WEBVTT - Re-Imagining ETFs with Simplify 0:00:06.440 --> 0:00:13.840 Welcome to Trillions. I'm Jeweber and I'm Eric bel Tunis Eric. 0:00:13.840 --> 0:00:15.840 Who are we talking to this week? This is uh. 0:00:15.880 --> 0:00:19.240 We actually made a last minute decision to bring uh 0:00:19.480 --> 0:00:22.479 these guests on because there was some news. There's a 0:00:22.480 --> 0:00:26.120 company called Simplify who we've been watching very closely. It 0:00:26.239 --> 0:00:30.480 was started by Paul Kim who was it Pimco worked 0:00:30.480 --> 0:00:32.640 on bond, new bill growth, that kind of thing, so 0:00:32.680 --> 0:00:35.120 he comes from that pedigree, started an e t F shop, 0:00:35.240 --> 0:00:38.360 hired some interesting people we've had. Uh. We had a 0:00:38.360 --> 0:00:41.560 good zoom call with them about six months ago and 0:00:41.880 --> 0:00:44.680 they're doing well. They're kind of up to looks like 0:00:45.240 --> 0:00:48.880 seventy million assets. That's a fift growth rate this year. 0:00:49.560 --> 0:00:51.959 And what's interesting about them is they keep making these 0:00:52.000 --> 0:00:55.400 interesting hires and what they're doing with some of their 0:00:55.400 --> 0:00:58.480 E t F s is doing options overlays. It's part 0:00:58.480 --> 0:01:02.760 of a bigger trend of package trades and we've seen 0:01:02.760 --> 0:01:05.759 this in the Innovator and buffer products. This is becoming 0:01:05.800 --> 0:01:08.720 more popular as the market gets uh you know, froth 0:01:08.760 --> 0:01:11.920 theer and froth theier. People want some protection and so 0:01:12.080 --> 0:01:15.720 the idea of using options is becoming a popular move 0:01:15.800 --> 0:01:18.960 and so they recently made a couple of big hires, 0:01:19.000 --> 0:01:21.399 including Mike Green, who a lot of people know if 0:01:21.440 --> 0:01:23.920 you're on Twitter. He used to work with Peter till 0:01:24.360 --> 0:01:27.840 he was at a logic after that, and then he's 0:01:27.880 --> 0:01:32.480 famous for having some worries about passive. He's famous for 0:01:32.520 --> 0:01:35.480 battling the bitcoiners on Twitter. I give him credit. Takes 0:01:35.480 --> 0:01:39.200 a brave person to combat to combat some of those folks. 0:01:39.760 --> 0:01:43.080 But he's just a really original thinker. And we've had 0:01:43.080 --> 0:01:46.080 many chats, and so I wanted to get that this 0:01:46.319 --> 0:01:49.320 capture this young firm and their growth, and also look 0:01:49.360 --> 0:01:51.080 at these products. We've had a couple of requests to 0:01:51.120 --> 0:01:54.840 talk about these downside protection type products that use options. 0:01:54.880 --> 0:01:57.520 So I thought that would be the idea here and 0:01:57.600 --> 0:02:05.880 joining us James Safer, Bloomberg Intelligence ETF analyst this time 0:02:05.960 --> 0:02:12.040 on trillions Simplify. Paul Michael, James, thanks for joining us 0:02:12.040 --> 0:02:16.560 on trillions pleasure. Thank you for the invite. It's Paul Michael. 0:02:16.560 --> 0:02:18.880 Before we start with you, I want to bring James 0:02:18.880 --> 0:02:21.840 in here. James, can you talk to us You know 0:02:21.919 --> 0:02:25.960 about the strategy um this option overlay strategy quite a bit. 0:02:26.400 --> 0:02:28.680 Can you give us your assessment of what the space 0:02:28.720 --> 0:02:31.200 looks like, Yeah, so Eric kind of touched on this, 0:02:31.320 --> 0:02:33.800 but right now is like a unique point in the 0:02:33.840 --> 0:02:36.120 asset management industry. There's a lot of people talking about 0:02:36.639 --> 0:02:39.040 the death of the sixty forty portfolio. We are at 0:02:39.040 --> 0:02:41.360 all time highs in the equity markets, we are near 0:02:41.440 --> 0:02:43.560 all time loads and just off of all time loads 0:02:43.560 --> 0:02:46.600 and rates. So people are looking for different ways to 0:02:47.280 --> 0:02:49.880 sort of adjust their portfolios. They're not set in the 0:02:49.919 --> 0:02:53.120 sixty forty portfolios. Advisers looking for ways to eke out 0:02:53.120 --> 0:02:56.560 additional return or additional yield, and a lot of the 0:02:56.560 --> 0:02:59.640 new ETFs are mentioned are using like option overlay strategies 0:02:59.639 --> 0:03:02.600 are as you mentioned the buffer products with have specific 0:03:02.600 --> 0:03:06.840 specified downside protection, but capped upside um simplified does this 0:03:06.919 --> 0:03:10.160 and it just kind of alters the risk of the 0:03:10.200 --> 0:03:13.160 investments that you have and whatever funds you're choosing, and 0:03:13.320 --> 0:03:15.400 all of this is just the way that some people 0:03:15.400 --> 0:03:17.720 and advisors and it's being spoken about. There's a lot 0:03:17.720 --> 0:03:20.000 of money coming into this these types of strategies to 0:03:20.360 --> 0:03:22.600 kind of maybe take a few percent of the equity side, 0:03:22.639 --> 0:03:24.720 some money out of the fixed income side, and eke 0:03:24.760 --> 0:03:28.359 out additional return and without altering your risk profile too much. 0:03:28.400 --> 0:03:30.680 So it's just a lot of people just figuring out 0:03:30.720 --> 0:03:34.639 different ways to um get a more risk, higher risk 0:03:34.639 --> 0:03:37.720 adjusted return or more eke out more yield, and they're 0:03:37.720 --> 0:03:40.760 doing it with options strategies and the area is booming. 0:03:40.760 --> 0:03:43.760 We're over ten ten billion dollars in this area for 0:03:43.800 --> 0:03:46.600 the most part, depending on how you slice and dice 0:03:46.720 --> 0:03:49.240 the marketplace, with the bulk of that being in those 0:03:49.240 --> 0:03:53.600 buffer products. Okay, Paul, you co founded this. What did 0:03:54.080 --> 0:03:56.680 you have in your pitch deck that James left out 0:03:56.760 --> 0:03:59.840 right there? So thank you for the chance to answer 0:03:59.880 --> 0:04:03.320 this question. Um this is my third et F platform, 0:04:03.440 --> 0:04:06.200 and I started at Pimpco. As Eric alluded to, My 0:04:06.320 --> 0:04:09.000 last stop was actually a principle for about five years 0:04:09.040 --> 0:04:11.560 right where I helped build their business up to a 0:04:11.560 --> 0:04:15.680 little over four billion. But at at Simplify. The sort 0:04:15.720 --> 0:04:21.520 of key thesis that we wanted to address was helping 0:04:21.560 --> 0:04:27.080 advisors build much more interesting portfolios and using options and 0:04:27.240 --> 0:04:33.240 derivatives to shape distributions to better address a very specific 0:04:33.320 --> 0:04:36.560 investment goals. So it may be goals such as risk 0:04:36.680 --> 0:04:42.200 mitigation or interesting or an uncorrelated return enhancement as well 0:04:42.240 --> 0:04:45.760 as income generation. And it's a really good time from 0:04:45.760 --> 0:04:49.159 a number of fronts. So from the regulatory front, UH, 0:04:49.240 --> 0:04:52.800 the timing was very important to see the SEC modernize 0:04:53.120 --> 0:04:57.120 the regulatory framework on the use of derivatives by registered 0:04:57.160 --> 0:05:01.719 investment companies and so what that did was basically catch 0:05:01.839 --> 0:05:04.680 up the US to some of the other regulatory frameworks 0:05:04.720 --> 0:05:07.600 out in places like Europe in the use it's format. 0:05:07.720 --> 0:05:11.400 Basically what that means is now companies can bring much 0:05:11.440 --> 0:05:15.320 more interesting combinations of strategies that just did not or 0:05:15.360 --> 0:05:18.320 could not fit into the forty act rapper. So that 0:05:18.480 --> 0:05:21.640 tied with the sort of demand for e t f s, 0:05:22.240 --> 0:05:29.440 the long running advantages of ETO, specifically tax deferral, transparency, 0:05:29.600 --> 0:05:34.400 easier access, as well as I think individual preferences and 0:05:34.480 --> 0:05:38.400 comfort on the use of derivatives. We we have the 0:05:38.400 --> 0:05:42.000 financial crisis way in the rear view mirror at this point, 0:05:42.120 --> 0:05:46.040 and I think the comfort on the use of derivatives 0:05:46.080 --> 0:05:50.560 to help portfolios, the stigma associated with the dangers or 0:05:50.720 --> 0:05:55.200 pitfalls of derivatives UM as well as individuals learning to 0:05:55.400 --> 0:05:59.800 trade things like single stock options and institutions looking for 0:06:00.279 --> 0:06:03.400 ways to solve portfolio challenges, i e. How do you 0:06:03.480 --> 0:06:08.320 hedge in a world of high correlations and low interest rates. Um, 0:06:08.360 --> 0:06:11.480 it's a perfect time for a brand new company that 0:06:11.520 --> 0:06:15.080 focuses right in that sweet spot. So, Paul, that was 0:06:15.120 --> 0:06:17.760 a really good overview, And I just want to try 0:06:17.760 --> 0:06:20.520 to get more into the details of how this the 0:06:20.600 --> 0:06:22.680 e t f s work. Like I said, we've gotten 0:06:22.680 --> 0:06:25.600 a lot of requests from people to go into some 0:06:25.640 --> 0:06:28.040 of the options using e t f s that offer 0:06:28.120 --> 0:06:32.080 downside protection and really to understand exactly how they tick. 0:06:32.440 --> 0:06:34.720 So let's look at SPD. This is your biggest one 0:06:34.839 --> 0:06:37.640 is to simplify us when you plus downside convexity e 0:06:37.720 --> 0:06:40.159 t F, which when I first saw this file I 0:06:40.160 --> 0:06:42.520 thought was a bit of an oxymoron to have simplifying 0:06:42.560 --> 0:06:45.080 convexity in the name. It was the first DTF with 0:06:45.120 --> 0:06:47.760 the word convexity in the name. Um, So let's walk 0:06:47.760 --> 0:06:50.039 through what's in it and then you tell me why. 0:06:50.320 --> 0:06:52.600 Um So, I've got the SMP five hundred e t 0:06:52.760 --> 0:06:54.920 F I VV is a holding and then it looks 0:06:54.920 --> 0:06:58.719 like there's five put options with various months and various 0:06:58.760 --> 0:07:01.320 strike prices. Um, you know, it looks like they go 0:07:01.400 --> 0:07:04.320 all the way out into June two. So just if 0:07:04.320 --> 0:07:06.520 you could walk us through what's going on here, why 0:07:06.600 --> 0:07:09.080 you pick those and what the return stream should look 0:07:09.120 --> 0:07:11.640 like with this thing. Sure, so at the highest level, 0:07:11.720 --> 0:07:15.480 we're trying to stay true to the beta. In this case, 0:07:15.560 --> 0:07:18.040 the beta that we're offering inside of this is the 0:07:18.200 --> 0:07:23.960 SMP five very popular, very very highly used for US 0:07:24.040 --> 0:07:27.320 large cap exposure UM, and so we're taking that as 0:07:27.360 --> 0:07:30.840 a starting point. And then what we're doing is if 0:07:30.880 --> 0:07:34.120 you could think of it as surgically modifying the distribution 0:07:34.280 --> 0:07:37.240 using options, but in a way that does not take 0:07:37.280 --> 0:07:41.600 away the upside or the day to day returns of 0:07:41.600 --> 0:07:44.960 that beta. So it's gonna give you pretty much SMP fire. 0:07:45.320 --> 0:07:48.880 But what we've laid on through options is one in 0:07:48.920 --> 0:07:52.040 the case of our flagship strategy, the two tail version 0:07:52.560 --> 0:07:56.680 UH Spicy, we've added about percent of the portfolio and 0:07:56.880 --> 0:08:01.120 downside hedges, so we're buying les eggs of deep out 0:08:01.120 --> 0:08:04.280 of the money puts, which tend to be cheap and 0:08:05.000 --> 0:08:09.200 from at least from a probabilitistic return perspective, we think 0:08:09.360 --> 0:08:12.680 they're fatter tales and ree equity returns than what are 0:08:12.720 --> 0:08:16.360 priced in these options, and so they provide a really 0:08:16.400 --> 0:08:20.440 interesting way to protect the portfolio with very very modest 0:08:21.120 --> 0:08:25.560 use of capital and on relatively unique for our strategies 0:08:25.600 --> 0:08:29.200 were also enhancing the upside. And I know Mike has 0:08:29.240 --> 0:08:34.479 a ton of comments or opinions on this, but we think, uh, basically, 0:08:34.480 --> 0:08:38.280 the market structure um as well as all sorts of 0:08:38.520 --> 0:08:43.200 fiscal and monetary policies make the upside a significant risk 0:08:43.280 --> 0:08:46.840 as well in terms of keeping up with the purchasing 0:08:46.880 --> 0:08:50.559 power of that investment portfolio. So we focused on both 0:08:50.600 --> 0:08:56.920 sides and create customized scientific option overlays unique to each 0:08:56.960 --> 0:08:58.800 of the tails, and we do it in a way 0:08:58.840 --> 0:09:03.120 that mitigates the cost that of that option strategy and 0:09:03.160 --> 0:09:07.520 delivers about at one point a beta. Okay, Mike, I 0:09:07.559 --> 0:09:10.720 wanna ask you because you came from a hedge fund 0:09:10.760 --> 0:09:13.640 background and so I want to talk about that, But 0:09:14.200 --> 0:09:16.880 I also just gotta ask, like, what's it like to 0:09:16.920 --> 0:09:21.640 have Paul as your boss instead of Peter Teal Uh. Well, 0:09:21.760 --> 0:09:23.719 we're still new in this process, but I will tell 0:09:23.760 --> 0:09:26.480 you that Paul smiles a lot more. Um. It is 0:09:27.320 --> 0:09:31.440 the reason for the move from hedge funds to the 0:09:31.480 --> 0:09:34.400 e t F space is actually exactly what Paul articulated. 0:09:34.400 --> 0:09:37.520 The rules have changed and so products that were not 0:09:37.880 --> 0:09:41.360 able to be created in the E t F space 0:09:41.440 --> 0:09:44.120 or in the retail space are now actually available in 0:09:44.120 --> 0:09:47.199 the way they just haven't been before. And you know, 0:09:47.280 --> 0:09:50.640 broadly Eric was referring to this earlier. My career is 0:09:50.720 --> 0:09:55.319 largely characterized by trying to identify how the regulatory regime 0:09:55.360 --> 0:09:57.760 is changing, how the market structure is changing. And for 0:09:57.800 --> 0:09:59.679 the first time this is now open and so I'm 0:09:59.720 --> 0:10:02.079 thrilled to be on board with the Simplified team. Join 0:10:02.160 --> 0:10:05.360 my friend Harley Bassman, who's another you know, legend in 0:10:05.400 --> 0:10:08.000 the in the rate space in particular, who's going to 0:10:08.040 --> 0:10:11.640 be introducing similar products um and I think the opportunity 0:10:11.679 --> 0:10:14.600 to be kind of first out of the gate with 0:10:14.679 --> 0:10:19.240 some really fantastic products that introduce convexity, right and so 0:10:19.320 --> 0:10:21.880 convexity we can talk about that dynamic, but the simplest 0:10:21.880 --> 0:10:24.240 way to think about it is that you're creating a 0:10:24.320 --> 0:10:28.800 structure that can potentially participate with more than to the 0:10:28.880 --> 0:10:32.320 upside and yet avoid portions of the downside. You're just 0:10:32.400 --> 0:10:36.640 changing the shape of that distribution. That's an incredibly exciting 0:10:36.679 --> 0:10:40.240 opportunity to an adventure to be part of. When when 0:10:40.280 --> 0:10:44.679 did you recognize, especially in the hedge fund world, that 0:10:44.679 --> 0:10:48.360 that there was going to be an opportunity to actually 0:10:48.360 --> 0:10:51.160 like enhance what et s were capable of. Well, so 0:10:51.200 --> 0:10:54.679 the rule change occurred, Um, Paul, correct if I'm wrong. 0:10:54.679 --> 0:10:58.200 I think it was last June. Um, yeah, officially October, 0:10:58.880 --> 0:11:02.480 but it's been shadowed for at least a number of ryers. 0:11:03.000 --> 0:11:05.119 And so the challenge that I had in that context 0:11:05.280 --> 0:11:07.240 was I have no skill set in terms of launching 0:11:07.240 --> 0:11:10.080 e t s. I have a history of participating in 0:11:10.160 --> 0:11:13.840 launching hedge funds. Sort of join up with an organization 0:11:13.880 --> 0:11:16.360 that is really skilled in launching those ETFs was really 0:11:16.360 --> 0:11:20.280 one of the key components in terms of the opportunity itself. 0:11:20.360 --> 0:11:23.080 I became aware of it in early one is my 0:11:23.120 --> 0:11:26.880 friend Harley Basman made the transition over to simplify and 0:11:27.000 --> 0:11:29.040 basically said, hey, you gotta take a look at this, 0:11:29.400 --> 0:11:32.240 and I came to the conclusion that he was right. 0:11:33.360 --> 0:11:35.800 So quick question, you guys keep talking about the rule change. 0:11:36.480 --> 0:11:39.160 The rule change you're talking about is that? Is that 0:11:39.200 --> 0:11:42.280 the ability to do in kind transactions with options? Is that? 0:11:42.440 --> 0:11:45.360 Is that the rule change of referencing it's it's not, 0:11:45.400 --> 0:11:47.640 Although that one is also an important one. So in 0:11:47.679 --> 0:11:53.880 October sec past essentially a modernized regulatory framework on the 0:11:53.960 --> 0:11:57.679 use of derivatives. It's it's been long in sort of 0:11:57.960 --> 0:12:02.280 the pipeline and then was formally finalized and passed, and 0:12:02.320 --> 0:12:05.880 that again modernizes the use of derivatives. UM, as I 0:12:05.920 --> 0:12:10.240 alluded to earlier, does the other point you're making, UM 0:12:10.320 --> 0:12:14.960 only magnifies the opportunity because not only are you permitting 0:12:15.000 --> 0:12:18.040 the use of derivatives inside of an et F rapper 0:12:18.320 --> 0:12:24.000 or vehicle, you're now giving it a tax advantage relative 0:12:24.120 --> 0:12:27.520 to maybe other ways of holding that same option. Much 0:12:27.600 --> 0:12:31.720 like ETFs have have a tax advantage in holding single 0:12:31.960 --> 0:12:36.880 single name stocks and bonds, you're now able to redeem 0:12:36.920 --> 0:12:41.520 out in kind single name stock options, including options on 0:12:41.600 --> 0:12:44.640 e t F s, and so that creates a whole 0:12:44.720 --> 0:12:49.800 new ability to creatively think about really interesting ETF strategies 0:12:49.840 --> 0:12:54.000 that are very tax efficient. UM. Let me jump in here, 0:12:54.120 --> 0:12:58.760 because over the years there's been many downside hedge TTF 0:12:58.880 --> 0:13:02.160 that's been air You that it looks good on paper, 0:13:02.200 --> 0:13:04.440 but in a bull market, a lot of them dragged, 0:13:04.679 --> 0:13:07.560 And I get your idea is to not drag as 0:13:07.640 --> 0:13:11.200 much and get as much upside, and then assuming that 0:13:11.320 --> 0:13:13.280 the more of the market gets bubbly, which probably leads 0:13:13.280 --> 0:13:16.880 to Mike Green's you know, passive bubble theory where when 0:13:16.880 --> 0:13:19.840 you do have these downturns they get steep, right. So 0:13:20.040 --> 0:13:23.560 this this way you're protecting your downside. Is this the 0:13:23.600 --> 0:13:26.240 type of product that you use on top of, say 0:13:26.360 --> 0:13:28.959 a Vanguard five fund or do you sort of are 0:13:28.960 --> 0:13:33.280 you trying to replace that whole part of the portfolio. Um? 0:13:33.280 --> 0:13:37.000 How are you presenting this in terms of portfolio construction 0:13:37.040 --> 0:13:42.200 to advisors? Um, we are presenting it as a tool. 0:13:42.400 --> 0:13:45.160 So for some advisors, they they they viewed as a 0:13:45.200 --> 0:13:48.880 dollar for dollar replacement of their equity beta in the 0:13:48.920 --> 0:13:52.360 case again of our SMP strategies. And it makes sense 0:13:52.400 --> 0:13:56.439 in the context of a higher risk adjusted return potential 0:13:57.120 --> 0:13:59.719 through similar reasons at a sixty forty off and out 0:14:00.040 --> 0:14:04.679 forms equity beta in that by cutting off the downside, 0:14:04.880 --> 0:14:09.560 you're you improve the compounding and potentially improve your geometric returns. Right, 0:14:09.600 --> 0:14:13.000 And so that sort of concept UH is an attractive 0:14:13.000 --> 0:14:16.959 one for one. But in today's environment, where yields are 0:14:17.080 --> 0:14:22.840 essentially at negative real rates, UM, the advantages of UH 0:14:22.840 --> 0:14:26.160 sort of having that fixed income is offset by the 0:14:26.160 --> 0:14:28.840 negative carry of that fixed income. And so in that case, 0:14:28.880 --> 0:14:32.680 if you could create some other way to directly hedge 0:14:32.720 --> 0:14:35.600 downside instead of instead of relying on fixed income, it 0:14:35.640 --> 0:14:38.960 could actually also improve your returns. And so we may 0:14:39.040 --> 0:14:41.560 be getting a partial dollar out of your fixed income 0:14:41.640 --> 0:14:43.800 bucket as well as the equity bucket. And so those 0:14:43.800 --> 0:14:46.800 are the two main use cases that we found. But 0:14:46.960 --> 0:14:50.000 our core value proposition is that we're trying to keep 0:14:50.040 --> 0:15:01.720 and maintain that roughly one beta exposure. So, Mike, um, 0:15:01.800 --> 0:15:06.280 you and I have had several discussions both offline over 0:15:06.360 --> 0:15:10.080 I B and then on Filbox podcast, which if you 0:15:10.120 --> 0:15:12.880 want background on Mike's thoughts on passive and his worries 0:15:12.920 --> 0:15:16.520 about it, go listen to that podcast. Um, he goes 0:15:16.560 --> 0:15:19.480 over all of it there. But you're you are known. 0:15:19.640 --> 0:15:21.400 Oh you're also on Odd Lots and I thought that 0:15:21.480 --> 0:15:22.920 was a good one too. You went over all that 0:15:23.000 --> 0:15:26.240 on that, which is a sister podcast to ours. So 0:15:26.440 --> 0:15:29.120 but let's just for people out there, Mike's a little 0:15:29.160 --> 0:15:33.240 worried about passive being a sort of problem. And now, 0:15:33.320 --> 0:15:36.760 so when I tweeted about your coming over to simplify, 0:15:37.240 --> 0:15:41.760 of course, you had some knuckleheads out there. They're like, Oh, 0:15:41.800 --> 0:15:44.440 what's going on here, Mike? I thought you said the 0:15:44.600 --> 0:15:46.800 S and P S dune, you know, passives of bubble. 0:15:47.560 --> 0:15:52.080 How does this is? How is this in tune with 0:15:52.160 --> 0:15:56.000 your thoughts on passive or is there a little bit 0:15:56.000 --> 0:15:58.480 of a conflict there? So I don't think there's a 0:15:58.520 --> 0:16:00.960 conflict at all. I mean, the point that I have 0:16:01.080 --> 0:16:04.320 continually made on passive is is that it is changing 0:16:04.360 --> 0:16:07.840 the market structure, right, that it is influencing the behavior 0:16:07.880 --> 0:16:10.480 of markets. And we see this both in the behavior 0:16:10.600 --> 0:16:13.280 of rallies and in the behavior of selloffs. The selloffs 0:16:13.400 --> 0:16:18.440 are more frequent in terms of the negative skew that 0:16:18.520 --> 0:16:20.840 presents in the market and others. The market's propensity to 0:16:21.000 --> 0:16:25.840 crash is rising over time. Propensity for highly correlated selloffs 0:16:26.080 --> 0:16:29.840 is rising over time. At the same time, the dynamics 0:16:29.880 --> 0:16:32.560 of the shift to passive away from active are creating 0:16:32.600 --> 0:16:35.160 many of the themes that we hear in the market 0:16:35.240 --> 0:16:39.200 right the by the dip type mentality, etcetera. What you have, 0:16:39.320 --> 0:16:46.040 by and large is a um unthinking allocation mechanism that 0:16:46.200 --> 0:16:49.520 simply relies on Americans participating through their four oh one 0:16:49.600 --> 0:16:52.480 case or people around the world participating through their retirement 0:16:52.480 --> 0:16:55.840 programs or through their deductions. That they're making from their 0:16:55.840 --> 0:16:59.680 paychecks or regular contributions. And the rules of passive in 0:17:00.040 --> 0:17:02.520 ones the behavior of the market and just the simplest form. Right, 0:17:02.560 --> 0:17:04.719 the rules of passive are as simple as did you 0:17:04.720 --> 0:17:07.560 give me cash? If so, then by did you ask 0:17:07.600 --> 0:17:09.879 for cash? If so, then sell? And the work that 0:17:09.960 --> 0:17:12.879 I have focused on is the impact of introducing that 0:17:12.960 --> 0:17:18.560 systematic type of strategy on market behavior. What that really does, 0:17:18.720 --> 0:17:20.960 and what I've been very clear on is is that 0:17:20.960 --> 0:17:24.320 that change in the distribution of outcomes that occurs because 0:17:24.320 --> 0:17:29.080 of the influence of passive means that options are improperly priced. 0:17:29.640 --> 0:17:32.360 And so throughout my career I've been a value investor 0:17:32.440 --> 0:17:34.520 in the context not of saying, you know, here's a 0:17:34.560 --> 0:17:37.440 super cheap company based on my estimate of future free 0:17:37.440 --> 0:17:41.080 cash flows, but instead to say, here's a super cheap 0:17:41.400 --> 0:17:44.920 instrument or security that can be purchased at a price 0:17:45.000 --> 0:17:48.240 that inaccurately reflects the future distribution of outcomes for the 0:17:48.320 --> 0:17:52.679 underlying product. Right, That's what we're doing. It simplify, right, 0:17:52.720 --> 0:17:56.919 the the ability to overlay the options and participate in 0:17:57.000 --> 0:18:00.720 the inflation that's occurring because of the passive dynamic, but 0:18:00.840 --> 0:18:04.280 to do so in a way that protects investors both 0:18:04.280 --> 0:18:07.120 to the downside and from the risk of a market 0:18:07.160 --> 0:18:10.480 that effectively runs away from them is as I said, 0:18:10.520 --> 0:18:13.359 like it didn't exist technically before. You couldn't do it 0:18:13.400 --> 0:18:16.439 from a regulatory framework, and now suddenly you can. And 0:18:16.480 --> 0:18:19.520 the second component is is that the options themselves don't 0:18:19.560 --> 0:18:22.760 accurately reflect these prices, creating the opportunity to do stuff 0:18:22.760 --> 0:18:25.800 that I think of as true value investing. We talked 0:18:25.800 --> 0:18:28.520 about the broad allocation e t s. We've talked about 0:18:28.520 --> 0:18:32.959 the benefits of taking part of your six your inequities 0:18:33.040 --> 0:18:35.640 or party fix income and putting him in these broader 0:18:36.160 --> 0:18:37.800 um e t s. You guys have launched, but you 0:18:37.800 --> 0:18:42.800 guys also have launched a suite of more specific, targeted 0:18:43.040 --> 0:18:46.159 thematic ETFs almost using kind of the same strategy with 0:18:46.480 --> 0:18:49.440 hoping to get additional upside in like v car, which 0:18:49.480 --> 0:18:52.920 is robocar, disruption fintech, and v fin um a whole 0:18:52.960 --> 0:18:55.760 bunch of these. Can you just talk about how you 0:18:55.840 --> 0:18:59.359 view those being used, how you chose the strategies to launch, 0:19:00.200 --> 0:19:03.720 and anything you have to say about them. Sure, um, 0:19:03.760 --> 0:19:06.920 And so just just because we started off with broad 0:19:07.000 --> 0:19:09.560 beta does not mean that's sort of where fixed fixated 0:19:09.640 --> 0:19:14.320 on UM. We're also trying to solve advisor and investor 0:19:15.160 --> 0:19:19.760 demand for things like concentrated investing, which often play out 0:19:19.760 --> 0:19:23.159 in thematic investing. And so what we've done is create 0:19:23.680 --> 0:19:26.879 very hyper concentrated e t s again that push the 0:19:26.880 --> 0:19:32.280 boundaries to what's permissible in a forty act vehicle UM, 0:19:32.359 --> 0:19:36.400 and also concentrate further by enhancing the upside potential by 0:19:36.400 --> 0:19:41.000 buying buying single names stock options mostly calls on some 0:19:41.080 --> 0:19:44.320 of our key names in the portfolios that hang on 0:19:44.359 --> 0:19:47.560 that theme. And the idea from a high level view 0:19:47.720 --> 0:19:52.000 is kind of do what Warren Buffett and Carl Lyken 0:19:52.119 --> 0:19:55.160 and other famous investors have done in their careers, which 0:19:55.280 --> 0:19:59.800 is really concentrated into a few few key names to 0:20:00.040 --> 0:20:04.640 you take advantage of their relative growth to the universe 0:20:04.720 --> 0:20:07.440 or potential growth, and then do it in a risk 0:20:07.520 --> 0:20:11.360 measured way where we're also embedding sort of downside hedges, 0:20:11.560 --> 0:20:14.560 so that if you're not exactly right with your timing, 0:20:14.560 --> 0:20:17.000 it could still have a structure that creates this really 0:20:17.000 --> 0:20:22.280 concentrated upside, but much more diversified and hedge downside. So 0:20:22.359 --> 0:20:26.000 that's the interesting thing. At the very highest level, it's 0:20:26.040 --> 0:20:30.080 it's a variance maximization structure. So you've concentrated, you have 0:20:30.640 --> 0:20:34.600 relatively high variance names, and you have a structure that 0:20:34.680 --> 0:20:37.840 captures moves when they go up in a way to 0:20:37.880 --> 0:20:41.760 sort of diversify and mitigate the downside when they don't 0:20:41.800 --> 0:20:44.520 go up as fast. Yeah, so these these strategies can 0:20:44.600 --> 0:20:47.920 theoretically almost compound almost like some of the leverage gts 0:20:48.520 --> 0:20:50.760 UM if you if it starts really going in those calls, 0:20:51.160 --> 0:20:54.760 those upside calls get hit, which is extremely interesting from 0:20:55.160 --> 0:20:57.480 our point of view. The other thing is themes is 0:20:57.520 --> 0:21:00.480 like I feel like it's always been talking about last year, 0:21:00.560 --> 0:21:03.000 themes are taking over sector investing because people don't want 0:21:03.040 --> 0:21:05.600 to invest in a specific sector like themes are easier 0:21:05.640 --> 0:21:08.159 to talk about. They're taking away some of the thunder 0:21:08.240 --> 0:21:10.560 from smart beta, E t F s UM. So it 0:21:10.640 --> 0:21:13.320 just makes complete sense to kind of packages in these 0:21:13.320 --> 0:21:17.480 other strategies. Yeah, when you said the hunger for concentration, 0:21:17.480 --> 0:21:19.119 I just want to hone it on that. In a minute. 0:21:20.080 --> 0:21:24.600 We are noticing this clear barbelling of flows where it's 0:21:24.600 --> 0:21:27.679 either dirt chief beta or wild and crazy you know, 0:21:27.800 --> 0:21:29.960 something very different. This is sort of the artifact I 0:21:29.960 --> 0:21:33.280 guess if you will, themes are right in there. Um, 0:21:33.280 --> 0:21:37.520 this is this because portfolios are barbelling. People are just 0:21:37.880 --> 0:21:40.600 they're gonna they're gonna have this cheap base and then 0:21:40.680 --> 0:21:43.040 sort of decorate it with what we tend to refer 0:21:43.080 --> 0:21:44.920 to as hot sauce. I mean, is that what you're 0:21:44.920 --> 0:21:48.320 finding from advisors is that why you're in fact in 0:21:48.359 --> 0:21:51.560 your area you have the barbell going right there in 0:21:51.680 --> 0:21:56.760 terms of the product line. Well, so I would actually, 0:21:57.080 --> 0:21:59.399 um take a stab at that. I think again for me, 0:21:59.640 --> 0:22:02.199 part of of the interesting dynamic that we're seeing with 0:22:02.280 --> 0:22:04.879 theme stocks, etcetera is is that it's a reflection of 0:22:04.920 --> 0:22:07.560 the market fragility dynamics we're talking about, right, So in 0:22:07.640 --> 0:22:12.240 many of these situations, the core buyers and holders of 0:22:12.320 --> 0:22:14.280 these theme stocks are going to be the vanguards and 0:22:14.320 --> 0:22:17.560 black rocks of the world. The question is, can you 0:22:17.640 --> 0:22:22.880 gain increased convexity or rocket fuel to an exposure because 0:22:22.960 --> 0:22:26.040 you decide to make a concentrated bet in that area, right, 0:22:26.080 --> 0:22:29.560 and the ability to articulate that and to do so 0:22:29.640 --> 0:22:33.360 in a manner that is easily accessible and tradeable from 0:22:33.359 --> 0:22:36.520 an r A framework, It's tough to see that is 0:22:36.520 --> 0:22:41.880 not offering value to the community. Just before we move 0:22:41.960 --> 0:22:45.760 on to the limitations, I think Joe's gonna about limitations. 0:22:46.040 --> 0:22:50.199 Paul Um back to the i VV and then the 0:22:50.240 --> 0:22:54.560 puts and that tail risk hedge yep UM. Have you 0:22:55.119 --> 0:22:58.320 tested this in environments? And do you know about how 0:22:58.400 --> 0:23:01.399 much of the market downturn you save? Like, do you 0:23:01.400 --> 0:23:04.679 have any way to quantify what you're saving there? Because 0:23:05.280 --> 0:23:09.400 the Bruce bond Over an innovator, he has these exact metrics. 0:23:09.440 --> 0:23:12.639 You know, you'll you'll have the stomach the first five percent, 0:23:12.720 --> 0:23:15.080 but then after that will cover you know, he's very 0:23:15.119 --> 0:23:16.919 clear on this is exactly what you get. How do 0:23:16.960 --> 0:23:20.199 you answer that question to somebody who's like, well, how 0:23:20.280 --> 0:23:23.479 much will this save me if the market tanks? So 0:23:23.560 --> 0:23:28.560 you can't get a precise forward looking number, but there's 0:23:28.560 --> 0:23:32.199 certainly a lot of historical episodes going back way to 0:23:32.359 --> 0:23:35.600 the you know, periods like the Great Depression UM, where 0:23:35.640 --> 0:23:38.800