Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 2: Tim Stenebek on Bloomberg Radio.
Speaker 3: All right, let's get to Dana Dioria.
Speaker 4: It's so sweet to have her actually here on site
Speaker 4: with us. We're often talking to her remotely. Dana is
Speaker 4: co chief investment Officer at Investment. They provide technology and
Speaker 4: services to the wealth and asset management. They've got more
Speaker 4: than five point eight trillion dollars in platform assets, more
Speaker 4: than one hundred and eight thousand advisors, sixteen of the
Speaker 4: twenty largest US banks, forty eight of the fifty largest
Speaker 4: wealth management and brokerage firms, more than five hundred of
Speaker 4: the largest RAS, thousands of companies as clients. She's all in,
Speaker 4: and I got to say their platform sees a lot.
Speaker 2: Tim, Dana Dioria, good to see you.
Speaker 3: Welcome, Welcome to you.
Speaker 2: Usually usually we see you in a little screen on yeah,
Speaker 2: exactly in our studio black, So it's good to see
Speaker 2: you here in person. What's the tone that you're taking
Speaker 2: away here in this first day at Schwab.
Speaker 1: Impact, Well, I think, and it's awesome to have you
Speaker 1: here with the in our in our ecosystem, so to speak,
Speaker 1: right the retail advisor. Yeah, look, it's it's all energy, right,
Speaker 1: It's a lot of excitement, you know. The I've always
Speaker 1: said and I often say that asset management and tech
Speaker 1: are sort of blurring the lines a lot. And as
Speaker 1: tech gets better and better at bringing solutions to the
Speaker 1: advisory base, and we're just seeing that in these hype
Speaker 1: conferences and impact is you know, just huge in our space.
Speaker 3: Tell us about flows and stuff.
Speaker 4: And I also think if you've seen anything different or
Speaker 4: what you're hearing from your client base post elections, right, Uh,
Speaker 4: you know, one one element of.
Speaker 3: What is it going to be? How's it going to
Speaker 3: play out?
Speaker 4: Is off the table, and then there's a new set
Speaker 4: in terms of the policies to come.
Speaker 1: Yeah, for sure. I mean, of course there was the
Speaker 1: Trump trade, and you know, if you happen to get
Speaker 1: or you I won't say, happen if you if you
Speaker 1: made that bet and you know, uh, pharma and fossil
Speaker 1: fuels and financials and we're gonna have lower like regulation
Speaker 1: and everything. I mean certainly you made a buck, right
Speaker 1: if you if you went for that trade.
Speaker 3: I think crypto crypto boom.
Speaker 2: Right, when you say pharma, do you mean shorting pharma
Speaker 2: or no, you mean.
Speaker 1: Big just lower regulations right the whole.
Speaker 2: Like Ideak's in charge, he might get a little angry.
Speaker 3: With pharma, right, I mean there's new.
Speaker 2: We saw farming companies fall when his when he was
Speaker 2: his name was announced.
Speaker 1: And there's new and every day, right, new information, especially
Speaker 1: now that we're getting all the cabinet picks. I think,
Speaker 1: you know, I draw the line between what was happening
Speaker 1: prior to the election and what people were kind of
Speaker 1: obviously taking that bet. And you know, the market price
Speaker 1: can only reflect probabilities plus you know the outcome and
Speaker 1: and some and it's one number to reflect all of that.
Speaker 1: So yeah, probably if you if you made these bets
Speaker 1: ahead of time, you made that buck. Uh. Now where
Speaker 1: you stand is how well is the market pricing in
Speaker 1: exactly that kind of information that you're talking about. Not
Speaker 1: just do I think that you know this administration will
Speaker 1: be good for pharma? Do I think this administration will
Speaker 1: be good for fossil fuels? But how well is the
Speaker 1: market pricing in that likelihood? And can I you know,
Speaker 1: hang on for the ride.
Speaker 4: It's so interesting Tim brought this up our Matt Miller,
Speaker 4: and we're anchoring just before us and just saying how
Speaker 4: and Vidio is like the most important thing, even more
Speaker 4: than what like the Fed's going to do next.
Speaker 3: Having said that, what the FED does next.
Speaker 4: Is important, and I think what we think today may
Speaker 4: not be exactly what we're going to be thinking a
Speaker 4: week before the FED meeting. So how are you thinking
Speaker 4: about FED policy right now?
Speaker 1: You know, I'll tell you I have aired on the
Speaker 1: side of they're going to need to be cautious about
Speaker 1: these rate cuts. In fact, they didn't really expect that
Speaker 1: fifty basis point right, And you know, I think it
Speaker 1: was pre election and they decided to do it. I
Speaker 1: think they thought they were behind in July. But when
Speaker 1: you see inflation kind of sticking and you understand that,
Speaker 1: you know, tariffs could potentially be inflationary, you know, we
Speaker 1: may be looking at an administration that wants to run
Speaker 1: the economy a bit hot. They're looking at fiscal policy
Speaker 1: and you know, monetary policy that maybe has to counteract
Speaker 1: some of that. So when you put that together, I
Speaker 1: just don't think we can expect the big tailwind from
Speaker 1: interest rate cuts in the coming year.
Speaker 3: Interesting Wall nothing December.
Speaker 1: I think December is definitely on the table, and the
Speaker 1: base case is yes. But I also don't think it's
Speaker 1: out of the realm of possibility that they don't do
Speaker 1: it in December, depending on the data that comes out
Speaker 1: between now and then.
Speaker 2: So does that mean a higher terminal rate? Does that
Speaker 2: mean that the new sort of normal stance of monetary
Speaker 2: policy is high forever?
Speaker 1: I think higher for longer, and we're back to this
Speaker 1: terminology right.
Speaker 2: Think about what think about the round trip we did
Speaker 2: a year ago, Carol, we were sitting here after j.
Speaker 2: Powell gives a press conference, I'd say eleven months ago,
Speaker 2: basically like, oh, we'll see you know, six seven rate
Speaker 2: cuts in twenty twenty four that obviously did not happen.
Speaker 2: Now the question is, okay, well, is the terminal rate
Speaker 2: something higher than we thought it would be.
Speaker 1: I think the market has overshot the expectation of rate cuts.
Speaker 1: You just said it, right, just going back to what
Speaker 1: we saw. You know, of course, where did we begin
Speaker 1: this year right with this huge expectation of rate cuts
Speaker 1: and that was just that never made any sense depending
Speaker 1: on you know, what the economy was doing. Anyway, I
Speaker 1: think we've overshot I think the end point. It depends
Speaker 1: on where you call this end point. Yes, I think
Speaker 1: it could be a little bit higher than what is anticipated,
Speaker 1: But I also think the slowness of the cuts and
Speaker 1: the market you know, pricing that in and and you
Speaker 1: know there there's a there's a little bit of a
Speaker 1: case here to just stop the rate cuts all together.
Speaker 3: For now is amazing. You guys shared your your team
Speaker 3: shared of.
Speaker 4: Some notes from you and said knowing what a candidate
Speaker 4: favors also doesn't do much for figuring out what will
Speaker 4: prevail over the course of the presidency from a stock
Speaker 4: return perspective. For example, cold stocks have excelled under Biden,
Speaker 4: while clean energy shares are performed under Trump. And you say,
Speaker 4: that's our data, Bloomberg data.
Speaker 3: Yeah, so it's.
Speaker 4: Right, Like it's just it just reminds us there's so
Speaker 4: much that we know that we don't know.
Speaker 1: It's numerator and denominator, right, you know, it's what's going
Speaker 1: to be good for the revenue of these companies, but
Speaker 1: also how much the market has discounted that capability and
Speaker 1: if and if there's too much of a discount, you know,
Speaker 1: then it can't meet that And that goes right into Nvidia.
Speaker 1: Is it price to perfection or is it you know,
Speaker 1: way past the price of perfection.
Speaker 3: So talk to us about Nvidia.
Speaker 4: It's our focus now and understandably, in about thirteen minutes
Speaker 4: we're going to be breaking down those results. We were
Speaker 4: saying that options trading right now signals that the results
Speaker 4: will be the most significant important catalyst.
Speaker 3: Left this this year. How are you thinking about it?
Speaker 4: What you might be ultimately hearing from clients and investors later,
Speaker 4: I don't know tie it up for us.
Speaker 1: The way that we think about it is when we
Speaker 1: look at portfolios and just we look at the research
Speaker 1: too around just what it's done to portfolios, the intense
Speaker 1: concentration in these indexes, these big big names like in Vidia,
Speaker 1: and so much of investor portfolios are actually sitting on
Speaker 1: these outcomes, and I don't think a lot of investors
Speaker 1: understand that, right. So if you say, okay, in Vidia
Speaker 1: beat beat beat expectations and it does phenomenally, well, you
Speaker 1: know that's fantastic.
Speaker 3: If even if in videos, I.
Speaker 1: Think we all know in Vidia's got a very good
Speaker 1: product that is going to drive for a long period
Speaker 1: of time, I'm still buying growth.
Speaker 3: Yeah, right, So what.
Speaker 1: Happens in this moment is that is not super important
Speaker 1: for the for the course of what happens with AI
Speaker 1: over the course of the year. But we are living
Speaker 1: in a period of concentration where it is super important
Speaker 1: for our client portfolios.
Speaker 4: People want to know right, they care, they care. There
Speaker 4: are just certain things that are like guiding lights. Dana,
Speaker 4: so great to catch up with you again.
Speaker 1: Thank you for having me.
Speaker 3: Yeah, thank you.
Speaker 4: Danna Dioria, co Chief investment Officer Evia Vestnet joining us
Speaker 4: right here at Schwab Impact.
Speaker 3: We're going to talk a little bit about ETFs right now.
Speaker 4: A new record ninety six percent of ETFs have posted
Speaker 4: positive returns of the past year. The majority of products
Speaker 4: headed for double digit wins. Our Bloomberg intelligence team did
Speaker 4: some analysis and this is what they found out and
Speaker 4: tim the average US domiciled ETF up fourteen percent of
Speaker 4: the past twelve months. Everybody's all in, Yeah they are.
Speaker 2: It's like it's like the normal thing. Are ETFs now?
Speaker 2: I mean, get this, Schwab started in the ETF business
Speaker 2: fifteen years ago. It's one of the dominant players. They
Speaker 2: got thirty one ETFs, including ten fixed income offerings, making
Speaker 2: it the fifth largest provider of ETFs with more. Let's
Speaker 2: bring in David botset Managing director, head of Innovation in
Speaker 2: Stewardship at Schwab here on site in Sanford, Cisco.
Speaker 5: Hello, good to see you. Good to see you. It's
Speaker 5: been since last year since we talked an impact in Philadelphia.
Speaker 3: Nothing's gone on in the past year, nothing at all.
Speaker 2: Well, it's funny you think about innovation in the space,
Speaker 2: and we've seen some big innovations this year when it
Speaker 2: comes to crypto ETF specifically bitcoin and ether ETFs. How
Speaker 2: do you think about innovation when it comes to ETFs.
Speaker 5: You know, the first thing we start with is what
Speaker 5: are the investor needs? You know, that's at the heart
Speaker 5: and the ethos of everything we've been doing in ETF
Speaker 5: so the past fifteen years you mentioned, and that's really
Speaker 5: helped compel stuff up to four hundred billion dollars in
Speaker 5: assets in our ETFs. So we've been doing an annual
Speaker 5: ETF investor study now for over a decade that's asking
Speaker 5: questions of both ETF investors and non ETF investors about
Speaker 5: their various views on how do they think about ETFs,
Speaker 5: what's most important to them about what they're investing in
Speaker 5: and what categories they may invest in the future. That
Speaker 5: provides us a lot of great insights to help drive
Speaker 5: our innovation in the space.
Speaker 4: All Right, So for non ETF investors versus ETF investors,
Speaker 4: what they want is it different?
Speaker 5: You know, there are some nuances to them. So in
Speaker 5: some cases it's very much the same. It's things that
Speaker 5: they're looking at when they're selecting an ETF, like cost right,
Speaker 5: that stands out in both categories. But there are other
Speaker 5: areas where we see non ETF investors they need more education,
Speaker 5: they need more insights because their confidence level in selecting
Speaker 5: an ETF is much less than those that are ETF investors.
Speaker 5: Makes sense, it does.
Speaker 4: Hey, listen, one thing that they need is a mortgage
Speaker 4: backed security ETF, which just you guys launched this week
Speaker 4: one day ago yesterday.
Speaker 5: Yes, it was so tell us about that. You know what,
Speaker 5: We listen to our investor base. The one thing that
Speaker 5: they tell us is we need more precise tools for
Speaker 5: our fixed income allocation. You know, we go back a
Speaker 5: decade and everybody was using the aggregate index to get
Speaker 5: their fixed income exposure. But in a dynamic interest rate
Speaker 5: environment like we're in today, they want to control for
Speaker 5: sector exposure, they want to control for duration, they want
Speaker 5: to control for the credit quality and their portfolio. Mortgage
Speaker 5: backed securities is one of those that frequently are under
Speaker 5: utilized in a portfolio, but they think about how do
Speaker 5: I redynamicize that aggregate exposure. They want that precision in
Speaker 5: an MBS ETF.
Speaker 2: Are you thinking about getting into what our own Eric
Speaker 2: Beltunas over at Bloomer Intelligence calls the hot sauce ETFs. Like,
Speaker 2: if you've got ninety five percent of your portfolio, you know,
Speaker 2: in large cap stocks and maybe some bond funds, you
Speaker 2: got five percent to play with, Maybe you throw some
Speaker 2: into ARC or you throw some into Bitcoin ETF. Are
Speaker 2: you guys thinking about getting into that sort of specialty category?
Speaker 2: Maybe go leveraged in Vidia ETF.
Speaker 5: You know, our bread and butter largely is in the
Speaker 5: core analyst Eric's a great guy. I'd love to work
Speaker 5: with them, but you know, our bread and butter is
Speaker 5: really in the core products and solutions, right because where
Speaker 5: we see the benefit that we can provide as an
Speaker 5: ETF provider is on cost, which is number one in
Speaker 5: our survey year and year again, Cost number one thing
Speaker 5: people look.
Speaker 2: At so there's a race to the bottom with those
Speaker 2: sort of big broad ETF because there is so much competition.
Speaker 2: And that's why I think you see a lot of
Speaker 2: innovation happening in the Okay, well, how can we make
Speaker 2: our product unique and also charge fifty basis points instead
Speaker 2: of eight basis points?
Speaker 5: Yes, well, I think you'll see us innovating in that
Speaker 5: space is less on those hot sauce areas, and it's
Speaker 5: more thinking about how do we use the ETF wrapper
Speaker 5: in other ways bring actively managed strategies. Earlier this year
Speaker 5: we launched the Schwab Alter Short Income ETF. You know,
Speaker 5: you look at that alter short space, it's really hard
Speaker 5: to index that category. We also think it's an area
Speaker 5: where an active manager can potentially provide alpha.
Speaker 3: Is it all about active going forward?
Speaker 5: You know, I don't think it's all about active, Yeah,
Speaker 5: but increasingly you're seeing that in that space that's either
Speaker 5: coming through new launches or conversions of active mutual funds
Speaker 5: and ETFs there, and they're taking an outsized portion of
Speaker 5: the flows this year.
Speaker 3: I always think about this, David. I began kind of
Speaker 3: my career in business news.
Speaker 2: You had a show, an ETF show, right or mutual.
Speaker 4: Fund Mutual fun show not so long ago, and it's
Speaker 4: just interesting to see the arc and how we move
Speaker 4: to When is it that we just don't have mutual
Speaker 4: funds and it's all about ETFs?
Speaker 3: Is it just a matter of time?
Speaker 5: I don't think so that continue. Well, I think it's
Speaker 5: all about the benefits the ETF provides. It can provide
Speaker 5: a cost benefit, It can provide a tax benefit because
Speaker 5: they tend to be more tax efficient, and a trading benefit.
Speaker 5: But in many accounts where it's a qualified account, you're
Speaker 5: not paying taxes, that tax benefit isn't there. You also
Speaker 5: see a lot of strategic allocation long longer term investors
Speaker 5: for one K plans, retirement plans where you may not
Speaker 5: necessarily need that tax benefit or the ability to trade
Speaker 5: every day in your allocation. If I'm more of a
Speaker 5: strategic investor.
Speaker 4: Are investors though, who are planning for the retirement missing
Speaker 4: alpha though by doing mutual funds that way?
Speaker 3: Like, I mean, are they missing out on opportunities?
Speaker 5: Pretend? I think potentially and increasingly they may miss out
Speaker 5: on those opportunities because the innovation is going to be
Speaker 5: more in the ETFs than it is in mutual funds.
Speaker 5: So in those new opportunities that arise, what.
Speaker 2: About money market ets versus money market mutual funds?
Speaker 5: You know, it's interesting. We're seeing some work by other
Speaker 5: firms in that space. It'll be interesting to see.
Speaker 2: But right now, if I want to buy a money
Speaker 2: market fund at Charles Shraub, I have to buy a
Speaker 2: mutual fund.
Speaker 5: It isn't a fund structure, that's right.
Speaker 2: Why is that?
Speaker 5: Well? I mean, I think the people like the dollar
Speaker 5: nav right, That's one of the big distinctions where we've
Speaker 5: seen that the one product that is in the market today.
Speaker 5: You're no longer trading at a dollar like you do
Speaker 5: with a money market fund. It's dollar in, dollar out.
Speaker 5: You like that known factor, and I'm not sure that
Speaker 5: investors will necessarily want to stray for that when they
Speaker 5: think about their cash investments.
Speaker 4: How does the macro play into the ETFs that you
Speaker 4: guys are thinking about in terms of launches.
Speaker 5: You know, for us, it's really about the long term view.
Speaker 5: It's less about a macro current point in time. It's
Speaker 5: really thinking about how do we serve investors' needs for
Speaker 5: the long haul.
Speaker 4: So even like you know, a new administration, new policies
Speaker 4: that might impact the economy and various sectors.
Speaker 3: It's not the way you play it.
Speaker 5: It's not the way we play it.
Speaker 3: That's right, all right? Interesting does the macro view though?
Speaker 4: I mean, as you look at what's going on in
Speaker 4: the space, how does it impact at all your thinking?
Speaker 5: Yeah? So I think where it impacts our thinking is
Speaker 5: when we talk to investors about how to allocate their portfolios. Okay, right,
Speaker 5: you think about our do they have lots of questions
Speaker 5: right now? Absolutely?
Speaker 2: Let's say you were to just think about the universe
Speaker 2: of ETFs in your world. How much of those ETFs
Speaker 2: are when the money comes in? Is it about indexing
Speaker 2: versus about something outside of indexing to try to get alpha?
Speaker 5: You know, I think it's the way that indexing is used,
Speaker 5: right model portfolio strategic allocations. It's more about how do
Speaker 5: I tilt between large cap and small cap, domestic international
Speaker 5: looking for those alpha opportunities rather than within the asset
Speaker 5: class itself.
Speaker 4: We mentioned you guys fifteen years just celebrate your anniversary
Speaker 4: from your first ETF. How do you think about the
Speaker 4: trajectory and kind of where the ETF market was at
Speaker 4: the beginning. I remember a time I felt like every
Speaker 4: guest or every other guest with somebody offering up a
Speaker 4: new ETF. I feel like it's founded a different groove
Speaker 4: now and it's matured.
Speaker 3: But tell us about you've been in it.
Speaker 5: Yeah, I've been in the ETF industry for nearly twenty years,
Speaker 5: so it's it's been a long time. It's been a
Speaker 5: great run. But we've still got a lot of innovation
Speaker 5: to go. So I think we're just in the early
Speaker 5: inning still of what the ATF can bring to investors
Speaker 5: and video ATF is it coming.
Speaker 2: Anytimes they have? I think direction, Yes, the direction.
Speaker 5: There are some single stock levered ETFs in the market.
Speaker 2: That's what I was thinking of when I was referring
Speaker 2: to that leveraged You were channeling your inner Eric.
Speaker 3: Yeah, David, thank you so much. Fun to check in
Speaker 3: with you again.
Speaker 5: Thanks so much.
Speaker 2: I hope Eric is listening and knows that I'm giving
Speaker 2: him all this love.
Speaker 3: He better I'll point it out to come on air.