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Speaker 1: Welcome to Trillions. I'm Joel Webber and I'm Eric Bell

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Speaker 1: Tunis Eric. This is a special episode of Trillions that

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Speaker 1: coincided with a live event where you were on stage.

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Speaker 1: I was in the audience actually, but it was like

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Speaker 1: the old times, the before times, um, and it was

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Speaker 1: part of this new Voices initiative at Bloomberg. Who is

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Speaker 1: our guest? Yeah, it was the one or only Reggie Brown,

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Speaker 1: who a lot of people in the industry. No, I

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Speaker 1: mean he's very popular inside the industry and out to

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Speaker 1: a degree, and he was, um a perfect guest for

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Speaker 1: a session like this in person, Um, somebody who can

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Speaker 1: go anywhere in the conversation. Reggie is a market maker,

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Speaker 1: so he's making markets in all different types of E

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Speaker 1: t F s. And the reason he sometimes is called

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Speaker 1: E t F Godfather is because a lot of times

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Speaker 1: if you're a small issue or you go to him

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Speaker 1: to see if he'll give you c capital, just a

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Speaker 1: little bit of assets to start your life. And so

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Speaker 1: you know, people come to him. Um. And so that's sorry,

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Speaker 1: you got how we got the nickname. And he's really good.

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Speaker 1: He's well versed in all topics and so we thought

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Speaker 1: it'd be good to interview him on stage live and

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Speaker 1: it was really it was fun. And the part of

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Speaker 1: Joel Weber on this episode will be played by Scarlet Foo,

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Speaker 1: our colleague who's now at Bloomberg Quicktick and knows a

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Speaker 1: ton about et F s as well. Like I mentioned earlier,

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Speaker 1: this is part of a the Bloomberg New Voices initiative

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Speaker 1: that started in to increase the representation of women both

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Speaker 1: online and on air on Bloomberg TV. It's since expanded

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Speaker 1: to include a cohort of black executives as well as

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Speaker 1: Latin X executives. If you're interested in learning more about

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Speaker 1: Bloomberg New Voices, or if your company would like to

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Speaker 1: participate in the media training program, please go to Bloomberg

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Speaker 1: dot com back Slash New Voices this time on Brilliance,

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Speaker 1: Mr E T F. Reggie Brown, and we're now going

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Speaker 1: to turn it over to the Trillions Podcast with Reggie Brown,

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Speaker 1: principal at GTS and Bloomberg's Scarlet Food and Eric. Thank

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Speaker 1: you attended, Thank you, hi everyone, Thank you so much

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Speaker 1: for joining us. Reggie Brown great to have you, of course,

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Speaker 1: um principle at GTS, but also shares the et F

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Speaker 1: Fund Board at America and Century Investments and Eric bau

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Speaker 1: tunas co host of Trillions podcast. Also, he has a

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Speaker 1: new book coming out in April called The Bogle Effect.

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Speaker 1: It's on the massive impact that Vanguard's mutual ownership structure

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Speaker 1: has and will have on the financial industry, investors and portfolios.

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Speaker 1: He is my go to guy on all things et

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Speaker 1: F at Bloomberg. So let's get started here. Um, I

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Speaker 1: just kind of want to set the scene Eric, with

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Speaker 1: you kind of telling us what's going on in the

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Speaker 1: markets right now, because commodities are on fire, stocks and

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Speaker 1: bonds are stumbling because of rising inflation. We know the

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Speaker 1: Federal Reserve has raised interest rates and will continue to

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Speaker 1: do so give us a quick glimpse of what all

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Speaker 1: this looks like through the length of exchange traded funds. Sure, So,

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Speaker 1: I mean every year e t F has taken about

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Speaker 1: two billion a day. Really, It's it's almost like the

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Speaker 1: way people move from CD s to the MP three

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Speaker 1: or digital. There's just this baseline of flows. So even

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Speaker 1: equity e t s are taking your money, even fixed

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Speaker 1: in coming ts are taking money. But then there's this layer,

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Speaker 1: which is where the flows are basically moving to where

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Speaker 1: the performances and this year, we're seeing flows into things

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Speaker 1: that have lagged in the past, like commodities. They've been

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Speaker 1: basically beat up for a decade. They're finally having their

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Speaker 1: day goals, actually having a little revenge on bitcoin because

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Speaker 1: bitcoin's down, gold is up, so that gold's catching a bid.

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Speaker 1: Even broad based commodities, oil, natural gas, a lot of

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Speaker 1: the stuff that people wrote off. To be honest, this

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Speaker 1: is having a comeback this year. But that's I think

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Speaker 1: the main theme. But I think still you have the

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Speaker 1: blob of money is still buying into sort of cheap beta.

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Speaker 1: In the core, that sort of massive retail money seems

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Speaker 1: to be pretty unshaken. But on the outer edges, people

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Speaker 1: are rotating between sectors and asset classes and that's sort

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Speaker 1: of what we see. And when you say cheap beta,

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Speaker 1: you're referring to passive index funds. Yeah, like a total

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Speaker 1: market fund that holds, you know, four thousand stocks and

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Speaker 1: charges five basis points. It looks an awful lot, like

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Speaker 1: the SMP five hundred or the Russell to it could

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Speaker 1: be large cap or the whole market. Yeah, that's that's

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Speaker 1: what cheap data means. Okay, So Reggie, from where you sit,

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Speaker 1: have e t s complicated the current market dynamics complicated

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Speaker 1: or solved the problem? Well, which one? I think it's

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Speaker 1: solved the problem so well. Look, I think as the

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Speaker 1: marketplace reset around secumentation, ETS has offered liquidity, particularly this

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Speaker 1: year where the marketplace reset based on rising rates, higher inflation,

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Speaker 1: judicial problems in Europe. Et s provided at the exhaust

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Speaker 1: vow that the regulars look for and largely has solved

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Speaker 1: a problem, allowing retail investors to come in to the

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Speaker 1: marketplace that incredibly cheap prices is Eric reference and also

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Speaker 1: allows for price discovery because Russia stock market is closed,

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Speaker 1: but people are able to trade Russia through r s

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Speaker 1: X and E t F or at least they were

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Speaker 1: for a while. Yeah, I could see Eric signaling time out,

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Speaker 1: time out, the second time out. Yeah, no, they were.

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Speaker 1: This is the I'd love to hear your take on this.

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Speaker 1: Are normally E T F or like cockroaches. They trade

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Speaker 1: through anything, um, ten years ago the stock market. Yeah. Well,

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Speaker 1: if you come up with a better metaphor, let me know.

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Speaker 1: But they're definitely survivors. And ironically people are like, oh,

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Speaker 1: if the underlying is a liquid ETFs are going to

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Speaker 1: have problems. Actually, ETS tend to be the one thing

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Speaker 1: liquid when the underlying isn't. And we've seen this over

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Speaker 1: and over in different markets. But for the first time

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Speaker 1: rs X was halted and it's still traded. But then

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Speaker 1: the exchange that you and even trade the e t F. Obviously,

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Speaker 1: this is a unique geopolitical situation involving our own government,

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Speaker 1: but I've never seen that. In fact, we have Dave

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Speaker 1: Dave needed gone last week talking about this and he said,

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Speaker 1: you had to go back to Cuba or Iran, which

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Speaker 1: predates the e t F to find anything like this.

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Speaker 1: It is unique. Um, But if you look at market

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Speaker 1: closing for international investors, India had that problem once the

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Speaker 1: way they close off inflows from foreign investors, but exchanges

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Speaker 1: closed all the time. You hadn't in Greece, you had

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Speaker 1: in Egypt, So it's not really unique. But this is

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Speaker 1: unique where the exchange and the market value of that

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Speaker 1: country with the zero from a U S perspective. Now,

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Speaker 1: one thing that we should mention is Reggie Brown. You

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Speaker 1: are known within the e t F world. Forbes famously

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Speaker 1: called you the godfather of e t S because you

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Speaker 1: make markets in these products and you seed new funds

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Speaker 1: as well, which means you have a front row seat

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Speaker 1: to both innovation, new ideas and copycat efforts as well.

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Speaker 1: Can you guess an idea of how you spend your day.

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Speaker 1: What's the split between new ideas and recycled ideas? Is

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Speaker 1: it fifty? Is it no? I think largely it's new ideas.

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Speaker 1: Uh lately it is Asset managers recognize the need to

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Speaker 1: come into the et F space and talk to them

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Speaker 1: largely about how to do that, and then around thematics.

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Speaker 1: So right now that themes are rising rates inflation, their

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Speaker 1: e t fdeas coming into the marketplace to solve those

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Speaker 1: problems for investors. And then before then, you know, looking

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Speaker 1: at ets to have options inside of it to buffer

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Speaker 1: um certain market movements. So the the week to week

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Speaker 1: overall is pretty interesting. From a new idea situation, there

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Speaker 1: are always um et sponsor wanted to leverage someone else's

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Speaker 1: ideas because they have better distribution or they have better

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Speaker 1: pricing power. But that's a spitter competition. Yeah, a lot

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Speaker 1: of people would accuse the vanguards and the black rocks

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Speaker 1: out there of doing just that, copycatting other people's ideas,

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Speaker 1: but on a big their scale as opposed to coming

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Speaker 1: up with their new interesting innovative e t S. Well,

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Speaker 1: I'll take you to task. I would think that I

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Speaker 1: Shares have done a terrific job of opening new markets

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Speaker 1: to two sectors. There first to launch a bond ETF,

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Speaker 1: they were somewhat first looking at the style box UM

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Speaker 1: for multi factor situation, so they have their role. Van

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Speaker 1: Guard looks at it from I'm coming to marketplace and

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Speaker 1: be the cheapest in the marketplace. And that's going to

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Speaker 1: be uh competition between Schwab and Vanguard around the zero fee.

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Speaker 1: But look at it. Look in the United States, retail

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Speaker 1: investors have the opportunity coming into into the marketplace selecting

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Speaker 1: ETF and get exposure through some complex vehicles. It's important

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Speaker 1: that we as industry provide the education for them, make

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Speaker 1: sure understand what they're buying. E t F are complex,

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Speaker 1: So walk us through how the sausage is made, how

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Speaker 1: what happens when someone comes up with a new idea

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Speaker 1: for an e T F. Who do they go to

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Speaker 1: how do they get that done? Well, largely um for

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Speaker 1: a market maker like GTS, we're typically in the last

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Speaker 1: phase of the cycle. But we'll hear about it. But

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Speaker 1: you have to go through writing a perspectives got to

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Speaker 1: go through hiring a lawyer and going through that phase.

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Speaker 1: As a market maker, they're looking for us like would

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Speaker 1: you make a market in this classification? Some of the

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Speaker 1: stuff where it's like no way, stay away just because

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Speaker 1: it has a lot of hair. For example, UH commodity

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Speaker 1: e t s to have futures inside of it. The

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Speaker 1: futures are can be really thin, really difficult to trade.

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Speaker 1: Is something that we're not gonna want to touch. Because

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Speaker 1: a market maker such as GTS, we look at the

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Speaker 1: trade ability of the asset class, the ability to get

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Speaker 1: in and get out efficiently. For e t s to

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Speaker 1: have futures in it, there's a role cost that gets

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Speaker 1: pretty expensive, and that is a lot of complexity where

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Speaker 1: that cost is embedded into the spread. Most ets sponsors

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Speaker 1: they want their ets looked like sp y whereas a

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Speaker 1: penny what And a lot of times that's not practical

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Speaker 1: because one you don't have secondary trading um where a

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Speaker 1: retailer inside the trading spread. But then again, the onnerlying

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Speaker 1: asset class is a little bit wide expensive like international securities,

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Speaker 1: stamp taxes are embedded their access to the market real

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Speaker 1: time United States, So if you're you an US investor,

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Speaker 1: you want to invest in Japanese equities to two pm

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Speaker 1: in New York time, you need a market americrant to

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Speaker 1: give you a synthetic price. I have to go up

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Speaker 1: by futures, and then I'm taking you on risk and

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Speaker 1: that risk is transferred into a spread that with delivered

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Speaker 1: to you. So I think it's really important to understand

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Speaker 1: um the ask flass you're trading in and how best

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Speaker 1: to access it. So if you were to look at

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Speaker 1: a chart of state oil prices oil futures and then

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Speaker 1: looking at et F that trades oil, they don't line

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Speaker 1: up exactly because of the role, costs and all the

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Speaker 1: other complexities that you're just referring to. So there is

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Speaker 1: a whole cohort of commodity ETFs that are to relate

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Speaker 1: it that the role is either a contango of backckwardation

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Speaker 1: and that's reflecting in e t F. So again I

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Speaker 1: go through the complexity of the online asset class. It's

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Speaker 1: important to note that an e t F or mutual

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Speaker 1: fund has the same risk characteristics. A separate e t

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Speaker 1: F is traded on exchange open to global amount of investors,

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Speaker 1: where you don't have the filter provided by an advisor,

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Speaker 1: for example. So it's important that the individual investor understands

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Speaker 1: what they're investing in. Yeah, your music to my ears,

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Speaker 1: I will say those complex commodity type there three or

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Speaker 1: four percent of the assets I called the exotics, where

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Speaker 1: the rated R section of the industry. We actually created

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Speaker 1: a system to give green, yellow, and red. I think

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Speaker 1: this should be widely adopted. So if you can help

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Speaker 1: me out, I think you should. If you pull up

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Speaker 1: a robin Hood account and you want to buy like

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Speaker 1: I don't know VXX or USO, it should say bluebrig

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Speaker 1: Intelligence red light, and then you have to go and

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Speaker 1: we'll tell you why and then hey, if you're still

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Speaker 1: find buying it, fine, Um. But I think this would

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Speaker 1: be a way to protect the innocent while allowing innovation

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Speaker 1: in the exotic areas. Thoughts well, Eric, I'll take it

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Speaker 1: a task here. I think that there's levels of understanding.

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Speaker 1: I think that unlike the United States, Singapore had creative

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Speaker 1: a classification that if it was a complex CTF had

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Speaker 1: an X in front of a ticker, he had to

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Speaker 1: take a test. You know, the United States is free

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Speaker 1: and fair, and I think that we want to promote

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Speaker 1: competition to marketplace and allowed investor to make your own choice.

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Speaker 1: So you're talking about red lights. I think he's bringing

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Speaker 1: complexity because no one don't understand that understand the red

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Speaker 1: light to want to stand, but they copyrighted it. I

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Speaker 1: wanted to I actually literally wanted to use gpg p

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Speaker 1: R but NC seventeen maybe t vix so there was

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Speaker 1: only like four four products in the n C seventeen category.

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Speaker 1: So Eric, about leveraging here right, your your leveraging ideas

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Speaker 1: here right, it's some journalists here, Eric. So given all that, Eric,

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Speaker 1: just for a moment moment here, I feel like we

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Speaker 1: need to bring in bitcoin. What would be I T

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Speaker 1: O B. Would that be a red light? Would that

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Speaker 1: be a yellow light? Anything that rolls futures is a

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Speaker 1: red light because most people just don't, you know, normal

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Speaker 1: people don't even like you said cantango, most people think

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Speaker 1: that sounds like a dance, and really it's a punishing term.

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Speaker 1: Bid is contango is okay? When you when you buy

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Speaker 1: oil futures and they're going to expire soon, most people

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Speaker 1: know you don't want to take delivery, so you are

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Speaker 1: going to have to roll to the next one, and

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Speaker 1: the next one is going to be a little higher

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Speaker 1: to maintain that exposure. Do that twelve times and that

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Speaker 1: could be a year. And so if you hold a

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Speaker 1: long term that's mentioning e t F with with an

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Speaker 1: expense or issue of thirty, no one would buy it.

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Speaker 1: But most people don't understand that. And every now and

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Speaker 1: then when oil gets hot, people pile in the USO

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Speaker 1: or they pile into one of these ETFs. But I

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Speaker 1: would say it's it's usually at the fringes. Most of

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Speaker 1: the big, gigantic blob of money is into the rated

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Speaker 1: G stuff, the vanilla stuff. But I like that it's

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Speaker 1: a big tent makes my job interesting. I have a

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Speaker 1: short attention span and a love of novelty, and there's

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Speaker 1: always something new to try to figure out. So I

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Speaker 1: like the big tent aspect of it. But there are

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Speaker 1: definitely some products you can get hurt on. So we're

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Speaker 1: talking about new issues and how you spent a lot

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Speaker 1: of time focusing on that. There have been a lot

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Speaker 1: of attempts to have new biitcoin ETF spot bitcoin e

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Speaker 1: t s, but they've all been rebuffed by the SEC.

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Speaker 1: They're they're not moving forward with that. What's going on

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Speaker 1: when what is it going to take for the SEC

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Speaker 1: to approve spot bitcoin e t s, which clearly are

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Speaker 1: in demand by people. What do you think, Eric, Well,

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Speaker 1: you your opinion is worth more than mine because he well, well,

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Speaker 1: I have an opinion here. Yeah, people call him for advice.

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Speaker 1: I'll just put it down. I have an opinion. If

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Speaker 1: you look at UM, the e t F industries, first

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Speaker 1: of all ec F industry, UM came in existance in

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Speaker 1: ninety nine. They started in Philippi stock Change. I'm from Philadelphia.

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Speaker 1: Seven UM lawsuits went to Canada, came the United States.

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Speaker 1: So you know, we have thirty two years of empirical

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Speaker 1: data around around how ets behave in various markets. So

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Speaker 1: you look at bitcoin, there's a lot of investor interests

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Speaker 1: and Eric and I are talking earlier. To trade the

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Speaker 1: actual bitcoin, it's pretty expensive and no one understands the

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Speaker 1: implicit costs that you're paying. If you're buying a bitcoin,

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Speaker 1: you're gonna probably pay one and spread or commissioned to

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Speaker 1: buy that. Think about that. That's a hundred and fifty

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Speaker 1: basis points of your money going to someone's pocket. And

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Speaker 1: if you look at the exchanges, there's four and fifty

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Speaker 1: bitcoin exchanges around the world, and none of them are connected.

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Speaker 1: So like if you want to buy ge for example, right,

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Speaker 1: you pull up your retail trading app, I won't you

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Speaker 1: say a name? Then you get a price and you

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Speaker 1: hit a button and Edward comes to gts. Oh, by

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Speaker 1: the way, we are retail market maker. Um, when you're

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Speaker 1: buying a bitcoin, you're trading on that specific exchange associate

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Speaker 1: with their fee structure. So the e t F community

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Speaker 1: does a really good job of democratizing those costs pretty quickly.

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Speaker 1: And so we're looking forward to trading a spot bitcoin

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Speaker 1: e t F because we're going to flatten the costs,

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Speaker 1: open it to a wide range of investors, and then

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Speaker 1: bring liquidity. So for me to make a market and

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Speaker 1: a Bitcoin spot e t F, I need to essentially

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Speaker 1: have market connections to every four and fifty of those

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Speaker 1: exchanges in order to arbitrage the various prices, to close

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Speaker 1: down those prices and lower costs. So I'm advocating for

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Speaker 1: a bitcoin e t F. My friends a bit wise

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Speaker 1: are looking for an e t F. My friends at

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Speaker 1: great scale are eying to close up that discount in

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Speaker 1: their vehicle. Look, there is nine billion dollars of investor

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Speaker 1: money locked up in that product at a discount that

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Speaker 1: is not fair, and the government is holding that back

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Speaker 1: from being arbitraged. So I look at it as an

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Speaker 1: opportunity set um in my business. I've traveled the world

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Speaker 1: talking about e t F and liquidity and household inclusion.

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Speaker 1: In the higher feed countries. Japan, for example, the the

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Speaker 1: unitary fee is three. That means that the average fee

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Speaker 1: is three to invest in vehicles on that exchange in

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Speaker 1: that country. If you look at the United States, the

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Speaker 1: average fees hovering around fifty semi five basis points. Lower

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Speaker 1: prices bring more people into the marketplace to participate, So

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Speaker 1: I advocate for household inclusion through lower prices and competition.

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Speaker 1: What you're saying is sort of one of our theories,

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Speaker 1: which is the crypto really captivated the E t F world.

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Speaker 1: When's it going to launch? What's it going to be like?

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Speaker 1: And you know, James and Tom are back there. We

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Speaker 1: covered this like crazy for a year, but then we

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Speaker 1: started to realize, wait a second, be careful what you

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Speaker 1: wish were E t F s are going to rock

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Speaker 1: the bitcoin world. In the crypto world, especially the exchanges,

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Speaker 1: because some of these exchanges are used to getting like

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Speaker 1: a lot of money for trading, and we did the

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Speaker 1: numbers of crypto exchanges make about thirty to forty billion

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Speaker 1: dollars a year at least in the last twelve months,

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Speaker 1: and they do one trillion dollars worth of trading. E

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Speaker 1: t F market makers like Reggie do thirty six trillion

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Speaker 1: dollars of trading and make one fourth of that money.

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Speaker 1: So e t F s I think are going to

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Speaker 1: disrupt some of these changes and flatten those costs because

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Speaker 1: you'll be able to go and buy a bitcoin et

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Speaker 1: F for a spread of one basis point, not one fifty.

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Speaker 1: And I think the expense ratios will probably get down

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Speaker 1: to the forty basis point level and it'll be liquid,

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Speaker 1: and I think that's going to be a good competition.

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Speaker 1: I think the exchanges are probably due for a little disruption.

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Speaker 1: I mean that hiring Matt Damon left and right and

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Speaker 1: Larry David and they've got so much money there, you know,

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Speaker 1: they own the super Bowl. This your uh so if

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Speaker 1: they approved the spot bitcoin ETF crypto exchange, stupable commercials

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Speaker 1: will go down. So this sounds like it's a good

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Speaker 1: thing for retail investors. Then why is the government so cautious.

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Speaker 1: What is it waiting for in particular before it does

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Speaker 1: give the green light. There's a lot of fraud out there, unfortunately.

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Speaker 1: If you look at them the I c O market

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Speaker 1: where you're raising capital through internet offerings of securities, those

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Speaker 1: offerings are fraud. If you look at sanctions UM that

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Speaker 1: President Biden has placed on a country of Russia, the

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Speaker 1: Augo guards can transfer their wealth using bitcoins, so it's unregulated,

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Speaker 1: and I think that's fearful for the regulators, and that

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Speaker 1: where there is unregulation and gray areas, invariably mom pop

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Speaker 1: retailers are being run over. So I think there's a

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Speaker 1: lot of things that has to happen. I think we

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Speaker 1: made a lot of strides to entering recordtory concerns UM,

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Speaker 1: but there's still a lot of analysis that needs to

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Speaker 1: occur to bring comfort to folks in Washington and Brussels,

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Speaker 1: to globalize the regulation. I will say, though, you know,

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Speaker 1: there's probably what nine or ten countries who have approved

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Speaker 1: spot bitcoin ets and they seem okay with all that.

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Speaker 1: Why is the US in a different mindset empirical empirical

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Speaker 1: evidence where it's just you know, if you can't tax it,

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Speaker 1: you can't oversee it. They're not going to approve it.

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Speaker 1: It's just the way our government works. You know, I

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Speaker 1: can't necessarily argue that that's not incorrect. But again, what

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Speaker 1: I don't want is verbial. My grandmother trading and something

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Speaker 1: she heard on to on TV and then she looks

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Speaker 1: up and she paid two percent over what she uh

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Speaker 1: what was supposed to be paid for. So you know,

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Speaker 1: these are all just good examples of the need for

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Speaker 1: investor protections, transparency, and oversight for the best parts of

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Speaker 1: the market. I hear you that there's a lot of

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Speaker 1: market chasing. You know, if you approve if e t

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Speaker 1: f A spot e t f UM is approved, exchanges

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Speaker 1: will be flattened out through competition in the real estate market,

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Speaker 1: and UH in Puerto Rico will actually collapse because because

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Speaker 1: all those big boys guys will come out of Puerto

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Speaker 1: Rico and then come back to New York because accentsion

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Speaker 1: has gone away. So obviously there's a lot of clamoring

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Speaker 1: for bigcoin e t s, But you also hear a

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Speaker 1: lot of pitches um for everyone's ideas. People come to

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Speaker 1: you to get funding. You hear the good pitches, the

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Speaker 1: bad pitches, the ugly pitches. Can you give us a

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Speaker 1: sense of some of the ideas that you've turned down

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Speaker 1: that you said, you know what, I don't think this

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Speaker 1: is gonna work well. Famously I told the big was twins, no, no, no,

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Speaker 1: in two thousand and twelve. I've been right so far. Um.

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Speaker 1: But there are a lot of wacky ideas where folks

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Speaker 1: want to use the e t F rule to bypass

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Speaker 1: capital games and bring um, you know, non traded assets

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Speaker 1: and e t F format. I stopped those at the door,

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Speaker 1: Like what was the most wild one? Kind of put

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Speaker 1: my hedge fund inside of an ETF structure and launch

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Speaker 1: it as a structure we don't have marked the market.

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Speaker 1: You can't do that, you know. I think that, Um,

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Speaker 1: when you get into some of the hairy parts of

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Speaker 1: the industry where liquidity is then I mean, right now,

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Speaker 1: we saw an example of the London Metal Exchange around

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Speaker 1: nickel not performing well because as a class is thinly traded,

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Speaker 1: there's not enough supply and that you can get cornered

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Speaker 1: in the marketplace with the wrong side. Should you have

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Speaker 1: an e t F structure built on nickel solely? I

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Speaker 1: think you're seeing examples of just the problems around thinly

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Speaker 1: traded marketplaces. We at GTS, we thrive on efficiency and

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Speaker 1: we thrive on transparency putting capital to work in the marketplace.

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Speaker 1: It's very difficult for us to do our job if

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Speaker 1: the marketplace UM is then in the number of participants,

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Speaker 1: and then there's no depth in the marketplace associated with

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Speaker 1: what those market because you're seeing and in market wide

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Speaker 1: issues like what we went through UM with Ukraine and

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Speaker 1: just rising rates. When the market goes one way, it

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Speaker 1: goes one way pretty hard, and then we're seeing issues

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Speaker 1: right now in the treasury market there's less liquidity and

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Speaker 1: treasuries UM hide the bond ets to trading in a

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Speaker 1: discount right now because there's massive outflows. The mutual fund

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Speaker 1: managers are using the e t f s to priced

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Speaker 1: or mutual funds, but the spread to treasury is at

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Speaker 1: a historic gap that is signifying that the U stock

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Speaker 1: market is going to rise eight. So you're seeing all this,

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Speaker 1: but a lot of it's around illiquidity or the less

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Speaker 1: liquidity and how prices are being forecasted for the future.

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Speaker 1: Is there any new e t F that has come

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Speaker 1: out that you were not in favor of before, but

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Speaker 1: now you're like, I wish I could get a do

430
00:23:53,440 --> 00:23:56,880
Speaker 1: over on that one. Yeah, we we we we missed

431
00:23:56,920 --> 00:24:00,440
Speaker 1: a few over my long horizon in the career that

432
00:24:00,520 --> 00:24:04,399
Speaker 1: I've seen UM famously, I think we were slow on

433
00:24:04,960 --> 00:24:06,800
Speaker 1: on g l D and then and then in the

434
00:24:06,880 --> 00:24:11,360
Speaker 1: gold ETFs UM at that time Bear bear Stearns brought

435
00:24:11,440 --> 00:24:16,159
Speaker 1: that out. Um. We've seen iterations where it was like

436
00:24:16,280 --> 00:24:19,520
Speaker 1: time and place. So right now we talked about earlier,

437
00:24:19,920 --> 00:24:23,280
Speaker 1: um my friends at bomb blocks or bringing up sectorized

438
00:24:23,920 --> 00:24:26,960
Speaker 1: high yield um e t F s UM that was

439
00:24:27,040 --> 00:24:31,119
Speaker 1: tried by another issuer. Um it wasn't ready then it

440
00:24:31,200 --> 00:24:34,160
Speaker 1: seems like it's ready now, you know. So it really

441
00:24:34,200 --> 00:24:37,680
Speaker 1: comes down to what the market is thinking, market psychology,

442
00:24:38,200 --> 00:24:51,720
Speaker 1: investor mindset, and then what works given you know, other factors. So, Erica,

443
00:24:51,960 --> 00:24:54,680
Speaker 1: it seems like fun flows are you like to call

444
00:24:54,840 --> 00:24:58,200
Speaker 1: it barbelling between cheap beta which are those passive index

445
00:24:58,280 --> 00:25:00,920
Speaker 1: ones that often look a lot like the some or

446
00:25:00,960 --> 00:25:03,879
Speaker 1: other benchmarks like the Russell two thousand and therefore are

447
00:25:03,920 --> 00:25:08,679
Speaker 1: fairly cheap versus what you cause shiny new objects, new

448
00:25:08,760 --> 00:25:12,639
Speaker 1: fangled ideas with higher expense ratios that get people's attention

449
00:25:12,720 --> 00:25:17,159
Speaker 1: because the returns are astronomical at least initially. What are

450
00:25:17,200 --> 00:25:20,159
Speaker 1: you seeing there in terms of that balance. Yeah, this

451
00:25:20,320 --> 00:25:23,959
Speaker 1: is something that really challenges people, especially ARC. I think

452
00:25:24,119 --> 00:25:29,879
Speaker 1: ARC really showed this Woods Arc. People are mystified that

453
00:25:30,080 --> 00:25:34,200
Speaker 1: everybody hasn't left and there's like zero dollars left. Well,

454
00:25:34,520 --> 00:25:36,880
Speaker 1: and I will say, we correctly call this because there's

455
00:25:36,880 --> 00:25:38,280
Speaker 1: not there's not going to be a run on the CTF.

456
00:25:38,320 --> 00:25:42,240
Speaker 1: And here's why people have largely replaced this sort of

457
00:25:42,359 --> 00:25:46,600
Speaker 1: legacy active mutual fund with a like index fund or

458
00:25:46,760 --> 00:25:49,200
Speaker 1: we call cheap beta in their core. So they have

459
00:25:49,400 --> 00:25:52,200
Speaker 1: like a sixty forty that's probably five basis points in cost.

460
00:25:52,600 --> 00:25:57,080
Speaker 1: That's what the flow show. Well, that's really efficient, really good,

461
00:25:57,160 --> 00:25:59,080
Speaker 1: and if you wait a long time, that's probably the

462
00:25:59,200 --> 00:26:01,800
Speaker 1: almost the best thing you could probably do. But it's

463
00:26:02,200 --> 00:26:05,160
Speaker 1: so boring. It is, so it's like watching paint dry.

464
00:26:05,800 --> 00:26:08,280
Speaker 1: So people tend to want to have a little fun

465
00:26:08,400 --> 00:26:11,399
Speaker 1: and apply some hot sauce on the outside. So they

466
00:26:11,480 --> 00:26:13,800
Speaker 1: go and they buy ARC or theme ETFs which they

467
00:26:13,840 --> 00:26:17,159
Speaker 1: can relate to, or crypto. I think anything that is

468
00:26:17,680 --> 00:26:21,399
Speaker 1: has a possibility of asymmetric return, and it's very different

469
00:26:21,480 --> 00:26:24,639
Speaker 1: than the index, so it can compliment. We say, Cathy

470
00:26:25,119 --> 00:26:29,359
Speaker 1: is complimenting Vanguard, not competing with them, and that's a

471
00:26:29,440 --> 00:26:32,040
Speaker 1: good spot to be right now. And that's why I

472
00:26:32,119 --> 00:26:35,040
Speaker 1: think you're going to see more and more crazy, wacky,

473
00:26:35,400 --> 00:26:39,119
Speaker 1: hot saucy and products get launched because the lane for

474
00:26:39,280 --> 00:26:43,439
Speaker 1: complementing cheap beta is going to be vital and growing,

475
00:26:44,080 --> 00:26:46,280
Speaker 1: but the lane to compete with cheap beta will always

476
00:26:46,320 --> 00:26:50,280
Speaker 1: be very difficult. The value proposition is so good at

477
00:26:50,280 --> 00:26:52,840
Speaker 1: anybody who owns a four basis point total market fund,

478
00:26:53,400 --> 00:26:55,879
Speaker 1: it's just very difficult to let go of that or

479
00:26:55,920 --> 00:26:58,600
Speaker 1: replace it because you own all of the fundamentally way

480
00:26:58,640 --> 00:27:03,119
Speaker 1: to fundamentally sound serious investor stocks. There Therefore, if you

481
00:27:03,160 --> 00:27:05,560
Speaker 1: own all that, you have more patients with your hot sauce.

482
00:27:05,640 --> 00:27:08,160
Speaker 1: And that's why we haven't seen the kind of outflows

483
00:27:08,200 --> 00:27:10,600
Speaker 1: from our or theme ets that people thought we would see,

484
00:27:11,119 --> 00:27:14,800
Speaker 1: because they already have all the serious stocks covered and

485
00:27:14,920 --> 00:27:18,480
Speaker 1: so they're actually what people see as a bug with

486
00:27:18,680 --> 00:27:21,320
Speaker 1: her fund and others, and that why she keeps doubling

487
00:27:21,359 --> 00:27:24,119
Speaker 1: down on these crazy stocks. It's a feature to the

488
00:27:24,200 --> 00:27:27,240
Speaker 1: people who are looking for something to distract them and

489
00:27:27,400 --> 00:27:29,920
Speaker 1: possibly give them asymmetric a turn in the future, and

490
00:27:29,960 --> 00:27:32,080
Speaker 1: they don't want to miss out and so it would

491
00:27:32,080 --> 00:27:35,480
Speaker 1: be stupid of her or these funds to shift into

492
00:27:35,600 --> 00:27:38,479
Speaker 1: cash or value stocks. Uh. And so this is an

493
00:27:38,480 --> 00:27:40,800
Speaker 1: interesting phenomenon. And so I do think we're going to

494
00:27:40,880 --> 00:27:44,280
Speaker 1: continue to see this barbelling and the cheap lane is

495
00:27:44,280 --> 00:27:47,480
Speaker 1: obviously pretty saturated. I think Reggie's going to probably turn

496
00:27:47,560 --> 00:27:50,160
Speaker 1: down a couple more ideas in the next year because

497
00:27:50,160 --> 00:27:52,920
Speaker 1: I think they're gonna get crazier and crazier and stuff

498
00:27:52,960 --> 00:27:55,080
Speaker 1: you laugh at. I've laughed at many at E t F.

499
00:27:55,600 --> 00:27:57,760
Speaker 1: When I saw the filing and they got it's got

500
00:27:57,800 --> 00:27:59,760
Speaker 1: a billion dollars today or more. I swear to God

501
00:27:59,800 --> 00:28:02,239
Speaker 1: it's I don't laugh anymore. Every now and then I laugh.

502
00:28:02,280 --> 00:28:04,760
Speaker 1: I can't help it. But I don't doubt that some

503
00:28:04,920 --> 00:28:07,600
Speaker 1: of these products that sounds silly today will actually catch

504
00:28:07,680 --> 00:28:12,080
Speaker 1: on in the future because of this practical purpose they

505
00:28:12,080 --> 00:28:16,200
Speaker 1: serve in the portfolio. What do you think of that, Reggie, Well,

506
00:28:16,240 --> 00:28:20,400
Speaker 1: I think that the themes are nothing more than momentum

507
00:28:20,440 --> 00:28:24,840
Speaker 1: trades that folks are bringing out, and and those moment

508
00:28:24,920 --> 00:28:27,719
Speaker 1: trades are just grabbing a cheap beta. So to your

509
00:28:27,760 --> 00:28:32,800
Speaker 1: barbelling analogy, I think it's one transferred to another where

510
00:28:32,880 --> 00:28:37,360
Speaker 1: the themes around either housing or anti arc. I see

511
00:28:37,400 --> 00:28:41,360
Speaker 1: my friend Matt Tuttle there, um, who's a sponsor of

512
00:28:41,400 --> 00:28:45,440
Speaker 1: that E T F. You know, you know he's just

513
00:28:45,520 --> 00:28:47,560
Speaker 1: making a call, not necessarily on Cathy Would, but the

514
00:28:47,720 --> 00:28:52,360
Speaker 1: sector around the evaluation, and you know, is it time

515
00:28:52,440 --> 00:28:56,240
Speaker 1: to place a hedgebat against it? You know? So look,

516
00:28:57,160 --> 00:29:00,320
Speaker 1: Cathy Would. I know her when she left A and

517
00:29:00,400 --> 00:29:03,480
Speaker 1: B and had an idea. I think she's done incredible

518
00:29:03,560 --> 00:29:06,800
Speaker 1: job of bringing a new investor class into the marketplace.

519
00:29:07,280 --> 00:29:09,800
Speaker 1: You know, I joke with her when I see here

520
00:29:10,280 --> 00:29:13,400
Speaker 1: um that she's responsible for fifteen year old boys tearing

521
00:29:13,480 --> 00:29:16,320
Speaker 1: down the fair faucet poster and putting up the Kathy

522
00:29:16,360 --> 00:29:19,239
Speaker 1: Would poster in a bedroom. And then these fifteen year

523
00:29:19,240 --> 00:29:22,440
Speaker 1: old boys are opening up a robin Hood account, and

524
00:29:22,520 --> 00:29:24,760
Speaker 1: then their parents are finding out all of a sudden

525
00:29:24,760 --> 00:29:27,880
Speaker 1: they're buying their father a Mustang with worth their gains.

526
00:29:28,560 --> 00:29:31,320
Speaker 1: That is a society good because you brought a new

527
00:29:31,360 --> 00:29:34,160
Speaker 1: investor class in. So everything has his time in place.

528
00:29:34,360 --> 00:29:37,120
Speaker 1: I think as far as you know the themes, the

529
00:29:37,240 --> 00:29:41,280
Speaker 1: thematic stuff, I mean marijuana, you know when it came out,

530
00:29:42,480 --> 00:29:45,480
Speaker 1: No freaquing way what I touched marijuana when I don't

531
00:29:45,520 --> 00:29:51,440
Speaker 1: smoke it, uh, full disclosure, but literally, I think that

532
00:29:52,240 --> 00:29:56,240
Speaker 1: the banks didn't want to custody the cannabis because of

533
00:29:56,480 --> 00:29:59,520
Speaker 1: their f d I c um stance and regulation of that.

534
00:30:00,000 --> 00:30:02,560
Speaker 1: So it's very hard for a market maker to take

535
00:30:02,640 --> 00:30:06,200
Speaker 1: on that liability risk. So there are areas that we

536
00:30:06,400 --> 00:30:11,240
Speaker 1: missed on, missed out of because of just hypersensitivity around

537
00:30:11,400 --> 00:30:15,480
Speaker 1: just the optics around regulation. You've shepherded so much of

538
00:30:15,520 --> 00:30:17,680
Speaker 1: the development of the E t F industry since its birth.

539
00:30:18,680 --> 00:30:20,840
Speaker 1: Do you think we've reached peak e t F or

540
00:30:20,920 --> 00:30:24,240
Speaker 1: is there a lot more market share for this product

541
00:30:24,280 --> 00:30:25,680
Speaker 1: to take. I mean, you're you're looking at me like

542
00:30:25,720 --> 00:30:28,280
Speaker 1: I'm crazy right now, But we at different points we

543
00:30:28,320 --> 00:30:30,800
Speaker 1: all said we've reached peak ETF. Do you see those

544
00:30:30,880 --> 00:30:34,440
Speaker 1: mutual funds over there? We're coming for you, baby. So

545
00:30:34,600 --> 00:30:38,440
Speaker 1: I think there's an opportunity to transfer UM the mutual

546
00:30:38,480 --> 00:30:40,640
Speaker 1: fund industry and convert them into e t F format

547
00:30:40,760 --> 00:30:45,160
Speaker 1: and give investors lower pricing and choice around entry and exit.

548
00:30:45,600 --> 00:30:50,040
Speaker 1: It really comes down to UM retirement platforms and allowing

549
00:30:50,120 --> 00:30:53,040
Speaker 1: e t F s in our ecosystem and how people

550
00:30:53,120 --> 00:30:55,120
Speaker 1: get paid. But I think that there's a lot of

551
00:30:55,160 --> 00:30:58,640
Speaker 1: opportunity for growth. I see it. Every asset manager additionally,

552
00:30:58,640 --> 00:31:02,000
Speaker 1: who has an open to find complex wants to convert

553
00:31:02,120 --> 00:31:04,320
Speaker 1: into e t F s to offer their investor choices,

554
00:31:04,400 --> 00:31:07,480
Speaker 1: even at risk of cannibalizing their own fund. So I

555
00:31:07,600 --> 00:31:11,160
Speaker 1: think that long term, the E t F industry will

556
00:31:11,200 --> 00:31:14,400
Speaker 1: get to twenty five or thirty trillion UM in my

557
00:31:14,560 --> 00:31:18,280
Speaker 1: lifetime and I have another forty years ago. So you're

558
00:31:18,320 --> 00:31:20,480
Speaker 1: gonna have to change the name of your podcasts to

559
00:31:20,640 --> 00:31:25,480
Speaker 1: what what's after trillion? My son, actually, just my eleven

560
00:31:25,560 --> 00:31:26,920
Speaker 1: year old just told me I learned that word the

561
00:31:26,960 --> 00:31:30,160
Speaker 1: other day. He said, did you know that galaxies are

562
00:31:30,200 --> 00:31:32,800
Speaker 1: gonna cease to exist in the quadrillion years and there'll

563
00:31:32,800 --> 00:31:35,280
Speaker 1: be nothing but black holes left over? I was like, oh,

564
00:31:35,520 --> 00:31:37,280
Speaker 1: I was like, where did you hear that? He's like YouTube,

565
00:31:37,440 --> 00:31:41,120
Speaker 1: So anyway, f y YouTube quadrillion and it means one

566
00:31:41,200 --> 00:31:45,480
Speaker 1: thousand trillions, So anyway, Reggie, Thank you so much. Brown,

567
00:31:45,560 --> 00:31:48,240
Speaker 1: his principal at GTS, also chairs the et F fund

568
00:31:48,240 --> 00:31:50,360
Speaker 1: Board at American Centry Investments. Of course, our own Eric

569
00:31:50,400 --> 00:31:53,680
Speaker 1: out Tunist, senior et F analyst at Blomberg Intelligence, also

570
00:31:54,120 --> 00:31:57,360
Speaker 1: co host of the Trillions podcast and new author of

571
00:31:57,760 --> 00:32:08,120
Speaker 1: The Bogl Effect h Thanks for listening to Trillions until

572
00:32:08,160 --> 00:32:09,960
Speaker 1: next time. You can find us on the Bloomberg terminal,

573
00:32:10,080 --> 00:32:14,440
Speaker 1: Bloomberg dot com, Apple podcast, Spotify, and wherever else you'd

574
00:32:14,480 --> 00:32:16,880
Speaker 1: like to listen. We'd love to hear from you. We're

575
00:32:16,920 --> 00:32:20,480
Speaker 1: on Twitter. I'm at Joel Weber Show. He's at Eric Fautuness.

576
00:32:20,880 --> 00:32:24,200
Speaker 1: This episode of Trillions was produced by Magnus Hendrickson. Francesca

577
00:32:24,280 --> 00:32:26,640
Speaker 1: Levie is the head of Bloomberg podcast by