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Speaker 1: Well, cree trillions. I'm Joel Webber and I'm Eric bel

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Speaker 1: Tunis Eric. One of the themes so far this year

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Speaker 1: has been I p o s. There's been a lot

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Speaker 1: of them with significant companies. Yeah. I p o s

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Speaker 1: are popular, They've always been popular. I mean, everybody knows

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Speaker 1: what they are. What's interesting about I p o s

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Speaker 1: when it comes to E t s is that most

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Speaker 1: e t f s are based on these indexes from

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Speaker 1: M S, C I and foot see and S and

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Speaker 1: P and people don't maybe realize that it takes a

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Speaker 1: couple of years for an ip O to get big

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Speaker 1: enough of UH and pass the tests and screens of

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Speaker 1: these indexes. So most people do not own new I

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Speaker 1: p o s in their E t s. Most people

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Speaker 1: could be happy about that. However, there's a group of

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Speaker 1: e t F s I call them catch and release.

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Speaker 1: They pick up new I p os when they first

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Speaker 1: come out, and they release them between two and four years.

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Speaker 1: So this is trying to catch them in that early stage.

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Speaker 1: And if you look at the performance, especially the one

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Speaker 1: that's bet fifteen years old, it's it's great. It's kind

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Speaker 1: of one of the more underrated areas in my opinion,

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Speaker 1: because most people don't have exposure. It's adding unique exposure.

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Speaker 1: The performance is good, and so we've written about a

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Speaker 1: little bit and Caroline and Wilson from Bloomberg News has

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Speaker 1: been covering it a lot lately. And you know, a

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Speaker 1: lot of I p o s flame out and they

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Speaker 1: give the rest a bad name. But there's a couple

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Speaker 1: that are so good that they really canceled out a

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Speaker 1: lot of those, and that's uh, you know, I think

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Speaker 1: the story we want to delve into today. Also joining

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Speaker 1: us is your boss, Gina Martin Adams at Bloomberg Intelligence.

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Speaker 1: I gotta be on my best behavior today. No, um, yeah, No,

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Speaker 1: I'm excited because Gina is the equity strategist mastermind of

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Speaker 1: Bloomberg Intelligence. She leads all the research um of our team,

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Speaker 1: which is now Equity Strategy E T S and E

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Speaker 1: S G. We're kind of like all the everything that's

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Speaker 1: not stocks and bonds, and so Gina leads that up

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Speaker 1: and I'm working for her handling them side of it.

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Speaker 1: This time, I'm Trillions I p O Season, Carolina, Gina,

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Speaker 1: Welcome to Trillions. Thank you. So how significant is the

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Speaker 1: number of I p o S we've seen so far here?

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Speaker 1: Today compared to a couple of the past years. UM,

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Speaker 1: it's higher than it has been recently, but not as

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Speaker 1: high as other spikes so far this cycle, and nowhere

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Speaker 1: near the big IPO boom that we had in the

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Speaker 1: so depends on your perspective. April was the biggest month

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Speaker 1: for IPO issueance, both in terms of deals and value

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Speaker 1: since what happened in twelve Facebook ipoed. The other big

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Speaker 1: spike was very early in the cycle when GM came

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Speaker 1: back on the market. So it's been a big year

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Speaker 1: relative to the last several but not as big as

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Speaker 1: other years in this cycle. UM, and April was notable,

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Speaker 1: but the I p O market has slowed a lot

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Speaker 1: since April as well, so we've got a little bit

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Speaker 1: of a drag here into the summer. One of the

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Speaker 1: things that's been sort of interesting, though, has been type

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Speaker 1: of company that's been coming public because they've been private

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Speaker 1: a much longer period of time. And I'm, you know,

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Speaker 1: first and foremost in that camp is uber and left right.

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Speaker 1: How has that impacted sort of what we're what we're

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Speaker 1: watching during this sort of IPO moment. Yeah, it's a

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Speaker 1: good question. I think that there has to be a

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Speaker 1: certain degree of desperation for capital to come into the

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Speaker 1: equity market anymore. And the way that I think about

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Speaker 1: this is as a company, your access to capital is

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Speaker 1: uh in many ways, much much better than ever before

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Speaker 1: in history. Liquidity is ample, there's cash everywhere. Private equity

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Speaker 1: companies have a ton of funding. VC crowdfunding is huge.

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Speaker 1: So to come to the equity market you have to

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Speaker 1: come already in a very very high stature because it's

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Speaker 1: extremely expensive relative to the other sources of funding. And

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Speaker 1: so what we're finding is the companies that are coming

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Speaker 1: to market are generally much much bigger. They've established some

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Speaker 1: degree of track record. I think the other thing that

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Speaker 1: is probably under appreciated is the investor is extremely discerning,

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Speaker 1: especially relative to twenty years ago, when anybody who came

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Speaker 1: to market was like, Yeah, it's a new stock, we

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Speaker 1: want it. Today, nobody wants stock stocks or the redheaded

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Speaker 1: stepchild in the st class universe. Especially nobody wants US stocks,

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Speaker 1: even though they've outperformed and they've driven tremendous games over

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Speaker 1: the gains over the cycle. There's just not a lot

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Speaker 1: of demand for shares, and so companies have to come

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Speaker 1: to the market ready to face that they have to

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Speaker 1: be ready to push their story to an investor that

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Speaker 1: is highly skeptical relative to the investor of the past,

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Speaker 1: and they have to come bigger because their access to

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Speaker 1: funding is is very different than it has been in

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Speaker 1: the past. I think it's just a different kind of

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Speaker 1: I p o uh. Companies aren't even following on with

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Speaker 1: equity issuance, right, It's just nobody wants to use equity

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Speaker 1: markets when dead is so very very cheap and private

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Speaker 1: capital is so cheap that no, it's interesting. This is

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Speaker 1: why I love going to Gina for big picture or

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Speaker 1: five A theory. She sometimes will give me perspective or

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Speaker 1: just straight out like stomp on it. We have we

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Speaker 1: have very healthy arguments on our team. Um. I feel

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Speaker 1: like that was a pretty great rain cloud to put

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Speaker 1: over public markets. Yeah. I'll only counter that with I

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Speaker 1: think if you look at equity flows and you net

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Speaker 1: them all out, obviously a lot out of active equity

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Speaker 1: mutual funds, but a lot of money has been going

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Speaker 1: into sort of like general Vanguard SMP funds. So if

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Speaker 1: you've been doing that, you have been doing great. Um.

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Speaker 1: But yeah, I think the equity markets tend to be

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Speaker 1: um something that people are still a little shattered by

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Speaker 1: from two thousand eight still. But let's shift to the

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Speaker 1: E t F a little bit. So we just went

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Speaker 1: over the story here with the I p O season

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Speaker 1: getting going, and they get a lot of press. I

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Speaker 1: think that's why we tend to think there's a lot

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Speaker 1: of them. Um, Carolina, just talk about your foray into

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Speaker 1: looking at I p o E t F s and

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Speaker 1: what you learned. Sure, so there are two that come

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Speaker 1: to mind. Is sort of the biggest in the space.

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Speaker 1: And back to your point that indexes will like drag

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Speaker 1: their feet when it comes to including new companies in there.

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Speaker 1: I mean just the sat Gina mentioned Facebook it too.

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Speaker 1: It took two years before Facebook was added to the SMP.

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Speaker 1: Isn't that nuts? So these et fs do provide a

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Speaker 1: sort of pocket to invest in this market before, like

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Speaker 1: Eric was saying, you can get it in any other

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Speaker 1: sort of normal indexed products. So the two big funds

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Speaker 1: in the space, you have the renaissance I p O

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Speaker 1: E t F. It's known by its ticker I p O.

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Speaker 1: I would say this is like the purer I p

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Speaker 1: O E t F of the two, and I'll explain why.

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Speaker 1: But it will typically include new new companies that scheduled

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Speaker 1: quarterly reviews. It can buy shares of the newly listed

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Speaker 1: companies with at least a hundred million in market cap,

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Speaker 1: though as soon as five days after the I p O.

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Speaker 1: So it bought Uber about seven trading days after its

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Speaker 1: ip O back in May, and it right now holds

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Speaker 1: Uber obviously, Lift Zoom, Pinterest beyond Me. Its biggest holding

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Speaker 1: currently is Spotify, and then you have the bigger but

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Speaker 1: I would say less obvious I p O E t F.

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Speaker 1: It's about a billion dollars in a u M. It's

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Speaker 1: the first try US Equity Opportunities E t F. And

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Speaker 1: it doesn't sound like an I p O E t

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Speaker 1: F right, And if you look at the whole things,

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Speaker 1: it doesn't look like an I p O E t

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Speaker 1: F F p X. Yeah, it does not sound like

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Speaker 1: it's rough. It's rough. Um. So if you look at

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Speaker 1: the holdings of this, there's only one I p O right, right.

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Speaker 1: They should use something better, and I would say call

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Speaker 1: it new or something. But because they had spinoffs, I

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Speaker 1: don't know. There's probably a better ticker out there. But

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Speaker 1: First Trust is a pretty like I don't know that

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Speaker 1: they're not crazy ticker kind of company. So fp X,

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Speaker 1: what do you what do you see? So you'll see PayPal, Verizon, Hershey.

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Speaker 1: Can anyone guess when Hershey I p O n Gina

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Speaker 1: no idea seven. They just inverted the numbers. That's actually

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Speaker 1: that might be before the Dow Jones Index. Isn't that

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Speaker 1: around the same time. But to your point, because the CPS,

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Speaker 1: this E t F will include spinoffs or firms that

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Speaker 1: are acquired by a company that went public within the

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Speaker 1: preceding four years. So like her she bought Amplify snack

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Speaker 1: brands in the beginning of even if it gobbles up

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Speaker 1: something a new IPO, yeah, it'll be included in there.

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Speaker 1: So some people will say, you're getting exposure, right, are

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Speaker 1: you diluting the I p O effect? They will first

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Speaker 1: trust will say, but maybe we're providing more diversification or

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Speaker 1: cushion because I p O s are very volatile, so

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Speaker 1: that's sort of the landscape. So how they performed. So

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Speaker 1: I p O the renaissance E t F is up

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Speaker 1: close to one year to date, f p X is up.

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Speaker 1: So I do see the dilusion there with that I

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Speaker 1: p O effect we were talking about, and the SMP

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Speaker 1: is up close to so I p O is almost

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Speaker 1: double the returns of the SMP this year. Let me

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Speaker 1: jump in here on the performance issue, because fp X,

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Speaker 1: if you go back to when it was accepted in

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Speaker 1: two thousand and six, there aren't many e t s

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Speaker 1: that have like fifteen year track record. Basically, it's up

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Speaker 1: three hundred and forty five. The SMP is up two

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Speaker 1: hundred and eight percent, and so that's through through two

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Speaker 1: thousand and eight and all, and you know, the the

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Speaker 1: Great Financial crisis, that's a hundred and our performance. If

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Speaker 1: this were an active mutual fund, this would be the

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Speaker 1: cover of Forbes, the cover of Fortune. It's it's got

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Speaker 1: a billion, which isn't bad, but I'm kind of shocked

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Speaker 1: that it just works. And you looked at Facebook. You

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Speaker 1: talked about that it didn't go to the indexes until

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Speaker 1: the second year. Facebook was up it's first two years.

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Speaker 1: And if you look at the of that performance, of

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Speaker 1: the contribution to that return was Facebook alone. Facebook. And

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Speaker 1: if you look at the ones that didn't do well,

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Speaker 1: they didn't do well, but they didn't do as bad

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Speaker 1: as Facebook did good. So there was a couple just

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Speaker 1: total studs that totally offset the duds, and I think

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Speaker 1: that's the secret sauce here. That's what what do you

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Speaker 1: what do you attribute to performance to the studs are

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Speaker 1: bigger than the duds are bad. You just need a

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Speaker 1: couple giant home runs and it seems to make up

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Speaker 1: for some of the crappier ones. When you look at

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Speaker 1: I p O, what do you see there? So I

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Speaker 1: p O is up over year to date, and the

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Speaker 1: f p X E t F is up, so a

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Speaker 1: little less but still more than the SMP, which is

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Speaker 1: up about And a note on when these E t

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Speaker 1: F s will get rid of those new I p

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Speaker 1: O s right, because they'll obviously sort of switch out

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Speaker 1: their holding. So I p O I believe after two

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Speaker 1: years it will kick out those companies because that's around

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Speaker 1: the time that these companies start getting integrated into new indexes.

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Speaker 1: And I think fp X will hold them up to

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Speaker 1: four years. Yeah. I used to call them catching them

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Speaker 1: during the toddler years, but as Gina mentioned, they're not

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Speaker 1: toddlers when they hit the market anymore. They're they're like

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Speaker 1: almost grown adults. But you are getting the teenagers, yeah

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Speaker 1: you are, but you are getting them with some growth

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Speaker 1: spurts and Gina, I'd like to point this to you

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Speaker 1: because when I was writing my note on I P

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Speaker 1: O E T S, I don't know a year ago

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Speaker 1: or so, I kind of brought it to you, like,

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Speaker 1: am I missing anything here? So I ask you, just

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Speaker 1: as a personal investor, is there anything that would give

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Speaker 1: you pause before buying something like F p X or

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Speaker 1: I P O, Like what could go wrong here? Well?

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Speaker 1: I think you can go through phases right. So typically,

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Speaker 1: if you're thinking about the long term cycle, the peaks

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Speaker 1: of ICE I p O issuance tend to be right

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Speaker 1: at the end of the cycle. They tend to be

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Speaker 1: the two thousand sevenths of the world, the two thousands

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Speaker 1: of the world. So that um part of it is confidence.

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Speaker 1: Companies are pretty good at assessing when they're going to

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Speaker 1: get the best value out of it, right. If you're

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Speaker 1: if you're issuing stock at peak valuations, you're probably going

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Speaker 1: to get a lot of capital relative to if you're

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Speaker 1: issuing stock at very low valuations, you're not getting a

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Speaker 1: lot out of it, right, So they're pretty good at

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Speaker 1: timing as as markets go higher. Also, it's just a

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Speaker 1: business cycle thing. It's confidence at the peak of the

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Speaker 1: business cycle, activity is very very robust. Everybody's excited about

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Speaker 1: the prospects for equities. Generally, confidence is very very high,

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Speaker 1: so you're feeling great about the about the likely outlook.

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Speaker 1: The market reception is typically better. Um. You know, people

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Speaker 1: generally during big I p O booms, you get better

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Speaker 1: bet better returns to those I pos in the immediate

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Speaker 1: after issuance period then earlier in the cycle where there's

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Speaker 1: much more skepticism. So I think you can get caught

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Speaker 1: in a trap of market timing to some degree with

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Speaker 1: I p O s, though the historical evidence is irrefutable.

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Speaker 1: Over the long term, you're getting the companies generally earlier

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Speaker 1: in their life cycle, and your returns are going to

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Speaker 1: be better. I mean, it's very similar to the small

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Speaker 1: the capitalization effect. Normally, if you're buying smaller in mid

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Speaker 1: cap stocks, you're going to get better longer term returns.

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Speaker 1: You're taking a lot more risk, but your return should

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Speaker 1: be better as well, and I think that that's get

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Speaker 1: that gets reflected in these sort of style et F

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Speaker 1: that we're discussing. I was chatting with Kathleen Smith, who

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Speaker 1: runs the I p O E t F, and it's

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Speaker 1: interesting we were saying how investing in I pos is

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Speaker 1: like very emotional, right, It's about the emotion. And so

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Speaker 1: she talks of financial advisors who are trying to get

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Speaker 1: their clients to asset allocate, and they'll call them and

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Speaker 1: be like, get me shares of Uber and they're like, no,

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Speaker 1: we don't want to do that. But she argues, this

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Speaker 1: is where an E t F can step in and

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Speaker 1: it can be here. This is a safer way to

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Speaker 1: ride this I p O wave without loading up on

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Speaker 1: shares of Uber well, and you're also diversified across ibas IPA.

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Speaker 1: So to Eric's earlier point about the studs and the duds,

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Speaker 1: your media in return for ips this year isn't great,

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Speaker 1: but you have big, big companies with much stronger returns

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Speaker 1: like Beyond Meat that are overwhelming some of the dogs

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Speaker 1: that have come out so far this year, and that

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Speaker 1: produces much stronger returns. When you have a basket, I

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Speaker 1: think your average investor would really have a hard time

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Speaker 1: accessing that basket, and they might pick emotionally the Uber

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Speaker 1: because they're familiar with it and miss out on opportunities

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Speaker 1: are a broader array of options with with the I

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Speaker 1: p O E t F. How does she pick which

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Speaker 1: one she buys and which one she doesn't buy. Does

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Speaker 1: she pass on stuff? She has a rules based index.

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Speaker 1: It's a rules based index, so I p O will

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Speaker 1: follow that. But for example, I thought it was interesting

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Speaker 1: that fp X bought Lift, but it was waiting until

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Speaker 1: the next quarterly review to add Uber because they claim that, well,

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Speaker 1: this is the first you know, uh right, sharing stock

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Speaker 1: to market, So we're gonna buy that, but we're gonna

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Speaker 1: wait on Uber. But there are a lot of analysts

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Speaker 1: point out a lot of differences between Lift and Uber,

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Speaker 1: so I know that Cathy sort of said has had

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Speaker 1: some bones to pick with that. You know, you shouldn't

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Speaker 1: be able to choose that specifically if it's a rules

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Speaker 1: based index and it just gets at it in That

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Speaker 1: is exactly why passive really isn't passive. I mean even

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Speaker 1: the S ANDP has got a committee. I mean, it's

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Speaker 1: all the wiring in these things is all human. It's

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Speaker 1: very active, and you can see the returns could really

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Speaker 1: deviate based on that little decision difference between I PO

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Speaker 1: and fp X. That's why I should have some job

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Speaker 1: security going forward. So what is something that she's passed

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Speaker 1: on so far this year? Based on her rules. I

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Speaker 1: don't think anything. I mean seeing the holdings, I think whole.

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Speaker 1: I think I PO holds all of the so far

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Speaker 1: this year. It depends a lot on the side. So

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Speaker 1: I think there have been a lot of biotech IPOs market,

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Speaker 1: but they've been smaller, so they're going to have now.

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Speaker 1: One thing we do see is the first day of

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Speaker 1: the I p O. There's like all this fanfare. A

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Speaker 1: lot of times there's a little drop after there's some

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Speaker 1: and that's when the press really gets angry. Um. Can

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Speaker 1: you talk about the fact that there is a little

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Speaker 1: delay in the when the E t F picks it up.

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Speaker 1: It doesn't pick it up on the day it's born,

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Speaker 1: so to speak. It waits a couple of days by design.

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Speaker 1: Can you go over that? So I think FPX can

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Speaker 1: actually pick it up after the first trading day. Normally

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Speaker 1: they will not. Um, Like I said, it will be

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Speaker 1: about five trading days for I p O to pick

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Speaker 1: it up. And I think they're waiting for a certain amount.

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Speaker 1: But I think they want the volatility to the game.

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Speaker 1: The people who bought it just to sell it on

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Speaker 1: day one. And you know how much of that is

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Speaker 1: going on? How much of these these bankers, these you know,

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Speaker 1: Wall Street bankers who are sort of have their hands

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Speaker 1: in this I p O and they're just waiting to

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Speaker 1: like dump it to the dumb money, so to speak.

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Speaker 1: And what's that process like? Yeah, I know, I don't

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Speaker 1: know if I have a tome a visibility into that.

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Speaker 1: I think there's a whole, you know, whole trading operations

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Speaker 1: built around I p o s that I don't have

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Speaker 1: a great degree of visibility into. But there definitely is

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Speaker 1: um a whole cottage industry in trading I p o s.

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Speaker 1: I mean, even individual retail investors can get really into

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Speaker 1: I p o s trying to figure out how to

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Speaker 1: time the purchase and then dump of these companies, anticipating

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Speaker 1: that there will be extraordinary optimism. And I think that's

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Speaker 1: frankly a legacy of the nineties experience, which is interesting

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Speaker 1: because here we are, I don't even want to mention

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Speaker 1: how many decades later from the nineties. Nonetheless, in the nineties,

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Speaker 1: the experience was very precisely. I p o s are

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Speaker 1: always greeted very very kindly by the market. It's a

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Speaker 1: much different climate now, and it's a lot harder to

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Speaker 1: trade these entities Nonetheless, there are still whole trading shops

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Speaker 1: set up around and operations set up around gaming the

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Speaker 1: IPO system. So one thing that has changed since the

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Speaker 1: nineties is that there's this other way to go public now,

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Speaker 1: which is direct listing, which we just saw with slack

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Speaker 1: in a year ago. We saw it with Spotify, which

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Speaker 1: even if it's a direct listing, I guess and I

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Speaker 1: take her with the IPO can actually still do it

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Speaker 1: right because it's just a you know, when you go public.

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Speaker 1: But Gina, when you look at direct listings and and

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Speaker 1: think about I p O s, what's changing with this

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Speaker 1: new sort of flavor. Yeah, I think some of it's

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Speaker 1: The marketing machine is very different. Technology has obviously forced

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Speaker 1: this to happen back in ancient times. Um. You know,

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Speaker 1: when I was starting in my career, you only I

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Speaker 1: p O through an investment bank because that was the

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Speaker 1: machine by which your shares ultimately got to the final consumer.

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Speaker 1: That machine is very different now. You don't necessarily need

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Speaker 1: an investment bank to market your company, to market your shares,

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Speaker 1: to just describe the value to the average broker. And

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Speaker 1: that's a function of technology and communication more than anything. Um,

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Speaker 1: it's also a function of cost. Again we talked earlier.

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Speaker 1: When money is cheap and easy, it changes the game.

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Speaker 1: And it's changed the game from you know, having to

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Speaker 1: pay extraordinary fees to a big investment bank to help

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Speaker 1: you list too much much lower fees over time, and

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Speaker 1: now direct listing. So it's just it's comprehensively a very

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Speaker 1: different climate than I think many of us you know,

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Speaker 1: who have grown up in this business, no of the

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Speaker 1: I P O industry. And should we expect to see

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Speaker 1: more of this new machine? I think so. I think

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Speaker 1: overall you're seeing this across the board. The one thing

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Speaker 1: that we could really change the game is interest rates

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Speaker 1: start to rise again, right. I mean, there's one big

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Speaker 1: macro trend that has dominated everything for the last thirty years,

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Speaker 1: and that is a persistent decline in in the cost

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Speaker 1: of funds on the debt side, especially UM and and

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Speaker 1: that has really changed access to capital liquidity. The other

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Speaker 1: thing that obviously has contributed to this is technology. The

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Speaker 1: development of technology, the sort of driving communication process enabling

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Speaker 1: access to individuals that didn't have access before. I mean,

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Speaker 1: the development of the et F industry fits right in

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Speaker 1: to this theme, right, Um, So those two things should

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Speaker 1: they shift, could really shift the game, but it's difficult

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Speaker 1: to make a case for either of those two fundamentals

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Speaker 1: changing anytime soon. I also want to talk about um

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Speaker 1: Besides I p O e t S, which i'd considered niche,

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Speaker 1: another niche type of e TF is theme ETFs, like

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Speaker 1: the global X social media e t F S so

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Speaker 1: c L. I remember back when Facebook was I pong.

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Speaker 1: It dominated the news for like six months, and that's

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Speaker 1: when I really looked as it went down, just that

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Speaker 1: it was coming out. Facebook, to me, probably was the

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Speaker 1: biggest I PO that I can remember having to cover

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Speaker 1: as an e t F analysts, and everybody wanted to

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Speaker 1: know which e t F s and when, and I

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Speaker 1: remember at the time um fp X was one on

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Speaker 1: the table, but believe it or not, the first one

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Speaker 1: to add it was s o c L, which was

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Speaker 1: the social media e t F A lot of Here's

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Speaker 1: the point is that that's good, right If you have

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Speaker 1: a social media e t F and you don't have

400
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Speaker 1: Facebook fast, you're like, what am I doing here? Right?

401
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Speaker 1: So I think the niche e t F s are

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Speaker 1: aggressive and a little unconventional on purpose, and that's probably good.

403
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Speaker 1: But you should know that like some people just may

404
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Speaker 1: not want something so aggressive. So it's not just I

405
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Speaker 1: p O E t f s, it's thematic ETFs in

406
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Speaker 1: the industry. It's tracking that you could end up with

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Speaker 1: new I p o s very quickly because they tend

408
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Speaker 1: to have a more liberal wiring than the more traditional

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Speaker 1: sector E t F s. So one related question to

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Speaker 1: these I p O E t f s. I would

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Speaker 1: think that they would appeal to retail investors, but who's

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Speaker 1: actually using them? Is this? Do you see when you

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Speaker 1: guys look at the numbers, are institutions in them in

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Speaker 1: a big way? Or or do you see that there's

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Speaker 1: a lot of retail there. So the big institutional clients

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Speaker 1: they're the pros, right, And I asked Kathleen, I mean,

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Speaker 1: if it's the job of these big active managers or

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Speaker 1: bigger institutional clients to do the research and pick these

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Speaker 1: single stock names, will they really use your E t F?

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Speaker 1: And something interesting that she said, actually in June the

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Speaker 1: I p O E t F started listing. It has

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Speaker 1: listed options now, which will attract the more sort of

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Speaker 1: tactical clients. I mean, sure the liquidity there is is less,

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Speaker 1: but you know, now a hedge fund could take the

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Speaker 1: other side of this trade. If they on it too,

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Speaker 1: it looks like fp X, right, that's the bigger one

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Speaker 1: with a billion. About half of it is definitely retail

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Speaker 1: because only shows up in thet You do have some

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Speaker 1: like Raymond James, so some advisor networks on it. Um.

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Speaker 1: It's kind of about what I thought. I don't really

431
00:21:14,240 --> 00:21:17,680
Speaker 1: see any big institutional money like pensions or endowments. They're

432
00:21:17,720 --> 00:21:19,960
Speaker 1: probably buying IPOs on their own with the manager, either

433
00:21:20,040 --> 00:21:23,160
Speaker 1: external or internal. But I think for advisors or retail

434
00:21:23,200 --> 00:21:25,240
Speaker 1: it's good. And again, you know, the beauty of E

435
00:21:25,320 --> 00:21:27,479
Speaker 1: t F s is uh, if you're lazy, I mean,

436
00:21:27,560 --> 00:21:29,720
Speaker 1: this thing does all the hard work. You don't have

437
00:21:29,800 --> 00:21:31,360
Speaker 1: to watch the news. You don't have the care. It's

438
00:21:31,400 --> 00:21:33,280
Speaker 1: just gonna suck up the new I p O s,

439
00:21:33,320 --> 00:21:35,959
Speaker 1: hold them, try to squeeze out that juice and then

440
00:21:36,080 --> 00:21:38,720
Speaker 1: let them go, and you just don't have to really

441
00:21:38,800 --> 00:21:42,240
Speaker 1: lift a finger. But there are people who track it,

442
00:21:42,400 --> 00:21:45,280
Speaker 1: like Gina was talking about, even day traders. Um. The

443
00:21:45,320 --> 00:21:47,560
Speaker 1: whole point, if you're researching this stuff, you would never

444
00:21:47,640 --> 00:21:49,200
Speaker 1: use the e t F and I think the institutional

445
00:21:49,240 --> 00:21:52,720
Speaker 1: market would probably fall in that camp. In this case, Gina,

446
00:21:52,760 --> 00:21:55,639
Speaker 1: would you rather as this is all presented, do you

447
00:21:55,920 --> 00:21:58,560
Speaker 1: think you would do better just tracking them all in

448
00:21:58,640 --> 00:22:02,640
Speaker 1: the FPX style, were trying to game it and pick

449
00:22:02,720 --> 00:22:05,320
Speaker 1: it through an active stock picker, Like, how do you

450
00:22:05,359 --> 00:22:07,159
Speaker 1: think that would work out? For me? And I think

451
00:22:07,200 --> 00:22:11,320
Speaker 1: the average investor, I'm I fall in the lazy category right,

452
00:22:11,400 --> 00:22:15,960
Speaker 1: So for me, the diversification benefit of the basket is

453
00:22:16,359 --> 00:22:19,040
Speaker 1: is far in a way, much much more appealing and

454
00:22:19,119 --> 00:22:22,879
Speaker 1: attractive than trying to do the legwork to find that individual,

455
00:22:23,520 --> 00:22:26,320
Speaker 1: you know, nugget of gold in this in a whole

456
00:22:26,800 --> 00:22:29,960
Speaker 1: pile of sand, because I just don't know that every

457
00:22:30,000 --> 00:22:32,919
Speaker 1: individual has that level of because fertise, yes, if you're

458
00:22:32,960 --> 00:22:37,400
Speaker 1: an institutional and analyst dedicated to that industry, you presumably

459
00:22:37,440 --> 00:22:41,199
Speaker 1: should be able to pick the winner. But every one

460
00:22:41,280 --> 00:22:44,200
Speaker 1: of us has their own area of specialization. Minus Macro,

461
00:22:44,400 --> 00:22:46,879
Speaker 1: I have no idea what these companies do. For the

462
00:22:46,960 --> 00:22:49,960
Speaker 1: most part, I'm not going to spend an inordinate amount

463
00:22:50,000 --> 00:22:52,160
Speaker 1: of my time on the weekend trying to figure out

464
00:22:52,200 --> 00:22:53,720
Speaker 1: which one of these companies is going to be the

465
00:22:53,760 --> 00:22:57,440
Speaker 1: big winner. Instead, I've definitely fall into the lazy category.

466
00:22:57,440 --> 00:23:00,480
Speaker 1: I'd much rather have the basket, especially give the proven

467
00:23:00,520 --> 00:23:03,479
Speaker 1: returns I also just don't have the risk tolerance, frankly,

468
00:23:03,760 --> 00:23:07,840
Speaker 1: to take on single name exposure at such a minute level.

469
00:23:07,960 --> 00:23:11,080
Speaker 1: It's just it's just not within my DNA. I want

470
00:23:11,080 --> 00:23:13,280
Speaker 1: to bring this up because if you are gaming in time,

471
00:23:13,320 --> 00:23:15,000
Speaker 1: I remember the Uber IPO. I think you even wrote

472
00:23:15,040 --> 00:23:17,399
Speaker 1: an article saying, Hey, your ETF is gonna own it.

473
00:23:17,600 --> 00:23:21,280
Speaker 1: It's Isn't that not good? Um? I look, I went

474
00:23:21,359 --> 00:23:24,879
Speaker 1: back and I googled like Facebook I p O. It

475
00:23:25,040 --> 00:23:27,960
Speaker 1: was almost it echoed what people were saying about Uber,

476
00:23:28,680 --> 00:23:31,399
Speaker 1: and Facebook turned out to be the stud of all studs.

477
00:23:31,480 --> 00:23:34,959
Speaker 1: So I do think there's this like pylon like negativity,

478
00:23:35,000 --> 00:23:38,600
Speaker 1: and if you are active, that emotion could really influence

479
00:23:38,640 --> 00:23:41,200
Speaker 1: your decision. And I could see not have stucking with

480
00:23:41,280 --> 00:23:44,200
Speaker 1: Facebook after the I p O. Whereas the index is dumb,

481
00:23:44,720 --> 00:23:47,680
Speaker 1: it just does it because it's like a robot. I'm

482
00:23:47,720 --> 00:23:49,840
Speaker 1: old enough to remember the Google I p O. Not

483
00:23:49,920 --> 00:23:51,960
Speaker 1: that I want to age myself here, but I can

484
00:23:52,080 --> 00:23:55,040
Speaker 1: remember being on the desk and all of the skepticism

485
00:23:55,119 --> 00:23:57,840
Speaker 1: around where Google was going to go, Right, what is

486
00:23:57,920 --> 00:24:00,280
Speaker 1: this company? Is the search engine? They never of one

487
00:24:00,280 --> 00:24:03,879
Speaker 1: of those you, Oh, why would you ever want to

488
00:24:03,960 --> 00:24:08,000
Speaker 1: touch this? It's funny now there's like and people rightly

489
00:24:08,080 --> 00:24:11,239
Speaker 1: so trash it is CNBC in particular, they'll put these

490
00:24:11,240 --> 00:24:14,480
Speaker 1: tweets out saying if you had bought Google at the

491
00:24:14,560 --> 00:24:17,040
Speaker 1: I P O and with ten thou dollars, you would

492
00:24:17,160 --> 00:24:19,359
Speaker 1: have eight million dollars or something, and they kind of

493
00:24:19,440 --> 00:24:21,800
Speaker 1: rub it in your face. Um, and then on the

494
00:24:21,840 --> 00:24:24,440
Speaker 1: flip side they trash new I p O s. So

495
00:24:24,560 --> 00:24:27,359
Speaker 1: I'm saying there's a disconnect here. If you're going to

496
00:24:27,440 --> 00:24:29,119
Speaker 1: trash every new I p O and jump on the

497
00:24:29,160 --> 00:24:31,760
Speaker 1: bandwagon of hating, then why would you go back and

498
00:24:31,840 --> 00:24:33,680
Speaker 1: pick the winner and do this sort of like rubbing

499
00:24:33,720 --> 00:24:35,399
Speaker 1: your nose in it that you didn't buy it. I

500
00:24:35,480 --> 00:24:37,600
Speaker 1: think the media has like real mixed signals on that

501
00:24:37,720 --> 00:24:40,760
Speaker 1: in my opinion. Yeah, it's also legacy. I mean, it's

502
00:24:40,800 --> 00:24:43,200
Speaker 1: the pendulum just swaying from one end of the spectrum

503
00:24:43,280 --> 00:24:45,800
Speaker 1: to the other. It was every I p O. I'm

504
00:24:45,840 --> 00:24:48,040
Speaker 1: telling you, in the late ninety nineties, every ip O

505
00:24:48,119 --> 00:24:50,119
Speaker 1: that came to market was the God's gift to the

506
00:24:50,160 --> 00:24:53,040
Speaker 1: investment universe. Yeah, I gotta have it. You can't have

507
00:24:53,119 --> 00:24:55,480
Speaker 1: it enough. And then when all of those, many of those,

508
00:24:55,520 --> 00:24:57,080
Speaker 1: not all of those, but when on many of those

509
00:24:57,200 --> 00:25:01,120
Speaker 1: failed and ultimately just you know, weren't e and companies anymore.

510
00:25:01,280 --> 00:25:05,920
Speaker 1: It really changed the investor psychology towards I p o

511
00:25:06,040 --> 00:25:09,040
Speaker 1: s and we've been fighting that battle of skepticism ever since.

512
00:25:10,080 --> 00:25:11,680
Speaker 1: We talked about I p o s. We talked about

513
00:25:11,680 --> 00:25:15,560
Speaker 1: how they wait longer. Um, it's more expensive. This taps

514
00:25:15,600 --> 00:25:19,520
Speaker 1: into what you hear more about, which less companies going public? Um,

515
00:25:19,760 --> 00:25:22,440
Speaker 1: can you talk about I p o s in the

516
00:25:22,480 --> 00:25:26,119
Speaker 1: public market versus the growing private market? And how should

517
00:25:26,119 --> 00:25:28,920
Speaker 1: a retail investor deal with being shut out of the

518
00:25:29,040 --> 00:25:31,240
Speaker 1: private side and how much is that going to grow

519
00:25:31,280 --> 00:25:34,280
Speaker 1: in proportion to public going forward. Uh, it's a really

520
00:25:34,320 --> 00:25:36,000
Speaker 1: good question. I don't know that I have a very

521
00:25:36,160 --> 00:25:39,280
Speaker 1: clear crystal ball on how much private versus public will grow,

522
00:25:39,400 --> 00:25:40,720
Speaker 1: but I do think that there are a couple of

523
00:25:40,800 --> 00:25:45,239
Speaker 1: things to know. The first is the companies themselves are

524
00:25:45,320 --> 00:25:48,800
Speaker 1: incentivized to stay private longer because of their access to

525
00:25:48,880 --> 00:25:52,440
Speaker 1: capital in liquidity, so that that would have to shift. UM.

526
00:25:52,600 --> 00:25:55,919
Speaker 1: A couple of things are happening that could create a shift. UM.

527
00:25:57,359 --> 00:26:01,080
Speaker 1: One is if economic growth starts to accelerate much more

528
00:26:01,160 --> 00:26:04,320
Speaker 1: rapidly and sentiments starts to improve towards the investibility of

529
00:26:04,440 --> 00:26:08,160
Speaker 1: public assets. It could make issuing your stock on public

530
00:26:08,240 --> 00:26:11,439
Speaker 1: markets much cheaper and that would improve that, you know, incentive.

531
00:26:12,080 --> 00:26:13,879
Speaker 1: The second thing that I think is really important to

532
00:26:13,960 --> 00:26:17,000
Speaker 1: watch his tax policy. We've been an environment for many,

533
00:26:17,040 --> 00:26:20,480
Speaker 1: many years where companies have been incentivized to utilize debt

534
00:26:21,080 --> 00:26:23,480
Speaker 1: because they can write off the interest expense on that debt.

535
00:26:23,840 --> 00:26:26,119
Speaker 1: They can't do that with equity. Well, as a component

536
00:26:26,160 --> 00:26:31,840
Speaker 1: of tax reform, companies are now limited with with respect

537
00:26:31,840 --> 00:26:33,840
Speaker 1: to the amount of interest expense they can write off,

538
00:26:34,200 --> 00:26:37,639
Speaker 1: and they'll be even more limited starting in two if

539
00:26:37,680 --> 00:26:40,280
Speaker 1: you can make a case for two. They're more limited

540
00:26:40,480 --> 00:26:44,560
Speaker 1: from utilizing debt markets UM, which you know, any company

541
00:26:44,640 --> 00:26:46,680
Speaker 1: can access debt markets. You don't have to be a

542
00:26:46,760 --> 00:26:49,320
Speaker 1: publicly issued company in the SMP five hundred to get

543
00:26:49,359 --> 00:26:52,440
Speaker 1: access to corporate capital, right. So that's part of the

544
00:26:52,600 --> 00:26:55,440
Speaker 1: story is it's not just private it's also public debt

545
00:26:55,520 --> 00:26:59,440
Speaker 1: markets that companies can issue it UM. And that's the

546
00:26:59,520 --> 00:27:03,240
Speaker 1: bigger story, frankly, because if suddenly you start to see

547
00:27:03,280 --> 00:27:06,600
Speaker 1: the text incentive eliminated and rates go much much higher,

548
00:27:06,680 --> 00:27:09,720
Speaker 1: companies will be forced to consider other ways of funding themselves,

549
00:27:09,880 --> 00:27:14,080
Speaker 1: equity being the other choice, but back to your original question,

550
00:27:14,119 --> 00:27:17,760
Speaker 1: which I've veered off of not intentionally. Um. In terms

551
00:27:17,840 --> 00:27:20,080
Speaker 1: of the private markets, I don't see that changing a

552
00:27:20,119 --> 00:27:21,760
Speaker 1: whole lot, because a lot of what's happening in the

553
00:27:21,800 --> 00:27:26,040
Speaker 1: private markets is technology based. It's being able to fund

554
00:27:26,160 --> 00:27:29,840
Speaker 1: through crowd right, it's being able to fund UH in

555
00:27:29,920 --> 00:27:34,160
Speaker 1: alternative ways that are much cheaper, and it's created it's

556
00:27:34,359 --> 00:27:37,000
Speaker 1: it's at its core a function of the fact that

557
00:27:37,119 --> 00:27:41,000
Speaker 1: we have access to this via technology. Right as an

558
00:27:41,000 --> 00:27:44,720
Speaker 1: individual retail investor, I can go online and search I'd

559
00:27:44,760 --> 00:27:47,359
Speaker 1: like to get into a crowdfunding organization now that didn't

560
00:27:47,400 --> 00:27:51,080
Speaker 1: exist ten years ago. It's a totally different landscape. I

561
00:27:51,160 --> 00:27:54,280
Speaker 1: think that also sort of calls into question whether bringing

562
00:27:54,280 --> 00:27:56,200
Speaker 1: it back to the E t F side, these strategies

563
00:27:56,240 --> 00:27:57,960
Speaker 1: can be used as a proxy for the health of

564
00:27:58,000 --> 00:27:59,639
Speaker 1: the I p O market, Right, So we look at

565
00:27:59,640 --> 00:28:01,920
Speaker 1: the bud Wiser deal that didn't get done, it would

566
00:28:01,920 --> 00:28:04,120
Speaker 1: have been I think the biggest I p O this year.

567
00:28:04,600 --> 00:28:07,040
Speaker 1: You know, do people chicken out because they can say

568
00:28:07,840 --> 00:28:09,680
Speaker 1: the health of the I p O market isn't great

569
00:28:09,800 --> 00:28:12,120
Speaker 1: right now? Or could we now look at these strategy

570
00:28:12,480 --> 00:28:14,200
Speaker 1: strategies and be like, well, look at the c t F.

571
00:28:14,280 --> 00:28:16,680
Speaker 1: That's up, you know, can you really hide behind that

572
00:28:16,760 --> 00:28:19,480
Speaker 1: excuse anymore? And just to one more thing is that

573
00:28:19,920 --> 00:28:21,679
Speaker 1: there are some e t f that use private equity

574
00:28:21,720 --> 00:28:23,560
Speaker 1: in the name to give you a feeling that you're

575
00:28:23,600 --> 00:28:25,879
Speaker 1: buying into private. You cannot use an et F for

576
00:28:25,920 --> 00:28:28,440
Speaker 1: private Just to let you know, these e t f

577
00:28:28,600 --> 00:28:31,040
Speaker 1: s tend to look at small and micro caps that

578
00:28:31,119 --> 00:28:35,520
Speaker 1: have private equity like traits. It's, in my opinion that's

579
00:28:35,600 --> 00:28:39,479
Speaker 1: kind of faulty advertising. Um, but what about VC? Are

580
00:28:39,520 --> 00:28:42,240
Speaker 1: there VC e t s yet? No, they just call

581
00:28:42,320 --> 00:28:44,920
Speaker 1: them private equity. There. Now, there is a private equity

582
00:28:45,840 --> 00:28:49,560
Speaker 1: the trucks public stocks that invest in private equity, but

583
00:28:49,680 --> 00:28:53,760
Speaker 1: even that's very diluted. You're you're you're really stretching there.

584
00:28:53,800 --> 00:28:55,840
Speaker 1: So when we write about private equit, we we we

585
00:28:55,920 --> 00:28:58,680
Speaker 1: pretty much say like, um, you know, just forget about it. Um.

586
00:28:58,760 --> 00:29:00,640
Speaker 1: The e t s just there's some places the e

587
00:29:00,720 --> 00:29:03,920
Speaker 1: t F just can't go. Last thought, Gina, it's that

588
00:29:04,080 --> 00:29:07,040
Speaker 1: part of the year, midyear moment where there's vows. So

589
00:29:07,120 --> 00:29:11,040
Speaker 1: if you want to talk about Eric latter, Carolyn, Gina,

590
00:29:11,080 --> 00:29:18,440
Speaker 1: thanks very much for joining us on Trillions. Thanks for

591
00:29:18,600 --> 00:29:21,360
Speaker 1: listening to Trillions. Until next time. You can find us

592
00:29:21,360 --> 00:29:25,240
Speaker 1: on the Bloomberg terminal, Bloomberg dot com, Apple Podcast, Spotify,

593
00:29:25,760 --> 00:29:28,000
Speaker 1: and wherever else you like to listen. We'd love to

594
00:29:28,080 --> 00:29:31,600
Speaker 1: hear from you. We're on Twitter, I'm at Joel Weber Show.

595
00:29:31,960 --> 00:29:35,240
Speaker 1: He's at Eric Faull Tunas. You can find Gina Martin

596
00:29:35,280 --> 00:29:41,120
Speaker 1: Adams at Gina Martin Adams and Carolina Wilson at Caro E. Wilson.

597
00:29:42,040 --> 00:29:45,920
Speaker 1: Trillions is produced by Magnus Hendrickson. Francesca Leady is the

598
00:29:46,000 --> 00:29:48,080
Speaker 1: head of Bloomberg Podcast by