Speaker 1: Welken to trillions. I'm Joel Weber and I am Eric
Speaker 1: bel Tunis. Eric. I realized recently that, um, you know,
Speaker 1: I've lost sense of time. No no sense of time anymore.
Speaker 1: But we're basically halfway through the year and it's been
Speaker 1: a weird year. It felt appropriate that we should do
Speaker 1: a halftime report. Yeah, I mean, so much has happened.
Speaker 1: I I almost feel like time has slowed down, like
Speaker 1: like two or three years has been stuffed into six months.
Speaker 1: Even the sell off people were saying that it was
Speaker 1: like two thousand eight squeezed into six weeks. And I
Speaker 1: think the recovery was, like, you know, the same deal.
Speaker 1: Everything just seems to be so condensed, and with the
Speaker 1: lockdown throw on top of that, I think everybody's very disoriented.
Speaker 1: But um, certainly this first half was a lot of
Speaker 1: et F storylines have have developed a lot to chew on,
Speaker 1: so helpe less make sense of what's been going on.
Speaker 1: We figured we'd lean into Bloomberg Intelligence and your analysts, Eric,
Speaker 1: So we've got your team who's basically had some observations
Speaker 1: both for the first half and then kind of looking
Speaker 1: ahead for the second half. So who's all joining us?
Speaker 1: So we have from London or I think he might
Speaker 1: be in Greece already, but uh, Athanacio, Sarah Fagus otherwise
Speaker 1: known as Tom Um, James Seffert, who is in Summit,
Speaker 1: New Jersey, and Morgan Barner who is in d C
Speaker 1: but was just in California. We're all over the place,
Speaker 1: but you know we are constantly in Twitter, d m
Speaker 1: s and I v s talking about these issues all
Speaker 1: the time. So basically I asked the Meats to bring
Speaker 1: the big issue they've thought was the big deal from
Speaker 1: the first half, and also maybe something to watching in
Speaker 1: the second half. So um, there's gonna be a lot
Speaker 1: to chew on today just for people listening. You know,
Speaker 1: we have all four of us, and there's some vacations
Speaker 1: and whatnots coming up. So we recorded this right in
Speaker 1: the middle of June, so we're gonna go over some numbers.
Speaker 1: They could be a touch stale, but I think directionally
Speaker 1: think it's going to be exactly the same this time.
Speaker 1: On Trillions the E t F halftime Report, Morgan, Tom James,
Speaker 1: welcome to Trillions again. Hey guys, good to see you
Speaker 1: guys in this zoom. Uh this is my closet, don't
Speaker 1: you guys think it has a blared witch vibe in there.
Speaker 1: I do, because all you see is the late kind
Speaker 1: of like kind of up in his face, and he's
Speaker 1: just looks like he is scared and like hiding from
Speaker 1: something Like it's just feel like a horror movie going on.
Speaker 1: If you see me looking into the corner, please please
Speaker 1: call for help. Um okay, James, I want to start
Speaker 1: with you first half. What do you want to talk about?
Speaker 1: What was your big takeaway? I mean, the big takeaway
Speaker 1: is the FED jumping into the e t F market
Speaker 1: and buying ets. So they basically stepped in and said
Speaker 1: they were going to be buying fixed income e T
Speaker 1: s UM. We call it kitchen sinc Day in Marche. Basically,
Speaker 1: jerol Al just said he was going to be buying
Speaker 1: things left and right. U and E T s were
Speaker 1: added to that description. As of June tenth, we know
Speaker 1: that they have somewhere around five point three billion in
Speaker 1: ETS and we are five point five billion in e
Speaker 1: t F s UM. They're all fixed income, mostly investment grade,
Speaker 1: but there's some high yield ets in there, and we're
Speaker 1: also obviously watching to see which ets are specifically buying
Speaker 1: and they're going to re release that report um on
Speaker 1: a monthly basis, so we have the most recent data
Speaker 1: as of May nine. We won't know exactly when the
Speaker 1: June report will come out, but that they tell us
Speaker 1: basically everything you could ever want to know with what
Speaker 1: the FED is doing in the e t F market.
Speaker 1: A lot of people when they hear the FITS buying
Speaker 1: e t F they think, oh, are we Japan now?
Speaker 1: The Bank of Japan of the e t F sets
Speaker 1: there just for perspective, that five billion would be point
Speaker 1: three percent of all e t f s, but it
Speaker 1: is two percent of corporate bondy tfs, and it's about
Speaker 1: ten percent of all the flows into corporate bondyts this year.
Speaker 1: So in that niche, the FED is becoming a bigger player.
Speaker 1: And I think if you looked at the top ten
Speaker 1: holdings of like an l q D or h y G,
Speaker 1: the FED would be on the cusp. It might be,
Speaker 1: you know, flirting with the top ten holder of these
Speaker 1: funds already and there's still you know, some time to go.
Speaker 1: So one of the observation I had about what James
Speaker 1: is talking about is the portfolio that the e t
Speaker 1: F s the FED uses was really advanced, in my opinion. Normally,
Speaker 1: when an institution like a Yale or a I don't know,
Speaker 1: New Jersey pension uses e t F, they use like
Speaker 1: one or two liquid ones, you know, for liquidity purposes.
Speaker 1: They're afraid to swim away from those big liquid ones.
Speaker 1: And the FED had what thirteen to fifteen e t
Speaker 1: F some most people would never heard of, probably half
Speaker 1: the list, And I think that really speaks to black
Speaker 1: Rock holding their hand. I mean, they are definitely working
Speaker 1: with someone who knows e t F and so their
Speaker 1: portfolio to me looks a lot more like an e
Speaker 1: t F strategist than it does like an institution. Yeah,
Speaker 1: and the other thing to highlight here is, as I mentioned,
Speaker 1: they're given there being very transparent here, Like we knew
Speaker 1: they were going to be so much transparent, but when
Speaker 1: they released this report at the end of the month
Speaker 1: of May, we're at that. Maybe they were vocal about this,
Speaker 1: but I didn't think they were going to be as
Speaker 1: transparent as they are. We can see the trade level data,
Speaker 1: what time they bought, these e t F s, who
Speaker 1: bought it, all these different things, so they're telling you
Speaker 1: everything that happened, and it's you're looking back and it's
Speaker 1: not live, but you can see exactly what they're doing
Speaker 1: in the marketplace when it's happened, after it's happened. Okay, Eric,
Speaker 1: You've got a couple of topics from first half that
Speaker 1: I think we we've talked about a couple of times,
Speaker 1: but I just feel like it is the zeitgeist of
Speaker 1: the of the year so far. Do you want to
Speaker 1: talk about them? Yeah, I think I'm becoming associated with
Speaker 1: the E t F jets at this point. Um, I've
Speaker 1: been obsessed, even addicted, but I admitted, so at least
Speaker 1: there's that, um that you have a problem. Yeah, I
Speaker 1: do have a problem. Um, this E t F Jets.
Speaker 1: It's just really I don't know if it's lack of sports,
Speaker 1: but it's really just captured my attention at big time
Speaker 1: because you know, when we look at flows into Vanguard
Speaker 1: and black Rock, it's you know, they take the hoover
Speaker 1: and money like giant vacuum cleaners. So anytime a small
Speaker 1: E t F is able to just sort of go
Speaker 1: from obscurity into the big time within a couple of
Speaker 1: weeks or months, it's fascinating. It's it's a rare and
Speaker 1: in Jets's case. Let me give you the numbers here. Um.
Speaker 1: What stuck out to me was the flow streak. It
Speaker 1: took in money seventy straight days before finally seeing an outflow.
Speaker 1: Seventy days of straight inflows is absurd, especially for an
Speaker 1: e t F that had thirty million dollars at the
Speaker 1: beginning of it. I looked at the longest streaks of
Speaker 1: inflows of all e t f s, and Jets would
Speaker 1: write number three at seventy days to Vanguard B and
Speaker 1: d X and v W. Oh, we're number one and
Speaker 1: two with eighty five and eighty three days. But the
Speaker 1: whole top ten was Vanguard except for Jets. That is
Speaker 1: how unusual it is. UM. I also think it's interesting
Speaker 1: that Jets was so bought up after being so bad. Normally,
Speaker 1: when you see retail sort of pile into a theme
Speaker 1: et F, it's because it's having its shiny object moment,
Speaker 1: it's having a good performance run. This was the opposite.
Speaker 1: This was people buying something beat up. I mean, the
Speaker 1: evaluation on the airline stocks was really low. It also
Speaker 1: speaks to this whole robin Hood situation that everybody's obsessed
Speaker 1: with robin Hood being like the face of the day
Speaker 1: trading retail investor who's board at home with no sports,
Speaker 1: and I think there's a case we made. Although you know,
Speaker 1: Morgan ran the numbers and they don't have a lot
Speaker 1: of assets. If you look at Jets, we would estimate
Speaker 1: maybe five to seven percent of Jets is robin Hood,
Speaker 1: but they represent other people on other platforms, so you
Speaker 1: have a bigger robin Hood effect. And that's definitely bigger
Speaker 1: than that seven percent, so they're definitely buying it. You know,
Speaker 1: it's retail because of how small the trades and the
Speaker 1: flows are UM. And then this retail thing is interesting
Speaker 1: because it basically puts all these small investors on the
Speaker 1: opposite side of a Buffet trade. You know, Buffet sold
Speaker 1: his airline stocks on early May. Since then Jets is
Speaker 1: up up big. As of today, it's about thirty since
Speaker 1: he sold UM, but it had a rough week last week,
Speaker 1: so we'll see where this goes. I also think this
Speaker 1: brings into the fact that Dave Portnoy from Barstool Sports
Speaker 1: has been really into the airlines, and we looked he
Speaker 1: put out this sort of hype video that was to
Speaker 1: an a C d C song. Since that video came
Speaker 1: out Jets. His volume quadrupled and hasn't looked back. So
Speaker 1: I do think with Robin Hood Dave Portnoy, there's there's Jets,
Speaker 1: sits in the middle of a bunch of major trends
Speaker 1: right now. So it's it's bigger than just this little
Speaker 1: engine that could them E t F. It's really to
Speaker 1: me a huge story and as well a proxy for
Speaker 1: how fast the economy opens up. A lot of these
Speaker 1: smaller traders are betting against the expert class and saying no,
Speaker 1: people are going to start flying and moving around faster
Speaker 1: than you're telling us. And so again there's so much
Speaker 1: at stake here and it's just totterally fascinating. Okay, Morgan,
Speaker 1: you're next on my list. First half big story, what
Speaker 1: was yours? Yeah, not to be confused with jets, but
Speaker 1: we cover the launch of a new E t F
Speaker 1: bets b e t Z, which is a round hill
Speaker 1: sports betting and I gaming e t F. This actually
Speaker 1: was a launch that we predicted on trillions back in
Speaker 1: I think last not we congratulations. I was hoping that
Speaker 1: we would see a sports betting et F, in part
Speaker 1: because a lot of these companies haven't been public. We
Speaker 1: just saw DraftKings enter the public markets, Flutter Entertainment owned
Speaker 1: fan duels. So there's now finally enough sort of global
Speaker 1: exposure in the public market public markets to see and
Speaker 1: benefit from UM the legalization of sports betting in the US.
Speaker 1: A lot of this is going to be mobile driven,
Speaker 1: tech forward. But launched the et F was really historic
Speaker 1: in and of itself, just given the volume that it
Speaker 1: traded in the first couple of days after launching, I mean,
Speaker 1: it was pre remarkable. Seventeen million trading, seventeen million the
Speaker 1: first day, I think, fifty million second day. I mean,
Speaker 1: just kind of a huge launch. And you know, hearkening
Speaker 1: to what Eric just said, a lot of that breadth
Speaker 1: in traded volume think came from, you know, the fact
Speaker 1: that the fund you know, in in around a week
Speaker 1: of training, has over eighteen thousand holders on robin hood,
Speaker 1: which is just pretty remarkable but not shocking when you
Speaker 1: look at UM. The highest held names in robin hood
Speaker 1: include you know, some of bets is top holdings like
Speaker 1: DraftKings and pen So this is already an audience on
Speaker 1: robin Hood that is interested and familiar with UH sports
Speaker 1: betting companies and names. They may even some some may
Speaker 1: even say they're betting on stocks as well. So this
Speaker 1: is a really good audience for the for the e
Speaker 1: t F BETS and the way the ETF is designed,
Speaker 1: I mean we're seeing give you know, it's harder to
Speaker 1: bet on individual names. The way the e t F
Speaker 1: is set up, it's sort of dynamically rebounces, got more
Speaker 1: global names that some US investors may not be familiar with.
Speaker 1: So the fact the fact that the e t F
Speaker 1: has already taken in seventy million also connects with just
Speaker 1: the up tips we've seen in thematic fund flows, i
Speaker 1: mean eight percent over last year. So thematic products overall
Speaker 1: our seeing traction and BETS echoes back and to bring
Speaker 1: this to a bigger perspective here also the distribution. You know,
Speaker 1: if you're going to launch an e t F right now,
Speaker 1: you kind of have to peel to this. Like older
Speaker 1: advisor with who has a lot of rich clients, you know,
Speaker 1: they're not going to buy an e t F on
Speaker 1: day one. They tend to stay away from theme ETFs
Speaker 1: for the most part. They don't like new ones with
Speaker 1: low volume. It's interesting how BETS was able to bypass
Speaker 1: that advisor and go right to the do it yourself
Speaker 1: smaller retail investor, and that might be a growing channel
Speaker 1: of for issuers to just go right there. Um. We also,
Speaker 1: I Morgan sent me on a TikTok rabbit hole and
Speaker 1: I looked up E t F and bets. Even though
Speaker 1: it just came out, there was two TikTok videos from
Speaker 1: people on there. So I think it's also this interesting
Speaker 1: look at younger investors who's seemingly doing their own research
Speaker 1: and you know, are willing to buy an e t
Speaker 1: F that's new and from an unknown, relatively unknown issue
Speaker 1: where it's interesting. Well, that speaks to the moment just
Speaker 1: going direct to consumer during the middle of the pandemic.
Speaker 1: I mean, that's sort of cut out, cut out all
Speaker 1: the middleman, and just go straight to your people. I
Speaker 1: also think there's a bigger story of play here as well,
Speaker 1: because I have a lot of friends I'm in my
Speaker 1: late twenties who like to bet on sports and stuff
Speaker 1: like that, and they have a lot of them have
Speaker 1: picked up trading on robin Hood. As we kind of
Speaker 1: talked about, there's a lot of people in robin Hood
Speaker 1: and I've had friends who've never talked to about investing
Speaker 1: who reached out to me about this specific e t
Speaker 1: F or gaming e t F video gaming ets specifically
Speaker 1: and things like that. So there's definitely a lot of
Speaker 1: interest coming from as you mentioned, possibly the Barstool Sports
Speaker 1: founder Portnoy, a few different things, um, where people are
Speaker 1: very interested in this specific et F and getting more
Speaker 1: into trading. Sarah Fagus, You're in You're in London still,
Speaker 1: although it looks like Greece. Tell us about your big
Speaker 1: story from the first half. Yeah, sure, um, And if
Speaker 1: I could just add something really quick from the European
Speaker 1: perspective on the thematic stuff, I promise I won't say
Speaker 1: you SIT's, but um, if the thematic stuff is really
Speaker 1: interesting in Europe because it's attracting a lot of retail
Speaker 1: investors too. It's very much an institutional market here and
Speaker 1: actually you're seeing a lot of buying on some of
Speaker 1: these thematic ets, so you're actually seeing a new sort
Speaker 1: of class of investors coming into the market through thematics.
Speaker 1: But that's not what I wanted to talk about, and
Speaker 1: what I want to look at is active, non transparent ets.
Speaker 1: And normally this probably would have been like one of
Speaker 1: the biggest stories of the year, like leading up in
Speaker 1: the beginning of the year, but just given what happened
Speaker 1: in the market, this sort of kind of got put
Speaker 1: to the to the back burner. But there was a
Speaker 1: couple of ets that launched UH right after the sell
Speaker 1: off in March, and now we're that was by American Century.
Speaker 1: Now we're seeing more firm sort of joined in fidelity,
Speaker 1: like Mason Um. And so I think there's two things
Speaker 1: that's interesting about this is one of the timing of
Speaker 1: it UM. They sort of avoided some of the big
Speaker 1: down draft in March, so their performance out of the
Speaker 1: gate is really good. The the American Century Growth Fund
Speaker 1: is already up thirty percent UM since it launched, so
Speaker 1: it's really imperative for them to have good performance out
Speaker 1: of the gate. UH. And because I think there's gonna
Speaker 1: be a lot of scrutiny on these products. They really
Speaker 1: have to show that, Okay, you went through all this
Speaker 1: effort to hide your holdings and do all this. Now
Speaker 1: you actually have to show that there's value to the structure, right.
Speaker 1: So I think there's gonna be a lot of pressure
Speaker 1: on these products to perform really well, and they're off
Speaker 1: actually to a pretty good start. But I actually think
Speaker 1: what's happening. So not only against the going up against
Speaker 1: regular ETFs, they're going against active ETFs that are fully transparent,
Speaker 1: like cathy Woods funds right here, and they're actually doing
Speaker 1: really well. Little Kathy at one point had the best
Speaker 1: performing ETF out there. And so now I actually think
Speaker 1: that presents a problem for these active, non transparent funds
Speaker 1: because they're you're looking at a fully transparent ETF out
Speaker 1: there that's doing really well. It's almost like, well, why
Speaker 1: do I need to hide my holdings. You're having one
Speaker 1: that's that's doing really well. So I think that if
Speaker 1: Cathy's funds continue to do really well, so I think
Speaker 1: it's gonna provide it's gonna be a headwind for some
Speaker 1: of these funds. But um, I think we're going to
Speaker 1: see more and more now with the market sort of
Speaker 1: stable coming into the market. So it's definitely gonna be
Speaker 1: something that we've watch and I'll continue to watch. And
Speaker 1: you know, I think they're stuck in the dead zone.
Speaker 1: I think you've seen them come out between forty five
Speaker 1: and sixty five basis points as a fee, and I
Speaker 1: don't doesn't look like any of them are taking big swings.
Speaker 1: So unless you're dirt cheap or going to create a
Speaker 1: shiny object moment by being like a Cathy would I
Speaker 1: just don't know. Uh, it's it's it's gonna be a
Speaker 1: tough road in my opinion. Although it looked like American
Speaker 1: Century put its own money in there. They have like
Speaker 1: two million now in those So if they're able to
Speaker 1: move money from the mutual funds over, uh, they could
Speaker 1: save assets potentially for themselves. But I don't know about grassroots. Yeah,
Speaker 1: I agree, Um, I think I'd probably take the under
Speaker 1: on it. It It is actually seeing like real demand from
Speaker 1: clients outside of just money being moved from from the
Speaker 1: firms themselves in it. So Tom, when you think about
Speaker 1: this topic, what do you what are you most looking
Speaker 1: for in the second half. Um, for this, it's gonna
Speaker 1: be they have to really prove their value prop Like
Speaker 1: Eric said, they're more expense if they're going through all
Speaker 1: this to hide their holdings. Um, they really have to.
Speaker 1: I mean it's gonna it's gonna they're gonna really have
Speaker 1: to show that we are by doing this where we're
Speaker 1: adding more value than even the e T s that
Speaker 1: are out on the market. Because I think there there's
Speaker 1: just a lot of hurdles that need to get off
Speaker 1: of them, and I'd be interesting to see who else
Speaker 1: comes into the market. So you have American Century, They're
Speaker 1: obviously a big name. Fidelity is a huge name. Um,
Speaker 1: so I'd be willing to see who else gets gets
Speaker 1: brought into the market here. And I think they're gonna
Speaker 1: be looking obviously what these first entrants are doing. I
Speaker 1: sort of engauge if some of these other bigger firms
Speaker 1: are gonna you know, some a lot have been filed.
Speaker 1: But I think also market timing plays a role here too.
Speaker 1: There was like three e t F launched in March,
Speaker 1: then in April all these new ETF started launching, including
Speaker 1: these active ones. So um, it's also probably interesting like
Speaker 1: a sentiment gauge too to see, Hey, do they maybe
Speaker 1: think that the market has stabilized here and that's why
Speaker 1: they're they're starting to roll out some of these products. Okay,
Speaker 1: let's use this opportunity to transition into a second half preview. So, uh,
Speaker 1: we're in the locker room. John plays Uh, James, I'm
Speaker 1: gonna start with you. What what's the second half look like? Yeah,
Speaker 1: so this is something that I've been tracking for the
Speaker 1: past couple of months. We obviously are constantly tracking where
Speaker 1: money is going in in the asset management industry, mutual
Speaker 1: funds ets, and the big thing that jumps off the
Speaker 1: screen is the money that went into money market funds
Speaker 1: in the first half UM. So basically everyone likes to
Speaker 1: say cash on the sideline, I would I would argue
Speaker 1: the term is overused, but right now there's more cash
Speaker 1: on the sideline than UM. They're virtually ever has been
Speaker 1: in the well, not ever has been but since two
Speaker 1: thousand eight by different measures. So you look at this,
Speaker 1: we see we saw seven hundred seventeen billion when it'so
Speaker 1: money market funds in March. Four hundred and ten billion
Speaker 1: went into money markets in April. It's slowed down, but
Speaker 1: there was still inflows in May at forty two billion UM.
Speaker 1: And what this comes up to is there's over five
Speaker 1: there's five trillion dollars in money market securities, which to
Speaker 1: be what money market securities are there basically cash, commercial
Speaker 1: paper repurchase agreements, these short term overnight type vehicles, very
Speaker 1: short term vehicles. And if you look at it as
Speaker 1: a percentage of the SMP five market cap right now,
Speaker 1: it's at about it was at the end of April.
Speaker 1: It's now around nineteen because the equity market has come
Speaker 1: back a little bit, but that's the highest level we've
Speaker 1: seen since. And then if you look at as a
Speaker 1: percentage of mutual fund assets, it's at the highest level
Speaker 1: since two thousand eleven, so it was up at last
Speaker 1: we checked UM. So there's basically a lot of cash
Speaker 1: on the sidelines. Now I should also caveat this with
Speaker 1: what happened in March. The part of the reason why
Speaker 1: there were such big inflows as all these corporations have
Speaker 1: these bank loans revolvers are kind of like credit cards
Speaker 1: essentially for corporations with the bank, and they drew down
Speaker 1: that money and so they took in billions of dollars
Speaker 1: and rather than sit on cash, they put it into
Speaker 1: these money market funds. So that's big chunk of where
Speaker 1: this money is coming from. But still that's still money
Speaker 1: on the sidelines UM, and there there's money to be deployed.
Speaker 1: Also on e t F s alone, we there's a
Speaker 1: lot of UM. There's a few et F that's focused
Speaker 1: on treasuries, so one to three month treasuries less than
Speaker 1: one year treasuries that are basically similar to money market
Speaker 1: funds in a in a sense or the way they're
Speaker 1: being used. They've also seen significant inflows. So there has
Speaker 1: been a lot of money on the sidelines. And if
Speaker 1: you look at fixed income and equity flows, equity flows
Speaker 1: have been muted. I mean, the equity market is obviously
Speaker 1: up in April and May, and we haven't really seen
Speaker 1: anything significant on the equity side of e t F flows.
Speaker 1: The only area that's been significant has been sector bets.
Speaker 1: There's definitely a lot of money flowing into specific sector
Speaker 1: e t s, as Tom wrote about last month on
Speaker 1: a research side. But fixed income has taken in a
Speaker 1: lot of money. But again, equity has just been kind
Speaker 1: of muted. It's been not there's nothing really happening on
Speaker 1: that side. And let me just this is an important
Speaker 1: issue because no flows into equity e t f s
Speaker 1: is unusual for a rally. And there's a couple of theories.
Speaker 1: There's portfolio rebalancing, there's taxation, there's maybe other opportunities, but
Speaker 1: I gotta I mean, Tom's been covering this the most.
Speaker 1: I do found myself a little dumbfounded that there hasn't
Speaker 1: been at least a healthy amount of flows given the rally,
Speaker 1: it's up what markets up since the low in March. Right,
Speaker 1: it's definitely little odd, Like James said, a lot of it,
Speaker 1: some of it's just shifting, but still like you're just
Speaker 1: going from a broad sector to like a specific sector
Speaker 1: et F or from like SMP to like attack. But
Speaker 1: net net, there's no new flows. I think that's really interesting, right,
Speaker 1: there's not actually new money coming into the market, so um,
Speaker 1: you know, I think that the it's very odd to
Speaker 1: see the market rally so much not have flows sort
Speaker 1: of follow up behind it. Yeah, and there was there
Speaker 1: was nine billion that went out of equity e t
Speaker 1: s in May, so the market was going up and
Speaker 1: we saw outflows. And we have this one chart that
Speaker 1: we like to show every year. Flows tend to pick
Speaker 1: up when the equity market does well, so for to
Speaker 1: have a breakdown in that relationship is pretty significant. These
Speaker 1: e t f s like Voo, which tend to have
Speaker 1: dri drip retail money coming in, I think they're more
Speaker 1: in models, and I think the models all had signal
Speaker 1: shifting to pick didn't come when the FED was going
Speaker 1: to start buying those bondy tfs. So I think that's
Speaker 1: when you saw, uh, some of that too. So I
Speaker 1: think sometimes these e t f s that were tended
Speaker 1: to be always like just used directly by advisors are
Speaker 1: getting more and more in these models, which we discussed
Speaker 1: by the way in the last episode with Tim Clift
Speaker 1: of Investnet. If you're interested, okay, Eric, your second half preview. Yeah,
Speaker 1: it's on E s G. Which when we did the
Speaker 1: Hester Purse interview with the SEC, you called me an
Speaker 1: E s G hater and then Magnus cut out my
Speaker 1: response which didn't make it on the final cut, which was,
Speaker 1: I'm not a hater per se. I'm just a I'm
Speaker 1: a realist, Like I'm not anti E s G. I'm
Speaker 1: just anti nasty surprise, and I'm also anti hype and
Speaker 1: bias and there's a lot going a lot of that
Speaker 1: all in this E s G soup. So I'm always
Speaker 1: watching E s G. Look when I talk about the bias,
Speaker 1: when you look at the the articles on E s
Speaker 1: G recently, all of them will say record flows into
Speaker 1: E s G. And it's true. E s G've taken
Speaker 1: in thirteen billion this year and they took an eight
Speaker 1: billion last year. Both of those are records, right, So
Speaker 1: it's a ton of money for a category that didn't
Speaker 1: have much going on before last year. And I think
Speaker 1: most people know this, but they just don't say it.
Speaker 1: Most of that money, the majority, like in the case
Speaker 1: of this year, about ten billion of it isn't is
Speaker 1: because of two investors, one big institution in Europe as
Speaker 1: well as black Rock. Black Rock has moved after Larry
Speaker 1: Fink had that big announcement earlier in the year, they
Speaker 1: moved E S G U and a couple others into
Speaker 1: their models that advisors use and that is responsible for
Speaker 1: most of them. So yes, that money still counts. And
Speaker 1: believe me, in the Terror Dome, I give credit where
Speaker 1: it's due. It does count. I just think people are
Speaker 1: presenting this as millennials have E S G fever. That's
Speaker 1: you know, that's what they want. I just don't think
Speaker 1: that's true because the grassroot flows just aren't there. Like
Speaker 1: if you take the Vanguard E t F E S
Speaker 1: g V, it's taken in seven million this year, or
Speaker 1: how about Spy the SMP fossil fuel Free E t
Speaker 1: F that's a hundred million. That's more where the market is.
Speaker 1: And I think it's just underwhelming again. And I also
Speaker 1: think this Robin hood situation has shown us that, if anything,
Speaker 1: millennials and gen z are much more into trading than
Speaker 1: they are into E s G, and I think people
Speaker 1: might have under estimated how much millennials want to change
Speaker 1: the world with their investments. Further, E s G U,
Speaker 1: which is the one that black Rock put in the model,
Speaker 1: to me, this is probably the biggest of the biggest
Speaker 1: hope for E s G because remember what g SLC
Speaker 1: the Goldman Sachs Multi Factory t F did to Smart Beta.
Speaker 1: It moves a lot like the SMP and it only
Speaker 1: charges nine basis points, so an advisor has a story,
Speaker 1: but they don't have any tracking error to worry about.
Speaker 1: E s g U is kind of that for E
Speaker 1: s G charges fifteen basis points and it tracks pretty
Speaker 1: closely to the market. It's virtually going to give you
Speaker 1: similar returns. But here's the thing, you're not going to really,
Speaker 1: I mean, how much change are you really an infect here?
Speaker 1: Because E s GU holds x On and Chevron, you
Speaker 1: have smaller waitings, but they still own them. Most people
Speaker 1: who want E s G to me are looking to
Speaker 1: not hold those companies. So I think this is part
Speaker 1: of the issue with E S G. Why are you
Speaker 1: investing in it? Are you going to be happy if
Speaker 1: it doesn't you know, match the market's performance? But to me,
Speaker 1: E s G U which is you know the one
Speaker 1: that to me is uh, you could replace your S
Speaker 1: and P five hundred exposure with this or your equity
Speaker 1: and you wouldn't be that much different than the market.
Speaker 1: So I think for advisors that's a big deal because
Speaker 1: they don't really want to have to explain to their
Speaker 1: clients why they've underperformed. Plus they also want everything cheap,
Speaker 1: and this one's fifteen BIPs, so there's a there's some
Speaker 1: bright spots here, don't get me wrong. I just think
Speaker 1: relative to the media hype, if you look at a
Speaker 1: chart of E s G mentions, it just keeps going
Speaker 1: up and up and up and up. The media really
Speaker 1: wants this to be a thing, and I just you know,
Speaker 1: what's that quote in mean girls like you're trying to
Speaker 1: make fetch happen and it just won't. I think that
Speaker 1: what he's talked about E S to you. There's also
Speaker 1: SMPE in the US, in on the US exchanges, which
Speaker 1: is basically smp F s G index, And what these
Speaker 1: indexes do that there's there's two ways to look at this.
Speaker 1: You can either be inclusionary or exclusionary as far as
Speaker 1: are not concerned, and there's like a scale, so if
Speaker 1: you're exclusionary, you're excluding the worst actors. If you're inclusion
Speaker 1: or you're going after the companies that are meeting these
Speaker 1: the specific criteria, they're doing everything they can. But the
Speaker 1: problem in some of this is like there's some of
Speaker 1: these companies are so big, they're bound to have issues.
Speaker 1: So the bet the way that some of these other
Speaker 1: ones are doing an exclusionary factor where they're just excluding
Speaker 1: i don't know, controversial weapons, tobacco, and a few other things.
Speaker 1: But then the rest of it is they're trying to
Speaker 1: give you the same risk return characteristics as the market,
Speaker 1: but just taking out the things that are the least
Speaker 1: E s G the things that are performing the worst
Speaker 1: by sector. So you're gonna get some oil exposure and
Speaker 1: just get rid of the companies that are the worst
Speaker 1: on the E s G scale things like that, and
Speaker 1: that gives you a similar risk return profile. And you
Speaker 1: could argue that it's it's basically a risk metric. You're
Speaker 1: taking out the risk from environmental issues or social issues
Speaker 1: of governance issue, try to limit them as much as possible,
Speaker 1: And these funds are outperforming the SMP five since their
Speaker 1: launched in many cases. So it's it's showing that it's working,
Speaker 1: and it's I think that's where there's gonna be a
Speaker 1: lot more interest. We've seen, as Eric mentioned with g
Speaker 1: SLC in the smart beta world, the real water down factors,
Speaker 1: the one to give you a lot of beta but
Speaker 1: give you a little bit of the factor the ones
Speaker 1: that advisors like the most. So I think these are
Speaker 1: the most of the I'm the most bullish on this
Speaker 1: aspect of the category for gaining significant assets. That said,
Speaker 1: isn't like when you think about advisers doing that, that's
Speaker 1: very different than I want to change the world. I mean,
Speaker 1: how many people who go into E s G thinking
Speaker 1: I'm gonna clean up my portfolio. Then you're like, oh,
Speaker 1: this fun holds xon. By the way, this is where
Speaker 1: I completely agree with you. I don't think like E
Speaker 1: s G investing is the way to change the world.
Speaker 1: I think that you can benefit from the things that
Speaker 1: are going to happen with governments and regulations and all
Speaker 1: these different things by avoiding the worst actors. But I
Speaker 1: don't think just investing in a company is going to
Speaker 1: make them more E S G friendly, Like theoretically it
Speaker 1: could happen. Um. I mean, I would argue that you're
Speaker 1: probably better off getting a bunch of money investing in
Speaker 1: the worst actors and trying to invoke change and we
Speaker 1: of proxy votes potentially, there's all the different ways to
Speaker 1: do this. I just think the most viable asset gathering wise,
Speaker 1: productive wise for a portfolio is the exclusionary route, where
Speaker 1: you're getting a similar return characteristic of the market. Alright,
Speaker 1: second half is upon us, what's your pick to watch?
Speaker 1: I'm watching small caps. I think we're going to see
Speaker 1: whether sort of a rotation equity leadership actually happens and
Speaker 1: holes and I want to see whether you know, et
Speaker 1: F investors are ahead of of a rotation and sort
Speaker 1: of believe that that small cap recovery could be part
Speaker 1: of another leg in a rally here and I think
Speaker 1: you know, we've seen head funds and other bigger speculators
Speaker 1: roll back short positions starting in dint. This tend to
Speaker 1: be a bit leaving um and so now Russell two
Speaker 1: thousand futures are sort of net long um. We've seen
Speaker 1: I mean you know, high yields spreads are still relatively high,
Speaker 1: which is when small caps tend to do better. Um.
Speaker 1: And so just looking at the size factor within the
Speaker 1: Russell one thousand, we've seen our strategies team sort of
Speaker 1: site mid single digit gains attributable to the factor in
Speaker 1: the past couple of months. UM, I think that might
Speaker 1: be encouraging some some flows. And then you know they've
Speaker 1: also are you know, our our strategy counterparts have pointed out,
Speaker 1: you know, the way that small cap is continuing to
Speaker 1: trade at fundamental discounts, and and you know, I think
Speaker 1: the next most optimistic investors are looking at small caps.
Speaker 1: So you know, I w M has actually seen, um,
Speaker 1: you know, it's a sort of representative ETF tracking the
Speaker 1: Russell two thousand, it's actually seem pretty sizeable outflows. And
Speaker 1: that may be because of how heavily it's used tactically,
Speaker 1: but it's gotten. You know, small caps in general have
Speaker 1: seen offsetting inflows UM to the category, and some of
Speaker 1: those leaders are VB and SPSN, So it's just other
Speaker 1: small cap ets are kind of leading this. But Tom
Speaker 1: wrote recently about that this beta small cap segment has
Speaker 1: taken in really pretty strong flows in June. I think
Speaker 1: it's one point six billion as as of today, and
Speaker 1: invest goes equal weight RSP find this kind of leading
Speaker 1: that category. So we're watching that for the rest of
Speaker 1: the year. And just one thing on the small caps
Speaker 1: versus large caps. The large caps are dominated by these
Speaker 1: giant companies. If they ever try to break up some
Speaker 1: of these companies, or there's just a shift in the
Speaker 1: way people shop. I mean you could see small caps.
Speaker 1: I mean they've just been down and out for ten years,
Speaker 1: and you know, nothing stays down and out forever. UM.
Speaker 1: Maybe small cap value, which by the way, a lot
Speaker 1: of people are asking, is there a bankruptcy et F
Speaker 1: because of hurts and stuff? And I think small cap
Speaker 1: value is as close as you can get or micro caps,
Speaker 1: but I j R. I think is the small cap
Speaker 1: value in case anybody is interested in that. I mean,
Speaker 1: it's put that up against SMP five hundred. It is
Speaker 1: just like it is brutal. What what's the ticker for
Speaker 1: a bankruptcy e t F bust if they had one? Yeah,
Speaker 1: I think Tom, bring us home? What's your second half? Pick?
Speaker 1: What I'm watching? And because we're going into the summer now, um,
Speaker 1: normally the summer. It's not a secret, it's it's markets
Speaker 1: really quiet. Et F trading is really quiet during the
Speaker 1: summer months and the third quarter it's usually like just
Speaker 1: the lowest quarter for trading. But I think this year
Speaker 1: is going to be very different. You have everyone continue
Speaker 1: to work from home through the summer. You probably have
Speaker 1: a lot of vacations that either got cut short or
Speaker 1: they're just doing you know, staycations. Now you have the
Speaker 1: first full summer where like every platform is commissioned free
Speaker 1: et F Trading, Robin Hood, Schwab, all of those. I
Speaker 1: think this is gonna be a really busy summer for
Speaker 1: et F trading. UM some of the stuff that Morgan
Speaker 1: mentioned with the interest in thematics, I think we're I
Speaker 1: think the third quarter, in the summer months are going
Speaker 1: to punch away above their weight this year, just because
Speaker 1: of the environment that we're currently in with just more
Speaker 1: people working from home and just more attached to their screens.
Speaker 1: This year, what happens if there's a big second wave, uh,
Speaker 1: then I we'll definitely see I mean, I think we'll
Speaker 1: see just a lot of market altility, but I think
Speaker 1: we're definitely going to see more uh E t F
Speaker 1: trading in the fourth quarter is normally really busy anyways,
Speaker 1: but I think this second half of the year is
Speaker 1: going to be really is gonna put up some pretty
Speaker 1: big numbers for E t F trading. All right, Tom,
Speaker 1: James Morgan, thanks so much for joining us on Trillions.
Speaker 1: Thanks for having us say thanks a lot, Thanks for
Speaker 1: listening to Trillions until next time. You can find us
Speaker 1: on the Bloomberg Terminal, Bloomberg dot com, Apple Podcast, Spotify,
Speaker 1: and wheber else you'd like to listen. We'd love to
Speaker 1: hear from you. We're on Twitter, I'm at Joel Webber Show.
Speaker 1: He's at Eric fall Tunas. You can find Morgan at
Speaker 1: M Barnes six, James at j S E y f F,
Speaker 1: and Tom Sara Vegas at TA Sarah Vegas Good Luck
Speaker 1: Spelling that. This episode of Trillions was produced by Magnus Hendrickson.
Speaker 1: Francesca Leady is the head of Bloomberg Podcast by O