Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: This week on the podcast, I have a special guest.
Speaker 1: His name is Jeremy Schwartz. He essentially runs the research
Speaker 1: division at Wisdom Tree Investments. I was kind of surprised
Speaker 1: to learn his nickname is Junior Jeremy. He has been
Speaker 1: working with Professor Jeremy Siegel at Wharton for almost twenty years.
Speaker 1: Uh and he is a really knowledgeable and up to
Speaker 1: his elbows in all of the specifics of creating ETFs
Speaker 1: focusing on valuation, dividends, earnings. They have carved out a
Speaker 1: niche in the world of investing in ETFs um that
Speaker 1: kind of bypassed the question I was gonna ask, Hey,
Speaker 1: what makes you guys different from filling the blank, Black Rock, Vanguard,
Speaker 1: Dimensional funds, whatever. But Jeremy does a great job explaining
Speaker 1: what they do, what it's like to work in a
Speaker 1: fund where you have legends of finance like Michael Steinhardt
Speaker 1: as chairman and Jeremy Siegel as as one of the
Speaker 1: chief advisers, and Jonathan uh Stein putting this together. Really
Speaker 1: a fascinating conversation for anybody who is at all interested
Speaker 1: in indexing factor based investing valuation e t f S.
Speaker 1: I think you're gonna find this to be an absolutely
Speaker 1: fascinating conversation. It's something I've been trying to do for
Speaker 1: a long time. We we Jeremy and I just keep
Speaker 1: ships in the night. Our schedules just didn't work out,
Speaker 1: and I'm glad I finally got him into the studio
Speaker 1: with no further ado. My conversation with Jeremy Schwartz. My
Speaker 1: special guest today is Jeremy Schwartz. He is the Director
Speaker 1: of Research at Wisdom Tree Investments, where he has been
Speaker 1: asconce since two thousand and five, having risen through the
Speaker 1: ranks from senior analyst to deputy director to essentially head
Speaker 1: of research at the firm. He is responsible for the
Speaker 1: construction process and oversees all of research across the wisdom
Speaker 1: Tree equity family. Jeremy Schwartz, Welcome to Bloomberg Berry. Thanks
Speaker 1: for having me. Let's begin with the fun stuff. You
Speaker 1: were um an early higher at wisdom Tree. You started
Speaker 1: in oh five, is that right? That's right, and you
Speaker 1: had around two thousand and eight, recently received a promotion
Speaker 1: right into the midst of the financial collapse. What was
Speaker 1: that collapse like while you were working at wisdom Tree
Speaker 1: and since also a startup asset management firm going into
Speaker 1: the biggest financial crisis. It's the Great Depression, pastic time
Speaker 1: and you have value oing to investment philosophies, dividend based
Speaker 1: investment strategies. Financials were big parts that dividend paying universe, right,
Speaker 1: So it was a tough environment. Also, you know, wisdom
Speaker 1: Tree was really trying to establish yourself as a pioneer
Speaker 1: in e t s. It was early days in ets
Speaker 1: when we started, oh six, there was three t s
Speaker 1: maybe three billion under management, so we were trying to
Speaker 1: novel indexing approach and so we were built not for
Speaker 1: small success. We really had bigger ambitions in mind. So
Speaker 1: we had high break events um and really trying to
Speaker 1: have a big team to to put us on the map.
Speaker 1: So it was certainly a challenging moment going through the
Speaker 1: financial crisis UM. But we bottomed around three billions of
Speaker 1: assets in two thousand nine, a little bit below three billion.
Speaker 1: Today were forty five billions. We've seen mammoth growth over
Speaker 1: last ten years. But yeah, it was very trying times
Speaker 1: and you didn't know could you survive, could you get
Speaker 1: past that crisis point. Everybody has a story about what
Speaker 1: was going on in their shop in the midst of
Speaker 1: the crisis, from from Vanguard to Morgan Stanley to Dave
Speaker 1: Rosenberg tells the story of his first day at work
Speaker 1: in the private sector was the day of the eighty
Speaker 1: seven crash. Tell us what was going on behind the
Speaker 1: scenes at Wisdom Tree when it felt like the world
Speaker 1: was coming to an end. I mean, what's amazing is
Speaker 1: I was on vacation in the first week of October.
Speaker 1: We had a family vacation plan. We were on a
Speaker 1: cruise in two thousand and eight, October two thousand and eight,
Speaker 1: leaving from Asia and Asia cruise. You know, we're in
Speaker 1: starting in Japan, going to Hong Kong, China, and I
Speaker 1: looking at the screens on TVA, Am I gonna have
Speaker 1: a job when I get back? I mean, it was
Speaker 1: really unbelievable. You see the market falling ten percent um
Speaker 1: and I didn't know, you know, where we were just
Speaker 1: as a firm wise, like how close we were to
Speaker 1: just not surviving during the depths of the crisis, Like
Speaker 1: we were weeks away from not being able to make payroll?
Speaker 1: Is that true? You were actually that close in March
Speaker 1: of O nine. Yeah, I mean we were definitely bleeding losses.
Speaker 1: We definitely had you know, a capital raising in March
Speaker 1: of O nine. Um, and that put us on. The
Speaker 1: markets turned around and we were sort of off to
Speaker 1: the races after that. But yeah, we were we were
Speaker 1: close in March of O nine. Did you guys have
Speaker 1: a white night? Or was it the existing funders and
Speaker 1: founders basically reached a little deeper into their pocket. It's
Speaker 1: a combination. Um. So A I G came in during
Speaker 1: two thousand nine. Uh, and there was a you know,
Speaker 1: that's hilarious, isn't it. A I G said it's a
Speaker 1: Wisdom Tree. Hey, let us help you out. You guys
Speaker 1: look like you can need a little assistance. They were
Speaker 1: investing in the investment management side. They saw the growth
Speaker 1: potential of ETS as part of ASID management and they
Speaker 1: did make an investment that that's that's fascinating and the
Speaker 1: structure currently of Wisdom Trade, it's been a publicly traded company.
Speaker 1: And one of the background is we had Jonathan Steinberger CEO,
Speaker 1: had a media company in nineties and two thousand's and
Speaker 1: he saw INDEXI and ETS when he was doing publishing.
Speaker 1: Was called Individual Investor Group, and so he was. He
Speaker 1: saw McGraw hill, he saw indexes, he saw ETS and
Speaker 1: he's trying to create his own indexes, license him to
Speaker 1: become ETS. Well. During the tech bubble, he sold the magazine,
Speaker 1: kept the indexes and was trying to relaunch the firm
Speaker 1: UM and it was really he had this shell company
Speaker 1: is really literally a penny stock trading and then he
Speaker 1: re raised capital and No. Four to real waunch the
Speaker 1: business UM with Michael Steinhardt, Professor Siegell, Jim Robinson from
Speaker 1: American Express funding the business and OH four and relaunching UM.
Speaker 1: But that was that was the history back back then.
Speaker 1: So it's always been publicly traded because of Johano's previous
Speaker 1: magazine days. So that's some trinity behind behind the company.
Speaker 1: That's quite a list of heavy hitters. Yeah, I mean,
Speaker 1: you think going from trading at a few pennies right
Speaker 1: before the funding, Michael funded it in oh for at
Speaker 1: sixteen cents and the day they announced, just these these
Speaker 1: people coming together, I think it closed at a dollar
Speaker 1: dollar dollar fifty something like that. That Steinhardt guy is
Speaker 1: an up and comic. Keep an eye on, Keep an
Speaker 1: eye on him. The other thing that I find kind
Speaker 1: of fascinating, And I think I kind of knew this
Speaker 1: about you, but forgot about it. You were Jeremy Siegell's
Speaker 1: assistant at Wharton. You helped him edit subsequent editions of
Speaker 1: Stops for the Long Run. You practically co authored a
Speaker 1: book with him. What on earth was it like being
Speaker 1: next to Jeremy Seagal during all the unbelievable um? And
Speaker 1: he was he was a fountain hose of knowledge. I
Speaker 1: was just trying to soak it all in. Um. I mean,
Speaker 1: I got so lucky of when I got to Warrant.
Speaker 1: It was so the bubble um. That's when I first
Speaker 1: got to warr And I've done internships at Prudential, you know,
Speaker 1: sort of caught up in the tech craze. You know,
Speaker 1: he wrote our Internet socks that were valued in April,
Speaker 1: then big cap tech socks or suckers bet in March
Speaker 1: of two thousand. I meet him right after that article
Speaker 1: comes out. He's, you know, reevaluating his own portfolio from
Speaker 1: being just vanguardists and fire from the nineteen seventies and
Speaker 1: all of his researches around. Okay, I'm telling people to
Speaker 1: sell tech stocks, yet my own portfolios vanguardist be five hundred.
Speaker 1: What should I be doing? And so I helped him
Speaker 1: do a lot of that research. I met him in
Speaker 1: two thousand one. I took well, I met him through
Speaker 1: a bunch of programs. I took his class in oh one.
Speaker 1: I needed something to do for a few months before
Speaker 1: I supposed to go to Australia from a semester abroad,
Speaker 1: ended up working for him. Never went to Australia. Took
Speaker 1: off like two years of school to work for him
Speaker 1: full time on his books. You know, obviously set my
Speaker 1: future path. I just dedicated really my life after that
Speaker 1: towards working with him, and I sort of knew it
Speaker 1: could be more than books. One day, because I sat
Speaker 1: in his office, I heard every conversation he had, and
Speaker 1: I knew what people wanted to do with him, and
Speaker 1: he just you know, he was very much in low
Speaker 1: fee I Vanguard, I buy the market, but he really
Speaker 1: was struggling with what is the best way to index?
Speaker 1: And so I saw there could be a potential to
Speaker 1: do more with him. Um and wisdom Tree came along
Speaker 1: with the perfect fit. But it was you know, he
Speaker 1: wasn't just unbelievable mentor and teacher and still is something
Speaker 1: I still interact with him all the time today. How
Speaker 1: has the company changed over the past decade since the
Speaker 1: financial crisis? You know, when we started out that the
Speaker 1: idea was very simple, is everything's market cap weighted. You
Speaker 1: need some relative discipline to rebounce back to value, help
Speaker 1: try to protect investors from bubbles and things get it
Speaker 1: really expensive. So the original conception was these value based
Speaker 1: rebalancing dividend earnings waited type portfolios and in other words,
Speaker 1: moving away from the heavy market cap waiting towards something
Speaker 1: with a different flavor. Yes, the idea was to be simple,
Speaker 1: rules based, transparent but managed valuation risk for the market.
Speaker 1: And that was the original conception, and that just applied
Speaker 1: in every region around the world, and we blanketed the
Speaker 1: world with equities for that. UM. We've certainly branched out
Speaker 1: and continue to develop products UM currency hedging became a
Speaker 1: very major focus of the firm. UM that's one things
Speaker 1: that's really taken off. It's one thing that I'm very
Speaker 1: passionate about, where I think we have some really unique
Speaker 1: ideas that are different than the way people traditionally allocated
Speaker 1: or nationally and let's talk about that because d x
Speaker 1: J was essentially your baby. That's the wisdom Tree Japan
Speaker 1: Yen currency, hedged e t F and full disclosure. I
Speaker 1: own it, clients of my firm own it when we
Speaker 1: want a Japan exposure, and recognized that uh Abonomics and
Speaker 1: their version of QWI was gonna really put a little
Speaker 1: pain on the end as the dollar was getting stronger.
Speaker 1: It was the perfect product. Thank you well, we appreciate
Speaker 1: your support, UH And I think, listen, I think currency
Speaker 1: is one of these very misunderstood phenomenas, and I you know,
Speaker 1: I think so it's great to see Japan take off.
Speaker 1: It was the first currency GT have to really illustrate
Speaker 1: how currencies and stocks can work together. That often a
Speaker 1: declining currency can be very good for the stocks in
Speaker 1: that market and they move in such big directions. I mean. So,
Speaker 1: so let me interrupt you there because there's a really
Speaker 1: interesting story about d x J. It's been trading for
Speaker 1: how long now. It was one of our original et
Speaker 1: s and O six now it was unhedged when we
Speaker 1: launched it. It was given way to Japan and it
Speaker 1: was going it was doing better than the MSCI capway
Speaker 1: of Japan by points a year, but it was you know,
Speaker 1: nobody cared enough. And as we were looking at it,
Speaker 1: and we're saying, and at the time, the end was
Speaker 1: super strong and the stocks were super weak. Dollar was weak,
Speaker 1: The end was strong, and things were about to reverse,
Speaker 1: and we kept saying, this may not go on forever,
Speaker 1: this might turn around. And you could say, everybody else
Speaker 1: has these two bets. They have the stock bet and
Speaker 1: the currency additional risk, and the currency moving ten to
Speaker 1: fifteen percent a year. So while our our our value
Speaker 1: added on the stocks that might have been a hundred
Speaker 1: basis points, if the currency goes against you ten percentage
Speaker 1: points a year, good luck, right, So we said, just
Speaker 1: he'ld be so different by just focusing on the stock
Speaker 1: alone and not take this second So when did the
Speaker 1: currency hedge enter that particular holding? Ap All? Right, now,
Speaker 1: I remember I haven't seen that holding, and your a
Speaker 1: u M was fairly low, the inflows were fairly low.
Speaker 1: It was doing okay, and then suddenly, you know, suddenly
Speaker 1: it was like a fuse was lit and off to
Speaker 1: the races. How did that come about? And what was
Speaker 1: it like watching these giant inflows on a product you
Speaker 1: essentially created? So we were the first firm to do
Speaker 1: currency hedging in e t F FORMA. It's not a
Speaker 1: new concept. People have been doing charging and they've been
Speaker 1: teaching on the c f A text books for years,
Speaker 1: but we're the first one to do it in ETS.
Speaker 1: We've done our first one on a broader national basis
Speaker 1: a few months before d x J, which was what
Speaker 1: was the which is now h E d J, which
Speaker 1: was we start off with just broad EFA hedging. And
Speaker 1: what's interesting is we then made the second for listeners
Speaker 1: who are IFA is your is your core international index
Speaker 1: that people follow? It's all the twenty one developed markets
Speaker 1: of the x US without the emerging markets Europe, Australasia, Asia,
Speaker 1: so Hong Kong, Australia, it's it's Europe, Australia, Far East.
Speaker 1: Is that essentially the shorthand? Yes? And so now how
Speaker 1: do you do a currency hedge on a broad region
Speaker 1: that has a dozen different currencies. It's really the same
Speaker 1: way as d x J, just with multiple currencies, as
Speaker 1: you have the underlying stock exposures, and then you add
Speaker 1: a currency forward on top that's designed to neutralize and
Speaker 1: get you back to just the underlying stock exposure. So
Speaker 1: you're rolling these currency forwards on a monthly basis. But
Speaker 1: it's pretty plain vanilla, simple um. Which is the ironic
Speaker 1: thing is people think of hedging as the more exotic play,
Speaker 1: and I say, it's actually more plane vanilla. So it's expensive.
Speaker 1: You're dealing with a lot of different it's complicated, and
Speaker 1: make the counter argument, so it's really not expensive. So
Speaker 1: it's expensive in Brazil. Brazil costs you ten percent a
Speaker 1: year in Ifa, you're being paid to hedge is actually
Speaker 1: a better than free proposition, and it's been better than
Speaker 1: free probably for the last thirty years. So the idea
Speaker 1: that it's expensive is one of these myths that I
Speaker 1: keep trying to come back on. And I actually feel
Speaker 1: like we have this branding problem in hedging, which is
Speaker 1: you can't go back and change history. But if I
Speaker 1: if you call your international stock fund, your international double
Speaker 1: decker fund, which is your international stock plus currency fund,
Speaker 1: who would buy that? I don't know. They wouldn't. They
Speaker 1: would say, I just want the stocks. I don't want
Speaker 1: a double decker fund. And the problem is people think
Speaker 1: of the hedge is a double decker. No, the hedges
Speaker 1: plane vanilla stock exposure, not stock plust current. So let
Speaker 1: me push back a little bit on the European hedge fund.
Speaker 1: You have a eurohedged e t f UM, but not
Speaker 1: every country in Europe is on the euro so you're
Speaker 1: ex Switzerland, your excellent, a lot of the Nordic countries,
Speaker 1: your Xenland. How European is the European fund. So HD
Speaker 1: d J, which we start off as our broad EF proxy.
Speaker 1: We saw the success in d x J. The japan
Speaker 1: in you know, went from a hundred million. The earthquake
Speaker 1: happened and people really started training it after literally the
Speaker 1: earthquake to tsunami, everything that took place there that whacked
Speaker 1: the end and suddenly you had some well the end
Speaker 1: went up a lot, but people were starting to say
Speaker 1: it might not continue. And that's when it really started.
Speaker 1: That was trading five years six years ago, and so
Speaker 1: that's when I started training and started seeing some interest UM.
Speaker 1: And that's when we had the idea to make the
Speaker 1: broad h E d J, which was at the start
Speaker 1: just the whole international basket. We focused it on the
Speaker 1: single currency, the Euro because we saw, hey, people can
Speaker 1: grasp the idea that a single currency the end. They
Speaker 1: started training d x J. We made the hedge h
Speaker 1: e d J just the euro Zone only, so it
Speaker 1: is just zero specific um. Euro is the biggest currency
Speaker 1: in the IFA international complex. It's a third called a
Speaker 1: third of IFA's Euro traded stocks. So we did focus
Speaker 1: on the single currency so we can make it easier
Speaker 1: for people to make that decision. One currency Germany, France, Spain,
Speaker 1: all those Euro only countries. So yes, each e J
Speaker 1: is Euro only, but you could you could have a
Speaker 1: broader Europe fund that you hedge the euro the pound.
Speaker 1: This was frank the Norway. You could do that too.
Speaker 1: We've focused on Euro only. That that's what I I
Speaker 1: think d x J is unique because you have one
Speaker 1: country with one currency, with a fairly uniform population and
Speaker 1: a behavior set that is very very similar. I'm not
Speaker 1: saying everybody acts and things alike in Japan, but it
Speaker 1: is unique in that there is no other sizeable country
Speaker 1: other than the United States that that has that same
Speaker 1: sort of Japan is also unique in the currency market
Speaker 1: where you actually need a week end for the stocks
Speaker 1: to do well. So it is correlated, right, There is
Speaker 1: a real economic linkage between the currency and the stocks,
Speaker 1: and you do see profits the last five years as
Speaker 1: the currency is weaken profits have soared, so there is
Speaker 1: a real direct economic benefit. But even for small cab
Speaker 1: companies which are more local to Japan, even they trade
Speaker 1: inversely correlated to the end. So Japan just the way
Speaker 1: people trade it, you need a week end to really
Speaker 1: be bullish Japan today. Um So it's one where when
Speaker 1: you hedge, you actually increase the volatility for the broader
Speaker 1: international basket where I'm talking about. That's where the opportunity
Speaker 1: really is. You know, for the going forward basis Europe
Speaker 1: and Japan. Maybe there's a hundred billions of assets between
Speaker 1: Europe and Japan. Mutual funds, there's one point a trillion
Speaker 1: dollars in IFA that are basically unhedged, but thirty percent
Speaker 1: of Japan's now hedged, of Europe's hedged. The big opportunity
Speaker 1: and that I'm focused on, or we had with some
Speaker 1: tree really focused on our the EFA complex. We're adding
Speaker 1: currency adds your expected risk profile, not your expected return profile,
Speaker 1: you're did risk profile. That's pretty fascinating. Let's talk a
Speaker 1: little bit about what's happening in the world of asset management.
Speaker 1: We've heard that indexing is worse than Marxism, that this
Speaker 1: is an American. It's the end of the world. I
Speaker 1: think that everybody who is making those arguments are sort
Speaker 1: of self interested in talking their own books. But let's
Speaker 1: at least discuss how indexing might be affecting, uh, the
Speaker 1: price discovery mechanism. What what are your views on this? Yeah,
Speaker 1: I don't think it's worse than Marxism. It's actually the
Speaker 1: definition of what people need. They want lower fees. Right,
Speaker 1: Amazon is bringing down fees for retail customers, and essentially
Speaker 1: indexing is bringing down fees for active or asset management generally. Um. Now,
Speaker 1: there's this idea that our et s to story of
Speaker 1: the market is that flows to passive causing this quote
Speaker 1: unquote bubble in the markets or pushing up prices. For
Speaker 1: every buyer there's a seller. So I just see fees
Speaker 1: coming out of the system. Investors are being better off
Speaker 1: with fees not going to the active managers are keeping
Speaker 1: it in investors pockets. For you to say that the
Speaker 1: flows too passive over the last decade, and passive is
Speaker 1: taking a large amount of money or last decade for
Speaker 1: them to be driving up the market prices. There people
Speaker 1: are buying the passive, who are they selling? Are they
Speaker 1: selling value managers? Are they selling the people who's who
Speaker 1: buy cheaply and just buying the more expensive stuff? And
Speaker 1: it has been a growth led market over the last
Speaker 1: ten years. But when I look at the flows to
Speaker 1: the styles, let's say us large cap, I don't see
Speaker 1: the flows dramatically leaving value if anything. Or the last
Speaker 1: ten years you've seen flows leaving growth. You're seeing active growth,
Speaker 1: seeing out flows, and you're seeing just general trends towards indexing,
Speaker 1: which makes you question, are the flows to passive really
Speaker 1: driving up the prices of these sort of quote unquote
Speaker 1: expensive parts of the market. So I see it as
Speaker 1: a big win for investors are keeping the fees. I
Speaker 1: don't see them as dramatically changing. And I think Vanguard
Speaker 1: did a study saying that feed compression saved investors over
Speaker 1: forty billion dollars over the past twenty year. That's a
Speaker 1: lot of money, and that's going to continue. I mean
Speaker 1: that's people people worry. You know, what percentage of the
Speaker 1: market can be indexed. It could be a lot higher
Speaker 1: than where we are today, and it should be a
Speaker 1: lot higher. There's a lot of active managers who aren't
Speaker 1: adding value, and so in the future are not adding
Speaker 1: value active managers that Bill Miller calls them the closet index. Yeah.
Speaker 1: I love that conversation, and it's it's I see more
Speaker 1: and more of what we're trying to do at Wisdom
Speaker 1: Trees is you know, we started off ten years ago
Speaker 1: trying to provide low tracking indexes so get you very
Speaker 1: broad exposure. Are broad diven weighted portfolios have fifteen hundred stocks,
Speaker 1: are broad earnings waited portfolios have two thousand stocks, And
Speaker 1: there we're tilting towards value and quality factors that we
Speaker 1: think can add value over the market. So maybe we
Speaker 1: add a hundred bases points over long periods of time
Speaker 1: with two percent tracking error in the earnings indexes. That's
Speaker 1: low tracking air portfolios. Those are the closet index trackers
Speaker 1: Miller is talking about, and we're doing it in sort
Speaker 1: of low fee index type format. Increasingly, where I think
Speaker 1: the future is that we're going to be going for
Speaker 1: the higher active share, higher alpha strategies and trying to
Speaker 1: get more activeness into the portfolios as well. So so
Speaker 1: let's touch on that because that's a fascinating subject. First,
Speaker 1: I noticed you have I don't want to say a
Speaker 1: dividend way across everything. But but dear lord, dividends are
Speaker 1: really the mother's milk of wisdom tree? Is it? Is
Speaker 1: it profitability and valuation? Or what is it about dividends
Speaker 1: that are special? And the past decade is seen a
Speaker 1: cheat money allowed a ton of buy backs? What does
Speaker 1: what do all those buy backs due to dividends? I
Speaker 1: personally would rather see dividends as an investor than buy backs.
Speaker 1: But tell me your perspective. Yeah, finance one oh one,
Speaker 1: assets are president value of cash flows for stocks? Cash
Speaker 1: flows are dividends. Where do we do is come from?
Speaker 1: They come from earnings. So when we started ten years
Speaker 1: ago dividends and earnings, where the two families we created
Speaker 1: dividends and earnings? Okay, two separate families. We launch the
Speaker 1: US Earnings Family Global dividen. How many different funds were
Speaker 1: in that group in in earnings? We have today approximately
Speaker 1: six across different regions and different that's in the US.
Speaker 1: So what are the six in the US? Total market? Large, mid, small,
Speaker 1: And then we have some specific um sort of domestic
Speaker 1: economy and exporter strategies. And then and what about dividends?
Speaker 1: There's a the exact number I'm gonna lose because it's
Speaker 1: like it's a large number. UM. So we do cover
Speaker 1: the world with dividend focused strategies. UM. We do India.
Speaker 1: We have an earning fund because diven end earnings fund.
Speaker 1: India is earnings because they don't pay a lot of dividends,
Speaker 1: and so we're the first firm to do India local
Speaker 1: shares in two thousand eight. So we have the broadest
Speaker 1: India Index or India Earnings Wait Index, and that's the
Speaker 1: country we're super bullshot over. The I couldn't agree more.
Speaker 1: But it's valuation sensitive and we wanted to own the
Speaker 1: broadest cross sections. So the tradial Eta sixty seventy stocks,
Speaker 1: we have two D plus stocks, so that's one where
Speaker 1: earnings waited. We did do UM, but the idea was
Speaker 1: dividends are the subjective measure around the world, and every
Speaker 1: region outside the US N plus to the market pays
Speaker 1: a divon. It's really the U S where we do
Speaker 1: a lot of buy backs because of stock options. If
Speaker 1: you have a stock option, you don't like to pay
Speaker 1: a DIVD because your stock goes down by the amount
Speaker 1: of the dividend. Because we have literally penny for penny
Speaker 1: and so that's what when we started doing stock options.
Speaker 1: Two is when we started paying divids less. I mean
Speaker 1: the power issue used to be seventy in the old days.
Speaker 1: It's been you know, thirty to pent in the last
Speaker 1: twenty thirty years. UM. But so clearly buy backs are
Speaker 1: impacting the available cast for dividends. People are doing as
Speaker 1: much buybacks as dividends today. So when people look at
Speaker 1: the two percent diven yield and say we used have
Speaker 1: a four percent diven yield, will net buy backs have
Speaker 1: been one and a half to two percent? And so
Speaker 1: that what that means is and they're actually net buy
Speaker 1: back So there who docing shares out standing, which means
Speaker 1: future dealing growth will be higher. Um. And so i've
Speaker 1: you know, we've focused when people say, do you have
Speaker 1: a dividend plus net buy back index, we've often set
Speaker 1: our earnings indexes represent that because you would basically add
Speaker 1: at historically would more technic alogy companies, which is what
Speaker 1: had earnings and buybacks but no dividends. Now in our
Speaker 1: large cat doing next you have more tech companies financial So, UM,
Speaker 1: I gotta ask you the question that always has been
Speaker 1: scratching my head on an earnings based set of holdings.
Speaker 1: The US, we have completely wacky accounting rules and regulations.
Speaker 1: How do you manage to square the circle of every
Speaker 1: region of the world. Every country in the world has
Speaker 1: our own set of accounting standards and and rules, and
Speaker 1: you end up with, Hey, a pe of ten in
Speaker 1: this country maybe nothing like a pe in ten of
Speaker 1: ten in a different country. You just made my case
Speaker 1: for divin waiting around the world. That's exactly why we
Speaker 1: did dividends around the world was it's an objective measure.
Speaker 1: When we started ten years ago, you didn't have to
Speaker 1: worry about different accounting centers. Now we really don't have
Speaker 1: any cross country earnings waited funds. I mean, we have
Speaker 1: the India Fund. Um we do have any that's not exact.
Speaker 1: You are emerging market consumer fund has an earnings model,
Speaker 1: but that's you know, it's like a one off fund
Speaker 1: for US. So so in other words, when you go
Speaker 1: in country by country, you're really doing the valuation screen
Speaker 1: specific to that country, and the top ten percent across
Speaker 1: every country. What does it make a difference how their
Speaker 1: math is. It's still the cream of the crop in
Speaker 1: each country. And that is why dividen just cut across
Speaker 1: all the countries, and so I think that's the that's
Speaker 1: the key there. Um, you can fake earnings, you can't
Speaker 1: fake dividends. For only so long can you fake the dividends.
Speaker 1: Let's talk a little bit about the future of asset management. Um,
Speaker 1: there's a sense that the Vanguard effect, the compression of
Speaker 1: fees everywhere, is not just a brief phenomena or a
Speaker 1: shallow phenomena. But hey, it's all going to zero eventually,
Speaker 1: discuss Listen to the drive for fees lower puts more
Speaker 1: money back in investors pockets. I think it's generally the
Speaker 1: trend it's going in. It's across all segments, from asset
Speaker 1: management to advisors to everywhere. Is that's where it's going.
Speaker 1: How low can it go? It's getting close to zero.
Speaker 1: I mean it's at a few basis points for pure beta.
Speaker 1: I mean wisdom Tree was set up living in a
Speaker 1: Vanguard world, and we were saying, we have our mission
Speaker 1: in life only mission life was can we do better
Speaker 1: than Vanguard after fees, after taxes? You got improved on
Speaker 1: the Vanguard experience because you know they're gonna always have
Speaker 1: the lowest fees. Nobody can compete, So they're built for
Speaker 1: that for forty years, there's nobody even close to them,
Speaker 1: So dimensional funds maybe, so it's no, I mean, they're
Speaker 1: they're they're well, they're a little more expensive, they have
Speaker 1: a little deeper research bench, but you know, they're considered
Speaker 1: factor slash active. So it's there's a there's a little
Speaker 1: more on it, pure beta, zero cost beta. You're going
Speaker 1: to have that out there. But so the question is
Speaker 1: how can you add value on top of that? So
Speaker 1: we think of that as an investment firm. Can our
Speaker 1: individual products add value after fees, after taxes? But then
Speaker 1: also then how when you deliver advice, can you try
Speaker 1: to package it in a way that adds value as well?
Speaker 1: And that's really so our first ten years that was
Speaker 1: in was about building great products, and I think the
Speaker 1: next ten years is really how do we help our
Speaker 1: clients and how do we deliver advice in a cheaper
Speaker 1: format enabled by technology. So we're making a lot of
Speaker 1: investments in that technology side to really help advisors grow
Speaker 1: and and and leverage their businesses and then um, you know,
Speaker 1: just bring costs down there as well. So let's let's
Speaker 1: look at that um advisory firms and advisors are looking
Speaker 1: for more than just asset management. What do you you
Speaker 1: sit in a fairly unique position in the in the
Speaker 1: food chain. What do you think the financial advisors are
Speaker 1: looking for and how do you guys create something unique
Speaker 1: for that audience. Yeah, everybody is talking about the robo world, right,
Speaker 1: the betterments of the wellffronts and and this online direct
Speaker 1: to consumer model. We are very advisor driven, so you
Speaker 1: know we're we have an advisor solutions program. We made
Speaker 1: a big investment in a firm called advisor Engine that
Speaker 1: is really a full technology stack try to help people
Speaker 1: manage from client on boarding, account opening digital. It's a
Speaker 1: very digitizing your investment practice and that's gonna be an
Speaker 1: increasing part of what we do over time. I see
Speaker 1: it from just the conversation we've had in the last
Speaker 1: few months going out with Advisor Engine together. Um, they're
Speaker 1: becoming an increasing partner. But as well as you know
Speaker 1: are we're also we've been investing in technology ourselves for
Speaker 1: the last few years, and so we created some great tools.
Speaker 1: We call it portfolio construction services on our website, just
Speaker 1: digital portfolios, a way to do analytics, institutional caliber stuff
Speaker 1: that people pay very high fees for. We're trying to
Speaker 1: provide for free that will help you look at your portfolio,
Speaker 1: look at different factor exposures, stress test, it creates some mappings,
Speaker 1: edit your own what we spit back out it there
Speaker 1: for you. So it's a really trying to help people
Speaker 1: with their portfolio management side. That's available to any advisor
Speaker 1: or anybody who goes to the wood and financial professionals
Speaker 1: uh through you know, there's you gotta have to log
Speaker 1: in on our website and that's all you need as
Speaker 1: a financial professional and you can get access to the
Speaker 1: portfolio tool. So you mentioned robo advisors. I'm a little
Speaker 1: bit of a contrarian because, hey, you know what, if
Speaker 1: you give me two hundred million dollars in venture capital
Speaker 1: money from marketing, I could raise three or four billion dollars.
Speaker 1: But the better way to think about it is, Wait,
Speaker 1: you've spent a hundred million dollars to generate four or
Speaker 1: five million dollars a year in revenue. How is that
Speaker 1: going to take over the world. Yeah, I don't want
Speaker 1: to comment on valuations there, but it's it's everybody's going
Speaker 1: to have some element of that. I mean, it's that
Speaker 1: that technology all clients are going to access their accounts online.
Speaker 1: I think everything place already now is increasingly I mean,
Speaker 1: if you think about it, everybody who's got a custodian
Speaker 1: be a Schwab or TV, your fidelity, you get a
Speaker 1: full dashboard online. You could see your holdings. You can
Speaker 1: more or less see your performance. What what the robos
Speaker 1: seem to do is come up with an asset allocation
Speaker 1: mob all relative to your risk tolerance. How unique is
Speaker 1: that and and is that gonna spread to the rest
Speaker 1: of the industry. I think, you know, our our firm
Speaker 1: has been investing on the advisors side. We think there
Speaker 1: there will be some people who like to go direct
Speaker 1: to consumer and people manage our own money and do
Speaker 1: that through through what they're offering, and they have very
Speaker 1: good jet you know, generic offerings. Is that Is that
Speaker 1: going to be true for the average high net worth family.
Speaker 1: Someone has three million dollars five million dollars in the market.
Speaker 1: Do they want to pick up the phone and speak
Speaker 1: to somebody or they want to log in? I think
Speaker 1: most people there's a spa is how much of the
Speaker 1: wealth around is is advisor overseeing versus direct? I think
Speaker 1: we're still we've always from the beginning in position for
Speaker 1: working with advisors and financial intermedis. I think that's how
Speaker 1: we continue to see. You know, so all of our
Speaker 1: investments in technology advisor solutions is really trying to help
Speaker 1: advisors build their businesses and it's very tough to find
Speaker 1: that individual client, and that's what we're going to continue
Speaker 1: position for. I'm curious as to how much of a
Speaker 1: fear of robo advisors is a generational thing that the
Speaker 1: older advisors see the new technology and fear it, and
Speaker 1: the younger advisors say, yeah, this is just another tool
Speaker 1: in our another arrow in my quiver. And the research
Speaker 1: we've seen is that even the older generations they've been
Speaker 1: working with technology, you know, the successful people, they've been
Speaker 1: operating with technology. So they even the seventy year olds,
Speaker 1: they need they want your a digital experience. UM So
Speaker 1: if you if you're not on board with upgrading your technology,
Speaker 1: if you're still in the paper world, clients are going
Speaker 1: to go to firms that have the digital offerings. And
Speaker 1: so that's that's the trend that we see just continuing
Speaker 1: and we want to help on the clients that we
Speaker 1: work with do that and do it do it well.
Speaker 1: So you mentioned fees earlier, we've been talking about that
Speaker 1: for for forever. UM Very recently Fidelity introduced the concept
Speaker 1: of the Falcrum fee, which is a reduced fee if
Speaker 1: they're not out not out performing a particular benchmark. Is
Speaker 1: that's something that potentially can catch on. What are your
Speaker 1: thoughts on these fulk room fees. Conceptually, it's a very
Speaker 1: interesting I mean, it's a it's what you would think
Speaker 1: you want as a consumer products. If you're manager, you're
Speaker 1: trying to outperform. Your manager doesn't outperform, you should pay less.
Speaker 1: And so conceptually I'm I'm aligned with it. The incentives
Speaker 1: are very hard to align it in sort of a
Speaker 1: public vehicle like in ETFU. There are some people who
Speaker 1: are starting to experiment with that, so we're definitely watching
Speaker 1: that closely, UM, and and you just you want to
Speaker 1: make sure if you're doing it, you've got align when
Speaker 1: people are invested in the fund, you know, time periods,
Speaker 1: the incentives for both the investors in the fund. Properly
Speaker 1: timing up who's paying what when is not a straightforward
Speaker 1: proposition in the public vehicle like ETFs, I mean, as
Speaker 1: a doing a one on one, separate account where you
Speaker 1: can manage your time horizon with your performance in the
Speaker 1: fund super easy to think about. But as a ute
Speaker 1: et f rapper, that's a challenge that seems challenging me.
Speaker 1: But you know, I'm sure there's gonna be ways of
Speaker 1: looking at that and we'll we'll study that and see
Speaker 1: think about it. So you guys are are pretty heavy
Speaker 1: value oriented, you're pretty heavy divinend oriented. These are part
Speaker 1: not that dividends are. But it's the same traditional FAMA
Speaker 1: fringe factor models. What do you think of the rise
Speaker 1: of so called smart beta, which really is factor investing
Speaker 1: with a little bit of a different marketing twist, and
Speaker 1: you guys get painted with that same brush. What you
Speaker 1: call things is always an interesting term, and we used
Speaker 1: to call things passive alpha when we first started passive alpha,
Speaker 1: trying to get rules based ways of generating alpha in
Speaker 1: a lot of ways. I think what we're trying to
Speaker 1: provide is lo fi alpha, or you could say modern alpha.
Speaker 1: You know the idea I like that modern alpha in
Speaker 1: other words, low fie passive technology twist. And so you're
Speaker 1: using technology algorithms to add value. It's going to be
Speaker 1: increasingly you're you're using smart technology, which is its century
Speaker 1: technologies to try to add value UM and so increasingly,
Speaker 1: where we might have been low tracking error alpha, we're
Speaker 1: increasingly going to be going after the higher tracking air
Speaker 1: real value added defined tracking a sort of how much
Speaker 1: risk versus the benchmark you're taking. So we're not talking
Speaker 1: about active share, we're talking about risk adjusted returns. Yeah,
Speaker 1: we active share is a component of that. So the
Speaker 1: more active share you are, the higher tracking AIR is
Speaker 1: likely to be because the more mismatch you are from
Speaker 1: the front. So UM, I think about it as the
Speaker 1: closer you are to the benchmark, the lowrier tracking AIR
Speaker 1: will be. And that's what just a total market, if
Speaker 1: you have two thousand stocks, you're gonna have a pretty
Speaker 1: low tracking air. Let's talk about a little bit about bonds.
Speaker 1: We haven't gotten to fixed income at all. How are
Speaker 1: you perceiving what's going on in that space? Can you
Speaker 1: create alpha in the fixed income side? What? What do
Speaker 1: you guys? Absolutely so we do. We have enhanced yield
Speaker 1: bond indexes. And actually you know we're here in the
Speaker 1: Bloomberg offices. Were part here with bloom Bloomberg on a
Speaker 1: number of fixing come indexes Yield Enhanced Bloomberg Barclay's Total
Speaker 1: fixing income indexes where you're just you know, historical yields
Speaker 1: are as low as they've been in the US market,
Speaker 1: duration is the highest. But can you sort of rewaight
Speaker 1: the agg away from just treasuries, which have been huge issuance,
Speaker 1: low yield, high duration, reweight towards credit, which is what
Speaker 1: your traditional active corporates tips, what reads. What are you
Speaker 1: adding to. It's the traditional investment grade agg universe, but
Speaker 1: just rebucketing it to have constraints so you don't an
Speaker 1: increase ration too much, You don't tilt to credit too much,
Speaker 1: but it really it tilts to credit in away from
Speaker 1: treasuries and a constrained fashion. So we have a short
Speaker 1: term version the e t F is SHAG s h
Speaker 1: a G. The longer term is AGGIE so AG y
Speaker 1: UM as a way to just yield enhancing the agg
Speaker 1: we're definitely seeing traction there. It's early days um, but
Speaker 1: I think that's our first factor investment in fixed income.
Speaker 1: But we've also done fundamentally screened sort of credit screen
Speaker 1: so looking at in the high old market as an example,
Speaker 1: screening out bonds with negative free cash flow, not just
Speaker 1: issuing market cap, which gives the biggest way to the
Speaker 1: biggest indebted issuer, screen out those bonds with negative free
Speaker 1: cash flow, and that's a quality portfolio on bonds that
Speaker 1: we've we have four different funds screened around that as well.
Speaker 1: Can you stick around a little bit about we'll keep talking.
Speaker 1: We have been speaking with Jeremy Schwartz. He is the
Speaker 1: director of research at Wisdom Tree Investments. If you enjoy
Speaker 1: this conversation, be sure and stick around for the podcast
Speaker 1: extras where we keep the tape rolling and continue chatting
Speaker 1: about all things value, et F and divinend oriented. Be
Speaker 1: sure to check out my daily column. You can see
Speaker 1: that at Bloomberg view dot com. Follow me on Twitter
Speaker 1: at Hults. I'm Barry Riholts. You're listening to Masters in
Speaker 1: Business on Bloomberg Radio. Welcome to the podcast. Jeremy. Thank
Speaker 1: you so much for doing this. We have been talking
Speaker 1: about doing this for like a year and a half.
Speaker 1: I'm like, oh, I have to get you on the
Speaker 1: show for for forever. So I'm so glad we managed
Speaker 1: um to get in to get you in. And by
Speaker 1: the way, Medina and you could keep this in that
Speaker 1: last conversation where he was describing Junior Jeremy in the intro.
Speaker 1: I love that we should keep that on the broadcast portion.
Speaker 1: So just just not or say yes or something, and
Speaker 1: I'm fine. Um So, so anyway, let's talk a little
Speaker 1: more about Siegel, because I'm endlessly amused by him. In
Speaker 1: full disclosure, I used to bust his chops heading into
Speaker 1: O eight o nine about um, just buy and hold
Speaker 1: and kind of forget to me. The O eight o
Speaker 1: nine crisis was You're never gonna call every crisis, but
Speaker 1: dear Lord, you can if you looked. I used to
Speaker 1: call it the leaping dolphin. Remember the three D pictures
Speaker 1: people used to have on the wall, the posters where
Speaker 1: it didn't look like anything, but if you caught it
Speaker 1: at just the right angle, Oh, there's the leaping dolphin.
Speaker 1: That That's kind of how I felt about the last crisis.
Speaker 1: But full full disclosure, I'm endlessly impressed, entertained, amused by
Speaker 1: Siegell for so many reasons. Him and Bob Shiller buddies.
Speaker 1: Are there two more opposite personalities. I've got a great
Speaker 1: story on sea so um in a way of when
Speaker 1: I was courting my wife. So my wife likes to
Speaker 1: joke that, you know, I met her in two thousand one,
Speaker 1: and I met the love of my my true life,
Speaker 1: of my life in two thousand one, which is when
Speaker 1: I started working for Siegel also, but you know that
Speaker 1: first summer I started working for him, she was taking
Speaker 1: a class where she had to do a book report
Speaker 1: reviewing and contrasting Irrational Exuberance with which Bob Schiller's book
Speaker 1: where he had had briefed Um green Span in ninety six,
Speaker 1: and then green Span went out and gave the Irrational
Speaker 1: Zuberan speech based on Schiller's work, and then Schiller named
Speaker 1: the book Irrational Zuberans. Yeah, And so you know, they
Speaker 1: talked about how they vacation together. So on one of
Speaker 1: those two thousand one summer vacations there in Ocean City,
Speaker 1: Segul invited me to a barbecue and stay with them
Speaker 1: for the weekend. In Ocean City. Schiller was coming down,
Speaker 1: The New York Times was coming to profile and they
Speaker 1: did the walks on the beach with the New York
Speaker 1: Times Profile, And so I got to invite my wife
Speaker 1: to the she was my girlfriend obviously at the time,
Speaker 1: just to impress to the barbecue, and she had to
Speaker 1: be she was doing this book report on Irrational zuber
Speaker 1: and she tells the professor, I have to miss class.
Speaker 1: I'm going to this barbecue with siegu and Schiller and
Speaker 1: can I come? But she got to, you know, she
Speaker 1: wrote her paper and she was giving examples of we
Speaker 1: went to Atlantic City and they're playing black jack and
Speaker 1: Siegel was into black jack, playing the cards, best odds
Speaker 1: in the house, and Schiller didn't even you know, didn't
Speaker 1: want to play the black chacked tables. And she put
Speaker 1: that in her paper on the stories of how even
Speaker 1: they're gambling. You know, Siegel embraced the risk of liking
Speaker 1: to play black shack and Chiller was so risk averse
Speaker 1: and didn't want to play blackjack. She gotten you know,
Speaker 1: eight plus on the paper. But that was, you know,
Speaker 1: in an interesting time. So that's those stories of them
Speaker 1: vacation together are real. Um. And actually my first project
Speaker 1: where I got to show Siegel my writing was also
Speaker 1: really to Bob Schiller. So in what way go explain that?
Speaker 1: So Stocks to the Long Run you know, came out,
Speaker 1: he did the second dition. I was working with him
Speaker 1: on the two thousand two edition, and right after I
Speaker 1: spent the weekend or you know that vacation, I said,
Speaker 1: you know, of all the stuff topics you have in
Speaker 1: socks long when you have nothing on behavioral finance. Um,
Speaker 1: and your best friend is Bob Schiller. Come on, and
Speaker 1: you wrote a paper with Richard Taylor, and Faylor just
Speaker 1: won the Nobel Prize for a lot of his work,
Speaker 1: and Siegel and Taylor had collaborated on some work together.
Speaker 1: So I said, let's you should add a chapter. And
Speaker 1: he's always had quantz and math people, but he never
Speaker 1: had a writer. Um, So I said, why don't you
Speaker 1: let me take a stab at it? And so I
Speaker 1: wrote the behavioral finance chapter for a Doctor long Run.
Speaker 1: And you could see if you read it, it's very
Speaker 1: different than any other chapter in the book. Is actually
Speaker 1: written as a conversation between a psychologist. You know, a
Speaker 1: couple goes to their psychologists and having all these behavioral
Speaker 1: issues and the psychologist walks him through all their behavioral
Speaker 1: finance problems. You can see it's very different than the
Speaker 1: rest of the book. That that that's so funny. You know.
Speaker 1: I have a number of Schiller stories, but the only
Speaker 1: one I want to share is after he did the show,
Speaker 1: I wasn't gonna put Bob Schiller on on a subway.
Speaker 1: He had to go somewhere else. So I got a
Speaker 1: car and I took him in a cab pouring rain,
Speaker 1: tons of traffic. I was afraid we're gonna be late,
Speaker 1: but he gets into the back of the cab and
Speaker 1: immediately puts on a seatbelt, and I'm like, Ah, this
Speaker 1: is a person who really understands risk. Yeah, you can
Speaker 1: see carry throughout there all all their lives. So so
Speaker 1: let's talk a little bit about segull. I have a
Speaker 1: couple of seagulls stories. Also, I really enjoy him. When
Speaker 1: he was on the podcast. I think it was the
Speaker 1: first time I met him in person, as opposed to
Speaker 1: a disembodied head on tv um or a voice in
Speaker 1: in an in an earpiece while you're debating him about something.
Speaker 1: And the only way I could really describe him is
Speaker 1: filled with childlike wonders. Am I overstating that at all?
Speaker 1: I mean his passion for teaching, his passion for the markets.
Speaker 1: It's just that's what gets people excited. I mean why
Speaker 1: he's the most popular professor at Wharton, And let me
Speaker 1: stop you there. Year after year he is consistently voted
Speaker 1: by Wharton students their favorite professor, and in the NBA
Speaker 1: World you have to pay for your classes, so it's
Speaker 1: a real market based system. If you have a certain
Speaker 1: number of points, you can allocate it. And I remember
Speaker 1: when this was. I haven't kept tracked with the points,
Speaker 1: but when I was there, he was always the most
Speaker 1: highly bid professor. And it's why it's while he starts
Speaker 1: his class, his first half hour of every class is
Speaker 1: essentially just to look at the markets, and he that
Speaker 1: day he has his Bloomberg term know up, He's walking
Speaker 1: through what's going on news wise, and so it's the
Speaker 1: only you go to Wharton and you think this is
Speaker 1: the most practical thing to learn about the markets, but
Speaker 1: it's really the only class that actually does really go
Speaker 1: through what's happy in the real time, actual market. And
Speaker 1: looking at the other thing about him that I found
Speaker 1: so amusing, he look, we go a little long the
Speaker 1: whole ideas. These are deeper dive conversations. He's sitting where
Speaker 1: you were sitting, and about an hour into the conversation
Speaker 1: and I'm doing it now, he starts just you know,
Speaker 1: it's it's swivel chair. He just starts rocking back and
Speaker 1: forth while while gesticulating and and answering the question. And
Speaker 1: then he started and I'm wearing just one earpiece. The
Speaker 1: guest isn't wearing anything. He starts spinning in circles on
Speaker 1: the It was the most amusing, charming and transing thing.
Speaker 1: And if you listen towards the ends of the Seagull podcast,
Speaker 1: you could kind of hear him whipping around the microphone
Speaker 1: as he spins around, because like he really gets into
Speaker 1: it and was he's presenting. He's pacing back and forth,
Speaker 1: and he's like I can see him jumping on a
Speaker 1: desk and waving his arms. He gets animated. That's for sure.
Speaker 1: That that's that's really interesting. Um, So let's talk a
Speaker 1: little b about some of the things we missed during
Speaker 1: the broadcast. There were a couple of questions I had
Speaker 1: to ask you because, uh, we talked about a lot
Speaker 1: of things we hardly mentioned. Some guy named Michael Steinhardt,
Speaker 1: legendary investor, uh, founder of Wisdom Tree. Tell us about
Speaker 1: his role with the creation and development of the country
Speaker 1: of the company and what sort of working relationship you
Speaker 1: have with him. So I would say, he's the chairman
Speaker 1: of the company. He was the original backer and the
Speaker 1: sort of he funded the company. So Jonathan Steinberg was
Speaker 1: in Luciana Sasano was their intellectual property stort, developing the
Speaker 1: firm after the magazine initial investor group. But Michael, you know,
Speaker 1: he hadn't done anything. He had retired, He closed his
Speaker 1: fund after literally starting the hedge fund industry, hadn't the
Speaker 1: best for twenty nine years, I think something like returned
Speaker 1: an incredible track record, and then he closed the fund
Speaker 1: in ninety four, dedicated his life to charity, Like you
Speaker 1: still have seven years of a booming bullmarket. He's like, nope,
Speaker 1: I'm done. Yeah, he just he That's another story for
Speaker 1: another day. But he closed it. He didn't do anything
Speaker 1: finance wise. He was giving back, giving his money to charity,
Speaker 1: and he didn't do anything literally in finance until Wisdom
Speaker 1: Tree uh in decade later, two thousand four year, so
Speaker 1: he met John oh and John O was had the
Speaker 1: idea about the et F structure and and really this
Speaker 1: better way performance based indexing was his concept, and Michael was.
Speaker 1: I mean, there's a story I remember from the early
Speaker 1: days that Michael said, you know, if I was presented
Speaker 1: with the opportunity to fund Vanguard, I would have that
Speaker 1: I would not have. He would not have because he
Speaker 1: was not about tracking the market. He was about beating
Speaker 1: the market and he wanted he saw this idea of
Speaker 1: trying to generate better performance, a very performance oriented culture,
Speaker 1: and so that's what really inspired him to get involved
Speaker 1: with JOHNO and John Oh you know, linked it up
Speaker 1: with Siegel and we helped validate their initial research and
Speaker 1: gave some academic back into why we think this could
Speaker 1: work going forward and that there was something to this.
Speaker 1: And that's how the that sort of trinity came together
Speaker 1: of Steinhardt funding, Professor Siegel joining and also fund to
Speaker 1: get back and back in a four and joining the
Speaker 1: senior advisor, and then they brought me on together. But
Speaker 1: it's it's um, it was that performance oriented mindset that
Speaker 1: Steinhardt really wasn't inspired by. H That's quite fascinating. And
Speaker 1: I don't know Jonathan stein but I know his father
Speaker 1: was Soul Stein, who ran Reliance Insurance. This is back
Speaker 1: in the eighties and nineties, way back when. Yeah, and
Speaker 1: I didn't really get to know Saul, but in the
Speaker 1: in this in this small world, um, you know, I
Speaker 1: used to work in the Steinberg teacher call at Wharton
Speaker 1: and Professor Siegel is the shared by Saul Steinberg. So
Speaker 1: it's a small, interconnected world of how it all comes together. Um,
Speaker 1: but yeah, it's been. It's been a great relationship. And
Speaker 1: he's also one of these passionate about et s, passionate
Speaker 1: about what we're doing, and really is assembled just a
Speaker 1: remarkable team at with some tree. So you guys are
Speaker 1: so valuation oriented, I would be remiss if I did
Speaker 1: not ask you about valuations of stocks and bonds. First,
Speaker 1: since we talked about Chiller, let's talk about the cape ratio.
Speaker 1: Does the cape ratio tell the full story? Um, it's
Speaker 1: a it's a it's a complicated question there. Um you
Speaker 1: know it's Siegel has done a lot of work on this,
Speaker 1: and which I find, by the way, I find hilarious
Speaker 1: that the two of them are arguing in white papers,
Speaker 1: good naturedly about what is the value of the cape?
Speaker 1: Is it worth something? Is it not worth a lot?
Speaker 1: Is it just here you're expected returns? Or does it
Speaker 1: really give us buying cell signals? And Siegel loves the framework.
Speaker 1: He thinks that it has been one of the better
Speaker 1: predictors of long term returns. He thinks the earnings numbers
Speaker 1: are biased and that is creating problems. So counting numbers
Speaker 1: changed the O nine crisis, which is still in the CAPE. Basically,
Speaker 1: three firms wiped out all of the earnings of the spire.
Speaker 1: They were small firms. Wait to say that again? Three
Speaker 1: How is that possible? Three firms wiped out all of
Speaker 1: the earnings of the sp basically Bank of America's City
Speaker 1: Group A I G. The way they do not exactly
Speaker 1: small firms, no, but but at the time they were
Speaker 1: by market value, they were small by market values, almost
Speaker 1: giant companies with the so so go go. We'll go
Speaker 1: through an example here, but by market value they were
Speaker 1: small at the time, and they destroyed all of the earnings.
Speaker 1: So you're investing, and take a simple to stock example
Speaker 1: the city and but take a simple example you have
Speaker 1: of your portfolio. Okay, let's say you have a hundred
Speaker 1: forty billion ten billion dollars. One firm is is ten
Speaker 1: billion of profits, another firm is is negative nine billion, okay,
Speaker 1: and the first one So you have a hundred fifty
Speaker 1: billion market cap set and firm nagative nine billion profits
Speaker 1: called ten billion. So you have one billion of total
Speaker 1: profits for the combined firm hundred sixty billion market cap.
Speaker 1: So is your p D sixty, or is your pe
Speaker 1: of your portfolio at what is the trooper? What is
Speaker 1: the troop or folio P? And the way S and
Speaker 1: P does their earnings is dollar for dollar, and so
Speaker 1: that's makes sense. It's a it's a problem in the
Speaker 1: way of the accounting on the on the P ratios.
Speaker 1: So so here's the pushback on that. When you look
Speaker 1: across the universe of earnings. Let's let's hold McDonald's and
Speaker 1: g e Aside, who absolutely in the recession, so we're
Speaker 1: an earnings crunched, but they still were on the green
Speaker 1: side of the ledger more or less. But you have
Speaker 1: Lehman Brothers going to zero when Bear Sterns earnings you know,
Speaker 1: both of them deeply negative. And then there's a hundred
Speaker 1: other financial related firms who saw their earnings compressed, be
Speaker 1: it Black Rock or U B A U B S
Speaker 1: is a A d oh, so not that, but you
Speaker 1: could look at a ton of different Every bank, the
Speaker 1: home builders totally one of the crapper, The broker dealers
Speaker 1: got slacked, the community banks did really poorly. So while
Speaker 1: those three firms had like a massively negative earnings number,
Speaker 1: everybody else's numbers really came down or we're you know
Speaker 1: what best flat, And that's before we start talking about industrials.
Speaker 1: Auto sales fall off the cliff. I mean, you could
Speaker 1: go down the list of of sectors. So while for
Speaker 1: sure these three companies had an outsized impact, the rest
Speaker 1: of earnings fell. Well that that's the question how much
Speaker 1: did they really fall? And so I think if you
Speaker 1: look at things like the niper profits um National incomproduct
Speaker 1: account profits or their GDP numbers where they count profits,
Speaker 1: they didn't fall anywhere near as much. And so when
Speaker 1: you do these perations, but that's not what we use
Speaker 1: for pe earning, the questions how do you get a
Speaker 1: real earnings number? And what is the real earning series?
Speaker 1: And so there's there's biases in the numbers, and you
Speaker 1: could you could debate on how much the magnitude is.
Speaker 1: But they changed the accounting rules, so now you're forced
Speaker 1: to mark down losses. I mean, Buffett writes about this
Speaker 1: all the time. He says, I can never write up
Speaker 1: the value my assets. You can only mark down the
Speaker 1: value of assets, and so the accounting rules are one
Speaker 1: side of there. But they suspended that for banks right
Speaker 1: after what was it the October o eight debacle, and
Speaker 1: then again in um the first the whole, um, the whole.
Speaker 1: I'm trying to remember with the which accounting rule changed,
Speaker 1: but essentially essentially we allowed banks that you could segment them,
Speaker 1: you don't have to write them down. So for all
Speaker 1: we really know, these banks were insolvent and we're running
Speaker 1: on fumes and government handouts. So I'm pushing back on
Speaker 1: the well, things really weren't that bad, they were got awful. Then,
Speaker 1: Oh no, I get that they're got awful, um, but
Speaker 1: the question is that it's been a poor in the
Speaker 1: last three years. It's certainly been a very poor predictor,
Speaker 1: and so the question about that. So the question is,
Speaker 1: in fact, you're you're better off buying when earnings are
Speaker 1: worth their worst than buying when the earnings are worth
Speaker 1: the better best. And it will kept you out of
Speaker 1: the market for basically all but a few months, I
Speaker 1: mean even O nine, right, a few months after the
Speaker 1: market rebounded, oh nine, it was telling you to stay
Speaker 1: out of the market. And the market's up to two
Speaker 1: to three x since then. So and then the question
Speaker 1: is at least three x in the US, to say
Speaker 1: the least. And so you know, in terms of going forward,
Speaker 1: how do you look at valuations today, I'd say, you know,
Speaker 1: the S and p P s around twenty times earnings.
Speaker 1: And this is going back and forth with Seagull, but
Speaker 1: he would say the earning seal is close to five
Speaker 1: percent today, and so you get a real earning seal
Speaker 1: of five percent versus historical average of what sixteen is
Speaker 1: the average pe. So when he says stocks are long,
Speaker 1: when you had a six seven long term real return,
Speaker 1: that's basically one divided by the six team. So that's
Speaker 1: where you get the sixth six seven real return. Inverting
Speaker 1: it will take out the zeros. It's just the earning sale.
Speaker 1: It's just povere versus EO repeat, and so you get
Speaker 1: six seven um today. If it's the piece twenty, you
Speaker 1: get a five percent earning sield. You know, the historical
Speaker 1: equity premium phrase two years of data was three. Today
Speaker 1: the real equity you could say the real equity premium
Speaker 1: is like four and a half because the tenure tips
Speaker 1: is at fifty and you have a five earning sield.
Speaker 1: And on top of that, and this is a whole
Speaker 1: another conversation, but on top of that, when you look
Speaker 1: at the money being thrown off by companies like Google
Speaker 1: and Amazon and Facebook. It's not like the old days
Speaker 1: where you're building a railroad, you hire ten thousand people
Speaker 1: and buy you know, endless tonnage of steel. Look at
Speaker 1: look at what'sapp or look at Instagram or some of
Speaker 1: these other things where it's twenty people are worth five
Speaker 1: billion dollars and their core structure is a handful of
Speaker 1: laptops and some Internet connectivity. And that's the worry that
Speaker 1: people say, Well, margins are going to mean revert and
Speaker 1: they're gonna be the problem that we're at these high
Speaker 1: valuations and margins are are high and they're gonna head downward.
Speaker 1: So that the most barrish argument is that margins have
Speaker 1: to mean reversion, but they may not because of what
Speaker 1: you're saying, that different return on capital, that you just
Speaker 1: have a different profile. M You know, the problem with
Speaker 1: mean reversion is, hey, if you're waiting for mean reversion
Speaker 1: and the leather belt companies and steam engines, that that
Speaker 1: isn't happening. And you know, I always I never want
Speaker 1: to come across as an apologist for expensive stocks. But
Speaker 1: that's before you even start talking about the frictions of
Speaker 1: executing a trade. Buying a stock buying an ETF. It
Speaker 1: used to be immensely expensive to go out and just
Speaker 1: buy a stock. That isn't the case anymore, right, So
Speaker 1: if you may have had to pay more than one
Speaker 1: probably paid more than one to two percent to actually
Speaker 1: get market like portfolios and get these diversified portfolios where now,
Speaker 1: like we talked in the first segment, they're basically free
Speaker 1: to get diversification. And so how much higher should pe
Speaker 1: ratios be going forward compared to the past, and you
Speaker 1: don't have that friction, You can say you could justify
Speaker 1: a compared to a six ten p um And whenever
Speaker 1: you really did have single digit ps, you had double
Speaker 1: digit interest rates. So how far are we from double
Speaker 1: digit interest rates? So the pushback on stocks are expensive?
Speaker 1: Stocks are cheap? Hey, stocks are cheapest hell throughout the
Speaker 1: seventies because you can get ten percent in treasury. So
Speaker 1: why would you be invested in stole if you could
Speaker 1: get ten percent in treasuries today? And we gladly go
Speaker 1: all my portfolio bonds. But if you're getting tempercent treasuries,
Speaker 1: we have an inflation problem which is going to be different,
Speaker 1: which let's talk about bonds. So there's a huge swath
Speaker 1: of bond bears who have been declaring the end of
Speaker 1: the thirty year Paul Volcan induced bond bull market. For
Speaker 1: I don't know, about ten years we've been hearing this
Speaker 1: is the end of the bond market our bonds. By
Speaker 1: the way, you guys value the way Wisdom Tree values
Speaker 1: fixed income? Are we in a bond bubble? Well, segu
Speaker 1: and I had did some op eds in the Law
Speaker 1: Street Journal together. You don't get to choose your title
Speaker 1: in the Wall Street Journal. So that's true. By the way,
Speaker 1: for everybody who writes a column. People don't know this.
Speaker 1: The editors choose the headline and very often it's clicking
Speaker 1: and catchy, but may not reflect the nuances of what
Speaker 1: you wrote. And the nuance of the article was by
Speaker 1: different paint stocks over tips because you had a you know,
Speaker 1: a one percent ten year tips. The first article in
Speaker 1: had one percent ten year tips, and we said you
Speaker 1: could get stocks yielding three and six years ago. That
Speaker 1: worked out. That was a good, good call. The article
Speaker 1: is the Great American bond Bubble. So the title was, yes,
Speaker 1: there's this huge bubble and bonds. Because you had this
Speaker 1: one percent tips, then you had this negative tips shield
Speaker 1: you had negative one percent, which was really and which
Speaker 1: a few years later you had bond yields. In the
Speaker 1: U S. You would say, I'm going to give the
Speaker 1: US government a hundred dollars and get back ninety dollars
Speaker 1: after inflation ten years later on the expectation that it
Speaker 1: wasn't even disinflation, that there was full blown deflation coming away.
Speaker 1: It was just massive risk aversion. It's like, why would
Speaker 1: you give the government and take back You would never
Speaker 1: think you would have a ten year negative tips shield,
Speaker 1: but guess where you do have that today? You still
Speaker 1: have huge negative tips or inflation adjust body was in Europe.
Speaker 1: I mean Germany's tenure tips are negative, which which is
Speaker 1: not a surprise when you look at you had a
Speaker 1: financial crisis hit the whole world. But the order of
Speaker 1: recovery was the U S was the first and most
Speaker 1: aggressive responder. As much as people screamed about KWI and Zurup,
Speaker 1: we were the first there. Then it's arguable that Japan
Speaker 1: was next and Europe is still the lagger. Is that
Speaker 1: a fair description? Yeah? And I think even from where
Speaker 1: quee and monterary policy is going, you have the FED
Speaker 1: is quote unquote normalizing we're raising rates, we're reducing our
Speaker 1: balance sheet. You have Japan targeting zero yields on the tenure,
Speaker 1: so they sort of outsourced their monetary policy to the US.
Speaker 1: You have the ECB negative rates at the short end,
Speaker 1: you have them still aggressively expanding the balance sheet. Um,
Speaker 1: but you could still say, why should somebody have a
Speaker 1: negative inflation adjusted body for tenure? And that's a pretty
Speaker 1: aggressive statement that that's rational unless you're you really have
Speaker 1: an expectation that we're entering a period of deflation and
Speaker 1: your money is worth more today than tomorrow. I mean,
Speaker 1: that's the only way I can rationalize it. And these
Speaker 1: inflation adjusted yields, I mean, it's it's it's hard. It's
Speaker 1: just a sign of risk aversion that you don't trust
Speaker 1: money in the banks, that makes sense, and you don't
Speaker 1: want to get the negative you know, the CBS at
Speaker 1: negative forty and so they're they're they're sort of taxing
Speaker 1: your money by keeping them in and cash at the bank.
Speaker 1: You and I can talk about this stuff forever, but
Speaker 1: I only have you for a finite amount of time.
Speaker 1: So what say we jump to my favorite questions that
Speaker 1: I ask all of my guests. The first one is
Speaker 1: tell me something about your background that most people don't know.
Speaker 1: You know. So, and I think about this. I have
Speaker 1: two young daughters there, two and five, and you think
Speaker 1: about how much of where what you do at a
Speaker 1: young age influences You're like, you sort of think back
Speaker 1: to like where how do I get to where I am?
Speaker 1: And there's obviously the proximate causes getting linked up with
Speaker 1: Siegel at at Pen and how did I get hooked
Speaker 1: up with that and the people you met at Pen?
Speaker 1: But I actually go back to my dad says it
Speaker 1: goes back to when I was two and he would
Speaker 1: read me the you know, the Wall Streetjournal page in
Speaker 1: stock pages, showing me numbers and getting me interested in
Speaker 1: stocks from two years old on his knee, you know.
Speaker 1: So he thinks it was that that early. Um, I
Speaker 1: think about when did I really get good at math?
Speaker 1: And so when I was in first grade, Um, my
Speaker 1: parents moved to Baltimore for six months and I went
Speaker 1: to this Hebrew day school where they taught half the
Speaker 1: day in Hebrew and half the day in English Hebrew.
Speaker 1: So I spoke more Hebrew in first grade than I
Speaker 1: ever did ever. Again, so we moved down to Florida
Speaker 1: and that was end of that. But I was you
Speaker 1: could could have started speaking Yiddish in parts of so
Speaker 1: Supposedly when I moved back to South Florida, I was
Speaker 1: teaching people Hebrew in my class. But in first grade
Speaker 1: I was already in second grade math, so they accelerated me.
Speaker 1: And then I just always thought of myself as really
Speaker 1: good in math, sort of advanced from that one. You know,
Speaker 1: that first grade where you just get this edge from
Speaker 1: a different school and you transfer back to a different
Speaker 1: schoo And how much that then to establish my foundation
Speaker 1: throughout the rest of middle school, high school, college, coming
Speaker 1: in with a year's worth of credit so I could
Speaker 1: take off a year to work with Siegel. All these
Speaker 1: things started from basically when I was in first grade.
Speaker 1: You had you had an edge in first grade, and
Speaker 1: you just carried that forward, never let anybody catch up.
Speaker 1: I mean, it's it's hard to but I think it
Speaker 1: does carry all the way back there. So here's a
Speaker 1: silly question for you, but I'm assuming we can expand
Speaker 1: on it. Who are your early mentors and feel free
Speaker 1: to talk about Siegel although we've really discussed him a lot.
Speaker 1: At what you want or or describe other mentors. Yeah,
Speaker 1: I mean, so he's obviously been the number one that
Speaker 1: shaped the last twenty years. Um. I think one of
Speaker 1: the things that I hope to embody UM is he
Speaker 1: he said to me, you know, despite all he had
Speaker 1: obviously was successful from the books and the speaking and
Speaker 1: then wisdom he took it to another level. But he
Speaker 1: told me once that despite all that success, se um like,
Speaker 1: the impact he had on me over time was like
Speaker 1: just more even more rewarding. So I hope to have
Speaker 1: that influence on people who work with me. And so
Speaker 1: for I'm sure that my team is listening in when
Speaker 1: the podcast comes out, I hope to have that influence
Speaker 1: on them. And uh, you know, you have to embrace
Speaker 1: it like I embrace it with him, and you gotta
Speaker 1: push me to hopefully know my team tries to take
Speaker 1: me up on that. Beyond that, I mean the co
Speaker 1: founder's Wisdom Tree Jonathan Steinberg, which Channa Circustano gave a
Speaker 1: trust in me at a young age. I mean I
Speaker 1: was when I joined them twenty two years old, twenty
Speaker 1: three years old, and they made me head of research
Speaker 1: for his twenty seven managing a few billion dollars. So
Speaker 1: the trust and confidence in just seeing talent and trying
Speaker 1: to help you put them in a position to do well.
Speaker 1: Was was unbelievable. So they've mentored me in in unbelievable ways,
Speaker 1: um and and Seorat of I try to aspire to be.
Speaker 1: I mean, John O, our CEO, is really unbelievable character
Speaker 1: and it really leads us in a way that just
Speaker 1: what he's been able to overcome in terms of building
Speaker 1: Wisdom Tree, I mean, it's the odds were definitely stacked
Speaker 1: against him, and he's just built this incredible team and
Speaker 1: motivated us all to rally around it and keeps us
Speaker 1: motivated every day. So let's talk about investors. What investors
Speaker 1: influenced your approach to markets? Valuation, ETFs, etcetera. UM, some
Speaker 1: of the standards, I mean, it's very value based investing.
Speaker 1: So it's it's you know, you've read everything Buffets written
Speaker 1: and so the Behavioral Finance Crew from Failure and all
Speaker 1: all that he's written on on behavioral finance Schiller and
Speaker 1: that it's it's it's a it's a standard thing in
Speaker 1: the value quality type investing is a lot of it. UM.
Speaker 1: The one of the books I remember and he's they're
Speaker 1: also getting a great following now. You know, in terms
Speaker 1: of the quant finance group, you know, you've read things
Speaker 1: like What Works on Wall Street from the O'shaughnessys. That
Speaker 1: was one of the first books I read with working
Speaker 1: with Siegel, So all those, So it's a lot of
Speaker 1: the standard quant value quality type folks. So let's let's
Speaker 1: talk about books. This is everybody's favorite, UM question. I'm
Speaker 1: going to put down O Sam's What Works on Wall Street?
Speaker 1: What are some of your favorite books? By the way, fiction, nonfiction,
Speaker 1: investment related, whatever? What? What do you what have you
Speaker 1: enjoyed reading? What are you reading now? Yeah? And and
Speaker 1: and there's actually an overlap there from from O. Sam.
Speaker 1: So Patrick's reading list is probably one of my go
Speaker 1: to sources. UM. I think on a personal level, one
Speaker 1: of the books that I read that has influenced me
Speaker 1: in my thinking is there's a book Mountains Beyond Mountains
Speaker 1: from from Tracy Kidder who profiled Paul Farmer, and you
Speaker 1: know he it was a really moving book for me
Speaker 1: and as I thought about how do I become, you know,
Speaker 1: is there some charities to embrace? But Farmers started this group,
Speaker 1: Partners in Health, and it's one that I've embraced personally
Speaker 1: partners in health. Yeah, so he's just as a one man.
Speaker 1: He's a Harvard doctor goes to Haiti. That the book
Speaker 1: was all about his expeditions to Haiti and how is
Speaker 1: devoting his life to improving the health conditions in Haiti.
Speaker 1: But it's now expanded to their like in twelve different countries.
Speaker 1: But it was one that I found an O'Shaughnessy's list,
Speaker 1: and it's it's one that it definitely touched me and
Speaker 1: I sort of spread that to my friends who are
Speaker 1: involved in health and in health policy. It's it's a
Speaker 1: really fascinating book. What are you reading right now? What's
Speaker 1: on your nights? Then one that I think is actually
Speaker 1: for the next decade that I just i'm sort of
Speaker 1: in finishing is um Destined for War, which I Destined
Speaker 1: for War Wow, which is some title which I picked
Speaker 1: up from Kyle Bass on one of the other podcasts
Speaker 1: I just listened to, and so he it talks about
Speaker 1: it's a Graham Allison, I think is the author, and
Speaker 1: it talks about it really the US versus China, and
Speaker 1: so it's it's as you think about the two rivalries
Speaker 1: over the next ten years. China is ascending, It's challenging
Speaker 1: the US, and the book goes through the times in
Speaker 1: history you had these ascending rival and it's it goes
Speaker 1: back to Athens and Sparta, and it goes through all
Speaker 1: these different examples of when you had these up and
Speaker 1: comers rivaling. You know, the statu the embedded powers and
Speaker 1: attentions that creates. And I do think China's ascendance is
Speaker 1: one of the big stories for the next ten years, no,
Speaker 1: no doubt. And thank you for not using the word frenemies.
Speaker 1: I I we all really appreciate that. Um. So you've
Speaker 1: been in the industry for almost twenty years. Is that
Speaker 1: a fair statements? Since when did you graduate? Warden? So
Speaker 1: I've been working, I'd say, really I would. I would
Speaker 1: mark my start date of two thousand one once I
Speaker 1: started working for Segull, but we graduated three al right,
Speaker 1: So you're you're fifteen years coming up on on on
Speaker 1: twenty years. What do you think is the most significant
Speaker 1: changes that have taken place taken place over the course
Speaker 1: of that arc of time within the financial industry. Certainly
Speaker 1: ETFs have exploded, and that's right where trillion now something
Speaker 1: that we were three billion to ten times that, right,
Speaker 1: So that's certainly the one of the major trends and
Speaker 1: we're I'm lucky to be part of it and trying
Speaker 1: to shape it and try to continue to shape it.
Speaker 1: And certainly technology has just advanced just such remarkable space
Speaker 1: that that's the next ten years is gonna be all
Speaker 1: about how you marry technology increasingly with investments, and that's
Speaker 1: I hope to be part of that as well. And um,
Speaker 1: your ears must have been burning last week. I was
Speaker 1: in an e t F event, um, and your name
Speaker 1: had come up several times. I believe one of your
Speaker 1: staff members was was actually there. Um, So let's talk
Speaker 1: about the next major shifts. It's the rise of etf
Speaker 1: is is the biggest single factor over the past ten
Speaker 1: fifteen years. What do you think the next major change
Speaker 1: is gonna be. Well, everything has been broad based exposure
Speaker 1: so far, so you really where there's still the highest
Speaker 1: feet So if you think about this active passive shift,
Speaker 1: there hasn't been. I mean, the hedge funds is in
Speaker 1: some ways so the most expensive part of the market.
Speaker 1: Where you know, our CEO likes to say, John likes
Speaker 1: to say that the rich get the worst advice, and
Speaker 1: so they get put in this most expensive advice for sure. Yeah,
Speaker 1: the most expensive and worst together. Come. Come for the
Speaker 1: high fees, stay for the under performance and the not
Speaker 1: ability to get your money back, no transparency, and so
Speaker 1: it's it's going we're going to increasingly go after that.
Speaker 1: And and so we start off as very broad based beta.
Speaker 1: We're doing more along short, more alternatives. We're gonna go
Speaker 1: after that too. So alternatives being hedge funds, private equity,
Speaker 1: venture capital. You think that entire UM, well, private equity
Speaker 1: can't be in ETF al right, that's no doubt about that.
Speaker 1: But is that sector of the of the investment world
Speaker 1: ripe for disruption UM We definitely, we definitely think about that.
Speaker 1: We figured out how do we rope that into things
Speaker 1: like our advisor engine UM Investment partnership in terms of
Speaker 1: bringing that technology oriented to the masses. But there's gonna
Speaker 1: be elements of trying to I think there's more we
Speaker 1: can do there on the private side. But but in
Speaker 1: the where the public side where you can where we
Speaker 1: focus on the et F market, we're definitely gonna think
Speaker 1: about doing alternatives and long short strategies. Tell us about
Speaker 1: a time you've failed and what you learned from the experience. UM,
Speaker 1: I mean I think about our E T s. I
Speaker 1: mean every E t F is a little startup, and
Speaker 1: so we have a number of ETFs that fail. You
Speaker 1: close ets down, UM, you try to examine why your
Speaker 1: thesis when you start, UM, when you launched it, and
Speaker 1: it didn't gain assets attraction? What caused that? So we're
Speaker 1: constantly evaluating our failures and trying to learn from them
Speaker 1: and figure out can we do things differently over time?
Speaker 1: And a means of our greatest success stories have come
Speaker 1: from changing. As we talked about earlier on, you change
Speaker 1: funds that didn't take off, and you change them UM,
Speaker 1: and then you say, you know, why did I miss
Speaker 1: that segment? Things that took off that you could have
Speaker 1: been their positioned well for and you try to learn
Speaker 1: from all those things. So let me let me ask
Speaker 1: the part B to that question. You guys have over
Speaker 1: fifty different funds, how and some of them have clearly
Speaker 1: caught a little lightning in a bottle. They've done really well.
Speaker 1: How do you try and sprinkle that into a fund
Speaker 1: that might not be doing as well as as you
Speaker 1: had originally hoped for when it was launched, and I
Speaker 1: mean doing as well in terms of performance, I mean
Speaker 1: resonating with investors in attracting assets. Yeah, we close. We
Speaker 1: have close to a hundred funds in the US today,
Speaker 1: so we have a very broad menu um and they
Speaker 1: are all I actually view all of our ets as
Speaker 1: little options where your paints. You know, you're paying a
Speaker 1: fixed cost and you've got to figure out until they
Speaker 1: get to break even, and so you're paying this sort
Speaker 1: of option premium until they potentially can have big upside.
Speaker 1: And so at some point you have to say, that's
Speaker 1: a good way to contextualize that. It's it's right they
Speaker 1: either you're either willing to pay that option premium because
Speaker 1: you still think that option might really take off and
Speaker 1: then it has really big payoffs. It makes sense to me,
Speaker 1: and so that's really how I think about it. And
Speaker 1: so as long as we're still convinced there's a market opportunity,
Speaker 1: we you know, when we started in O six oh seven,
Speaker 1: we didn't have that kind of runway. We had to
Speaker 1: be much more careful. We have more runway today. You
Speaker 1: can afford to nurture things that might be a little
Speaker 1: pricey while internally to run it while waiting for it
Speaker 1: to hit break even for better because you believe in
Speaker 1: the you have a high degree of conviction and in
Speaker 1: the idea, and we do close things down. You know,
Speaker 1: of course from time to time when you've just given
Speaker 1: up and you think you've given it its time and
Speaker 1: you've let a play out, but you know, we want
Speaker 1: to try to give things to take three to five
Speaker 1: years before you evaluate whether or not it's really been
Speaker 1: why you haven't been successful, and you could still close
Speaker 1: things down, then you wish you didn't close it down.
Speaker 1: That's interesting. Alright, we're down to our last few questions. UM,
Speaker 1: you're a relatively young guy, so I'm going to ask
Speaker 1: this differently. What do you do to relax outside of
Speaker 1: the office. Um? And my wife got into yoga, so
Speaker 1: she she got teacher trained as a yoga teacher. So
Speaker 1: this summer's she we go down the Jersey Shore by
Speaker 1: the beach there and that's where we do with the
Speaker 1: most yoga. Um is our We have a Jersey Shore
Speaker 1: yoga teacher. That's it's like our guru. UM In in
Speaker 1: in Philly where we live, we have a pool. And
Speaker 1: she says, if I ever finance doesn't work out, I
Speaker 1: should be a swim teacher. So lovelet's spending time in
Speaker 1: the water with the kids, and but a combination of
Speaker 1: yoga walking and we did the alf architect mark for
Speaker 1: the fall and which was that looks fascinating. It was
Speaker 1: a big New York Times article about that. West is great.
Speaker 1: I really like everything those guys do. Yeah, so it's
Speaker 1: a lot of walking as well. Um, you're a relatively
Speaker 1: young person who graduated school not too long ago. But
Speaker 1: if a millennial or a recent graduate came up to
Speaker 1: you and said, hey, I'm interested in the career of finance,
Speaker 1: what sort of advice would you give them? You know,
Speaker 1: when I think back to how I got hooked up
Speaker 1: with Segell, obviously can you find that mentor who can
Speaker 1: be useful for you? And the keywords I used there
Speaker 1: when I made my pitch was free work for free.
Speaker 1: And in reality you should pay people because it's really
Speaker 1: investment in their time. But I think out interns and
Speaker 1: even my cost to bring an intern on. If you're
Speaker 1: gonna have to spend time with things, they're not gonna
Speaker 1: add a lot of value upfront, and so they're actually
Speaker 1: a drag on you versus the time. And so you
Speaker 1: know that's true. Um, so you want to get find
Speaker 1: the right people who can mentor you and get the
Speaker 1: right opportunity, and and you got to put in a
Speaker 1: lot of time and effort early on don't come. You know,
Speaker 1: the millennials mentalities. They're entitled, So you've got to not
Speaker 1: feel entitled and work hard and and and a lot
Speaker 1: of good things will come. And our final question, what
Speaker 1: is it that you know about investing, indexing E t FS,
Speaker 1: dividends valuation today that you wish you knew seventeen years
Speaker 1: ago when you first started UH divid investing. When we
Speaker 1: looked at history going back fifty sixty years, I mean,
Speaker 1: dividends did very well during most down markets. Um, the
Speaker 1: O eight oh nine down market financials paid a lot
Speaker 1: of dividends, so it was not your typical down market
Speaker 1: in terms of how much down market protection you've got.
Speaker 1: So I think I learned more about sector concentration risk
Speaker 1: and just the risk of overly becoming concentrate in sectors
Speaker 1: despite what their value signals might say. So it's something
Speaker 1: on sector concentrations that you know, I've tried to think
Speaker 1: about more over time as we developed future products, is
Speaker 1: what what sort of the sector biases or how can
Speaker 1: you control for sectors in a way that you don't
Speaker 1: get overloaded in those times of crisis. We have been
Speaker 1: speaking with Jeremy Schwartz. He is the director of research
Speaker 1: at Wisdom Tree Investments. Uh, thank you, Jeremy for doing this.
Speaker 1: I really appreciate you being so generous with your time.
Speaker 1: Thanks for having me. If you enjoy this conversation, be
Speaker 1: sure to look up and intro down an Inch on
Speaker 1: Apple iTunes and you could see any of the other
Speaker 1: hundred and fifties something previous conversations we've had. We love
Speaker 1: your comments, feedback, end suggestions right to us at m
Speaker 1: IB podcast at Bloomberg dot net. I would be remiss
Speaker 1: if I did not thank my crack staff who helps
Speaker 1: me put together these podcasts each week. Medina Parwana is
Speaker 1: our audio producer and engineer par Excellence. Taylor Riggs is
Speaker 1: in charge of booking. Michael Batnick is our head of research.
Speaker 1: I'm Barry Retults. You've been listening to Masters in Business
Speaker 1: on Bloomberg Radio