Speaker 1: Welcome to Trallians.
Speaker 2: I'm Joel Webber and I'm Eric Valchunis Eric.
Speaker 1: Every once in a while we come across the thing
Speaker 1: that feels like a big deal, maybe a good thing,
Speaker 1: really good thing for investors, and this one really piqued
Speaker 1: my interest.
Speaker 2: Yeah, there's a new category that's getting big quickly and
Speaker 2: it's really we call them the buffer ETFs. Target out
Speaker 2: target outcome is another name for them, and there's been
Speaker 2: there's dozens of them. But there was a story written
Speaker 2: by Bloomberg News that had a headline that really just
Speaker 2: caught people's attention. This story got a lot of reads
Speaker 2: and it was basically along the lines of, hey, here's
Speaker 2: a new fund that offers one downside protection.
Speaker 1: Downside protection.
Speaker 2: That's what I like, Yeah, everybody does. I think there's
Speaker 2: also a too good to be true element to it
Speaker 2: as well, and so clearly you're going to click on
Speaker 2: that and say what's going on here? And I think
Speaker 2: it's just excuse to get into the buffer funds and
Speaker 2: what they do and the audience they serve. I just
Speaker 2: looked recently they've taken in over five billion this year.
Speaker 2: That's a twenty three percent organic growth rate. That's about
Speaker 2: triple the ETF industry as a whole. They're now up
Speaker 2: to about thirty billion dollars. And this search I did
Speaker 2: isn't even catching them all. It's only the ones with
Speaker 2: buffer in the name. But anyway, it's a whole big category.
Speaker 2: Black Rocks jumped in and so I think it's a
Speaker 2: good time to revisit this, in particular this one that
Speaker 2: has one hundred percent downside protection.
Speaker 1: Joining us on this episode. We're gonna have Bruce Bond,
Speaker 1: the CEO and founder of Innovator Capitol Management, as well
Speaker 1: as Graham Day, the chief investment officer, and we're going
Speaker 1: to talk about the Innovator equity defined protection ETF with
Speaker 1: the ticker t Jewel, this time on trillions no downside Bruce, Graham,
Speaker 1: Welcome to the Trillions.
Speaker 3: Great to be here, guys, really happy to be here.
Speaker 4: Thanks for having us guys.
Speaker 1: Okay, Bruce, I'm gonna start with you. Do you prefer
Speaker 1: the term buffer ETF or defined outcome?
Speaker 4: We prefer the term defined outcome to cover the whole
Speaker 4: category of these defined outcome type ETFs, which includes buffers, accelerated,
Speaker 4: income based and now you know the defined protection ETFs
Speaker 4: as well, so we look at defined outcome kind of
Speaker 4: as an umbrella, and buffers is a category within that.
Speaker 1: Okay, so is this too good to be true? I
Speaker 1: mean I put money in and then a little bit later,
Speaker 1: like chaos unfolds. There's no downside. I only get upside.
Speaker 1: That seems like there's a catch.
Speaker 4: Yeah, well there really is no catch. It is a
Speaker 4: great product. It took us a while to get it out,
Speaker 4: and I think to be able to tell people that
Speaker 4: you can now participate in the equity markets with no
Speaker 4: downside risk and with upside now you are giving a
Speaker 4: couple things up.
Speaker 1: One of the Oh there's the catch, okay, yeah, what
Speaker 1: do I give up?
Speaker 3: Yeah?
Speaker 4: So I guess, yeah, I mean catch you're giving up
Speaker 4: the dividend, so you don't receive the dividend, and you're
Speaker 4: also giving up the upside over two years above sixteen
Speaker 4: point six percent, you know, so any performance over sixteen
Speaker 4: and a half percent, let's say you're giving that up.
Speaker 4: So you're giving up the dividend and that and so
Speaker 4: those are the gives up. So there's nothing free within
Speaker 4: the investing world, as we all know. But to be
Speaker 4: able to understand you don't have downside, but you get
Speaker 4: that amount of upside is a huge benefit to many
Speaker 4: many people in the investing world.
Speaker 1: Do you keep whatever's above sixteen percent.
Speaker 4: No, we don't keep it. What happens is we take
Speaker 4: the dividend and we buy part of the options with
Speaker 4: the dividend. But then we don't quite have enough money
Speaker 4: just using the dividend to buy the options, and so
Speaker 4: we have to sell a call and we determine where
Speaker 4: the cap is by how much money we have to
Speaker 4: raise in order to finance this package. We want the
Speaker 4: options package to be a zero cost package for investors,
Speaker 4: and so we set the cap there. So where's really
Speaker 4: We're selling off the upside to get a little more
Speaker 4: money to finance the package. And that's really what happens,
Speaker 4: and the way we're able to give you the downside
Speaker 4: protection and give you a certain amount of the upside.
Speaker 1: Gram Let's come in here. That was a deep endo
Speaker 1: the swimming pool. Can you break that down a little
Speaker 1: bit before.
Speaker 3: Me, guys, It's really simple. All we're doing is, as
Speaker 3: Bruce was saying, in giving up unlimited upside potential, you're
Speaker 3: exchanging that for the certainty of having a one hundred
Speaker 3: percent buffer and if you think about long term the
Speaker 3: ability to get some equity upside in today's market where
Speaker 3: it's at all time highs, where people are really scared
Speaker 3: of what do I do. Do I just keep giving
Speaker 3: my money to the banks and letting them sit in
Speaker 3: the deposits, or do I invest in the markets but
Speaker 3: also have that one hundred percent protection and so to
Speaker 3: have a sixteen percent upside over two years, history suggests
Speaker 3: that's a better spot to be than if you were
Speaker 3: just sitting on the sidelines in cash.
Speaker 2: Okay, there's a lot of questions on where this fits
Speaker 2: into portfolio, who it's for, But before we get there,
Speaker 2: just while we're on the product itself, just explain as
Speaker 2: best you can what you're doing in the portfolio. You
Speaker 2: talked about selling the upside. What kind of options are
Speaker 2: you using, how often are you changing the options, what
Speaker 2: kind of options are they?
Speaker 3: It's really simple at the end of the day, these
Speaker 3: are three options positions that we're holding. And the beauty
Speaker 3: of the defined outcome ets is that once that basket
Speaker 3: of options is set, it is fixed for the entirety
Speaker 3: of the outcome period. There's no active management, there's no
Speaker 3: one pulling levers behind the curtain. That's what gives all
Speaker 3: investors a defined outcome. And so we start with a
Speaker 3: deepend the money call on the S and P five
Speaker 3: hundred that gives you the long exposure to the S
Speaker 3: and P five hundred, and then, as Bruce mentioned, we
Speaker 3: use the implied dividend inside that deep in the money
Speaker 3: call to help fund the at the money put so
Speaker 3: and at the money put is what gives you that
Speaker 3: one hundred percent downside protection. Now the dividend is not
Speaker 3: enough to cover that cost of that protection, and so
Speaker 3: that's where we go out and we put the market
Speaker 3: makers on the option side into competition and tell them, look,
Speaker 3: we need to finance this downside protection. At what level
Speaker 3: can we sell a call the highest level possible to
Speaker 3: finance the remainder of the cost of the protection. In
Speaker 3: this case, it was sixteen point six percent. We sell
Speaker 3: that call. That's what gives the cap to investors, but
Speaker 3: it's also what helps finance that at the money put.
Speaker 2: When these products come out they sometimes have dates around them.
Speaker 2: Is this is this one T jewel, which by the way,
Speaker 2: sounds like a like a rapper. It's a cool name,
Speaker 2: it's like a It just kind of rolls off the tongue.
Speaker 2: Whoever got that took your good job?
Speaker 1: Do you?
Speaker 2: These are designed to start on the day that they
Speaker 2: come out, kind of right. It's not a lot of
Speaker 2: other ETFs, including leveraged the leverage resets every day. This
Speaker 2: is a little different. Can you just explain how the
Speaker 2: timing works.
Speaker 4: Yeah, and Eric, maybe even before we do that, we
Speaker 4: didn't really talk about, Okay, what is this product and
Speaker 4: how does it work a little bit, you know, just
Speaker 4: kind of the overview for everyone. Yeah, basically, t jewel
Speaker 4: It was listed on the first of July, and you
Speaker 4: have to hold this product for two years in order
Speaker 4: to get the sixteen point six percent. So you buy
Speaker 4: that and then over a two year period, if the
Speaker 4: market is up twenty percent, you get sixteen point six
Speaker 4: If the market is up ten percent, you just get
Speaker 4: ten percent, So you get all the way up to
Speaker 4: sixteen point six percent. Now, the beauty of this product
Speaker 4: is that you can't lose money on the downside if
Speaker 4: you buy day one. So if the market's down five percent,
Speaker 4: you don't lose. If it's down ten percent, you don't lose.
Speaker 4: If it's down twenty percent from July first, you don't
Speaker 4: lose any money, and I think that's what people are
Speaker 4: so excited about. So I just want to make sure
Speaker 4: everybody understands this. Although what Graham's talking about with the
Speaker 4: call bonds, and I mean with the calls and the
Speaker 4: options and all this stuff, it's not kind of confusing
Speaker 4: for some people. What they really need to do is
Speaker 4: look at this at face value. You buy it on
Speaker 4: the first of July, or you can really buy it anytime.
Speaker 4: If you look at the website, you get the upside
Speaker 4: of the market up to sixteen and a half percent
Speaker 4: and you have no risk on the downside. But you
Speaker 4: have to stay in it for two years in order
Speaker 4: to receive that. And that's really what people are so
Speaker 4: excited about. So storry to interrupt. I just want to
Speaker 4: make sure everybody understood where we were.
Speaker 2: Do people religiously buy on the first day and then
Speaker 2: nobody buys it? Or do you find some people come
Speaker 2: into these products after a couple months or a year.
Speaker 2: Is there a benefit to buying it a year in
Speaker 2: let's say the market is down or up, like, is
Speaker 2: there a trading crowd that gets into this even if
Speaker 2: they're not sort of maybe the older investor looking to
Speaker 2: protect their wealth and they go in day one, Is
Speaker 2: there any thing you can do with this after day one?
Speaker 3: Eric? Yes. For the most part, though, we do find
Speaker 3: advisors like to buy at the very beginning of the
Speaker 3: outcome period. They like to understand that they have the
Speaker 3: full downside buffer, they have the full upside cap. And
Speaker 3: I think one of the things that we realized early
Speaker 3: on when we brought these products back in twenty eighteen
Speaker 3: was that what I alluded to before, when you look
Speaker 3: at the defined outcome, that package of options is fixed
Speaker 3: for the entirety of the outcome period. That means it's
Speaker 3: someone who buys, say six months into an outcome period,
Speaker 3: they can still achieve a defined outcome. Now, their outcome
Speaker 3: may look a little different. The price of the underline
Speaker 3: and the options have moved, so the price of the
Speaker 3: ETF has moved. But now if they had a one
Speaker 3: year out from pater to start and they're six months in,
Speaker 3: now they have a unique six month defined outcome that
Speaker 3: they can achieve. And so we've seen a growing number
Speaker 3: of advisors who have grown comfortable with using these ets.
Speaker 3: Maybe they started buying at the very beginning of the
Speaker 3: outcome period, but now they look and realize, well, this
Speaker 3: payoff is really intriguing to me and my clients for
Speaker 3: this next six months. In terms of the trading community,
Speaker 3: I think there's definitely some and we've been talking with
Speaker 3: some institutions that have used options in sophisticated ways, but
Speaker 3: the ability to access a package of options via single
Speaker 3: ETF is far more efficient for them than it is
Speaker 3: to recreate the options package, trade those individual option legs
Speaker 3: tax full event every single time you're managing this portfolio options.
Speaker 3: And so we're seeing the application of these ets extending
Speaker 3: from simply using day one the people using throughout the
Speaker 3: outcome period, to now getting some of these institutions involved
Speaker 3: as well.
Speaker 4: One other thing I would add to you guys too,
Speaker 4: just to think about. So let's say you bought in
Speaker 4: day one and then at a at the year point,
Speaker 4: let's say the market's up ten or fifteen percent and
Speaker 4: the ETF's up eight percent. You know it's not going
Speaker 4: to be up as much as the EGF. Listeners need
Speaker 4: to understand that it's going to trail a little because
Speaker 4: there's a lot of time value in there. Only at
Speaker 4: the very end of the outcome period you're going to
Speaker 4: get one to one on the upside with the SMP.
Speaker 4: And but just think about anytime you could use this
Speaker 4: if the market's up, and if the ETF is up,
Speaker 4: you can roll it into a new one at the
Speaker 4: reset time and you lock in whatever that gain is.
Speaker 4: You can't lose it after that, you know, so you
Speaker 4: just step up, you continue to lock your gains in.
Speaker 4: I can see a lot of people using it like
Speaker 4: that into the future if the market's up.
Speaker 2: And so this to me, especially after last year, because
Speaker 2: sometimes I see a product like this and I'm like,
Speaker 2: why not just like diversify old school, have some treasuries,
Speaker 2: have some stocks. But after last year, treasuries and stocks
Speaker 2: both went down a lot, And so how big of
Speaker 2: an opening did that create? Because I get the appeal here, right,
Speaker 2: You've got older investors especially who have a lot of gains.
Speaker 1: I was going to say, like a retiree.
Speaker 2: This just seems like, yeah, what is the average age
Speaker 2: in these funds? Got to be like seventy? I mean
Speaker 2: I can't I mean, you wouldn't use this if you're
Speaker 2: thirty years old, right.
Speaker 4: Yeah, it's hard to track. But you know one other thing,
Speaker 4: you know, because they're ETOs, we don't know everybody that
Speaker 4: owns them. But the thing to remember is that like
Speaker 4: seventy five percent of investable assets are in pre retirement
Speaker 4: and retirement accounts. That's where most of the money is located.
Speaker 4: And so those people that are getting ready are looking
Speaker 4: at retirement, are almost in retirement or saying I don't
Speaker 4: want to put my money at risk, and Eric, you're right.
Speaker 4: Typically you would say, you know, let's say you get
Speaker 4: a windfall, you get a million blocks, and you're like, okay,
Speaker 4: well I need to buy a little bond. I got
Speaker 4: to buy a little You don't have to think about
Speaker 4: that anymore.
Speaker 3: If you don't want to.
Speaker 4: You can just buy this and say, Okay, I get
Speaker 4: all the upside up to sixteen percent over the next
Speaker 4: couple of years. I got no risk on the downside. Why,
Speaker 4: I think about what I want to do, and I
Speaker 4: think those are the options that this gives people that
Speaker 4: they didn't have access to before. One other thing, Eric,
Speaker 4: you can appreciate this. The SEC has never approved the
Speaker 4: name protection and the name of any other ETF until now.
Speaker 4: It's called defined protection ETFs that innovators bringing. That's a
Speaker 4: big deal. It tells you a lot about how the
Speaker 4: SEC has seen them as well.
Speaker 2: How were those conversations. Did it take a lot to
Speaker 2: convince them, because they are pretty conservative when it comes
Speaker 2: to putting certain words in the name.
Speaker 3: Eric, you know, really know. In fact, what you'll find
Speaker 3: when you bring a lot of products to market is
Speaker 3: that the SEC has a significant amount of input when
Speaker 3: it comes to the final name, and so you are
Speaker 3: it's almost a collaboration with them. And so we were
Speaker 3: actually very surprised that this was one of the iterations
Speaker 3: that they had come back to us with. And so
Speaker 3: I think to Bruce's point, that kind of reaffirms that
Speaker 3: they understand the value add proposition of this ETF and
Speaker 3: it being the first ETF that for this outcome period
Speaker 3: is going to provide investors what they have one hundred
Speaker 3: percent buffer on the downside.
Speaker 1: Okay, so here's the question that I really want to know.
Speaker 1: What took so long?
Speaker 3: Yeah?
Speaker 4: Exactly. Well, you know, if good things take time, y'all,
Speaker 4: you know that, so it uh, yeah, it took a while.
Speaker 4: And you know, I think in our approach to the business,
Speaker 4: what we do is we look at the market and
Speaker 4: we say what do people need, what do they really want?
Speaker 4: What are they using today that we might be able
Speaker 4: to do better. And so if you look at the
Speaker 4: annuity business, this is why do people buy annuities for
Speaker 4: the insurance. They want to know they're not going to
Speaker 4: lose that money, right, and so this provides that to them.
Speaker 4: Or even market link CDs that banks issue, why do
Speaker 4: people buy those because they want to know they can't
Speaker 4: lose money. Well, guess what's insurance companies? I mean, heaven forbid,
Speaker 4: we have a huge environmental calamity in these insurance companies.
Speaker 4: So of them go down or something, I mean, it's
Speaker 4: a real concern on people's minds these days. These do
Speaker 4: not have credit risk. You don't have to wonder what
Speaker 4: they're invested in. You can see what's in there and
Speaker 4: it's not tax will when it resets, and so you
Speaker 4: don't have the credit risk, you don't have the tax risk.
Speaker 4: You just let it go into the future and you
Speaker 4: know when you sell it you have to pay the
Speaker 4: tax that's there, but you don't have to pay the
Speaker 4: tax until you sell it.
Speaker 2: I remember looking through some teachers retirement plans with some
Speaker 2: of variable annuities, and the fees were ridiculous. I mean,
Speaker 2: these teachers were getting gouged in my opinion, Can you
Speaker 2: talk a little bit about that industry versus the fees
Speaker 2: on this and what the savings is.
Speaker 3: Like, Eric, I think that's you kind of hit the
Speaker 3: nail on the head when you look at the way
Speaker 3: the ETF industry has evolved. It's been taking these exposures
Speaker 3: that have been less liquid, more expensive, less tax efficient,
Speaker 3: and making them accessible to all investors at the same price.
Speaker 3: And that price is often significantly lower than what you
Speaker 3: see in the insurance market. And so that's really no
Speaker 3: different of what we've done here with Tjewel. We've taken
Speaker 3: a look at an area of the market where we
Speaker 3: were looking at the numbers twenty twenty two eighty billion
Speaker 3: dollars of fixed index annuity sales. So that's products in
Speaker 3: the insurance market that give you some of the equity upside,
Speaker 3: but give you that principle protection on the downside. The
Speaker 3: problem is the fees are high. They tend to be
Speaker 3: five six years in duration. Your money is locked up,
Speaker 3: you want to get out after a year, you're going
Speaker 3: to have a hefty surrender charge. And that doesn't even
Speaker 3: take in consideration the tax implications of those structures. And
Speaker 3: again the ETF has shown the power of deferring taxes
Speaker 3: and what that can do for the end investor. You
Speaker 3: add that, uh, you know, you add that dynamic to
Speaker 3: this ETF, the tj U L there's a massive value
Speaker 3: added potential that investors can unlock because when you look
Speaker 3: at market link CDs, when you look at insurance products,
Speaker 3: market link CDs have what's called phantom income. Now that's
Speaker 3: a fancy term for you. Essentially are going to be
Speaker 3: paying taxes along the way on gains that you have
Speaker 3: not yet received at an ordinary income rate. You look
Speaker 3: at fixed indextinuities. Once those policies come due in five
Speaker 3: or six years, you're going to be paying ordinary income
Speaker 3: taxes on gains the ETF you defer those gains. You
Speaker 3: choose if you want to sell after a year in
Speaker 3: a day, it's going to be long term cap gains.
Speaker 3: And so you think about the tax alpha potential that
Speaker 3: the ETF wrapper delivers on top of the liquidity, on
Speaker 3: top of the fact that there's no credit risk, on
Speaker 3: top of the fact that there's no surrender charges. There's
Speaker 3: a huge benefit that we think we are giving to
Speaker 3: the end investor. And there's a huge market for this
Speaker 3: type of participation in the market. But having that known goffer.
Speaker 1: In place, Okay, strong pitch, I think I understand the
Speaker 1: product a little bit better. Now, what could go wrong?
Speaker 1: What could make me not get the protection?
Speaker 2: Yeah, of March twenty twenty, or like a black Swan event,
Speaker 2: or I don't know, what would make me.
Speaker 3: There's there's none of Yeah, there's yeah, Joel, It's I mean,
Speaker 3: it's a great question. And again a lot of people
Speaker 3: will say this just sounds too good to be true.
Speaker 3: That the ETF owns options. Those options are exchange traded options.
Speaker 3: They are guaranteed for settlement by the OCC. The OCC
Speaker 3: has been identified by the US government as a too
Speaker 3: important to fail institution, and so that's your counterparty when
Speaker 3: it comes to the underlying options. The OCC has been
Speaker 3: around since the seventies. They have never defaulted on any
Speaker 3: of their obligations. So that's your counterparty. Now obviously contrasts
Speaker 3: that to a bank or insurance company. We have found
Speaker 3: investors saying we would much rather prefer having our counter
Speaker 3: party be the OCC, as opposed to an insurance company
Speaker 3: or a bank.
Speaker 4: So what can go wrong? Let me let me run
Speaker 4: at that real quick guys, I don't mean to jump in,
Speaker 4: but so really on the downside, you own to put
Speaker 4: one hundred percent put at the money, can't lose money
Speaker 4: if the market goes down. To remember, these are spy options,
Speaker 4: most liquid options in the world right, so unbelievably adopted
Speaker 4: a deep pool of options, so you really have no
Speaker 4: risk there. So the only risk someone really has if
Speaker 4: the market goes up significantly above the cap.
Speaker 3: That's it.
Speaker 4: That's your risk. And we find most people that are saying, Okay,
Speaker 4: I'm going to get one hundred percent downside protection. I'm
Speaker 4: good with sixteen. I can live with that. I'm happy
Speaker 4: with that, and I don't need more than that, and
Speaker 4: I'm willing to give up what is above that to
Speaker 4: know I can't lose going down. That's that's really your risk.
Speaker 2: And that's sixty percent over two years, sixteen over two years.
Speaker 2: What's interesting is the S and P annually I think
Speaker 2: going back fifty one hundred years returns about eight point
Speaker 2: five nine percent, So it's almost the average return of
Speaker 2: the S and P. So I get it.
Speaker 1: I mean it's actually to that end. You guys must
Speaker 1: have done a lot of back testing on this, like
Speaker 1: what did you learn from that process.
Speaker 3: Yeah, I think you know what we found is and
Speaker 3: you look at today's market and you've got a JP
Speaker 3: Morgan in their second half outlook, they said that twenty
Speaker 3: five to thirty percent of their client's in bestible assets
Speaker 3: in cash. And I think that people have had this
Speaker 3: idea of gosh, cash is paying me four percent. Now,
Speaker 3: what a great place to be. But history shows that
Speaker 3: you do not want to overweight cash in your portfolio.
Speaker 3: Look what happened in twenty twenty three. People experience all
Speaker 3: that downside. They moved to cash markets. The shots on
Speaker 3: nineteen percent, it's on a tear. And even you look
Speaker 3: at bonds, people were talking about bonds generational opportunities. Core
Speaker 3: bonds are up two percent, two and a half percent.
Speaker 3: That doesn't sound like a generational opportunity to be And
Speaker 3: so that's that's the beauty of these products is equity
Speaker 3: exposure is where where the where it happens in terms
Speaker 3: of the portfolio. That's where you get the bulk of
Speaker 3: your returns, especially now that interest rates have normalized.
Speaker 1: Well, that was what I was going to say, Like
Speaker 1: when I asked that question of like what took so long?
Speaker 1: It really was interest rates, right, we needed that to
Speaker 1: go up for strategy, right, yeah.
Speaker 3: Yeah, yeah, you know, and Joel, that's a that's a
Speaker 3: fair point. And one of the reasons why it took
Speaker 3: a while. And again you look at the insurance market,
Speaker 3: the reason why they brought partially protected products is because
Speaker 3: it was too expensive to bring products that had one
Speaker 3: hundred percent downside protection. That was a function of interest rates.
Speaker 3: And so as interest rates have risen, that has really
Speaker 3: led to this new proliferation of insurance products that give
Speaker 3: you equity upside with the full downside protection. And now
Speaker 3: we can offer that in the ef rapper. But in
Speaker 3: terms of back testing looking we have seen that this
Speaker 3: type of strategy significantly outperforms cash, which you would expect. Again,
Speaker 3: people think, well, gosh, I'm guaranteed to get four percent
Speaker 3: of my money market fund. Why would I give that
Speaker 3: up for potentially getting sixteen point six percent over two years?
Speaker 3: And that's the hurdle that people can't get over. But
Speaker 3: that's why that these strategies actually do better than if
Speaker 3: you're just sitting in cash. And you, guys, Eric, you
Speaker 3: pointed out eight percent a year, eight nine percent a
Speaker 3: year over fifty years. That's the average an you'll return.
Speaker 3: You look over two year time frames, the SMP is
Speaker 3: positive ninety percent of those times, and the average return
Speaker 3: in positive markets is thirty two percent over two years.
Speaker 3: So the math and the probability history tells you that
Speaker 3: this is a better spot to be in than simply
Speaker 3: sitting in bonds or on the side sidelines in cash.
Speaker 3: And by my dad, the money market funds are four percent.
Speaker 3: I'm not getting paid that at my JP Morgan Chase account.
Speaker 3: And that's where a lot of people have moved to.
Speaker 3: They've moved from these regional banks. They've moved they put
Speaker 3: their money in these big banks that are flush with cash,
Speaker 3: that are still paying ten twenty bases points on deposits.
Speaker 3: And so again this is a tool to get that
Speaker 3: money off the sidelines and into the market.
Speaker 4: Now, remember that's pre tax. I mean, I got to
Speaker 4: remind people that all the time they try to compare
Speaker 4: this to that, you know, I mean, if you did
Speaker 4: an after tax comparison, like buying a one year or
Speaker 4: to your T bill, you need really about eleven percent
Speaker 4: after you know, pre tax, So after tax you hit
Speaker 4: about eight percent. Where we're saying we're going.
Speaker 3: To be.
Speaker 2: All right, Let's talk a little bit about the size
Speaker 2: of this market. Because you guys were first I got
Speaker 2: to get you credit, and I've ember seeing these roll
Speaker 2: out and go. These are just probably too complex for advisors.
Speaker 2: I was wrong. I'm not wrong much, and I.
Speaker 3: Really admit it when I am.
Speaker 2: I was wrong on this. This was this category is ballooning.
Speaker 2: Then you had a bunch of copycats come after you.
Speaker 2: First Trust now Blackrock, now you know Blackrock. First Trust
Speaker 2: is really good at selling ETFs. Blackrock is Blackrock. What
Speaker 2: if this category goes to one hundred billion, two hundred billion,
Speaker 2: does that change the expensiveness of buying that insurance and
Speaker 2: or could the trade get too crowded? Is there any
Speaker 2: risk to the size of this.
Speaker 4: I think one of the things we've done is we've
Speaker 4: tried to stay in or we are in, and I
Speaker 4: think most of the others as well, are in the
Speaker 4: most liquid pools. You know, we're really not looking to
Speaker 4: go into thinly traded areas. Like I said, you know
Speaker 4: the spy options ESPX options, that pool is the most
Speaker 4: liquid pool in the world. You know, we're talking in
Speaker 4: the multiples of billions of dollars daily. So I don't think, really,
Speaker 4: we also have something you know, in the queues, in
Speaker 4: the small cap and EFA and emerging markets, you know,
Speaker 4: for the buffers, So we don't think so we you know,
Speaker 4: these options they trade an enormous size, so we don't
Speaker 4: think it's going to be an issue. And I think
Speaker 4: we have the flexibility to adjust, you know, where the
Speaker 4: trades occur. So we think we'll be fine for quite
Speaker 4: a while. Eric.
Speaker 3: What I would say too, is you look at how
Speaker 3: much is traded in SPY and SPX options you're talking about.
Speaker 3: There's seven eight nine trillion dollars of open interest. There's
Speaker 3: almost eight hundred, nine hundred billion dollars traded every single
Speaker 3: day in these options. And so again to Bruce's point,
Speaker 3: we're bringing these exposures on the most liquid markets. Now.
Speaker 3: The beauty of what we've done, too, is we've diversified
Speaker 3: that liquidity across all of our series of products. We're
Speaker 3: not rolling all the options at one time. That's we
Speaker 3: have monthly series with buffers of nine fifteen thirty percent.
Speaker 3: We have buffer here of one hundred percent on teedool,
Speaker 3: but we're not rolling all these at the same time,
Speaker 3: and that spreads out the liquidity risk. Now we will say,
Speaker 3: you know, we heard through the Grape find there was
Speaker 3: a there's a large mutual fund that's issued by JP Morgan.
Speaker 3: It's a great fund. They were rolling twenty billion dollars
Speaker 3: of SMP options every single quarter, and we've noted that
Speaker 3: they closed that fund to new investors and opened up
Speaker 3: similar to what Innovator's done a few other series. And
Speaker 3: I think that was to diversify, you know, some liquidity
Speaker 3: if you want to call it risk, or that they
Speaker 3: saw that their calfs that they were getting were maybe
Speaker 3: lower because the amount of size and risk that they
Speaker 3: were putting on the market at a one time. But
Speaker 3: that was at twenty billion dollars. We have almost one
Speaker 3: hundred to find out comyts and so that gives us
Speaker 3: a huge opportunity to continue to scale the business. I
Speaker 3: think our largest ETF is just knocking on the door
Speaker 3: of a billion dollars. So we feel like we have
Speaker 3: a long ways to go.
Speaker 2: And just getting back to Blackrock, I know they came
Speaker 2: out there's are a little cheaper than the rest of
Speaker 2: the group their Blackrock. Do they worry you at all?
Speaker 2: What'd you think when you saw that filing?
Speaker 4: I don't think we were surprised, you know, we we
Speaker 4: knew that they were very interested in the space. We
Speaker 4: are really pleased to see them talking about talking a
Speaker 4: lot like how we talk about investors and how much
Speaker 4: risk investors should be willing to take or want to
Speaker 4: take in the markets. And so really it's a real
Speaker 4: credibility booster for us, for you know, the largest asset
Speaker 4: manager in the world to come in and say, you
Speaker 4: know what, this makes a lot of sense for investors,
Speaker 4: and we think they will continue to do this. But
Speaker 4: as you said, JP, Morgan and the like you know,
Speaker 4: have all come into the space saying yeah, Ali once
Speaker 4: know to do products along these lines because they really
Speaker 4: see the value.
Speaker 1: All right, last question, Graham, what is your favorite ETF
Speaker 1: ticker other than any of your own?
Speaker 3: That's a that's a good one. Oh, I can't think
Speaker 3: of one off the top of my head.
Speaker 1: It's your next. But we'll let Graham kind of be
Speaker 1: quiet here for a second. Will he racks his brain?
Speaker 4: Well, I'm a big tech investor. Uh so, uh, you know,
Speaker 4: I'm way overweighted into tech, and so probably something along
Speaker 4: the lines of a r KK.
Speaker 2: I'll take arc from Bruce. I think that's an out
Speaker 2: of the box. I wasn't expecting it, Graham.
Speaker 1: Would you come up.
Speaker 3: With yeah, you know what, guys, I would probably have
Speaker 3: to say cows the fun from Pacer.
Speaker 1: How did that go down with move head to head
Speaker 1: cows versus.
Speaker 3: Move Cole's mood, Yeah, exactly, moves.
Speaker 2: In all top par That's the first time someone pick cows.
Speaker 1: But that is a good one, all right, Graham Bruce,
Speaker 1: thanks so much for joining us on Trillions.
Speaker 4: Thanks for having us guys.
Speaker 5: Thanks for listening to Trillions. Until next time. You can
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Speaker 1: We're on Twitter, I'm at Joel Webber Show. He's at
Speaker 1: Eric Bauchuns. This episode of Trillions was produced by Magnus Hendrickson.
Speaker 5: Bye