1 00:00:05,840 --> 00:00:06,760 Speaker 1: Welcome a giants. 2 00:00:06,800 --> 00:00:12,880 Speaker 2: I'm Joel Webber and I'm Eric Belchernas. 3 00:00:13,680 --> 00:00:17,160 Speaker 1: You know, Eric, we've never actually talked that much about 4 00:00:17,400 --> 00:00:23,000 Speaker 1: revenue in the ETF industry, and Bloomberg Intelligence recently did 5 00:00:23,040 --> 00:00:23,880 Speaker 1: some research about this. 6 00:00:24,680 --> 00:00:27,600 Speaker 2: Yeah. One of the things we love to look at 7 00:00:27,720 --> 00:00:31,040 Speaker 2: is assets, and then of course your market share and 8 00:00:31,080 --> 00:00:32,000 Speaker 2: where you rank. 9 00:00:31,800 --> 00:00:35,720 Speaker 1: In assets that we talk about that all the time totally. 10 00:00:36,000 --> 00:00:38,640 Speaker 2: But then when you compare it to like revenue and 11 00:00:38,760 --> 00:00:41,880 Speaker 2: revenue share and revenue rank, you get a different order 12 00:00:41,920 --> 00:00:46,240 Speaker 2: of firms, you know, like Vanguard slides down the list 13 00:00:46,280 --> 00:00:49,440 Speaker 2: in revenue, other firms that sell leverage products they go up. 14 00:00:49,479 --> 00:00:53,320 Speaker 2: It's really interesting. But to me, this is so useful 15 00:00:53,320 --> 00:00:57,360 Speaker 2: for our clients and when we write because everyone's trying 16 00:00:57,400 --> 00:01:00,480 Speaker 2: to deal with this new ETF terror dome as we 17 00:01:00,520 --> 00:01:03,120 Speaker 2: call it, because it's we're all the fisher biting. But 18 00:01:03,160 --> 00:01:05,679 Speaker 2: they're very picky and they love cheap, So how can 19 00:01:05,760 --> 00:01:09,120 Speaker 2: you make money? And so by studying who can actually 20 00:01:09,120 --> 00:01:11,600 Speaker 2: make more money than their assets allow and vice versa, 21 00:01:11,640 --> 00:01:14,840 Speaker 2: and how that works, it can help firms figure out 22 00:01:15,160 --> 00:01:18,240 Speaker 2: where to launch products and how to price them. 23 00:01:18,880 --> 00:01:22,880 Speaker 1: Athan, I say Sarah Fagus at Bloomberg Intelligence who's an analyst. 24 00:01:23,680 --> 00:01:25,639 Speaker 1: He's written some of this research, right. 25 00:01:26,080 --> 00:01:28,440 Speaker 2: Yeah, of the whole team, you know, I think Athan 26 00:01:29,280 --> 00:01:30,640 Speaker 2: Is he's like a you know, you ever heard of 27 00:01:30,640 --> 00:01:34,200 Speaker 2: that term, a musicians musician, like a band that like 28 00:01:34,440 --> 00:01:38,399 Speaker 2: a lot of like velvet underground. He is really good 29 00:01:38,560 --> 00:01:41,759 Speaker 2: at surprising the team with research. So I think he's 30 00:01:41,800 --> 00:01:45,080 Speaker 2: like an analyst analyst, and when he does these deep dives, 31 00:01:45,560 --> 00:01:47,560 Speaker 2: I'm always like wow, and like usually it has like 32 00:01:47,600 --> 00:01:50,360 Speaker 2: two or three charts in there or data points that 33 00:01:50,440 --> 00:01:52,640 Speaker 2: blow my mind. And you know, I live and breathe 34 00:01:52,680 --> 00:01:54,760 Speaker 2: this stuff. So this was one of those studies I 35 00:01:54,800 --> 00:01:57,760 Speaker 2: thought had a lot of good nuggets like that that 36 00:01:57,840 --> 00:01:58,520 Speaker 2: he unearthed. 37 00:01:58,840 --> 00:02:02,800 Speaker 1: So joining us Athanasius and Blooming Intelligence and also Katie 38 00:02:02,800 --> 00:02:05,560 Speaker 1: Greyfield of Bloomberg News. It's also the co host of 39 00:02:05,600 --> 00:02:12,240 Speaker 1: the new Money Stuff podcast, this time on Trillions What 40 00:02:12,400 --> 00:02:17,160 Speaker 1: Pays the Bills? Athanasios, Katie, welcome back to Trillions. 41 00:02:18,840 --> 00:02:21,720 Speaker 3: Thanks for having me. I mean, after that Athanasios intro, 42 00:02:21,880 --> 00:02:23,160 Speaker 3: I'm expecting. 43 00:02:22,960 --> 00:02:27,240 Speaker 1: A musicians musician, right, Athasias, what what music do you 44 00:02:27,360 --> 00:02:28,040 Speaker 1: actually play? 45 00:02:29,000 --> 00:02:29,080 Speaker 3: Well? 46 00:02:29,080 --> 00:02:31,040 Speaker 4: I don't play any analysts, I don't know, like it 47 00:02:31,080 --> 00:02:32,440 Speaker 4: does a terminal calendar. 48 00:02:37,680 --> 00:02:42,640 Speaker 2: Music he's in the house music house like like. 49 00:02:44,240 --> 00:02:45,760 Speaker 4: Warehouses, wow. 50 00:02:47,800 --> 00:02:52,000 Speaker 2: Outlaw parties, after hours parties where eighten hangs out. The 51 00:02:52,080 --> 00:02:54,320 Speaker 2: place doesn't quote get good till like three thirty in 52 00:02:54,320 --> 00:02:54,680 Speaker 2: the morning. 53 00:02:54,720 --> 00:02:59,800 Speaker 1: Oh my gosh, Okay, what did you set out to 54 00:03:00,200 --> 00:03:02,359 Speaker 1: on earth with your with your researcher. 55 00:03:03,200 --> 00:03:05,040 Speaker 4: You know what actually inspired this was an article you 56 00:03:05,080 --> 00:03:09,200 Speaker 4: had written about the fidelity. Yeah. That's because you know, 57 00:03:09,240 --> 00:03:11,640 Speaker 4: we cover it for a while and it's great for 58 00:03:11,639 --> 00:03:13,280 Speaker 4: the investor, But the end of the day, someone needs 59 00:03:13,320 --> 00:03:15,320 Speaker 4: to make money, right, Like, in order to keep these 60 00:03:15,360 --> 00:03:18,960 Speaker 4: products coming, all this innovation, it needs to be funded somehow. 61 00:03:19,560 --> 00:03:23,320 Speaker 4: While it's great for the investor, So like Vanguard funds 62 00:03:23,360 --> 00:03:26,800 Speaker 4: for three basis points, when you look at what are 63 00:03:26,840 --> 00:03:29,720 Speaker 4: the firms that are making money, it's actually really really interesting. 64 00:03:29,919 --> 00:03:31,000 Speaker 4: For example, like First. 65 00:03:30,800 --> 00:03:33,160 Speaker 1: Trust, it's hard to make a buck, right, that's very 66 00:03:33,000 --> 00:03:33,320 Speaker 1: way here. 67 00:03:33,440 --> 00:03:36,600 Speaker 4: Yeah, I mean just even in context, you make way 68 00:03:36,680 --> 00:03:38,160 Speaker 4: less money than you do let's say in the mutual 69 00:03:38,160 --> 00:03:41,080 Speaker 4: fund industry, so you're already sort of downshifting into a 70 00:03:41,160 --> 00:03:45,280 Speaker 4: more cost competitive landscape. And it's kind of interesting. Like 71 00:03:45,320 --> 00:03:47,280 Speaker 4: what I saw was like First Trust, for example, it 72 00:03:47,320 --> 00:03:49,520 Speaker 4: has just a fraction of the assets of Vanguard makes 73 00:03:49,640 --> 00:03:52,440 Speaker 4: just as much as they do, right, So basically we're 74 00:03:52,480 --> 00:03:55,000 Speaker 4: just trying to identify that there are pockets that you 75 00:03:55,080 --> 00:03:57,480 Speaker 4: can make some money. It's not just you're gonna launch 76 00:03:57,520 --> 00:03:59,120 Speaker 4: an ETF, you're gonna launch it for a couple of 77 00:03:59,120 --> 00:04:00,960 Speaker 4: basis points and you're not going to make any money. 78 00:04:01,000 --> 00:04:04,120 Speaker 4: There are some pockets that there is a potential to 79 00:04:04,200 --> 00:04:05,280 Speaker 4: make some decent money. 80 00:04:05,640 --> 00:04:07,560 Speaker 1: So, Katie, did you know that you're the muse for 81 00:04:08,040 --> 00:04:08,720 Speaker 1: this episode? 82 00:04:08,800 --> 00:04:14,160 Speaker 3: The musicians musicians, MWS, WOW, Triple M. So the story 83 00:04:14,240 --> 00:04:18,960 Speaker 3: in question, myself and Emily GRIFFEO we saw a document 84 00:04:19,040 --> 00:04:22,120 Speaker 3: that showed that Fidelity is going to impose a new 85 00:04:22,160 --> 00:04:25,960 Speaker 3: fee on ETFs issued by nine firms. Was the list 86 00:04:26,000 --> 00:04:32,480 Speaker 3: that we saw, And basically it's because those firms didn't 87 00:04:32,520 --> 00:04:36,680 Speaker 3: agree to participate in a maintenance arrangement with Fidelity in 88 00:04:36,720 --> 00:04:41,520 Speaker 3: which they would pay Fidelity and as a result, basically 89 00:04:41,640 --> 00:04:45,080 Speaker 3: investors in those products, So investors going to Fidelity's platform 90 00:04:45,120 --> 00:04:49,039 Speaker 3: trying to buy ETFs from those firms would then be 91 00:04:49,200 --> 00:04:54,560 Speaker 3: faced with one hundred dollars servicing charge, So basically trading 92 00:04:54,640 --> 00:04:58,200 Speaker 3: wouldn't be free anymore. So you think about that, you 93 00:04:58,240 --> 00:05:01,000 Speaker 3: think about the size of trades that's being made on 94 00:05:01,040 --> 00:05:04,400 Speaker 3: the platform. If you wanted to buy twenty five dollars 95 00:05:04,440 --> 00:05:08,240 Speaker 3: worth of shares of Simplify, for example, was on the 96 00:05:09,080 --> 00:05:11,280 Speaker 3: initial list that we saw, you'd have to pay one 97 00:05:11,320 --> 00:05:15,599 Speaker 3: hundred dollars on top of that, which is just really large. 98 00:05:16,200 --> 00:05:17,080 Speaker 1: Some friction there. 99 00:05:17,360 --> 00:05:20,120 Speaker 2: Yeah, and let me give some other scale to that, 100 00:05:20,200 --> 00:05:23,279 Speaker 2: because I wrote a piece on your piece to Katie, 101 00:05:23,320 --> 00:05:26,480 Speaker 2: which my reaction was, I don't know if the optics 102 00:05:26,480 --> 00:05:28,560 Speaker 2: are worth this tiny bit of revenue they're going to get. 103 00:05:28,600 --> 00:05:31,080 Speaker 2: Because let me give you some numbers that just show 104 00:05:31,160 --> 00:05:35,040 Speaker 2: how little ETFs make versus the mutual funds. So ETF's 105 00:05:35,080 --> 00:05:37,159 Speaker 2: total revenue and this is an eighth and story, is 106 00:05:37,200 --> 00:05:40,159 Speaker 2: fifteen billion a year. Pretty good. Sounds like a lot, 107 00:05:40,520 --> 00:05:42,520 Speaker 2: But mutual funds will be north of one hundred billion, 108 00:05:42,560 --> 00:05:46,239 Speaker 2: and Fidelity alone makes twenty eight billions. So Fidelity makes 109 00:05:46,240 --> 00:05:49,599 Speaker 2: two ETF industries itself. And this is a little reason 110 00:05:49,600 --> 00:05:51,520 Speaker 2: why it rubbed some of the issuers the wrong way. 111 00:05:51,960 --> 00:05:53,919 Speaker 2: It's like, hey, you make so much money, we're just 112 00:05:53,960 --> 00:05:56,480 Speaker 2: like fighting for scraps here. Why do you have to 113 00:05:56,560 --> 00:05:59,120 Speaker 2: hurt us little guys just trying to get you get 114 00:05:59,200 --> 00:06:02,919 Speaker 2: something going? And this became, you know, kind of a 115 00:06:02,920 --> 00:06:07,160 Speaker 2: controversial issue, which Katie scoop I think kicked off. I 116 00:06:07,200 --> 00:06:09,719 Speaker 2: will see how it plays out, but I get both sides. 117 00:06:10,160 --> 00:06:14,360 Speaker 3: It was a scoop just for the record, a scoop, 118 00:06:14,480 --> 00:06:18,800 Speaker 3: I think. So I'm just confirming, but no, it definitely 119 00:06:18,920 --> 00:06:24,640 Speaker 3: kicked off, just a firestorm of discussion on Twitter for example, 120 00:06:24,760 --> 00:06:27,159 Speaker 3: and apparently it inspired some great research as well. 121 00:06:27,279 --> 00:06:30,560 Speaker 1: Bring it back, Bring it back to Athanasius coming in 122 00:06:30,640 --> 00:06:32,640 Speaker 1: late there. So what did we learn? 123 00:06:33,920 --> 00:06:38,400 Speaker 4: Well, you're gonna make less money, but Air quoted fifteen billion, 124 00:06:38,440 --> 00:06:41,360 Speaker 4: but the number's gonna keep going up because funds are converting. 125 00:06:41,440 --> 00:06:44,520 Speaker 4: Everything's going towards there. So yes, you can keep milking 126 00:06:44,760 --> 00:06:47,559 Speaker 4: the money in the mutual fund industry. Songs of market 127 00:06:47,640 --> 00:06:51,200 Speaker 4: keeps going up. But what anyone who wants to jump 128 00:06:51,200 --> 00:06:52,839 Speaker 4: into the industry, you just need to realize, like there's 129 00:06:52,839 --> 00:06:54,640 Speaker 4: ways you can make money, right, And it's not just 130 00:06:54,720 --> 00:06:56,360 Speaker 4: you're gonna go to ETFs and you're gonna turn into 131 00:06:56,440 --> 00:06:58,880 Speaker 4: Vanguard and there's no more money. So I think it's 132 00:06:58,920 --> 00:07:01,760 Speaker 4: important to like where are some of the money is 133 00:07:01,760 --> 00:07:04,040 Speaker 4: coming from? Like Active is actually a really big one, right, 134 00:07:04,080 --> 00:07:05,440 Speaker 4: and I think this is where there's always a lot 135 00:07:05,440 --> 00:07:09,080 Speaker 4: of hesitation. Active managers don't want to convert in ETFs. 136 00:07:09,560 --> 00:07:11,880 Speaker 4: But active pays a lot of the bills, right, and 137 00:07:11,960 --> 00:07:15,239 Speaker 4: so I think about active might be about seven percent 138 00:07:15,240 --> 00:07:18,480 Speaker 4: of the assets, but it's almost a fifth of the revenue. 139 00:07:18,640 --> 00:07:22,360 Speaker 4: That's massive, right. But I think it's also good that 140 00:07:22,480 --> 00:07:24,600 Speaker 4: Vanguard is getting bigger, right, And this is something Eric 141 00:07:24,640 --> 00:07:27,080 Speaker 4: has talked about a lot in the past, like the 142 00:07:27,080 --> 00:07:29,800 Speaker 4: bigger they get, and the more you're saving your investors 143 00:07:29,960 --> 00:07:32,920 Speaker 4: in sort of their core portion of the portfolio. You 144 00:07:32,920 --> 00:07:34,760 Speaker 4: have some money to play around with, so you become 145 00:07:34,840 --> 00:07:37,240 Speaker 4: less cost and sensitive. You could go to thematics, you 146 00:07:37,240 --> 00:07:41,080 Speaker 4: could go to buffer. ETFs are active, right, So you 147 00:07:41,120 --> 00:07:44,080 Speaker 4: can see that some of these funds are charging quite 148 00:07:44,080 --> 00:07:47,040 Speaker 4: a bit of money. But again that plays in with 149 00:07:47,120 --> 00:07:50,800 Speaker 4: the Vanguard growth. You know, thematics make quite a bit 150 00:07:50,840 --> 00:07:53,200 Speaker 4: of money too, and so you see it in the 151 00:07:53,200 --> 00:07:55,840 Speaker 4: trends of the new launches. Anyone that's launching a new product, 152 00:07:55,840 --> 00:07:58,360 Speaker 4: they're trying to get creative, they're using options, or they're 153 00:07:58,400 --> 00:08:01,600 Speaker 4: doing themes. Are active because that's a place that's making 154 00:08:01,640 --> 00:08:03,200 Speaker 4: some decent money. It's probably the only place you can 155 00:08:03,200 --> 00:08:04,280 Speaker 4: still make some money too. 156 00:08:05,160 --> 00:08:08,160 Speaker 1: So break down the money because I mean the big three, 157 00:08:08,520 --> 00:08:10,480 Speaker 1: how much money are they actually breaking it? 158 00:08:10,720 --> 00:08:13,000 Speaker 4: You know, less than half, But they have seventy five 159 00:08:13,040 --> 00:08:15,400 Speaker 4: percent of the assets, right, which is amazing. I think 160 00:08:15,480 --> 00:08:18,280 Speaker 4: that's still that's a good sign for the smaller guys, 161 00:08:18,280 --> 00:08:20,200 Speaker 4: where I think a lot of the innovation comes from. 162 00:08:21,160 --> 00:08:23,840 Speaker 4: And again, Vanguard really pulls that average down. They don't 163 00:08:23,880 --> 00:08:26,920 Speaker 4: make any money. I mean, they're essentially almost like a charity. 164 00:08:27,040 --> 00:08:28,800 Speaker 3: Can I tell you how much money they yeah from 165 00:08:28,840 --> 00:08:31,880 Speaker 3: your table? Because this really I did a double take. 166 00:08:32,480 --> 00:08:37,120 Speaker 3: Vanguard has about two point five trillion dollars in ETF assets, 167 00:08:37,200 --> 00:08:41,800 Speaker 3: and according to Athanasios's research, they make one point three 168 00:08:41,920 --> 00:08:44,840 Speaker 3: billion dollars in annual revenue. I mean, that is shocking 169 00:08:44,880 --> 00:08:45,120 Speaker 3: to me. 170 00:08:45,600 --> 00:08:47,800 Speaker 4: It seems so little, right, Yeah, they do. 171 00:08:48,200 --> 00:08:51,120 Speaker 2: Yeah, So let me just expand on that because on 172 00:08:51,160 --> 00:08:54,160 Speaker 2: percentage terms, so they have twenty nine percent of the assets, 173 00:08:54,160 --> 00:08:57,360 Speaker 2: but they make nine percent of the revenue. But when 174 00:08:57,360 --> 00:09:00,400 Speaker 2: I wrote the Bogel book, I looked at all funds. 175 00:09:00,440 --> 00:09:03,640 Speaker 2: When you bring in mutual funds, that gap gets crazier. 176 00:09:03,720 --> 00:09:09,320 Speaker 2: It's more like twenty seven percent, but five percent because 177 00:09:09,440 --> 00:09:12,560 Speaker 2: mutual funds have so many gigantic revenue generating funds, but 178 00:09:13,200 --> 00:09:15,880 Speaker 2: that gap is absurd. I mean, there's nothing even close 179 00:09:15,920 --> 00:09:19,240 Speaker 2: to it. Black Rock, for example, has thirty one percent 180 00:09:19,240 --> 00:09:21,240 Speaker 2: of the assets but twenty eight percent of the revenue, 181 00:09:21,240 --> 00:09:24,000 Speaker 2: so they're almost like one for one, but clearly like 182 00:09:24,080 --> 00:09:26,520 Speaker 2: even they're making a little less than their assets share. 183 00:09:26,960 --> 00:09:29,760 Speaker 1: Okay, so if you're not those big three, what do 184 00:09:29,840 --> 00:09:30,880 Speaker 1: those numbers look like? 185 00:09:31,800 --> 00:09:34,760 Speaker 4: Uh? Yeah, so I'd say ones that really stick out. First, 186 00:09:34,800 --> 00:09:37,520 Speaker 4: Trust is making quite a bit of money because they 187 00:09:37,559 --> 00:09:40,680 Speaker 4: are average fees something like seventy eight basis points. The 188 00:09:40,720 --> 00:09:43,560 Speaker 4: other thing is leverage the ETFs, so the pro shares 189 00:09:43,600 --> 00:09:47,160 Speaker 4: the directions. I think TQQ is number five on the 190 00:09:47,200 --> 00:09:51,439 Speaker 4: list of the highest revenue generating ETF. Right, it's twenty 191 00:09:51,480 --> 00:09:54,080 Speaker 4: or so billion in assets at ninety five basis points, 192 00:09:54,720 --> 00:09:58,520 Speaker 4: So leverage, thematics active all tend to make quite a 193 00:09:58,520 --> 00:10:00,520 Speaker 4: bit of money. And then anything over six the basis 194 00:10:00,559 --> 00:10:02,400 Speaker 4: points like which seems like it's insane, like how can 195 00:10:02,400 --> 00:10:05,040 Speaker 4: I sell ETF that's over fifty or sixty basis points? 196 00:10:05,080 --> 00:10:07,400 Speaker 4: But money's going there. They make up a good third 197 00:10:07,480 --> 00:10:10,120 Speaker 4: or so of the revenue. So I feel like when 198 00:10:10,120 --> 00:10:11,679 Speaker 4: you pull it back and you look at it, it's not. 199 00:10:11,880 --> 00:10:14,600 Speaker 4: It shouldn't dissuade someone from launching new product. There is 200 00:10:14,679 --> 00:10:17,040 Speaker 4: ways to make money, it's not just your going head 201 00:10:17,040 --> 00:10:19,880 Speaker 4: to head with Vanguard. I think if you're getting innovated, right, 202 00:10:19,880 --> 00:10:21,800 Speaker 4: if you're going to launch another S and P five 203 00:10:21,920 --> 00:10:25,040 Speaker 4: hundred ETF, you can't charge more than three basis points, Like, 204 00:10:25,080 --> 00:10:26,840 Speaker 4: there's not money to be made there, but there are 205 00:10:26,880 --> 00:10:29,440 Speaker 4: some pockets. I think if you get creative, there's some 206 00:10:29,679 --> 00:10:35,839 Speaker 4: potential that you can make some money. 207 00:10:38,040 --> 00:10:40,840 Speaker 1: It's been this race to the bottom for almost as 208 00:10:40,880 --> 00:10:43,240 Speaker 1: long as we've been doing this podcast. But when you 209 00:10:43,240 --> 00:10:46,520 Speaker 1: start talking fifty or sixty basis points, that is kind 210 00:10:46,520 --> 00:10:49,760 Speaker 1: of a new number, right, So is this a new 211 00:10:49,840 --> 00:10:52,520 Speaker 1: trend that's emerging or is it just doubling down on 212 00:10:52,559 --> 00:10:54,120 Speaker 1: things that have worked for the past couple of years. 213 00:10:54,240 --> 00:10:56,880 Speaker 4: Yeah, it's a good question. I think if you're unique enough, 214 00:10:57,120 --> 00:10:58,880 Speaker 4: you can charge more for it. And I think like 215 00:10:59,040 --> 00:11:02,360 Speaker 4: Kathy would really expose that, right, if you're really unique, 216 00:11:02,360 --> 00:11:05,120 Speaker 4: it's something that no one else offers. But I don't know, 217 00:11:05,160 --> 00:11:07,880 Speaker 4: it's like can we get is gonna get so cheap 218 00:11:07,880 --> 00:11:10,520 Speaker 4: that eventually just like swallows itself home, Like we start 219 00:11:10,520 --> 00:11:13,600 Speaker 4: all over again, right, because now they's single stock ETFs, 220 00:11:13,640 --> 00:11:16,000 Speaker 4: and so I feel like we've now we've gone so 221 00:11:16,120 --> 00:11:18,960 Speaker 4: far to one end that it's now swinging back over. 222 00:11:19,040 --> 00:11:20,800 Speaker 4: And I think when you look at it total cost 223 00:11:20,880 --> 00:11:22,360 Speaker 4: of ownership, right, so like you're not gonna be one 224 00:11:22,400 --> 00:11:25,040 Speaker 4: hundred percent in an ARC. So if you sort of 225 00:11:25,040 --> 00:11:26,920 Speaker 4: look at it in the context of your whole portfolio 226 00:11:27,080 --> 00:11:30,240 Speaker 4: sort of weighted average cost, you're still lower, right, you 227 00:11:30,240 --> 00:11:34,640 Speaker 4: have your vandguard allocation, your thematics, your actives, you're still 228 00:11:34,760 --> 00:11:38,080 Speaker 4: saving money as an investor. So yeah, I think if 229 00:11:38,080 --> 00:11:39,880 Speaker 4: it's unique enough, like you're not going to watch an 230 00:11:39,920 --> 00:11:42,520 Speaker 4: SP five hundred ETF at fifty basis points, it's just 231 00:11:42,600 --> 00:11:44,520 Speaker 4: not going to sell. But I think if it's really 232 00:11:44,559 --> 00:11:46,840 Speaker 4: something unique, it could be done. It's shown that it 233 00:11:46,840 --> 00:11:48,800 Speaker 4: could be done. I think buffers are a really interesting 234 00:11:49,160 --> 00:11:51,840 Speaker 4: case study too. They're very unique. They got something like 235 00:11:51,920 --> 00:11:54,960 Speaker 4: forty billion or so in assets, and you know, the 236 00:11:55,040 --> 00:11:58,880 Speaker 4: pretty decent like revenue generators for the industry. 237 00:11:58,760 --> 00:12:02,560 Speaker 1: Katie, do you know what the pop revenue generating ETF is? 238 00:12:03,559 --> 00:12:06,559 Speaker 3: I mean, is it GPTC at this point or is 239 00:12:06,600 --> 00:12:08,040 Speaker 3: it GLD It's something like that. 240 00:12:08,520 --> 00:12:09,199 Speaker 1: You're close. 241 00:12:09,720 --> 00:12:11,920 Speaker 3: Oh my god, I feel like I should. 242 00:12:11,640 --> 00:12:12,720 Speaker 2: Know that those are three and four. 243 00:12:13,240 --> 00:12:16,120 Speaker 4: Oh my gosh, you're close. 244 00:12:17,080 --> 00:12:19,920 Speaker 3: It's not the cues. Yes, it's still the cues. Wow. 245 00:12:20,280 --> 00:12:22,920 Speaker 1: Yeah, this is research. 246 00:12:22,720 --> 00:12:23,640 Speaker 3: One of my favorite things. 247 00:12:23,720 --> 00:12:27,199 Speaker 1: Yeah, that's why I was gonna, you know, volleyed to you. 248 00:12:27,840 --> 00:12:30,680 Speaker 3: We're all just stepping all over each other. Yeah. The 249 00:12:30,720 --> 00:12:32,920 Speaker 3: cues is amazing. I forgot what the fee is. It's 250 00:12:32,920 --> 00:12:35,720 Speaker 3: like twenty basis points, right, twenty basis points. 251 00:12:35,760 --> 00:12:37,280 Speaker 1: And that's because of that trust structure. 252 00:12:37,520 --> 00:12:41,880 Speaker 3: Yeah, unit investment trust, which means that Invesco virtually sees 253 00:12:42,160 --> 00:12:45,960 Speaker 3: none of that money. It's sort of like this piggy 254 00:12:46,000 --> 00:12:49,160 Speaker 3: bank that they can't crack. Spy is a similar thing, 255 00:12:49,160 --> 00:12:51,559 Speaker 3: and Spy is nine basis points and it's enormous. So 256 00:12:51,880 --> 00:12:54,640 Speaker 3: I have to imagine it's on that list number two. Yeah, 257 00:12:54,679 --> 00:12:57,760 Speaker 3: there you go. So but more some of that money 258 00:12:57,800 --> 00:13:00,880 Speaker 3: stays in the door at State Street, I believe, because 259 00:13:00,880 --> 00:13:02,400 Speaker 3: they're the custodian correct. 260 00:13:02,840 --> 00:13:03,960 Speaker 4: Yes, all right, thank you. 261 00:13:04,280 --> 00:13:05,760 Speaker 3: It's also Velvet Underground. 262 00:13:08,280 --> 00:13:11,480 Speaker 1: It's so wonky. Okay. So if you look at this 263 00:13:11,640 --> 00:13:14,760 Speaker 1: that list that you put together, Athanasis, like, what's the 264 00:13:14,800 --> 00:13:16,520 Speaker 1: big surprise on there? 265 00:13:17,000 --> 00:13:19,360 Speaker 4: Oh yeah, So we looked at the top thirty revenue 266 00:13:19,400 --> 00:13:22,600 Speaker 4: drating generating ETFs. So ones that really stuck out. Jeppy 267 00:13:22,720 --> 00:13:26,679 Speaker 4: from JP Morgan cracked the list, Cows from Pacer cracked 268 00:13:26,679 --> 00:13:29,240 Speaker 4: the list, Mote from van k which really shocked me. 269 00:13:29,640 --> 00:13:31,719 Speaker 4: So there were these really interesting ones, like I had 270 00:13:31,720 --> 00:13:33,600 Speaker 4: to double check. I'm like, wow, all of a sudden, 271 00:13:33,840 --> 00:13:35,480 Speaker 4: these names started getting pulled up. 272 00:13:35,400 --> 00:13:37,600 Speaker 1: To some indies in there. Yeah for sure. 273 00:13:37,720 --> 00:13:40,839 Speaker 4: Yeah, GBTC is on the list. You had mentioned. That's 274 00:13:40,880 --> 00:13:41,520 Speaker 4: a conversion. 275 00:13:41,720 --> 00:13:42,480 Speaker 1: So when you look at it. 276 00:13:42,520 --> 00:13:44,640 Speaker 4: You're like, wow, there's actually a TQQQ which is like 277 00:13:44,720 --> 00:13:48,200 Speaker 4: number five U. So but they have something in common, right, 278 00:13:48,200 --> 00:13:51,480 Speaker 4: They're all very different. They're smart beta, they're leveraged or 279 00:13:51,520 --> 00:13:54,800 Speaker 4: active or thematic. And again these are at the top 280 00:13:54,800 --> 00:13:57,880 Speaker 4: of the list. So yeah, that one. Those ones definitely 281 00:13:57,880 --> 00:14:00,160 Speaker 4: stuck out the most. And Q was always number two 282 00:14:00,280 --> 00:14:02,640 Speaker 4: for a long time, behind Spy, and it just when 283 00:14:02,679 --> 00:14:04,640 Speaker 4: he kind of recently had taken the top spot. 284 00:14:05,040 --> 00:14:07,880 Speaker 3: I will say what we're describing now, and like you 285 00:14:07,960 --> 00:14:11,920 Speaker 3: say that issuers are looking more towards active thematics, et 286 00:14:12,000 --> 00:14:15,080 Speaker 3: cetera as a way to make money. It sort of 287 00:14:16,000 --> 00:14:19,160 Speaker 3: puts what issuers always tell us in more of a 288 00:14:19,200 --> 00:14:23,600 Speaker 3: pessimistic light because I mean, especially on ETFIQ, we talked 289 00:14:23,640 --> 00:14:26,120 Speaker 3: to a lot of issuers you know, coming out with 290 00:14:26,200 --> 00:14:29,400 Speaker 3: active products, et cetera, and they say, you know, we're 291 00:14:29,440 --> 00:14:32,840 Speaker 3: responding to client demand, client demand, it's always client demand, 292 00:14:33,560 --> 00:14:37,120 Speaker 3: but it's also just a way to pay the bills. 293 00:14:37,560 --> 00:14:39,640 Speaker 1: Pay those bills. Yeah. 294 00:14:39,960 --> 00:14:44,000 Speaker 2: I think Jefpy is interesting here and Cows. These two 295 00:14:44,080 --> 00:14:47,880 Speaker 2: I think should be somewhat a blueprint for how active 296 00:14:47,960 --> 00:14:50,600 Speaker 2: can survive going forward. I think Cows is like, hey, 297 00:14:50,680 --> 00:14:53,800 Speaker 2: let's just take this one metric cash flow and it 298 00:14:53,880 --> 00:14:56,000 Speaker 2: came out like three years and nobody cared. But then 299 00:14:56,000 --> 00:14:57,920 Speaker 2: when the Fed raised rais, cash flow became like a 300 00:14:57,960 --> 00:15:00,960 Speaker 2: big deal and that is on the top twenty. And 301 00:15:01,080 --> 00:15:04,680 Speaker 2: jepy to me JP Morgan. We just covered this on ETFIQ. Also, 302 00:15:05,160 --> 00:15:07,560 Speaker 2: Brian Lake just moved from JP Morgan to Goldman and 303 00:15:08,240 --> 00:15:11,880 Speaker 2: he was I thought, turned picking expense ratios into an 304 00:15:12,000 --> 00:15:16,120 Speaker 2: art form because JEP is thirty five basis points right, 305 00:15:16,160 --> 00:15:19,320 Speaker 2: so it's not dirt cheap, but it's cheap enough where 306 00:15:19,320 --> 00:15:22,160 Speaker 2: as an advisor you're like, Okay, it's got JP Morgan's 307 00:15:22,160 --> 00:15:24,200 Speaker 2: brand name. It's a covered call strategy, so they're doing 308 00:15:24,200 --> 00:15:27,080 Speaker 2: this legwork of like options they have to sort of 309 00:15:27,120 --> 00:15:30,200 Speaker 2: like keep up with. Then there's a fundamental screen in 310 00:15:30,240 --> 00:15:33,840 Speaker 2: there and it's thirty five basis points. It feels fair 311 00:15:34,800 --> 00:15:38,720 Speaker 2: and this is again now in the top twenty revenue generating. 312 00:15:38,760 --> 00:15:41,760 Speaker 2: So what he did is made I think everybody feel 313 00:15:41,800 --> 00:15:44,080 Speaker 2: like they got a fair deal for active while at 314 00:15:44,120 --> 00:15:46,760 Speaker 2: the same time making good money. And so I would 315 00:15:46,800 --> 00:15:49,240 Speaker 2: definitely study if I was coming out with ETFs, I'd 316 00:15:49,240 --> 00:15:51,920 Speaker 2: study jepy and then on the flip side, i'd study 317 00:15:51,960 --> 00:15:54,480 Speaker 2: like an ARC or a thematic ETF. So if you 318 00:15:54,520 --> 00:15:56,080 Speaker 2: have a lot of active share, I think you can 319 00:15:56,160 --> 00:15:59,960 Speaker 2: charge more TQQQ And the top five is also interesting. 320 00:16:00,160 --> 00:16:03,160 Speaker 2: Ethan and I frequently joke about the leverage issuers because 321 00:16:03,800 --> 00:16:07,080 Speaker 2: they have to be the envy of the industry because 322 00:16:07,240 --> 00:16:10,080 Speaker 2: Vanguard will never deal with them. They take a little 323 00:16:10,080 --> 00:16:12,560 Speaker 2: crap from people online. It's like they're selling legs. 324 00:16:12,560 --> 00:16:15,040 Speaker 1: Those analysts who have like a red light rating system and. 325 00:16:15,080 --> 00:16:18,520 Speaker 2: All, yeah, people are like, you know, what is the 326 00:16:18,520 --> 00:16:21,400 Speaker 2: social purpose of triple leverage this? But the social I 327 00:16:21,440 --> 00:16:24,280 Speaker 2: mean they really they really have you know, or is 328 00:16:24,320 --> 00:16:26,600 Speaker 2: this too dangerous? They definitely every now and then they 329 00:16:26,640 --> 00:16:29,840 Speaker 2: just kind of get kicked around, but they make a 330 00:16:30,000 --> 00:16:32,840 Speaker 2: nice little living. They account for five to six percent 331 00:16:32,840 --> 00:16:34,520 Speaker 2: of the revenue even though it's like one percent of 332 00:16:34,560 --> 00:16:38,080 Speaker 2: the assets, and that it's the trading tools. 333 00:16:38,480 --> 00:16:40,800 Speaker 1: I was gonna say, I do think there's a polarization. 334 00:16:40,960 --> 00:16:43,520 Speaker 1: It feels like there's this existential thing that's happening where 335 00:16:43,520 --> 00:16:48,360 Speaker 1: it's like, okay, super tidy, vanilla, low cost things and 336 00:16:48,400 --> 00:16:52,640 Speaker 1: then assortment of trading tools that you know you have 337 00:16:52,680 --> 00:16:56,520 Speaker 1: to pay for and not a small amount anymore. No, 338 00:16:56,640 --> 00:16:58,520 Speaker 1: I think that's enough for people to make a living. 339 00:16:58,640 --> 00:17:00,920 Speaker 4: Yeah, I think either you're gonna shot at Walmart or 340 00:17:00,920 --> 00:17:03,200 Speaker 4: like the really boutique shop, right, and that's it. You're 341 00:17:03,200 --> 00:17:05,720 Speaker 4: gonna burow your essentials there and then the specialized suff 342 00:17:05,720 --> 00:17:07,439 Speaker 4: and you're willing to pay for it, right, And it 343 00:17:07,440 --> 00:17:10,080 Speaker 4: seems like that's where the industry is splitting. When we 344 00:17:10,080 --> 00:17:12,920 Speaker 4: look at launches by fee, the fees are actually going 345 00:17:13,000 --> 00:17:17,880 Speaker 4: up on average, right, and so they're you know, launches 346 00:17:17,920 --> 00:17:20,000 Speaker 4: will follow the money people willing to pay for it, 347 00:17:20,080 --> 00:17:22,800 Speaker 4: and you're offering something unique, the flows are going to 348 00:17:22,840 --> 00:17:25,320 Speaker 4: go there. And it's and it's showing at least so far. 349 00:17:27,000 --> 00:17:31,440 Speaker 2: And we have another term, Joel, we have another term 350 00:17:31,480 --> 00:17:34,920 Speaker 2: that we call package adrenaline, like if you can make 351 00:17:35,000 --> 00:17:38,720 Speaker 2: somebody feel something. And I would put the leverage single 352 00:17:38,720 --> 00:17:41,879 Speaker 2: stock ETFs in there, people will pay. There's like no 353 00:17:42,040 --> 00:17:45,680 Speaker 2: price sensitivity out there. Like the double leverage Navidia ETF 354 00:17:45,760 --> 00:17:48,359 Speaker 2: is two billion dollars. It charges one point one percent 355 00:17:48,440 --> 00:17:52,080 Speaker 2: in fees. No advisor would ever pay that much for fees, 356 00:17:52,320 --> 00:17:54,600 Speaker 2: but they would never use this anyway. This is purely 357 00:17:54,680 --> 00:17:58,199 Speaker 2: for like gambling really, but I mean, I'm okay with 358 00:17:58,280 --> 00:17:59,560 Speaker 2: it as long as you know what you know you 359 00:17:59,640 --> 00:18:02,120 Speaker 2: use it and you know you're kind of gambul at gambling. 360 00:18:02,920 --> 00:18:07,560 Speaker 2: That's a very ironic situation where the bigger vanguard and 361 00:18:07,640 --> 00:18:10,720 Speaker 2: passive gets the kind of crazier and more exotic we're 362 00:18:10,720 --> 00:18:14,520 Speaker 2: going to see new ETF launches get. So it's ironic, 363 00:18:14,600 --> 00:18:16,200 Speaker 2: but it makes sense if you think about it. 364 00:18:17,080 --> 00:18:19,240 Speaker 3: I will say something that's interesting to me is like 365 00:18:19,359 --> 00:18:23,080 Speaker 3: what this means for issuers beyond what sort of strategies 366 00:18:23,160 --> 00:18:26,399 Speaker 3: that they might launch into. Because there was this city 367 00:18:26,440 --> 00:18:30,000 Speaker 3: report from last year. I wrote it up in October 368 00:18:30,000 --> 00:18:31,760 Speaker 3: twenty twenty three, so it probably came out a little 369 00:18:31,800 --> 00:18:35,520 Speaker 3: before then, but they found that roughly one third to 370 00:18:35,600 --> 00:18:40,240 Speaker 3: half of US listed ETFs right now can't cover their 371 00:18:40,400 --> 00:18:44,360 Speaker 3: annual operating costs. And you think about this big uptick 372 00:18:44,400 --> 00:18:47,560 Speaker 3: that we've seen in ETF closures, and I'm wondering if 373 00:18:47,640 --> 00:18:50,159 Speaker 3: this sort of dynamic and also what we're describing right 374 00:18:50,160 --> 00:18:53,240 Speaker 3: now will keep those closures at this high level. I 375 00:18:53,240 --> 00:18:56,560 Speaker 3: think it wasn't quite record closures last year, but it 376 00:18:56,600 --> 00:18:58,400 Speaker 3: was pretty close at the same time that you had 377 00:18:58,400 --> 00:19:01,080 Speaker 3: record almost record launches, and. 378 00:19:01,040 --> 00:19:03,720 Speaker 2: There's record closures this year too. They're on pace to 379 00:19:03,760 --> 00:19:05,000 Speaker 2: have a record So. 380 00:19:05,280 --> 00:19:07,000 Speaker 1: I think the churn will I agree, but we'll see 381 00:19:07,000 --> 00:19:11,439 Speaker 1: you in October again for the graveyard episode Spooky. 382 00:19:11,720 --> 00:19:15,000 Speaker 2: Well, for every two x Navidia that's a two billion 383 00:19:15,000 --> 00:19:18,280 Speaker 2: dollars hit, there's like five of them that like nobody touched. 384 00:19:19,400 --> 00:19:23,520 Speaker 2: So some of these hot sauce products is spaghetti at 385 00:19:23,560 --> 00:19:25,800 Speaker 2: the wall and in Verse crammed something. 386 00:19:27,240 --> 00:19:31,480 Speaker 1: You guys, as we should have, and. 387 00:19:31,640 --> 00:19:34,119 Speaker 2: I wrote about how that was the right idea but 388 00:19:34,160 --> 00:19:36,080 Speaker 2: the wrong design. They should have made it long short. 389 00:19:36,480 --> 00:19:39,359 Speaker 2: They needed to make it just one direction because it 390 00:19:39,520 --> 00:19:42,639 Speaker 2: kept offsetting. So to Athan's point, you got to be 391 00:19:42,720 --> 00:19:45,840 Speaker 2: cheap or shiny, and the kramer was the way it 392 00:19:45,880 --> 00:19:47,360 Speaker 2: was designed. It could never get shiny. 393 00:19:47,640 --> 00:19:51,840 Speaker 4: Sometimes the stars just align. Like it's just a formula 394 00:19:51,840 --> 00:19:54,320 Speaker 4: that hopefully is like, Okay, where's the money going. It's 395 00:19:54,359 --> 00:19:57,280 Speaker 4: going to active people willing to pay issuers are going 396 00:19:57,359 --> 00:19:58,399 Speaker 4: to try it, but a lot of them are going 397 00:19:58,480 --> 00:20:01,160 Speaker 4: to fail to write. There's just normal turn in the industry. 398 00:20:01,520 --> 00:20:03,240 Speaker 4: Someone might take it too far, they might get a 399 00:20:03,240 --> 00:20:07,800 Speaker 4: little too crazy, you know, but at least this gives 400 00:20:07,840 --> 00:20:09,879 Speaker 4: you a blueprint of like what might be working in 401 00:20:09,920 --> 00:20:13,040 Speaker 4: what areas should an issuer be looking to launch in. 402 00:20:13,560 --> 00:20:17,400 Speaker 3: To your point, Eric, you were saying, Jefpy perhaps will 403 00:20:17,440 --> 00:20:20,959 Speaker 3: provide a blueprint to other issuers looking to launch active. 404 00:20:21,280 --> 00:20:24,040 Speaker 3: A lot of issuers took that literally and just sort 405 00:20:24,040 --> 00:20:27,879 Speaker 3: of came out with jeppy copycats. And it's interesting that 406 00:20:28,920 --> 00:20:32,120 Speaker 3: those haven't done too well. I mean, you think about 407 00:20:32,119 --> 00:20:35,639 Speaker 3: some of the big names, I believe black Rock Goldman 408 00:20:36,080 --> 00:20:40,200 Speaker 3: for example, who you know just tapped Brian Lake. They 409 00:20:41,480 --> 00:20:43,760 Speaker 3: I mean, they haven't exactly been able to replicate what 410 00:20:43,760 --> 00:20:44,720 Speaker 3: we're seeing with Jeffy. 411 00:20:45,359 --> 00:20:48,040 Speaker 2: Yeah, it's kind of like ARC. Right after ARC was 412 00:20:48,080 --> 00:20:50,720 Speaker 2: a hit, everybody came out with their innovation or disruptors 413 00:20:50,760 --> 00:20:53,399 Speaker 2: ETF and none of them really took in that much money, 414 00:20:53,400 --> 00:20:56,080 Speaker 2: but they somewhere over one hundred million. I mean, you know, 415 00:20:56,160 --> 00:20:58,160 Speaker 2: eked out a little bit of a profit. I think 416 00:20:58,200 --> 00:21:02,000 Speaker 2: with JEPPI, this train is so popular, which is the 417 00:21:02,040 --> 00:21:05,120 Speaker 2: covered call trade, that if you have a salesperson going 418 00:21:05,160 --> 00:21:06,840 Speaker 2: to meet advisors, you kind of need a jet by 419 00:21:06,920 --> 00:21:09,320 Speaker 2: product in your toolbox. So I think they have it 420 00:21:09,359 --> 00:21:11,159 Speaker 2: there just so they have something that don't have to 421 00:21:11,320 --> 00:21:14,120 Speaker 2: refer to the person to JP Morgan, but I'm with you, 422 00:21:14,320 --> 00:21:18,520 Speaker 2: really the innovator definitely gets most of the spoil, and 423 00:21:18,520 --> 00:21:21,800 Speaker 2: that's how it should be, I think. But there's a 424 00:21:21,920 --> 00:21:26,920 Speaker 2: lesson just in Jetpy in general, which is a brand 425 00:21:26,960 --> 00:21:30,119 Speaker 2: name with some legwork and a moderate fee. Forget if 426 00:21:30,160 --> 00:21:33,800 Speaker 2: it's covered call, think of something else. It's that spirit, 427 00:21:33,840 --> 00:21:37,800 Speaker 2: it's that logic that I think is what could be successful, 428 00:21:37,880 --> 00:21:40,960 Speaker 2: not doing another Jetpy, but just doing something that balances 429 00:21:41,000 --> 00:21:43,399 Speaker 2: all that in a way that an advisor can be 430 00:21:43,520 --> 00:21:47,720 Speaker 2: like feeling like they're being fiduciary and not paying too 431 00:21:47,800 --> 00:21:51,320 Speaker 2: much because obviously I think over the years they felt 432 00:21:51,320 --> 00:21:54,040 Speaker 2: like they paid too much for somebody to pick stocks 433 00:21:54,480 --> 00:21:55,359 Speaker 2: and underperform. 434 00:21:56,080 --> 00:21:59,119 Speaker 1: Okay, so all of this just makes me think of 435 00:21:59,720 --> 00:22:03,320 Speaker 1: Dave to Einhorn a little bit who has said some 436 00:22:03,359 --> 00:22:08,080 Speaker 1: spicy things about passive investing this year. There's been some 437 00:22:08,560 --> 00:22:11,960 Speaker 1: ongoing coverage, including recently from Bloomberg News and our colleague 438 00:22:11,960 --> 00:22:14,119 Speaker 1: Glu Lang there that dove into some of that. Ethan 439 00:22:14,119 --> 00:22:16,160 Speaker 1: you came up in there because one of the things 440 00:22:16,160 --> 00:22:20,399 Speaker 1: that I mean, basically ein Horn feels like passive is 441 00:22:20,480 --> 00:22:25,400 Speaker 1: destroying stock market value has been crushed. But you think 442 00:22:25,440 --> 00:22:26,959 Speaker 1: he's over oversteps slightly. 443 00:22:27,160 --> 00:22:28,840 Speaker 4: Yeah, I mean I don't think it's iron I think 444 00:22:28,880 --> 00:22:31,120 Speaker 4: it's a lot of people. Right. Every couple of years 445 00:22:31,160 --> 00:22:32,679 Speaker 4: we got to deal with this. They come out with 446 00:22:32,720 --> 00:22:35,879 Speaker 4: some thing about passive distorting markets. So we looked at it. 447 00:22:36,359 --> 00:22:39,240 Speaker 4: We looked at all the stocks based on their passive ownership. 448 00:22:39,920 --> 00:22:42,239 Speaker 4: And just to give you context, right, if you take 449 00:22:42,320 --> 00:22:45,280 Speaker 4: mutual funds and ETFs together, they own about twenty four 450 00:22:45,359 --> 00:22:47,879 Speaker 4: percent of the stock market and only half of that 451 00:22:48,040 --> 00:22:51,800 Speaker 4: is passive, so again a pretty small number. But then 452 00:22:51,800 --> 00:22:54,720 Speaker 4: we looked at stocks with higher and lower passive ownership, 453 00:22:54,920 --> 00:22:58,879 Speaker 4: and we've actually found that stocks with lower passive ownership 454 00:22:58,920 --> 00:23:01,639 Speaker 4: performed better than ones with higher passive ownership. And the 455 00:23:02,080 --> 00:23:05,600 Speaker 4: critics always say, well, the main premise was that stocks 456 00:23:05,600 --> 00:23:08,880 Speaker 4: with higher passive ownership, they get inflated up artificially, they 457 00:23:09,040 --> 00:23:12,080 Speaker 4: tend to be more viotal during drawdowns. Things like that. 458 00:23:12,200 --> 00:23:14,920 Speaker 4: Wouldn't you find anything meaningful from the data that would 459 00:23:15,000 --> 00:23:18,160 Speaker 4: support that. I'm not saying that passive isn't a thing, right, 460 00:23:18,480 --> 00:23:21,040 Speaker 4: maybe in some stocks, but overall, the data kind of 461 00:23:21,040 --> 00:23:23,119 Speaker 4: refuted a lot of the stuff that they've been saying 462 00:23:23,200 --> 00:23:24,480 Speaker 4: for for a while. 463 00:23:25,520 --> 00:23:28,000 Speaker 2: And just to be clear, what this is is the 464 00:23:28,080 --> 00:23:30,399 Speaker 2: S and P five hundred stocks. There's five hundred of them. 465 00:23:30,800 --> 00:23:33,000 Speaker 2: The ones that have the least amount of their shares 466 00:23:33,040 --> 00:23:36,720 Speaker 2: owned by passive actually had the best performance. That kind 467 00:23:36,720 --> 00:23:39,240 Speaker 2: of goes against this idea that like the stocks that 468 00:23:39,320 --> 00:23:41,199 Speaker 2: do the best are the ones that index funds own 469 00:23:41,240 --> 00:23:41,679 Speaker 2: the most of. 470 00:23:41,920 --> 00:23:44,320 Speaker 1: Was that surprising? I mean like that it sounds like 471 00:23:44,359 --> 00:23:46,160 Speaker 1: when you actually dig it up, it's like whoa, whoa. 472 00:23:46,320 --> 00:23:48,240 Speaker 1: That's like, yeah, we even talked about that before. 473 00:23:48,119 --> 00:23:50,399 Speaker 4: It was and it seems like if you're active, I 474 00:23:50,400 --> 00:23:52,280 Speaker 4: would have taken this as a good thing, Like, wait, 475 00:23:52,280 --> 00:23:56,200 Speaker 4: there's opportunities. There's stocks that are lower passively owned, there's 476 00:23:56,240 --> 00:23:58,560 Speaker 4: more opportunity for me. They performed better, Like I feel 477 00:23:58,600 --> 00:24:00,480 Speaker 4: like that's a good thing. That's giving you more on 478 00:24:00,520 --> 00:24:03,200 Speaker 4: a portfolio management side. And then you know, we even 479 00:24:03,240 --> 00:24:05,639 Speaker 4: looked at things like additions and deletions from the S 480 00:24:05,680 --> 00:24:08,520 Speaker 4: and P. Deletions ended up doing better than the additions 481 00:24:08,560 --> 00:24:10,959 Speaker 4: and vice versa. Like, I think even the fact that 482 00:24:11,000 --> 00:24:13,280 Speaker 4: there are additions and deletions to the S and P 483 00:24:13,880 --> 00:24:15,879 Speaker 4: refutes all that, right, because if your argument is, if 484 00:24:15,920 --> 00:24:17,359 Speaker 4: it's in the S and P, pass is going to 485 00:24:17,400 --> 00:24:19,560 Speaker 4: push it up, none of these stocks should ever drop 486 00:24:19,600 --> 00:24:20,920 Speaker 4: out of the S and P. They should just all 487 00:24:21,000 --> 00:24:23,080 Speaker 4: keep going up. So the fact the fact that that 488 00:24:23,200 --> 00:24:26,080 Speaker 4: even exists sort of like is goes against the premise 489 00:24:26,119 --> 00:24:27,520 Speaker 4: of some of these arguments. 490 00:24:27,760 --> 00:24:29,920 Speaker 3: And you said that you got a lot of hate mail. 491 00:24:30,400 --> 00:24:33,320 Speaker 4: Yeah, yeah, good and bad some people. You know, as 492 00:24:33,320 --> 00:24:35,840 Speaker 4: you can imagine, it's a pretty touchy thing now, you see, 493 00:24:35,880 --> 00:24:38,320 Speaker 4: Like you know, there's been podcasts now off of this 494 00:24:38,480 --> 00:24:42,160 Speaker 4: and a couple of articles. Yeah, it's very touchy, especially 495 00:24:42,240 --> 00:24:46,159 Speaker 4: you know for active managers because the performances have not 496 00:24:46,160 --> 00:24:47,800 Speaker 4: been great, right, So a lot of them can blame 497 00:24:48,240 --> 00:24:52,440 Speaker 4: the SMP. But I still don't see like Apple being 498 00:24:52,480 --> 00:24:56,160 Speaker 4: propped up because it's you know, the second biggest stock 499 00:24:56,200 --> 00:24:56,560 Speaker 4: in the S. 500 00:24:56,520 --> 00:24:59,720 Speaker 3: And P, Like is also underperformed this year. 501 00:24:59,800 --> 00:25:00,000 Speaker 1: Yeah. 502 00:25:00,119 --> 00:25:02,040 Speaker 4: Ex example, it's like, could they just be a good 503 00:25:02,080 --> 00:25:03,920 Speaker 4: company that has a lot of cash and sells a 504 00:25:03,960 --> 00:25:06,720 Speaker 4: lot of iPhones? Is that why they're they're like doing 505 00:25:06,760 --> 00:25:09,000 Speaker 4: so well. But we even looked at it relative to 506 00:25:09,000 --> 00:25:11,320 Speaker 4: small caps, so small caps tend to have higher passive 507 00:25:11,320 --> 00:25:14,760 Speaker 4: ownership than large caps. Small caps have been in like 508 00:25:14,920 --> 00:25:17,520 Speaker 4: have lagged for a decade or you know, to the 509 00:25:17,560 --> 00:25:19,280 Speaker 4: S and P. So that refutes it too. There's a 510 00:25:19,280 --> 00:25:22,000 Speaker 4: lot of things that refuted a lot of the arguments 511 00:25:22,040 --> 00:25:24,200 Speaker 4: that you know, some big names have brought up. I 512 00:25:24,280 --> 00:25:26,400 Speaker 4: think when people just take it at face value because 513 00:25:26,400 --> 00:25:28,840 Speaker 4: they're a big name and it's just been hard to 514 00:25:28,880 --> 00:25:31,600 Speaker 4: outperform the the S and P, and can we get 515 00:25:31,640 --> 00:25:33,840 Speaker 4: there eventually? Sure? May if it's like seventy five or 516 00:25:33,880 --> 00:25:37,040 Speaker 4: eighty percent passive ownership, maybe that becomes problematic. But at 517 00:25:37,119 --> 00:25:39,800 Speaker 4: least right now, it just seems like it's really premature 518 00:25:39,840 --> 00:25:43,240 Speaker 4: to be blaming passive for a lot of the underperformance. 519 00:25:44,040 --> 00:25:46,480 Speaker 1: Worth noting that he's also had pretty good performance during 520 00:25:46,520 --> 00:25:47,320 Speaker 1: that some of this time. 521 00:25:54,960 --> 00:25:58,000 Speaker 2: A couple things on this passive number that are important. 522 00:25:58,080 --> 00:26:01,680 Speaker 2: Number one is when you look at the stocks that 523 00:26:01,880 --> 00:26:06,359 Speaker 2: are most known by passive. Passive also includes smart beta 524 00:26:06,840 --> 00:26:09,719 Speaker 2: and like so sometimes Active sells off a stock and 525 00:26:09,760 --> 00:26:12,880 Speaker 2: its price starts to go down, it's yield goes up, 526 00:26:13,160 --> 00:26:16,000 Speaker 2: and there's a lot of dividend popular dividit ETFs. Because 527 00:26:16,000 --> 00:26:20,040 Speaker 2: investors like yield whatever, they'll buy that stock. So it 528 00:26:20,119 --> 00:26:23,000 Speaker 2: ironically some of the dump stocks by Active become pass 529 00:26:23,040 --> 00:26:24,840 Speaker 2: his favorite because of smart beta. So there is a 530 00:26:24,880 --> 00:26:29,000 Speaker 2: smart beta factor in that passive number. That's I think 531 00:26:29,040 --> 00:26:32,440 Speaker 2: important to point out. The other thing is I like 532 00:26:32,520 --> 00:26:35,200 Speaker 2: the eye test. You know people with the eye tests 533 00:26:35,200 --> 00:26:39,399 Speaker 2: are gonna just the eye test. Is this Tesla is 534 00:26:39,440 --> 00:26:41,840 Speaker 2: a great example. It's a big holding. The SMP you 535 00:26:41,880 --> 00:26:44,480 Speaker 2: just talked about Apple, Teslas might even be better. It 536 00:26:44,520 --> 00:26:46,439 Speaker 2: has had a bad run, but then it had a 537 00:26:46,440 --> 00:26:48,600 Speaker 2: good run right after that when earnings it popped back up. 538 00:26:48,960 --> 00:26:51,840 Speaker 2: Navidio was like really nowhere three or four years ago. 539 00:26:51,920 --> 00:26:54,439 Speaker 2: Now it's like a top holding. It's not like index 540 00:26:54,520 --> 00:26:57,440 Speaker 2: funds decided to make Navidia a big deal or decided 541 00:26:57,480 --> 00:27:02,040 Speaker 2: that Tesla wasn't good. Active decided that the people trading 542 00:27:02,080 --> 00:27:04,800 Speaker 2: the stocks bid up Tesla after good earnings, they dump 543 00:27:04,840 --> 00:27:07,719 Speaker 2: it after bad earnings. So when I see these stocks 544 00:27:07,760 --> 00:27:13,640 Speaker 2: moving up and down. I don't really that's the eye test. Someday, 545 00:27:13,680 --> 00:27:16,480 Speaker 2: if stocks just stop moving because we're all just one 546 00:27:16,520 --> 00:27:21,120 Speaker 2: gigantic passive blob, I think the arguments will could be stronger. 547 00:27:21,160 --> 00:27:23,280 Speaker 2: But I think until people can see it or feel it, 548 00:27:23,320 --> 00:27:26,280 Speaker 2: and certainly their index funds gives them a lot of 549 00:27:26,280 --> 00:27:29,520 Speaker 2: return over active funds, so they're happy with the outcome 550 00:27:29,640 --> 00:27:32,440 Speaker 2: as customers, and they don't really see any problem in 551 00:27:32,480 --> 00:27:35,600 Speaker 2: the market. Because stocks go up and down. That's a 552 00:27:35,640 --> 00:27:39,159 Speaker 2: big problem for the warriors. You can't really see it, 553 00:27:39,280 --> 00:27:41,280 Speaker 2: feel it, or touch it. Right now, it all looks 554 00:27:41,280 --> 00:27:43,600 Speaker 2: like it's working fine. So I'm not saying they don't 555 00:27:43,640 --> 00:27:45,719 Speaker 2: have some points and deepen those white papers. There are 556 00:27:45,720 --> 00:27:48,879 Speaker 2: some things we need to look at, but the eye 557 00:27:48,880 --> 00:27:51,640 Speaker 2: test is pretty compelling that there's no problem. 558 00:27:51,840 --> 00:27:53,440 Speaker 1: So the market is not broken. 559 00:27:54,840 --> 00:27:55,000 Speaker 4: No. 560 00:27:55,160 --> 00:27:58,000 Speaker 2: I mean again, stocks go up and down all over 561 00:27:58,040 --> 00:28:00,679 Speaker 2: the place. Sometimes small caps are in favor of sometimes 562 00:28:00,760 --> 00:28:03,800 Speaker 2: large caps. And also the FED is a big variable, 563 00:28:03,840 --> 00:28:06,480 Speaker 2: and so is the options market. There's many things that 564 00:28:06,560 --> 00:28:09,800 Speaker 2: quote distort things, and I just think active that's the 565 00:28:09,920 --> 00:28:12,800 Speaker 2: natural state of the market. And there was crashes and 566 00:28:12,840 --> 00:28:16,280 Speaker 2: surges before index funds were invented too, So I don't know. 567 00:28:16,320 --> 00:28:19,000 Speaker 2: I just don't see this as any any really big 568 00:28:19,000 --> 00:28:23,199 Speaker 2: thing to worry about in general. But Athan's numbers I 569 00:28:23,240 --> 00:28:26,520 Speaker 2: think were interesting because they sort of helped give some 570 00:28:26,680 --> 00:28:29,320 Speaker 2: data behind this as well that overturned some of what 571 00:28:29,359 --> 00:28:31,760 Speaker 2: people like to say. But let me tell you this, Jrol, 572 00:28:32,000 --> 00:28:34,080 Speaker 2: the reason the worriers get a lot of ink is 573 00:28:34,080 --> 00:28:36,080 Speaker 2: because those those articles will do really well. 574 00:28:36,119 --> 00:28:36,800 Speaker 1: We've tested it. 575 00:28:37,160 --> 00:28:40,440 Speaker 2: You write something about passive worry, the readerships are amazing. 576 00:28:40,680 --> 00:28:43,280 Speaker 2: People are going to click on that. If you write like, hey, 577 00:28:43,440 --> 00:28:47,120 Speaker 2: nothing to worry about here, it's like crickets. So there's 578 00:28:47,160 --> 00:28:51,400 Speaker 2: definitely a natural inclination to talk about anything that says 579 00:28:51,400 --> 00:28:54,880 Speaker 2: there's a worry. And this is why you don't see 580 00:28:54,920 --> 00:28:57,680 Speaker 2: many studies that go this other direction, because there's really 581 00:28:57,760 --> 00:28:59,800 Speaker 2: not an incentive readership wise to put them out. 582 00:29:00,360 --> 00:29:02,520 Speaker 1: All right, Ethan, Katie, thanks so much for joining us 583 00:29:02,520 --> 00:29:03,120 Speaker 1: on trillions. 584 00:29:03,680 --> 00:29:12,760 Speaker 4: Good, thanks for having me, Thanks. 585 00:29:11,080 --> 00:29:14,080 Speaker 1: Thanks for listening to Trillions until next time. You can 586 00:29:14,080 --> 00:29:18,959 Speaker 1: find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify, 587 00:29:19,560 --> 00:29:22,000 Speaker 1: or wherever else you'd like to listen. We'd love to 588 00:29:22,040 --> 00:29:25,400 Speaker 1: hear from you. We're on Twitter. I'm at Joel Webbers Show. 589 00:29:25,800 --> 00:29:30,440 Speaker 1: He's at Eric Balchunas. This episode of Trillions was produced 590 00:29:30,440 --> 00:29:32,600 Speaker 1: by Magnus Hendrickson. Bye.