1
00:00:02,520 --> 00:00:14,880
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

2
00:00:15,720 --> 00:00:21,480
Speaker 2: When we think about ETFs, we tend to think about large, cheap,

3
00:00:22,079 --> 00:00:26,599
Speaker 2: passive indexes. After all, those are the biggest ETFs from

4
00:00:26,640 --> 00:00:31,120
Speaker 2: places like Blackrock, Vanguard, and State Street. But when we

5
00:00:31,280 --> 00:00:34,879
Speaker 2: look at all the new ETF launches, they tend to

6
00:00:35,040 --> 00:00:39,400
Speaker 2: not be passive indexes, not be cheap, and not come

7
00:00:39,520 --> 00:00:43,639
Speaker 2: necessarily from those three big companies. They're active and they

8
00:00:43,680 --> 00:00:47,400
Speaker 2: are involved in all sorts of different areas that are

9
00:00:47,479 --> 00:00:51,040
Speaker 2: off the beaten path. To figure out what this means

10
00:00:51,080 --> 00:00:54,760
Speaker 2: for your portfolio, let's bring in Dave Nodig. He is

11
00:00:54,800 --> 00:00:58,840
Speaker 2: the president and director of research at ETF dot Com

12
00:00:58,880 --> 00:01:04,040
Speaker 2: and a ETF structural expert. Really, since the inception of

13
00:01:04,120 --> 00:01:09,000
Speaker 2: the entire sector, so Dave, we've seen an explosion in

14
00:01:09,040 --> 00:01:14,160
Speaker 2: the growth of not just new ETFs, but primarily active

15
00:01:14,200 --> 00:01:17,800
Speaker 2: ETFs in all sorts of niches. What are you seeing

16
00:01:17,840 --> 00:01:18,480
Speaker 2: in this space?

17
00:01:19,640 --> 00:01:23,720
Speaker 3: Well, you know, for a long time, ETF meant cheap index, right,

18
00:01:23,760 --> 00:01:26,640
Speaker 3: I mean to go back to Spy and then the

19
00:01:26,800 --> 00:01:29,160
Speaker 3: first ice shares products, and then even when we started

20
00:01:29,160 --> 00:01:31,520
Speaker 3: getting into the big expansion of the two thousands, it

21
00:01:31,560 --> 00:01:33,560
Speaker 3: was all just index index index. Then we got some

22
00:01:33,640 --> 00:01:35,560
Speaker 3: smart beta where we tried to be a little bit

23
00:01:35,560 --> 00:01:39,800
Speaker 3: more clever, and it wasn't really until the late twenty

24
00:01:39,880 --> 00:01:44,000
Speaker 3: ten cycle where Kathy would at ARC invest launched ARKK

25
00:01:44,680 --> 00:01:48,640
Speaker 3: and really put herself out there as the portfolio manager

26
00:01:48,680 --> 00:01:51,200
Speaker 3: in a way that I don't really, frankly remember seeing

27
00:01:51,280 --> 00:01:53,960
Speaker 3: since the dotcom boom. It's been a long time since

28
00:01:53,960 --> 00:01:58,360
Speaker 3: we'd had superstar managers on CNBC talking about, you know,

29
00:01:58,400 --> 00:02:01,800
Speaker 3: pounding the table for a single, and Kathy did that

30
00:02:01,880 --> 00:02:04,480
Speaker 3: and obviously had enormous amounts of success. Has had some

31
00:02:04,480 --> 00:02:07,480
Speaker 3: performance pickups along the way, but that sort of went

32
00:02:07,520 --> 00:02:10,440
Speaker 3: a little bit dormant during some of the pandemic when

33
00:02:10,440 --> 00:02:15,560
Speaker 3: people really discovered trading. What we've seen now is this resurgence,

34
00:02:15,600 --> 00:02:18,680
Speaker 3: particularly two folks I mentioned Dan Ives why Bush People

35
00:02:18,720 --> 00:02:22,640
Speaker 3: know him, and Tom Lee from Funstrat with his granny

36
00:02:22,639 --> 00:02:25,359
Speaker 3: shots at ETF, both of which have pulled in huge

37
00:02:25,440 --> 00:02:30,480
Speaker 3: money billions of dollars, billions and billions of dollars for

38
00:02:30,600 --> 00:02:33,440
Speaker 3: the reasons you would expect, because you've got smart people

39
00:02:33,880 --> 00:02:36,760
Speaker 3: talking on podcasts and TV and on their own air

40
00:02:36,800 --> 00:02:40,240
Speaker 3: and their own newsletters telling you why they own what's

41
00:02:40,280 --> 00:02:42,760
Speaker 3: in the fund. I know that sounds so dumb, but

42
00:02:42,919 --> 00:02:46,160
Speaker 3: that's why people love superstar managers because they look and

43
00:02:46,200 --> 00:02:47,919
Speaker 3: they can see Tom Lee on screen, and he can

44
00:02:47,960 --> 00:02:51,760
Speaker 3: sit there and say, yeah, this is why we like bitcoin. Here,

45
00:02:52,080 --> 00:02:54,000
Speaker 3: here are the three firms we have in our fund

46
00:02:54,040 --> 00:02:56,720
Speaker 3: because of it. We might be wrong, we might be right.

47
00:02:57,080 --> 00:02:59,320
Speaker 3: There's a level of authenticity to that that I think

48
00:02:59,400 --> 00:03:02,080
Speaker 3: is really a pretty I also think the fact that they've

49
00:03:02,080 --> 00:03:04,040
Speaker 3: doubled D, S and P this year doesn't hurt.

50
00:03:04,520 --> 00:03:07,760
Speaker 2: So to put some flesh on the bones here, Kathy

51
00:03:07,840 --> 00:03:12,520
Speaker 2: Woods during twenty twenty was a huge tesla and bitcoin

52
00:03:13,000 --> 00:03:17,800
Speaker 2: bull the fund arc put up giant numbers, triple digit gains.

53
00:03:18,560 --> 00:03:23,080
Speaker 2: Dan Ives has been an apple and an invidiable pretty

54
00:03:23,160 --> 00:03:25,320
Speaker 2: much for as long as I can remember. He's been

55
00:03:25,320 --> 00:03:28,320
Speaker 2: a whole lot more right than wrong. And Tom Lee

56
00:03:28,440 --> 00:03:32,720
Speaker 2: has been very constructive exactly when it paid to be

57
00:03:32,840 --> 00:03:36,520
Speaker 2: constructive and stay bullish. All three of those managers have

58
00:03:36,720 --> 00:03:42,000
Speaker 2: really big followings. What does the resurgence of brand name

59
00:03:42,200 --> 00:03:45,280
Speaker 2: active managers mean for the TF space?

60
00:03:46,200 --> 00:03:48,880
Speaker 3: Well, I think, first of all, I think it's great

61
00:03:48,880 --> 00:03:52,120
Speaker 3: for the ETF space because I think the ecotomy that

62
00:03:52,160 --> 00:03:54,920
Speaker 3: we'd had where people thought of active as being a

63
00:03:54,920 --> 00:03:57,600
Speaker 3: thing that happened somewhere else and ETFs were only passive

64
00:03:57,680 --> 00:04:00,320
Speaker 3: wasn't helpful. I think we are moving towards the world

65
00:04:00,440 --> 00:04:02,720
Speaker 3: where all of your exposures, for the most part, are

66
00:04:02,720 --> 00:04:05,400
Speaker 3: going to be in an ETF rapper. So by all

67
00:04:05,480 --> 00:04:08,400
Speaker 3: means we should get active managers as part of this mix.

68
00:04:08,480 --> 00:04:10,400
Speaker 3: And now we've got lots of them. You know, we've

69
00:04:10,400 --> 00:04:13,080
Speaker 3: got a bunch of active funds from Pimco was early.

70
00:04:13,160 --> 00:04:15,720
Speaker 3: We've got lots in the bond space, you know, everything

71
00:04:15,760 --> 00:04:19,359
Speaker 3: from Cumberland Advisors to State Street with the Double Line

72
00:04:19,200 --> 00:04:22,080
Speaker 3: and Jeff Gunlock. Lots of active managers and lots of

73
00:04:22,080 --> 00:04:25,640
Speaker 3: different areas. I think that's very healthy for the industry.

74
00:04:25,760 --> 00:04:29,280
Speaker 3: For the individual investor, it doesn't necessarily make your life

75
00:04:29,320 --> 00:04:32,960
Speaker 3: easier because as much as I happen to like all

76
00:04:32,960 --> 00:04:35,240
Speaker 3: the people we have talked about, Dan, tom Lee and

77
00:04:35,320 --> 00:04:37,800
Speaker 3: Kathy Like personally as people I would have dinner with,

78
00:04:38,680 --> 00:04:41,960
Speaker 3: the math is not on their sides as an industry. Right,

79
00:04:42,000 --> 00:04:45,600
Speaker 3: as an industry, we have to point out active managers

80
00:04:46,560 --> 00:04:51,080
Speaker 3: categorically underperform over time. Doesn't mean they all do, but

81
00:04:51,160 --> 00:04:53,000
Speaker 3: it means that you've got to be the special person

82
00:04:53,080 --> 00:04:55,000
Speaker 3: who managed to pick the right active manager at the

83
00:04:55,080 --> 00:04:58,719
Speaker 3: right time. That is a tough business. And even active

84
00:04:58,720 --> 00:05:01,960
Speaker 3: managers running these fund will tell you trying to time

85
00:05:02,080 --> 00:05:03,840
Speaker 3: when to get in and out of their own funds

86
00:05:03,880 --> 00:05:06,039
Speaker 3: is going to be tough. So that's the problem, is

87
00:05:06,080 --> 00:05:07,919
Speaker 3: that active management is tough to evaluate.

88
00:05:08,480 --> 00:05:10,840
Speaker 2: Yeah, and to put some numbers there, half of all

89
00:05:10,880 --> 00:05:14,520
Speaker 2: active managers underperform in any given year. You go out

90
00:05:14,560 --> 00:05:18,039
Speaker 2: to ten five years, it's eighty percent under form. Ten

91
00:05:18,120 --> 00:05:22,240
Speaker 2: years it's ninety percent. So it's a tough road to hoe.

92
00:05:22,640 --> 00:05:27,640
Speaker 2: But let's talk about what makes active ETFs somewhat different

93
00:05:28,120 --> 00:05:31,200
Speaker 2: than active mutual funds and that data reference. We're all

94
00:05:31,279 --> 00:05:35,120
Speaker 2: mutual fund data. Mutual funds have to do a regular

95
00:05:35,240 --> 00:05:40,039
Speaker 2: filing each quarter about their largest holdings. There has been

96
00:05:40,120 --> 00:05:46,039
Speaker 2: a lot of back and forth about how transparent active

97
00:05:46,040 --> 00:05:50,359
Speaker 2: ETFs have to be versus other active funds. What's the

98
00:05:50,440 --> 00:05:53,200
Speaker 2: state of the art today, what is the regulatory environment?

99
00:05:53,920 --> 00:05:57,279
Speaker 3: So there are solutions. If you're an active manager and

100
00:05:57,320 --> 00:05:59,880
Speaker 3: you don't want to tell everybody what you're doing every day,

101
00:06:00,000 --> 00:06:02,240
Speaker 3: there are solutions, and there's plenty of funds that have

102
00:06:02,279 --> 00:06:05,400
Speaker 3: been launched on them. Fidelity has their versions, trou Price

103
00:06:05,400 --> 00:06:07,520
Speaker 3: has been one of the more successful funds out there.

104
00:06:07,600 --> 00:06:11,200
Speaker 3: They have a pretty popular blue chip strategy called t chip,

105
00:06:11,240 --> 00:06:14,800
Speaker 3: which is semi transparent, meaning they're not telling you the

106
00:06:14,800 --> 00:06:17,919
Speaker 3: whole portfolio every day. They're telling you once in a while,

107
00:06:18,000 --> 00:06:20,440
Speaker 3: and they're giving the street just enough information to make

108
00:06:20,480 --> 00:06:23,120
Speaker 3: a good market not knowing all the information. So it's

109
00:06:23,120 --> 00:06:25,839
Speaker 3: sort of a clue, a bit of a hack to

110
00:06:25,960 --> 00:06:30,680
Speaker 3: be semi transparent. This solves a problem for some asset managers.

111
00:06:30,760 --> 00:06:33,719
Speaker 3: It doesn't solve a single problem for an individual investor, right, So,

112
00:06:33,800 --> 00:06:37,160
Speaker 3: like I've never heard an individual investor say, golly, I

113
00:06:37,200 --> 00:06:38,960
Speaker 3: wish I knew less about what I owned.

114
00:06:39,240 --> 00:06:43,080
Speaker 2: Right, But let's talk about why it's a problem for

115
00:06:43,160 --> 00:06:46,200
Speaker 2: fund managers. Fund managers don't buy a stock on a

116
00:06:46,240 --> 00:06:49,080
Speaker 2: Monday and then they're done. If they say, hey, we

117
00:06:49,200 --> 00:06:53,799
Speaker 2: like XYZ, they're buying that stock trying to take advantage

118
00:06:53,800 --> 00:06:56,880
Speaker 2: of draw downs, buying it over days, weeks, even months.

119
00:06:57,360 --> 00:07:01,360
Speaker 2: So there is a price advantage to the Yes, if

120
00:07:01,400 --> 00:07:04,920
Speaker 2: the fund manager can be a little less transparent.

121
00:07:05,240 --> 00:07:09,960
Speaker 3: Fair description, that's that's that's certainly the argument that the

122
00:07:10,080 --> 00:07:12,640
Speaker 3: active management industry, who does not want to disclose what

123
00:07:12,640 --> 00:07:14,880
Speaker 3: they're doing, would give you so you have articulated that

124
00:07:15,040 --> 00:07:18,880
Speaker 3: side of the argument. Well, my counter to that would

125
00:07:18,920 --> 00:07:23,960
Speaker 3: be if your strategy requires you buying securities where your

126
00:07:24,080 --> 00:07:27,880
Speaker 3: action is going to move the market absent disclosure or

127
00:07:27,960 --> 00:07:32,920
Speaker 3: absent obfuscation, then that strategy probably doesn't belong in an

128
00:07:32,960 --> 00:07:36,320
Speaker 3: ETF because you've got bigger problems, right. That means that

129
00:07:36,400 --> 00:07:40,000
Speaker 3: you're in something small or a liquid or microcap, at

130
00:07:40,040 --> 00:07:42,400
Speaker 3: which point, already my question would be, how do you

131
00:07:42,440 --> 00:07:45,240
Speaker 3: plan on running a ten billion dollar ETF with that strategy,

132
00:07:45,280 --> 00:07:49,240
Speaker 3: because you can't really close an ETF. So if you

133
00:07:49,240 --> 00:07:52,960
Speaker 3: are a special situations manager, if you're a really sort

134
00:07:53,000 --> 00:07:58,200
Speaker 3: of obscure niche finding those stocks nobody else knows about, manager,

135
00:07:58,400 --> 00:08:00,520
Speaker 3: you do not belong in the ETF. And I'll just

136
00:08:00,520 --> 00:08:02,640
Speaker 3: flat out and say it at this as simple as that,

137
00:08:03,120 --> 00:08:06,520
Speaker 3: the mutual fund structure, or even better, a liquidity cap

138
00:08:06,600 --> 00:08:09,960
Speaker 3: structure like a CEF or old interval fund is actually

139
00:08:09,960 --> 00:08:14,160
Speaker 3: a better structure for those kinds of investments everybody else. Honestly,

140
00:08:14,200 --> 00:08:16,200
Speaker 3: there's so much liquidity. I think it's tough to argue

141
00:08:17,160 --> 00:08:19,280
Speaker 3: that somebody like Tom Lee is being particularly hurt by

142
00:08:19,280 --> 00:08:21,840
Speaker 3: being transparent. He's double, he's at thirty percent for the year.

143
00:08:21,880 --> 00:08:23,200
Speaker 3: The SP's at fifteen.

144
00:08:23,080 --> 00:08:26,160
Speaker 2: Right, and CEF stands for closed end funds as opposed

145
00:08:26,200 --> 00:08:30,440
Speaker 2: to ETFs. Yes, so let's talk about some other varieties

146
00:08:30,480 --> 00:08:33,560
Speaker 2: of active funds that are a little bit out there.

147
00:08:34,640 --> 00:08:41,800
Speaker 2: We see funds with options, futures, derivatives, inverse leveraged, along

148
00:08:41,840 --> 00:08:46,079
Speaker 2: with some wild income promises in an ETF rapper tell

149
00:08:46,160 --> 00:08:48,480
Speaker 2: us about some of those products. Yeah.

150
00:08:48,520 --> 00:08:50,880
Speaker 3: The the interesting thing about those is most of them

151
00:08:50,920 --> 00:08:54,199
Speaker 3: are very mechanical, Right, So if you're running a leverage strategy,

152
00:08:54,600 --> 00:08:56,800
Speaker 3: you're not making any decisions. Right, I've got Apple, I

153
00:08:56,840 --> 00:08:58,560
Speaker 3: need two x Apple. I'm going to go to my

154
00:08:58,559 --> 00:09:01,240
Speaker 3: swap counterparty overnight. They're just going to settle up my

155
00:09:01,360 --> 00:09:05,280
Speaker 3: two x swap. That's the whole management process. But technically

156
00:09:05,280 --> 00:09:08,000
Speaker 3: that's going to be an actively managed fund because you

157
00:09:08,080 --> 00:09:10,600
Speaker 3: can't just automate that whole process. Somebody still has to

158
00:09:10,600 --> 00:09:12,600
Speaker 3: make a call about whether or not you're teeing up

159
00:09:12,600 --> 00:09:15,120
Speaker 3: the swap at this rate or that rate. Same thing

160
00:09:15,160 --> 00:09:18,880
Speaker 3: with almost anything in the option space. Because the options

161
00:09:18,920 --> 00:09:22,720
Speaker 3: are constantly changing and constantly repricing and constantly rolling off.

162
00:09:23,440 --> 00:09:27,600
Speaker 3: It's very difficult to create solid index product around actively

163
00:09:27,840 --> 00:09:31,880
Speaker 3: or high frequency moving positions in the options market, so

164
00:09:32,040 --> 00:09:35,240
Speaker 3: for convenience as much as anything. Almost all of those

165
00:09:35,280 --> 00:09:38,240
Speaker 3: type products you mentioned are listed as active products. I

166
00:09:38,320 --> 00:09:41,080
Speaker 3: refer to them as inos like active and name only

167
00:09:41,520 --> 00:09:44,520
Speaker 3: because they're really There's no Tom Lee saying I really

168
00:09:44,600 --> 00:09:49,880
Speaker 3: want Apple options today. There's some guy generally j PASTTLI title,

169
00:09:50,360 --> 00:09:53,240
Speaker 3: sitting on a desk somewhere pushing a button to say, yes,

170
00:09:53,280 --> 00:09:55,559
Speaker 3: we want those options because the model says we need

171
00:09:55,600 --> 00:10:00,640
Speaker 3: to roll and that becomes active management. And I mean

172
00:10:00,679 --> 00:10:03,600
Speaker 3: it is active management. It has higher costs associated with

173
00:10:03,640 --> 00:10:06,080
Speaker 3: it for a reason. Some of that is the profit

174
00:10:06,120 --> 00:10:08,239
Speaker 3: that the issuer wants, but some of it is legitimately

175
00:10:08,280 --> 00:10:09,760
Speaker 3: you need a trading desk with a bunch of people

176
00:10:09,800 --> 00:10:10,319
Speaker 3: doing work.

177
00:10:10,679 --> 00:10:15,760
Speaker 2: So let's talk about another niche ill liquid alts, things

178
00:10:15,840 --> 00:10:19,880
Speaker 2: like private equity, private credit, private debt, real estate. Are

179
00:10:19,920 --> 00:10:24,440
Speaker 2: we going to see those asset classes that really don't

180
00:10:24,600 --> 00:10:28,120
Speaker 2: trade on their own because they're not public. Are we

181
00:10:28,160 --> 00:10:29,920
Speaker 2: going to see those in an etf rapper.

182
00:10:30,960 --> 00:10:33,800
Speaker 3: We're starting to. We're starting to the canary in the

183
00:10:33,800 --> 00:10:36,360
Speaker 3: coal mine here with some products from State Street, the

184
00:10:36,400 --> 00:10:40,480
Speaker 3: big ones priv pr IV for private which has a

185
00:10:40,480 --> 00:10:43,800
Speaker 3: bunch of Apollo private credit in it generally pretty short

186
00:10:43,920 --> 00:10:48,360
Speaker 3: maturity stuff two three year kind of things, and fairly

187
00:10:48,520 --> 00:10:52,959
Speaker 3: straightforward understandable private credit. Intel needs to build a fab

188
00:10:52,960 --> 00:10:55,600
Speaker 3: in Ireland, they go get a loan, Apollo gives them

189
00:10:55,600 --> 00:10:58,640
Speaker 3: the loan. You get a slice of it. Nothing super complicated,

190
00:10:58,880 --> 00:11:01,080
Speaker 3: nothing super interesting either. I mean it's not you're not

191
00:11:01,080 --> 00:11:03,120
Speaker 3: getting twenty percent yields out of or anything like that.

192
00:11:03,160 --> 00:11:06,480
Speaker 3: You're getting some marginal increase in the yield you would

193
00:11:06,520 --> 00:11:09,439
Speaker 3: get if you were simply investing in, say junk or

194
00:11:09,480 --> 00:11:13,040
Speaker 3: short term co corporates. So those products are starting to

195
00:11:13,040 --> 00:11:16,040
Speaker 3: come to market. The concerns I have about them is

196
00:11:16,040 --> 00:11:17,920
Speaker 3: they're just going to be untested. We're not going to

197
00:11:17,960 --> 00:11:21,800
Speaker 3: really know how they're going to perform when the markets

198
00:11:21,840 --> 00:11:24,960
Speaker 3: go hinky, right, And also what does that even mean,

199
00:11:25,040 --> 00:11:27,199
Speaker 3: Like if we had a corporate bond blowout and we

200
00:11:27,240 --> 00:11:29,440
Speaker 3: saw a bunch of triple C stuff start, you know,

201
00:11:30,320 --> 00:11:33,840
Speaker 3: get you defaulting. I have no idea what the impact

202
00:11:34,040 --> 00:11:37,480
Speaker 3: on Apollo private credit issued in Ireland to Intel is

203
00:11:37,520 --> 00:11:39,960
Speaker 3: going to be when that happens. I also have no

204
00:11:40,080 --> 00:11:42,800
Speaker 3: idea how they're going to respond if half the fund

205
00:11:42,800 --> 00:11:45,280
Speaker 3: decides they want out on that Tuesday and now you've

206
00:11:45,280 --> 00:11:48,120
Speaker 3: got a bunch of liquid stuff which can be up

207
00:11:48,120 --> 00:11:50,760
Speaker 3: to thirty five percent of the portfolio. That literally the

208
00:11:50,800 --> 00:11:54,840
Speaker 3: only buyer is Apollo. Technically, they've got answers to all

209
00:11:54,880 --> 00:11:57,680
Speaker 3: those questions. I'm and I've read all the answers to

210
00:11:57,720 --> 00:12:01,240
Speaker 3: those questions, and I'm sort of not gonvinced. But it's

211
00:12:01,240 --> 00:12:02,920
Speaker 3: one of those things that if you want to be,

212
00:12:02,960 --> 00:12:04,400
Speaker 3: if you want to be out there on the edge,

213
00:12:05,120 --> 00:12:08,160
Speaker 3: by all means, go ahead. But I think the private

214
00:12:08,880 --> 00:12:13,520
Speaker 3: securities in the daily liquid vehicle has not really been

215
00:12:13,559 --> 00:12:15,840
Speaker 3: through the ring aer yet, so I remain very skeptical.

216
00:12:16,080 --> 00:12:20,480
Speaker 2: So let's talk a little bit about crypto and how

217
00:12:20,520 --> 00:12:24,840
Speaker 2: that's going to impact both investor behavior and portfolio construction.

218
00:12:25,520 --> 00:12:29,520
Speaker 2: Last year Blackrock, was it last year? This year Blackrock

219
00:12:29,600 --> 00:12:30,640
Speaker 2: introduced twenty a bit.

220
00:12:30,800 --> 00:12:31,040
Speaker 1: Yeah.

221
00:12:31,240 --> 00:12:35,040
Speaker 2: Yeah, so it's a year ago coming up on one

222
00:12:35,120 --> 00:12:40,000
Speaker 2: hundred billion dollars in assets, probably the fastest etf ever

223
00:12:40,200 --> 00:12:44,320
Speaker 2: to do that. What does this mean and explain the

224
00:12:44,480 --> 00:12:46,319
Speaker 2: concept of tokenization.

225
00:12:47,679 --> 00:12:50,680
Speaker 3: Yeah, So what it means is all of these assets

226
00:12:50,679 --> 00:12:52,440
Speaker 3: are going to be more and more available to the

227
00:12:52,480 --> 00:12:54,800
Speaker 3: average joe like us who's just trading in their Schwab

228
00:12:54,800 --> 00:12:58,000
Speaker 3: account or something. Like that, and because the SEC has

229
00:12:58,040 --> 00:13:00,840
Speaker 3: said they're going to make it very easy. Very soon,

230
00:13:00,920 --> 00:13:04,160
Speaker 3: we're going to have every major coin that people know about,

231
00:13:04,200 --> 00:13:07,040
Speaker 3: a Solana and ave whatever, they'll be a sleeve of

232
00:13:07,040 --> 00:13:09,160
Speaker 3: that in an ETF that you'll be able to trade.

233
00:13:09,800 --> 00:13:14,079
Speaker 3: That's all great. Having those building blocks is awesome also

234
00:13:14,120 --> 00:13:17,920
Speaker 3: because it will now allow portfolio managers to create portfolios

235
00:13:17,960 --> 00:13:20,520
Speaker 3: of those individual securities, which right now you can't even do.

236
00:13:20,600 --> 00:13:23,440
Speaker 3: You can't even buy an index the top ten coins

237
00:13:23,520 --> 00:13:26,040
Speaker 3: because there isn't a target for the top ten coins

238
00:13:26,080 --> 00:13:28,760
Speaker 3: to invest in. So that will be fun when we

239
00:13:28,840 --> 00:13:31,880
Speaker 3: get that, and I suspect you'll see firms like Bitwise

240
00:13:32,520 --> 00:13:35,199
Speaker 3: and black Rock, who've got some real bona fides in

241
00:13:35,880 --> 00:13:40,040
Speaker 3: the crypto management space start bringing pretty institutional active management

242
00:13:40,040 --> 00:13:44,360
Speaker 3: products there. That's probably a twenty twenty six side. Long term, though,

243
00:13:44,400 --> 00:13:47,280
Speaker 3: if we want to talk ten years from now, that's

244
00:13:47,320 --> 00:13:51,120
Speaker 3: when crypto starts becoming an interesting competitor to the ETF space.

245
00:13:51,559 --> 00:13:54,319
Speaker 3: I think we will eventually end up in a world

246
00:13:54,760 --> 00:13:59,200
Speaker 3: where how you move your ownership of Apple around is

247
00:13:59,200 --> 00:14:01,480
Speaker 3: going to happen, not by going to the New York

248
00:14:01,480 --> 00:14:06,600
Speaker 3: Stock Exchange and exchanging ledger entries to move around your

249
00:14:06,640 --> 00:14:09,240
Speaker 3: Schwab account. Instead, you're going to have an actual token.

250
00:14:09,280 --> 00:14:10,800
Speaker 3: You'll be able to look at the serial number of it.

251
00:14:10,800 --> 00:14:13,160
Speaker 3: You'll be able to put it in a wallet and say, oh, no,

252
00:14:13,320 --> 00:14:16,160
Speaker 3: this is worth one hundred shares of Apple, and that

253
00:14:16,360 --> 00:14:19,480
Speaker 3: wallet will be able to directly move that security to

254
00:14:19,640 --> 00:14:22,600
Speaker 3: your wallet without any exchange being part of the process.

255
00:14:23,160 --> 00:14:25,480
Speaker 3: Most of it will happen like crypto happens now on

256
00:14:25,680 --> 00:14:29,840
Speaker 3: giant exchanges because price discovery. But just like with bitcoin,

257
00:14:29,960 --> 00:14:32,160
Speaker 3: I could walk up to you when we could engage

258
00:14:32,160 --> 00:14:35,320
Speaker 3: in a direct transaction. You're going to start seeing that

259
00:14:35,440 --> 00:14:38,640
Speaker 3: with other securities. It's happening more in bonds and real estate.

260
00:14:38,720 --> 00:14:41,320
Speaker 3: Now to do it in equities is going to require

261
00:14:41,360 --> 00:14:44,120
Speaker 3: some actual legislation, and we don't make so many laws

262
00:14:44,160 --> 00:14:47,200
Speaker 3: these days, so that may take some time. Instead, what

263
00:14:47,240 --> 00:14:48,840
Speaker 3: we'll do is will wrap a lot of stuff. So

264
00:14:49,360 --> 00:14:53,320
Speaker 3: you'll probably hear about things like wrapped Apple and wrapped Cisco.

265
00:14:53,600 --> 00:14:56,080
Speaker 3: And what that's going to be is a token that

266
00:14:56,200 --> 00:15:00,480
Speaker 3: owns the security in some sort of trust pool. That's

267
00:15:00,480 --> 00:15:02,720
Speaker 3: a baby step, but that's what we'll start hearing first.

268
00:15:02,720 --> 00:15:05,440
Speaker 3: So be skeptical when people say we're tokenizing everything because

269
00:15:05,440 --> 00:15:06,840
Speaker 3: it's going to be a decade.

270
00:15:07,280 --> 00:15:10,040
Speaker 2: I had a conversation with Jose Manyana, who is the

271
00:15:10,040 --> 00:15:14,480
Speaker 2: head of wealth Strategies at Investment Giant BNY Bank of

272
00:15:14,600 --> 00:15:17,360
Speaker 2: New York, and he was saying, Hey, we went from

273
00:15:17,440 --> 00:15:20,240
Speaker 2: T plus three to T plus one, meaning it used

274
00:15:20,240 --> 00:15:22,880
Speaker 2: to take three days to settle a trade. Today it's

275
00:15:22,880 --> 00:15:25,080
Speaker 2: going to take one day. If we want to get

276
00:15:25,080 --> 00:15:27,920
Speaker 2: to T plus zero, we have to really have confidence

277
00:15:28,400 --> 00:15:32,720
Speaker 2: in both sides of the transaction, and theoretically tokenization solves

278
00:15:32,720 --> 00:15:33,440
Speaker 2: that problem.

279
00:15:33,840 --> 00:15:37,440
Speaker 3: It does. Although think about how many big transactions in

280
00:15:37,480 --> 00:15:40,960
Speaker 3: the world that we could be doing easier we deliberately

281
00:15:41,000 --> 00:15:43,840
Speaker 3: put brakes on. Think about buying a house wiring right,

282
00:15:44,200 --> 00:15:49,960
Speaker 3: so there's you know, there's escrow, there's secondary inspection processes,

283
00:15:50,000 --> 00:15:53,720
Speaker 3: there's separate contracts around just the intention to buy and sell.

284
00:15:54,160 --> 00:15:57,600
Speaker 3: So the bigger and more interesting a transaction gets, the

285
00:15:57,680 --> 00:16:01,320
Speaker 3: less T zero is actually a good right. I Mean,

286
00:16:01,760 --> 00:16:04,480
Speaker 3: the thing I always say about T zero is did

287
00:16:04,520 --> 00:16:07,080
Speaker 3: you really want T zero during the flash crash in

288
00:16:07,120 --> 00:16:10,720
Speaker 3: twenty ten, Like, did you really want no recourse for

289
00:16:10,800 --> 00:16:15,160
Speaker 3: that that fat fingered billion dollar pennies on the dollar trade? No,

290
00:16:15,480 --> 00:16:19,280
Speaker 3: you wanted this ecosystem that protects you from a bad

291
00:16:19,320 --> 00:16:23,440
Speaker 3: actor spoofing something into the system. So we're gonna have

292
00:16:23,440 --> 00:16:26,240
Speaker 3: a lot to evaluate as a as a as a

293
00:16:26,280 --> 00:16:30,080
Speaker 3: market what we actually want. The idea of slowing down

294
00:16:30,200 --> 00:16:32,480
Speaker 3: markets has actually gotten a lot of traction, like speed

295
00:16:32,560 --> 00:16:36,280
Speaker 3: bump markets, things like that that are actually pushing against

296
00:16:36,280 --> 00:16:39,480
Speaker 3: this idea of instantaneous settlement for anything. I don't even

297
00:16:39,480 --> 00:16:42,320
Speaker 3: want instantaneous settlement for my bank account. I like knowing

298
00:16:42,320 --> 00:16:44,320
Speaker 3: that I've got somebody I can call when something goes wrong.

299
00:16:44,440 --> 00:16:49,720
Speaker 2: Huh. So you've written about volatility and liquidity laundering. Explain

300
00:16:49,800 --> 00:16:53,160
Speaker 2: what this is and are these really going to be ETFs?

301
00:16:54,160 --> 00:16:57,720
Speaker 3: They already are. Man So, volatility laundering is simply moving

302
00:16:58,120 --> 00:17:01,320
Speaker 3: volatility from one bucket to another and charging something for

303
00:17:01,400 --> 00:17:04,359
Speaker 3: the privilege of doing that. Right now, you can buy

304
00:17:04,440 --> 00:17:09,000
Speaker 3: something like MSTY which will give you one hundred percent

305
00:17:09,160 --> 00:17:13,160
Speaker 3: income return on a micro strategy position through the magic

306
00:17:13,200 --> 00:17:16,240
Speaker 3: of options, right, and it creates a synthetic long position.

307
00:17:16,640 --> 00:17:19,440
Speaker 3: Then it does a synthetic covered call against the synthetic

308
00:17:19,560 --> 00:17:21,800
Speaker 3: long position, and then it does a whole lot of

309
00:17:21,800 --> 00:17:24,080
Speaker 3: return of capital to give you your money back and

310
00:17:24,240 --> 00:17:28,960
Speaker 3: promises you this endless stream of high distributions high percentage distributions.

311
00:17:29,400 --> 00:17:32,640
Speaker 3: That is volatility laundering because what you were actually doing

312
00:17:33,160 --> 00:17:36,359
Speaker 3: is you were trying to sell other people the volatility

313
00:17:36,400 --> 00:17:40,000
Speaker 3: of micro strategy, which is probably not a fantastic idea

314
00:17:40,119 --> 00:17:43,199
Speaker 3: because the wall of all is high in those cases.

315
00:17:43,320 --> 00:17:46,360
Speaker 3: So you're being the person picking up the in this

316
00:17:46,400 --> 00:17:49,120
Speaker 3: case quarters in front of the steamroll or not the pennies,

317
00:17:49,600 --> 00:17:53,639
Speaker 3: but you're still exposed to MicroStrategy collapsing and going to nothing.

318
00:17:53,680 --> 00:17:57,480
Speaker 3: That volatility laundering is what all of these options strategies

319
00:17:57,520 --> 00:17:58,200
Speaker 3: are really doing.

320
00:17:58,480 --> 00:18:02,000
Speaker 2: So really, to wrap this up, the bottom line is

321
00:18:02,800 --> 00:18:06,159
Speaker 2: bring the same level of common sense and scrutiny to

322
00:18:06,400 --> 00:18:10,880
Speaker 2: new ETFs that you would to any financial product. Make

323
00:18:10,920 --> 00:18:15,360
Speaker 2: sure you understand what the product is, how it generates gains,

324
00:18:15,480 --> 00:18:20,000
Speaker 2: the sort of risks you're incurring, especially with these exotic products,

325
00:18:20,520 --> 00:18:25,640
Speaker 2: and the costs. Are these products worth spending seventy five

326
00:18:25,680 --> 00:18:29,119
Speaker 2: one hundred, one hundred and twenty five bases points more

327
00:18:29,680 --> 00:18:32,880
Speaker 2: than what you would get for a plain vanilla passive

328
00:18:32,880 --> 00:18:37,479
Speaker 2: index that seems to be dominating the asset allocation space

329
00:18:37,640 --> 00:18:41,480
Speaker 2: and the space for ETFs. Be smart, be thoughtful, do

330
00:18:41,600 --> 00:18:46,000
Speaker 2: your homework. I'm Barry Ridults you've been listening to Bloomberg

331
00:18:46,640 --> 00:18:47,280
Speaker 2: at the Money