Speaker 1: Hither and look into Trillions, the show about the Exchange
Speaker 1: created fund better known as the e t F. I'm
Speaker 1: Joel Webber. I'm the editor of Bloomberg Markets Magazines and Americvalcionist,
Speaker 1: an analyst with Bloomberg Intelligence. Now on Trillions, will be
Speaker 1: talking about the e t F, which everybody has access to,
Speaker 1: but a lot of people don't really know what they
Speaker 1: are or how to use them. And we're calling the
Speaker 1: show Trillions because of just how big e t f
Speaker 1: s are getting. There are a lot of ways to
Speaker 1: describe the growth of ETFs. I think the most astonishing
Speaker 1: way is this bit of data here, which is that
Speaker 1: it took e t f s eighteen years to get
Speaker 1: to one trillion in assets, but then it only took
Speaker 1: four years to get to two trillion. Now they've reached
Speaker 1: three trillion in just over two years, and they're headed
Speaker 1: to four in just under two years. So basically, these
Speaker 1: trillions are starting to stack up a little bit like
Speaker 1: Lego blocks. Right, Yeah, I mean, look, I mean you've
Speaker 1: got trillion after trillion coming in. But and it sounds like, oh,
Speaker 1: this is a new finance trill industry thing that they're
Speaker 1: making a lot of money, and it's not true. Unlike
Speaker 1: hedge funds and mutual funds, which do produce a lot
Speaker 1: of money for the financial industry, nobody's getting rich on ETFs.
Speaker 1: Inside the financial industry, the investors are where the trillions
Speaker 1: are because ETFs hardly charge anything, so ultimately those trillions
Speaker 1: are really investors taking their money back. And when we
Speaker 1: talk about trillions, though, there is some projected growth of
Speaker 1: how big E t F could get globally bullish case,
Speaker 1: how how how big are we talking? Okay, so the
Speaker 1: most not sober cases twenty trillion by the year five.
Speaker 1: That's from State Street. That's crazy because there's only four
Speaker 1: point five trillion globally, so that would take a lot
Speaker 1: of things to fall into place. The more sober projections
Speaker 1: have them at ten to sixteen trillion in the US
Speaker 1: alone in the next ten years. Again, that would take
Speaker 1: some step up years where you're seeing like literally a
Speaker 1: trillion flow in in a year. But this year we're
Speaker 1: almost gonna have five billion common, which is double almost
Speaker 1: the old record. So anyway you look at this, it
Speaker 1: starts to look like a hockey stick. And that growth
Speaker 1: is one of the things we're gonna be talking about here.
Speaker 1: So before we go any further, let's explain it the
Speaker 1: most basic level. What in eat F is, Eric, I
Speaker 1: know that you like to say that in eat F
Speaker 1: is like a marriage between a stock, which is a
Speaker 1: share in a publicly traded company, and an index fund,
Speaker 1: which is basically a compilation of all those different stocks. Yeah, exactly.
Speaker 1: I mean I teach the new classes on ets here
Speaker 1: to new hires, and everybody can identify with that. You
Speaker 1: show a picture of a stock and an index fund.
Speaker 1: And because look, a lot of products that people love
Speaker 1: and no came from two things getting combined, and so
Speaker 1: it makes sense. Sometimes you bring two things together, you
Speaker 1: get something better in the end. Yeah, basically, I mean, take,
Speaker 1: for example, the Reese's Peanut butter cup chocolate and peanut
Speaker 1: butter Right, I know you like those, God, I love this. Yeah.
Speaker 1: Or I mean your favorite band, Haul of Notates, Right,
Speaker 1: you got Haul and Oats. They are really bad individuals.
Speaker 1: You put them together, You've got like a twenty hit songs,
Speaker 1: so much better together than apart. Yeah, throwing the must fashion,
Speaker 1: You've got basically a gold mine. The mustache was just gold.
Speaker 1: So what are the advantages of the marriage in the
Speaker 1: context of an ETF. So the good stuff people like
Speaker 1: about stocks, right, You like it's easy to trade, there's
Speaker 1: price transparency, it's convenient. Right. The stuff that people like
Speaker 1: about index funds is they're cheap and they're diversified, so
Speaker 1: you get a lot of stocks in one shot. Let's
Speaker 1: actually dwell on that diversification idea for a little bit longer.
Speaker 1: I like to think of diversification like a carton of eggs. Right,
Speaker 1: so there's twelve. Maybe you drop that carton and you
Speaker 1: break one, but you haven't ruined the whole carton, right,
Speaker 1: you still have eleven others that are perfectly good. Is
Speaker 1: that a little bit like what an e t F is.
Speaker 1: My wife would still yell at me for the one
Speaker 1: that broke, but my issues aside. Yes, that's a great
Speaker 1: way to put it. I'm a fan of metaphors, and
Speaker 1: I think you just nailed it there. That's exactly what
Speaker 1: diversification does for you. So as simple as I think
Speaker 1: that sounds, I want you to try and explain it
Speaker 1: to our producer who we've hired, because she actually knows
Speaker 1: nothing about E t F s. Jordan, Can you hear us?
Speaker 1: That's right? I can hear you and I don't know anything, alright,
Speaker 1: E T S you know, Jordan is basically our audience. Yeah, totally.
Speaker 1: So so let's actually like try and explain it to Jordan. Eric,
Speaker 1: what's an example that you like to use when you're
Speaker 1: explaining what in the E t F is? Okay, so
Speaker 1: Jordan's let's let's create a scenario here. Okay, Let's say
Speaker 1: you live out in the suburbs, right, and you walk
Speaker 1: outside and you see somebody putting solar panels up on
Speaker 1: the roof across the street. Which, Jordan, you're from California.
Speaker 1: Maybe you've seen that before. I've seen it go down. Yeah,
Speaker 1: there's solar streets there, right, Yeah, So anyway, you see
Speaker 1: solar or something going up, and you said yourself, you know,
Speaker 1: I'm seeing a lot of this. This is something i'd
Speaker 1: like to invest in. Now, you don't even know any
Speaker 1: solar stocks. I don't. It's who does, right, So how
Speaker 1: would you go about doing that? You'd have to go
Speaker 1: research the stocks and all this Already you'll be like,
Speaker 1: you know what, I'm late for the bus? That the
Speaker 1: hell with it? Well? Eat, yes, make that very easy,
Speaker 1: because like take the solar energy E t F as
Speaker 1: a ticker Tan, which is one of the best parts
Speaker 1: about E T F are these crazy names. Not all
Speaker 1: the tickers are that good, but that that one's right
Speaker 1: up there. But Tan easy to remember. But look Tan.
Speaker 1: What it does is it serves up thirty solar stocks
Speaker 1: in one shot. Tan does all that work. You buy
Speaker 1: Tan and then you own those thirty stocks at once.
Speaker 1: And Tan's actually a really good example to explain diversification
Speaker 1: because there was a stock inside TAN called g T
Speaker 1: Advanced Technologies and it declared bankruptcy after Apple had decided
Speaker 1: not to use some of their glass and one of
Speaker 1: the iPhone six screens. So the stock drop in one day.
Speaker 1: So Jordan, if you had picked that stock, you would
Speaker 1: be sucking win basically, oh my gosh. But that only
Speaker 1: contributed to negative one percent of Tan's performance. So in
Speaker 1: other words, Tan barely felt it because it was just
Speaker 1: one of thirty six stocks. And that essentially is why
Speaker 1: you want to be diversified. So you avoided huge risk
Speaker 1: of a single stock blowing up, but you also gave
Speaker 1: something up to right. Yeah, So this is why stock
Speaker 1: picking will probably never die as an art form because
Speaker 1: Jordan's let's say you bought solar City a couple of
Speaker 1: years back, and that went up two in a year,
Speaker 1: and that year Tan only went up. So that's the
Speaker 1: downside is you aren't gonna sort of win the lottery
Speaker 1: if you pick the right stock. So it's almost like
Speaker 1: passive investing and diversification is you saying, you know what,
Speaker 1: I'd rather give up a potential home run to ensure
Speaker 1: I don't strike out, which passive investing. E t f
Speaker 1: s are mostly passive. It's also worth noting that that
Speaker 1: stock got booted out of TAN. Yes, so after declared bankruptcy,
Speaker 1: it was gone within a couple of days. That's the
Speaker 1: thing with e t s. They track indexes, and those
Speaker 1: indexes have all these rules that look for certain requirements.
Speaker 1: So if the stock gets weak, declares bank upsee, or
Speaker 1: just just starts lagging and becomes a bad actor, it's
Speaker 1: going to get kicked out of the index and replaced
Speaker 1: by a stronger up and comer. So there's a regeneration
Speaker 1: process to the index, so you don't have to do
Speaker 1: any work. So even though you picked it, it's not
Speaker 1: just those thirty six stocks in stuck in time. They
Speaker 1: actually change and regenerate over time, so that you have
Speaker 1: to worry about it. So, Jordan, do you have a
Speaker 1: little bit better sense of what ETFs are about? Now? Yeah,
Speaker 1: I can get an e t F in something I'm
Speaker 1: interested in, but I, you know, diffuse my risk because
Speaker 1: of how they're set up, but I also forego my
Speaker 1: chance that hitting it real big. There you go, she said,
Speaker 1: diffuse my risk. I think she knows more than we think.
Speaker 1: That's pretty good. Did you just pick that up from
Speaker 1: our little discussion? Wow, Okay, we're on the right track, quick, learner.
Speaker 1: So Jordan's understands what in e F is, and she
Speaker 1: understands what TAN is. But Tan's like a really small
Speaker 1: niche player here, right, Like, let's talk about like the
Speaker 1: rest of the E t F landscape. Yeah, totally Tan is. Yeah,
Speaker 1: niche is the right word. But it's just good for
Speaker 1: a scenario, you know, solar energy everybody. And she, you know,
Speaker 1: Jordan's a millennial, so I figured she'd respond to that
Speaker 1: and she did. Um anyway, but most of the money
Speaker 1: is going into what we call in the analyst world,
Speaker 1: plain vanilla e t F s. TAN would be like
Speaker 1: Rocky Road, a little more exotic, a little more volatile.
Speaker 1: But most of the money goes into stuff like e
Speaker 1: t s that just basically tracked the SMP five hundred.
Speaker 1: There's a couple of those, Yeah, there's a couple of
Speaker 1: those called like Spy, Spy, Spider has one, black Rock
Speaker 1: has one. Their brand is called I Shares, and Vanguard
Speaker 1: has one. Most people out there probably no Vanguard at
Speaker 1: this point. Vanguard's a pretty big player in the ETF space.
Speaker 1: They are only plain vanilla. Black Rock does a little
Speaker 1: of both, and the same with State Street. But like,
Speaker 1: take the SMP five majority tfs. They collectively account for
Speaker 1: nearly one five of all e t F sets. That's
Speaker 1: how popular they are. And there's f so just buying
Speaker 1: the SNP what these things are doing, I mean, that's
Speaker 1: ultimately that's what Warren Buffett as to do. I mean,
Speaker 1: just buying the SMP five hundred is arguably the most
Speaker 1: popular investment move right now. And are these buy and
Speaker 1: hold investments or are people trading them? Good questions. So Spy,
Speaker 1: which is the Spider product that was the first TTF,
Speaker 1: that one has a lot of liquidity, trades a lot,
Speaker 1: so that one's used a little more from like for
Speaker 1: traders going in and out of the SMP five hundred
Speaker 1: black Rock and Vanguards are a little more used by
Speaker 1: buy and hold investors. They're also a little cheaper, you know,
Speaker 1: the low expense ratio attracts more of the buy and
Speaker 1: hold investors. But ultimately all three could be used to
Speaker 1: hold twenty years if you wanted, or twenty minutes. And
Speaker 1: how cheap are these things? And let's kind of use
Speaker 1: a real number. I'm gonna say I have, right, sure,
Speaker 1: how much does this actually cost me? Right? So, say
Speaker 1: you have ten thousand dollars, If you put that into
Speaker 1: s p Y, they would basically take out nine dollars
Speaker 1: and fifty cents a year. If you put it into
Speaker 1: v O O, which is the Vanguard, they take out
Speaker 1: five bucks a year. And if you put an IVV,
Speaker 1: they take out four bucks a year. So talking about
Speaker 1: you know, a slice of pizza, you know, two slices
Speaker 1: of pizza. Maybe not in penn station, but yeah, it
Speaker 1: depends on where anyway, that's true. So for a couple
Speaker 1: of slices of pizza, you can have the whole entire
Speaker 1: stock market. That's a revolutionary moment totally. That That is
Speaker 1: why these are powerful, you know, explosive tools that are
Speaker 1: sweeping the nation literally, so you don't have to go
Speaker 1: out there and buy individual stocks and then try and
Speaker 1: like manage that portfolio. You get one thing. Yeah, And
Speaker 1: you know, when I wrote this book on et f s,
Speaker 1: the word that kept coming back to when I spoke
Speaker 1: to a lot of people about the advantages was convenience.
Speaker 1: And ultimately I went through advantages of ETFs and at
Speaker 1: the end, I'm like, it's really convenience. I mean, cost
Speaker 1: is a big one, but you know, people love things
Speaker 1: that are convenient. Any business if you can serve up
Speaker 1: convenience and make life easier. I mean, look at Amazon.
Speaker 1: I mean it's not like anything to get on there
Speaker 1: you can't get anywhere else. It's just convenient. And ETFs
Speaker 1: ultimately provide convenience in multiple times over. So we talked
Speaker 1: about the plain vanilla side of the et F world.
Speaker 1: What are some other sides? Right? So you got bonds, right,
Speaker 1: So bond markets a huge thing, and there's I would
Speaker 1: consider a few plain vanilla bond e t f s,
Speaker 1: some that just give you like all bonds sort of
Speaker 1: all collectively. Then there's things that are a little more risky,
Speaker 1: like high yield debt. You know, some people call them
Speaker 1: drunk bonds. There's an e t FS for that. Then
Speaker 1: you've got areas like commodities, a big et F in
Speaker 1: the commodity spaces g l D which basically, you know,
Speaker 1: you think that some hundred is convenient. G LD essentially
Speaker 1: gives you exposure to a bunch of bars of gold
Speaker 1: sitting in a storage facility. So it's like having a
Speaker 1: way to own goal with having to pay insurance, you know,
Speaker 1: or to worry about anybody stealing it. Own a vault, right,
Speaker 1: No need to own a vault. You can just own
Speaker 1: a little bit of E t F. Yeah. I mean
Speaker 1: you're essentially buying shares in physically back gold. So there's
Speaker 1: a there's basically in g l D s case the
Speaker 1: gold is stored in London, there's a guy there with
Speaker 1: a machine gun, probably like standing outside the vault. Um,
Speaker 1: I'm not sure if that's true, but I imagine that's true.
Speaker 1: But anyway, it's in a bank. It's a good mental image.
Speaker 1: Let's just say it's secure. Okay. You know this isn't
Speaker 1: like you know, the Pink Panther, where a group of
Speaker 1: bandits are going to be able to get in there
Speaker 1: and steal it. But ultimately, and I hope one day
Speaker 1: we can go look at the gold. You know, now
Speaker 1: that we're yeah we have this podcast, maybe I'll let
Speaker 1: us look look at it and then we can interview
Speaker 1: the gold. Yeah, it's going to be. So that's all
Speaker 1: domestic stuff here in the US. What about international internationals?
Speaker 1: Growing area definitely, And what I find interesting what ets
Speaker 1: internationally is a lot of them. I mean they all
Speaker 1: hold local shares in local markets. I mean used to
Speaker 1: need a broker to get say like local Egyptian stocks,
Speaker 1: right E t f s do that for you. So
Speaker 1: even institutions use ets international play, but mostly the big
Speaker 1: plain Venila international ones are for example, international developed, which
Speaker 1: essentially is the countries that are more developed, like European
Speaker 1: countries in Japan. They all package that in one E
Speaker 1: t F Vanguard has a couple, black Rock has a couple.
Speaker 1: Then you could look at something like emerging markets. Those
Speaker 1: little more risky, but you package all of them together.
Speaker 1: You get countries like China, right, Brazil, um in some
Speaker 1: of them South Korea, and they put all those together,
Speaker 1: and then you can go further out there's frontier market
Speaker 1: e TF. Those are countries that are like on the
Speaker 1: like JV of development and that they're not even emerging yet.
Speaker 1: And the difference between the emerging markets and that frontier
Speaker 1: markets is pretty amazing. For the countries that are in them.
Speaker 1: You've countries that are like, you know, really out there,
Speaker 1: like Kenya and Vietnam, and there's ets that serve that up.
Speaker 1: And there's there's et F T tracks Africa, like all
Speaker 1: the stocks that are in African countries. So you go
Speaker 1: down the list, I mean you throw out a country,
Speaker 1: I can tell you how to play with. The t
Speaker 1: S is basically the whole the whole world pictures like
Speaker 1: a rememberable the game risk, you know, you put your
Speaker 1: little men all over or propoily whatever. The whole world
Speaker 1: has been e t F I. So if you want
Speaker 1: to say France, how do you want it? You want
Speaker 1: individual France ETF? Do you want a Eurozone e t F.
Speaker 1: Do you want a Pan European et F? Or do
Speaker 1: you want that in international developed? So it goes from
Speaker 1: more you know, very narrow, to more general and everything
Speaker 1: in between. And now they'll do ones where it's like,
Speaker 1: oh we'll give you French stocks, but will wait them
Speaker 1: by their fundamentals. So I think when the average investor,
Speaker 1: here's something like E t F. Not only do they
Speaker 1: get a little confused, but they also get a little
Speaker 1: scared because the financial industry is really good at coming
Speaker 1: up with scary acronyms, things like C d O S
Speaker 1: that brought down almost brought down the world with the
Speaker 1: financial crisis. So they hear E t F and it's
Speaker 1: yet one more thing. So, even though this thing has
Speaker 1: grown so rapidly, I think there's still this apprehension around
Speaker 1: here's this thing from the financial world. Should I trust it?
Speaker 1: That's a completely fair feeling for people to have. And
Speaker 1: I feel the same way. I think the thing with
Speaker 1: E t F though, is and again, like you said,
Speaker 1: this is this acronym really the greatest name ever? Maybe not,
Speaker 1: But the F is key. It's a fund, it's a
Speaker 1: mutual fund. In fact, E t F s are registered
Speaker 1: with the SEC under the same act as mutual funds.
Speaker 1: You know, some people call them mutual funds with benefits.
Speaker 1: And ultimately that's important understand because they are not derivatives.
Speaker 1: They are actually funds. They just happen to trade on
Speaker 1: the exchange their shares do. And so I think that's
Speaker 1: a key point to feeling safer about using them is
Speaker 1: that they are fiduciary vehicles approved by the SEC. Although
Speaker 1: I should just sort of evolve what I just said
Speaker 1: to say that there are some types of products at
Speaker 1: the fringes. Right. What I just described is basically there's
Speaker 1: some stuff at the fringes. Stuff that say tracks oil
Speaker 1: futures or three times leverage dtfs. Those are don't they
Speaker 1: don't have much in assets, but they do get a
Speaker 1: lot of attention. But those are not those are not
Speaker 1: registered under the forty Act. Those would be called exchange
Speaker 1: vehicles or or you know e t p s. Those
Speaker 1: are a little different, and they sort of got under
Speaker 1: the same sort of tent of e t F. But
Speaker 1: ultimately I think for most investors they're going to use these,
Speaker 1: you know, the plain vanilla e t F to get
Speaker 1: exposures that are more normal. But you know, you will
Speaker 1: find some investors will be curious and maybe go outside
Speaker 1: of that. But those are the areas where I think,
Speaker 1: especially this podcast will let you know why there's some
Speaker 1: areas and ETFs that are dangerous where you could lose money.
Speaker 1: I mean, I'm developing a rating system and I talked
Speaker 1: about this in my book, where if you rated e
Speaker 1: t f s like movies, you'd ultimately find there are
Speaker 1: some R rated e t s. The bulk of the
Speaker 1: assets and the bulk of the e t s would
Speaker 1: be P, G and G, but they do go into
Speaker 1: some areas that a little more risky. And this is
Speaker 1: where the buyer beware thing comes in, because you ultimately
Speaker 1: sort of need to know what you're buying. And the
Speaker 1: risk here is that everything kind of looks the same. Yeah,
Speaker 1: and the idea that the whole market has become so
Speaker 1: easy to buy, no matter what corner of the market
Speaker 1: you want, it's easy to buy is clicking buy and
Speaker 1: Microsoft shares. I agree, there is some degree of maybe
Speaker 1: that's made stuff that's more dangerous seem less dangerous. But
Speaker 1: again I take a step back from this because if
Speaker 1: you look at the assets and e t F that
Speaker 1: three trillion, almost every dime of it is in stuff
Speaker 1: that is not dangerous. It's just you know, plain van
Speaker 1: It's like stuff mutual funds hold. But yeah, at the fringes,
Speaker 1: there are some products that are beloved by people who
Speaker 1: use them, you know, stuff the tracks, the vix uh
Speaker 1: stuff features. Yeah, there's some there's some stuff that you
Speaker 1: know you might not even heard of that eat that
Speaker 1: some ETFs track. But ultimately I think that's why it's
Speaker 1: important to look at those. But they are not they're
Speaker 1: the exception, not the norm. So ultimately et fs just
Speaker 1: made things really easy because you can do all these
Speaker 1: things that used to be really complicated and now you
Speaker 1: can just do it on a button on your smartphone.
Speaker 1: You know. Yeah, it kind of reminds me. There's a
Speaker 1: phrase out they're fast, good, cheap, and they say that
Speaker 1: as a con numor you can only get two of
Speaker 1: those three things, right, So something's fast and good, it's
Speaker 1: not cheap. It's cheap and fast it's not good, and
Speaker 1: so on. And I think, you know, I feel like
Speaker 1: the you know, there's a couple of things that that
Speaker 1: basically blow that rule away and give you all three
Speaker 1: at once. So one thing just personal to me is
Speaker 1: Vietnamese restaurants. They really are fast, good, and cheap and
Speaker 1: E T F S. I. I do believe they deliver
Speaker 1: all three of those things in almost every case, not
Speaker 1: every but that to me again, and this goes back
Speaker 1: to when I got them in two thousand and six.
Speaker 1: After you start sniffing around them and you kick the
Speaker 1: tires on them, you realize, you know, they're they're a
Speaker 1: special kind of structure. So, Eric, we've talked about the
Speaker 1: growth of ETFs, We've talked about what these things look
Speaker 1: like and what's in them. We've talked about the risks.
Speaker 1: We broke it down for Jordan's where are we going?
Speaker 1: This is a question I ponder a lot. I think,
Speaker 1: you know, when you look at the future of the whole,
Speaker 1: the whole enchilada, right, I think you're just gonna see
Speaker 1: more and more investors demanding free exposure based or low
Speaker 1: low cost to the point where it's free. So I
Speaker 1: think one evolutionary line of e t F growth is
Speaker 1: going to be what we call a race to the bottom,
Speaker 1: and the bottom being good here means zero fees. Right now,
Speaker 1: like we said, e t F s are three, four
Speaker 1: or five, maybe six basis points, especially in the plane
Speaker 1: vanilla categories. You know those are being driven down. They
Speaker 1: were fourteen basis points ago. Yeah. In fact, they did
Speaker 1: a study over at et f dot com that showed
Speaker 1: that the cheapest the e t F portfolio drops by
Speaker 1: a basis point of year. So right now it's at
Speaker 1: point oh six percent. I mean, you can get a whole,
Speaker 1: fully diversified portfolio ets for point six percent all in
Speaker 1: that drops a basis point of year, So that puts
Speaker 1: us on track to have free exposure in the next
Speaker 1: five or six years. And I think most people think
Speaker 1: that's going to happen, and that's a beautiful thing. I mean,
Speaker 1: think about that concept. That is going to up end
Speaker 1: the entire financial system. You think, you know Bernie Sanders,
Speaker 1: he probably wouldn't even even imagine how much this is
Speaker 1: going to change things, and likely probably just gonna shrink
Speaker 1: wall straight to a degree because just be way less money.
Speaker 1: The retail host organism is going to be tiny if
Speaker 1: people keep going to that point and the people issuing
Speaker 1: the ETFs are dropping the fees. Why because people are
Speaker 1: buying the cheaper ones. If a e t F, for example,
Speaker 1: goes from tied for the cheapest to the cheapest, I've
Speaker 1: seen it happen, billions will go to the cheaper one
Speaker 1: almost nothing like one basis point almost right. Yeah, it's
Speaker 1: people are cost obsessed, and even we're talking to people
Speaker 1: who might not even know much about et f s.
Speaker 1: Something shifted back in the nineties and eighties. It was
Speaker 1: all about the hot manager, the five star manager. You know,
Speaker 1: you talk about at the party, Hey, I picked the
Speaker 1: best doc, or are the best manager? That's changing now
Speaker 1: you go. People are bragging about how low cost their
Speaker 1: portfolio is and how cheap they're getting things. So I
Speaker 1: think that there's a cost obsession that is just going
Speaker 1: to continue to drive fees lower on the plane vanilla side,
Speaker 1: and ultimately that's going to be very tough if you're
Speaker 1: in the financial industry, but it's going to be wonderful
Speaker 1: if you're an investor. So great for investors, and you've
Speaker 1: got that pressure pushing on this what you'll call like
Speaker 1: an evolutionary line. There's this whole other evolutionary line though,
Speaker 1: what do you see over there? So in the play
Speaker 1: vanilla category, I just think a lot of investors are
Speaker 1: just not satisfied with say a couple you know, the
Speaker 1: stock market. It's like okay, yeah, okay, so I got
Speaker 1: a SMP, I got a bond index, and you know
Speaker 1: that's good and arguably if you just hold that for
Speaker 1: twenty years, you'll probably do better than everybody. But people
Speaker 1: are itchy, they want to outperform, they want to try
Speaker 1: to do better. There's a whole group of ETFs being
Speaker 1: launched that allow you to try to outperform using strategies
Speaker 1: right there, packaging trades, you've got themes, and that's in
Speaker 1: for an analyst. That's where the fun stuff is. To
Speaker 1: be honest with you, I like covering all the new
Speaker 1: stuff they're launching, and over there you can charge a
Speaker 1: little more because if your goal is to kind of
Speaker 1: beat the market or provide some exotic exposure, something that's
Speaker 1: new and fresh, Ultimately people are willing to pay a
Speaker 1: little more. But even fees are still coming down over there.
Speaker 1: But ultimately I think that is where you'll see sort
Speaker 1: of a lot of the other like you'll see some
Speaker 1: really wild stuff being launched the DTF. In fact, this
Speaker 1: year's satire is tomorrow's new ETF. For instance, let's talk
Speaker 1: about whiskey. Yeah, there's a whiskey et F, which essentially
Speaker 1: is tracking stocks that are in the whiskey production. But
Speaker 1: you know, honestly about whiskey, even though it sounds silly,
Speaker 1: there is a fundamental story there. If you look at
Speaker 1: the stock prices and some of these liquor companies, they've
Speaker 1: been doing pretty well. There's a global demand for for alcohol,
Speaker 1: and the guy who started. The whiskey TF is from Lexington, Kentucky.
Speaker 1: He's around that industry. So even the gimmicky ones, it's funny.
Speaker 1: You start to unpeel a little bit and you realize
Speaker 1: there's somebody who really believes in that industry. Somebody thinks
Speaker 1: it's a fundamental story. But on its surface, do you
Speaker 1: really need a whiskey et F in your portfolio. That's
Speaker 1: where people think it's gimmicky, it's you don't need it.
Speaker 1: But ultimately that's an example I think of of the
Speaker 1: kind of thematic ETF that you see launching a lot
Speaker 1: more lately. That's one of the things that I think
Speaker 1: is so fascinating about this particular space is that a
Speaker 1: lot of these things just started with somebody having an idea. Yeah.
Speaker 1: I was just talking to the guy who launched the
Speaker 1: reverse market cap weight at et F, which essentially waits
Speaker 1: the lowest stock in the SPF with the biggest waiting,
Speaker 1: and he said, he just got the idea, and then
Speaker 1: he back tested it looked good, and so he launched
Speaker 1: then e t F. Ultimately, this is what I love
Speaker 1: about the ETF industry. It is the Silicon Valley of
Speaker 1: the financial world right now. This is where all the
Speaker 1: innovation is happening from big companies like JP Morgan and
Speaker 1: Goldman as well as small independent issuers. I call him
Speaker 1: the indie the indie guys, sort of like indie rock. Yeah,
Speaker 1: these are independent issuers. A big indie one that's been
Speaker 1: hit it big was the robot which is the robotics industry.
Speaker 1: That e t F is now almost two billion dollars
Speaker 1: and it just had a good idea these stocks weren't
Speaker 1: really represented other benchmarks, and then it outperformed like a madman.
Speaker 1: And ultimately it is interesting seeing some of these smaller
Speaker 1: niche independent ones actually work out for investors. And ultimately,
Speaker 1: I think the idea of outperform warming or having something
Speaker 1: that's got a little extra juice in it that will
Speaker 1: never die. Performance chasing is as old as you know
Speaker 1: the world, and you're going to have people who performance chase,
Speaker 1: and that's why there won't only be the play ven
Speaker 1: la side. You'll also have this side with people packaging
Speaker 1: everything they can into an e t F. And we
Speaker 1: just saw one that was coming out, like calling package trades.
Speaker 1: There's ones that will go long say local stocks, and
Speaker 1: then short the currency and a good example of one
Speaker 1: that packaged in actual trade was clicks. It goes long
Speaker 1: online retailers like Amazon and short brick and mortar stores
Speaker 1: like Sears and J. C. Penny and that you know, again,
Speaker 1: you could do that on your own, but now they're
Speaker 1: doing it for you. So now you see trades being
Speaker 1: packaged into an e t F or strategies like value
Speaker 1: or momentum. There is so much going on, it's it's fascinating.
Speaker 1: And you you see about four e t F launch
Speaker 1: a day in the world and about one in the US,
Speaker 1: so every day there's something coming out. I mean, ultimately,
Speaker 1: just like apps. You know, there's all these apps coming
Speaker 1: out because the iPhone is bringing this to people. All
Speaker 1: the money is going into et s, right, so that's
Speaker 1: why you see a lot of innovation and on the
Speaker 1: side that's more that does more niche stuff. Most of
Speaker 1: those are going to fail. There's you know a lot
Speaker 1: of them will just not have any buyers. But for
Speaker 1: every twenty that fail, there'll be a robotics CTF or
Speaker 1: a cybersecurity et have to get to billion dollars and
Speaker 1: that's going to keep this independent spirit, which I think
Speaker 1: is healthy for the industry. But at the end of
Speaker 1: the day, the big money, the real money, it's going
Speaker 1: to go to Vanguard, black Rock, State Street in the
Speaker 1: plain videll stuff that costs almost nothing, which brings us
Speaker 1: back to Trillions, because that's how much money is actually
Speaker 1: pouring into these things. Thanks for listening to Trillions until
Speaker 1: next time. You can find us on the Bloomberg terminal,
Speaker 1: the Bloomberg app, Bloomberg dot com, as well as on
Speaker 1: Apple podcast, Stitcher and probably a few other things I
Speaker 1: don't know about yet. While you're there, take a minute
Speaker 1: to rate and review the show. It helps other people
Speaker 1: find us. We're also on Twitter and would love to
Speaker 1: hear from you. I'm at Joel Webber Show. He's at
Speaker 1: Eric Baltunas. Trillions is produced by Jordan Bell with help
Speaker 1: from Magnus the Swede Hendriksen. Francesca Levie is the head
Speaker 1: of Bloomberg Podcast. Bye M M M