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Speaker 1: Hither and look into Trillions, the show about the Exchange

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Speaker 1: created fund better known as the e t F. I'm

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Speaker 1: Joel Webber. I'm the editor of Bloomberg Markets Magazines and Americvalcionist,

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Speaker 1: an analyst with Bloomberg Intelligence. Now on Trillions, will be

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Speaker 1: talking about the e t F, which everybody has access to,

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Speaker 1: but a lot of people don't really know what they

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Speaker 1: are or how to use them. And we're calling the

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Speaker 1: show Trillions because of just how big e t f

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Speaker 1: s are getting. There are a lot of ways to

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Speaker 1: describe the growth of ETFs. I think the most astonishing

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Speaker 1: way is this bit of data here, which is that

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Speaker 1: it took e t f s eighteen years to get

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Speaker 1: to one trillion in assets, but then it only took

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Speaker 1: four years to get to two trillion. Now they've reached

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Speaker 1: three trillion in just over two years, and they're headed

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Speaker 1: to four in just under two years. So basically, these

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Speaker 1: trillions are starting to stack up a little bit like

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Speaker 1: Lego blocks. Right, Yeah, I mean, look, I mean you've

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Speaker 1: got trillion after trillion coming in. But and it sounds like, oh,

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Speaker 1: this is a new finance trill industry thing that they're

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Speaker 1: making a lot of money, and it's not true. Unlike

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Speaker 1: hedge funds and mutual funds, which do produce a lot

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Speaker 1: of money for the financial industry, nobody's getting rich on ETFs.

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Speaker 1: Inside the financial industry, the investors are where the trillions

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Speaker 1: are because ETFs hardly charge anything, so ultimately those trillions

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Speaker 1: are really investors taking their money back. And when we

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Speaker 1: talk about trillions, though, there is some projected growth of

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Speaker 1: how big E t F could get globally bullish case,

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Speaker 1: how how how big are we talking? Okay, so the

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Speaker 1: most not sober cases twenty trillion by the year five.

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Speaker 1: That's from State Street. That's crazy because there's only four

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Speaker 1: point five trillion globally, so that would take a lot

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Speaker 1: of things to fall into place. The more sober projections

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Speaker 1: have them at ten to sixteen trillion in the US

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Speaker 1: alone in the next ten years. Again, that would take

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Speaker 1: some step up years where you're seeing like literally a

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Speaker 1: trillion flow in in a year. But this year we're

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Speaker 1: almost gonna have five billion common, which is double almost

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Speaker 1: the old record. So anyway you look at this, it

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Speaker 1: starts to look like a hockey stick. And that growth

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Speaker 1: is one of the things we're gonna be talking about here.

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Speaker 1: So before we go any further, let's explain it the

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Speaker 1: most basic level. What in eat F is, Eric, I

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Speaker 1: know that you like to say that in eat F

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Speaker 1: is like a marriage between a stock, which is a

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Speaker 1: share in a publicly traded company, and an index fund,

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Speaker 1: which is basically a compilation of all those different stocks. Yeah, exactly.

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Speaker 1: I mean I teach the new classes on ets here

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Speaker 1: to new hires, and everybody can identify with that. You

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Speaker 1: show a picture of a stock and an index fund.

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Speaker 1: And because look, a lot of products that people love

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Speaker 1: and no came from two things getting combined, and so

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Speaker 1: it makes sense. Sometimes you bring two things together, you

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Speaker 1: get something better in the end. Yeah, basically, I mean, take,

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Speaker 1: for example, the Reese's Peanut butter cup chocolate and peanut

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Speaker 1: butter Right, I know you like those, God, I love this. Yeah.

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Speaker 1: Or I mean your favorite band, Haul of Notates, Right,

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Speaker 1: you got Haul and Oats. They are really bad individuals.

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Speaker 1: You put them together, You've got like a twenty hit songs,

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Speaker 1: so much better together than apart. Yeah, throwing the must fashion,

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Speaker 1: You've got basically a gold mine. The mustache was just gold.

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Speaker 1: So what are the advantages of the marriage in the

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Speaker 1: context of an ETF. So the good stuff people like

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Speaker 1: about stocks, right, You like it's easy to trade, there's

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Speaker 1: price transparency, it's convenient. Right. The stuff that people like

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Speaker 1: about index funds is they're cheap and they're diversified, so

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Speaker 1: you get a lot of stocks in one shot. Let's

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Speaker 1: actually dwell on that diversification idea for a little bit longer.

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Speaker 1: I like to think of diversification like a carton of eggs. Right,

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Speaker 1: so there's twelve. Maybe you drop that carton and you

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Speaker 1: break one, but you haven't ruined the whole carton, right,

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Speaker 1: you still have eleven others that are perfectly good. Is

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Speaker 1: that a little bit like what an e t F is.

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Speaker 1: My wife would still yell at me for the one

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Speaker 1: that broke, but my issues aside. Yes, that's a great

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Speaker 1: way to put it. I'm a fan of metaphors, and

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Speaker 1: I think you just nailed it there. That's exactly what

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Speaker 1: diversification does for you. So as simple as I think

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Speaker 1: that sounds, I want you to try and explain it

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Speaker 1: to our producer who we've hired, because she actually knows

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Speaker 1: nothing about E t F s. Jordan, Can you hear us?

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Speaker 1: That's right? I can hear you and I don't know anything, alright,

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Speaker 1: E T S you know, Jordan is basically our audience. Yeah, totally.

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Speaker 1: So so let's actually like try and explain it to Jordan. Eric,

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Speaker 1: what's an example that you like to use when you're

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Speaker 1: explaining what in the E t F is? Okay, so

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Speaker 1: Jordan's let's let's create a scenario here. Okay, Let's say

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Speaker 1: you live out in the suburbs, right, and you walk

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Speaker 1: outside and you see somebody putting solar panels up on

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Speaker 1: the roof across the street. Which, Jordan, you're from California.

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Speaker 1: Maybe you've seen that before. I've seen it go down. Yeah,

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Speaker 1: there's solar streets there, right, Yeah, So anyway, you see

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Speaker 1: solar or something going up, and you said yourself, you know,

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Speaker 1: I'm seeing a lot of this. This is something i'd

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Speaker 1: like to invest in. Now, you don't even know any

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Speaker 1: solar stocks. I don't. It's who does, right, So how

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Speaker 1: would you go about doing that? You'd have to go

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Speaker 1: research the stocks and all this Already you'll be like,

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Speaker 1: you know what, I'm late for the bus? That the

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Speaker 1: hell with it? Well? Eat, yes, make that very easy,

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Speaker 1: because like take the solar energy E t F as

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Speaker 1: a ticker Tan, which is one of the best parts

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Speaker 1: about E T F are these crazy names. Not all

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Speaker 1: the tickers are that good, but that that one's right

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Speaker 1: up there. But Tan easy to remember. But look Tan.

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Speaker 1: What it does is it serves up thirty solar stocks

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Speaker 1: in one shot. Tan does all that work. You buy

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Speaker 1: Tan and then you own those thirty stocks at once.

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Speaker 1: And Tan's actually a really good example to explain diversification

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Speaker 1: because there was a stock inside TAN called g T

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Speaker 1: Advanced Technologies and it declared bankruptcy after Apple had decided

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Speaker 1: not to use some of their glass and one of

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Speaker 1: the iPhone six screens. So the stock drop in one day.

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Speaker 1: So Jordan, if you had picked that stock, you would

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Speaker 1: be sucking win basically, oh my gosh. But that only

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Speaker 1: contributed to negative one percent of Tan's performance. So in

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Speaker 1: other words, Tan barely felt it because it was just

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Speaker 1: one of thirty six stocks. And that essentially is why

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Speaker 1: you want to be diversified. So you avoided huge risk

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Speaker 1: of a single stock blowing up, but you also gave

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Speaker 1: something up to right. Yeah, So this is why stock

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Speaker 1: picking will probably never die as an art form because

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Speaker 1: Jordan's let's say you bought solar City a couple of

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Speaker 1: years back, and that went up two in a year,

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Speaker 1: and that year Tan only went up. So that's the

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Speaker 1: downside is you aren't gonna sort of win the lottery

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Speaker 1: if you pick the right stock. So it's almost like

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Speaker 1: passive investing and diversification is you saying, you know what,

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Speaker 1: I'd rather give up a potential home run to ensure

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Speaker 1: I don't strike out, which passive investing. E t f

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Speaker 1: s are mostly passive. It's also worth noting that that

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Speaker 1: stock got booted out of TAN. Yes, so after declared bankruptcy,

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Speaker 1: it was gone within a couple of days. That's the

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Speaker 1: thing with e t s. They track indexes, and those

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Speaker 1: indexes have all these rules that look for certain requirements.

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Speaker 1: So if the stock gets weak, declares bank upsee, or

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Speaker 1: just just starts lagging and becomes a bad actor, it's

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Speaker 1: going to get kicked out of the index and replaced

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Speaker 1: by a stronger up and comer. So there's a regeneration

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Speaker 1: process to the index, so you don't have to do

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Speaker 1: any work. So even though you picked it, it's not

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Speaker 1: just those thirty six stocks in stuck in time. They

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Speaker 1: actually change and regenerate over time, so that you have

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Speaker 1: to worry about it. So, Jordan, do you have a

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Speaker 1: little bit better sense of what ETFs are about? Now? Yeah,

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Speaker 1: I can get an e t F in something I'm

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Speaker 1: interested in, but I, you know, diffuse my risk because

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Speaker 1: of how they're set up, but I also forego my

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Speaker 1: chance that hitting it real big. There you go, she said,

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Speaker 1: diffuse my risk. I think she knows more than we think.

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Speaker 1: That's pretty good. Did you just pick that up from

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Speaker 1: our little discussion? Wow, Okay, we're on the right track, quick, learner.

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Speaker 1: So Jordan's understands what in e F is, and she

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Speaker 1: understands what TAN is. But Tan's like a really small

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Speaker 1: niche player here, right, Like, let's talk about like the

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Speaker 1: rest of the E t F landscape. Yeah, totally Tan is. Yeah,

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Speaker 1: niche is the right word. But it's just good for

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Speaker 1: a scenario, you know, solar energy everybody. And she, you know,

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Speaker 1: Jordan's a millennial, so I figured she'd respond to that

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Speaker 1: and she did. Um anyway, but most of the money

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Speaker 1: is going into what we call in the analyst world,

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Speaker 1: plain vanilla e t F s. TAN would be like

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Speaker 1: Rocky Road, a little more exotic, a little more volatile.

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Speaker 1: But most of the money goes into stuff like e

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Speaker 1: t s that just basically tracked the SMP five hundred.

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Speaker 1: There's a couple of those, Yeah, there's a couple of

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Speaker 1: those called like Spy, Spy, Spider has one, black Rock

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Speaker 1: has one. Their brand is called I Shares, and Vanguard

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Speaker 1: has one. Most people out there probably no Vanguard at

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Speaker 1: this point. Vanguard's a pretty big player in the ETF space.

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Speaker 1: They are only plain vanilla. Black Rock does a little

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Speaker 1: of both, and the same with State Street. But like,

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Speaker 1: take the SMP five majority tfs. They collectively account for

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Speaker 1: nearly one five of all e t F sets. That's

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Speaker 1: how popular they are. And there's f so just buying

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Speaker 1: the SNP what these things are doing, I mean, that's

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Speaker 1: ultimately that's what Warren Buffett as to do. I mean,

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Speaker 1: just buying the SMP five hundred is arguably the most

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Speaker 1: popular investment move right now. And are these buy and

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Speaker 1: hold investments or are people trading them? Good questions. So Spy,

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Speaker 1: which is the Spider product that was the first TTF,

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Speaker 1: that one has a lot of liquidity, trades a lot,

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Speaker 1: so that one's used a little more from like for

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Speaker 1: traders going in and out of the SMP five hundred

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Speaker 1: black Rock and Vanguards are a little more used by

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Speaker 1: buy and hold investors. They're also a little cheaper, you know,

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Speaker 1: the low expense ratio attracts more of the buy and

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Speaker 1: hold investors. But ultimately all three could be used to

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Speaker 1: hold twenty years if you wanted, or twenty minutes. And

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Speaker 1: how cheap are these things? And let's kind of use

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Speaker 1: a real number. I'm gonna say I have, right, sure,

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Speaker 1: how much does this actually cost me? Right? So, say

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Speaker 1: you have ten thousand dollars, If you put that into

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Speaker 1: s p Y, they would basically take out nine dollars

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Speaker 1: and fifty cents a year. If you put it into

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Speaker 1: v O O, which is the Vanguard, they take out

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Speaker 1: five bucks a year. And if you put an IVV,

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Speaker 1: they take out four bucks a year. So talking about

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Speaker 1: you know, a slice of pizza, you know, two slices

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Speaker 1: of pizza. Maybe not in penn station, but yeah, it

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Speaker 1: depends on where anyway, that's true. So for a couple

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Speaker 1: of slices of pizza, you can have the whole entire

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Speaker 1: stock market. That's a revolutionary moment totally. That That is

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Speaker 1: why these are powerful, you know, explosive tools that are

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Speaker 1: sweeping the nation literally, so you don't have to go

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Speaker 1: out there and buy individual stocks and then try and

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Speaker 1: like manage that portfolio. You get one thing. Yeah, And

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Speaker 1: you know, when I wrote this book on et f s,

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Speaker 1: the word that kept coming back to when I spoke

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Speaker 1: to a lot of people about the advantages was convenience.

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Speaker 1: And ultimately I went through advantages of ETFs and at

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Speaker 1: the end, I'm like, it's really convenience. I mean, cost

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Speaker 1: is a big one, but you know, people love things

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Speaker 1: that are convenient. Any business if you can serve up

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Speaker 1: convenience and make life easier. I mean, look at Amazon.

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Speaker 1: I mean it's not like anything to get on there

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Speaker 1: you can't get anywhere else. It's just convenient. And ETFs

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Speaker 1: ultimately provide convenience in multiple times over. So we talked

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Speaker 1: about the plain vanilla side of the et F world.

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Speaker 1: What are some other sides? Right? So you got bonds, right,

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Speaker 1: So bond markets a huge thing, and there's I would

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Speaker 1: consider a few plain vanilla bond e t f s,

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Speaker 1: some that just give you like all bonds sort of

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Speaker 1: all collectively. Then there's things that are a little more risky,

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Speaker 1: like high yield debt. You know, some people call them

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Speaker 1: drunk bonds. There's an e t FS for that. Then

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Speaker 1: you've got areas like commodities, a big et F in

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Speaker 1: the commodity spaces g l D which basically, you know,

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Speaker 1: you think that some hundred is convenient. G LD essentially

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Speaker 1: gives you exposure to a bunch of bars of gold

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Speaker 1: sitting in a storage facility. So it's like having a

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Speaker 1: way to own goal with having to pay insurance, you know,

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Speaker 1: or to worry about anybody stealing it. Own a vault, right,

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Speaker 1: No need to own a vault. You can just own

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Speaker 1: a little bit of E t F. Yeah. I mean

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Speaker 1: you're essentially buying shares in physically back gold. So there's

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Speaker 1: a there's basically in g l D s case the

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Speaker 1: gold is stored in London, there's a guy there with

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Speaker 1: a machine gun, probably like standing outside the vault. Um,

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Speaker 1: I'm not sure if that's true, but I imagine that's true.

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Speaker 1: But anyway, it's in a bank. It's a good mental image.

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Speaker 1: Let's just say it's secure. Okay. You know this isn't

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Speaker 1: like you know, the Pink Panther, where a group of

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Speaker 1: bandits are going to be able to get in there

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Speaker 1: and steal it. But ultimately, and I hope one day

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Speaker 1: we can go look at the gold. You know, now

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Speaker 1: that we're yeah we have this podcast, maybe I'll let

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Speaker 1: us look look at it and then we can interview

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Speaker 1: the gold. Yeah, it's going to be. So that's all

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Speaker 1: domestic stuff here in the US. What about international internationals?

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Speaker 1: Growing area definitely, And what I find interesting what ets

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Speaker 1: internationally is a lot of them. I mean they all

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Speaker 1: hold local shares in local markets. I mean used to

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Speaker 1: need a broker to get say like local Egyptian stocks,

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Speaker 1: right E t f s do that for you. So

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Speaker 1: even institutions use ets international play, but mostly the big

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Speaker 1: plain Venila international ones are for example, international developed, which

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Speaker 1: essentially is the countries that are more developed, like European

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Speaker 1: countries in Japan. They all package that in one E

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Speaker 1: t F Vanguard has a couple, black Rock has a couple.

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Speaker 1: Then you could look at something like emerging markets. Those

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Speaker 1: little more risky, but you package all of them together.

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Speaker 1: You get countries like China, right, Brazil, um in some

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Speaker 1: of them South Korea, and they put all those together,

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Speaker 1: and then you can go further out there's frontier market

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Speaker 1: e TF. Those are countries that are like on the

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Speaker 1: like JV of development and that they're not even emerging yet.

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Speaker 1: And the difference between the emerging markets and that frontier

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Speaker 1: markets is pretty amazing. For the countries that are in them.

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Speaker 1: You've countries that are like, you know, really out there,

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Speaker 1: like Kenya and Vietnam, and there's ets that serve that up.

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Speaker 1: And there's there's et F T tracks Africa, like all

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Speaker 1: the stocks that are in African countries. So you go

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Speaker 1: down the list, I mean you throw out a country,

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Speaker 1: I can tell you how to play with. The t

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Speaker 1: S is basically the whole the whole world pictures like

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Speaker 1: a rememberable the game risk, you know, you put your

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Speaker 1: little men all over or propoily whatever. The whole world

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Speaker 1: has been e t F I. So if you want

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Speaker 1: to say France, how do you want it? You want

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Speaker 1: individual France ETF? Do you want a Eurozone e t F.

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Speaker 1: Do you want a Pan European et F? Or do

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Speaker 1: you want that in international developed? So it goes from

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Speaker 1: more you know, very narrow, to more general and everything

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Speaker 1: in between. And now they'll do ones where it's like,

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Speaker 1: oh we'll give you French stocks, but will wait them

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Speaker 1: by their fundamentals. So I think when the average investor,

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Speaker 1: here's something like E t F. Not only do they

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Speaker 1: get a little confused, but they also get a little

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Speaker 1: scared because the financial industry is really good at coming

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Speaker 1: up with scary acronyms, things like C d O S

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Speaker 1: that brought down almost brought down the world with the

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Speaker 1: financial crisis. So they hear E t F and it's

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Speaker 1: yet one more thing. So, even though this thing has

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Speaker 1: grown so rapidly, I think there's still this apprehension around

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Speaker 1: here's this thing from the financial world. Should I trust it?

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Speaker 1: That's a completely fair feeling for people to have. And

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Speaker 1: I feel the same way. I think the thing with

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Speaker 1: E t F though, is and again, like you said,

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Speaker 1: this is this acronym really the greatest name ever? Maybe not,

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Speaker 1: But the F is key. It's a fund, it's a

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Speaker 1: mutual fund. In fact, E t F s are registered

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Speaker 1: with the SEC under the same act as mutual funds.

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Speaker 1: You know, some people call them mutual funds with benefits.

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Speaker 1: And ultimately that's important understand because they are not derivatives.

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Speaker 1: They are actually funds. They just happen to trade on

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Speaker 1: the exchange their shares do. And so I think that's

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Speaker 1: a key point to feeling safer about using them is

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Speaker 1: that they are fiduciary vehicles approved by the SEC. Although

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Speaker 1: I should just sort of evolve what I just said

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Speaker 1: to say that there are some types of products at

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Speaker 1: the fringes. Right. What I just described is basically there's

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Speaker 1: some stuff at the fringes. Stuff that say tracks oil

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Speaker 1: futures or three times leverage dtfs. Those are don't they

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Speaker 1: don't have much in assets, but they do get a

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Speaker 1: lot of attention. But those are not those are not

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Speaker 1: registered under the forty Act. Those would be called exchange

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Speaker 1: vehicles or or you know e t p s. Those

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Speaker 1: are a little different, and they sort of got under

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Speaker 1: the same sort of tent of e t F. But

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Speaker 1: ultimately I think for most investors they're going to use these,

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Speaker 1: you know, the plain vanilla e t F to get

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Speaker 1: exposures that are more normal. But you know, you will

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Speaker 1: find some investors will be curious and maybe go outside

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Speaker 1: of that. But those are the areas where I think,

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Speaker 1: especially this podcast will let you know why there's some

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Speaker 1: areas and ETFs that are dangerous where you could lose money.

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Speaker 1: I mean, I'm developing a rating system and I talked

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Speaker 1: about this in my book, where if you rated e

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Speaker 1: t f s like movies, you'd ultimately find there are

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Speaker 1: some R rated e t s. The bulk of the

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Speaker 1: assets and the bulk of the e t s would

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Speaker 1: be P, G and G, but they do go into

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Speaker 1: some areas that a little more risky. And this is

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Speaker 1: where the buyer beware thing comes in, because you ultimately

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Speaker 1: sort of need to know what you're buying. And the

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Speaker 1: risk here is that everything kind of looks the same. Yeah,

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Speaker 1: and the idea that the whole market has become so

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Speaker 1: easy to buy, no matter what corner of the market

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Speaker 1: you want, it's easy to buy is clicking buy and

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Speaker 1: Microsoft shares. I agree, there is some degree of maybe

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Speaker 1: that's made stuff that's more dangerous seem less dangerous. But

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Speaker 1: again I take a step back from this because if

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Speaker 1: you look at the assets and e t F that

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Speaker 1: three trillion, almost every dime of it is in stuff

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Speaker 1: that is not dangerous. It's just you know, plain van

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Speaker 1: It's like stuff mutual funds hold. But yeah, at the fringes,

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Speaker 1: there are some products that are beloved by people who

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Speaker 1: use them, you know, stuff the tracks, the vix uh

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Speaker 1: stuff features. Yeah, there's some there's some stuff that you

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Speaker 1: know you might not even heard of that eat that

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Speaker 1: some ETFs track. But ultimately I think that's why it's

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Speaker 1: important to look at those. But they are not they're

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Speaker 1: the exception, not the norm. So ultimately et fs just

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Speaker 1: made things really easy because you can do all these

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Speaker 1: things that used to be really complicated and now you

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Speaker 1: can just do it on a button on your smartphone.

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Speaker 1: You know. Yeah, it kind of reminds me. There's a

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Speaker 1: phrase out they're fast, good, cheap, and they say that

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Speaker 1: as a con numor you can only get two of

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Speaker 1: those three things, right, So something's fast and good, it's

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Speaker 1: not cheap. It's cheap and fast it's not good, and

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Speaker 1: so on. And I think, you know, I feel like

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Speaker 1: the you know, there's a couple of things that that

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Speaker 1: basically blow that rule away and give you all three

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Speaker 1: at once. So one thing just personal to me is

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Speaker 1: Vietnamese restaurants. They really are fast, good, and cheap and

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Speaker 1: E T F S. I. I do believe they deliver

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Speaker 1: all three of those things in almost every case, not

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Speaker 1: every but that to me again, and this goes back

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Speaker 1: to when I got them in two thousand and six.

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Speaker 1: After you start sniffing around them and you kick the

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Speaker 1: tires on them, you realize, you know, they're they're a

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Speaker 1: special kind of structure. So, Eric, we've talked about the

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Speaker 1: growth of ETFs, We've talked about what these things look

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Speaker 1: like and what's in them. We've talked about the risks.

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Speaker 1: We broke it down for Jordan's where are we going?

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Speaker 1: This is a question I ponder a lot. I think,

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Speaker 1: you know, when you look at the future of the whole,

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Speaker 1: the whole enchilada, right, I think you're just gonna see

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Speaker 1: more and more investors demanding free exposure based or low

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Speaker 1: low cost to the point where it's free. So I

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Speaker 1: think one evolutionary line of e t F growth is

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Speaker 1: going to be what we call a race to the bottom,

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Speaker 1: and the bottom being good here means zero fees. Right now,

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Speaker 1: like we said, e t F s are three, four

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Speaker 1: or five, maybe six basis points, especially in the plane

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Speaker 1: vanilla categories. You know those are being driven down. They

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Speaker 1: were fourteen basis points ago. Yeah. In fact, they did

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Speaker 1: a study over at et f dot com that showed

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Speaker 1: that the cheapest the e t F portfolio drops by

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Speaker 1: a basis point of year. So right now it's at

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Speaker 1: point oh six percent. I mean, you can get a whole,

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Speaker 1: fully diversified portfolio ets for point six percent all in

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Speaker 1: that drops a basis point of year, So that puts

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Speaker 1: us on track to have free exposure in the next

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Speaker 1: five or six years. And I think most people think

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Speaker 1: that's going to happen, and that's a beautiful thing. I mean,

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Speaker 1: think about that concept. That is going to up end

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Speaker 1: the entire financial system. You think, you know Bernie Sanders,

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Speaker 1: he probably wouldn't even even imagine how much this is

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Speaker 1: going to change things, and likely probably just gonna shrink

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Speaker 1: wall straight to a degree because just be way less money.

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Speaker 1: The retail host organism is going to be tiny if

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Speaker 1: people keep going to that point and the people issuing

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Speaker 1: the ETFs are dropping the fees. Why because people are

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Speaker 1: buying the cheaper ones. If a e t F, for example,

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Speaker 1: goes from tied for the cheapest to the cheapest, I've

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Speaker 1: seen it happen, billions will go to the cheaper one

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Speaker 1: almost nothing like one basis point almost right. Yeah, it's

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Speaker 1: people are cost obsessed, and even we're talking to people

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Speaker 1: who might not even know much about et f s.

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Speaker 1: Something shifted back in the nineties and eighties. It was

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Speaker 1: all about the hot manager, the five star manager. You know,

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Speaker 1: you talk about at the party, Hey, I picked the

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Speaker 1: best doc, or are the best manager? That's changing now

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Speaker 1: you go. People are bragging about how low cost their

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Speaker 1: portfolio is and how cheap they're getting things. So I

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Speaker 1: think that there's a cost obsession that is just going

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Speaker 1: to continue to drive fees lower on the plane vanilla side,

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Speaker 1: and ultimately that's going to be very tough if you're

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Speaker 1: in the financial industry, but it's going to be wonderful

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Speaker 1: if you're an investor. So great for investors, and you've

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Speaker 1: got that pressure pushing on this what you'll call like

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Speaker 1: an evolutionary line. There's this whole other evolutionary line though,

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Speaker 1: what do you see over there? So in the play

427
00:21:13,440 --> 00:21:15,679
Speaker 1: vanilla category, I just think a lot of investors are

428
00:21:15,720 --> 00:21:19,560
Speaker 1: just not satisfied with say a couple you know, the

429
00:21:19,600 --> 00:21:22,040
Speaker 1: stock market. It's like okay, yeah, okay, so I got

430
00:21:22,160 --> 00:21:24,440
Speaker 1: a SMP, I got a bond index, and you know

431
00:21:25,080 --> 00:21:27,080
Speaker 1: that's good and arguably if you just hold that for

432
00:21:27,160 --> 00:21:29,600
Speaker 1: twenty years, you'll probably do better than everybody. But people

433
00:21:29,640 --> 00:21:31,560
Speaker 1: are itchy, they want to outperform, they want to try

434
00:21:31,600 --> 00:21:34,960
Speaker 1: to do better. There's a whole group of ETFs being

435
00:21:35,040 --> 00:21:38,120
Speaker 1: launched that allow you to try to outperform using strategies

436
00:21:38,640 --> 00:21:42,960
Speaker 1: right there, packaging trades, you've got themes, and that's in

437
00:21:43,160 --> 00:21:44,800
Speaker 1: for an analyst. That's where the fun stuff is. To

438
00:21:44,840 --> 00:21:46,560
Speaker 1: be honest with you, I like covering all the new

439
00:21:46,600 --> 00:21:49,040
Speaker 1: stuff they're launching, and over there you can charge a

440
00:21:49,119 --> 00:21:51,359
Speaker 1: little more because if your goal is to kind of

441
00:21:51,400 --> 00:21:54,560
Speaker 1: beat the market or provide some exotic exposure, something that's

442
00:21:54,600 --> 00:21:57,159
Speaker 1: new and fresh, Ultimately people are willing to pay a

443
00:21:57,200 --> 00:21:59,800
Speaker 1: little more. But even fees are still coming down over there.

444
00:21:59,840 --> 00:22:02,680
Speaker 1: But ultimately I think that is where you'll see sort

445
00:22:02,680 --> 00:22:04,000
Speaker 1: of a lot of the other like you'll see some

446
00:22:04,680 --> 00:22:07,879
Speaker 1: really wild stuff being launched the DTF. In fact, this

447
00:22:08,040 --> 00:22:13,840
Speaker 1: year's satire is tomorrow's new ETF. For instance, let's talk

448
00:22:13,880 --> 00:22:17,640
Speaker 1: about whiskey. Yeah, there's a whiskey et F, which essentially

449
00:22:17,800 --> 00:22:20,600
Speaker 1: is tracking stocks that are in the whiskey production. But

450
00:22:20,840 --> 00:22:23,400
Speaker 1: you know, honestly about whiskey, even though it sounds silly,

451
00:22:23,440 --> 00:22:25,760
Speaker 1: there is a fundamental story there. If you look at

452
00:22:25,800 --> 00:22:28,200
Speaker 1: the stock prices and some of these liquor companies, they've

453
00:22:28,240 --> 00:22:31,400
Speaker 1: been doing pretty well. There's a global demand for for alcohol,

454
00:22:31,640 --> 00:22:34,680
Speaker 1: and the guy who started. The whiskey TF is from Lexington, Kentucky.

455
00:22:35,240 --> 00:22:38,480
Speaker 1: He's around that industry. So even the gimmicky ones, it's funny.

456
00:22:38,480 --> 00:22:40,040
Speaker 1: You start to unpeel a little bit and you realize

457
00:22:40,080 --> 00:22:43,400
Speaker 1: there's somebody who really believes in that industry. Somebody thinks

458
00:22:43,400 --> 00:22:46,520
Speaker 1: it's a fundamental story. But on its surface, do you

459
00:22:46,640 --> 00:22:48,919
Speaker 1: really need a whiskey et F in your portfolio. That's

460
00:22:48,920 --> 00:22:50,840
Speaker 1: where people think it's gimmicky, it's you don't need it.

461
00:22:51,359 --> 00:22:53,840
Speaker 1: But ultimately that's an example I think of of the

462
00:22:53,920 --> 00:22:56,439
Speaker 1: kind of thematic ETF that you see launching a lot

463
00:22:56,520 --> 00:22:58,880
Speaker 1: more lately. That's one of the things that I think

464
00:22:59,000 --> 00:23:02,000
Speaker 1: is so fascinating about this particular space is that a

465
00:23:02,080 --> 00:23:05,320
Speaker 1: lot of these things just started with somebody having an idea. Yeah.

466
00:23:05,359 --> 00:23:07,480
Speaker 1: I was just talking to the guy who launched the

467
00:23:07,560 --> 00:23:11,000
Speaker 1: reverse market cap weight at et F, which essentially waits

468
00:23:11,080 --> 00:23:13,440
Speaker 1: the lowest stock in the SPF with the biggest waiting,

469
00:23:13,760 --> 00:23:15,960
Speaker 1: and he said, he just got the idea, and then

470
00:23:16,040 --> 00:23:18,119
Speaker 1: he back tested it looked good, and so he launched

471
00:23:18,119 --> 00:23:20,760
Speaker 1: then e t F. Ultimately, this is what I love

472
00:23:20,800 --> 00:23:24,240
Speaker 1: about the ETF industry. It is the Silicon Valley of

473
00:23:24,520 --> 00:23:26,840
Speaker 1: the financial world right now. This is where all the

474
00:23:26,880 --> 00:23:29,800
Speaker 1: innovation is happening from big companies like JP Morgan and

475
00:23:29,880 --> 00:23:32,879
Speaker 1: Goldman as well as small independent issuers. I call him

476
00:23:32,880 --> 00:23:35,720
Speaker 1: the indie the indie guys, sort of like indie rock. Yeah,

477
00:23:35,760 --> 00:23:38,600
Speaker 1: these are independent issuers. A big indie one that's been

478
00:23:38,720 --> 00:23:41,200
Speaker 1: hit it big was the robot which is the robotics industry.

479
00:23:41,920 --> 00:23:44,440
Speaker 1: That e t F is now almost two billion dollars

480
00:23:44,960 --> 00:23:47,280
Speaker 1: and it just had a good idea these stocks weren't

481
00:23:47,280 --> 00:23:50,280
Speaker 1: really represented other benchmarks, and then it outperformed like a madman.

482
00:23:50,440 --> 00:23:53,679
Speaker 1: And ultimately it is interesting seeing some of these smaller

483
00:23:53,800 --> 00:23:58,440
Speaker 1: niche independent ones actually work out for investors. And ultimately,

484
00:23:58,600 --> 00:24:00,840
Speaker 1: I think the idea of outperform warming or having something

485
00:24:00,920 --> 00:24:03,160
Speaker 1: that's got a little extra juice in it that will

486
00:24:03,200 --> 00:24:05,520
Speaker 1: never die. Performance chasing is as old as you know

487
00:24:05,760 --> 00:24:08,440
Speaker 1: the world, and you're going to have people who performance chase,

488
00:24:08,480 --> 00:24:10,679
Speaker 1: and that's why there won't only be the play ven

489
00:24:10,760 --> 00:24:13,320
Speaker 1: la side. You'll also have this side with people packaging

490
00:24:13,440 --> 00:24:16,040
Speaker 1: everything they can into an e t F. And we

491
00:24:16,160 --> 00:24:18,560
Speaker 1: just saw one that was coming out, like calling package trades.

492
00:24:19,200 --> 00:24:21,720
Speaker 1: There's ones that will go long say local stocks, and

493
00:24:21,760 --> 00:24:24,119
Speaker 1: then short the currency and a good example of one

494
00:24:24,200 --> 00:24:27,680
Speaker 1: that packaged in actual trade was clicks. It goes long

495
00:24:27,880 --> 00:24:32,040
Speaker 1: online retailers like Amazon and short brick and mortar stores

496
00:24:32,240 --> 00:24:35,639
Speaker 1: like Sears and J. C. Penny and that you know, again,

497
00:24:35,960 --> 00:24:37,960
Speaker 1: you could do that on your own, but now they're

498
00:24:38,000 --> 00:24:40,600
Speaker 1: doing it for you. So now you see trades being

499
00:24:40,680 --> 00:24:44,080
Speaker 1: packaged into an e t F or strategies like value

500
00:24:44,240 --> 00:24:47,600
Speaker 1: or momentum. There is so much going on, it's it's fascinating.

501
00:24:47,640 --> 00:24:50,160
Speaker 1: And you you see about four e t F launch

502
00:24:50,240 --> 00:24:52,399
Speaker 1: a day in the world and about one in the US,

503
00:24:52,480 --> 00:24:55,560
Speaker 1: so every day there's something coming out. I mean, ultimately,

504
00:24:56,000 --> 00:24:58,040
Speaker 1: just like apps. You know, there's all these apps coming

505
00:24:58,080 --> 00:25:01,520
Speaker 1: out because the iPhone is bringing this to people. All

506
00:25:01,560 --> 00:25:03,960
Speaker 1: the money is going into et s, right, so that's

507
00:25:04,000 --> 00:25:06,800
Speaker 1: why you see a lot of innovation and on the

508
00:25:06,880 --> 00:25:09,600
Speaker 1: side that's more that does more niche stuff. Most of

509
00:25:09,640 --> 00:25:11,800
Speaker 1: those are going to fail. There's you know a lot

510
00:25:11,880 --> 00:25:14,000
Speaker 1: of them will just not have any buyers. But for

511
00:25:14,119 --> 00:25:17,040
Speaker 1: every twenty that fail, there'll be a robotics CTF or

512
00:25:17,080 --> 00:25:19,280
Speaker 1: a cybersecurity et have to get to billion dollars and

513
00:25:19,359 --> 00:25:22,440
Speaker 1: that's going to keep this independent spirit, which I think

514
00:25:22,520 --> 00:25:24,840
Speaker 1: is healthy for the industry. But at the end of

515
00:25:24,920 --> 00:25:27,119
Speaker 1: the day, the big money, the real money, it's going

516
00:25:27,160 --> 00:25:29,080
Speaker 1: to go to Vanguard, black Rock, State Street in the

517
00:25:29,119 --> 00:25:32,159
Speaker 1: plain videll stuff that costs almost nothing, which brings us

518
00:25:32,160 --> 00:25:35,439
Speaker 1: back to Trillions, because that's how much money is actually

519
00:25:35,480 --> 00:25:46,000
Speaker 1: pouring into these things. Thanks for listening to Trillions until

520
00:25:46,080 --> 00:25:48,160
Speaker 1: next time. You can find us on the Bloomberg terminal,

521
00:25:48,400 --> 00:25:51,399
Speaker 1: the Bloomberg app, Bloomberg dot com, as well as on

522
00:25:51,480 --> 00:25:54,760
Speaker 1: Apple podcast, Stitcher and probably a few other things I

523
00:25:54,800 --> 00:25:57,600
Speaker 1: don't know about yet. While you're there, take a minute

524
00:25:57,640 --> 00:25:59,960
Speaker 1: to rate and review the show. It helps other people

525
00:26:00,080 --> 00:26:03,040
Speaker 1: find us. We're also on Twitter and would love to

526
00:26:03,080 --> 00:26:06,560
Speaker 1: hear from you. I'm at Joel Webber Show. He's at

527
00:26:06,760 --> 00:26:10,640
Speaker 1: Eric Baltunas. Trillions is produced by Jordan Bell with help

528
00:26:10,680 --> 00:26:14,400
Speaker 1: from Magnus the Swede Hendriksen. Francesca Levie is the head

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00:26:14,400 --> 00:26:24,159
Speaker 1: of Bloomberg Podcast. Bye M M M