Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: I'm Juel Webber and I'm Eric Belchunas Eric.
Speaker 3: We have a special guest today from Investco, Brian Hartigan.
Speaker 3: He's the global head of ETFs and index Investments. Why
Speaker 3: is Invesco so interesting?
Speaker 2: Yeah, you know, they're in the terrordome with there in
Speaker 2: the upper echelon, but not in the big two, and
Speaker 2: so they're in that sort of like level with First
Speaker 2: Trust and Schwab and other sort of like i'd say
Speaker 2: big dogs but not quite Blank Vanguard and black Rock,
Speaker 2: And it's an interesting spot. If you look at their funds,
Speaker 2: they have a ton of hits, a lot of people
Speaker 2: like a lot of ones people love and know, and
Speaker 2: one big one, one big one, Yeah, one super stud
Speaker 2: The q's QQQ and QQQ and perhaps you've heard talk
Speaker 2: about Yeah, perhaps you've heard of it, and but it's
Speaker 2: interest company obviously used to be Power Shares purchased by Invesco.
Speaker 2: And we have had a couple episodes we talked to
Speaker 2: analysts and reporters, but this is sort of like, hey,
Speaker 2: let's wrap the euroup talking to somebody who's in the
Speaker 2: terror dome every day, fighting for every dollar. It is
Speaker 2: hard in this industry, and there's a lot of things
Speaker 2: going on in their products. They have a diversified product line,
Speaker 2: so we can touch on a bunch of different themes
Speaker 2: here and just sort of get the perspective from inside
Speaker 2: that competitive healthcape.
Speaker 3: Again joining us Brian Hartigan of Investco, this time on
Speaker 3: Trillions investcos etf playbook.
Speaker 4: Brian Wegan a trillions Warnow guys, great to bear.
Speaker 3: Just so that we have a disclaimer, Investco is a
Speaker 3: Bloomberg sponsor. Okay, so I want to talk to you
Speaker 3: about Invesco. What's the secret sauce at Invesco that strategically
Speaker 3: distinguishes you, guys from all those other players in Eric's
Speaker 3: thunderdome Terrordome.
Speaker 4: Sure, yeah, the Terroodome. I love it. It brings out
Speaker 4: some of the grittiness. But we've been in the game
Speaker 4: for quite some time, right, So we just recently hit
Speaker 4: a trillion dollars in assets shameless plug trillion, but it's
Speaker 4: through a see what you did there?
Speaker 2: Well, you know we always say the name we gave
Speaker 2: this podcast podcast aged really well.
Speaker 4: Yes, number go, so trillion, trillion, keep hitting the trillion flows.
Speaker 4: Investco has been in the ETF market for quite some
Speaker 4: time early days, pioneer through power shares, expansion into factors,
Speaker 4: fixed income, commodities, and global in terms of our overall reach,
Speaker 4: so we've been in the tero doome. We've been fighting, competing,
Speaker 4: We understand the landscape and it takes, you know, that
Speaker 4: level of focus really to compete and reach investors within
Speaker 4: the ETF landscape. So it's been a testament of a
Speaker 4: really understanding investors, understanding needs and evolving as we've gone.
Speaker 3: What about this year? What have you learned this year
Speaker 3: that you know is a timely insight for our listeners. Sure.
Speaker 4: Yeah, it's been a great year of returns. Many folks
Speaker 4: kind of forget that at first February March cell down,
Speaker 4: sell off, right, And what was interesting about the market
Speaker 4: correction is it it really opened the door for more diversification.
Speaker 4: From our view, there was a lot of US equity
Speaker 4: dominance and that was great for ourselves for our lineup,
Speaker 4: but I think you started to see investors look at
Speaker 4: more opportunities for diversification. Factors, international commodities came back into play.
Speaker 4: So it's a new world for investors to look at.
Speaker 4: How do they want to diversify through ETFs.
Speaker 2: One of the things that was interesting to me. So
Speaker 2: if I look at your ETFs by flows this year,
Speaker 2: the QQQM and qqq are at the top, So let's
Speaker 2: move those aside because I think everybody knows them. But
Speaker 2: number two is kind of a chakra or three rather
Speaker 2: is a chaker role SPMO. Most people probably don't know
Speaker 2: what that is. That's the investco S and P five
Speaker 2: hundred momentum ETF. You also have an international momentum in there.
Speaker 2: We call that smart beta. We used to have a
Speaker 2: bunch of episodes on beta kind of like went away
Speaker 2: because it's not like the hot topic anymore, but it
Speaker 2: took in I don't know, five hundred billion ish this year.
Speaker 2: So smart beta, obviously, for those who don't know, is
Speaker 2: basically when you take an index and you tweak it
Speaker 2: a little like some Instead of the S and P,
Speaker 2: you tweak it so it has a momentum tilt and
Speaker 2: so it's active but passive at the same time. And
Speaker 2: that sort of smart beta is like twenty five percent
Speaker 2: of the assets. People don't talk about it. It's still
Speaker 2: taking a bunch of cash. How would you do you?
Speaker 2: Obviously you're still talking about with clients. What are those
Speaker 2: conversations like and how did this one particular ETF get
Speaker 2: so high on the list?
Speaker 4: Sure? For us, smart beta is a it's a mechanism
Speaker 4: of factors, right, what is explaining market returns? And when
Speaker 4: you look at it this year, concentration mag seven, those
Speaker 4: are all momentum names. So momentum clearly is driving returns
Speaker 4: and it's driving flows. The beauty of smart beta is
Speaker 4: that it's emotionless, so you don't have to say, hey,
Speaker 4: are these getting too big? Are they becoming too large
Speaker 4: in my portfolio? So that creates that force discipline, and
Speaker 4: I think in vestors are showing that they want to
Speaker 4: know what the potential outcomes are going to be of
Speaker 4: the ETF.
Speaker 3: So let's talk a little bit more about smart beta
Speaker 3: and how smart beta works because it is unemotional, right,
Speaker 3: It's just detached from that, and it's got a little
Speaker 3: bot that basically tells it what to do, and it's
Speaker 3: going to rebalance that set period of time. There's been
Speaker 3: some pretty noteworthy ones that Eric and I have discussed before,
Speaker 3: but I'm curious from your perspective, when was a moment
Speaker 3: in time that you were like, Wow, that was exactly
Speaker 3: what smart beta is supposed to do.
Speaker 4: Sure. Yeah, as you said, it's an index, right, and
Speaker 4: it's smart in that it is more than just buying
Speaker 4: the entire market, so it has a pre programmed discipline
Speaker 4: to it that gets you to an exact factor. So
Speaker 4: for us, it's seeing some of the leadership change. So
Speaker 4: when we looked at our flows as you do on
Speaker 4: the show, last year, quality was one of our biggest
Speaker 4: in terms of garnering attention investors not sure where the
Speaker 4: market was going, and quality tends to take on kind
Speaker 4: of a best of breed. It's not your biggest momentum,
Speaker 4: it's not your cheapest, but it brings in fundamental and
Speaker 4: we saw much of that last year. Then you saw
Speaker 4: kind of the election change, sentiment change quite a bit
Speaker 4: in the market, and momentum took off, right. That was
Speaker 4: investors getting back into the market, and you saw leadership change.
Speaker 4: And that's what we tend to look at, not only
Speaker 4: on flows, but also on market returns through factors.
Speaker 2: Yeah, and let me give you this SPMO is up
Speaker 2: twenty seven percent. That's even better than the queues and
Speaker 2: it's way better than the SMP which is eighteen percent. Oh,
Speaker 2: that's a good year considering what you said about the
Speaker 2: negativity earlier. One thing about spmo is and momentum is
Speaker 2: what we found. We looked at active funds a lot
Speaker 2: of active managers this year they did that thing where
Speaker 2: they they are all full of the CFA, you know,
Speaker 2: like fundamentals and I get it, and they shifted into
Speaker 2: like non tech names. Momentum meanwhile, saw that tech names
Speaker 2: were actually going better and tried to ride that and
Speaker 2: it worked. So not having the mag seven is what
Speaker 2: caused more active to underperform this year. They keep taking
Speaker 2: the bait of biting on these like other fundament like
Speaker 2: more fundamentally sound or low lower valuation sectors, and they're
Speaker 2: like tech is just too expensive and ends up. Tech
Speaker 2: just goes up again.
Speaker 3: But this is kind of where smart beta is distinguished,
Speaker 3: right because it can just look at it from the
Speaker 3: numbers and just be like, absolutely.
Speaker 2: We know exactly what to do now except like a
Speaker 2: value ETF that they have probably didn't perform as well,
Speaker 2: but it's just doing what the robot says. But momentum
Speaker 2: obviously went into the tech names and the rest is
Speaker 2: you know, that's why it's number three on the list.
Speaker 2: So obviously those factors, there's regimes, right, yeah.
Speaker 4: Yeah, so the regimes and I think Eric you said
Speaker 4: it best, right, it creates a challenge in the market,
Speaker 4: not only for active but for managers. Right, where do
Speaker 4: I allocate because you have such a systematic bias towards
Speaker 4: towards price returns, momentum size and exposure. Right, So the
Speaker 4: momentum factor creates a bit of a decision for investors.
Speaker 4: Is it going to revert or do I want to
Speaker 4: continue to maintain the trend? And we're seeing people really
Speaker 4: use this as an allocation right to hedge some of
Speaker 4: those those decisions.
Speaker 3: So why does this base get talked about less now
Speaker 3: than say, ten years ago, when it was like it
Speaker 3: was a little spicier, I think. But yet, you know,
Speaker 3: active is sort of having a moment, So why isn't
Speaker 3: smart beta a little bit more part of the conversation.
Speaker 4: Yeah, I've lived through quite a bit of it, and
Speaker 4: you have written about it, you know, the active passive debate. Right,
Speaker 4: Smart beta was trying not to be just cheap and
Speaker 4: market exposure.
Speaker 3: Right.
Speaker 4: It was smarter, it was differentiated, and in every way
Speaker 4: it was active. We talk about our SMP equal weight
Speaker 4: fund RSP. It is one of the highest active shares
Speaker 4: that you can get compared to the S and P
Speaker 4: five hundred. Right, active means trying to be different than
Speaker 4: the index so that you generate differentiated returns. So there
Speaker 4: was it was kind of caught up in this What
Speaker 4: are ETF's passive active? And now active is having its
Speaker 4: new moment in its term. But the definition of active
Speaker 4: is really evolving. Right, It's not just stockpicking anymore. It's
Speaker 4: outcome based, it's active allocation, it's smart beta, it's factors,
Speaker 4: and it's investors saying I want active, I value the
Speaker 4: opportunities and active. But there are so many different ways
Speaker 4: by which I can outperform, be it manager or very
Speaker 4: pinpointed exposure that I can get through fixed income, equity
Speaker 4: and even asset classes. Right, themes and the.
Speaker 2: Like I would say RSP, they're equal weighted. One is
Speaker 2: the one I get asked a lot about, especially the
Speaker 2: Money Show. You know, I go to the Money show.
Speaker 2: That's like direct retail investors. They always ask me that
Speaker 2: equal weighting. People are fascinated about equal waiting. It almost
Speaker 2: seems like more fair, Like, yeah, I would like some
Speaker 2: of the stocks that are a little less loved. But
Speaker 2: it doesn't always work. But clearly as someone who has
Speaker 2: a product, if you do want that, like I want
Speaker 2: the market, but with a little less mag seven, this
Speaker 2: one seems to be the first thing people reach for
Speaker 2: when they want that, versus say going full value or
Speaker 2: some of these new products which are like hey, let
Speaker 2: me give you the SMP minus the top one hundred.
Speaker 2: They're getting really very specific. But I think equal wait
Speaker 2: it sort of like covers that feeling of like yeah,
Speaker 2: I want the market, but not with the mag seven,
Speaker 2: Like dominating seventy five billion dollars is the equal weight.
Speaker 2: But can I ask you a story about this Goldman
Speaker 2: filed for an equal waiting wait at ETF back like
Speaker 2: ten years ago, and this one was forty forty BIPs,
Speaker 2: and before Goldman can even make it to market, they
Speaker 2: cut to twenty and just killed Goldman right there and
Speaker 2: ended up just taking all the money. And that said,
Speaker 2: that's why I called the Tarrodome roll. They looked at
Speaker 2: the Goldman come in, there's like, okay, we have to
Speaker 2: sever our own arm to survive, right, this is like castaway. Okay,
Speaker 2: they did it, and they they more than made up
Speaker 2: for it. In dollars since then. But I don't know
Speaker 2: if you were part of that decision, But can you
Speaker 2: go through that mentality, because if you're from the mutual
Speaker 2: fun world, that's never even nothing even close to that exists.
Speaker 2: If anything, you just start charging more.
Speaker 3: Brian, did you look at your arm and say I
Speaker 3: don't need that anymore?
Speaker 4: Welling on how much we broadcast on this one for
Speaker 4: the show it actually happened, I'll give you something of
Speaker 4: a nugget. You know, the price cut was actually just
Speaker 4: prior to the acquisition of Investco to Gougenheims, so certainly
Speaker 4: the numbers were were recognized in the final deal terms.
Speaker 4: So for us, you know, competitive pricing gave us an opportunity.
Speaker 4: But equal weight maybe i'll pivot to some comments on that,
Speaker 4: So equal weight for us, right, it's it's understandable. It's
Speaker 4: S and P five hundred equal weight. It's predictable. Investors
Speaker 4: know that when you know the mag seven is not performing,
Speaker 4: being underweight, those names are going to likely generate outperformance.
Speaker 4: So one of the downfalls or challenges that Active has
Speaker 4: is unpredictability. Investors don't want to be surprised by Active.
Speaker 4: They don't want to get a different return than what
Speaker 4: they expected. So last year, if you look at our flows,
Speaker 4: we had this diconomy of QQQ, which is concentrated large
Speaker 4: names being one of our leaders, but RSP also being
Speaker 4: one of the leaders in terms of flows. And that
Speaker 4: just told us that investors are trying to understand where
Speaker 4: the market's gonna pivot, and if it goes one way
Speaker 4: continues to run, QQQ will outperform, and if it goes
Speaker 4: another way, you know, and reverts, then something like RSP
Speaker 4: will have different bets. So that's the understanding and that
Speaker 4: the market is getting more sophisticated, that they want some
Speaker 4: predictability and where they allocate.
Speaker 3: Do you think the Terroodome has gotten more intimidating?
Speaker 4: The tarodome is pretty full with is it roller skaters
Speaker 4: or is that a different no.
Speaker 2: By the way, the metaphor people do throw in thunder Thunderdome.
Speaker 2: Now that's Mad Max Beyond Thunderdome. That was the third
Speaker 2: Mad Max movie, I believe where Tina turned to this
Speaker 2: theme song, whatever we don't need another hero, that's Thunderdome.
Speaker 2: It works. Terrordome is based on a Public Enemy song
Speaker 2: called Welcome to the Tterodome a whole album. In fact,
Speaker 2: listen to it. In my opinion, that sound and the
Speaker 2: lyrics are what it would feel like if you launched
Speaker 2: an ETF.
Speaker 4: So I have my playlist on the way out, you
Speaker 4: got to add that one. Yes, for sure, that's big
Speaker 4: public enement.
Speaker 2: They should play when you walk into the office at
Speaker 2: every issue where it's like the frame of mind you
Speaker 2: got to get into, you know, it's total survival.
Speaker 3: Space, like today was a good day. It's like it's
Speaker 3: stereo dumb okay.
Speaker 4: But competition is certainly increasing right that active passive mutual
Speaker 4: fund ETF. I will say ETFs are clearly becoming or
Speaker 4: have become, the rapper of choice, and the competition is
Speaker 4: trying to understand how how can they compete in that game,
Speaker 4: and it makes it very difficult for new entrants, makes
Speaker 4: it difficult for you know, legacy large providers trying to
Speaker 4: pivot not only the rapper but their active content. And
Speaker 4: there's a whole ecosystem from capital markets to product innovation
Speaker 4: through index provider relationships and the like that really make
Speaker 4: a strong ETF what it is. And that's that's through
Speaker 4: that that knowledge of investors and opportunities that you can
Speaker 4: create that outcome.
Speaker 2: The big three in ETFs, which would be Vanguard, Black Rockets,
Speaker 2: the Street, their market sharees are roading because there's so
Speaker 2: many competitors. I think sixty new issuers this year, three
Speaker 2: hundred total, six hundred brands. There's just too many people
Speaker 2: nibbling at their market share for them to grow it. However,
Speaker 2: in the mutual fund space, they're big three growing market
Speaker 2: share by a lot because there's just no energy, there's
Speaker 2: no hungry newcomers, and I think that's what makes the
Speaker 2: ETF industry so dynamic and endlessly interesting for us obviously.
Speaker 2: But one thing on this there's been a couple i'll
Speaker 2: call them like chirping. Every year or so, somebody writes
Speaker 2: something about how ETFs are ruining the market. Lately it
Speaker 2: was how they're ruining capitalism, And I just want to say, like,
Speaker 2: I find that ETFs are probably a shining example of
Speaker 2: capitalism because it's so brutal, it's very competitive. In the end,
Speaker 2: the customers are choosing, it's natural, there's no kickbacks, the
Speaker 2: best products win. And would you argue that or is
Speaker 2: there something we're missing about how there is potentially a
Speaker 2: problem in terms of ETFs. I know part of that
Speaker 2: argument isn't the industry itself, although it's about the number
Speaker 2: of ETFs, although there's way more mutual funds still, but
Speaker 2: it's also about fundamentals, and like, oh, if all this
Speaker 2: money is going into passive fundamentals, don't matter anymore. I
Speaker 2: don't know you have anything about all that, because they
Speaker 2: once a year this stuff comes up. I call it
Speaker 2: the some worry articles, and a few of them just
Speaker 2: came up over the past week.
Speaker 4: Sure, yeah, so I would agree there are pockets of
Speaker 4: opportunity when you look at the ETF ecosystem. Right, So
Speaker 4: capitalism as a whole, if there's an opportunity for gain,
Speaker 4: if you can set up a system to generate profits
Speaker 4: that will create that outcome for you. There's no excess
Speaker 4: limits or there's no limitless there's no limitless capital in
Speaker 4: the market. So I think what you've seen is a
Speaker 4: bit of a shift of where some of that liquidity
Speaker 4: has come from, and it's driving towards the ETF. The
Speaker 4: ETF creates more liquidity. You've seen it in digital coin, right,
Speaker 4: very simple wrapper, but it's creating liquidity, it's creating a
Speaker 4: different way to access and otherwise liquid market. You see
Speaker 4: it in options. The outcome of all of these buffer
Speaker 4: and option income income advantage strategies are creating more liquid
Speaker 4: liquidity in the underlying and fixed income.
Speaker 3: Right.
Speaker 4: Fixed income used to be a trade by appointment type
Speaker 4: of market, and ETFs have created better liquidity in the underlying.
Speaker 4: So it's not a guarantee, but I think through that
Speaker 4: ecosystem of trading of market making, you're getting better pricing
Speaker 4: and better liquidity within the rapper and within the markets.
Speaker 3: Is there a version of the world that becomes too liquid?
Speaker 3: That was some of the worry.
Speaker 4: Sure, and I think there's you know, there's value in
Speaker 4: private markets, private credits that you know, create solid you know,
Speaker 4: access to issuers, differentiated return streams that that the market
Speaker 4: is looking for. Will ETFs become the save all for
Speaker 4: for private markets private equity? Not sure. I struggle with
Speaker 4: the point we touched on of liquidity and transparency is
Speaker 4: what an ETF thrives on. And I think you're trying
Speaker 4: to create something different with private markets. So having that difference,
Speaker 4: I think is important because you're going to get different
Speaker 4: return profiles from those.
Speaker 2: Two You mentioned digital coins, you have a bitcoin etf
Speaker 2: BTCo I believe is the ticker. You were one of
Speaker 2: the original ten who launched two years ago. Huge deal.
Speaker 2: They got to one fifty billion in assets total. Since
Speaker 2: this sell off, this has been the worst. There's been
Speaker 2: a couple pullbacks, but this is the worst one. I
Speaker 2: think at the peak it was forty percent down from
Speaker 2: the peak. I mean, I think it's now it's thirty,
Speaker 2: but it was pretty bad. Now only four percent of
Speaker 2: the assets left. The flows are pretty solid. As the
Speaker 2: crypto Twitter crowd calls anybody investigating to have as a boomer.
Speaker 2: Apparently the boomers have stronger hands, I think than people thought.
Speaker 2: But I want to talk about from your perspective, this
Speaker 2: is a different asset class, it's new, it's we call
Speaker 2: it hot sauce. How are these investors that you have
Speaker 2: thinking about it? Are they talking about it? Have they
Speaker 2: committed to like a four or five year holding period
Speaker 2: and they don't care? What's going through their minds? And
Speaker 2: what do you make behind them holding up stronger than
Speaker 2: most people thought?
Speaker 3: Sure?
Speaker 4: Yeah, I think I touched on the evolution and how
Speaker 4: ETFs can help create accessibility to new asset classes like
Speaker 4: digital and others. For us, this is a long game.
Speaker 4: This is how do I access it, how do I
Speaker 4: model it, how do I own it in a portfolio?
Speaker 4: And we're seeing that with clients too, from wealth channels
Speaker 4: among advisors, right there's limitations on how are where they
Speaker 4: can allocate, So I think the due diligence process has
Speaker 4: taken some time to get that into a variety of
Speaker 4: outlets for investors. So definitely a long game. I think
Speaker 4: you're seeing some short term technicals which shows you that
Speaker 4: it's it's behaving like an asset. There are investors that
Speaker 4: might have gotten in late and are now sitting on
Speaker 4: losses that they don't have elsewhere, whether it's equities or
Speaker 4: other asset classes. So you have some short term selloffs
Speaker 4: maybe tax loss that that investors are taking. But I
Speaker 4: think having kind of this this evolution into what we
Speaker 4: would all know in terms of kind of technical technical markets,
Speaker 4: you're starting to see that within the asset class.
Speaker 3: What do you think their appetite for a risk asset
Speaker 3: like this is, because you know, down down thirty percent,
Speaker 3: like it's asking a lot of a boomer specifically to
Speaker 3: hang in there, right, Like how how you know, like,
Speaker 3: what's what's the appetite the real appetite to take a
Speaker 3: loss or write it.
Speaker 4: Yeah, the key is education, Right, how much did you
Speaker 4: allocate and why was it cocktail party discussion or was
Speaker 4: it true fundamental asset allocation that you said, Look, this
Speaker 4: is new, it's volatile, I should own it and a
Speaker 4: certain percentage you know that is either market cap weighted
Speaker 4: benchmark weighted. But if you're over allocated and you see
Speaker 4: this volatility, people should understand what those risks are going
Speaker 4: to lead to. Right.
Speaker 2: We looked I just finished a book project on this.
Speaker 2: We looked into this. If you held bitcoin for four
Speaker 2: years at any time of its life, you made money
Speaker 2: if you had a four year holding period, But once
Speaker 2: you get below four years, it's up in the air.
Speaker 2: You might have made a lot of money or lost
Speaker 2: a lot of money. So it seems like a four
Speaker 2: year holding period would be like, if you can't commit
Speaker 2: to four years, don't buy it. That would be my advice.
Speaker 2: The other thing is we have this thing called the
Speaker 2: modern portfolio where we have found that a lot of
Speaker 2: portfolios have gone to the core is you know, low
Speaker 2: cost probably cheap beta or cheap smart beta, or even
Speaker 2: cheap active. But it's like that's the vanilla stocks and
Speaker 2: bonds usually now that's below twenty BIPs. But then that's boring, right,
Speaker 2: you gotta wait thirty years for compounding, So people want
Speaker 2: some fun in speculation, So we call it the hot
Speaker 2: sauce bucket. It seems like if you put some of
Speaker 2: this in your hot sauce bucket at two three percent,
Speaker 2: then if it goes down, it's not the end of
Speaker 2: the world because it's not really your nest egg, and
Speaker 2: so there might be more intestinal fortitude you can get
Speaker 2: because it's only a little tiny part and it's not
Speaker 2: your nest egg. That's my thesis on how like this
Speaker 2: ETF thing has lowered fees and made it very easy
Speaker 2: and education is there that it's like, oh, I can
Speaker 2: marry this low cost ETF like pebus, which is like
Speaker 2: cheap beta, and I can just like wait thirty years
Speaker 2: while it like compounds, and then I can do this
Speaker 2: other stuff. And like the fact is like people can
Speaker 2: get real committed to a portfolio now versus back in
Speaker 2: the eighties when you had a five star manager. They
Speaker 2: charged the lot, then they underperform it, like you had
Speaker 2: to dump them and you just dump them at the bottom.
Speaker 2: Then you've got the next one after they had already
Speaker 2: had their good run. So people were constantly buying high
Speaker 2: and selling low. I feel as though ETFs and low
Speaker 2: cost investing in particular have in a way solved behavior
Speaker 2: and allowed not only for holding long term vanilla, but
Speaker 2: even having more stomach for the hot sauce because it's
Speaker 2: only a tiny part of the whole meal. Does that
Speaker 2: make sense? Am I onto something there? Or just am
Speaker 2: I losing it? No?
Speaker 4: I'm I'm right with you. I think I would shake
Speaker 4: that into kind of this this evolution of creating active
Speaker 4: or putting active decisions further down the advice chain. Right,
Speaker 4: it's not just the manager, it's the advisor, it's the investor,
Speaker 4: and the ETF is creating more liquid, more accessible tools
Speaker 4: for you to express those active bets, whether it's new
Speaker 4: emerging asset classes or even fixed income. Right, fixed income,
Speaker 4: you have pretty good success on the active side of
Speaker 4: active managers, somewhere above fifty percent on a near term basis.
Speaker 4: But investors now have the ability to overweight or underweight duration.
Speaker 4: They could overweight or underweight credit. They can take a
Speaker 4: core like an ad aggregate, you know type strategy, and
Speaker 4: they can play around the edges, and that's what the
Speaker 4: ETF does, and through the underlying gives you better execution,
Speaker 4: better liquidity, better pricing to sourcing those those exposures.
Speaker 3: But how do you feel about Eric's hot sauce metaphor.
Speaker 4: I've always loved the hot sauce and we always want
Speaker 4: to get more more tickers in the hot sauce category.
Speaker 2: That's why I roll with it. I've gotten pretty good
Speaker 2: feedback on it. Like I also think you can't mess
Speaker 2: with it. Like everybody knows what hot sauce is. Everybody
Speaker 2: knows using small doses. Not everybody loves it. It just
Speaker 2: like it's really it's a it's solid ol.
Speaker 3: Sorry, as you just said, though I love more tickers
Speaker 3: in the hot sauce category. Is that where the white
Speaker 3: space is? And how do you distinguish yourself in that
Speaker 3: hot sauce category?
Speaker 4: Sure, I let er stick with the hot sauce, but
Speaker 4: for us, it's emerging trends, right, so.
Speaker 2: They have hot sauce.
Speaker 4: We level on a minute.
Speaker 2: Ten is hot sauce. I'm sorry, it's like twenty solar stocks.
Speaker 2: I'm sorry, that's gonna be like two three XCSMP. Thematic
Speaker 2: is hot sauce. It's mild hot sauce. It's not like
Speaker 2: ghost pepper, but it's still hot sauce.
Speaker 4: So totally agree. Hot sauce had been thematic right first
Speaker 4: to market new ideas AI for us, you know, blockchain technology.
Speaker 4: Even banks recently have been called it hot sauce or
Speaker 4: emerging trends. And we've seen that again investors not looking
Speaker 4: at thematic to get in and run returns, but starting
Speaker 4: to allocate and using thematic as ways to differentiate their portfolios,
Speaker 4: ways to generate active returns because you've got some of
Speaker 4: that differentiated profile. So thematic, which used to be hey,
Speaker 4: let's be first to market, let's raise the biggest etf
Speaker 4: has started to compete to again a more mature market
Speaker 4: where investors are using it for for hot sauce eric
Speaker 4: or for for outsized returns.
Speaker 2: By the way, can I fun fact here? I believe
Speaker 2: power shares started the first thematic etf ever. Can you
Speaker 2: name it? Can you name it? You might not know.
Speaker 2: This is going way back before you investment even acquired them.
Speaker 4: If I grab a drink of water, would I be around?
Speaker 3: Yes? Wow? Water.
Speaker 2: It came out in like two thousand and five or so,
Speaker 2: get this, it's p h O. But they should have
Speaker 2: the Vietnam ETF should trade you. You should be just
Speaker 2: h O or something and give foe to them. Anyway,
Speaker 2: that's just something that I always though.
Speaker 4: We evolved to numbers H two oh at some point, yeah,
Speaker 4: that's it.
Speaker 2: That would be perfect. But the water ETF, get this
Speaker 2: has two billion dollars. You know why because at some point, Joel,
Speaker 2: water is going to be a big deal. Hopefully it's
Speaker 2: after we're gone. They're going to be fighting wars over water.
Speaker 2: This thing could go to the moon. But it's just
Speaker 2: that when.
Speaker 3: It's like the graduate, I've got one more for you,
Speaker 3: only it's not plastic.
Speaker 2: It's it's water. Well that's what they call it. Blue gold. Yeah,
Speaker 2: I've I did a lot of research on water. I thought,
Speaker 2: oh my god, this is the big thing. I wrote
Speaker 2: all these articles and it's like you could get that.
Speaker 2: This is one of those calls you can get right,
Speaker 2: but be like fifty years early. Remember you know the
Speaker 2: movie water World. That's what that was kind of all about. Anyway,
Speaker 2: we could have water could be the best performing ETF
Speaker 2: in history at some point in the future. We just
Speaker 2: don't know when I.
Speaker 3: Could say that about a few other things, probably, but
Speaker 3: I like it. I like your enthusiasm. Yeah, okay. So
Speaker 3: one thing that we've touched on but we haven't actually
Speaker 3: really spent some time talking about it yet. It is
Speaker 3: an ETF that probably needs no introduction, but the cues
Speaker 3: Eric calls it the eighth wonder of the world. Yes,
Speaker 3: it has it gone up at all? Can it be
Speaker 3: like seven through six? Yeh? Or does it have to
Speaker 3: be eight? Still?
Speaker 2: Well there's seven one? Yeah? You yeah, come on, you
Speaker 2: definitely know that. Okay. The reason we call it that
Speaker 2: is also because it's like an unusual specimen like the
Speaker 2: you know, typically you have an index since market cap waited,
Speaker 2: and it's like, okay, that's beta. Beta does really well.
Speaker 2: Then you have like the tech sector. Okay, great, tech
Speaker 2: is good. Ques is neither one of those. It just
Speaker 2: stocks the list on NASDAK. So it's like, what's so
Speaker 2: great about that? Well? I thought I pondered this more
Speaker 2: than most, like more than an rural person should. My
Speaker 2: thesis on the why que job? Actually yeah, it is
Speaker 2: my job, but this is I went real deep my
Speaker 2: thesis on why the ques kick so much butt and
Speaker 2: it's not tech and it's not beta and it's just
Speaker 2: these stocks that listens on NASAK. Is the Steve Jobs effect.
Speaker 2: When Steve Jobs in nineteen eighty called you guys, I
Speaker 2: asked your PR person, Stephanie, if I could even find
Speaker 2: the person who took this call, but they said they're
Speaker 2: probably retired at this point, like or even worse. But
Speaker 2: in nineteen eighty somebody took a call from Steve Jobs.
Speaker 2: He said, I want to listen to NASDAK and they
Speaker 2: were like, sure and appen. Nobody who appened. Steve Jabs
Speaker 2: is twenty seven years old and he wanted to list
Speaker 2: there because all the dorks from IBM were unicy, so
Speaker 2: he wanted to go to NASDAC, just like Michael Jordan
Speaker 2: went to Nike instead of Converse and Adidas. This was
Speaker 2: the Jordan Nike moment of this market. Once Steve Jobs
Speaker 2: went there, people were like, ooh, that must be the
Speaker 2: place to be. So of course Bill Gates, who worshiped
Speaker 2: Steve Jobs, he went there when Microsoft went public in
Speaker 2: ninety three. Then he got those two guys there. It's
Speaker 2: over since then, especially when Steve Jobs came back for
Speaker 2: his third act, that has been the place to be.
Speaker 2: Amazon Tesla. If you are a visionary founder, CEO who
Speaker 2: works seven days a week, that's where you go. Steve
Speaker 2: Jobs set that he was the mold of this tech
Speaker 2: revolution and to me, that's why the cues kicked so much.
Speaker 2: But it's the Steve Jobs follow effect thoughts.
Speaker 4: Fully green the NASZAQ one hundred, as we've talked about
Speaker 4: smart Beta, it is an index, but for us, we
Speaker 4: track it based on innovation and innovation as a factor
Speaker 4: that we track is on R and D research and development.
Speaker 4: And if you looked at those hundred names, each of
Speaker 4: those companies commit more to research and development than any
Speaker 4: other peer group. So it's founded in innovation, it's founded
Speaker 4: in differentiation, and I think going back to original days
Speaker 4: of Apple to Microsoft to what we see today, it's
Speaker 4: truly evolved with the modernizing economy, right, so going from
Speaker 4: PCs to servers, to telecom bandwidth to having a PC
Speaker 4: in your hand that's mobile and getting into AI that
Speaker 4: you speak to on your phone for twenty five years,
Speaker 4: it's evolved with not only personal consumption, but the evolution
Speaker 4: of our modern economy, and the leaders that are driving
Speaker 4: that tend to be listed on nasdek.
Speaker 2: Can you pull some strings and get us this person
Speaker 2: who took the call in nineteen. If we can get them,
Speaker 2: Joel said, he will do a whole podcast Ken Burns
Speaker 2: type documentary on this. But we need that person. Can
Speaker 2: you pull some strings for me, some digging? Yeah, I
Speaker 2: mean yeah, or reach out? If you're like, did they
Speaker 2: know the importance of that call?
Speaker 3: No, I'm guessing not. You know, like I think it's
Speaker 3: just another phone call where you're like, yeah, sure, whatever,
Speaker 3: and then everything else that follows you're like, oh, I
Speaker 3: love you that stuff. Though, we'd love to find and
Speaker 3: interview that person. As long as we're talking about QUES,
Speaker 3: probably can't talk about that without talking about the Unit
Speaker 3: Investment Trust, the u I T, which is basically the
Speaker 3: framework that QQQ is built on, and not that many
Speaker 3: others like one. That's right, Uh, if you could have
Speaker 3: a redo, is there anything more in your life that
Speaker 3: you would rather have a redo on than Q being
Speaker 3: a u I T.
Speaker 4: Sure? Well, of course you want the ETF market to
Speaker 4: be started, right, So thank you for the pioneers in
Speaker 4: that regard. But like many things, markets evolve, structures evolve,
Speaker 4: regulations evolve, and we've seen that through route the last
Speaker 4: twenty five years in the ETF market to get to
Speaker 4: some level of standards standardization. There was a time at
Speaker 4: which some had exemptive relief and some didn't. So early
Speaker 4: entrants that had that relief were able to launch ETFs,
Speaker 4: others were not. So evolution is is great, and you
Speaker 4: know that's that's an opportunity for some of these unit
Speaker 4: investment trusts to modernize their structure and and and you know,
Speaker 4: bring bring the structure and the ETF ecosysm ecosystem into
Speaker 4: that investor base.
Speaker 2: So our outlook, which we published this month, basically is
Speaker 2: ETFs are living the dream, but reality checks await. So
Speaker 2: we don't think this big movement is going to be
Speaker 2: dampered much. Market going down a little, maybe it's like
Speaker 2: a little less record breaking. But there's a couple of
Speaker 2: things out there, like, for example, some stocks are real
Speaker 2: volatile and they get two XD and one of those
Speaker 2: probably will blow up. There could be something there the
Speaker 2: mutual fund share classes that are adding ETF share classes.
Speaker 2: There could be some tax contagion there where the ETF
Speaker 2: gets capital gains because of the mutual fund. There's a
Speaker 2: couple of things that I think are maybe possible stories
Speaker 2: Also just the paradox of choice, so many products that
Speaker 2: it's just hard to pick.
Speaker 3: I call it the breadee, the bread ale. What what
Speaker 3: am I going to do? Which which type of bread
Speaker 3: is am I going to use?
Speaker 2: So those are some of the things we're looking at
Speaker 2: as like what could be some hiccups. We don't see
Speaker 2: anything derailing it. But what do you make of that?
Speaker 2: Like what keeps you up at night? What are you
Speaker 2: looking at, whether it's your own firm or the industry
Speaker 2: as a whole.
Speaker 4: Sure, I think ETF share class is a is a
Speaker 4: great opportunity to uh to integrate, you know, structures and
Speaker 4: bring some of the advantages that ETFs offer into mutual funds.
Speaker 4: But I've I've been out there saying that there's pure
Speaker 4: and less pure. Right, So an ETF that only has
Speaker 4: its own not share class, but trades as an ETF
Speaker 4: will take advantages of all the tax ability, all the liquidity,
Speaker 4: the track record and the like. Pivoting into the share
Speaker 4: class is complex, and that's why you've seen some of
Speaker 4: the reviews. The industry come together to identify what the
Speaker 4: solution is and what would look like a preferred outcome
Speaker 4: for investors. And there's still quite a bit of uncertainty
Speaker 4: there from not only wealth channels, but issuers as well.
Speaker 4: Because you have to be transparent. Some managers don't want
Speaker 4: to be transparent. We've seen that. We've tried that, and
Speaker 4: non transparent the market didn't really respond to it. You
Speaker 4: have to have the right pricing. You don't have to
Speaker 4: be the lowest cost, but there could be price impacts,
Speaker 4: so you need to look at economics and the impact
Speaker 4: of that overall, and you still need to provide returns.
Speaker 4: Just moving it into an ETF doesn't guarantee success, so
Speaker 4: differentiated active strong managers quality investment performance is still going
Speaker 4: to drive the day.
Speaker 2: Yeah, you got it tough enough. I always say you
Speaker 2: have to come to the ETF industry on it's terms,
Speaker 2: not yours, and not everybody wants to do that. Said,
Speaker 2: we could be. We did the math. There's about three
Speaker 2: thousand mutual funds that currently don't have any ETF where
Speaker 2: the issuer has no ETFs at all that have filed
Speaker 2: for the share class. So there's potentially three thousand new
Speaker 2: ETFs that could just be bolted onto a mutual fund.
Speaker 2: Probably won't be that many. That's a big deal, Joel,
Speaker 2: I mean it just might take a couple of years
Speaker 2: to play out.
Speaker 3: Though how much of twenty twenty six are we going
Speaker 3: to be talking about.
Speaker 2: This a lot? I think DFA is going to be
Speaker 2: the guinea pig. They're really pushing it. It fits their
Speaker 2: whole business and plumbing perfectly this particular thing. But if
Speaker 2: they see success, look out especially you know, it's tricky.
Speaker 2: There's one caveats all this. And I'm not sure if
Speaker 2: you thought about this, but Capitol Group, they were on
Speaker 2: ETFIQ they said, we're not doing anything. We don't believe
Speaker 2: in this, and they're the biggest active manager on Earth.
Speaker 2: I mean, they're the number one, So what they say matters.
Speaker 2: And if they look at this and said we're just
Speaker 2: going to put ETFs out there separate from the mutual fund,
Speaker 2: that's also Capital Groups of why non transparent active I
Speaker 2: think didn't take off because when they finally came in,
Speaker 2: they went transparent, and so that's also interesting. So I
Speaker 2: don't know, but all I know is if cope you
Speaker 2: will find success, the rest will rush in. But that
Speaker 2: the first part is we don't totally know.
Speaker 3: What does success look like, Brian.
Speaker 4: So I think success is bringing more quality investment capabilities
Speaker 4: to investors through the optimal wrapper, and that's what we're
Speaker 4: looking at. We're on a very focused pace in our
Speaker 4: own path of share class, and that's looking at it
Speaker 4: very opportunistically, not ETF share class for all type of approach,
Speaker 4: but bringing you know, where it makes sense, where we
Speaker 4: think we can have the liquidity and where the managers
Speaker 4: can operate within the structure. So I think you're going
Speaker 4: to see and each each manager has a different strategy, right,
Speaker 4: they have a different path and they've come down a
Speaker 4: different road. Some have large active and they might say, hey,
Speaker 4: we're just going to cannibalize ourselves. We're going to try
Speaker 4: to get pivots into to somewhat similar but differentiated strategies,
Speaker 4: not cloned, and that's our best path forward to avoid
Speaker 4: maybe a difficult decision. Others just want to get into
Speaker 4: the ETF space, right, so they want to launch and
Speaker 4: find a way to get into that market. But not
Speaker 4: all will succeed because there are again i'll speak to
Speaker 4: the ecosystem, they're trading implications, cost implications, liquidity implications that
Speaker 4: managers need to weigh trod them.
Speaker 2: And another thing is the transparency thing is a big
Speaker 2: deal for some because they spend their whole life picking
Speaker 2: these stocks and they feel like it's their ip. But
Speaker 2: I have found that I don't think anybody cares. I mean,
Speaker 2: I give ARC a lot of credit. They came out transparent.
Speaker 2: She even shows you what the trades were that day.
Speaker 2: I mean, it's full transparency, and I just think that's
Speaker 2: sort of what people demand in their ETFs. It's sort
Speaker 2: of like an attribute of an ETF. They're used to,
Speaker 2: so they don't want it to be different. But some
Speaker 2: managers just I think it's hard for them to get
Speaker 2: over that, but I think they should. Nobody cares. Nobody
Speaker 2: cares if you have Amazon at three percent and the
Speaker 2: market has like the S and P's at like six percent,
Speaker 2: like nobody cares. It's like they're just gonna look at
Speaker 2: the returns. So I just think it doesn't matter anymore.
Speaker 2: There's so many portfolios. Back in the day, it was
Speaker 2: like Jeff Finnick managed the Filly Magellan and it was
Speaker 2: like that was like so big and if he if
Speaker 2: he showed his holdings, you could get ahead of it.
Speaker 2: Like there was some legit issues. I don't really see
Speaker 2: that those days are over, so I think they should
Speaker 2: just come in try it. This is the technology. Everybody
Speaker 2: wants to use it. It's the equivalent of Spotify. It'd
Speaker 2: be like being in a band and like refusing to
Speaker 2: take your music from compact disc and putting it on Spotify,
Speaker 2: Like why would you do that?
Speaker 3: Still some people to do it.
Speaker 2: I know, well no, Like Neil Young is like, listen
Speaker 2: to my music on analog. It's like, okay, fine, Harvest
Speaker 2: Moon sounds two percent better on analog, but like, I'm.
Speaker 3: Sorry more than two percent, but I hear you.
Speaker 2: By the way, Harvest Harvest is the better album. That's
Speaker 2: the one from nineteen seventy three with Old Man. That's
Speaker 2: a good album and it does sound good on vinyl, all.
Speaker 3: Right, Brian, Final question, favorite ticker other than any of Invesco's.
Speaker 2: Wow, I take your time?
Speaker 4: I need a ten second count?
Speaker 2: No, where did it take your time?
Speaker 3: I'll motion with my hand to just like pretend that
Speaker 3: it's a shot clock. Well, you like the ref and
Speaker 3: the it's like five seconds.
Speaker 4: You know, I'm going to bring it back to Invesco.
Speaker 4: But it's your favorite too. What so most creative ticker?
Speaker 4: I can't give too much credit outside of our own
Speaker 4: our own home cooking PBJ.
Speaker 2: Wait a second, that's your ticker.
Speaker 3: Right, oh, favorite other than yours?
Speaker 4: I know I pivoted.
Speaker 3: Yeah, he can't do it, so PBJ.
Speaker 2: Matt Kaufman, who's from Wheaton, which is where the Power
Speaker 2: Shares people grew up. He picked PBJ, which I thought
Speaker 2: it was a good one.
Speaker 3: But I'll give it to you if you can answer.
Speaker 3: Do you prefer the crunchy or the creamy version of
Speaker 3: peanut butter?
Speaker 4: You always gotta go creamy. Yeah, that's how crunchy is interesting.
Speaker 4: The real question is strawberry or great and then jelly
Speaker 4: or jam? So many decisions. Maybe there's an analyst.
Speaker 3: Yeah, PVJ.
Speaker 2: Just wrap it up in it or that that stuff
Speaker 2: that comes where you you suppress it and both come
Speaker 2: out at the same time.
Speaker 3: Its gross.
Speaker 2: Not for me. I'm fine with that. Well, you have
Speaker 2: another thing. When you get the jelly and the peanut butter,
Speaker 2: do you use two different knives or do you like
Speaker 2: how do you deal with that peanut butter?
Speaker 3: First, take the peanut butter all the way off on
Speaker 3: the bread, and then you do the jam.
Speaker 2: You cannot possibly get all the peanut butter off without
Speaker 2: breaking the bread.
Speaker 3: And you can watch me, okay, give you a tutorial.
Speaker 2: That's That's what that thing solves, is having to use
Speaker 2: two knives. It's annoying.
Speaker 3: But because I do.
Speaker 2: Peanut butter and jelly like probably once a week, and
Speaker 2: I watched the whole knife off and I'm like, they
Speaker 2: that's where the guy who came up with that one
Speaker 2: you pour both together, That's what he was.
Speaker 3: There's a paper towel that you can also do. But
Speaker 3: by the way, this is the cutting room floor for
Speaker 3: this episode is going to be well.
Speaker 2: But there is a metaphor there which sometimes ETFs make
Speaker 2: something like the two x ETFs. They make something just
Speaker 2: a little bit easier, and that's sort of similar, like
Speaker 2: because we always tell people like why is this so popular,
Speaker 2: I'm like, honestly, dude, people are lazy. If you can
Speaker 2: make something just a touch easier, like, you're gonna get
Speaker 2: some buyers. You know who said that? And Dorsey, right,
Speaker 2: Tom Dorsey, he was like he was talking.
Speaker 3: About how what are you bringing back to smart Beta?
Speaker 2: Yeah, Tom Dorsey from my book, he was like, he
Speaker 2: really highlighted the convenience aspect of ETFs big time. He's great,
Speaker 2: He's got a hope. Following Yeah, he's part of their stable.
Speaker 3: Yeah, Brian, thanks for joining us some Trucks, Thanks, Guess,
Speaker 3: Thanks for listening to trucks. Until next time. You can
Speaker 3: find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify,
Speaker 3: or wherever else do you like to listen. We'd love
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Speaker 3: is produced by Magnus Hendrickson and Ryan Kessler. Amy Keene
Speaker 3: is our executive producer. Sage Bauman is the head of
Speaker 3: Bloomberg Podcast. Bye b