1 00:00:02,480 --> 00:00:06,160 Speaker 1: Bloomberg Audio Studios, podcasts. 2 00:00:05,720 --> 00:00:09,920 Speaker 2: Radio news, Samaraka and ETF and index Cio at Black 3 00:00:09,920 --> 00:00:12,239 Speaker 2: Croc joins us now for more tomorrow. Wonderful to see you. 4 00:00:12,560 --> 00:00:14,720 Speaker 2: We've got a lot to talk about in crypto and bitcoin. 5 00:00:14,760 --> 00:00:16,360 Speaker 2: I just want to get to the green market first, 6 00:00:16,600 --> 00:00:18,400 Speaker 2: foe more bubble, which one is it? 7 00:00:19,079 --> 00:00:21,479 Speaker 3: Look, I think the important thing is that one of 8 00:00:21,520 --> 00:00:25,279 Speaker 3: the transform one of the most transformed parts of markets 9 00:00:25,280 --> 00:00:28,600 Speaker 3: today is participation of individual investors. So just a level 10 00:00:28,680 --> 00:00:32,920 Speaker 3: set here, there are probably one hundred million American investors 11 00:00:32,920 --> 00:00:35,400 Speaker 3: who are self directing their money. That's what we talk about, 12 00:00:35,440 --> 00:00:38,519 Speaker 3: we say the self directed investor, and about thirty percent 13 00:00:38,560 --> 00:00:41,959 Speaker 3: of them are in I shares, et aps, are in ETFs, right, 14 00:00:42,000 --> 00:00:45,040 Speaker 3: So investors are participating in single stocks, but they're also 15 00:00:45,080 --> 00:00:49,320 Speaker 3: participating in broad based indexes, and I think that gets 16 00:00:49,720 --> 00:00:52,120 Speaker 3: lost a little bit. Now we can extend this story 17 00:00:52,159 --> 00:00:55,080 Speaker 3: to China, which you were talking about before, where interestingly 18 00:00:55,520 --> 00:00:58,080 Speaker 3: we are seeing there are emerging market ETFs that are 19 00:00:58,120 --> 00:01:00,840 Speaker 3: ex China that are seeing in flow, but there is 20 00:01:00,880 --> 00:01:05,360 Speaker 3: also a lot of interesting options activity on China ETFs, 21 00:01:05,400 --> 00:01:07,399 Speaker 3: which is one of the core ways that a US 22 00:01:07,400 --> 00:01:09,600 Speaker 3: investor can express a view on China. So what you're 23 00:01:09,640 --> 00:01:12,920 Speaker 3: seeing there is actually bullish skew probably four times as 24 00:01:12,959 --> 00:01:16,680 Speaker 3: much call interest as put interest in getting a limited 25 00:01:16,840 --> 00:01:19,080 Speaker 3: ups limited downside participation in China. 26 00:01:19,280 --> 00:01:22,360 Speaker 2: We hear the word trade versus investment, tride versus investment 27 00:01:22,400 --> 00:01:24,319 Speaker 2: when they think about China, or they think in trade 28 00:01:24,640 --> 00:01:25,520 Speaker 2: and not investment. 29 00:01:25,959 --> 00:01:27,920 Speaker 3: Well, these are short dated calls, so I think we're 30 00:01:27,959 --> 00:01:32,280 Speaker 3: talking about short term, limited downside participation in some upside. 31 00:01:32,319 --> 00:01:34,920 Speaker 3: But so yes, I think what we are seeing is 32 00:01:35,000 --> 00:01:38,720 Speaker 3: kind of the transition from let's say savers to traders 33 00:01:38,840 --> 00:01:39,679 Speaker 3: to investors. 34 00:01:39,720 --> 00:01:41,760 Speaker 1: In the United States, you talk about a lot of 35 00:01:41,760 --> 00:01:45,200 Speaker 1: individual retail investors not going into a specific name, but 36 00:01:45,319 --> 00:01:48,440 Speaker 1: trying to trade an index. How much are they essentially 37 00:01:48,520 --> 00:01:51,400 Speaker 1: thinking they're trading some specific names given the dominance of 38 00:01:51,440 --> 00:01:53,760 Speaker 1: those names in the index. How much has that drawn 39 00:01:53,880 --> 00:01:56,600 Speaker 1: in retail interest in a new way. 40 00:01:57,400 --> 00:01:59,480 Speaker 3: I think investors who want to trade an index are 41 00:01:59,520 --> 00:02:03,640 Speaker 3: trading the index. It is incredibly easy. And the reason 42 00:02:04,040 --> 00:02:07,040 Speaker 3: we saw this real step up in participation over the 43 00:02:07,040 --> 00:02:10,360 Speaker 3: pandemic that is now participated is that there is commission 44 00:02:10,360 --> 00:02:14,720 Speaker 3: free trading for you know, all stocks, single stock or ETFs. 45 00:02:14,960 --> 00:02:17,919 Speaker 3: There are much better experiences on digital platforms, and there's 46 00:02:17,919 --> 00:02:20,240 Speaker 3: a lot of information, for better or for worse, coming 47 00:02:20,280 --> 00:02:24,359 Speaker 3: through social media. So investors have the access to determine 48 00:02:24,560 --> 00:02:28,200 Speaker 3: do they want single stock exposure do they want index exposures? 49 00:02:28,200 --> 00:02:30,520 Speaker 3: So I think the decision to allocate into ETFs or 50 00:02:30,520 --> 00:02:32,960 Speaker 3: index product is very specific to the index out. 51 00:02:32,880 --> 00:02:35,320 Speaker 1: Even those people who already have allocated. I'm just wondering 52 00:02:35,400 --> 00:02:37,960 Speaker 1: how you can gauge kind of the appetite for risk 53 00:02:38,120 --> 00:02:40,680 Speaker 1: at a moment when there seems to be a lot 54 00:02:40,720 --> 00:02:43,640 Speaker 1: already baked into valuations and people are getting concerned about 55 00:02:43,760 --> 00:02:47,279 Speaker 1: some frothiness. Do you get the sense that retail investors 56 00:02:47,320 --> 00:02:49,679 Speaker 1: are still gung ho and they're still saying this is 57 00:02:49,720 --> 00:02:52,160 Speaker 1: the time to start moving money out of cash and 58 00:02:52,160 --> 00:02:54,679 Speaker 1: locking in longer term yields, locking in some of the 59 00:02:55,639 --> 00:02:58,000 Speaker 1: sort of prominence of artificial intelligence. 60 00:02:58,120 --> 00:03:01,600 Speaker 3: Absolutely well, it's artificial intelligence, But even upstream of that, 61 00:03:01,680 --> 00:03:03,720 Speaker 3: I would say, it's what does your fixed income allocation 62 00:03:03,840 --> 00:03:06,000 Speaker 3: look like? Of course, because last year was the year 63 00:03:06,080 --> 00:03:08,040 Speaker 3: of cash, all of a sudden, a lot of these 64 00:03:08,040 --> 00:03:10,280 Speaker 3: savers who are coming off the sidelines realist I have 65 00:03:10,320 --> 00:03:12,000 Speaker 3: to do more than have my money sit in a 66 00:03:12,040 --> 00:03:15,280 Speaker 3: bank account. I have opportunities in the cash market. Now, 67 00:03:15,320 --> 00:03:18,079 Speaker 3: the question is they have to start worrying about investment risk. 68 00:03:18,120 --> 00:03:18,640 Speaker 1: Maybe they have a. 69 00:03:18,639 --> 00:03:20,760 Speaker 3: Little bit more time than we thought before, given what 70 00:03:20,840 --> 00:03:22,720 Speaker 3: we continue to learn from the FED, But they have 71 00:03:22,760 --> 00:03:25,480 Speaker 3: to think about their core fixed income allocations and then 72 00:03:25,520 --> 00:03:27,440 Speaker 3: to your point, they have to think about you know 73 00:03:27,520 --> 00:03:29,239 Speaker 3: what you know? And of course this all depends on 74 00:03:29,280 --> 00:03:32,239 Speaker 3: their time horizon. Where do they want their equity allocations 75 00:03:32,240 --> 00:03:33,360 Speaker 3: to be on the risk spectrum. 76 00:03:33,440 --> 00:03:35,640 Speaker 2: They've got a new option, a spot Bitcoin ATF we 77 00:03:35,720 --> 00:03:37,560 Speaker 2: do can you just frame how big the inflows have 78 00:03:37,640 --> 00:03:39,040 Speaker 2: been over the last few weeks? 79 00:03:40,040 --> 00:03:41,800 Speaker 3: Well, I think it's important to look at the inflows 80 00:03:41,840 --> 00:03:44,720 Speaker 3: in the context of the category. Right, So, there haven't 81 00:03:44,760 --> 00:03:47,720 Speaker 3: been there haven't been ETFs on bitcoin and this is 82 00:03:47,760 --> 00:03:50,760 Speaker 3: the first time ever we saw you know, ETFs enter 83 00:03:50,800 --> 00:03:53,120 Speaker 3: an asset class. And at the beginning, the question was 84 00:03:53,160 --> 00:03:57,840 Speaker 3: do investors want to hold any They have more options 85 00:03:57,920 --> 00:04:00,480 Speaker 3: to participate in the bitcoin market than they than they 86 00:04:00,480 --> 00:04:03,920 Speaker 3: did before. But the inflos have definitely gotten attention. 87 00:04:04,000 --> 00:04:05,800 Speaker 2: Would you call it new money? That's what I'm trying 88 00:04:05,800 --> 00:04:08,120 Speaker 2: to work out. Is it from the crypto universe just 89 00:04:08,160 --> 00:04:10,600 Speaker 2: being put into the spot bitcoin ETF because that's where 90 00:04:10,640 --> 00:04:12,800 Speaker 2: people would prefer it to be. Or is it coming 91 00:04:12,800 --> 00:04:16,040 Speaker 2: from houseware stuff that was previously invested in equacies in 92 00:04:16,080 --> 00:04:18,480 Speaker 2: fixed income that is coming to this market for the 93 00:04:18,520 --> 00:04:19,040 Speaker 2: first time. 94 00:04:19,200 --> 00:04:21,360 Speaker 3: So I've seen lots of different analysis on this, and 95 00:04:21,400 --> 00:04:23,560 Speaker 3: I would say the range between how much is new 96 00:04:23,560 --> 00:04:26,839 Speaker 3: money kind of is between fifty percent and seventy five percent. 97 00:04:26,920 --> 00:04:29,839 Speaker 3: That's new money, with the early days in particular being 98 00:04:31,200 --> 00:04:33,880 Speaker 3: recycling from other rappers. And you can see that in 99 00:04:33,920 --> 00:04:35,760 Speaker 3: the trading volumes as well. If I look across the 100 00:04:35,800 --> 00:04:40,640 Speaker 3: Bitcoin trading complex, Spot futures ETFs. ETFs were probably about 101 00:04:40,680 --> 00:04:43,760 Speaker 3: fifteen percent of trading volume in those early days. Now 102 00:04:43,760 --> 00:04:45,719 Speaker 3: it's leveled down to call it, you know, six to 103 00:04:45,800 --> 00:04:46,520 Speaker 3: eight percent. 104 00:04:46,960 --> 00:04:49,120 Speaker 1: What do you say in terms of the sort of 105 00:04:49,160 --> 00:04:52,880 Speaker 1: evolution of this year where people are sort of shifting 106 00:04:52,920 --> 00:04:57,200 Speaker 1: their investment strategies at a time where yields are higher 107 00:04:57,240 --> 00:05:00,960 Speaker 1: but expected to come down and there is discussion about 108 00:05:00,960 --> 00:05:03,840 Speaker 1: a rotation or something shifting in the equity space. 109 00:05:04,400 --> 00:05:07,800 Speaker 3: So number one, it is really determining what the appropriate 110 00:05:07,839 --> 00:05:10,200 Speaker 3: fixed income allocation for them should be and where that 111 00:05:10,320 --> 00:05:12,000 Speaker 3: is on the yield curve. And this is part of 112 00:05:12,040 --> 00:05:14,960 Speaker 3: this bigger picture regime shift, how do you think about 113 00:05:15,000 --> 00:05:18,800 Speaker 3: the portfolio now that we've had this, you know, change 114 00:05:18,800 --> 00:05:20,720 Speaker 3: in how we think about it, change in forty years 115 00:05:20,720 --> 00:05:22,839 Speaker 3: where you've new investors, you've never really had to consider 116 00:05:22,880 --> 00:05:25,640 Speaker 3: inflation before. So that's number one. And then number two, 117 00:05:25,640 --> 00:05:27,160 Speaker 3: as you said, is where do they go in their 118 00:05:27,160 --> 00:05:28,080 Speaker 3: equity allocation. 119 00:05:28,600 --> 00:05:31,560 Speaker 1: There was a great piece on the Bloomberg talking about 120 00:05:31,600 --> 00:05:35,840 Speaker 1: the return profile of cash versus actually investment grade and 121 00:05:37,640 --> 00:05:39,680 Speaker 1: just a government debt, and it actually shows that T 122 00:05:39,880 --> 00:05:42,560 Speaker 1: bills has outperformed over the past ten years, are basically 123 00:05:42,560 --> 00:05:45,600 Speaker 1: been in line. How do you shift mentalities that have 124 00:05:45,640 --> 00:05:48,599 Speaker 1: been entrench by that and say this time is different. 125 00:05:49,440 --> 00:05:53,240 Speaker 3: I think education plays an incredibly important role here, and 126 00:05:53,279 --> 00:05:56,320 Speaker 3: that's one of the things that investors are looking to 127 00:05:56,400 --> 00:05:59,400 Speaker 3: their advisors for, looking to media, for looking to digital 128 00:05:59,440 --> 00:06:01,760 Speaker 3: platforms for But there is just no question that that 129 00:06:01,880 --> 00:06:04,840 Speaker 3: is probably one of the biggest risks to those you know, 130 00:06:04,960 --> 00:06:07,480 Speaker 3: one hundred million investors who are in the market right now. 131 00:06:07,520 --> 00:06:10,680 Speaker 3: The biggest risks are probably number one, the reinvestment risk 132 00:06:10,720 --> 00:06:13,280 Speaker 3: if they're not, you know, moving out onto the yield curve, 133 00:06:13,600 --> 00:06:16,240 Speaker 3: and number two the diversification risk. You know, if they 134 00:06:16,279 --> 00:06:20,599 Speaker 3: are looking to more volatile single stock or even crypto. 135 00:06:21,000 --> 00:06:23,920 Speaker 2: Speaking of diversification, this is what I struggle with with bitcoin, 136 00:06:24,000 --> 00:06:26,560 Speaker 2: and I'd love your answer to it. What are the 137 00:06:26,640 --> 00:06:30,080 Speaker 2: characteristics of it in the context of a broader portfolio? 138 00:06:30,240 --> 00:06:32,480 Speaker 2: What is it there for? What is it useful at? 139 00:06:32,520 --> 00:06:34,480 Speaker 2: I mean, I understand the volatility, and I understand for 140 00:06:34,480 --> 00:06:35,840 Speaker 2: people to want to play it. It makes a lot of 141 00:06:35,880 --> 00:06:38,160 Speaker 2: sense with regards to that. But in the context of 142 00:06:38,160 --> 00:06:40,640 Speaker 2: a broader portfolio, what characteristics is it offer me that 143 00:06:40,680 --> 00:06:42,760 Speaker 2: I can't get from another asset class. 144 00:06:42,839 --> 00:06:44,520 Speaker 3: So I am going to answer that verse with what 145 00:06:44,600 --> 00:06:47,159 Speaker 3: you already know. Like the number one characteristic that we 146 00:06:47,240 --> 00:06:50,919 Speaker 3: do know is volatility. The number two thing that we know, 147 00:06:51,200 --> 00:06:53,719 Speaker 3: and this is really what led to the SEC approving 148 00:06:53,720 --> 00:06:56,560 Speaker 3: bitcoin ETFs is that investors are buying it. They want 149 00:06:56,600 --> 00:06:59,080 Speaker 3: to be in it. We were hearing from advisors that 150 00:06:59,080 --> 00:07:01,680 Speaker 3: they wanted another two and toolkit in order to let 151 00:07:01,720 --> 00:07:05,520 Speaker 3: their clients who are calling them allocate to bitcoin. But 152 00:07:05,560 --> 00:07:07,440 Speaker 3: I think what we will be watching for the rest 153 00:07:07,480 --> 00:07:09,680 Speaker 3: of the year and what will be really significant is 154 00:07:09,720 --> 00:07:13,320 Speaker 3: what are the use cases in portfolio allocations. There's lots 155 00:07:13,440 --> 00:07:15,000 Speaker 3: you know, well, I would say it's kind of an 156 00:07:15,040 --> 00:07:17,320 Speaker 3: emerging body of research that's being written. 157 00:07:17,040 --> 00:07:18,200 Speaker 2: By We're still figuring it out. 158 00:07:18,320 --> 00:07:21,560 Speaker 3: That's the space to watch. There are some strong convictions, 159 00:07:22,240 --> 00:07:25,320 Speaker 3: but I think what we as when we start to 160 00:07:25,360 --> 00:07:29,840 Speaker 3: see model allocations including bitcoin, and we should be very specific. 161 00:07:29,920 --> 00:07:32,040 Speaker 3: We're talking about bitcoin here, not any of the other 162 00:07:32,080 --> 00:07:35,280 Speaker 3: crypto assets. I think that's going to be an important 163 00:07:35,320 --> 00:07:37,600 Speaker 3: story for twenty twenty four in the use of ETFs. 164 00:07:37,720 --> 00:07:40,840 Speaker 2: Is it uncorrelated risk? Is it for risk mitigation? What 165 00:07:40,960 --> 00:07:42,520 Speaker 2: is it for? I'm still trying to figure that out 166 00:07:42,600 --> 00:07:43,080 Speaker 2: too well. 167 00:07:43,120 --> 00:07:45,440 Speaker 1: I think that if you say uncorrelated, it seems to 168 00:07:45,440 --> 00:07:48,040 Speaker 1: be pretty correlated to risk on apposite, So you know, 169 00:07:48,120 --> 00:07:50,480 Speaker 1: at what point is it actually uncorrelated versus just if 170 00:07:50,480 --> 00:07:52,200 Speaker 1: you want sort of to feel cool? 171 00:07:53,040 --> 00:07:54,360 Speaker 2: Is that what it's for to feel cool? 172 00:07:54,440 --> 00:07:56,920 Speaker 1: I mean with your kids, Hey kids, I've got a bitcoient. 173 00:07:57,320 --> 00:07:59,160 Speaker 2: I wouldn't go that far. I keep doing this every 174 00:07:59,160 --> 00:08:01,520 Speaker 2: single day to the guest of markets. It's like, forgive 175 00:08:01,520 --> 00:08:03,560 Speaker 2: make we've got to talk about politics. What are you 176 00:08:03,560 --> 00:08:06,360 Speaker 2: advocating for ahead of November? Just ignore it for now? 177 00:08:06,480 --> 00:08:07,520 Speaker 2: What are you talent? People? 178 00:08:07,640 --> 00:08:09,920 Speaker 3: Look, what we know is that four out of five 179 00:08:09,960 --> 00:08:13,640 Speaker 3: Americans are worried about their financial wellbeing and retirement. So 180 00:08:13,760 --> 00:08:16,440 Speaker 3: whoever wins, we know a couple of things are really important. 181 00:08:16,520 --> 00:08:20,680 Speaker 3: Number One, monetary policy is independent, that's intentional investors have 182 00:08:20,720 --> 00:08:24,480 Speaker 3: to figure out their fixed income alocations, particularly with FED 183 00:08:24,480 --> 00:08:28,080 Speaker 3: easing on the horizon. And number two, equity markets will 184 00:08:28,160 --> 00:08:33,079 Speaker 3: reshape to accommodate the demands of increased participation of individual investors, 185 00:08:33,080 --> 00:08:35,640 Speaker 3: whether that is in crypto, whether that is in single stocks, 186 00:08:35,840 --> 00:08:37,400 Speaker 3: and that is going to be it needs to be 187 00:08:37,440 --> 00:08:41,319 Speaker 3: a priority of either administration, and that individual investor participation 188 00:08:41,760 --> 00:08:45,800 Speaker 3: has arisen over both Trump and Biden administrations measurably. 189 00:08:46,040 --> 00:08:48,760 Speaker 2: Is that another way saying stocks will go up regardless 190 00:08:48,760 --> 00:08:49,679 Speaker 2: of who's in a White house. 191 00:08:50,920 --> 00:08:53,840 Speaker 3: Historically, when the economy grows, stocks go up, and that 192 00:08:53,880 --> 00:08:57,120 Speaker 3: has been true generally in election years, and that would 193 00:08:57,160 --> 00:08:59,959 Speaker 3: be a good thing for the increasing participation of an 194 00:09:00,040 --> 00:09:01,280 Speaker 3: to visual investors tomorrow. 195 00:09:01,280 --> 00:09:03,320 Speaker 2: It was great to catch up with you. Thanks samaraw 196 00:09:03,360 --> 00:09:04,280 Speaker 2: coan of black Rock