WEBVTT - This ETF is Rated R 0:00:06.120 --> 0:00:12.200 Welcot Chillians. I'm Joel Webber and I'm Eric bell Tunis. Eric. 0:00:12.440 --> 0:00:15.120 Sometimes we've talked about a certain type of E t 0:00:15.280 --> 0:00:18.520 F that are that is rated are, and that is 0:00:18.600 --> 0:00:21.720 a term or a category that that you've actually come 0:00:21.800 --> 0:00:24.120 up with, And we're gonna spend some time on this 0:00:24.160 --> 0:00:28.120 episode talking only about that that category, if you will. Yeah, 0:00:28.160 --> 0:00:30.600 So these are the we we call them rated are 0:00:30.760 --> 0:00:35.720 or the exotic or the power tools of the Yeah, 0:00:36.200 --> 0:00:39.720 because in the right hands they can work wonders and 0:00:39.760 --> 0:00:41.680 really get the job done. But in the wrong hands, 0:00:41.680 --> 0:00:43.760 they can actually cut your hand off right like a 0:00:43.840 --> 0:00:47.199 chainsaw or worse or worse right, So we want to 0:00:47.280 --> 0:00:50.720 demystify these products. Um, you know, to me, they're demonized 0:00:50.760 --> 0:00:53.920 a little bit. But I get why they're demonized. I think, 0:00:54.320 --> 0:00:56.280 you know. The reason rated R to me is a 0:00:56.280 --> 0:01:01.560 good metaphor is because I believe that in our classification system, 0:01:01.640 --> 0:01:04.120 we give them a red light just to say, hey, look, 0:01:04.120 --> 0:01:06.319 there's some some stuff you need to know about these 0:01:06.319 --> 0:01:09.279 So let's pause. But like in the movies, just because 0:01:09.280 --> 0:01:12.000 ten year olds exist doesn't mean Quentin Tarantino should have 0:01:12.040 --> 0:01:16.040 to stop making movies. So we were okay, with leverage, ETFs, 0:01:16.160 --> 0:01:19.600 vix ETPs. These these products that are for professionals, we 0:01:19.720 --> 0:01:21.720 just think they need a rating like a movie. So 0:01:21.840 --> 0:01:24.000 again we've got green yellow red because we can't use 0:01:24.040 --> 0:01:27.040 the movie ratings because it's like a copyright unfortunately, so 0:01:27.080 --> 0:01:29.840 we use green yellow red power. These E T F 0:01:29.959 --> 0:01:33.600 s UM are basically all instant red lights except for 0:01:33.640 --> 0:01:37.320 the why. The reason is because their triple leveraged or 0:01:37.360 --> 0:01:40.560 double leveraged, and that means that they'll move twice as 0:01:40.640 --> 0:01:43.000 much as the index in a day, but they only 0:01:43.000 --> 0:01:45.080 promise it per day. The way their structure, which we'll 0:01:45.080 --> 0:01:47.600 get into, you don't actually get that two or three 0:01:47.600 --> 0:01:50.400 times over the long haul. Like there's a corrosion element 0:01:50.800 --> 0:01:52.960 that's like a ticking time bomb. So the longer you 0:01:53.000 --> 0:01:55.520 hold it, the more you could just lose money because 0:01:55.560 --> 0:01:59.080 of this sort of um the math of rebalancing every 0:01:59.160 --> 0:02:03.000 day and sometimes most of the time all the time. 0:02:03.200 --> 0:02:06.120 These products come with xs, and that's one way that 0:02:06.160 --> 0:02:09.840 you can know that you're playing with Yeah, they had 0:02:09.919 --> 0:02:12.800 they literally say two x or three x UM. They 0:02:12.840 --> 0:02:14.480 even have the word daily in them to like sort 0:02:14.480 --> 0:02:17.040 of accentuate that you need to use these for the 0:02:17.040 --> 0:02:20.240 short term. And who's going to help us understand this world? Um, 0:02:20.240 --> 0:02:24.240 Sylvia Jablonski. She is from Direction, which makes the most 0:02:24.360 --> 0:02:26.840 chainsaw of the chainsaws, the three X. So there's like 0:02:26.840 --> 0:02:30.119 the big chainsaw. Well there was, Look, there was there 0:02:30.160 --> 0:02:32.519 was the regular like the little tiny electric chainsaw, and 0:02:32.520 --> 0:02:35.520 then there's the big big chainsaw. Then pro Shares came 0:02:35.560 --> 0:02:38.520 out with two X, and then Directions says, oh yeah, 0:02:38.840 --> 0:02:42.720 three X. Just you know, if you're really feeling lucky today, okay, 0:02:45.639 --> 0:02:50.840 on this episode of Trillians playing with power tools. Okay, Sylvia, 0:02:50.880 --> 0:02:53.040 welcome to trillions, Thanks for joining, Thanks so much for 0:02:53.040 --> 0:02:56.920 having me. So you're the head of capital markets at Direction. L. E. 0:02:57.040 --> 0:03:01.200 T s. Yes, okay, So why I do these products exist? 0:03:01.680 --> 0:03:04.640 So the quick answer is that we would like to 0:03:04.680 --> 0:03:08.920 democratize leverage. How does that sound? I mean, I don't 0:03:08.960 --> 0:03:12.240 know what that means. So what is that? Yeah? Exactly? So, 0:03:12.440 --> 0:03:14.560 um so there there are three beta products, as you 0:03:14.560 --> 0:03:17.120 guys were discussing. So for every hundred dollars you invest, 0:03:17.160 --> 0:03:20.640 you get three hundreds of exposure to the underlying index 0:03:20.720 --> 0:03:24.120 for a one day period. So why is that interesting? Well, 0:03:24.160 --> 0:03:27.840 clients can use these to express high conviction on short 0:03:27.960 --> 0:03:31.320 term tactical opportunities. So, for example, if you think that 0:03:31.600 --> 0:03:33.960 you know semi conductors are gonna get crushed for the 0:03:33.960 --> 0:03:35.800 next three days or so, you might look at a 0:03:35.800 --> 0:03:38.840 three x bear fund and express the view that you 0:03:38.880 --> 0:03:42.640 think semi conductors will be both low vaulatile downward trending 0:03:43.360 --> 0:03:45.920 and have high performance in that day period, and generates 0:03:45.920 --> 0:03:50.240 some MALFA from that trade. So leverage effectively amplifies my 0:03:52.200 --> 0:03:55.360 it amplifies your view for the day, and not only that, 0:03:55.480 --> 0:03:58.880 it allows you to allocate capital efficiently. So you put 0:03:58.880 --> 0:04:01.080 down a hundred dollars and you get three hundred dollars 0:04:01.080 --> 0:04:03.120 of exposure. Maybe I'll walk you through an example just 0:04:03.160 --> 0:04:06.200 to give you a sense of real world what actually happens. 0:04:06.680 --> 0:04:11.120 So let's say um SMH is down, semiconductor et F 0:04:11.200 --> 0:04:13.720 is down five percent in a day, So we have 0:04:13.760 --> 0:04:16.719 a bear fund. It's called s o x s now. 0:04:16.920 --> 0:04:19.320 If the underlying e t F that we track is 0:04:19.360 --> 0:04:21.360 down five percent in a day, you have a hundred 0:04:21.400 --> 0:04:25.400 dollars three hundred of exposure five percent move three beta fund, 0:04:25.520 --> 0:04:28.200 so you earn fifteen percent as that e t F 0:04:28.640 --> 0:04:31.479 or index goes down five percent in a day. Now 0:04:31.520 --> 0:04:34.560 on day two, if you have another move downward of five, 0:04:35.320 --> 0:04:37.600 you make seventeen point to five. And this is what 0:04:37.720 --> 0:04:39.679 Eric was referring to. This is sort of the positive 0:04:39.720 --> 0:04:42.200 side of it, where the compounding and the rebalance work 0:04:42.240 --> 0:04:45.120 in your favor. So the market has been trending downward, 0:04:45.520 --> 0:04:48.480 you got the direction right. Five percent in two days 0:04:48.560 --> 0:04:50.680 gives you thirty two point to five over a two 0:04:50.720 --> 0:04:52.840 day period because of the three x and because of 0:04:52.839 --> 0:04:56.359 the rebalance. Now the other side of that, or where 0:04:56.560 --> 0:05:00.200 you don't do quite as well is if semiconductor is 0:05:00.279 --> 0:05:02.559 down five percent on day one and up five percent 0:05:02.600 --> 0:05:04.680 on day two, you're not flat. So it's not like 0:05:04.720 --> 0:05:07.159 buying and selling apple apples up five, down five, you 0:05:07.200 --> 0:05:09.640 make zero. In this case, you're actually down two point 0:05:09.720 --> 0:05:12.719 to five because on day one we rebounds the fund. 0:05:12.839 --> 0:05:15.400 So you had a hundred three hundred, you made fifteen, 0:05:15.480 --> 0:05:17.679 you have one fifteen. We need to rebounce the fund 0:05:18.160 --> 0:05:21.080 and buy an additional forty thirty dollars of exposure from 0:05:21.320 --> 0:05:23.440 three or fifteen to five. So this is like you 0:05:23.480 --> 0:05:26.560 go to home depot rents rent a power tool, but 0:05:26.640 --> 0:05:29.480 it comes with like compounding problems that you might not 0:05:29.839 --> 0:05:34.160 know about or compounding benefits and let me jump in 0:05:34.200 --> 0:05:38.400 on the daily rebouncing. That is essentially what is makes 0:05:38.440 --> 0:05:42.160 the screwy math. People assume you buy it and then oh, 0:05:42.240 --> 0:05:44.120 a year later, why am I not up or down 0:05:44.160 --> 0:05:46.880 three x? The reason it has to reset daily is 0:05:46.880 --> 0:05:48.720 because people come in and out of it. Right. It's 0:05:48.760 --> 0:05:50.960 not like you make it for one day and then 0:05:51.000 --> 0:05:52.600 you close it up for a year. That would make 0:05:52.640 --> 0:05:55.000 sense then, right to have it that long term, But 0:05:55.040 --> 0:05:57.480 because it's a daily trading vehicle, you have to reset 0:05:57.560 --> 0:06:01.120 every day because of people coming in for absolutely right, 0:06:01.160 --> 0:06:03.279 and that's a good point. So there are actually monthly 0:06:03.279 --> 0:06:05.880 rebounds mutual funds that are leveraged so you can hold 0:06:05.920 --> 0:06:08.640 them for thirty days and on day thirty the funds 0:06:08.680 --> 0:06:11.479 rebalanced and you get two times one month's performance of 0:06:11.520 --> 0:06:14.800 whatever index you're tracking. With the daily funds, it is 0:06:14.839 --> 0:06:17.760 rebalanced on a daily basis, so you know, for example, 0:06:18.000 --> 0:06:21.880 if if you had the smp FI this year, it 0:06:21.880 --> 0:06:23.719 doesn't mean that the bull fund is up thirty, and 0:06:23.760 --> 0:06:25.760 it doesn't mean that the bare fund is down thirty. 0:06:25.920 --> 0:06:28.200 It can be anything. It depends on the path that 0:06:28.200 --> 0:06:30.480 it took to get there. So trend is your front. 0:06:30.600 --> 0:06:33.240 If you look at the Obama bottom two thousand nine 0:06:33.279 --> 0:06:38.360 Tech until today it's up two. I know you love 0:06:38.400 --> 0:06:40.359 this e t F tech out. We've talked about it before. 0:06:40.640 --> 0:06:42.600 But if you look at gold miners Techo. By the way, 0:06:42.640 --> 0:06:48.279 techle is, I believe the goat performance wise because TECH 0:06:48.320 --> 0:06:50.760 has done nothing but go up. So in this daily rebouncing, 0:06:50.800 --> 0:06:52.680 as long as it keeps going up every day, you 0:06:52.720 --> 0:06:55.839 actually compound that daily resetting that the daily resetting starts 0:06:55.839 --> 0:06:57.200 to work in your favor, you can get four or 0:06:57.240 --> 0:07:00.800 five times. It's the volatility that will USU up. That's 0:07:00.800 --> 0:07:03.920 called volatility drag right exactly. So so trend is your 0:07:03.960 --> 0:07:06.479 friend and range bound volatility is essentially the enemy of 0:07:06.520 --> 0:07:09.560 Levern University tfs because what happens is during those periods 0:07:09.880 --> 0:07:11.560 the e t F s de kay. So you have 0:07:11.720 --> 0:07:13.400 the market going up for a couple of days, the 0:07:13.400 --> 0:07:16.360 bull funds increased exposure, the bear funds reduce it, and 0:07:16.440 --> 0:07:17.800 then all of a sudden you have a down day. 0:07:18.040 --> 0:07:20.000 You have too much exposure in the bull, not enough 0:07:20.000 --> 0:07:22.120 exposure in the bear, and it doesn't ever catch up. 0:07:22.160 --> 0:07:24.320 So a lot of hedge funds, for example, have figured 0:07:24.360 --> 0:07:27.080 out that during those periods, you know they'll shore both 0:07:27.080 --> 0:07:28.960 the Bear and the bull fund because they know that 0:07:29.040 --> 0:07:31.720 neither will do well in that market environment. So I 0:07:31.840 --> 0:07:34.280 have to have low volatility and training markets. I want 0:07:34.280 --> 0:07:35.760 to get to that trade. It's called the double short. 0:07:35.800 --> 0:07:37.880 That's like some like hardcore stuff. But well, let's just 0:07:38.000 --> 0:07:41.160 for one second go over tackle, because tackle, to me 0:07:41.400 --> 0:07:44.680 is the ultimate um siren. I mean, you look at 0:07:44.680 --> 0:07:47.800 the returns and it is seducing. So this is dale 0:07:47.880 --> 0:07:50.560 this is the compounding effect in effect. So the ten 0:07:50.640 --> 0:07:55.320 years tackle is up four thousand percent, but the index 0:07:55.400 --> 0:07:58.520 that it tracks is only up fos so it returned 0:07:58.520 --> 0:08:01.800 ten times. If you and in ten years ago, however, 0:08:01.840 --> 0:08:05.080 if we found some volatile area, you may find the 0:08:05.120 --> 0:08:08.960 index was up, but the three x CTF was down 0:08:09.600 --> 0:08:12.520 because it was a volatile road. Tech just happens to 0:08:12.520 --> 0:08:15.760 be a much more smooth path up. And I think 0:08:15.760 --> 0:08:18.720 that's the big takeaway. Is it safe to say? The 0:08:18.720 --> 0:08:21.880 compounding effect, which is you know, this is like a 0:08:21.920 --> 0:08:24.720 full moon. It's beautiful when it happens, but it's not 0:08:24.760 --> 0:08:27.960 the norm. It's well, it's been it's been the norm 0:08:28.000 --> 0:08:30.760 for the last decade, right, it's no longer than yeah, 0:08:30.760 --> 0:08:32.640 because of the FED and we didn't have Chinese trade wars. 0:08:32.720 --> 0:08:34.840 But if you look, I just looked this up this morning. Actually, okay, 0:08:34.840 --> 0:08:37.560 so a year to date tackle up fifty three, Bloomberg 0:08:37.559 --> 0:08:40.600 told a return, but the month of May tech s 0:08:40.679 --> 0:08:44.320 the bare fund up and Tech l down, so it 0:08:44.360 --> 0:08:47.960 lost its year to date return because markets are volatile 0:08:48.280 --> 0:08:50.360 and the index is moving down. So those two things 0:08:50.400 --> 0:08:53.800 together have essentially created a perfect storm. And that's obviously 0:08:53.840 --> 0:08:56.800 around the macro backdrop and China and Huawei and all that. 0:08:56.840 --> 0:08:58.840 But so I used a word a few minutes ago, 0:08:58.920 --> 0:09:02.720 I said bet, and you use the word view, yes, 0:09:02.800 --> 0:09:04.720 And I'm interested in that because I think one of 0:09:04.720 --> 0:09:07.280 the like a layman perspective on this, it really feels 0:09:07.280 --> 0:09:11.199 like gambling, right, So so how is it not gambling? 0:09:11.920 --> 0:09:14.400 So I would I'd throw the question you, how is 0:09:14.520 --> 0:09:18.319 investing not gambling? You know, if you view buying IBM 0:09:18.480 --> 0:09:21.160 or Apple, you know, a hundred percent risk concentration in 0:09:21.200 --> 0:09:24.640 one name, as an investment or a gamble, then I 0:09:24.640 --> 0:09:27.000 would say your definition is fair either way. You know, 0:09:27.040 --> 0:09:29.319 they work just like stocks, do. I think because they 0:09:29.360 --> 0:09:32.760 have amplified exposure, there's this sense that the risk is 0:09:32.760 --> 0:09:35.600 certainly a lot higher and people might equate that risk 0:09:35.679 --> 0:09:38.560 to say, a gambling risk. But these are you know, 0:09:38.920 --> 0:09:43.440 investment tools. They're they're very you know, strategic portfolio allocation 0:09:43.480 --> 0:09:45.800 tools for short term tactical traders. You know, I think 0:09:45.840 --> 0:09:48.040 a lot of them use a whole lot of math 0:09:48.080 --> 0:09:50.520 and signals to make their decisions on short term trends, 0:09:50.520 --> 0:09:52.960 long term trends, you know, hedging over the long term, 0:09:52.960 --> 0:09:55.160 things like that. So I would consider it as much 0:09:55.200 --> 0:09:58.679 of a trade as buying buying a tech soccer or 0:09:58.679 --> 0:10:01.840 a high beta stock in a volatile market. But the 0:10:01.960 --> 0:10:04.600 key word is that they are trading tools, and to 0:10:04.679 --> 0:10:08.640 that end, who's using them. So the mix of individuals 0:10:08.760 --> 0:10:10.960 using them is across the board. So you have the 0:10:11.000 --> 0:10:14.520 retail community, you have hedge funds, you have are a s, 0:10:14.720 --> 0:10:18.679 you have large asset managers. So it's everyone from you know, 0:10:18.760 --> 0:10:21.960 my mom to x y z hedge fund to x 0:10:22.080 --> 0:10:24.360 y z R market making shop. What is your mom 0:10:24.440 --> 0:10:27.120 say when when when you talk to her about my 0:10:27.120 --> 0:10:32.200 mom loves leverage, loves direction, loves tech trading. Now but 0:10:32.480 --> 0:10:34.960 three X China, Yeah, of course, of course, you know 0:10:35.000 --> 0:10:36.760 we wouldn't be related if she wasn't trading that. No, 0:10:36.880 --> 0:10:39.719 But you know, so, actually it's a fair question. But 0:10:39.800 --> 0:10:41.719 you know, so, my mom is not a short term 0:10:41.720 --> 0:10:44.839 tactical investor, right, She's probably saving for entirement and she's 0:10:44.920 --> 0:10:47.440 you know, a long term buy and whole investor. So 0:10:47.920 --> 0:10:50.800 for her, she would have to have a short term conviction. 0:10:50.840 --> 0:10:52.720 She would have to be an active day trader looking 0:10:52.720 --> 0:10:55.160 at her account all day long to use these funds. 0:10:55.160 --> 0:10:57.680 That's who we say is sort of the safe person, 0:10:57.800 --> 0:10:59.839 you know, the person who stops at the red light 0:11:00.040 --> 0:11:02.679 knows it's going to turn green, but sitting there watching it. Right, 0:11:02.960 --> 0:11:05.160 It's it's not somebody who's gonna, you know, put in 0:11:05.200 --> 0:11:07.440 a trade and then go golf or play tennis for 0:11:07.440 --> 0:11:09.600 a month or two. That's not not the to that. 0:11:09.640 --> 0:11:12.800 And like what what is um if not your mom, 0:11:12.920 --> 0:11:15.640 maybe my mom? Like what what does she need to 0:11:15.679 --> 0:11:18.200 know before she were to ever touch something like this? 0:11:18.600 --> 0:11:20.640 So she needs to know the basis of how the 0:11:20.640 --> 0:11:23.200 products work, which we talked about that trend is your friend. 0:11:23.480 --> 0:11:28.360 Low trending, low volatility trending markets are the best environment 0:11:28.400 --> 0:11:29.920 for these e t f s to be held longer 0:11:29.920 --> 0:11:33.839 than a day. Volatility means trade very actively. But either way, 0:11:33.880 --> 0:11:36.360 she needs to know that she has to actively monitor 0:11:36.400 --> 0:11:40.440 her position rebounds frequency or frequently, and she needs to 0:11:40.480 --> 0:11:43.000 have essentially a very high risk tolerance. She has to 0:11:43.080 --> 0:11:45.920 understand that the losses could be magnified as well as 0:11:45.920 --> 0:11:47.560 the games. For the record, I don't think my mom 0:11:47.600 --> 0:11:50.800 is ready for an um um. Let me just give 0:11:50.840 --> 0:11:52.840 one example here by the way Yin and Yang, which 0:11:52.840 --> 0:11:55.320 I mentioned earlier, there's the three X long and short 0:11:55.440 --> 0:11:59.000 China there. Over the past ten years, they're both down. 0:11:59.280 --> 0:12:03.800 Yan is down, Yang is down, and f x I, 0:12:04.520 --> 0:12:06.760 the big China et F is up. So I think 0:12:06.840 --> 0:12:09.600 that's an example because China has been volatile. Absolutely, So 0:12:09.640 --> 0:12:12.640 that's the sort of major warning. That's the hand getting 0:12:12.640 --> 0:12:15.080 cut off. If you went in there, you were probably 0:12:15.120 --> 0:12:18.240 unhappy after a couple of years, whereas Teckle you looked 0:12:18.240 --> 0:12:20.960 out because it went up nicely. Absolutely. And if you 0:12:21.000 --> 0:12:22.680 look at the if you look at Yin and Yang 0:12:22.679 --> 0:12:26.320 and the China products year to date prior to UH 0:12:26.480 --> 0:12:28.439 that late day in April, ware Trump came out and 0:12:28.480 --> 0:12:31.559 said no deal. Those ETFs were actually we saw a 0:12:31.640 --> 0:12:35.920 volume increase twenty day average daily volume increased by plus 0:12:35.920 --> 0:12:39.000 and those products the performance was or more. In the 0:12:39.000 --> 0:12:41.720 Bull Fund and it completely switched on to your point, 0:12:41.920 --> 0:12:44.120 there was this macro event and there was volatility. So 0:12:44.160 --> 0:12:48.000 now both funds have essentially over the long term experienced losses. 0:12:48.240 --> 0:12:50.280 And Nugget and Dust are another good example. You know, 0:12:50.320 --> 0:12:52.960 those are the most volatile et F s and they're 0:12:53.080 --> 0:12:55.800 very much for a term trading tools. So there are 0:12:55.840 --> 0:12:58.960 three X gold miners, bowl and bear et F products 0:12:58.960 --> 0:13:01.319 and for those, you know, they were definitely one day 0:13:01.360 --> 0:13:03.839 hold periods, you know, intra day trades. If they were 0:13:03.840 --> 0:13:05.400 held for the long term, you would have lost on 0:13:05.440 --> 0:13:07.440 both the bull and the bare product. But if you 0:13:07.480 --> 0:13:09.960 were looking at sectors like SMP five hundred and tech 0:13:10.160 --> 0:13:12.640 L three x tech for the last decade when it's 0:13:12.640 --> 0:13:15.160 been low, volatile and trending, those trades have really paid off. 0:13:15.800 --> 0:13:18.920 Speaking of Nugget and Dust there those are tracking gold 0:13:18.960 --> 0:13:22.280 miners stocks. There's great great tickets. By the way, well 0:13:22.640 --> 0:13:25.880 there's jay nug which tracks junior gold miners, which we 0:13:26.000 --> 0:13:29.559 all call like the ultimate like that is like the 0:13:29.559 --> 0:13:33.400 hardest of the hardcore. At one point in the first 0:13:33.400 --> 0:13:36.000 half of the year it was up six and the 0:13:36.080 --> 0:13:39.520 volatility on this thing sometimes gets to fifteen times the 0:13:39.640 --> 0:13:42.559 SMP five hundred I mean this thing should they you 0:13:42.559 --> 0:13:45.760 should ship as an X with the by order when 0:13:45.800 --> 0:13:48.080 you you know what I mean, you need so you know, 0:13:48.080 --> 0:13:50.320 you've got to really be able to handle a lot. 0:13:50.360 --> 0:13:52.760 I mean, that's that's way more vaulatle than bitcoin even 0:13:52.800 --> 0:13:55.760 at the time. Uh So some of these get into 0:13:55.800 --> 0:13:59.880 some really even like the underlyings volatile, right right, so 0:14:00.080 --> 0:14:02.640 more the more volatile the underlying is the more volatile. 0:14:02.640 --> 0:14:05.200 Obviously the three x CTF will be um. And what 0:14:05.240 --> 0:14:07.080 I would say about that though, is what's really sort 0:14:07.120 --> 0:14:09.320 of good is that it's evolved over time and that 0:14:09.400 --> 0:14:12.160 the holding periods for J nugg and J dust and 0:14:12.240 --> 0:14:15.240 nugget and dust are a day or less, whereas the 0:14:15.240 --> 0:14:18.400 holding periods for three x SMP could be a couple 0:14:18.400 --> 0:14:20.320 of days to a week. So the average holing periods 0:14:20.320 --> 0:14:22.560 in general for leberty tfs have come in a lot, 0:14:22.640 --> 0:14:24.960 which is great. People are trading them and not you know, 0:14:25.120 --> 0:14:27.200 kind of blindly buying them and hoping for the best. 0:14:27.680 --> 0:14:29.480 And that's what we look for. We want to make 0:14:29.480 --> 0:14:31.960 sure there's a lot of turnover, and if so, we're like, okay, 0:14:31.960 --> 0:14:34.760 the people are probably using those correctly. There's examples of 0:14:34.800 --> 0:14:37.080 ones that should be traded that aren't um like USO 0:14:37.200 --> 0:14:40.320 is a good example, but leverage mostly I think the 0:14:40.320 --> 0:14:42.040 shares trade every day, so that means the average holding 0:14:42.040 --> 0:14:44.480 periods a day or two to that point. Just to 0:14:44.520 --> 0:14:47.360 give some wide numbers here, there's two D and thirty 0:14:47.520 --> 0:14:51.120 leverage inverse ETFs, but the only account for fifty billion dollars, 0:14:51.120 --> 0:14:53.480 which is one point five percent of all e t 0:14:53.640 --> 0:14:57.840 F sets. However, they make up probably eight nine of 0:14:57.880 --> 0:15:01.280 all e t F trading, right, so again they're people 0:15:01.280 --> 0:15:03.480 trade the crap out of them, which is what you 0:15:04.120 --> 0:15:07.600 that's being used correctly for the most part. Yeah, absolutely, 0:15:07.600 --> 0:15:09.240 that's what we want to see. And if you look 0:15:09.280 --> 0:15:11.080 at the last couple of weeks when we've seen all 0:15:11.120 --> 0:15:13.800 come back into the market, we've traded about a third 0:15:13.800 --> 0:15:16.720 of our assets under management almost on a daily basis. 0:15:16.760 --> 0:15:20.080 So people are definitely investors are definitely trading and turning 0:15:20.120 --> 0:15:22.320 these over in the last few days when volatility is there, 0:15:22.320 --> 0:15:24.240 which is great because again I've been doing this for 0:15:24.320 --> 0:15:26.280 I've been with Direction for about a decade now. When 0:15:26.280 --> 0:15:29.320 I first started, I think that the concern around education 0:15:29.360 --> 0:15:31.480 and how to use them was, you know, less than 0:15:31.520 --> 0:15:33.440 it is now. People are definitely trading now and the 0:15:33.440 --> 0:15:36.480 holding periods have come in, which is and most ets 0:15:36.520 --> 0:15:41.200 hold stocks, bonds or futures. Um, these don't these hold swaps. 0:15:41.240 --> 0:15:43.600 Can you explain what a swap is and who it's 0:15:43.640 --> 0:15:46.400 with and whatnot, Like what's in the fund? Sure, So 0:15:46.880 --> 0:15:48.440 we have bull funds and bear funds. So in the 0:15:48.440 --> 0:15:52.239 bull funds it's about two hundred and fifty percent swap. 0:15:52.280 --> 0:15:54.600 And then the remainder of the position is a basket 0:15:54.600 --> 0:15:56.400 of stocks or a very liquid one day to e 0:15:56.480 --> 0:15:59.600 t F So for example, SMP five hundred basket might 0:15:59.600 --> 0:16:04.080 be or spy might and the rest is a swap 0:16:04.120 --> 0:16:07.680 on spy. In the bare fund, it's essentially one or 0:16:07.720 --> 0:16:11.000 three percent exposure via swap. So the way that swaps 0:16:11.040 --> 0:16:13.960 work is on the long side we essentially received performance 0:16:14.000 --> 0:16:16.360 on the index. On the short side, we owe performance 0:16:16.360 --> 0:16:20.040 on the index. Two banks. So we have seven counterparties 0:16:20.120 --> 0:16:23.880 right now, um, and you know our competitor has the 0:16:24.080 --> 0:16:28.400 similar group of counterparties as well. So this is like yes, 0:16:29.240 --> 0:16:33.720 Golman Credit Suites, UM BMP Party, Boss City Group, UM, 0:16:33.720 --> 0:16:36.560 Morgan's you know, Morgan Stanley, BAM, l U b S. 0:16:36.600 --> 0:16:39.480 Those are some of our some of our counterparties UM, 0:16:39.560 --> 0:16:41.640 and what we do on a daily basis is we 0:16:41.720 --> 0:16:43.800 look at what's going on with the underlying index. So 0:16:43.880 --> 0:16:48.520 let's say SMPS rallying today, UM, and you have two factors, 0:16:48.560 --> 0:16:51.200 the primary market in the secondary market, so secondary is 0:16:51.320 --> 0:16:54.880 the index itself and primary is creation and redemption activity. 0:16:54.920 --> 0:16:59.040 So that's authorized participants essentially creating or redeeming shares. And 0:16:59.120 --> 0:17:00.720 we have a number at the to the day. So 0:17:00.840 --> 0:17:03.640 if let's say the SMPS up and there are a 0:17:03.640 --> 0:17:07.639 lot of creates, we go to whichever bank City Ubs 0:17:07.800 --> 0:17:10.480 Meryl credits with and we say we need to buy 0:17:10.560 --> 0:17:13.320 fifty million of exposure and swap to SMP. If there 0:17:13.320 --> 0:17:16.119 are redemptions, that number could be you know, five million, 0:17:16.160 --> 0:17:18.480 whatever it is. UM. We're buying and selling swap on 0:17:18.560 --> 0:17:20.679 a daily basis and managing the fund that way, so 0:17:20.720 --> 0:17:30.840 the bank does the trading. That's the important thing. We 0:17:30.960 --> 0:17:36.679 touched on gold China Tech. What isn't leverage used for 0:17:37.400 --> 0:17:40.840 So the issue or something that would hold us back 0:17:40.840 --> 0:17:43.159 from launching a new fund would be liquidity in the 0:17:43.240 --> 0:17:46.240 underlying and options for us to create the fund. So, 0:17:46.280 --> 0:17:48.560 for example, one of the most top popular topics out 0:17:48.600 --> 0:17:52.200 there has been bitcoin related products or marijuana related ETFs. 0:17:52.480 --> 0:17:55.760 You know, the liquidity and the availability of underlyings is 0:17:55.800 --> 0:17:59.160 just not there to support a three beta fund, So 0:17:59.359 --> 0:18:01.400 you know, things like that we tend to stay away from. 0:18:01.400 --> 0:18:03.920 You know, direction is kind of risk averse in terms of, 0:18:04.359 --> 0:18:06.320 you know, we don't want to launch a product that 0:18:06.480 --> 0:18:09.359 if there was an underlying move of we couldn't rebounce 0:18:09.400 --> 0:18:11.280 on Daihi basis. So, for example, we stay away from 0:18:11.359 --> 0:18:14.280 vix because we just worry about what would happen with 0:18:14.640 --> 0:18:16.640 the futures market and we kind of saw that blow 0:18:16.720 --> 0:18:19.280 up UM a couple of times in history here, So 0:18:19.320 --> 0:18:22.480 we tend to stick to very liquid. They can be volatile, 0:18:22.520 --> 0:18:23.879 but they have to be liquid and there has to 0:18:23.920 --> 0:18:26.120 be a lot of options to build e TF. That's 0:18:26.119 --> 0:18:28.280 how crazy the VIX area is. But the three X 0:18:28.320 --> 0:18:32.280 people will they're like, we're not, we don't go there. Yeah, 0:18:32.400 --> 0:18:34.320 that we gotta have Velocity shares in here. I mean 0:18:34.359 --> 0:18:39.600 that's like that's NC seventeen territory. Yeah. And how lucrative 0:18:40.560 --> 0:18:44.720 is the leverage space. Well, the management fee on the 0:18:44.760 --> 0:18:47.720 majority of three beta et F products, and we have 0:18:47.760 --> 0:18:50.480 about thirteen billion a u M. Most of that is 0:18:50.880 --> 0:18:53.160 in three x CTF. So that gives you a sense 0:18:53.200 --> 0:18:55.359 of you know, the profit on on the e t 0:18:55.480 --> 0:18:57.680 f s. Of course they're financing expenses and things like that. 0:18:57.720 --> 0:18:59.840 But um, you know, when we we look at the 0:19:00.000 --> 0:19:01.520 revenue of the E t F industry, it's something we 0:19:01.560 --> 0:19:03.400 do every year we called welcome to the jungle because 0:19:03.400 --> 0:19:05.520 there's just not a lot of revenue, so be warned. 0:19:05.800 --> 0:19:08.640 But the leverage providers do the best. Uh, they punch 0:19:08.680 --> 0:19:11.600 way above their weight. They might rank eleventh and twelfth 0:19:11.640 --> 0:19:14.359 asset wise, but they probably rank fifth and sixth revenue wise, 0:19:14.400 --> 0:19:17.239 because that when you trade, traders don't really care what 0:19:17.280 --> 0:19:19.600 the fees are. That's why black Rock still makes the 0:19:19.640 --> 0:19:21.679 most money from e M even though most people are 0:19:21.680 --> 0:19:24.440 going to i MG, because the traders that they don't 0:19:24.440 --> 0:19:27.480 really care that it costs whatever seventy basis points. So 0:19:27.720 --> 0:19:30.000 I think you guys are a good takeover target. Frankly 0:19:30.119 --> 0:19:33.000 for a company looking to get a foothold into e 0:19:33.040 --> 0:19:37.359 t f s steady ready revenue stream. Janice bought Velocity Shares, 0:19:37.680 --> 0:19:41.760 which was a wild head scratching acquisition, but it honestly, 0:19:41.760 --> 0:19:46.080 those Velocity shares are contribute like the revenue of janiss 0:19:46.119 --> 0:19:48.000 et F line. So what's the player? Are you guys 0:19:48.040 --> 0:19:51.399 gonna are you looking for for bigger fish or or 0:19:51.440 --> 0:19:53.880 are you happy where you are? We are the big 0:19:53.880 --> 0:19:59.800