Speaker 1: Welcome to Trillions. I'm Joel Webber and I'm Eric Bell
Speaker 1: Tunis Eric. This is a special episode of Trillions that
Speaker 1: coincided with a live event where you were on stage.
Speaker 1: I was in the audience actually, but it was like
Speaker 1: the old times, the before times, um, and it was
Speaker 1: part of this new Voices initiative at Bloomberg. Who is
Speaker 1: our guest? Yeah, it was the one or only Reggie Brown,
Speaker 1: who a lot of people in the industry. No, I
Speaker 1: mean he's very popular inside the industry and out to
Speaker 1: a degree, and he was, um a perfect guest for
Speaker 1: a session like this in person, Um, somebody who can
Speaker 1: go anywhere in the conversation. Reggie is a market maker,
Speaker 1: so he's making markets in all different types of E
Speaker 1: t F s. And the reason he sometimes is called
Speaker 1: E t F Godfather is because a lot of times
Speaker 1: if you're a small issue or you go to him
Speaker 1: to see if he'll give you c capital, just a
Speaker 1: little bit of assets to start your life. And so
Speaker 1: you know, people come to him. Um. And so that's sorry,
Speaker 1: you got how we got the nickname. And he's really good.
Speaker 1: He's well versed in all topics and so we thought
Speaker 1: it'd be good to interview him on stage live and
Speaker 1: it was really it was fun. And the part of
Speaker 1: Joel Weber on this episode will be played by Scarlet Foo,
Speaker 1: our colleague who's now at Bloomberg Quicktick and knows a
Speaker 1: ton about et F s as well. Like I mentioned earlier,
Speaker 1: this is part of a the Bloomberg New Voices initiative
Speaker 1: that started in to increase the representation of women both
Speaker 1: online and on air on Bloomberg TV. It's since expanded
Speaker 1: to include a cohort of black executives as well as
Speaker 1: Latin X executives. If you're interested in learning more about
Speaker 1: Bloomberg New Voices, or if your company would like to
Speaker 1: participate in the media training program, please go to Bloomberg
Speaker 1: dot com back Slash New Voices this time on Brilliance,
Speaker 1: Mr E T F. Reggie Brown, and we're now going
Speaker 1: to turn it over to the Trillions Podcast with Reggie Brown,
Speaker 1: principal at GTS and Bloomberg's Scarlet Food and Eric. Thank
Speaker 1: you attended, Thank you, hi everyone, Thank you so much
Speaker 1: for joining us. Reggie Brown great to have you, of course,
Speaker 1: um principle at GTS, but also shares the et F
Speaker 1: Fund Board at America and Century Investments and Eric bau
Speaker 1: tunas co host of Trillions podcast. Also, he has a
Speaker 1: new book coming out in April called The Bogle Effect.
Speaker 1: It's on the massive impact that Vanguard's mutual ownership structure
Speaker 1: has and will have on the financial industry, investors and portfolios.
Speaker 1: He is my go to guy on all things et
Speaker 1: F at Bloomberg. So let's get started here. Um, I
Speaker 1: just kind of want to set the scene Eric, with
Speaker 1: you kind of telling us what's going on in the
Speaker 1: markets right now, because commodities are on fire, stocks and
Speaker 1: bonds are stumbling because of rising inflation. We know the
Speaker 1: Federal Reserve has raised interest rates and will continue to
Speaker 1: do so give us a quick glimpse of what all
Speaker 1: this looks like through the length of exchange traded funds. Sure, So,
Speaker 1: I mean every year e t F has taken about
Speaker 1: two billion a day. Really, It's it's almost like the
Speaker 1: way people move from CD s to the MP three
Speaker 1: or digital. There's just this baseline of flows. So even
Speaker 1: equity e t s are taking your money, even fixed
Speaker 1: in coming ts are taking money. But then there's this layer,
Speaker 1: which is where the flows are basically moving to where
Speaker 1: the performances and this year, we're seeing flows into things
Speaker 1: that have lagged in the past, like commodities. They've been
Speaker 1: basically beat up for a decade. They're finally having their
Speaker 1: day goals, actually having a little revenge on bitcoin because
Speaker 1: bitcoin's down, gold is up, so that gold's catching a bid.
Speaker 1: Even broad based commodities, oil, natural gas, a lot of
Speaker 1: the stuff that people wrote off. To be honest, this
Speaker 1: is having a comeback this year. But that's I think
Speaker 1: the main theme. But I think still you have the
Speaker 1: blob of money is still buying into sort of cheap beta.
Speaker 1: In the core, that sort of massive retail money seems
Speaker 1: to be pretty unshaken. But on the outer edges, people
Speaker 1: are rotating between sectors and asset classes and that's sort
Speaker 1: of what we see. And when you say cheap beta,
Speaker 1: you're referring to passive index funds. Yeah, like a total
Speaker 1: market fund that holds, you know, four thousand stocks and
Speaker 1: charges five basis points. It looks an awful lot, like
Speaker 1: the SMP five hundred or the Russell to it could
Speaker 1: be large cap or the whole market. Yeah, that's that's
Speaker 1: what cheap data means. Okay, So Reggie, from where you sit,
Speaker 1: have e t s complicated the current market dynamics complicated
Speaker 1: or solved the problem? Well, which one? I think it's
Speaker 1: solved the problem so well. Look, I think as the
Speaker 1: marketplace reset around secumentation, ETS has offered liquidity, particularly this
Speaker 1: year where the marketplace reset based on rising rates, higher inflation,
Speaker 1: judicial problems in Europe. Et s provided at the exhaust
Speaker 1: vow that the regulars look for and largely has solved
Speaker 1: a problem, allowing retail investors to come in to the
Speaker 1: marketplace that incredibly cheap prices is Eric reference and also
Speaker 1: allows for price discovery because Russia stock market is closed,
Speaker 1: but people are able to trade Russia through r s
Speaker 1: X and E t F or at least they were
Speaker 1: for a while. Yeah, I could see Eric signaling time out,
Speaker 1: time out, the second time out. Yeah, no, they were.
Speaker 1: This is the I'd love to hear your take on this.
Speaker 1: Are normally E T F or like cockroaches. They trade
Speaker 1: through anything, um, ten years ago the stock market. Yeah. Well,
Speaker 1: if you come up with a better metaphor, let me know.
Speaker 1: But they're definitely survivors. And ironically people are like, oh,
Speaker 1: if the underlying is a liquid ETFs are going to
Speaker 1: have problems. Actually, ETS tend to be the one thing
Speaker 1: liquid when the underlying isn't. And we've seen this over
Speaker 1: and over in different markets. But for the first time
Speaker 1: rs X was halted and it's still traded. But then
Speaker 1: the exchange that you and even trade the e t F. Obviously,
Speaker 1: this is a unique geopolitical situation involving our own government,
Speaker 1: but I've never seen that. In fact, we have Dave
Speaker 1: Dave needed gone last week talking about this and he said,
Speaker 1: you had to go back to Cuba or Iran, which
Speaker 1: predates the e t F to find anything like this.
Speaker 1: It is unique. Um, But if you look at market
Speaker 1: closing for international investors, India had that problem once the
Speaker 1: way they close off inflows from foreign investors, but exchanges
Speaker 1: closed all the time. You hadn't in Greece, you had
Speaker 1: in Egypt, So it's not really unique. But this is
Speaker 1: unique where the exchange and the market value of that
Speaker 1: country with the zero from a U S perspective. Now,
Speaker 1: one thing that we should mention is Reggie Brown. You
Speaker 1: are known within the e t F world. Forbes famously
Speaker 1: called you the godfather of e t S because you
Speaker 1: make markets in these products and you seed new funds
Speaker 1: as well, which means you have a front row seat
Speaker 1: to both innovation, new ideas and copycat efforts as well.
Speaker 1: Can you guess an idea of how you spend your day.
Speaker 1: What's the split between new ideas and recycled ideas? Is
Speaker 1: it fifty? Is it no? I think largely it's new ideas.
Speaker 1: Uh lately it is Asset managers recognize the need to
Speaker 1: come into the et F space and talk to them
Speaker 1: largely about how to do that, and then around thematics.
Speaker 1: So right now that themes are rising rates inflation, their
Speaker 1: e t fdeas coming into the marketplace to solve those
Speaker 1: problems for investors. And then before then, you know, looking
Speaker 1: at ets to have options inside of it to buffer
Speaker 1: um certain market movements. So the the week to week
Speaker 1: overall is pretty interesting. From a new idea situation, there
Speaker 1: are always um et sponsor wanted to leverage someone else's
Speaker 1: ideas because they have better distribution or they have better
Speaker 1: pricing power. But that's a spitter competition. Yeah, a lot
Speaker 1: of people would accuse the vanguards and the black rocks
Speaker 1: out there of doing just that, copycatting other people's ideas,
Speaker 1: but on a big their scale as opposed to coming
Speaker 1: up with their new interesting innovative e t S. Well,
Speaker 1: I'll take you to task. I would think that I
Speaker 1: Shares have done a terrific job of opening new markets
Speaker 1: to two sectors. There first to launch a bond ETF,
Speaker 1: they were somewhat first looking at the style box UM
Speaker 1: for multi factor situation, so they have their role. Van
Speaker 1: Guard looks at it from I'm coming to marketplace and
Speaker 1: be the cheapest in the marketplace. And that's going to
Speaker 1: be uh competition between Schwab and Vanguard around the zero fee.
Speaker 1: But look at it. Look in the United States, retail
Speaker 1: investors have the opportunity coming into into the marketplace selecting
Speaker 1: ETF and get exposure through some complex vehicles. It's important
Speaker 1: that we as industry provide the education for them, make
Speaker 1: sure understand what they're buying. E t F are complex,
Speaker 1: So walk us through how the sausage is made, how
Speaker 1: what happens when someone comes up with a new idea
Speaker 1: for an e T F. Who do they go to
Speaker 1: how do they get that done? Well, largely um for
Speaker 1: a market maker like GTS, we're typically in the last
Speaker 1: phase of the cycle. But we'll hear about it. But
Speaker 1: you have to go through writing a perspectives got to
Speaker 1: go through hiring a lawyer and going through that phase.
Speaker 1: As a market maker, they're looking for us like would
Speaker 1: you make a market in this classification? Some of the
Speaker 1: stuff where it's like no way, stay away just because
Speaker 1: it has a lot of hair. For example, UH commodity
Speaker 1: e t s to have futures inside of it. The
Speaker 1: futures are can be really thin, really difficult to trade.
Speaker 1: Is something that we're not gonna want to touch. Because
Speaker 1: a market maker such as GTS, we look at the
Speaker 1: trade ability of the asset class, the ability to get
Speaker 1: in and get out efficiently. For e t s to
Speaker 1: have futures in it, there's a role cost that gets
Speaker 1: pretty expensive, and that is a lot of complexity where
Speaker 1: that cost is embedded into the spread. Most ets sponsors
Speaker 1: they want their ets looked like sp y whereas a
Speaker 1: penny what And a lot of times that's not practical
Speaker 1: because one you don't have secondary trading um where a
Speaker 1: retailer inside the trading spread. But then again, the onnerlying
Speaker 1: asset class is a little bit wide expensive like international securities,
Speaker 1: stamp taxes are embedded their access to the market real
Speaker 1: time United States, So if you're you an US investor,
Speaker 1: you want to invest in Japanese equities to two pm
Speaker 1: in New York time, you need a market americrant to
Speaker 1: give you a synthetic price. I have to go up
Speaker 1: by futures, and then I'm taking you on risk and
Speaker 1: that risk is transferred into a spread that with delivered
Speaker 1: to you. So I think it's really important to understand
Speaker 1: um the ask flass you're trading in and how best
Speaker 1: to access it. So if you were to look at
Speaker 1: a chart of state oil prices oil futures and then
Speaker 1: looking at et F that trades oil, they don't line
Speaker 1: up exactly because of the role, costs and all the
Speaker 1: other complexities that you're just referring to. So there is
Speaker 1: a whole cohort of commodity ETFs that are to relate
Speaker 1: it that the role is either a contango of backckwardation
Speaker 1: and that's reflecting in e t F. So again I
Speaker 1: go through the complexity of the online asset class. It's
Speaker 1: important to note that an e t F or mutual
Speaker 1: fund has the same risk characteristics. A separate e t
Speaker 1: F is traded on exchange open to global amount of investors,
Speaker 1: where you don't have the filter provided by an advisor,
Speaker 1: for example. So it's important that the individual investor understands
Speaker 1: what they're investing in. Yeah, your music to my ears,
Speaker 1: I will say those complex commodity type there three or
Speaker 1: four percent of the assets I called the exotics, where
Speaker 1: the rated R section of the industry. We actually created
Speaker 1: a system to give green, yellow, and red. I think
Speaker 1: this should be widely adopted. So if you can help
Speaker 1: me out, I think you should. If you pull up
Speaker 1: a robin Hood account and you want to buy like
Speaker 1: I don't know VXX or USO, it should say bluebrig
Speaker 1: Intelligence red light, and then you have to go and
Speaker 1: we'll tell you why and then hey, if you're still
Speaker 1: find buying it, fine, Um. But I think this would
Speaker 1: be a way to protect the innocent while allowing innovation
Speaker 1: in the exotic areas. Thoughts well, Eric, I'll take it
Speaker 1: a task here. I think that there's levels of understanding.
Speaker 1: I think that unlike the United States, Singapore had creative
Speaker 1: a classification that if it was a complex CTF had
Speaker 1: an X in front of a ticker, he had to
Speaker 1: take a test. You know, the United States is free
Speaker 1: and fair, and I think that we want to promote
Speaker 1: competition to marketplace and allowed investor to make your own choice.
Speaker 1: So you're talking about red lights. I think he's bringing
Speaker 1: complexity because no one don't understand that understand the red
Speaker 1: light to want to stand, but they copyrighted it. I
Speaker 1: wanted to I actually literally wanted to use gpg p
Speaker 1: R but NC seventeen maybe t vix so there was
Speaker 1: only like four four products in the n C seventeen category.
Speaker 1: So Eric, about leveraging here right, your your leveraging ideas
Speaker 1: here right, it's some journalists here, Eric. So given all that, Eric,
Speaker 1: just for a moment moment here, I feel like we
Speaker 1: need to bring in bitcoin. What would be I T
Speaker 1: O B. Would that be a red light? Would that
Speaker 1: be a yellow light? Anything that rolls futures is a
Speaker 1: red light because most people just don't, you know, normal
Speaker 1: people don't even like you said cantango, most people think
Speaker 1: that sounds like a dance, and really it's a punishing term.
Speaker 1: Bid is contango is okay? When you when you buy
Speaker 1: oil futures and they're going to expire soon, most people
Speaker 1: know you don't want to take delivery, so you are
Speaker 1: going to have to roll to the next one, and
Speaker 1: the next one is going to be a little higher
Speaker 1: to maintain that exposure. Do that twelve times and that
Speaker 1: could be a year. And so if you hold a
Speaker 1: long term that's mentioning e t F with with an
Speaker 1: expense or issue of thirty, no one would buy it.
Speaker 1: But most people don't understand that. And every now and
Speaker 1: then when oil gets hot, people pile in the USO
Speaker 1: or they pile into one of these ETFs. But I
Speaker 1: would say it's it's usually at the fringes. Most of
Speaker 1: the big, gigantic blob of money is into the rated
Speaker 1: G stuff, the vanilla stuff. But I like that it's
Speaker 1: a big tent makes my job interesting. I have a
Speaker 1: short attention span and a love of novelty, and there's
Speaker 1: always something new to try to figure out. So I
Speaker 1: like the big tent aspect of it. But there are
Speaker 1: definitely some products you can get hurt on. So we're
Speaker 1: talking about new issues and how you spent a lot
Speaker 1: of time focusing on that. There have been a lot
Speaker 1: of attempts to have new biitcoin ETF spot bitcoin e
Speaker 1: t s, but they've all been rebuffed by the SEC.
Speaker 1: They're they're not moving forward with that. What's going on
Speaker 1: when what is it going to take for the SEC
Speaker 1: to approve spot bitcoin e t s, which clearly are
Speaker 1: in demand by people. What do you think, Eric, Well,
Speaker 1: you your opinion is worth more than mine because he well, well,
Speaker 1: I have an opinion here. Yeah, people call him for advice.
Speaker 1: I'll just put it down. I have an opinion. If
Speaker 1: you look at UM, the e t F industries, first
Speaker 1: of all ec F industry, UM came in existance in
Speaker 1: ninety nine. They started in Philippi stock Change. I'm from Philadelphia.
Speaker 1: Seven UM lawsuits went to Canada, came the United States.
Speaker 1: So you know, we have thirty two years of empirical
Speaker 1: data around around how ets behave in various markets. So
Speaker 1: you look at bitcoin, there's a lot of investor interests
Speaker 1: and Eric and I are talking earlier. To trade the
Speaker 1: actual bitcoin, it's pretty expensive and no one understands the
Speaker 1: implicit costs that you're paying. If you're buying a bitcoin,
Speaker 1: you're gonna probably pay one and spread or commissioned to
Speaker 1: buy that. Think about that. That's a hundred and fifty
Speaker 1: basis points of your money going to someone's pocket. And
Speaker 1: if you look at the exchanges, there's four and fifty
Speaker 1: bitcoin exchanges around the world, and none of them are connected.
Speaker 1: So like if you want to buy ge for example, right,
Speaker 1: you pull up your retail trading app, I won't you
Speaker 1: say a name? Then you get a price and you
Speaker 1: hit a button and Edward comes to gts. Oh, by
Speaker 1: the way, we are retail market maker. Um, when you're
Speaker 1: buying a bitcoin, you're trading on that specific exchange associate
Speaker 1: with their fee structure. So the e t F community
Speaker 1: does a really good job of democratizing those costs pretty quickly.
Speaker 1: And so we're looking forward to trading a spot bitcoin
Speaker 1: e t F because we're going to flatten the costs,
Speaker 1: open it to a wide range of investors, and then
Speaker 1: bring liquidity. So for me to make a market and
Speaker 1: a Bitcoin spot e t F, I need to essentially
Speaker 1: have market connections to every four and fifty of those
Speaker 1: exchanges in order to arbitrage the various prices, to close
Speaker 1: down those prices and lower costs. So I'm advocating for
Speaker 1: a bitcoin e t F. My friends a bit wise
Speaker 1: are looking for an e t F. My friends at
Speaker 1: great scale are eying to close up that discount in
Speaker 1: their vehicle. Look, there is nine billion dollars of investor
Speaker 1: money locked up in that product at a discount that
Speaker 1: is not fair, and the government is holding that back
Speaker 1: from being arbitraged. So I look at it as an
Speaker 1: opportunity set um in my business. I've traveled the world
Speaker 1: talking about e t F and liquidity and household inclusion.
Speaker 1: In the higher feed countries. Japan, for example, the the
Speaker 1: unitary fee is three. That means that the average fee
Speaker 1: is three to invest in vehicles on that exchange in
Speaker 1: that country. If you look at the United States, the
Speaker 1: average fees hovering around fifty semi five basis points. Lower
Speaker 1: prices bring more people into the marketplace to participate, So
Speaker 1: I advocate for household inclusion through lower prices and competition.
Speaker 1: What you're saying is sort of one of our theories,
Speaker 1: which is the crypto really captivated the E t F world.
Speaker 1: When's it going to launch? What's it going to be like?
Speaker 1: And you know, James and Tom are back there. We
Speaker 1: covered this like crazy for a year, but then we
Speaker 1: started to realize, wait a second, be careful what you
Speaker 1: wish were E t F s are going to rock
Speaker 1: the bitcoin world. In the crypto world, especially the exchanges,
Speaker 1: because some of these exchanges are used to getting like
Speaker 1: a lot of money for trading, and we did the
Speaker 1: numbers of crypto exchanges make about thirty to forty billion
Speaker 1: dollars a year at least in the last twelve months,
Speaker 1: and they do one trillion dollars worth of trading. E
Speaker 1: t F market makers like Reggie do thirty six trillion
Speaker 1: dollars of trading and make one fourth of that money.
Speaker 1: So e t F s I think are going to
Speaker 1: disrupt some of these changes and flatten those costs because
Speaker 1: you'll be able to go and buy a bitcoin et
Speaker 1: F for a spread of one basis point, not one fifty.
Speaker 1: And I think the expense ratios will probably get down
Speaker 1: to the forty basis point level and it'll be liquid,
Speaker 1: and I think that's going to be a good competition.
Speaker 1: I think the exchanges are probably due for a little disruption.
Speaker 1: I mean that hiring Matt Damon left and right and
Speaker 1: Larry David and they've got so much money there, you know,
Speaker 1: they own the super Bowl. This your uh so if
Speaker 1: they approved the spot bitcoin ETF crypto exchange, stupable commercials
Speaker 1: will go down. So this sounds like it's a good
Speaker 1: thing for retail investors. Then why is the government so cautious.
Speaker 1: What is it waiting for in particular before it does
Speaker 1: give the green light. There's a lot of fraud out there, unfortunately.
Speaker 1: If you look at them the I c O market
Speaker 1: where you're raising capital through internet offerings of securities, those
Speaker 1: offerings are fraud. If you look at sanctions UM that
Speaker 1: President Biden has placed on a country of Russia, the
Speaker 1: Augo guards can transfer their wealth using bitcoins, so it's unregulated,
Speaker 1: and I think that's fearful for the regulators, and that
Speaker 1: where there is unregulation and gray areas, invariably mom pop
Speaker 1: retailers are being run over. So I think there's a
Speaker 1: lot of things that has to happen. I think we
Speaker 1: made a lot of strides to entering recordtory concerns UM,
Speaker 1: but there's still a lot of analysis that needs to
Speaker 1: occur to bring comfort to folks in Washington and Brussels,
Speaker 1: to globalize the regulation. I will say, though, you know,
Speaker 1: there's probably what nine or ten countries who have approved
Speaker 1: spot bitcoin ets and they seem okay with all that.
Speaker 1: Why is the US in a different mindset empirical empirical
Speaker 1: evidence where it's just you know, if you can't tax it,
Speaker 1: you can't oversee it. They're not going to approve it.
Speaker 1: It's just the way our government works. You know, I
Speaker 1: can't necessarily argue that that's not incorrect. But again, what
Speaker 1: I don't want is verbial. My grandmother trading and something
Speaker 1: she heard on to on TV and then she looks
Speaker 1: up and she paid two percent over what she uh
Speaker 1: what was supposed to be paid for. So you know,
Speaker 1: these are all just good examples of the need for
Speaker 1: investor protections, transparency, and oversight for the best parts of
Speaker 1: the market. I hear you that there's a lot of
Speaker 1: market chasing. You know, if you approve if e t
Speaker 1: f A spot e t f UM is approved, exchanges
Speaker 1: will be flattened out through competition in the real estate market,
Speaker 1: and UH in Puerto Rico will actually collapse because because
Speaker 1: all those big boys guys will come out of Puerto
Speaker 1: Rico and then come back to New York because accentsion
Speaker 1: has gone away. So obviously there's a lot of clamoring
Speaker 1: for bigcoin e t s, But you also hear a
Speaker 1: lot of pitches um for everyone's ideas. People come to
Speaker 1: you to get funding. You hear the good pitches, the
Speaker 1: bad pitches, the ugly pitches. Can you give us a
Speaker 1: sense of some of the ideas that you've turned down
Speaker 1: that you said, you know what, I don't think this
Speaker 1: is gonna work well. Famously I told the big was twins, no, no, no,
Speaker 1: in two thousand and twelve. I've been right so far. Um.
Speaker 1: But there are a lot of wacky ideas where folks
Speaker 1: want to use the e t F rule to bypass
Speaker 1: capital games and bring um, you know, non traded assets
Speaker 1: and e t F format. I stopped those at the door,
Speaker 1: Like what was the most wild one? Kind of put
Speaker 1: my hedge fund inside of an ETF structure and launch
Speaker 1: it as a structure we don't have marked the market.
Speaker 1: You can't do that, you know. I think that, Um,
Speaker 1: when you get into some of the hairy parts of
Speaker 1: the industry where liquidity is then I mean, right now,
Speaker 1: we saw an example of the London Metal Exchange around
Speaker 1: nickel not performing well because as a class is thinly traded,
Speaker 1: there's not enough supply and that you can get cornered
Speaker 1: in the marketplace with the wrong side. Should you have
Speaker 1: an e t F structure built on nickel solely? I
Speaker 1: think you're seeing examples of just the problems around thinly
Speaker 1: traded marketplaces. We at GTS, we thrive on efficiency and
Speaker 1: we thrive on transparency putting capital to work in the marketplace.
Speaker 1: It's very difficult for us to do our job if
Speaker 1: the marketplace UM is then in the number of participants,
Speaker 1: and then there's no depth in the marketplace associated with
Speaker 1: what those market because you're seeing and in market wide
Speaker 1: issues like what we went through UM with Ukraine and
Speaker 1: just rising rates. When the market goes one way, it
Speaker 1: goes one way pretty hard, and then we're seeing issues
Speaker 1: right now in the treasury market there's less liquidity and
Speaker 1: treasuries UM hide the bond ets to trading in a
Speaker 1: discount right now because there's massive outflows. The mutual fund
Speaker 1: managers are using the e t f s to priced
Speaker 1: or mutual funds, but the spread to treasury is at
Speaker 1: a historic gap that is signifying that the U stock
Speaker 1: market is going to rise eight. So you're seeing all this,
Speaker 1: but a lot of it's around illiquidity or the less
Speaker 1: liquidity and how prices are being forecasted for the future.
Speaker 1: Is there any new e t F that has come
Speaker 1: out that you were not in favor of before, but
Speaker 1: now you're like, I wish I could get a do
Speaker 1: over on that one. Yeah, we we we we missed
Speaker 1: a few over my long horizon in the career that
Speaker 1: I've seen UM famously, I think we were slow on
Speaker 1: on g l D and then and then in the
Speaker 1: gold ETFs UM at that time Bear bear Stearns brought
Speaker 1: that out. Um. We've seen iterations where it was like
Speaker 1: time and place. So right now we talked about earlier,
Speaker 1: um my friends at bomb blocks or bringing up sectorized
Speaker 1: high yield um e t F s UM that was
Speaker 1: tried by another issuer. Um it wasn't ready then it
Speaker 1: seems like it's ready now, you know. So it really
Speaker 1: comes down to what the market is thinking, market psychology,
Speaker 1: investor mindset, and then what works given you know, other factors. So, Erica,
Speaker 1: it seems like fun flows are you like to call
Speaker 1: it barbelling between cheap beta which are those passive index
Speaker 1: ones that often look a lot like the some or
Speaker 1: other benchmarks like the Russell two thousand and therefore are
Speaker 1: fairly cheap versus what you cause shiny new objects, new
Speaker 1: fangled ideas with higher expense ratios that get people's attention
Speaker 1: because the returns are astronomical at least initially. What are
Speaker 1: you seeing there in terms of that balance. Yeah, this
Speaker 1: is something that really challenges people, especially ARC. I think
Speaker 1: ARC really showed this Woods Arc. People are mystified that
Speaker 1: everybody hasn't left and there's like zero dollars left. Well,
Speaker 1: and I will say, we correctly call this because there's
Speaker 1: not there's not going to be a run on the CTF.
Speaker 1: And here's why people have largely replaced this sort of
Speaker 1: legacy active mutual fund with a like index fund or
Speaker 1: we call cheap beta in their core. So they have
Speaker 1: like a sixty forty that's probably five basis points in cost.
Speaker 1: That's what the flow show. Well, that's really efficient, really good,
Speaker 1: and if you wait a long time, that's probably the
Speaker 1: almost the best thing you could probably do. But it's
Speaker 1: so boring. It is, so it's like watching paint dry.
Speaker 1: So people tend to want to have a little fun
Speaker 1: and apply some hot sauce on the outside. So they
Speaker 1: go and they buy ARC or theme ETFs which they
Speaker 1: can relate to, or crypto. I think anything that is
Speaker 1: has a possibility of asymmetric return, and it's very different
Speaker 1: than the index, so it can compliment. We say, Cathy
Speaker 1: is complimenting Vanguard, not competing with them, and that's a
Speaker 1: good spot to be right now. And that's why I
Speaker 1: think you're going to see more and more crazy, wacky,
Speaker 1: hot saucy and products get launched because the lane for
Speaker 1: complementing cheap beta is going to be vital and growing,
Speaker 1: but the lane to compete with cheap beta will always
Speaker 1: be very difficult. The value proposition is so good at
Speaker 1: anybody who owns a four basis point total market fund,
Speaker 1: it's just very difficult to let go of that or
Speaker 1: replace it because you own all of the fundamentally way
Speaker 1: to fundamentally sound serious investor stocks. There Therefore, if you
Speaker 1: own all that, you have more patients with your hot sauce.
Speaker 1: And that's why we haven't seen the kind of outflows
Speaker 1: from our or theme ets that people thought we would see,
Speaker 1: because they already have all the serious stocks covered and
Speaker 1: so they're actually what people see as a bug with
Speaker 1: her fund and others, and that why she keeps doubling
Speaker 1: down on these crazy stocks. It's a feature to the
Speaker 1: people who are looking for something to distract them and
Speaker 1: possibly give them asymmetric a turn in the future, and
Speaker 1: they don't want to miss out and so it would
Speaker 1: be stupid of her or these funds to shift into
Speaker 1: cash or value stocks. Uh. And so this is an
Speaker 1: interesting phenomenon. And so I do think we're going to
Speaker 1: continue to see this barbelling and the cheap lane is
Speaker 1: obviously pretty saturated. I think Reggie's going to probably turn
Speaker 1: down a couple more ideas in the next year because
Speaker 1: I think they're gonna get crazier and crazier and stuff
Speaker 1: you laugh at. I've laughed at many at E t F.
Speaker 1: When I saw the filing and they got it's got
Speaker 1: a billion dollars today or more. I swear to God
Speaker 1: it's I don't laugh anymore. Every now and then I laugh.
Speaker 1: I can't help it. But I don't doubt that some
Speaker 1: of these products that sounds silly today will actually catch
Speaker 1: on in the future because of this practical purpose they
Speaker 1: serve in the portfolio. What do you think of that, Reggie, Well,
Speaker 1: I think that the themes are nothing more than momentum
Speaker 1: trades that folks are bringing out, and and those moment
Speaker 1: trades are just grabbing a cheap beta. So to your
Speaker 1: barbelling analogy, I think it's one transferred to another where
Speaker 1: the themes around either housing or anti arc. I see
Speaker 1: my friend Matt Tuttle there, um, who's a sponsor of
Speaker 1: that E T F. You know, you know he's just
Speaker 1: making a call, not necessarily on Cathy Would, but the
Speaker 1: sector around the evaluation, and you know, is it time
Speaker 1: to place a hedgebat against it? You know? So look,
Speaker 1: Cathy Would. I know her when she left A and
Speaker 1: B and had an idea. I think she's done incredible
Speaker 1: job of bringing a new investor class into the marketplace.
Speaker 1: You know, I joke with her when I see here
Speaker 1: um that she's responsible for fifteen year old boys tearing
Speaker 1: down the fair faucet poster and putting up the Kathy
Speaker 1: Would poster in a bedroom. And then these fifteen year
Speaker 1: old boys are opening up a robin Hood account, and
Speaker 1: then their parents are finding out all of a sudden
Speaker 1: they're buying their father a Mustang with worth their gains.
Speaker 1: That is a society good because you brought a new
Speaker 1: investor class in. So everything has his time in place.
Speaker 1: I think as far as you know the themes, the
Speaker 1: thematic stuff, I mean marijuana, you know when it came out,
Speaker 1: No freaquing way what I touched marijuana when I don't
Speaker 1: smoke it, uh, full disclosure, but literally, I think that
Speaker 1: the banks didn't want to custody the cannabis because of
Speaker 1: their f d I c um stance and regulation of that.
Speaker 1: So it's very hard for a market maker to take
Speaker 1: on that liability risk. So there are areas that we
Speaker 1: missed on, missed out of because of just hypersensitivity around
Speaker 1: just the optics around regulation. You've shepherded so much of
Speaker 1: the development of the E t F industry since its birth.
Speaker 1: Do you think we've reached peak e t F or
Speaker 1: is there a lot more market share for this product
Speaker 1: to take. I mean, you're you're looking at me like
Speaker 1: I'm crazy right now, But we at different points we
Speaker 1: all said we've reached peak ETF. Do you see those
Speaker 1: mutual funds over there? We're coming for you, baby. So
Speaker 1: I think there's an opportunity to transfer UM the mutual
Speaker 1: fund industry and convert them into e t F format
Speaker 1: and give investors lower pricing and choice around entry and exit.
Speaker 1: It really comes down to UM retirement platforms and allowing
Speaker 1: e t F s in our ecosystem and how people
Speaker 1: get paid. But I think that there's a lot of
Speaker 1: opportunity for growth. I see it. Every asset manager additionally,
Speaker 1: who has an open to find complex wants to convert
Speaker 1: into e t F s to offer their investor choices,
Speaker 1: even at risk of cannibalizing their own fund. So I
Speaker 1: think that long term, the E t F industry will
Speaker 1: get to twenty five or thirty trillion UM in my
Speaker 1: lifetime and I have another forty years ago. So you're
Speaker 1: gonna have to change the name of your podcasts to
Speaker 1: what what's after trillion? My son, actually, just my eleven
Speaker 1: year old just told me I learned that word the
Speaker 1: other day. He said, did you know that galaxies are
Speaker 1: gonna cease to exist in the quadrillion years and there'll
Speaker 1: be nothing but black holes left over? I was like, oh,
Speaker 1: I was like, where did you hear that? He's like YouTube,
Speaker 1: So anyway, f y YouTube quadrillion and it means one
Speaker 1: thousand trillions, So anyway, Reggie, Thank you so much. Brown,
Speaker 1: his principal at GTS, also chairs the et F fund
Speaker 1: Board at American Centry Investments. Of course, our own Eric
Speaker 1: out Tunist, senior et F analyst at Blomberg Intelligence, also
Speaker 1: co host of the Trillions podcast and new author of
Speaker 1: The Bogl Effect h Thanks for listening to Trillions until
Speaker 1: next time. You can find us on the Bloomberg terminal,
Speaker 1: Bloomberg dot com, Apple podcast, Spotify, and wherever else you'd
Speaker 1: like to listen. We'd love to hear from you. We're
Speaker 1: on Twitter. I'm at Joel Weber Show. He's at Eric Fautuness.
Speaker 1: This episode of Trillions was produced by Magnus Hendrickson. Francesca
Speaker 1: Levie is the head of Bloomberg podcast by