0:32
  Speaker 2: Welcome to Trillions. I'm Joel Weber.
• 0:34
  Speaker 5: And I'm Eric Balchunas.
• 0:35
  Speaker 2: Eric, we are experimenting with some new formats. This episode
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  Speaker 2: is going to be no exception. One of the members
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  Speaker 2: of your team who's been a regular on the show
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  Speaker 2: is Athanasios Sarafegas, who's an ETF analyst at Bloomberg Intelligence.
• 0:49
  Speaker 2: There's been a few themes of late that Ethan and
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  Speaker 2: I discussed previously, and we wanted to create an episode
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  Speaker 2: that we can come back to again and again with
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  Speaker 2: Ethan and Isabel Lee, cross-asset reporter from Bloomberg News. to
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  Speaker 2: kind of like do a little spotlight episode on a
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  Speaker 2: few of these themes and research notes.
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  Speaker 3: Yeah, so Athanasios is, in my opinion, the best chartist
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  Speaker 3: on the team. He also is, he comes up with
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  Speaker 3: the things that end up in my PowerPoints, I think
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  Speaker 3: the most. And the things where I'm like, oh, I
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  Speaker 3: didn't know that. So I think just like basically having
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  Speaker 3: one week where we just look at his stuff, I
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  Speaker 3: think is really worthwhile. The other thing is he doesn't
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  Speaker 3: like to do media.
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  Speaker 5: He hates it.
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  Speaker 3: I like forcing him to do media and that's fun
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  Speaker 3: for me. So those two things combined, I'm like, I
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  Speaker 3: think we should just sort of go through some of
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  Speaker 3: his notes and some of the things he found because
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  Speaker 3: he doesn't he's in the in the mines, man. He
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  Speaker 3: is like deep down in there. And so he surfaces
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  Speaker 3: some stuff that's like, whoa.
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  Speaker 2: OK, so let's start with one, Isabel. You like that
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  Speaker 2: or no? What's what's the one that that popped for
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  Speaker 2: you the most?
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  Speaker 1: I have to say that Athanasius' research, we also like
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  Speaker 1: it in print, but we never tell him that because
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  Speaker 1: we don't want him too arrogant, you know? So we
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  Speaker 1: got to keep him.
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  Speaker 5: Grounded and humble. I'm enough. Yeah, they're like, we don't
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  Speaker 5: need another Eric running around here.
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  Speaker 1: We always say, wow, this is good amongst us, but
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  Speaker 1: we never tell it to him.
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  Speaker 5: In fact, we tell him- They like him because he's
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  Speaker 5: an anti-clout chaser.
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  Speaker 2: Yeah.
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  Speaker 1: Whereas I'm like a total clout chaser. No kidding.
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  Speaker 2: There's no typo.
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  Speaker 4: Ooh, anti-clout.
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  Speaker 2: I like this.
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  Speaker 1: What do I like the most? The 80-20. We actually
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  Speaker 1: wrote a story on it.
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  Speaker 2: So let's talk about this.
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  Speaker 4: 60-40.
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  Speaker 2: Forever. Forever. has been the ratio you're supposed to use
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  Speaker 2: to build a portfolio. Ethan, 80-20, what is that?
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  Speaker 4: Yeah, well, I'm glad to be up from the trenches.
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  Speaker 4: Be careful, we.
• 2:30
  Speaker 2: Can send you right back down. We can, we can.
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  Speaker 4: But the 80-20, okay, so obviously the normal default portfolio is.
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  Speaker 5: 60-40, right?
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  Speaker 4: But stocks have been on this tremendous run. You have
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  Speaker 4: bonds that people really sort of soured on a little bit.
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  Speaker 4: So if we look at the breakdown of ETF assets,
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  Speaker 4: which used to be closer to 60-40, it's now like 80%
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  Speaker 4: in stocks, 20% in bonds. So I think people don't
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  Speaker 4: realize that you have a very heavy equity portfolio than
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  Speaker 4: we used to. You have things like buffers and covered calls,
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  Speaker 4: a lot of things that have sort of stepped into
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  Speaker 4: the bond role. So I think it's just this really
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  Speaker 4: negative sort of perception on bonds, right? And rates are
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  Speaker 4: going up.
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  Speaker 2: Shouldn't that incentivize people to get into the bonds?
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  Speaker 4: I think if you're contrarian, this is a really interesting time.
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  Speaker 4: But I think overall, you're just very much more exposed
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  Speaker 4: to stocks than we've ever been in the past.
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  Speaker 2: Is the 20% composition bonds, or is it different than
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  Speaker 2: what you would have seen in the 60-40 composition?
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  Speaker 4: Yeah, that's the bond part. But I think maybe people
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  Speaker 4: are opening more up to alternatives, whether they're putting it
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  Speaker 4: in crypto or in some other bond alternatives. So maybe
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  Speaker 4: they still are looking for some sort of cushion, but
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  Speaker 4: they're just not using bonds anymore.
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  Speaker 1: But you also make the point in your note that
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  Speaker 1: the 80% is a huge part of that is stock
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  Speaker 1: price appreciation. So it's not really by choice.
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  Speaker 2: No, definitely.
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  Speaker 4: But I think people aren't rebalancing either, like selling it
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  Speaker 4: and going into bonds. I think they're just riding the
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  Speaker 4: equity wave.
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  Speaker 3: The percent of total assets that bond ETFs make up
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  Speaker 3: is 15%. It's not even 40 or 20. It's 15.
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  Speaker 5: And I'm with you. I think buffers and alternatives have
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  Speaker 5: stepped in there. And they are now the 5%. And
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  Speaker 5: so that's the modern portfolio.
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  Speaker 3: But the other thing is, if you look at the
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  Speaker 3: aggregate bond index, it has not kept up with inflation.
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  Speaker 3: Like the real return is negative a little bit. And
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  Speaker 3: now with rates going up, all the bonds that everybody
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  Speaker 3: holds in these funds, when rates go up, they're immediately
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  Speaker 3: worth less. So like all the bond funds are like
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  Speaker 3: now worth less.
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  Speaker 5: So I'm with you. Maybe after yields top off, we
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  Speaker 5: could see some new launches.
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  Speaker 3: What I am interested in also is the money market
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  Speaker 3: mutual funds are not part of your data. And I
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  Speaker 3: do think a lot of people have moved money there.
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  Speaker 3: So if you add in money market mutual funds, it
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  Speaker 3: might be closer to 2030. But if you call those bonds,
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  Speaker 3: I mean, I guess that's cash. But those have like
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  Speaker 3: $ 8 trillion. And now with rates climbing, I think they
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  Speaker 3: could even get more. Because why don't I get my 5%
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  Speaker 3: in no risk rather than going out on.
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  Speaker 5: The curve and taking my chance of the TLT, the widowmaker?
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  Speaker 5: I think that's what a lot of people will do.
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  Speaker 1: I'm surprised you said money market funds and not ETFs.
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  Speaker 5: Well, because the difference between.
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  Speaker 3: When you say cash or money market mutual fund, what
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  Speaker 3: people love about that is the NAV is $ 1 all
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  Speaker 3: the time. People just, especially institutions, they love to know
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  Speaker 3: that they can never lose money. In ETF, you cannot
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  Speaker 3: guarantee that. The NAVs do float. Even if they barely move,
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  Speaker 3: they move. And so that's a big difference, and you
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  Speaker 3: can never, ever have that in an ETF. So there is, again,
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  Speaker 3: there's a couple things here and there that can't be ETFized,
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  Speaker 3: and a stable $ 1 NAV is one of them, and
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  Speaker 3: that's why those funds will still get money, even though
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  Speaker 3: the mutual fund is largely rejected.
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  Speaker 2: Okay, next segment. It would be very difficult to do
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  Speaker 2: anything about investing now and not talk about the elephant
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  Speaker 2: in the room, which is U.S. midterms. That's not that
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  Speaker 2: far away. But some of your research has been not
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  Speaker 2: about the midterms necessarily, but about flows and political themed ETFs.
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  Speaker 2: What'd you learn?
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  Speaker 4: There's two main ones out there. There's one that tracks
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  Speaker 4: sort of what the Republican Party is buying, and there's
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  Speaker 4: one on the Democratic Party.
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  Speaker 2: One has a ticker that is GOP. You can guess
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  Speaker 2: which one that is. And the other one is? Is Nance. N-A-N-C.
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  Speaker 2: That's so cool.
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  Speaker 5: I may be behind that, because remember when Nancy.
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  Speaker 3: Pelosi's portfolio was going viral and Litquidity was tweeting about it,
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  Speaker 3: this was like eight, nine years ago. I kept saying,
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  Speaker 3: I'm surprised somebody doesn't launch Nance. But this isn't just
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  Speaker 3: her portfolio.
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  Speaker 2: I have to get a fat check on this.
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  Speaker 1: This is your Hall of Fame and Diet Arc, Eric.
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  Speaker 3: If you go into Twitter and you search for hashtag Nance,
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  Speaker 3: I believe my tweet will be the first thing you
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  Speaker 3: see if you went.
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  Speaker 4: Back in time. And then if you remember the whole
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  Speaker 4: thing with Grift from Tuttle that never ended up launching.
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  Speaker 2: I like how he makes this podcast that's about you
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  Speaker 2: about him.
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  Speaker 1: Grift never launched. Last time I talked to him, I
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  Speaker 1: think he's looking for a home.
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  Speaker 4: Oh, yeah. He's still trying to figure that out. We've
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  Speaker 4: back tested it and kind of tried to figure out
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  Speaker 4: what it would look like.
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  Speaker 2: But we've looked at.
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  Speaker 4: Performance of Nance and GOP. And as you can imagine,
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  Speaker 4: when there was a Democratic president, Nance was doing better.
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  Speaker 4: And now GOP is doing slightly better. But I think
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  Speaker 4: where it gets interesting is there are names that are
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  Speaker 4: held by both.
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  Speaker 2: Right.
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  Speaker 4: So I know everyone wants to sort of like politicize everything.
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  Speaker 2: Wait, there's a middle?
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  Speaker 4: Yeah, there's some stocks like Intel, Amazon, CrowdStrike that actually
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  Speaker 4: both parties hold. And if you were to just build
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  Speaker 4: a basket of those, you end up beating everything.
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  Speaker 2: Now, when you say that both parties hold, is this
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  Speaker 2: things that the lawmakers themselves hold or that there's this commonality?
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  Speaker 5: Let me step in here.
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  Speaker 3: These two ETFs track what the lawmakers are buying and
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  Speaker 3: selling in their personal portfolio, which makes a lot of
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  Speaker 3: sense because I'm not going to say they have inside information,
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  Speaker 3: but they certainly have a lot of information about what's
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  Speaker 3: going on with companies. So there is a cynicism to
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  Speaker 3: these ETFs. The Grift ETF, I think, was going to
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  Speaker 3: be on stuff the White House invested in. That's a
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  Speaker 3: whole other level, which I still think that would make
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  Speaker 3: a good ETF. These, to me, are better than the
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  Speaker 3: ones that are like donations and stuff because these are like, hey, look,
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  Speaker 3: these people have good information.
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  Speaker 5: Don't you want to learn what– ride their coattails?
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  Speaker 3: And if they both like a stock, I just think
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  Speaker 3: you know it's good. Because you don't agree on anything.
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  Speaker 3: But they agree on Intel.
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  Speaker 2: Behind the closed doors. Let's all just be clear. Amazon's good.
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  Speaker 5: Yeah, we like that.
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  Speaker 1: I think in general, sure, these are all politically laced ETFs.
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  Speaker 1: Add in MAGA of Yorkville and YOL, which Yorkville also acquired.
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  Speaker 1: I don't think any of these have substantial assets. So
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  Speaker 1: to an extent, I feel like people like to talk
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  Speaker 1: about politics. But when it comes to actually investing, they
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  Speaker 1: become a little bit more Less emotional. Let's say less emotional.
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  Speaker 1: You know, none of these.
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  Speaker 2: Have huge assets. And forever have been unwilling to actually
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  Speaker 2: put the money into them.
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  Speaker 5: You got to separate these.
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  Speaker 3: MAGA and Y'all are about which stocks the GOP donates to.
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  Speaker 3: And they tend to be heavy energy and like CEOs
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  Speaker 3: that are Republican.
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  Speaker 2: Fair.
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  Speaker 5: That's sort of the anti-ESG. I think both of the
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  Speaker 5: sides are there as like not really working.
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  Speaker 3: These are purely like, hey, these people have access to
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  Speaker 3: information we don't have. And you know they love to
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  Speaker 3: trade and gamble. And they love their stocks. So why
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  Speaker 3: don't we just buy what they're buying? It's almost like
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  Speaker 3: a 13F tracking ETF.
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  Speaker 1: I see your point. That said, why are assets not substantial?
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  Speaker 5: Well, Nance has $ 300 million.
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  Speaker 4: That's pretty good.
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  Speaker 1: Pretty good. It's not great.
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  Speaker 5: Yeah, I agree.
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  Speaker 1: No offense to Nance and GOP.
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  Speaker 2: I think GOP is smaller.
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  Speaker 3: Yeah.
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  Speaker 4: I get it, they're kind of novelty ETFs in a way.
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  Speaker 4: I think people maybe just want to look at them,
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  Speaker 4: but not necessarily buy them.
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  Speaker 2: There's hope for bipartisanship. Maybe. Make up a ticker, Joel.
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  Speaker 3: For an issuer, if Nance has $ 300 million and it
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  Speaker 3: charges 70 basis points.
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  Speaker 1: Yes, that's fair.
• 9:41
  Speaker 5: That's the equivalent of a billion dollar ETF that charges
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  Speaker 5: 30 basis points.
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  Speaker 3: It's not nothing, that's for sure. Yeah, it's not nothing,
• 9:47
  Speaker 3: but I agree. It's a speck of sand in the
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  Speaker 3: ETF world. Vanguard takes in $ 300 million by the time
• 9:52
  Speaker 3: we just talked about this.
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  Speaker 2: All right, last segment for this episode. We're just ending
• 9:57
  Speaker 2: September before we start. recording, we were all talking about
• 10:01
  Speaker 2: how September sucks. But you actually did research, Ethan, that
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  Speaker 2: backs that up for real. Because forever, September is sort
• 10:09
  Speaker 2: of like not a great month for returns. Yeah.
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  Speaker 4: It's usually, I think, like the worst month of the year,
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  Speaker 4: which you'd kind of think it'd be.
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  Speaker 2: Good month.
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  Speaker 4: But I think it's just there's this summer lull. People
• 10:19
  Speaker 4: come back. The market is up. It tends and people
• 10:22
  Speaker 4: end up selling a lot in September, just kind of
• 10:24
  Speaker 4: taking profits before the year end. But through the ETF lens,
• 10:27
  Speaker 4: September is like the busiest month for launches. Flows don't
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  Speaker 4: really get derailed just because the market's down. I think
• 10:34
  Speaker 4: we're a little flat this year in September. But yeah,
• 10:36
  Speaker 4: it just ends up being a really, really bad month
• 10:38
  Speaker 4: seasonality wise. And yeah, that seems to be coming to
• 10:41
  Speaker 4: fruition this year. It's just kind of been a pretty
• 10:42
  Speaker 4: dull month.
• 10:43
  Speaker 5: Let me just say this about the launches. I think
• 10:45
  Speaker 5: when people come back and their eyeballs are on the markets.
• 10:48
  Speaker 2: Come back from summer vacations.
• 10:50
  Speaker 3: Yeah, that's when people like to launch. And I do
• 10:53
  Speaker 3: think that it would take more than a bad month
• 10:54
  Speaker 3: or two for these launches to slow down.
• 10:55
  Speaker 5: I think, you know, Ethan says it. We all say
• 10:58
  Speaker 5: it in the team sometimes. We need a hard rain.
• 11:00
  Speaker 5: And like, you know, a flat month is not a
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  Speaker 5: hard rain. So I just don't think anything is going
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  Speaker 5: to slow down.
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  Speaker 4: I think issuers are getting FOMO now. Like they want
• 11:06
  Speaker 4: to be first. So they're not waiting for a month.
• 11:08
  Speaker 4: Like if they want to get something out right away,
• 11:10
  Speaker 4: it doesn't matter what month it is. They're just going
• 11:11
  Speaker 4: to try to get it out.
• 11:13
  Speaker 2: What's going to bring the hard rain?
• 11:17
  Speaker 3: I wrote a note recently about bond mutual funds. To me,
• 11:20
  Speaker 3: this is the canary in the coal mine to watch
• 11:22
  Speaker 3: for something breaking. Because as yields go up, these boomers
• 11:26
  Speaker 3: who own these bond mutual.
• 11:28
  Speaker 5: Funds, they're very fickle. If the NAV starts going down,
• 11:32
  Speaker 5: because a lot.
• 11:32
  Speaker 3: Of these bond funds hold bonds that are worthless, so
• 11:34
  Speaker 3: their NAVs are lower, they have to force sell bonds,
• 11:39
  Speaker 3: which will make yields go even higher.
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  Speaker 5: It's like a doom loop.
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  Speaker 3: And as yields go higher, their bonds are worth even less.
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  Speaker 5: The NAV goes down.
• 11:45
  Speaker 3: There's more outflows. We saw this happen a couple of
• 11:47
  Speaker 3: times in 2020 and 2022.
• 11:49
  Speaker 5: And it can get bad.
• 11:50
  Speaker 3: And these outflows can really start to pick up. And
• 11:54
  Speaker 3: I think that's something to watch. That is where I
• 11:56
  Speaker 3: think something could break is in the bond mutual fund area.
• 11:59
  Speaker 3: It's sparking a doom loop with the 4.5 trillion they
• 12:01
  Speaker 3: have in assets. That's public information. It's something we can watch.
• 12:05
  Speaker 3: And they have to sell the bonds. When they see outflows,
• 12:08
  Speaker 3: they've got to get rid of them. And I think
• 12:10
  Speaker 3: it's going to be interesting that Most of the time
• 12:13
  Speaker 3: that government steps in, when you're talking about inflation, if
• 12:16
  Speaker 3: inflation is the issue, you can't step in as easily
• 12:19
  Speaker 3: because if you step in and throw money at the problem,
• 12:21
  Speaker 3: as usual, that could make inflation worse. So inflation kind
• 12:24
  Speaker 3: of makes the government intervention maybe a little, it's going
• 12:26
  Speaker 3: to have to get more extreme.
• 12:29
  Speaker 5: But I don't know. I personally, I've seen this movie.
• 12:33
  Speaker 3: I just don't get too worried anymore until I see like,
• 12:36
  Speaker 3: I want to see more outflows, more carnage.
• 12:40
  Speaker 2: He's watching the weather report and being like, eh, it
• 12:43
  Speaker 2: hasn't started raining yet.
• 12:44
  Speaker 1: I know.
• 12:45
  Speaker 3: He always says around COVID, I was the guy from
• 12:47
  Speaker 3: Jaws who was like, the beaches are fine.
• 12:49
  Speaker 2: The mayor.
• 12:52
  Speaker 1: If the flood doesn't reach your head, you're fine. Wait,
• 12:56
  Speaker 1: I'm curious, actually.
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  Speaker 4: It's just the flu.
• 12:58
  Speaker 1: It's just the flu. I'm curious when the month where
• 13:01
  Speaker 1: we see most closures, because you did say September is strong.
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  Speaker 4: Oh, that's a good one.
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  Speaker 2: I don't know.
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  Speaker 4: I think it's towards the end of the year because
• 13:07
  Speaker 4: they're kind of like rationalizing their lineups before the end
• 13:10
  Speaker 4: of the year.
• 13:11
  Speaker 2: All right. Athanasios, Isabel, thanks for joining us on Trillions.
• 13:15
  Speaker 1: Thank you.
• 13:16
  Speaker 4: Thanks for having me back. Yeah, sure.
• 13:24
  Speaker 2: Thanks for listening to Trillions. Until next time, you can
• 13:26
  Speaker 2: find us on the Bloomberg Terminal, Bloomberg.com, Apple Podcasts, Spotify,
• 13:31
  Speaker 2: or wherever else you like to listen. We'd love to
• 13:33
  Speaker 2: hear from you. Hit us up. Trillions is produced by
• 13:36
  Speaker 2: Magnus Henriksen and Keshav Pandya. Amy Keene is our executive producer.
• 13:41
  Speaker 2: Cheryl Brumley is the head of Bloomberg Podcasts. Bye.