Speaker 1: Wokeno trillions. I'm Joel Webber and I'm Eric bell Tunas Eric,
Speaker 1: we often try and make things accessible for people. I'm
Speaker 1: gonna go out and say that this episode is going
Speaker 1: to be more technical than most, but it serves a purpose.
Speaker 1: What is that purpose? Yeah? No, here, here's the purpose
Speaker 1: on the show today is Paul by Aki of Alps
Speaker 1: and Paul by Achi. Let me just take you to
Speaker 1: my personal career in I'm going to take you back,
Speaker 1: Joel to the year two thousand six two right around there.
Speaker 1: This is years ago. I get assigned E t F
Speaker 1: s in data. I'm in data and I don't know
Speaker 1: much about them. So where do I learn about them?
Speaker 1: I go to this place, Index Universe, as well as
Speaker 1: reading books and whatnot. An Index Universe was a hotbed
Speaker 1: of et F analysis way before it was cool, and
Speaker 1: Paul Baiacky was one of these original analysts. They had
Speaker 1: about ten people there who were really good. I mean
Speaker 1: they'd be good today, but they were. They were ten
Speaker 1: years ahead of their time. This was led by Dave Natick,
Speaker 1: who we found the show, and Matt Hogan. Dave now
Speaker 1: at E t F Trends. Matt is now a bit
Speaker 1: wise and but they had a whole crew and I
Speaker 1: would listen to their podcasts, and Paul had a podcast,
Speaker 1: he wrote articles, and since then he went to Fidelity,
Speaker 1: a lot of them went other places, and so he
Speaker 1: was at Fidelity. Now he's at ALPS. So today we'd
Speaker 1: be talking to an analyst who is smart as an
Speaker 1: analyst and used to have to judge ETFs critically, who
Speaker 1: now went to an issuer and now he's got to
Speaker 1: talk to advisors about the e t s that this
Speaker 1: one firm sells and make the case. And so we
Speaker 1: wanted to sort of take you into how an analyst,
Speaker 1: a specialist talked to an advisor about why they should
Speaker 1: use not only the e t F that the firm cells,
Speaker 1: but that that category like why should I buy and
Speaker 1: energy et F now? And then why should I buy yours?
Speaker 1: In other words, this episode is you taking me to
Speaker 1: your record shop. Yeah. This is definitely someone who I
Speaker 1: would call it early influence on my career. So it's
Speaker 1: it's it's it's fun to talk to him a and
Speaker 1: be just um, you know, talk about some of those
Speaker 1: early days, but also really talked about what he does
Speaker 1: today and how he uses all that knowledge and you know,
Speaker 1: it is interesting once you go to an issuer, you
Speaker 1: kind of have to sell their products, and it isn't interesting,
Speaker 1: you know how you have to wear. But I'm I
Speaker 1: am certain that all of his analysis, on all the
Speaker 1: articles he wrote have got to come in very handy.
Speaker 1: Who's Alps and how big are they? They're a mid
Speaker 1: size issuer. They've been around for a while, I don't know,
Speaker 1: probably ten fifteen years. They've got six billion in assets,
Speaker 1: so I guess that puts some rate around the top
Speaker 1: twenty somewhere maybe biggest. Uh. They have sixteen products, um
Speaker 1: and I know them for things like a m LP
Speaker 1: which is the big MLP TF those are passed through
Speaker 1: high yielding securities. And also the dogs they have like
Speaker 1: S dog E dog. These are dogs of the dow
Speaker 1: E t S. So it's a you know, honestly, this
Speaker 1: is a classic like shop that had a couple of
Speaker 1: hits enough to keep it going. I mean, you need
Speaker 1: a couple none of these. The MLP was a blockbuster,
Speaker 1: and then they had a few moderate hits and then
Speaker 1: someone they struggle with. It's a it's really a metaphor
Speaker 1: for the whole industry. But as long as you get
Speaker 1: a couple of couple of hits, you know you're good.
Speaker 1: And I think a lot of what they do now
Speaker 1: is making sure they re um reintroduce those e t
Speaker 1: F s that were hits, but also the new ones
Speaker 1: they have that can compliment thus so which we will
Speaker 1: discuss it this time on Trillions Climbing the Alps with Paula. Paul,
Speaker 1: Welcome to Trillians. Thanks for having me. I'm excited, so
Speaker 1: talk to me about what you do. So currently, I
Speaker 1: am what in the E t F industry is typically
Speaker 1: defined as a specialist, so I support a subset of ALPS,
Speaker 1: s S S and c ALPS et F specifically in the
Speaker 1: MLP energy infrastructure space. So basically I'm the subject matter
Speaker 1: expert for our wholesaling team. I helped them when they're
Speaker 1: meeting with advisors to talk at a high level about
Speaker 1: the the industry, the product suite, portfolio solutions. And then
Speaker 1: I also work with our portfolio management team, our capital
Speaker 1: markets team, and then are management team to ensure that
Speaker 1: distribution strategy on down to portfolio management is operating in
Speaker 1: a way that's as efficient as possible. So talk to
Speaker 1: me about your journey. How did how did you get there. Yeah. Sure.
Speaker 1: So this podcast isn't anyways a decade in the making.
Speaker 1: I mean, Eric and I have known each other for
Speaker 1: for quite a while, and it's it's money because ten
Speaker 1: years ago I was at index Universe, which became e
Speaker 1: t F dot Com, and it was at the time
Speaker 1: this team of analysts that they built too really disrupt
Speaker 1: the way that advisors and investors thought about and analyzed ETFs.
Speaker 1: We were sort of going after morning Star in terms
Speaker 1: of an et F classification system and and E t
Speaker 1: F analytics, and that's really how I cut my teeth
Speaker 1: in the E t F world. Before that, I was
Speaker 1: working at a small r A that was building indexes
Speaker 1: for U I T S and we built an index
Speaker 1: four And this is going way back now, the first
Speaker 1: global shipping a t F s c A, which you
Speaker 1: think about launching an e t F in two thousand
Speaker 1: and eight, two thousand nine on global shipping not exactly
Speaker 1: the best timing, and so I would say that my
Speaker 1: timing in in many ways in life isn't always perfect,
Speaker 1: as as I'm sure is the case with everybody. But
Speaker 1: now ten years on I've gone to Fidelity to help
Speaker 1: them build out their et F capability and grow their
Speaker 1: asset base. And now I'm at SS and c ALPS.
Speaker 1: I want to go back to the index Universe world
Speaker 1: that was before et F dot com. They used to
Speaker 1: have these conferences. I remember Paul the first time I
Speaker 1: went there. I mean, I was probably the only person
Speaker 1: from Bloomberg besides Chris Condon who covered UH funds. At
Speaker 1: the time, it was two of us there. The last conference,
Speaker 1: I think there was like twenty people from Bloomberg, but
Speaker 1: this is probably back in maybe And I remember Jim
Speaker 1: Wyant opened the conference with welcome to the right side
Speaker 1: of history, and there was a buzz about it, and
Speaker 1: that just before a trillion. Now they've got five trillion, basically,
Speaker 1: but for a long time, et s for the underdog.
Speaker 1: And do you as you go out on the road
Speaker 1: and you talk to clients knowing all that, and now
Speaker 1: you're talking to them about, like say a m LP
Speaker 1: or specific e t F, how far have advisors come
Speaker 1: or the users in using them, and also how much
Speaker 1: further could this industry grow. So I think you hit
Speaker 1: the nail on the head in terms of sort of
Speaker 1: the counterculture of the early days in the E t
Speaker 1: F market, And I think advisors. Back then, we're being
Speaker 1: introduced to the e t F rapper, and in many
Speaker 1: ways you just had this opposition, this this structural opposition
Speaker 1: to the e t F rapper because of either misinformation
Speaker 1: or just misconceptions about what e t f s were
Speaker 1: designed to do and what they were actually doing. And
Speaker 1: I think ten years on, advisors are are less opposed
Speaker 1: to the sort of ideal of the e t F
Speaker 1: and they're more accepting of the fact that e t
Speaker 1: F s can fit within a broader advisory strategy. And
Speaker 1: that's important because it gets to the heart of what
Speaker 1: these advisors are trying to do, which is just investment
Speaker 1: solutions that take into account things like asset location and
Speaker 1: taxes and financial planning. And so now when I talked
Speaker 1: to an advisor, that that conversation about what an e
Speaker 1: t F does, or how an e t F operates,
Speaker 1: or what the creation redemption processes, that those conversations don't
Speaker 1: need to be had because there's there's now this varied
Speaker 1: user base of e t f s that maybe didn't
Speaker 1: exist ten years ago, and the intelligence around e t
Speaker 1: F application has evolved and accelerated in many ways, and
Speaker 1: so it makes it easier to have the conversation about
Speaker 1: the exposure and the product as opposed to having to
Speaker 1: take three steps back and start from scratch, if that
Speaker 1: makes sense. How often do you meet with someone who's like,
Speaker 1: w t F is an e T F well, or
Speaker 1: somebody who's just read the latest article in the FT
Speaker 1: or something that's just says they've never been tested or
Speaker 1: they're gonna blow up. Is that still a thing because
Speaker 1: those articles do come out, I don't know. Quarterly, there's
Speaker 1: usually one that just like has everyone buzzing, but then
Speaker 1: the flows just come in despite it. It feels like
Speaker 1: they almost are meaningless of this point, But do advisors
Speaker 1: still have worries? You do, and and you never want
Speaker 1: to paint with two broad a brush in terms of
Speaker 1: stereotyping certain demographics or certain cohorts of the advisory community.
Speaker 1: But I do think that some of the the older
Speaker 1: advisors who are used to doing things a certain way,
Speaker 1: are very comfortable with a certain product type or a
Speaker 1: certain strategy, are more likely to to sort of take
Speaker 1: de bait as it were, around some of the sensationalist
Speaker 1: research or or articles on e T S. So you
Speaker 1: do still have a conversation where a guy in the
Speaker 1: fixed income space will will say, hey, we we saw
Speaker 1: these products traded deep discounts, and and I told you so.
Speaker 1: And in some ways, that's just the confirmation bias that
Speaker 1: exists in people generally these days, whether it be financial
Speaker 1: advisors or otherwise. And so I think when you when
Speaker 1: you get down to it, the reality is is that
Speaker 1: a lot of the e t F flows now are
Speaker 1: just structural in nature. I mean, there's automatic buying that
Speaker 1: takes place as a result of home office model subscriptions
Speaker 1: at the big wire houses or otherwise, and so some
Speaker 1: of the flows just happened regardless of what's happening on
Speaker 1: the ground level. In some ways, in other words, the
Speaker 1: e t s are more in models, target date funds,
Speaker 1: and just where the money's coming in rain or shine, right,
Speaker 1: and then there's tactical money. Speaking of tactical let's let's
Speaker 1: dive into some of the e t F here, because
Speaker 1: I think the ones that you're an expert or the
Speaker 1: specialist in now it alps. I think we'll get a
Speaker 1: system interesting conversations. Now, let's talk about m l P.
Speaker 1: This is the MLP e t F. I believe it's
Speaker 1: the largest m l m l P E t F
Speaker 1: on the market right, And this was one of the
Speaker 1: oldest and this is a classic case of what you
Speaker 1: guys would have done an index universe and what we stilled,
Speaker 1: which is a MLP versus a a m J which
Speaker 1: is the E t N or uh the one that
Speaker 1: I think MLP X which only owns m LPs. There's
Speaker 1: a tax issue with mlp s and the way that
Speaker 1: they get taxed, which makes it all kind of picking
Speaker 1: your poison kind of situation. Now you're on team a MLP. Now,
Speaker 1: so sell me on a m l P if I'm
Speaker 1: an advisor, And I said, well, the there's such a
Speaker 1: big tax drag inside that thing, why don't I just
Speaker 1: use the E t N instead, which doesn't have that.
Speaker 1: So it's it's one of these trade offs and investors
Speaker 1: make in the markets in that if you want to own,
Speaker 1: if you want to own an individual MLP, you're gonna
Speaker 1: get issue to K one and in some for some
Speaker 1: advisors that's just not palatable or for some investors that's
Speaker 1: just not palatable. And so if you want to be
Speaker 1: in the MLP space, which is a pass through vehicle
Speaker 1: and has some interesting income characteristics, some tax deferral associated
Speaker 1: with them at means they in order to get a
Speaker 1: diversified pool of MLPs, you have to make some trade
Speaker 1: offs because the RICK structure and i r S guidelines
Speaker 1: cap MLPs of a RICK compliant mutual fund or et F,
Speaker 1: and so the workaround is to create a C corps
Speaker 1: around the e t F and so, without getting too
Speaker 1: far in the weeds, but to answer your question, that
Speaker 1: can create some tax drag in periods of positive performance. Now,
Speaker 1: currently a m l P has what's called a deferred
Speaker 1: tax asset, which means there is no tax drag for
Speaker 1: for the foreseeable future given the near term performance of MLPs,
Speaker 1: and so removing the tax consequences or some of the
Speaker 1: tax complications of of running a C CORPSTF. What I'll
Speaker 1: say is of MLPs distributions historically have been considered tax
Speaker 1: deferred return of capital, which means those that portion of
Speaker 1: your income that's coming into the into the funds just
Speaker 1: lowers your cost basis and isn't taxed in that tax
Speaker 1: here when it's kicked out. And so in that way
Speaker 1: you do have some tax benefits for a taxable investor
Speaker 1: that you don't get it in e t N, which
Speaker 1: is just paying out a stream of income replicating the
Speaker 1: income that's thrown off by the underlying securities in the index.
Speaker 1: And it's taxes as ordinary income, as as any coupon
Speaker 1: payment on a fixed income instrument would be. And so
Speaker 1: so this gets down to sort of asset location and
Speaker 1: tax consideration. So if you're in a I R A
Speaker 1: or a tax defered account, something like an e t
Speaker 1: N might be more appropriate because you're not really concerned
Speaker 1: about tax deferral. And in a taxable account, that tax
Speaker 1: deferral can be significant because let's say that you're an
Speaker 1: older investor who's panning, planning on passing on your investments
Speaker 1: to your children or your grandchildren. You get a step
Speaker 1: up in basis at that point, and that can be
Speaker 1: signal eificant in terms of the state planning and and
Speaker 1: other tools that advisors are now being asked to deliver
Speaker 1: to their clients. And so MLP is the largest, most
Speaker 1: liquid ETF. To your point, it was the first MLP
Speaker 1: only t F launch. We just had our tenure anniversary
Speaker 1: and did a little bit of a bell ring at
Speaker 1: the NYC and some some press around that, and so
Speaker 1: in many ways, as you know better than anybody Eric
Speaker 1: the first mover advantage in ETFs can be significant in
Speaker 1: the right categories, and MLPs have proven to be that
Speaker 1: over time. Now MLP X and the RICK compliant Energy
Speaker 1: Infrastructure Products are sort of apples to oranges in some
Speaker 1: ways to MLP because they capped their MLP exposure at
Speaker 1: which means you mute some of the tax deferral and
Speaker 1: you include some c corps that don't have the same
Speaker 1: structure as an m LP from a tax perspective or
Speaker 1: from a pass through perspective. You still play on the
Speaker 1: same theme. And in recent years, Kinder Morgan in one
Speaker 1: know can some of these large MLPs have converted to
Speaker 1: sea corps. So in many ways, they're all different ways
Speaker 1: to play this theme, which is companies that move that
Speaker 1: process and store crude oil and natural gas, and and
Speaker 1: that's a pretty simple business model. You collect a fee
Speaker 1: for doing that, and that leads to pretty steady cash
Speaker 1: flows relative to other pockets of of the energy complex.
Speaker 1: And so if I'm going to make the case for
Speaker 1: being in the energy infrastructure space, that's it. They historically
Speaker 1: have pretty compelling distributions and and dividends. The yields right
Speaker 1: now in the market in fixed income or in utilities
Speaker 1: of reats or other sort of bond procty sectors is
Speaker 1: somewhat low, and advisors who are trying to generate income
Speaker 1: off the equity allocation in their asset allocation might be
Speaker 1: looking for something like a MLP or the energy infrastructure
Speaker 1: as an alternative, which historically has had pretty low correlations
Speaker 1: to reach in utilities and other income producing asset classes. Sure,
Speaker 1: and I think most people out there who have heard
Speaker 1: of MLPs think of it as yield and just so
Speaker 1: for people who it's master limited partnership, they you know,
Speaker 1: it's these companies that have the pipes that that which
Speaker 1: brings me to another question, which ye say, m LP
Speaker 1: yields four currently, so that's a juicy yield. Mlp X,
Speaker 1: by the way, is half that. So to your point,
Speaker 1: that has more of the MLPs and the higher yield.
Speaker 1: Although now we're in energy, and I know energy has
Speaker 1: had a tough go of it, like have you found
Speaker 1: it difficult that you're in that sector? Yes, you have
Speaker 1: the yield, but your energy energy has really taken it
Speaker 1: on the chin lately. And could we see an energy
Speaker 1: rebound um That's something that I think many people, just
Speaker 1: some people say will never happen. Um, I'm not in
Speaker 1: that camp. I think there will be an energy rebound.
Speaker 1: I don't see energy consumption going down that all that much.
Speaker 1: But what do you say about that? So I think
Speaker 1: you're being a little bit diplomatic and saying that energy
Speaker 1: has been a difficult place to be. It's been an
Speaker 1: awful place to be for certain periods of time recently,
Speaker 1: and so you look at the energies waiting in the
Speaker 1: SMP just as a way to reflect that, and it's
Speaker 1: at its lowest levels in thirty plus years, and that's
Speaker 1: I think aligned really well with this growth value disparity
Speaker 1: that we've seen in the market. And so you can
Speaker 1: sort of relate the too, in the sense that there
Speaker 1: are value managers out there who are pounding the table
Speaker 1: saying value is going to come back, and we get
Speaker 1: these short pops and and value relative to growth, and
Speaker 1: and people say, is this the start of that mean
Speaker 1: reversion as it relates to the value versus growth, and
Speaker 1: those tend to be short lived, or at least they
Speaker 1: have recently. I think energy is very similar to that
Speaker 1: in the sense that we've had these short periods of outperformance.
Speaker 1: People are sort of saying, well, is this the energy renaissance?
Speaker 1: Is this when energy starts to outperform the market and
Speaker 1: retake its leadership in the market, and then you get
Speaker 1: negative headlines, or you get a pause, or you get
Speaker 1: a significant period of extended negative performance. And so I
Speaker 1: don't think that energy is as we currently see it
Speaker 1: goes away anytime soon. I mean, the reality is is
Speaker 1: that natural gas, in any version of the Green New
Speaker 1: Deal or otherwise, is going to be an important bridge
Speaker 1: to a renewable energy future. We we rely on it
Speaker 1: to generate electricity if you're gonna be plugging your car
Speaker 1: into the wall of your garage. That electricity currently isn't
Speaker 1: coming from wind or solar, and it's unlikely to come
Speaker 1: extensively from wind, solar or hydrogen in the future. And
Speaker 1: so natural gas does provide us with the bridge. Crude oil,
Speaker 1: on the other hand, is the one that's perhaps most
Speaker 1: at risk, at least from an existential perspective right now,
Speaker 1: and as we think about more progressive or or overhaul
Speaker 1: of our energy policy. But even then, if you look
Speaker 1: at some of the projections for energy demand going forward,
Speaker 1: a lot of the incremental demand for crude oil isn't
Speaker 1: coming from highway mileage or jet fuel. It's coming from
Speaker 1: petrochemical demand, an emerging market specifically, and that's not likely
Speaker 1: to subside anytime soon. And so there are these structural
Speaker 1: challenges facing the legacy fossil fuel industry that I think
Speaker 1: are real and and investors have to be wary of.
Speaker 1: But as it relates to midstream energy infrastructure, I mean,
Speaker 1: the reality is is that pipelines are valuable assets. And
Speaker 1: if you look at the d A p L news
Speaker 1: where there was an attempt to shut down this pipeline
Speaker 1: that was already operating for an environmental review and then
Speaker 1: a court stay and then an abandonment of a pipeline
Speaker 1: on the East Coast, I mean, if anything, that means
Speaker 1: that existing pipelines are more valuable than they were because
Speaker 1: they're gonna be harder to build and harder to get
Speaker 1: approval for. And the production in the United States, whether
Speaker 1: it's in any of these various basins where fracking is
Speaker 1: going on in natural gas and crude oil is being produced,
Speaker 1: those pipes connect that to the various demand sights, whether
Speaker 1: it be a refining facility for crude oil or whether
Speaker 1: it be utility site and that's going to contin need
Speaker 1: to be the case. Now, if you're an investor and
Speaker 1: you have some energy exposure, whether it's a m LP
Speaker 1: or something like let's say x l E Abroad Energy
Speaker 1: TF that includes the integrated companies and some of those
Speaker 1: large oil oil service companies, well, I do think that
Speaker 1: it's prudent to think about how you can pair that
Speaker 1: legacy fossil fuel or legacy energy position with something a
Speaker 1: little bit more growth oriented or maybe even an option
Speaker 1: on some of these emerging technologies in the energy space.
Speaker 1: And so you talk about the thel C t F
Speaker 1: lineup and ACES, which is our renewable energy TF is
Speaker 1: something that we talk to advisors a lot about combining
Speaker 1: with say MLP or a legacy energy position as a
Speaker 1: way to to sort of pair the current with the future.
Speaker 1: I want to talk about ACES more, uh, Paul, because
Speaker 1: that's had a great year, like sixty year to date
Speaker 1: that it's up right, what what exactly are you guys
Speaker 1: are accomplishing in that fund? So it fits within this
Speaker 1: thematic lineup of ETFs that that s sn C ALPS
Speaker 1: has launched in the past couple of years, and it
Speaker 1: tries to give you a blended exposure to a range
Speaker 1: of different themes within a theme. And what I mean
Speaker 1: by that is you think about renewable energy, and people
Speaker 1: might think of wind or solar, but there's also fuel
Speaker 1: cell technology and battery technology, hydrogen for example, that are
Speaker 1: all part of this broader renewable energy push and are
Speaker 1: all going to have a role to play in the
Speaker 1: future energy mix within the country. And so what ACES
Speaker 1: tries to do is give you exposure to all of
Speaker 1: those themes in a way that maybe a pure play
Speaker 1: solar fund when in or maybe a pure play wind
Speaker 1: fund would not. And and I think that's why it's
Speaker 1: been popular. I mean, it's over three million in assets
Speaker 1: now to your point, you're a day performance has been
Speaker 1: really compelling, and I think advisors are starting to use
Speaker 1: it in the way that I described as a complement
Speaker 1: to their legacy energy position, because the reality is you
Speaker 1: can get a diversified energy sectory t F for example,
Speaker 1: for less than ten basis ones, but you might be
Speaker 1: willing to pay up a little bit from an expense
Speaker 1: ratio perspective to get the growth oriented nature of renewable
Speaker 1: energy exposure as a complement to that, and it's not
Speaker 1: that you don't necessarily have exposure to some of those
Speaker 1: themes in your portfolio through the SMP five hundred or
Speaker 1: or you're diversified equity e t F because a lot
Speaker 1: of these things sort of blur the line between technology
Speaker 1: and energy because that's just the nature of renewable energy
Speaker 1: development and production. But when you get it targeted in
Speaker 1: this way, you do in many ways provide yourself with
Speaker 1: some optionality on these these legacy fossil fuel companies, the
Speaker 1: exons of chevrons of the world. And this is, uh,
Speaker 1: this one's getting a huge kick from Tesla, So Tesla
Speaker 1: is the top holding that that that helps UM. But yeah,
Speaker 1: this is It's interesting when you think about E s G,
Speaker 1: A lot of people think about like taking companies out
Speaker 1: that are bad, right, this is not really that. This
Speaker 1: is more of a theme fund going for a small
Speaker 1: group of companies that are trying to make money in
Speaker 1: the clean energy sector. Totally different. So it's probably this
Speaker 1: would probably get classified under E s G. It's a
Speaker 1: in a big tent kind of way, but it is
Speaker 1: not E s G per se. It's more of a
Speaker 1: play on a growth area. Yeah, I think you hit
Speaker 1: the nail on the head. In fact, it did get
Speaker 1: the blessing of the E s G reviewers, if you will.
Speaker 1: But to your point, it's not a fund that's taking
Speaker 1: the whole market and screening companies based on an E
Speaker 1: s G methodology by Bloomberger M s c I. It's
Speaker 1: simply a strategy that happens to fit within the construct
Speaker 1: of how people think about E s G. At one
Speaker 1: point about E s G that I think is worth
Speaker 1: mentioning is people focus on the E, and they focus
Speaker 1: on the S. And certainly aces would in theory fit
Speaker 1: the E to uh perhaps a capital E. But the
Speaker 1: G and that is is really important and and it
Speaker 1: gets sort of lost in the shuffle of of a
Speaker 1: lot of E s G conversations. And so there are
Speaker 1: pockets in the market that are making strong governance improvements
Speaker 1: that don't necessarily fit that E or that S in
Speaker 1: most investor minds, and a m l P is one
Speaker 1: of those. And I just mentioned it not to sort
Speaker 1: of force it in here, but just to remind investors
Speaker 1: and advisors that that G part is really important, because
Speaker 1: you can have a technology company that the knocks it
Speaker 1: out of the park on the E and the S,
Speaker 1: but their governance might not be as strong as you
Speaker 1: might need it to be given the goal of a
Speaker 1: broader E s G initiative. This is a huge problem
Speaker 1: for E s G what you're tapping into, because they
Speaker 1: there's just images people have of energy or oil, but
Speaker 1: they forget the S and the G. I think in
Speaker 1: just capitals, E T F XN is in there um
Speaker 1: been if if energy has a rally, I think E
Speaker 1: s G people that have completely excluded energy are going
Speaker 1: to be unhappy for however long that rally lasts. But
Speaker 1: on the other on the other flip side, I will
Speaker 1: push back on the G a little. There's an interesting
Speaker 1: came with Berkshire. Berkshire is not in like any E
Speaker 1: S G T S because the governance I think it's
Speaker 1: fift independent board and the average is like eighty six
Speaker 1: or something, and Buffets like, yeah, I've been on independent boards.
Speaker 1: They're not independent. And it's an interesting issue because it's
Speaker 1: Buffett talking. And that's why E s G is like, um,
Speaker 1: how did Churchill describe Russia a labyrinth wrapped in a
Speaker 1: mystery inside a riddle? I feel like that's E s
Speaker 1: G for me. I constantly find contradictions and things that
Speaker 1: over overrule the other thing. But your point is a
Speaker 1: good one, Paul. The G can actually you know, there's
Speaker 1: a waiting to it that and a lot of people
Speaker 1: have said this that the G is actually more important
Speaker 1: than the E and the S. Want to talk about
Speaker 1: the dogs though, Right, this is another uh success for
Speaker 1: you guys. And it's based on the dogs of the
Speaker 1: Dow theory, right, can you explain that? Yeah? So, in
Speaker 1: the most simple terms, the dogs of the Dow theory
Speaker 1: just said, of those dirty companies in the Dow Jones
Speaker 1: Industrial Average, the ones with the highest yields are effectively
Speaker 1: the companies that you want to own the next year,
Speaker 1: because based on mean reversion or historical performance, those are
Speaker 1: the ones that are most likely to outperform the market
Speaker 1: on a go forward basis. And so what the dogs do?
Speaker 1: And it started with s dog, which is really sort
Speaker 1: of an old DTF that's been around quite a while
Speaker 1: and has been used by a wide range of advisors
Speaker 1: and investors over a long period of time. It was
Speaker 1: one I remember back at my et F dot com
Speaker 1: day's interacting with Jeremy Held, a former ALPS guy, about
Speaker 1: and trying to understand what they were trying to achieve
Speaker 1: with it, and it's pretty simple. You just sort of
Speaker 1: take the highest yielding stocks from the ten at the
Speaker 1: time time and now eleven different sectors of the market,
Speaker 1: and you don't have market weights on the sectors. You
Speaker 1: have equal weights to all of the sectors, and so
Speaker 1: the idea is you're just sort of maximizing your exposure
Speaker 1: to the to the companies with the highest yield which
Speaker 1: within each sector of the market. And it's a different
Speaker 1: way to look at value. It's a different way to
Speaker 1: look at yields. And you think about most dividend strategies,
Speaker 1: they take the whole market, they do some simple in
Speaker 1: the case of some of the first generation dividend ETFs
Speaker 1: screens for the highest yielding stocks, maybe they try and
Speaker 1: protect that yield a little bit by payout ratio or
Speaker 1: something to that effect, and then you just wait them
Speaker 1: based on that score, and you end up having a
Speaker 1: lot of exposure to utilities, into staples and some of
Speaker 1: the sort of higher yielding sectors of the market sort
Speaker 1: of by definition. And then you have some of the
Speaker 1: other strategies, which are aristocratic strategies, which look at companies
Speaker 1: that have paid dividends for twenty years, or grown dividends
Speaker 1: for twenty years, or perhaps you do something that's a
Speaker 1: little bit more of the thodical or quantitative in nature,
Speaker 1: trying to screen out for the quality of that income stream.
Speaker 1: And so you have all of these different approaches to
Speaker 1: dividends which are really aligned closely with the value strategy,
Speaker 1: because the dividend factor tends to to look a lot
Speaker 1: like the value factor over time. But the Dogs is
Speaker 1: just different because it takes this really old world Wall
Speaker 1: Street strategy, the dogs of the doubt theory, and applies
Speaker 1: it in in the E T F Rapper, and it
Speaker 1: was one of the first to do it, which I
Speaker 1: think makes it really relatable to advisors. And then we've
Speaker 1: we've applied it to other markets. So we've got an
Speaker 1: emerging markets and an international and then more recently a
Speaker 1: real estate dog. And it's it's worth mentioning that that
Speaker 1: S Networks, the creator of those indexes, is now part
Speaker 1: of the Allarian family of indexes, and Hillaryan is our
Speaker 1: partner on on MLP and e n F are the
Speaker 1: the index provider for those strategies. And so in some ways,
Speaker 1: this relationship between issuer and inde provider is being reflected
Speaker 1: in in at S sinc Alps in a way that
Speaker 1: is perhaps unique to the industry, given the changes that
Speaker 1: have been made between self indexing or otherwise. And you
Speaker 1: broke up something interesting, S Dog spawn E Dog and
Speaker 1: there's a there's a three or four dogs now, um,
Speaker 1: And when you have a hit E t F do
Speaker 1: you meet in a room and say, okay, we should
Speaker 1: just run with this a little bit. And and like
Speaker 1: a movie, if you have a hit movie, you come
Speaker 1: out with a sequel. Yeah, it's it's a good question.
Speaker 1: I mean, I've only been at S sinc Alps since
Speaker 1: the beginning of the year, and so I haven't been
Speaker 1: in a lot of those product development sessions. Now, I
Speaker 1: have been in product development sessions at other firms, and
Speaker 1: so I do think that if you have a strategy
Speaker 1: that's successful and it makes sense to port it to
Speaker 1: a different market, whether it be region specific, development specific,
Speaker 1: or even cap specific, certainly firms are going to do
Speaker 1: the research and determine if it makes sense to launch
Speaker 1: those products. And I think S Dog was certainly a
Speaker 1: template for the dog and Eyed Dog and our dog. Um,
Speaker 1: there's another name in the lineup of your E t F.
Speaker 1: I want to talk about river Front. You've got a
Speaker 1: couple of e t s with river Front in the name.
Speaker 1: I want you to go into them. But I recall
Speaker 1: when I wrote my E t F book river Front,
Speaker 1: I refer to them as the e t F whisper
Speaker 1: because a lot of firms were going to them because
Speaker 1: they are master They use E t s and their models,
Speaker 1: and they were telling the e t F firm, hey,
Speaker 1: you should come out with this. One of those products
Speaker 1: is b KLN to invest Go. I think another one
Speaker 1: was s p l V M lp X I think
Speaker 1: was one. I think they told Jeremy Schwartz at Wisdom
Speaker 1: Tree they should make d x J lean towards exporters
Speaker 1: before d x J blew up. And then I get
Speaker 1: the feeling they were like, hey, we're tired of giving
Speaker 1: away all our our ideas, but now there's three of
Speaker 1: them branded under your product lineup. How did that happen
Speaker 1: and what do they do? So I think river Front
Speaker 1: is a great example of these early E t F
Speaker 1: strategists that have in many ways help shape the E
Speaker 1: t F industry as as you described. I mean you
Speaker 1: think about med Faber and Cambria. There's there's a number
Speaker 1: of these firms. Even Adelman worked with black Robe, I
Speaker 1: believe to to launch some ETFs or at least to
Speaker 1: help conceive some et F strategies, and so I think
Speaker 1: that feedback loop has been very positive in terms of
Speaker 1: innovation and et F strategy development. And and river Front
Speaker 1: I've known forever, I mean Rob Glaunia and I sort
Speaker 1: of go way back, and I've moderated some panels with
Speaker 1: him and inside e t F s, and so I've
Speaker 1: always been really familiar with the firm. But I mean
Speaker 1: as RIGGS, for example, the Riverfront Strategic Income Fund relates
Speaker 1: to the broader SS and C ALPS business I think
Speaker 1: is probably more revealing than sort of digging into the
Speaker 1: individual strategies themselves, in the sense that ALPS has this
Speaker 1: really unique business where we we have a ton of
Speaker 1: different partners, whether it be in ex providers or advisors
Speaker 1: who we partner with either from a distribution perspective, remember
Speaker 1: ALPS is the distribution partner for the select sector spiders.
Speaker 1: And then you have a strategy like RIGS, which is
Speaker 1: sort of a multi asset income strategy designed and built
Speaker 1: by Riverfront that needed the infrastructure to manage and to
Speaker 1: actually execute on that e t F and the and
Speaker 1: the piping the infrastructure and then e t F, whether
Speaker 1: it be the day to day operations or otherwise, is
Speaker 1: critically important to the success of an ETF, and that's
Speaker 1: one of the sort of mini services that ALPS as
Speaker 1: a broader brand offers to firms like Riverfront, and so
Speaker 1: I think the the idea is is that historically, some
Speaker 1: of these advisors have gone out in monstero mutual fund,
Speaker 1: which is just an easier way to to sort of
Speaker 1: wrap up their strategies for their clients. Instead of cobbling
Speaker 1: together a mix of different mutual funds, you sort of
Speaker 1: have your one stop shop mutual fund that provides you
Speaker 1: the exposure that you need for those smaller clients. And
Speaker 1: the ETF rapper just happens to be the latest evolution
Speaker 1: in that product delivery mechanism that allows a firm like
Speaker 1: Riverfront to deliver on some of these And the added
Speaker 1: benefit is that, unlike a mutual fund, anybody can buy
Speaker 1: the t F and so in theory, you know only
Speaker 1: have this mechanism to deliver your strategies to your existing clients.
Speaker 1: You open up the door to all of these other
Speaker 1: potential clients and and in theory, leverage the ALPS distribution
Speaker 1: team to help deliver that to a wider audience. You
Speaker 1: go way back right. I remember listening to the podcast
Speaker 1: with you and you go Eggboniki. I think, I know,
Speaker 1: I see him once in a while. He's great. He's
Speaker 1: one of my favorite people. I know. You guys had
Speaker 1: a nice little spark. You followed David Matt, who was
Speaker 1: tough act to follow, but you did a great job.
Speaker 1: Those podcasts were like graduate school for me at the time.
Speaker 1: And again we're talking about E T S had a
Speaker 1: trillion back then. What inning are we in Now? You
Speaker 1: have that base knowledge, Now you're on the road talking
Speaker 1: to advisors. So where do you see this going? Both
Speaker 1: E T F s and passive as a percentage of
Speaker 1: the market. Well, I think the point about David Matt,
Speaker 1: I think is an interesting one ten years ago because
Speaker 1: what was it three or four years ago where their
Speaker 1: own stage and E T F are gonna get disrupted
Speaker 1: by direct indexing, which, by the way, we've pushed back
Speaker 1: on that a little bit. I think they got a
Speaker 1: little ahead of themselves. I think direct indexing make carve
Speaker 1: out a five percent niche, but I just don't see
Speaker 1: it disrupting. I don't know if you have a different take.
Speaker 1: I was aligned with them, and I still think that
Speaker 1: direct indexing will have a large role to play. But
Speaker 1: I think it it's one of those sort of old
Speaker 1: adages where people overestimate what can be done in a
Speaker 1: year and underestimate what can be done in five and
Speaker 1: so I think in some ways direct indexing is an
Speaker 1: example of that. But I do think that the e
Speaker 1: t F asset base is going to continue to grow,
Speaker 1: both through the market move and through increased adoption. I mean, again,
Speaker 1: we talked about the structural drivers of e t F
Speaker 1: flows and I think that will continue. But I do
Speaker 1: think that there are disruptive forces out there that will
Speaker 1: challenge the the e t F orthodoxy, and whether that
Speaker 1: be token ized versions of an smp F t F
Speaker 1: that exists on a blockchain and perhaps even lowers the
Speaker 1: cost of of getting exposure and lowering the friction of
Speaker 1: getting exposure to the SMP five hundred in the version
Speaker 1: that that exists now in an e t F. I mean,
Speaker 1: there are threats and and that's one of the beauties
Speaker 1: of this market and of this industry in some ways
Speaker 1: is that there's always innovation taking place, and and the
Speaker 1: minute you rest on your laurels, no matter how great
Speaker 1: this e t F run has been, you have to
Speaker 1: be aware of them and try to understand them so
Speaker 1: that you can do your own job better and hopefully
Speaker 1: provide the clients that you're working with, regardless of what
Speaker 1: step you are in the value chain. Alright, Paul, I
Speaker 1: gotta ask my closing question, what's your favorite et F ticker,
Speaker 1: what's your favorite ALPS ticker? And what's your favorite non
Speaker 1: ALPS ticker? So I love Aces just because it's a
Speaker 1: it's a great product, but also I just think it's
Speaker 1: a great ticker. I mean, MLP is one of those
Speaker 1: really what's the word I'm looking specific and like straightforward, right,
Speaker 1: I mean, there's not a lot of nuance to it.
Speaker 1: It says exactly what it is right out of the gate.
Speaker 1: And so I think robos a cool ticker. I've always
Speaker 1: been sort of fascinated by the tickers that explain what
Speaker 1: the fund does in four letters in a way that
Speaker 1: you wouldn't have thought was possible. And and what's funny
Speaker 1: is is you know, just to sort of go inside
Speaker 1: Baseball a little bit. I think more et f issuers
Speaker 1: than you think. Go to Urban Dictionary when trying to
Speaker 1: determine what their tickers are. All right, Paul Backy, thank
Speaker 1: you so much for joining us on Trillions. My pleasure.
Speaker 1: This is great. Thank you guys. Have a great rest
Speaker 1: of your week in Labor Day weekend. Thanks for listening
Speaker 1: to Trillions. Until next time. You can find us on
Speaker 1: the Boomberg terminal, Bloomberg dot com, Apple Podcast, Spotify, and
Speaker 1: whatever else you like to listen. We'd love to hear
Speaker 1: from you. We're on Twitter, I'm at Joel Webber Show,
Speaker 1: He's at Eric Faltunus, and you find more about Alps
Speaker 1: at Alps Funds dot com. This episode of Trillions was
Speaker 1: produced by Magnus Hendrickson. Francesca Levy is the head of
Speaker 1: Bloomberg Podcast. Bye.