Speaker 1: What can itellions.
Speaker 2: I'm Joel Webber and I'm Eric Belchunos.
Speaker 1: You know, we should talk about mar Eric in video
Speaker 1: as a stock. Ever done anything like this.
Speaker 2: No, I can't recall. I mean, Tesla Apples was a
Speaker 2: little more of a slow build, and it's been on
Speaker 2: the top of the mountain federal distinguishes in video.
Speaker 1: It's like, it feels like it almost came out of
Speaker 1: nowhere and just as larger than anything else.
Speaker 2: Yeah, it's sort of even though it's happened over a
Speaker 2: couple of years, that is a short amount of time
Speaker 2: to grow as fast as this stock has and so on.
Speaker 2: Our team as ETF analysts were sort of like scientists
Speaker 2: in a way, and this stock provides such an interesting
Speaker 2: way to analyze how indexes are reacting, how product is
Speaker 2: being changed. It is there's so many little subplots because
Speaker 2: of the rise of Navidia. And I was looking at
Speaker 2: our notes and I'm like, wow, about half of our
Speaker 2: notes have been on Navidia. And I think the only
Speaker 2: other time we talked about this recently was with Will
Speaker 2: Rind of the Navidia the double leverage Navidia ETF at
Speaker 2: which we have covered. That's one of like six seven
Speaker 2: angles that we've taken on the video, so I thought
Speaker 2: we should cover the rest.
Speaker 1: Yeah, you think you're really a scientist, I'm gonna I'm gonna.
Speaker 2: Give a little bit.
Speaker 1: Yeah.
Speaker 2: I mean yeah, like.
Speaker 1: There are I think actual scientists may take an issue.
Speaker 2: You remember the scene it sounds the lamps when uh
Speaker 2: Jodie Foster brings this sort of specimen bug to those
Speaker 2: two guys with the thick glasses and they're like, oh,
Speaker 2: look at this, and they and they get all excited.
Speaker 2: That's us with stuff like this. I swear to God, Well.
Speaker 1: We'll test that theory. Uh. On this episode, we're gonna
Speaker 1: speak with Athanasio, Sarah Vegas, an ETF analyst with Bloomberg Intelligence,
Speaker 1: as well as Emily Grefeo, a cross asset recorder with
Speaker 1: Bloomberg News for first time on the podcast, this time
Speaker 1: on trillions. The Nvidia Effect. Emily Athanasios, what can allians?
Speaker 3: Yeah, nice to be back, Thank you for having me.
Speaker 1: Okay, Emily, let's start with XLK. What is XLK. How
Speaker 1: does Nvidia factor into it?
Speaker 4: So? XLK is a technology sector ETF that investors used
Speaker 4: to gauge. Okay, I want to invest in tech stocks,
Speaker 4: they can buy the cues, but they can also buy XLK.
Speaker 4: And due to the way that the index that XLK
Speaker 4: tracks was constructed, it didn't really have a large weight
Speaker 4: to Invidia. In the beginning of the year, it had
Speaker 4: big weight to Microsoft and Apple, and then Nvidia's weight
Speaker 4: was like only six percent, so it was actually underperforming
Speaker 4: the S and P five hundred, the cues, and it
Speaker 4: really wasn't a good gauge for Okay, how are tech
Speaker 4: stocks doing because it only had this six percent weight.
Speaker 4: So then it had to rebalance, which we've seen recently,
Speaker 4: and the weights basically switched around. So now in Vidia
Speaker 4: has a much higher weight and the fund.
Speaker 2: What's weird about this index is you look, if you
Speaker 2: were to pull it up before the reboundce, you'd see
Speaker 2: Apple and Microsoft like twenty two percent waiting each. So
Speaker 2: like half the fun is these two stocks. That's all
Speaker 2: that's weird. First of all, then there's this huge drop off,
Speaker 2: almost like a cliff in the ocean, and then Navidia
Speaker 2: was six percent, and so now the question was will
Speaker 2: because will Navidia get big enough and pass Apple by
Speaker 2: the rebound state to be the second spot. It's the
Speaker 2: difference between eleven billion dollars of buying. Basically, like, if
Speaker 2: Navidia passed Apple by this Friday deadline, it got eleven
Speaker 2: billion dollars in buying from the ETF because it would
Speaker 2: go from six percent to twenty two percent. Just like that,
Speaker 2: an Apple would have eleven billion of selling because it
Speaker 2: would just fall off the cliff and it beat it
Speaker 2: like that in the last hour of trading. It was
Speaker 2: like a photo finish and a horse race. So Navidia
Speaker 2: is now twenty two percent, Apple down to I think
Speaker 2: five percent. And the rule I just talked to James,
Speaker 2: who's covered this. The index has a rule that any
Speaker 2: stock over five percent waiting five of them can't make
Speaker 2: up over fifty percent. So what happens is the two
Speaker 2: biggest stocks are so big Apple Microsoft at the time,
Speaker 2: they took up all the budget of the five stocks,
Speaker 2: so everybody else got like crumbs. So it's a really
Speaker 2: quirky I think they should design it differently, they should
Speaker 2: have it cascade more. And so this to me is
Speaker 2: a fascinating index situation that Navidia shined a light on.
Speaker 2: And now it's so funny that Apple, the great Apple
Speaker 2: got kicked down to the bottom rung, the crumb level.
Speaker 1: But when's the next rebalance.
Speaker 3: I don't This would be in the next quarter or
Speaker 3: so on the calendar quarter. But I mean Index's rebounds
Speaker 3: all the time. I can't remember such a big deal, right,
Speaker 3: There's been a few over the years, but this one
Speaker 3: was a really big one. And I remember when someone
Speaker 3: had brought it up. It was even our group chat.
Speaker 3: Oh and video is only a five percent way. You
Speaker 3: guys had mentioned how it came out of nowhere. I'm like, oh,
Speaker 3: that sounds normal, like in videos still like really small,
Speaker 3: Like no, it was like almost the same size as Apple.
Speaker 3: So anyone who thinks that are passive should read through
Speaker 3: this document. It is insane, like you need like a
Speaker 3: PhD to figure out, like what is happening. But yeah,
Speaker 3: this was a big deal, and so we'll see this
Speaker 3: might all be in vain because if Invidia doesn't hold
Speaker 3: this weight in the next quarter, it's going to reverse
Speaker 3: this entire trade and just go back to the way
Speaker 3: it was the beginning of the year.
Speaker 1: Which speaks to what we want to talk about, which
Speaker 1: is the effect in video is having within ETF says,
Speaker 1: so what else is your research born out, so.
Speaker 3: We actually covered something the opposite. So, as you can imagine,
Speaker 3: some of the best performing ETFs all had a pretty
Speaker 3: lofty weight ten video. We actually wanted to look at
Speaker 3: the ones that weren't depending on in video, like who's
Speaker 3: done well without it?
Speaker 1: Oh, there's been products that have done that.
Speaker 3: Yeah, there's not many, but there was some interesting finding.
Speaker 3: So we looked at any ETF that's beat the SMP
Speaker 3: since this in video run with a very low to
Speaker 3: no weight within video.
Speaker 2: This is like winning the Tour de France in the
Speaker 2: nineties without doping.
Speaker 1: Did that happen? I don't think it actually happened.
Speaker 2: Though, That's what I'm saying. Yeah, yeah, that's how crazy.
Speaker 1: This is really impressive.
Speaker 3: I'm sure your you know, your listeners might be happy
Speaker 3: about this one. But Crypto was at the top, very little.
Speaker 3: I'm sure at one point maybe these worlds like converge,
Speaker 3: but they don't. A lot of the Crypto funds don't
Speaker 3: have in video exposure. The other one was and this
Speaker 3: is a very kind of like pro America story, but
Speaker 3: a lot of reshoring anything sort of American industrial revolution
Speaker 3: bringing manufacturing back had done really well, and then it
Speaker 3: was just a splattering of random countries. Japan, Greece, actually,
Speaker 3: India had all done really really well without Nvidia.
Speaker 2: Was it homebuilders on there too?
Speaker 1: Yeah? And homebuildings.
Speaker 2: That's interesting. Homebuilders beat in video beat, we'll beat the
Speaker 2: market okay, well out the video, yes.
Speaker 4: Yet, But it wasn't a lot of ETFs right now,
Speaker 4: just ninety six out of a universe of more than
Speaker 4: two thousand.
Speaker 3: It's hard, it's impressive, like Eric's point, like trying to it.
Speaker 1: So not many.
Speaker 3: But the reason this came up is there was that
Speaker 3: little correction about a month ago within d and they're
Speaker 3: sort of dragging the market down. So you know, it's
Speaker 3: a double edged sword, a lot of dependency on the
Speaker 3: video and it could go the other way if it does.
Speaker 2: And this is something David Cohene, who covers mutual funds
Speaker 2: and active managers for US found also is that large
Speaker 2: cap growth managers, if you outperformed, you probably had an
Speaker 2: overweight to Nvidia. If you underperformed, it was less. So
Speaker 2: it's funny that it's come down to Navidia plus maybe
Speaker 2: the mag seven. Do you overweight or underweight? That is
Speaker 2: the question, and who knows every time you've underweight because hey,
Speaker 2: could they really go up more? You've lost, but at
Speaker 2: some point you're going to overweight and lose. But when
Speaker 2: will that be?
Speaker 1: So another thing that you seem to have honed in on,
Speaker 1: and you mentioned it here is how Nvidia and passive interacts,
Speaker 1: because there's this, you know, ongoing debate about active and passive,
Speaker 1: but like who's actually buying in Vidia and ETFs that
Speaker 1: hold in video.
Speaker 3: We've also been working on broader pieces about like the
Speaker 3: effect that passive is having on the markets, right and
Speaker 3: I and Video is a really great example, like it
Speaker 3: just didn't decide that one day. Path was like, oh,
Speaker 3: let's make in video like the top stock in the world,
Speaker 3: and all of a sudden it moved up the rankings.
Speaker 3: Like that's still hedge funds and retail and institutional buyers
Speaker 3: decided they liked the stock, they bought it, and it
Speaker 3: moved up. But you have to remember eight or so
Speaker 3: years ago, and Video is like three hundred or so
Speaker 3: in the SMP, like it's ranking and it just moved up, right,
Speaker 3: and while Apple, Microsoft all stayed at the top, So
Speaker 3: it wasn't you know, this is still very much active
Speaker 3: setting the prices on these stocks. So I thought this
Speaker 3: was a really perfect example that passive is not the
Speaker 3: one deciding to move these stocks higher, artificially keeping these
Speaker 3: stocks higher. So I thought this was like a really
Speaker 3: really prime example of how interest in the stock in
Speaker 3: active buying is what's going to move it up, not
Speaker 3: just passive flows.
Speaker 2: Let me break that down a little more. So, you
Speaker 2: have an index. Active managers love Navidia, retail investors love Nvidia.
Speaker 2: They start buying it, the price goes up, the market
Speaker 2: cap goes up. The index, which has rules, is like, okay,
Speaker 2: this thing is now a couple trillion dollars. It should
Speaker 2: be second or third in the index. And it's just
Speaker 2: simply a market cap decision that is made by active
Speaker 2: on the flip what was it, General Motors or ge
Speaker 2: ge ge they hate so they started selling it and
Speaker 2: that went out of the top ten, top twenty. I
Speaker 2: think it's not one to fifty or something. So you know,
Speaker 2: active is it's ironic. Active controls the index waitings it's
Speaker 2: it's ironic, but it's true. And I also what I
Speaker 2: thought was interesting about yours was that those top stocks
Speaker 2: have been in the top ten for like seven years.
Speaker 2: Only na Video has like broken through that, like, I
Speaker 2: guess you'd call them like the studs, And it's hard
Speaker 2: to break through, let alone go to number two. It's
Speaker 2: easy to go from three seventy to like one fifty,
Speaker 2: but to get to two from three seventy is crazy.
Speaker 3: Yeah, if we see kind of the it's literally like
Speaker 3: a parabolic chart since there's no stock. I think that's
Speaker 3: ever sort of had a run from where it's been
Speaker 3: to where it is now.
Speaker 1: Emily, how is this born out in your reporting? Where
Speaker 1: are some ways that you're seeing the effects show up?
Speaker 4: Well, you can't really write a story about markets in
Speaker 4: twenty twenty four without mentioning in video. So every time
Speaker 4: we're writing about an ETF that's underperforming, the reason this
Speaker 4: year has typically been that it doesn't have in Vidia,
Speaker 4: and one that's outperforming the S and P five hundred
Speaker 4: probably has an outsized weight to some AI name, typically
Speaker 4: in Vidia. So that's kind of been what I've noticed
Speaker 4: as a reporter. You literally like can't not mention it
Speaker 4: and not think about it. And it has been interesting
Speaker 4: too when we talk about the passive versus active, because
Speaker 4: you know, I write a lot about like retail investors
Speaker 4: who just buy these low cost index funds, and you
Speaker 4: can pretty much get a really large weight to in Vidia,
Speaker 4: the most important stock of the year, if you just
Speaker 4: buy SPY or VU. I think a lot about like
Speaker 4: portfolio construction, Like why would you buy an AI ETF
Speaker 4: that has a big weight to Nvidia If you're already
Speaker 4: buying the S and P five hundred, you already have
Speaker 4: that big in video weight.
Speaker 2: Yeah, and it's interesting. I agree with you. I think
Speaker 2: the AI story is a little bigger. But personally that's
Speaker 2: what's great about NEDEX investing. You don't have to worry
Speaker 2: about whether you own something you do, so it's like
Speaker 2: you can just be like walk around, but you don't
Speaker 2: arn a lot of it now. One example I thought
Speaker 2: that is interesting is robotics and AI ETFs. So Robotics
Speaker 2: ETF's been around for like fifteen years and they had
Speaker 2: this huge run up, then they fell, people left, then
Speaker 2: actually came back, got some more money, but then they
Speaker 2: fell again, and I was like, Okay, I think these
Speaker 2: are just gonna die off. But then Navidia kind of
Speaker 2: gave them a third bite of the apple. And so
Speaker 2: I think I know from my personal experience, like people
Speaker 2: I know have asked me about AI investing, and you know,
Speaker 2: if you look at Chat, there are stocks outside of Navidia,
Speaker 2: but Navidia clearly is is the big winner here right now.
Speaker 2: And so the good news is most people already own it.
Speaker 2: But people are a little greedy that they want more.
Speaker 2: They want more, you know, to get deeper into AI
Speaker 2: and not miss anything and kick themselves later. So I
Speaker 2: think that's why Robotics ETFs got that rare third buddy
Speaker 2: at the Apple, which we also wrote about.
Speaker 1: Ethanasia is another thing that you wrote about that I
Speaker 1: think was an interesting insight that I hadn't considered before.
Speaker 1: Is the actual price of the ETF that holds in
Speaker 1: video compared to maybe the stock itself, right, So what
Speaker 1: does that look like?
Speaker 3: Yeah, we don't think about this that often, but it
Speaker 3: got up to like a thousand plus in video, did Yeah?
Speaker 3: And video got up to a thousand or so a share.
Speaker 3: And this just comes from text messages with my friends
Speaker 3: sometimes like oh, I don't want to buy in Vidia
Speaker 3: its one thousand dollars to share. It's expensive. So I
Speaker 3: think sometimes retail has this association that if it's a
Speaker 3: low price, handle it it's cheap, right, And then now
Speaker 3: you have all these single stock ETFs, and something you
Speaker 3: don't think about is they trade at a lower handle.
Speaker 3: They're twenty five to thirty dollars to share. Yes, they
Speaker 3: might be leveraged or whatnot. But I think before the
Speaker 3: in video split, a lot of people were using single
Speaker 3: stock ETFs just as like fractional trading in a way,
Speaker 3: while you can do it on the platforms, didn't really
Speaker 3: take off as much as just kind of buying a
Speaker 3: single stock ETF or even white people buy bond ETFs, right,
Speaker 3: you don't have to buy a full bonding, just buy
Speaker 3: a fractional share of a bond. So I think that's
Speaker 3: an unintended advantage of the ETF that doesn't get covered.
Speaker 1: Enough because instead of paying even a fractional share of
Speaker 1: say in video, there's this psychological effect that it's like, oh,
Speaker 1: that feels expensive versus I can buy something that's in
Speaker 1: an ETF wrapper in a fraction of the price totally.
Speaker 3: Would you rather have one share of the queues or
Speaker 3: like ten shares of QQM. I think psychologically that impacts people,
Speaker 3: so I have ten shares versus just one. I don't
Speaker 3: think it's the main reason why they would buy like
Speaker 3: a two x leverte in video. But I think it's
Speaker 3: it's something that is advantage.
Speaker 1: I don't know. You guys call yourself scientists and you're
Speaker 1: like talking about text messages with your friend. Is there
Speaker 1: any real research or analysis here?
Speaker 2: Yeah, I mean a lot of there's been jail D
Speaker 2: had a huge handle. I think it was like six
Speaker 2: hundred bucks or something. Don't ding me if I'm wrong,
Speaker 2: but it was high, and then the minime Gold came
Speaker 2: out and purposely made its handle what like forty bucks.
Speaker 2: So a lot of times when they do introduce a
Speaker 2: new fund, first of all, all the handles are typically low,
Speaker 2: but sometimes if somebody creates a minime of a large fund,
Speaker 2: they do lower the handle. Now, a large price handle
Speaker 2: can actually help institutions who sometimes pay per share, so
Speaker 2: they actually like to have the big handles. That's why
Speaker 2: there are these old stallwart kind of ETFs that keep
Speaker 2: the high handles and then the minimes with the lower handles.
Speaker 2: They can serve both worlds. But I'm with you. Retail
Speaker 2: definitely likes that this probably is benefiting the bitcoin ETFs
Speaker 2: to a degree. You can buy many shares of ibit,
Speaker 2: but to buy one bitcoin would be what fifty four
Speaker 2: thousand dollars, which is a lot. So I think people
Speaker 2: do like to have that satisfaction of owning more than
Speaker 2: one share.
Speaker 1: By the way, we've said it like thirty times already.
Speaker 1: How do you actually say Nvidia? That's how I say
Speaker 1: it video.
Speaker 2: I think I've said it wrong already. Katie Greyfield and
Speaker 2: Scarlett correct me all the time. It's n video, yeah,
Speaker 2: in video, but I tend to say in video like
Speaker 2: en video, like too quick or something. I don't know.
Speaker 2: I don't know. I've been correcting again, the the Eric
Speaker 2: or the real way the Eric in video Okay. They
Speaker 2: would say N video. Okay, it's almost like you're pronouncing
Speaker 2: this capital N. Then you're going video N video.
Speaker 1: Yeah, but I don't say it right. Yeah, no, I'm
Speaker 1: self conscious. Thanks for that. Welcome, okay, Eric. We talked
Speaker 1: about how in Nvidia felt like it almost showed up
Speaker 1: out of nowhere even though it was actually kicking around,
Speaker 1: but then it had this kind of super serge and
Speaker 1: has become such a you know, integral part of the market.
Speaker 1: What long termplations does this sound? Because one thing about
Speaker 1: this company, it seems like it has a pretty deep moat.
Speaker 1: There's not a whole lot of people who can do
Speaker 1: it in Nvidia does. So what implications does that have
Speaker 1: for the market indexes and ETFs as a whole.
Speaker 2: It's a good question, you know, It's something we're watching.
Speaker 2: I think the advent of single stock ETFs is really
Speaker 2: one thing because you take a stock that trades a
Speaker 2: lot and is huge, and you just add different ways
Speaker 2: to bet on it. Let's go short, let's go double long,
Speaker 2: let's add call options, and you're going to sell that.
Speaker 2: So I think anytime a stock gets hot or big,
Speaker 2: you're going to see an ecosystem build around it. The
Speaker 2: ETF industry is going to give you one hundred ways
Speaker 2: to play it, to bet on it, and that'll be
Speaker 2: one thing. Now. I don't know if Navidia is that unique.
Speaker 2: I mean apple Com went up and down, Tesla went
Speaker 2: up and down. I think the mag seven though, and
Speaker 2: these big megacaps are so big. I think like, if
Speaker 2: you take a couple of them, they're bigger than the
Speaker 2: entire stock market combined or something. Gina had some set.
Speaker 2: I think the top five stocks in the SMP are
Speaker 2: bigger than the the bottom two fifty. It's something ridiculous.
Speaker 2: I think that the indexes I don't know, like XLK.
Speaker 2: If I were it, I would make a change. I
Speaker 2: would not do twenty two to twenty two and then five.
Speaker 2: I would cascade that. So these megacaps I think does
Speaker 2: pose some questions for index makers. That said, as much
Speaker 2: as these index gets kind of like mocked on Twitter
Speaker 2: sometimes for like being like dumb and not having these rules,
Speaker 2: they still beat active because you can get them for free.
Speaker 2: The cost factor well overwhelmed some of these dumb quirks
Speaker 2: that you see. Yeah, those are all great points.
Speaker 3: I think there's a lot of ways to play in
Speaker 3: Vidia in AI companies. I think the next frontier is
Speaker 3: going to be using AI to pick stocks right or
Speaker 3: make make assy allocation decisions. There's a couple products out there,
Speaker 3: AI EQ which is like one driven by AI. But
Speaker 3: what's interesting about that it doesn't own in Vidia, Like
Speaker 3: how does AI not know.
Speaker 1: To own beck?
Speaker 3: Like bet on me, Yeah, so she didn't figure that out.
Speaker 3: But anyways, I think maybe the next frontier might be
Speaker 3: AI powered ETFs. Why it doesn't it own Yeah, I
Speaker 3: don't know, I gotta ask you algorithm.
Speaker 1: Yeah, maybe just doesn't think.
Speaker 2: They did come out with the one IBM Watson picking stocks,
Speaker 2: which is aiish I guess, And it didn't do that well.
Speaker 2: It traded too much. The turnover was intense, and yeah,
Speaker 2: I think it returned half the S and P I think.
Speaker 2: I think you're right. AI will be used to pick stocks,
Speaker 2: but it's going to run the same problems human have,
Speaker 2: which is when do you buy and sell how much
Speaker 2: of your costs. I don't know if it'll be able
Speaker 2: to AI out of that.
Speaker 4: I think of that meme with DJ Khaled when he says, congratulations,
Speaker 4: you played yourself, and that's kind of like when an
Speaker 4: AI powered ETF is underperforming actual AI stocks.
Speaker 2: That's good, that's pretty good. Yeah, it's it's because they're
Speaker 2: not to pick on the IBM Watson one. But they
Speaker 2: were like when they came out, they came out hard
Speaker 2: with the marketing. They're like, we can analyze this, you know,
Speaker 2: eight million pages of research that eight thousand analysts can
Speaker 2: do in eight seconds, like it was something so crazy
Speaker 2: and then you know, but my theory is the machine learning,
Speaker 2: the computer is going to end up going wait a second,
Speaker 2: It's going to end up into into getting into bogol land.
Speaker 2: It's going to go, wait, what if we trade less
Speaker 2: and lower our fees, that's how we win. And it's
Speaker 2: going to end up the AI AI parwerd etff it
Speaker 2: has a machine learning will end up being voo.
Speaker 1: All right. On that note, Eimmling Athanasius, thanks for joining
Speaker 1: us on Trillions, Thanks for having me, Thank you, Thanks
Speaker 1: for listening to Trillions until next time. You can find
Speaker 1: us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify,
Speaker 1: or wherever else you'd like to listen. We'd love to
Speaker 1: hear from you. We're on Twitter, I'm at Joel Webber Show.
Speaker 1: He's at Eric Paulchuna's. This episode of Trillions was produced
Speaker 1: by Magnus Hendrickson. Bye