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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. I'm a bad book

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Speaker 1: for breaking her hull. Exactly one year ago, the Free

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Speaker 1: Market's ETF launched ticker symbol FMKT, designed to invest in

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Speaker 1: companies expected to benefit from deregulation and free market dynamics

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Speaker 1: in the second term of the Trump presidency. I was

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Speaker 1: intrigued by the concept and wondered what it might look

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Speaker 1: like in the second half of this term. To help

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Speaker 1: us unpack all of this, let's bring in Michael gay Ed.

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Speaker 1: He is the portfolio manager for Tactical Rotation Management, one

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Speaker 1: of the subadvisors to the Free Market ETF. So, Michael,

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Speaker 1: I was intrigued by this concept. What was the original

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Speaker 1: insight behind FMKT? How was deregulation becoming an investible theme

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Speaker 1: that perhaps markets were underpricing?

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Speaker 2: Yeah, and in interesting So when when Trump got like

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Speaker 2: that with this large network of advisors that I talked to,

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Speaker 2: with three hundred fifty advisors that I regularly talk to,

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Speaker 2: which is why my calendar is always so jammed, And

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Speaker 2: one of the advisers said to me, you know what,

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Speaker 2: it would be a good investment ideas, you know, something

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Speaker 2: that focuses on deregulation, and he was kind of saying

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Speaker 2: it kind off the cops. So yeah, and I get

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Speaker 2: the guy credit for coming up with the idea, and

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Speaker 2: it's like, you know, that's actually an interesting idea. I mean,

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Speaker 2: deregulation arguably makes up the time to market faster, it

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Speaker 2: increases margins, it should benefit earning from a fundamental perspective,

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Speaker 2: it should increase competition.

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Speaker 3: So all that sounds like an interesting thesis.

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Speaker 2: So I called up three other firms, one which is

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Speaker 2: the advisor Title Financial Group, and then two other rias

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Speaker 2: as subadvisors, people that I've known. I wanted to approach

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Speaker 2: this more from the a VC standpoint. My other funds

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Speaker 2: I launched on my own. This I wanted to actually

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Speaker 2: have partners on because it's a very different way of

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Speaker 2: my style of investing, which is more risk on, risk

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Speaker 2: off historically.

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Speaker 3: And came up with the idea and said, okay, well

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Speaker 3: let's go after Now.

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Speaker 2: When I had the when I kind of really was

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Speaker 2: thinking through the idea, it's like, all right, Trump is

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Speaker 2: making it very clear that he's going to go from this.

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Speaker 3: You know, for.

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Speaker 2: Every new regulation you want, I wanted to cut the

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Speaker 2: goals goes from that to for every new regulation I

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Speaker 2: want ten cut and he's actually gone more aggressive on

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Speaker 2: that since since.

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Speaker 3: He was elected. So come up with a fund idea

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Speaker 3: of figure out what sectors, what industries benefit the most

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Speaker 3: from deregulation, and it had that and has to be.

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Speaker 2: Active because these executive orders come out and you don't

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Speaker 2: know what's going to be deregulated next, so you've got

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Speaker 2: to kind of focus and on that as quickly as possible.

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Speaker 3: Now, deregulation is a very interesting buzzword.

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Speaker 2: You hear a lot of people on the media talking

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Speaker 2: about deregulation as a big tail in for the broader markets.

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Speaker 2: And I do believe that if you look at you

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Speaker 2: know why has the US outperformed Europe so much, It's

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Speaker 2: not just because of tech.

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Speaker 3: It's because we don't have as much regulation as Europe does.

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Speaker 2: Regulation is a stopping point, is a friction that hurts

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Speaker 2: earnings and time to market. So came up with the

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Speaker 2: idea for free markets. It's an active fun stock picking.

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Speaker 2: A lot of the focuses around sectors like industrials, financials, cannabis, nuclear,

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Speaker 2: anything in the aerospace part of the marketplace, not so

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Speaker 2: much tech.

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Speaker 3: Maybe we can touch on that.

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Speaker 2: We believe that tech is probably going to be regulated,

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Speaker 2: and maybe AI in particular be regulated, especially from a

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Speaker 2: regulatory perspective. In our business, the investment advisory business. But

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Speaker 2: you know, out of the game, we had some pretty

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Speaker 2: strong performances. About a year ago we launched. We had

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Speaker 2: four and a one thousand traded shares on day one,

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Speaker 2: a lot of interest in that. We had really strong performance.

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Speaker 2: We were a thousand basis points over the SMP at

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Speaker 2: some point. That ended up being a blessing and a curse,

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Speaker 2: because obviously nothing closes a sale like a chart.

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Speaker 3: People started chasing the performance.

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Speaker 2: Of FMKAT and then we to draw down as we

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Speaker 2: got back to AIS the only play in town.

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Speaker 3: And right now we're kind of meandering.

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Speaker 2: But I do believe that the deregulation theme is here

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Speaker 2: to stay, even if you get a Democrat as president

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Speaker 2: next go around. The reality is industries that have less

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Speaker 2: regulation shoot, at least theoretically outperform.

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Speaker 1: So let's stay with that concept of deregulation. How do

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Speaker 1: you define what sectors benefit from deregulation, and then how

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Speaker 1: do you hone in on what companies within those sectors

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Speaker 1: are going to be the biggest beneficiaries.

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Speaker 2: So arguably, it would be very hard to do either

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Speaker 2: of those outside of using AI, which we actually build

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Speaker 2: out a whole workflow and AI screening process to figure

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Speaker 2: out exactly that which sectors, which industries benefit, which individual

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Speaker 2: companies are mentioning deregulation the most in earning transcripts.

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Speaker 3: So we've got multiple kind of filters.

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Speaker 2: That are looking at valuation, that are looking at where

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Speaker 2: SGNA is impacted by regulatory costs. And it's in some

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Speaker 2: ways that you can argue it's obvious, right, It's like

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Speaker 2: think about industry wise, sector wise, what has the most regulation?

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Speaker 3: Banks?

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Speaker 1: Sure, financials, no doubt, no doubt, right, especially with Dodd Frank.

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Speaker 3: And then you've got to roll back a basle and

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Speaker 3: all that, which is.

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Speaker 2: The dereglation side, you know, cannabis, right, So we saw

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Speaker 2: Trump obviously trying to get ahead of the Democrats. You

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Speaker 2: can argue with some of this reclassification on the cannabis sides.

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Speaker 3: Right. So like we've got Tillray in the portfolio.

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Speaker 2: Nuclear right, Obviously with all this AI build out, you're

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Speaker 2: gonna need energy. So you've got to make the time

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Speaker 2: to market for getting nuclear plants up shorter to meet

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Speaker 2: the growing demand, of speed of importation of the AI

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Speaker 2: data censors. So it's all the stuff that our bottlenecks, right,

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Speaker 2: is kind of the area the way to think about it.

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Speaker 2: So we do a lot of screening, We do a

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Speaker 2: lot of AI, We look at executive words when they

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Speaker 2: come out, we determined from the AI output does this

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Speaker 2: make sense, and then we're just going granzlar which companies

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Speaker 2: in theory.

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Speaker 3: Benefit the most, right. So a good example of that

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Speaker 3: is Robin Hood.

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Speaker 2: Robinhood is kind of the forefront of financial deregulation, very

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Speaker 2: forward thinking company. But then on top of that, on

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Speaker 2: the crypto side, they're big players, right, So you hit

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Speaker 2: on all areas of the of the of the sort

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Speaker 2: of derailatory.

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Speaker 3: Focus from the Trump administration, which again is not going

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Speaker 3: to go away.

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Speaker 2: It's hard to once you deregulate something to reregulate it,

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Speaker 2: at least that quickly.

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Speaker 1: Unless there's a crisis. It's almost impossible. Fmkt's mandate says

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Speaker 1: at least eighty percent of assets go into companies expected

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Speaker 1: to benefit from regulatory shifts. What's the remaining twenty percent?

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Speaker 2: Yeah, So, and arguably it's it goes to sort of

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Speaker 2: like how do you define it? Right, what benefits from derailation.

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Speaker 2: But five percent of the portfolio can go into bitcoin

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Speaker 2: and ethereum.

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Speaker 3: That's listed in the perspectives.

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Speaker 1: Now that was done any crypto or just those two,

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Speaker 1: just those two.

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Speaker 3: And also we can go into gold as well.

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Speaker 2: And the over there is that those if you don't

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Speaker 2: about what a free market is, which is unencumbered by regulation,

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Speaker 2: those are those almost by definition free market plays right

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Speaker 2: when you come to the crypto space and gold in particular,

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Speaker 2: So we can do a little bit and we've gone

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Speaker 2: into that in the past. It's obviously momentum has been weak,

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Speaker 2: so we've gotten out of it. Part of the act

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Speaker 2: of nature of it trying to avoid these big clients

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Speaker 2: in those positions.

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Speaker 3: But that's for almost any perspectives.

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Speaker 2: In order to be considered a theme, you have to

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Speaker 2: have that eighty percent threshold, right, So part of it's

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Speaker 2: kind of a regular an it's kind of a regulatory

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Speaker 2: requirement to say that if you're going to be focused

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Speaker 2: on a particular theme, you've got to have at least

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Speaker 2: eighty pariliar portfolio.

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Speaker 1: That.

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Speaker 2: The reality is the every single holding to some extent,

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Speaker 2: has some kind of deregulation tie into it. Some of

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Speaker 2: it's direct, some of it's more indirect, but there's always

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Speaker 2: a justification for why we're positioning in particular.

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Speaker 1: Holy, So the fun kind of sits at the intersection

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Speaker 1: of markets and politics, and I've long cautioned against allowing

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Speaker 1: partisan politics to influence investing. You're really trying to walk

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Speaker 1: a line where it's not a political expression etf but

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Speaker 1: rather a policy driven theme. How do you balance that?

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Speaker 1: How do you keep this from becoming a darling of

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Speaker 1: one side or the other.

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Speaker 2: Yeah, it's like politics goes into the policy, policy goes

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Speaker 2: into profits, right, So it's it's really more of the

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Speaker 2: profit side, the fundamental aspect of it.

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Speaker 3: So we've got that question before it's all right.

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Speaker 2: So you know, I'm having a Democrat come in place,

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Speaker 2: and it seems like it's a republican fund. I'd argue

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Speaker 2: it's not because even under a democratic regime, there will

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Speaker 2: be some sectors that will be deregulated the Democrats, like

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Speaker 2: like alternative energy, in which case then the holding's change

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Speaker 2: because now that's where the focus on the regulation might be.

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Speaker 1: My solar wind we more democrat issue than republics issue exactly.

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Speaker 2: And I go back to OSAs and Yeah, you're gonna

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Speaker 2: have deregulation there. And then the holding shift energy is

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Speaker 2: a big part of the theme behind f MKT, which

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Speaker 2: obviously makes sense because Trump is so focused on releasing

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Speaker 2: as much domestic oil as possible and removing frictions there,

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Speaker 2: so it.

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Speaker 3: Benefits from that. But then it's just a shift, right.

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Speaker 4: You want to follow the policy because the following the

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Speaker 4: policy follows is where profits end up coming from, and

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Speaker 4: policy as winners and losers, and often the winners are

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Speaker 4: things with are favored, which can to be things which

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Speaker 4: we'll get to market faster, which exactly what deregulation is.

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Speaker 3: So I don't view it as a political play.

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Speaker 2: I think it's just sort of the nature of the

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Speaker 2: beast is you will have certain parties that will favor

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Speaker 2: certain sectors, certain industries. How do they do it by

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Speaker 2: either providing funding directly or by making resulting less friction

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Speaker 2: for those companies.

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Speaker 1: That makes a lot of sense. It also means that

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Speaker 1: trying to come up with some rational benchmark almost impossible.

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Speaker 1: How do you figure out what your frame of reference is?

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Speaker 1: The S and P five hundred doesn't seem right? What

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Speaker 1: do you use for a benchmark? Yeah?

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Speaker 3: And it's interesting.

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Speaker 2: So I mean by we have to have a benchmark

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Speaker 2: from from a regulatory perspective, because everyone, you know, that's

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Speaker 2: how the regulators think about these things. For us, it's

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Speaker 2: more about, you know, the the entire landscape of the

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Speaker 2: equity universe. Is the fund outperforming or not. Now again,

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Speaker 2: we outperform the S and P strongly. The S and P,

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Speaker 2: to your point, is not really a proper benchmark for

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Speaker 2: a free markets type of fun because the S and P, now,

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Speaker 2: i'd argue, is an AI index. I mean, I'm sorry,

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Speaker 2: but it's like, yesb BI quinary is no longer as

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Speaker 2: diversified as.

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Speaker 3: People think it is. It is a thematic fund.

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Speaker 2: Right under large cab growth, large large cat growth is

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Speaker 2: what it's basic AI.

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Speaker 3: I mean, that's that's.

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Speaker 1: It's AI, it's semiconductors, it's software, it's go down the

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Speaker 1: whole less.

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Speaker 3: Right, exactly right.

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Speaker 2: So, so I think anybody that's looking at FMKT is

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Speaker 2: looking at from the standpoint that they.

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Speaker 3: Believe in the thesis.

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Speaker 2: And a lot of small business owners believe that derelation

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Speaker 2: is more important than taxes because that impacts their day

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Speaker 2: to day activity and working. Right, And and I go

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Speaker 2: back to finding a benchmark is more function of sort

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Speaker 2: of your own personal you know, financial requirements.

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Speaker 3: It's not about are you beating the SMP is it is?

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Speaker 2: It's is this does it fit your your objectives from

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Speaker 2: a risk return perspective? Does it make the journey from

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Speaker 2: the investment perspective better? And a lot of the free

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Speaker 2: market positions are parts of the marketplace that the market

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Speaker 2: have not rewarded.

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Speaker 3: There is a value tilt.

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Speaker 2: Interestingly enough, when you look at the holdings of f

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Speaker 2: M K T sure there are some of these more

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Speaker 2: spective positions that we have that you almost have to

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Speaker 2: have a position in, like Archer and Joby. I know,

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Speaker 2: I know, you know, your your colleague Josh Brown talks

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Speaker 2: about I think Joby quite a.

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Speaker 3: Bit and Archer as well.

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Speaker 2: Those are classic deregulation plays because of the focus around

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Speaker 2: flying U taxis basically and derelation as far as the

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Speaker 2: FAA side goes. But there's a value tilt, so there's

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Speaker 2: an environment that favors the value.

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Speaker 3: It's gonna favor free markets anyway.

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Speaker 1: So let's let's talk a little bit about some of

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Speaker 1: the most recent holdings I was able to look up.

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Speaker 1: Some are pretty obvious. You mentioned Robin Hood, Key Corp,

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Speaker 1: Citizens Financial, even Blackstone, some of them are a little

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Speaker 1: I had to scratch my head. Palo Alto Networks a

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Speaker 1: d M oracle. The financials are obvious, be goes to deregulation.

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Speaker 1: Oracle seems more like a political Hey, you know, Larry

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Speaker 1: Ellison is a big buddy of Trump. His son is

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Speaker 1: in the midst of the whole mayhem with VIACOM and

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Speaker 1: and all of that. How do you distinguish what's the

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Speaker 1: beneficiary of a deregulation and what's politically favored.

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Speaker 3: How do you separate those?

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Speaker 2: Well, to some extent, if you're politically favored, you're going

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Speaker 2: to you're going to try to put deregulation in place.

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Speaker 2: And the way that looks is in the speed with

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Speaker 2: which government contracts take place.

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Speaker 1: So I was thinking more along the lines of M

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Speaker 1: and A and anti trust rules as well.

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Speaker 3: For sure.

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Speaker 2: Right in the case of an oracle, there's there's a

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Speaker 2: something called FED Federal Risk, an authorization management program, which

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Speaker 2: basically is, without getting too deep to it, it's a

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Speaker 2: way of getting approvals right to get a government contract.

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Speaker 3: To sort of be a pipeline for like an RP.

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Speaker 2: Last year, the Trumpet administration did something that basically removed

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Speaker 2: a lot of that friction, so it wouldn't take as

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Speaker 2: long to try to apply for a government contract which

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Speaker 2: directly impacts Oracle.

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Speaker 1: Right.

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Speaker 2: It's it's that's the kind of deregulation which is important

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Speaker 2: because it's all about speed to market.

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Speaker 1: So let's talk about Palenteer and Archie Daniel, similar situation.

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Speaker 3: There's an element of that as well.

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Speaker 1: On that.

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Speaker 2: Again, AI companies tend to not be true the strongest

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Speaker 2: deregulation plays, but Palenteer does have an aspect of that

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Speaker 2: because against speed to market for them is around government

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Speaker 2: contracts for fence, right. So I think there's you know,

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Speaker 2: it was never sort of a major major holding the fund,

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Speaker 2: but it made sense to us to have some kind

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Speaker 2: of exposure to it. And then on the energy front

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Speaker 2: and Palo Alto, it's like anything that's tied to AI

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Speaker 2: has to be deregulated from a bottom night perspective, which

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Speaker 2: is energy, electricity utilities. So there is a reasoning behind

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Speaker 2: data center permitting and utility usage, right, and the derelation

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Speaker 2: that comes from that. I keep going back to this

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Speaker 2: idea that what you own matters a lot less than

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Speaker 2: how much you own of it. So a large part

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Speaker 2: of the active nature of FMKT is, yes, we're being

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Speaker 2: thematic on deregulation, but we're also actively trying to see

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Speaker 2: is there momentum in this or that deregulation plate with

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Speaker 2: that heavier. So a lot of the holdings in the

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Speaker 2: top ten are not based on how strong.

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Speaker 3: The deregulation fit may be.

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Speaker 2: It could be just this deregulation fit and this strong

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Speaker 2: momentum we want to be there.

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Speaker 3: Gotcha.

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Speaker 1: That makes a lot of sense. So we talked about financials, technology.

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Speaker 1: Healthcare is another deregulation issue, but I want to ask

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Speaker 1: you about the defense sector and energy. When the war

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Speaker 1: and Iran began, how does that affect how you look

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Speaker 1: at the portfolio and what is a potential beneficiary of

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Speaker 1: this quicker, more frictionless deregulatory environment.

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Speaker 2: Yeah, and when the war took place here we meet

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Speaker 2: once a week, me and the other portfolio managers. When

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Speaker 2: the war took place, they said, all right, we gotta

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Speaker 2: get some defense companies in here and then figure ou

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Speaker 2: which defense companies benefit the most from deregulation. And they're

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Speaker 2: kind of in bed with each other government defense obviously,

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Speaker 2: so it's all about speed. If you're going to grow

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Speaker 2: to war, it has a faster speed of bringing things

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Speaker 2: to market.

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Speaker 3: So it hasn't been a main your major thematic play.

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Speaker 2: But arguably it goes back to if it's about government

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Speaker 2: contracts and it's about speed, then deregulation is about removing

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Speaker 2: the friction to get something to the government's agency's.

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Speaker 3: Relative hands to get approved.

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Speaker 2: It's interesting, don't I don't view free markets as a

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Speaker 2: geopolitical play. I view it more as if you believe

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Speaker 2: that deregulation is how you have more profits, then you're

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Speaker 2: simply trying to figure out which companies benefit from that

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Speaker 2: the most. And arguably there's there's more art and science

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Speaker 2: to that, right, but it's it's not as catalyst driven

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Speaker 2: as much as.

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Speaker 3: It's more about executive orders that are taking place.

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Speaker 1: All right, final question, how do you separate genuine deregulation

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Speaker 1: tailwinds from talking points and narrative? For more specifically, how

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Speaker 1: do you distinguish a company that's talking about receiving regulatory

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Speaker 1: relief from one who's marr gens or growth rates are

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Speaker 1: actually improving?

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Speaker 2: Yeah, and that goes back to its art versus science.

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Speaker 2: I mean to some extent, there are some very clear,

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Speaker 2: you know, cause effects on the deregulation side impacting certain companies, right,

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Speaker 2: But to your point, a lot of it is going

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Speaker 2: to be analyzing SG and a fundamental line items, looking

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Speaker 2: at and seeing what CEOs and executives are saying on

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Speaker 2: earning transcripts.

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Speaker 3: You know, one of the filters is.

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Speaker 2: How many times this deregulation mentioned, you know, by various

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Speaker 2: people at companies as a driving factor, because they're not

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Speaker 2: going to say it unless it's somewhat true, you would think, right, So.

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Speaker 3: It is.

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Speaker 2: It is not as clear cut, which is why again

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Speaker 2: it needs to be active. It's not something you can

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Speaker 2: quantitatively say, this is the ID regulation score.

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Speaker 3: So a lot of this comes with judgment.

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Speaker 2: A lot of this comes with which why it's good

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Speaker 2: that I have a team not just me that's coming

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Speaker 2: up with these these allocations and just trying.

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Speaker 3: To be fast in terms of figuring out where to position.

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Speaker 3: This has been a very it's been an odd environment.

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Speaker 2: Right because Trump's been talking about a lot of people

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Speaker 2: were excited about derelation. Derelation has a lag, right, So

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Speaker 2: any executive words from last year you'll start to maybe

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Speaker 2: see this year showing up in the actual earnings. The

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Speaker 2: market I think is still largely undervaluing the impact of deregulation.

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Speaker 2: And if that's the case, then towards the end of

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Speaker 2: the year you have a rerating and then you start

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Speaker 2: seeing it filter through in the ball market. Just as

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Speaker 2: a rotation away from this AI focus, passive.

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Speaker 1: Bid really really interesting. So to wrap up, if you're

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Speaker 1: intrigued by the concept of deregulation, of reduction of frictions,

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Speaker 1: of more opportunity for companies to throw walk off the

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Speaker 1: yoke of big government, I say, as a New York

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Speaker 1: left coaster, you can actually get exposure to that through

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Speaker 1: active ETFs like free markets. I'm Barry Ridults. You're listening

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Speaker 1: to Bloomberg's at the Money