Speaker 1: Welcome to trillions. I'm Joel Webber and I'm Eric Dallieres. Eric.
Speaker 1: I grew up watching PBS, right, and there's a show
Speaker 1: on PBS, really famous group. Yes, I love that show.
Speaker 1: SNL did a lot of good send ups of it,
Speaker 1: and like day as as John McLaughlin. And what what
Speaker 1: made it funny is John McLaughlin had like no patience
Speaker 1: and and it was at a time where people were
Speaker 1: kind of you know, used to TV and give it
Speaker 1: getting a d D. And so it was a show
Speaker 1: of pundits and political uh talk talking about the news
Speaker 1: of the day. Yeah, and he really would hardly let
Speaker 1: anybody finish. He would just go around quickly and he
Speaker 1: was like sort of a yeah. He was like no,
Speaker 1: no, no no, no, And and it was fun to watch.
Speaker 1: It was a spectacle and it was for our A
Speaker 1: d D minds. This is you know, young gen x
Speaker 1: or I really liked it. I felt I got a
Speaker 1: lot out of it. It was slightly entertaining, and you
Speaker 1: don't see that token Republicans. Everybody's thrown in together, right,
Speaker 1: So we're gonna do our own version of it. We
Speaker 1: are We're joined by a few e t F nerds
Speaker 1: and we're gonna talk about the E t F topics
Speaker 1: of the day. Yeah, and yes they're nerds, but they're pundits.
Speaker 1: So when the McLaughlin group had these political pundits on,
Speaker 1: these are the E t F equivalent of those pundits.
Speaker 1: They're just E t F pundits. In fact, when I
Speaker 1: do conferences, I'll frequently be on a panel called the pundits,
Speaker 1: and it's with these people. These are also the people
Speaker 1: that you know me from being on that competition. We're
Speaker 1: always coming third or fourth place, which disappoints you, and
Speaker 1: I'm sorry, but it's these are the pundits that I
Speaker 1: see in the circuit and who are usually the ones
Speaker 1: you see quoted, and they're really lively and become friends
Speaker 1: with them, and it should because we're gonna talk about
Speaker 1: new regulations and we won't let them blather on and on.
Speaker 1: I'm gonna I'm gonna sort of you're gonna McLaughlin a
Speaker 1: little bit here. Yeah, we're gonna keep this quick and
Speaker 1: rapid fire and get this. I'm gonna see if from
Speaker 1: get through twenty questions. This week on Trilliance Nerds, we're
Speaker 1: gonna launch right into introductions. Let's start off Dave, Dave
Speaker 1: not Egg, Managing director et F dot Com, Tom tom Lyden,
Speaker 1: editor of ETF Trends, Todd Todd Rosenblute, Director of et
Speaker 1: F and Mutual Fund Research at CFR A alright, question
Speaker 1: number one, Todd, is too much attention paid to the
Speaker 1: expense ratio? Most definitely, so we've seen a race to
Speaker 1: the bottom. But there are products that compete with one
Speaker 1: another where the exposure is quite different from one another.
Speaker 1: You have V W O and I E MG hundred
Speaker 1: basis point difference this year and performance the exact same fee.
Speaker 1: We've got dividend products that are the same thing. If
Speaker 1: you're buying market cap weighted products, it may not matter
Speaker 1: if you're doing anything else. You really got to look
Speaker 1: under the hood. Dave, it always matters because uh, fees
Speaker 1: are important. But I think what Todd was trying to
Speaker 1: say but stumbled over his own tongue is exposure matters
Speaker 1: way more than fees, and that's the number one thing
Speaker 1: that determines your performance. But Tom, isn't there a backlash
Speaker 1: against paying too much in the past? Then? Is it
Speaker 1: understandable that people want their investments for absolute dirt. Cheap
Speaker 1: price is important? But major market indicators. If you're paying
Speaker 1: four basis points, great, But as we see thematic factor
Speaker 1: multi factor, you're gonna pay up a little bit more
Speaker 1: for it. Compare that to mutual fund expense ratios. It's crazy.
Speaker 1: Tom's like the smooth jazz station. He is the top
Speaker 1: of his head. Yeah, he is the smoothest of us.
Speaker 1: All all right, um, and my two cents, I think
Speaker 1: plain vanilla, you know, expense ratio should rule. I think
Speaker 1: when you get to more exotic areas, you should pay
Speaker 1: a little bit. People do need to make a living here. Okay.
Speaker 1: Number two, how will a bear market affect et s? Dave? Uh,
Speaker 1: it's going to be great for e t f s
Speaker 1: because it's gonna flush out a lot of overpriced, underperforming,
Speaker 1: low active share active managers. All that money comes into
Speaker 1: the et F industry. We've seen it over and over again.
Speaker 1: We see it when we have a one month downturn.
Speaker 1: We see it we have a one year downturn. Tom, Well,
Speaker 1: we haven't talked about this before, but a lot of
Speaker 1: money is going to go into mutual funds, money market funds, UH,
Speaker 1: short term fixed income. The industry is gonna be hurt. Todd, Yeah,
Speaker 1: I think people don't want to pay much when they're
Speaker 1: losing money, so that the less that they can pay
Speaker 1: through through E t F s h through both fixed
Speaker 1: income and equity products, I think is gonna garner more interest.
Speaker 1: I agree. Um, Look, the bull market has actually been
Speaker 1: way better for active than most people think. Assets have
Speaker 1: increased in active funds by seven trillion. That's more than
Speaker 1: all of passive a bear market we've had, not only
Speaker 1: for flows, but just for their sort of asset growth.
Speaker 1: How responsible for the epic bull market that we've been in,
Speaker 1: which also happens to be an insanely boring bull market?
Speaker 1: How responsible for that are E t F s not?
Speaker 1: I would say E t f s are a symptom
Speaker 1: of that, not a cause. Yeah, it's just the rapper.
Speaker 1: So if the stocks inside are going up, then the
Speaker 1: E t F is gonna go up. But there's so
Speaker 1: much more money that's in active management, either in the
Speaker 1: mutual fund wrapper or individual stocks then or separate accounts
Speaker 1: than it is the t F. The TF is riding
Speaker 1: in the back stew to the car, not driving. Yeah,
Speaker 1: that's it. They've just been along for the ride. Yeah,
Speaker 1: I mean, look, one direction has a lot of sales.
Speaker 1: It's not really an MP three thing. Okay, number slap
Speaker 1: across the face, Okay, yeah you got you kind of
Speaker 1: got taken down there. Um, welcome to the club. Alright,
Speaker 1: Number three, which E T F provider is most likely
Speaker 1: to crack the top five? That isn't there? Now? Tom,
Speaker 1: I'm gonna say, Wisdom Tree. If you look at Wisdom
Speaker 1: Tree and there, did I take your? You take mine? Yeah? Well,
Speaker 1: the whole ideas they were built on the currency strategy,
Speaker 1: and when the dollar is strong, it's really really tough
Speaker 1: for them. But when you look at the way John O.
Speaker 1: Steinberg put the thing together, it's really well positioned that
Speaker 1: when things start to cool off here in the US
Speaker 1: and heat up overseas and especially in development countries, it's
Speaker 1: gonna be huge. So, as simple minds would say, don't
Speaker 1: you forget about me? Tom obviously listens to this podcast.
Speaker 1: I love it. Tom. We're gonna have like we should
Speaker 1: put together a Spotify playlist for this afterwards. Well we
Speaker 1: did to give request. Somebody has asked asked us like,
Speaker 1: can you list the tickers you cover? I've asked that
Speaker 1: about the TV show too. Um, now, Eric, how about
Speaker 1: this one? Would you make someone a mix tape of
Speaker 1: all the songs that come up on this episode. Oh? Absolutely,
Speaker 1: but I mean honestly, the more like is a is
Speaker 1: a list of mixed tape of the tickers we cover.
Speaker 1: I think that's the main goal. Anyway, Todd, we're back
Speaker 1: to the questions. You have to be ready, dude, I
Speaker 1: was so JP Morgan. So JP Morgan is crashing the
Speaker 1: et F party. They're about to hit the top ten
Speaker 1: with their Beta builder products being a driver and with
Speaker 1: active management and with multi factor. I really think they're
Speaker 1: going to put the resources behind growing in this space.
Speaker 1: They're not in it just to be on the outside.
Speaker 1: They're in it to be in the top five. I
Speaker 1: think the more interesting question is top four, because Charles
Speaker 1: Schwab is going to kick Investco power Shairs to the curb.
Speaker 1: On that front, Charles Schwab is rapidly headed towards the
Speaker 1: top three player. Right, but they're already five, right, No,
Speaker 1: I know I'm hijacking your questions, so we haven't talked.
Speaker 1: First is first trust in the game. See that was
Speaker 1: my pick. First trust to me is like the quiet baller.
Speaker 1: No matter what they put out, they come up with
Speaker 1: a billion dollars they have. Whenever I talk to people
Speaker 1: on the street, they say, nobody sales people is like
Speaker 1: first Trust, So I would go with First Trust. I
Speaker 1: think JP Morgan Goldman is a good sort of outside
Speaker 1: and I like all your answers, actually, but I would
Speaker 1: have to trust is too easy there. Number six right
Speaker 1: counts you know alright? Number four? Which et F category
Speaker 1: will see the most innovation in the next five years? Dave, uh,
Speaker 1: thematic ets. I think that's where you're seeing most of
Speaker 1: the interesting stuff happen right now. You're going to see
Speaker 1: more active product there, and I think that's where you're
Speaker 1: going to see most of the headline stories. It won't
Speaker 1: be where all the assets are. That will still be
Speaker 1: low cost beta, but I think the stories are all
Speaker 1: gonna be thematic. Todd, Yeah, I think fixed income is
Speaker 1: where we're gonna start to see this. We've started to
Speaker 1: see ascid growth and is mostly in the broadly diversified products.
Speaker 1: But I think there's a lot you can do from
Speaker 1: an active perspective and an index rapper or an et
Speaker 1: F rapper, and a lot of very smart people who
Speaker 1: work at asset management companies who are gonna be looking
Speaker 1: for new roles. Creating an index is going to be
Speaker 1: very important. I think at active equity we get a
Speaker 1: bear market in stocks, there are a couple et fs
Speaker 1: that are poised to go all cash, and if they
Speaker 1: catch it on the downside and sidestep it and then
Speaker 1: get in on the upside, here's a situation where E
Speaker 1: T F company can set themselves apart performance wise, show
Speaker 1: that alpha and they're billions that come in there. I
Speaker 1: I don't I don't buy that these cash flippers that
Speaker 1: that go in and out of the market are going
Speaker 1: to be the thing. Yeah, one of them will catch
Speaker 1: lightning in a bottle, but I don't think investors buy
Speaker 1: that that's a repeatable thing. Okay, so they'll be late
Speaker 1: because they'll buy it after the fact, for sure. But
Speaker 1: med Faber wrote this trend following white paper in two
Speaker 1: thousand and seven. Nobody read it. Nobody at all read
Speaker 1: it after the fact after the bear market. Hundred thousand downloads,
Speaker 1: So it's crazy. Unfortunately, investors are late, But from a
Speaker 1: performance standpoint, somebody's going to be in the position to
Speaker 1: get it. So I'll riff off of Tom and say alternatives.
Speaker 1: And the reason I say that is because if you
Speaker 1: don't have this sort of easy market uh, and there
Speaker 1: is some some down or volatility or a couple of
Speaker 1: years that are negative. Anything that shorting is gonna look
Speaker 1: really good. And I think then you'll see a lot
Speaker 1: of uh some flows, and of course you'll see the
Speaker 1: innovation on top of that. There's been a lot of innovation,
Speaker 1: but I think there'll be more. Alright. Number five, what's
Speaker 1: the problem with E S G t F s? How
Speaker 1: come no one is buying them? Todd? I just think
Speaker 1: people wanna buy simple things from an et F rapper,
Speaker 1: so far and so and the other part of it.
Speaker 1: The problem is is that the money that's in these
Speaker 1: mutual funds is sticky. People are not performance chasing when
Speaker 1: they're buying based on what matters to them from a
Speaker 1: social responsibility, from a government perspective, and environmental perspective. So yeah,
Speaker 1: I just butchered. I made it seg on that. It's
Speaker 1: also complicated for people. So I think the money isn't
Speaker 1: flowing from mutual funds to et F the way it
Speaker 1: is for traditional active management. Maybe at some point it will, Dave,
Speaker 1: I know, yeah, you're an area I think, well, I
Speaker 1: think that money is going to come. I think it's
Speaker 1: a long, slow trickle. We have a thirty trillion dollar
Speaker 1: generational wealth transfer that's happening. That money will hit E
Speaker 1: s G as that money changes hands, but it's just
Speaker 1: gonna take time. That money is gonna be very sticky
Speaker 1: and it's never gonna leave. Once that money is in
Speaker 1: an E s G fund, it's stuck. But will the
Speaker 1: firms survive? Will the will the products stay out there
Speaker 1: long enough? Will the firms be patient enough products to
Speaker 1: be able to do that? We see products closed after
Speaker 1: a few years when they can't get The big thing
Speaker 1: is can they hang with the major market index is
Speaker 1: number one? And can some in fact provide alpha? All
Speaker 1: the back testing shows that there is some alpha to
Speaker 1: be gained there. That's the question. And well, let me
Speaker 1: flip that around on you dave this. Everybody says millennials
Speaker 1: are going to be the E S G um, the
Speaker 1: people who buy s G. But look, let's face it,
Speaker 1: you just said boomers are going to transfer. Boomers were
Speaker 1: the biggest hippies of all generations. How is why is
Speaker 1: nobody selling to them? Why are they why think they were?
Speaker 1: That's where all these guys in Portland, Maine came from
Speaker 1: that started the E s G revolution, But that's not
Speaker 1: where this transfer is coming from. This is coming from
Speaker 1: very high net worth baby boomers who are managing multimillion
Speaker 1: dollar portfolios, but they're seventy years old. Those folks are
Speaker 1: handing that money down. All the surveys suggests that E
Speaker 1: s G concerns are going to be a major factor
Speaker 1: in that wealth transfer. But is there pressure from institutions
Speaker 1: and foundations to actually allocate in that area as well? Well, yeah,
Speaker 1: that's what's building these products. You look at what's come
Speaker 1: out in the s G already, it's been driven by institutions,
Speaker 1: the wealth transfers. What follows, right, But my point is,
Speaker 1: doesn't every generation have sort of the E s G
Speaker 1: thing going on until they get kids, responsibilities and money,
Speaker 1: and then they forget it's too busy. Yeah, that it's
Speaker 1: easy to say that, but we've never seen the kind
Speaker 1: of response we've seen to investor surveys that we see
Speaker 1: right now. Right when when forty five year olds walk
Speaker 1: in with their parents they talk about this with financial advisors,
Speaker 1: it's showing up as the number one concern ahead of performance. Now,
Speaker 1: I don't believe that performance always wins, but it's definitely
Speaker 1: number two. Um, okay, number six. Will there be a
Speaker 1: bitcoin or crypto et F by the end of todd No,
Speaker 1: I see we moved the or maybe we haven't moved
Speaker 1: the goal post a little bit on this, But no,
Speaker 1: I don't think there is. The SEC has concerns about it.
Speaker 1: There isn't the data to backup that this can be
Speaker 1: handled in a way without fraud. It's a hard thing
Speaker 1: to overcome proving that. And I think what we've seen
Speaker 1: recently is people have gotten hurt and in investing in it.
Speaker 1: And I don't think the SEC is making evaluation call
Speaker 1: as a result of this. But bad headlines saying people
Speaker 1: are are getting hurt with these products does not make
Speaker 1: it easier for these products to get approved. Tom Uh,
Speaker 1: they're getting hurt because the value of the cryptos going down.
Speaker 1: There really hasn't been anything that's been fishy underneath. SEC
Speaker 1: is looking at it for sure, they're trying to get
Speaker 1: their arms around it. It will happen by the end
Speaker 1: of two thousand and nineteen. Yeah, And with the caveat that.
Speaker 1: My parent companies Ceboglobal Markets, which lists bitcoin futures. I
Speaker 1: think futures based products are going to be where this happens.
Speaker 1: It's really hard for the SEC to say you can
Speaker 1: invest in oil futures and net gas futures, but you
Speaker 1: can't invest in crypto futures. They settled the same way,
Speaker 1: they trade the same way. I think it's just a
Speaker 1: matter of time. I think the time is. I agree
Speaker 1: with you. I do think it'll be a coin based
Speaker 1: one first, although, be given that you work at cbo E,
Speaker 1: I have to sort of defer that you probably are right.
Speaker 1: But I think a coin based fures you gotta roll them.
Speaker 1: You know, you gotta roll futures. That's troubled a lot
Speaker 1: of E T f s, And it's an extra layer
Speaker 1: of complication that I don't think you'd get from the
Speaker 1: physical How do you how do you get storage? Right?
Speaker 1: I know I would rather buy a physically back one
Speaker 1: then a future one if I had a choice. Yeah.
Speaker 1: But if he use an eighties reference from baseball, Jim
Speaker 1: Rice is in the Hall of Fame. I think if
Speaker 1: we go ten years forward, the most feared hitter in
Speaker 1: baseball from the eighties is not necessarily a mantra that's
Speaker 1: going to get you in the Statistics don't back up.
Speaker 1: He's going to be in there. The data doesn't back
Speaker 1: up to the SEC today. Maybe it will, but today
Speaker 1: it doesn't seem like they're comfortable with it. Okay. Number seven.
Speaker 1: Will there be a zero expense ratio et F in
Speaker 1: the next twelve months? Tom? Yes, absolutely, Todd Yeah, I
Speaker 1: think there will be swabbed. You guys have any other
Speaker 1: opinion on who it might be. So I do think
Speaker 1: it's gonna be swab I would have normally thought Fidelity
Speaker 1: except the partnership they have with I Shares. I don't
Speaker 1: think they're gonna want to compete with products like I
Speaker 1: T O T that are commissioned free on their on
Speaker 1: their platform, where Fidelity is playing in the mutual fund
Speaker 1: space there that doesn't compete. I think Schwab is pretty
Speaker 1: close to doing it. Uh, you know, from where they
Speaker 1: are from an expense ratio standpoint, it just makes sense
Speaker 1: to gather asset. But but I think Vanguard is not
Speaker 1: going to want to give up the low cost trophy.
Speaker 1: I think they're going to tell you know, everybody wants
Speaker 1: to rule the world right exactly. Continue. That's a good one.
Speaker 1: Number eight. What will be the biggest result of the
Speaker 1: new E T F rule the sec OF is implementing
Speaker 1: probably early next year. Dave, increased transparency. I think from
Speaker 1: an investor perspective, that's the part that really matters. All
Speaker 1: the other stuff is nerdy crap only I read what
Speaker 1: do you mean by that? Meaning that they're mandating full
Speaker 1: portfolio disclosure, display of maybe it some discounts, um putting
Speaker 1: all this stuff up on websites on a regular basis,
Speaker 1: in a in a format that people can actually process.
Speaker 1: I think that's going to be a big deal. Tom.
Speaker 1: If you're an advisor, maybe five million to a billion
Speaker 1: dollar advisor, you never before thought about launching your own ETF.
Speaker 1: Now you can do it. Todd, Yeah, I agree with Dave.
Speaker 1: I think the cost transparency is gonna be a big deal.
Speaker 1: People are gonna start to go a little bit beyond
Speaker 1: the expense ratio. Firms are gonna start to market not
Speaker 1: just on the expense ratio, since we've seen a race
Speaker 1: to the bottom there. I would also add that I
Speaker 1: do think you'll see unusual products launched because it'll be
Speaker 1: quicker and easier, and I think you could see a
Speaker 1: lot more um the stuff that people roll their eyes at.
Speaker 1: At the same time, I think you can see more
Speaker 1: active managers jumping in with products that are related to
Speaker 1: their strategies. UH number nine is smart beta a fad
Speaker 1: that will go away once this e t F rule
Speaker 1: gets implemented, and it's more likely to have more active launches. Tom. No,
Speaker 1: factor strategies are always going to be there. Single factor,
Speaker 1: multi factor. Anything it's not market cap weighted to a
Speaker 1: great degree is smart beta, and if it's indexed, it's
Speaker 1: not active. Dao. I was working at Wells Fargo Niko.
Speaker 1: We ran a strategy called Tilton timing. It was a
Speaker 1: multi factor strategy. It's never going away, Todd. I don't
Speaker 1: think there's any reason for it to go away. I
Speaker 1: think everybody in the industry hates the term and has
Speaker 1: their own version of the term. But yet when you
Speaker 1: see surveys out there, it's understood people at least realize
Speaker 1: this is a different approach then market cap weighted or
Speaker 1: not just the apples and ibm s of the world,
Speaker 1: that you are getting a different portfolio. I think this
Speaker 1: is here to stay, and for good reason. People are
Speaker 1: getting good products and they're getting a slightly twist on
Speaker 1: the market cap weight of the approach. And I also
Speaker 1: think there will be an evolution where it's just called
Speaker 1: active eventually. I mean, because smart beta is act, it's yeah,
Speaker 1: it's quant active, Which brings up another question, which is
Speaker 1: should the term be killed once and for all? Todd No,
Speaker 1: I think it's finally moved into the mainstream and people
Speaker 1: are comfortable with it, and it's like Kleenex. You know,
Speaker 1: you don't call a tissue even regardless of the brand
Speaker 1: to what it is. I think people are comfortable with it.
Speaker 1: Everybody that doesn't work in the industry realizes what it
Speaker 1: means to some extent. I think it's here to stay
Speaker 1: in for good reason. Tom, I think we should change
Speaker 1: E t f s the acronym. People still get it wrong, Tom,
Speaker 1: we should call them X funds. Don't fight a brand
Speaker 1: where you can't win. The ets are here to stay.
Speaker 1: Smart bit is here to stay. Number eleven. Where will
Speaker 1: E t F growth come from? The most Which sort
Speaker 1: of investor type? Institutions, advisors or do it yourself retail?
Speaker 1: This will be in the next five years, Todd. So institutions.
Speaker 1: I really think that in many cases they've been laid
Speaker 1: to the party. They the rules haven't been fair for them.
Speaker 1: Insurance companies have about one percent of their potential assets
Speaker 1: invested in fixed income et F. The rule is now
Speaker 1: just changed to make it so you can call fixed
Speaker 1: income ETFs fixed income. And I think we've started to
Speaker 1: see uh, the use of e t f s instead
Speaker 1: of other futures and forward contracts as well. I really
Speaker 1: think they're going to help to drive that and improve liquidity,
Speaker 1: which then helps everybody else. Add as well, Dave agree,
Speaker 1: advisors are pretty tap market six advisors. Now utt f
Speaker 1: s in some fashion or another. Retail will get there,
Speaker 1: but define contribution for owen K is not going to
Speaker 1: really drive anything because mutual funds make more sense. They're
Speaker 1: it's all coming from institutions. Tom, they got it, and
Speaker 1: I will add that institutions if you look at their
Speaker 1: seventy eight trillion in total assets, only about one is
Speaker 1: an et F, So I agree, I'd probably agree, although
Speaker 1: do it yourself retail. We had Fidelity Matt Goolay in
Speaker 1: here and we asked him what the white space and
Speaker 1: ETS was and he said, the retail investor, the direct
Speaker 1: retail because right now I think that percentage is ten
Speaker 1: percent maybe or less, and there's more education going on anyway.
Speaker 1: UM I put that second, and the commission free expansion
Speaker 1: and actually no commission products that Vanguard has had, and
Speaker 1: the broadening list. It's making it easier and easier to
Speaker 1: use ETFs across where it is. I think that's gonna grow.
Speaker 1: I just think there's the pike is potentially so much
Speaker 1: bigger from institutions if they if you make a five
Speaker 1: million dollar trade, much much easier than it is. If
Speaker 1: you know, I can't do that in percentage basis. Retail
Speaker 1: will grow faster on a dollar basis. It's institutions dwarf it. Like,
Speaker 1: how David did that better than I did? Dave? How
Speaker 1: big do you think that slice could get if it
Speaker 1: if they only have one invested right now? Where do
Speaker 1: you think it could go? Speaking of that, this is
Speaker 1: a great segue question number twelve. We had Bogel on
Speaker 1: the podcast a couple of weeks ago. He gave us
Speaker 1: a little excerpt from his upcoming book, which was a
Speaker 1: scoop which he said, in the future, these big asset
Speaker 1: managers are going to have to mutualize themselves, adopt Vanguard
Speaker 1: strategies survive cutting costs will not be enough. Do you
Speaker 1: agree with this, Dave? I know because I think capitalism
Speaker 1: is kind of a force of nature that can't be
Speaker 1: turned off. Tom, Can you see Abby Johnson going into Dad? Hey, Dad,
Speaker 1: I got an idea. Letty. I think it's gonna be
Speaker 1: even harder for you know, companies that are publicly traded.
Speaker 1: You know, Alliance Bernstein that that doesn't have an et
Speaker 1: F present, Black Rocks already, that's already gone in there.
Speaker 1: But firms that are trying to get in and uses
Speaker 1: as a way of doing it. I think publicly traded
Speaker 1: companies are not should they if the better question to
Speaker 1: me is should they do that in order to bring
Speaker 1: costs down? It's certainly something for them to consider, But
Speaker 1: I don't think they're going to do that because shareholders.
Speaker 1: But what do you think the result is in consolidation
Speaker 1: then mergers? Yeah, I think we see what we see
Speaker 1: right now. It's hot m and A. M and A
Speaker 1: is going strong, But doesn't mean that there's not room
Speaker 1: for innovation. All right. Number thirteen, let's talk about buzzwords.
Speaker 1: You know smart beta was the big hit from five
Speaker 1: years ago. The new buzzword is machine learning and AI.
Speaker 1: There's been a lot of launches where they just slapped
Speaker 1: that term on it. Is this a real thing or
Speaker 1: is it marketing? Dave, I think it's a marketing term
Speaker 1: for the kind of innovations we've seen in quant investing
Speaker 1: every day for the last forty years. Technology is really
Speaker 1: helping from a research standpoint. You think about anybody coming
Speaker 1: out of school want to go into business, they want
Speaker 1: to go to Goldman, they want to be an analyst. Right,
Speaker 1: you don't need them today. Computers do the whole thing. Um.
Speaker 1: As far as back testing, it continues to innovate. Listen,
Speaker 1: machine learning is going to help in a big way
Speaker 1: going forward. But as uh they've said over at JP Morgan,
Speaker 1: we really haven't been tested in a bear market with AI.
Speaker 1: At the Helm Todd, I think it's being used in
Speaker 1: a mutual fund rapper more than people realize, and it's
Speaker 1: been working. And Goldman for example, asn't you know, it
Speaker 1: has a very strong presence using quantitative investing in that way.
Speaker 1: I think if they and other firms bring that into
Speaker 1: more of an ET f rapper, I think it's going
Speaker 1: to help. But yeah, buzzwords help to get people to
Speaker 1: pay attention to it. You think you're smarter than an
Speaker 1: index based product, which is basically following the same rule
Speaker 1: book at the computer would Joel, what do you think
Speaker 1: of that term? I mean it's it's it's definitely You've
Speaker 1: written about it, and yeah, no, I actually think that
Speaker 1: it is totally legit. Um. It takes out a human element,
Speaker 1: you know, and it means it means something way beyond tfs.
Speaker 1: To keep in mind, like this is I think gonna
Speaker 1: be a technology that continues to evolve and when people
Speaker 1: can harness it, it's going to be really powerful. I
Speaker 1: do think there's a lot of bunk to it, but
Speaker 1: when it's legit, it's legit alright. Number fourteen. Do e
Speaker 1: t f s pose a systemic risk? Todd No, The
Speaker 1: e t F is just the vehicle that people are
Speaker 1: getting exposure to the marketplace. So I don't think there's
Speaker 1: too much money going into e t f s that
Speaker 1: are gonna cause it. It's still I think it's three
Speaker 1: percent of the money that's in fixed in com ETFs
Speaker 1: is the size of the overall fixed income market. I
Speaker 1: think it's about a little bit bigger than that from
Speaker 1: an equity perspective. There again, I to use the phrase again,
Speaker 1: they're riding in the backseat of the car while individual
Speaker 1: stock pickers are driving the market. When that market becomes volatile,
Speaker 1: they're gonna they're gonna fish crash. Gave ETFs a bad rap.
Speaker 1: Are we going to see that again? Are we going
Speaker 1: to see another flash crash again? Yes, you don't know
Speaker 1: what's gonna happen, but something is inevitably gonna have a
Speaker 1: black swan event is going to happen, and somebody's gonna
Speaker 1: get that teachers, which is what the flash crash was.
Speaker 1: Why does that always come up as an E t
Speaker 1: F issue. Et F got hit, so the proctor and gamble,
Speaker 1: So will they be painted with the same brush again. Yeah,
Speaker 1: of course they're gonna always get the blame, always get
Speaker 1: the blame. But the money that's flown into E t
Speaker 1: F since then is what double and triple. It's not
Speaker 1: as if get scared out of the only people who
Speaker 1: are talking about it. You know our mutual fund companies
Speaker 1: that want to use that as a reason to say
Speaker 1: stick with us, will hold onto your money. At four pm,
Speaker 1: E t F Well, E t F s right now
Speaker 1: own seven percent eight percent of stocks right, whether it's Apple,
Speaker 1: any stock. What number would that have to get to
Speaker 1: before you thought there was this the stomach risk post
Speaker 1: tom I don't think it's going to be a risk
Speaker 1: at all, alright, Dodd, I don't. I would be making
Speaker 1: up a number that's out there. And like you, I'm
Speaker 1: not in the prediction business. Yes you are. Your whole
Speaker 1: business is predicting like not in not in the what
Speaker 1: if the sky is falling, not wild scenarios. Okay, all right, now,
Speaker 1: now that you guys said there's no systemic risk problems,
Speaker 1: give me one legit concern you do have regarding e
Speaker 1: t S tom Um. I think if we get into
Speaker 1: some thematic ETFs that are illiquid and you know, whether
Speaker 1: it's emerging market's emerging market debt, that's a little bit
Speaker 1: of concern, But over time we've really done a good
Speaker 1: job handling it. I don't really have any major concerns
Speaker 1: about liquidity at this point. But as we continue to
Speaker 1: branch out and innovate, they're going to be some unfulfilled
Speaker 1: or or areas right now that are not represented in
Speaker 1: the e t F space that might be a little
Speaker 1: bit risky going into, especially with the new ETF rule, okay, Dave. Uh. Similarly,
Speaker 1: I think that e t F now give us access
Speaker 1: to virtually everything leaveriede oil, whatever it is you want.
Speaker 1: We don't have a way of gate keeping any of
Speaker 1: those products from individual investors. I think that's a problem. Eric.
Speaker 1: I know you always talk about your system for red
Speaker 1: lights or movie ratings, um, but ultimately it's going to
Speaker 1: have to be something that comes from a regulatory standpoint.
Speaker 1: It's and I have to come frankly from FINRA. They're
Speaker 1: gonna have to put a place something in place that
Speaker 1: it actually creates gates for some of the more esoteric products.
Speaker 1: What would that look like. It could be as simple
Speaker 1: as FINRA saying that people who access a vehicle like
Speaker 1: futures based product have to sign the same paperwork they
Speaker 1: would if they were going to open a future's account. Todd,
Speaker 1: I think the risk is that people performance chase without
Speaker 1: understanding what it is they're buying. So they're buying something
Speaker 1: that was hot and then they don't really and they
Speaker 1: walk away and don't come back to it until they
Speaker 1: realize that the thing has crashed back down to the
Speaker 1: middle where it is. I think the money has gone
Speaker 1: into e t s without people understanding what it is
Speaker 1: they're buying, and if they're buying well diversified market cap
Speaker 1: weighted products, then that's great, but in some cases they're
Speaker 1: buying things that they shouldn't be buying. Yeah, and I
Speaker 1: would riff off that. My biggest concern is in line
Speaker 1: with Vogels, which is overtrading. They're so good, they're so cheap,
Speaker 1: they're so easy, and you get everything. It can be
Speaker 1: a bit like stepping into a casino and you could
Speaker 1: lose your mind just trading all day. But you could
Speaker 1: do that with any You could just say same. I mean,
Speaker 1: that's just always how it is. I agree. But although
Speaker 1: to retail investors there's extra things they serve up in
Speaker 1: certain ways. So that's that's what's important. From the brokerage perspective.
Speaker 1: The firms that are going with so broad a commission
Speaker 1: free offering, how important et F education is making sure
Speaker 1: that there's enough there so that they can try to
Speaker 1: protect investors from themselves. I actually wonder if there isn't
Speaker 1: like a different solution that you know, I think of
Speaker 1: like the conversation we had with Betterment a little bit,
Speaker 1: which is when you actually go and try and trade something,
Speaker 1: they warn you about the tax implications of it. So
Speaker 1: I wonder if there isn't some sort of like technological
Speaker 1: or behavioral solution that doesn't help incentivize people to not
Speaker 1: trade too frequently. But that would be but that would
Speaker 1: be sort of on a platform by platform basis, I think.
Speaker 1: And there are pop ups that are on some of
Speaker 1: the platforms. I mean, they do exist, but I hear you.
Speaker 1: I think and obviously our system, like I said, I
Speaker 1: think there should be movie ratings for E T F
Speaker 1: S or something akin we have that if you have
Speaker 1: a terminal, give me a call um um okay, number
Speaker 1: sixteam related. If you were the SEC and you had,
Speaker 1: you know, complete control, would you ban leveraged and or
Speaker 1: vix ETPs right now? They absolutely not? Tom Todd, No,
Speaker 1: I think they serve a role for some people. I
Speaker 1: just think they're abused by probably more people than they
Speaker 1: should be. Even with what vix went through, vix has
Speaker 1: been very very low. There's a market there, there's a demand.
Speaker 1: All these products do what they say on the tin,
Speaker 1: and that's the thing. And that's why I said, I
Speaker 1: think the right answer here is gate keeping these products
Speaker 1: for certain kinds of investors. If I have a Schwab account,
Speaker 1: I shouldn't be allowed to trade something based on futures
Speaker 1: without some sort of positive acknowledgement that I know I'm
Speaker 1: gonna get my face burned off. Well, you know brokerage firms,
Speaker 1: you know that wire house firms, They in many cases
Speaker 1: they preclude advisors from them. So the differences a self
Speaker 1: directed investor who doesn't want to pay for that extra
Speaker 1: service or or advice that's there, that's what they're missing out.
Speaker 1: It shouldn't it shouldn't be a service to put up
Speaker 1: a pop up that says you haven't filled up futures
Speaker 1: market paperwork. Would that be a DOCU sign agreement? Sure?
Speaker 1: Um okay. Number seventeen will brand name index providers like
Speaker 1: M S, c I, SNP and, hate to say it,
Speaker 1: Bloomberg Barkley's be replaced by self indexing as fee pressures
Speaker 1: come down, Dave, Uh, it's not a yes or no answer.
Speaker 1: Over time, it's gradually hiding in that direction, especially when
Speaker 1: you look at UH from the cost standpoint. It's going
Speaker 1: to be a part of it. And there's some companies
Speaker 1: out there that you know, three or four percent As
Speaker 1: far as an indexing charge really means something, And when
Speaker 1: you ask the individual investors and the asked the advisors,
Speaker 1: is it really important that that index name being there
Speaker 1: and it tied specifically to it, it's not as important.
Speaker 1: So since I said institutional investors are going to be
Speaker 1: a key driver going forward, Institutional investors want in many
Speaker 1: cases want that SMP, want that m s c I
Speaker 1: want that Bloomberg Barkley's behind it. And so the products
Speaker 1: that are catering to that market are going to do so.
Speaker 1: And it's but it's not because they love the brand, right,
Speaker 1: It's not like nobody got fired for buying IBM. It's
Speaker 1: because they want to buy an ms c I emerging
Speaker 1: markets product because they know the methodology will match up
Speaker 1: with how they're thinking about, you know, their US exposure
Speaker 1: or some other country. Right, that commonality of methodology is
Speaker 1: the reason you pay up to be part of the
Speaker 1: self index be close enough. Well, it can if you're
Speaker 1: not an institution that needs to run it through Bloomberg
Speaker 1: terminal to do analysis. I agree for anybody not an institution,
Speaker 1: I think it's it's it's going to go that way.
Speaker 1: Vanguard proved that doesn't matter. They went to CRISP and
Speaker 1: they got seven hundred billion in those indexes. Since then,
Speaker 1: black Rock dump some some of our indexes and they
Speaker 1: did find. And I think the one thing that is
Speaker 1: there's some rock star indexes like SMP five hundred and
Speaker 1: ms c I emerging markets that probably are just too
Speaker 1: big to mess right, Okay, last three which are I
Speaker 1: think more on the lighter side, but you know, looking
Speaker 1: for your legit answers Number eighteen. If you could invest
Speaker 1: in one et F with your entire life savings, what
Speaker 1: would it be, Tom, I'm gonna say the Investco Guggenheim
Speaker 1: ride X RSP five hundred equal weight. Wow, that is
Speaker 1: that's not a bad pull at all. Yeah, it's out
Speaker 1: of the box, but not that crazy RSP. So this
Speaker 1: basically is SMP five undred, except every s thought gets
Speaker 1: the same waiting, which I think is point two. Yeah, Todd, Yeah,
Speaker 1: I didn't think we're going to get to this question,
Speaker 1: so I didn't have an Okay, okay, that just super
Speaker 1: boring s H B B B yeah Todd, Yeah, I
Speaker 1: would go to total market a total market product as well.
Speaker 1: So I shares I T O T And why would
Speaker 1: you pick that one over SWAB? I think I like
Speaker 1: the SMP brand that's behind it as well. That on
Speaker 1: the fly, I mean there there's you know that you've
Speaker 1: got vanguards VT V T I, So I would go
Speaker 1: with VT. That's the total market plus the international. It's global,
Speaker 1: so it's basically the whole equity side and one shot.
Speaker 1: Now there are asset allocation ets but for some reason
Speaker 1: I don't like them. Nobody does. They do bonds and
Speaker 1: stocks together. But I'd have to go with that VT
Speaker 1: if I had to pick. But I now have a
Speaker 1: flashback that I think I got asked this question the
Speaker 1: last time I was on, and you're gonna play the
Speaker 1: clip when I use a different problem. Um, Dave, that's
Speaker 1: a good question. Why don't people like the asset allocation
Speaker 1: ETFs sort of like do it all for you in
Speaker 1: one shot? Well, the big reason is because a lot
Speaker 1: of these UH funds are sold by advisors, and if
Speaker 1: the advisor puts you in a single product, you fire
Speaker 1: your advisor, right, So you need to have some break
Speaker 1: up of this in order to have a conversation around
Speaker 1: what the asset allocation is. And also, your risk tolerance
Speaker 1: is not gonna be the same as mine. I'm older
Speaker 1: than dirt, you're young, you've got a young family. We're
Speaker 1: gonna have different risk tolerances and Traditionally you rebalance the
Speaker 1: asset weights to deal with that. UM and target tape
Speaker 1: funds have never taken off in e t f s,
Speaker 1: frankly because they don't work. In for case, you guys
Speaker 1: recently wrote about that, I think on et f dot com.
Speaker 1: Thank you for that. I was that I was quoted in.
Speaker 1: So it's not just it's it's not just a shameless one.
Speaker 1: What he have referenced that article if he was not quoted,
Speaker 1: that's the question. You know, he is too smooth. Okay, Joel,
Speaker 1: do you have an answer for this? Have you still
Speaker 1: think my great idea for an e t F is
Speaker 1: the easy button ticker easy? And I still want that
Speaker 1: thing to exist and it's like the only and that
Speaker 1: was the idea, but nobody put any money in it. Well,
Speaker 1: big idea doesn't mean it's not a great idea, man.
Speaker 1: Don't take it from a blast from the past of
Speaker 1: the eighties. Okay, number nineteen. If you could invest in
Speaker 1: only one e t F with the ten percent of
Speaker 1: your account that you have some fun with, what would
Speaker 1: you pick? Dave? Oh, that's tricky. Um, Hey Todd, somebody
Speaker 1: come back to me. I feel like I didn't mean
Speaker 1: to be using eye shares again. But I like M
Speaker 1: t U M so. I think putting a little bit
Speaker 1: momentum behind it. I think the trend is your friend.
Speaker 1: If it's part of the portfolio in a in a
Speaker 1: slice instead of the whole portfolio, I think can add
Speaker 1: a little juice to it. You're so risky, it's ten
Speaker 1: of my sometimes do you have after dinner mints? Before dinner,
Speaker 1: I'm gonna get crazy and take my socks off. I have.
Speaker 1: I have a crazy answer. My crazy answer is e
Speaker 1: M l C Emerging market local currency. That's that's a
Speaker 1: good one. But you're not going to hit a home run,
Speaker 1: not like I mean, it's not gonna triple by that one. Well,
Speaker 1: because I think most people don't take enough risk with
Speaker 1: their bond portfolios in general. It was easy to grab
Speaker 1: HACK or you know, you know, ARC or something that's
Speaker 1: out there on the edge pushing technology. But that's also
Speaker 1: where you would play with single stocks. E M L
Speaker 1: see something I'm never gonna buy on my own. I
Speaker 1: Am not going to go figure out how to buy
Speaker 1: South African debt a r k K. That's the r innovation, right, Okay,
Speaker 1: So it's got we talked about aids, active management. It's
Speaker 1: got genome sequencing in there. I mean, it's kind of
Speaker 1: a theme thematic greatest hits man And if you ever
Speaker 1: go see those people, they have an open house every
Speaker 1: Wednesday afternoon. You can sit around and chat with the analysts. Uh,
Speaker 1: they're doing some stuff that's pretty special. I would go
Speaker 1: with m J. And I say that because I like
Speaker 1: E T f s that are out there wrapping up
Speaker 1: a toddler industry that you think is going to grow big,
Speaker 1: which I do and has not. In these these companies
Speaker 1: will take them years to get in a lot of
Speaker 1: them getting it's an acquisition. It's a a lot of
Speaker 1: targets for acquisitions in there. And I just think that's
Speaker 1: part of investing is speculating, and that's what I would
Speaker 1: go with. How about Udell, I don't think part of
Speaker 1: investing is speculating, but if we're playing that game, well
Speaker 1: this is this is the ten well maybe one percent, right,
Speaker 1: But the microcap question, I always like that one eric
Speaker 1: going into the trying to get the super super small
Speaker 1: stuff that might have a huge payout. And the microcaps interesting,
Speaker 1: there's a thousand microcaps and um, almost none of them
Speaker 1: are even in the broad market. But Dave shaking his
Speaker 1: head the wrong way to play microcaps because you can't
Speaker 1: because you can't close them. Right, So you wait, if
Speaker 1: you want microcap, you want to go find some actively managed,
Speaker 1: you know, probably too expensive mutual fund that can close
Speaker 1: the fund when it hits a billion dollars because if
Speaker 1: it's microcaps, you can't buy enough of them to matter.
Speaker 1: And then that's a great point slapdown again. Sorry, sorry, Joel.
Speaker 1: All right, Joel, I'm gonna let you ask the last
Speaker 1: question since it's it's what you're how we close all
Speaker 1: the shows. Okay, So, Dave favorite ticker, uh, you know
Speaker 1: m J. I think MJ's a fantastic ticker. Tom favorite ticker,
Speaker 1: uh the Wisdom Tree, short egg etf shag. Yeah, so
Speaker 1: you are going back to the eighties. Those are early nineties,
Speaker 1: I think, okay, and the sixties and Todd, what was
Speaker 1: what was your favorite last time? And has it changed?
Speaker 1: So I don't remember what I had last time, but
Speaker 1: it has changed because I actually wasn't caught off guard
Speaker 1: with this, and since we are doing an eighties theme here.
Speaker 1: In the eighties, I was eating a lot of peanut
Speaker 1: butter and jelly so p B and PBJ. PBJ is
Speaker 1: the investi dynamic Food and Beverage portfolio. It's like chicken
Speaker 1: and beer companies. It's like companies that make peanut butter
Speaker 1: and jelly. Yeah, honestly, yeah, it's like what you when
Speaker 1: you go to a barbecue. It's these companies basically provide
Speaker 1: all the stuff hacks. Hacks a good second choice. Hack
Speaker 1: is really good. I like hack. I like verbs, so
Speaker 1: I like move hack. That's why Toke I think is
Speaker 1: a gem. So I'm a big verb guy. I like verbs,
Speaker 1: so I would have to go with hack. I think
Speaker 1: my new favorite is is Nash. I mean it's not
Speaker 1: like it's a new product, but I just love the
Speaker 1: fact that's okay, alright, there you go. Some of the
Speaker 1: Nashville et f Yeah, man, I love the idea that
Speaker 1: somebody like took a city and wrapped it in an
Speaker 1: e TF and no one bought it. It's funny. We
Speaker 1: have some nerds here, So can you guys tell me
Speaker 1: how nash wasn't the first local et f ever Oklahoma? Yes,
Speaker 1: there was an Oklahoma e t F. I mean, talking
Speaker 1: about being ahead of your time, I thought, oh, there's
Speaker 1: there's hardly anything and fixed income in commodities. Let's let's
Speaker 1: do Oklahoma. Well, we hope we bring him back. One day.
Speaker 1: They brought ef Hutton back, didn't they. And there was
Speaker 1: a Texas right, there was a Texas ETF. Yeah. Yeah,
Speaker 1: there's the person who can with local shares. I didn't
Speaker 1: meet him. He did want to do other cities. Should
Speaker 1: just go through and do every airport in the world,
Speaker 1: so you get you know, O R D and JFK
Speaker 1: and well Nashville. They were saying that JFK's I'm pretty
Speaker 1: confident that that's like one of the I shares small
Speaker 1: JKF J Okay, I'm still thinking about E T F
Speaker 1: S being e F T Yeah. I got a great
Speaker 1: I got a great send off. Thank you nerves. Well, guys,
Speaker 1: thank you very much. This was great. You gotta talk
Speaker 1: about cramming a lot into one podcast, Joel, did you
Speaker 1: learn anything? I learned a lot um, mainly that you
Speaker 1: guys really like to slap down non nerds, so I
Speaker 1: appreciate that gate keeping man. Alright, guys, it's been a
Speaker 1: pleasure see you guys on the flip side. Thank you guys,
Speaker 1: thanks for having Thanks for listening to trillion until next time.
Speaker 1: You can find us on the Bloomberg terminal, Bloomberg dot com,
Speaker 1: Apple Podcast, Spotify, and wherever else you like to listen.
Speaker 1: We'd love to hear from you. We're on Twitter, I'm
Speaker 1: at Joel Webber Show. He's at Eric Ball Tunits. You
Speaker 1: can find Dave Nodding at Dave Nodded in A d
Speaker 1: I G, Tom Leiden at Tom Leiden L Y d
Speaker 1: O N, and Todd At at Todd c f R. A.
Speaker 1: Trillions is produced by Magnus Hendrickson. Francesca Levie is the
Speaker 1: head of Bloomberg Podcast