Speaker 1: Welcome to Trillions. I'm Joe Weber and I'm Eric Bell
Speaker 1: tunis Eric. We have a guest, not there's one guest,
Speaker 1: actually two guests this week. Both are legends, legends. One
Speaker 1: is an industry legend, and one is a Bloomberg News legend.
Speaker 1: Bloomberg News legend is Caroline Wilson. Carolina, welcome on the
Speaker 1: show again. Thank you for having me and and Carolina,
Speaker 1: this is your guest. Actually, who do we have? We
Speaker 1: have Bruce Bond here. He is co founder of Innovator
Speaker 1: Capital Management, but you might know him a little better
Speaker 1: potentially as the co founder of power Shares Capital Management
Speaker 1: back in the day. And let me let's not understate
Speaker 1: that he recognized smart Beta before it was a household name. So,
Speaker 1: and Carolyn, what was the thing that a little spark
Speaker 1: that made you say we should talk to Bruce Bond
Speaker 1: right now? Sure? So, before I covered exchange traded funds,
Speaker 1: I covered these byzantine products known as structured notes, which
Speaker 1: have a pretty horrible reputation. It was a really fun
Speaker 1: beat to cover. It was hated by a lot of
Speaker 1: people with um pretty critical stories on that industry. But
Speaker 1: what's really interesting here is that these are e t
Speaker 1: f s that sort of make better and change the
Speaker 1: structure of a structure note and make it a bit
Speaker 1: more accessible for investors. So it's sort of the marriage
Speaker 1: of these two worlds that I used to cover um
Speaker 1: and let me give you some stats on this, so
Speaker 1: the that we call them buffer or downside protection ETFs
Speaker 1: before Bruce is going to go into what they do,
Speaker 1: but they're pretty instant hit um and I'm a little
Speaker 1: shocked by the numbers. We've got one point eight billion.
Speaker 1: There's another issue where that has some but that's quite
Speaker 1: a bit especially I know the markets not up a
Speaker 1: lot per se, but it's not down either. These to
Speaker 1: me have their biggest potential when the market goes down
Speaker 1: because people tend to search for that like after the fact.
Speaker 1: So the fact that they got this much and they're
Speaker 1: a little more on the complicated side, which tends to
Speaker 1: be a tougher self for e t s typically, but
Speaker 1: I could see why they have appeal. They do limit
Speaker 1: your side and that is a very powerful concept. So
Speaker 1: I'm excited to dive into this time on trillions downside
Speaker 1: protection with Bruce Bond. So Bruce, welcome to Trillions. Thank
Speaker 1: you for having me. So you're You're like, we've set
Speaker 1: this up. You're kind of a legend in the ETF industry.
Speaker 1: Why did you do this? What was the idea? Well, I,
Speaker 1: you know, I really didn't intendo coming back to being
Speaker 1: all honesty with you and uh my partner John Southard,
Speaker 1: he bought a life insurance product that had some type
Speaker 1: of kind of a defined outcome within the product and
Speaker 1: he was like, you know, it's really amazing this isn't
Speaker 1: available in an e t F. I mean, the value
Speaker 1: proposition here is really neat and uh, it's surprising people
Speaker 1: don't have access. What do you what is that? Look like,
Speaker 1: what is the benefit of that? The benefit of the
Speaker 1: defined outcome where the buffery TF is? Eric said, you know,
Speaker 1: um is the ability for an investor to purchase an
Speaker 1: e t F in today a to understand their outcome
Speaker 1: a year in the future, depending on what the SMP
Speaker 1: five does. So instead of just going to the mercy
Speaker 1: of the market hoping for the very best, hoping it
Speaker 1: doesn't go down, which is what most people do, you
Speaker 1: know that you have a buffer toward losses on the downside,
Speaker 1: but you're going to participate on the upside. And until
Speaker 1: now that has not been available in an E t F.
Speaker 1: So let me stop you right there, because when when
Speaker 1: someone might here participate in the upside, but let me
Speaker 1: you're downside, they may go that that sounds too good
Speaker 1: to be true. Um, just go into that a little bit.
Speaker 1: Why isn't it too good to be true? And how
Speaker 1: much of the upside do you get? Do you get
Speaker 1: it all? No? You know, well you might get it all,
Speaker 1: and the thing is you don't really know. So the buffers,
Speaker 1: there are three different buffers, right, There's a there's a
Speaker 1: nine percent buffer protects your first nine percent of losses.
Speaker 1: There's a fifteen percent buffer that protects the first fifteen percent,
Speaker 1: and then there's a thirty percent buffer, and that buffers
Speaker 1: you from negative five to negative thirty five percent. So
Speaker 1: there's three levels, depending on how concerned you are about
Speaker 1: where the market is and how much capit you want
Speaker 1: to preserve and that, and so with each level, as
Speaker 1: Eric was pointing out, each level, it costs a little
Speaker 1: bit more to have that buffer, and therefore your cap
Speaker 1: is adjusted a little bit as you get more buffer.
Speaker 1: This seems like something that should have happened already. We
Speaker 1: thought the same thing. I think we were really shocked.
Speaker 1: Initially we said, you know, we should do this. This
Speaker 1: is a tremendous value to investors. Let's there must be
Speaker 1: some reason it can be done. It's like a structural
Speaker 1: problem you know within an e t F that it's
Speaker 1: not or it's a regulatory probably the regulators won't allow
Speaker 1: it because that, and the more we dug into it,
Speaker 1: the more we looked at realize, you know, what, this
Speaker 1: is possible. There were some structural things we had to do,
Speaker 1: some kind of aha moments that we had to overcome
Speaker 1: that hadn't been done in the E t F before.
Speaker 1: And that's the reason some people, I think gave up
Speaker 1: on the idea and never accomplished it, because effectively, you're
Speaker 1: sort of putting an insurance policy inside an e t
Speaker 1: F and wrapping it up in a breed in a sense,
Speaker 1: exactly right, speaking of the burriedo, So what is it?
Speaker 1: What is in it? So? What is in the e
Speaker 1: t F? There are seven options positions in the E
Speaker 1: t S So not I'm not buying equities like I
Speaker 1: would usually do with an E t F. I'm right,
Speaker 1: I'm getting options right, and you own options solely with
Speaker 1: this breedo have a name. Well, well, you don't defined
Speaker 1: outcome or you know buffer yeah exactly exactly. Buffer for
Speaker 1: t F. I mean I think buffer e TF, so
Speaker 1: buffer yeah exactly, that will work. Uh So basically, h
Speaker 1: there's seven positions in there, and these positions are designed
Speaker 1: to provide you this outcome over one year period. I
Speaker 1: think the important thing for people listening is to understand
Speaker 1: is that, uh it runs for a year, the outcome period,
Speaker 1: but then it just resets after a year and then
Speaker 1: you get another, uh year of the same thing. So
Speaker 1: what doesn't change is the length of the outcome period
Speaker 1: is a year, and also the buffer doesn't change. So
Speaker 1: if you bought the nine percent buffer, we're going to
Speaker 1: have that for a year, and then it's going to
Speaker 1: reset the next year and you're gonna have it again
Speaker 1: for another year. Year. Is almost like a contract basically
Speaker 1: in a sense, it's just when you buy the options positions.
Speaker 1: These are what are called flex options, and it's really
Speaker 1: a very simple option. What it lets you allows you
Speaker 1: to do is put a custom option together, and what
Speaker 1: that means is you can have a specific start day
Speaker 1: and a specific end date, and so all the options
Speaker 1: start on one day and end on one day and
Speaker 1: then they reset that day and go into a new
Speaker 1: set of those the following year. And so you just
Speaker 1: keep doing that year after year, getting as much of
Speaker 1: the upside of the options industry will give you, but
Speaker 1: with a nine percent buffer, fifteen or thirty. And this
Speaker 1: is kind of solving in a way, you know that
Speaker 1: problem we talk about with lever gtfs. They reset every
Speaker 1: day and yeah, and therefore you don't actually get the
Speaker 1: quarter or the month of that leverage. You only get
Speaker 1: it one day. With this a little bit, right, Yeah,
Speaker 1: I mean you I have to come out quarterly. Now.
Speaker 1: You could buy them in between, but it's ideal to
Speaker 1: buy them on that date. And essentially this is a
Speaker 1: strategy that you could actually do on your own, right,
Speaker 1: You're just packaging something that might be a little more
Speaker 1: on the institutional side, Yeah, into an e t F. Yeah,
Speaker 1: I think that's a great point. I mean, like all
Speaker 1: e t F you could buy all those securities on
Speaker 1: your own if you wanted to write. I mean, it's
Speaker 1: it's just actually, this one is much more complicated than
Speaker 1: some of those because you have to understand first of
Speaker 1: all options, how options work. You also have to understand
Speaker 1: how to put that position together in order to achieve
Speaker 1: that outcome for you. So it's more complicated than it
Speaker 1: would be to put together some type of another et
Speaker 1: F package. UM and I think the the idea of
Speaker 1: a one year outcome PARI. If you think about most
Speaker 1: of the ETFs that we buy that supposedly are going
Speaker 1: to provide some downside buffer. Typically there's a switching strategy,
Speaker 1: switches in and out, may not switch at the right time,
Speaker 1: might switch at the wrong time. And with these I
Speaker 1: think the thing that can't be overstated is that an
Speaker 1: investor advisor they can buy today and understand very clearly.
Speaker 1: Do I think how much? Do I think the market
Speaker 1: is gonna go out next year? Oh? I think it's
Speaker 1: gonna be up all right. Well, I'm gonna get all
Speaker 1: the upside of the market if I get this. But
Speaker 1: let's say China doesn't come through, the market crashes, it
Speaker 1: could go down tenner fitting. Well, I want to have
Speaker 1: that buffer in there, so I'm gonna get all the
Speaker 1: upside that I think is there, and I'm also going
Speaker 1: to be buffered against all the potential downside I think
Speaker 1: is there? Uh downside, I don't know what you're talking
Speaker 1: about right now. It doesn't seem like there could be
Speaker 1: any downside exactly. Can you take us to the one
Speaker 1: that's maybe around this maturity and take us through the
Speaker 1: last twelve months and what it did versus what it
Speaker 1: was set up to do up. Yeah, I'll be happy
Speaker 1: to And and one other thing I want to mention
Speaker 1: to you. We started out initially offering these quarterly on
Speaker 1: the calendar quarters, and we kind of decided early on
Speaker 1: if we did a billion dollars in assets and these
Speaker 1: within the calendar quarters, when we got to that asset level,
Speaker 1: we would offer a monthly. So back in June we
Speaker 1: started offering these funds on a monthly basis. So you
Speaker 1: have a nine fifteen and buffer every single month being
Speaker 1: issued the first of the month. That means, you know,
Speaker 1: there will be thirty six funds in the market achieving
Speaker 1: these defined outcomes for investors. The reason that's really important
Speaker 1: is that an investor can know. As Eric said, you know,
Speaker 1: people like to buy in early or they want to
Speaker 1: be at the beginning. I mean, that's part of how
Speaker 1: these started. The reason they like that is they want
Speaker 1: to know, Okay, I if I get in, I have
Speaker 1: a buffer starting at zero. It goes down right away,
Speaker 1: and I have all the upside right there, and they
Speaker 1: don't want to have to think about buying in the
Speaker 1: middle and that they just want to participate. So we
Speaker 1: have them every single month now, and having them every
Speaker 1: month at the beginning of every month makes some a
Speaker 1: very powerful tool for advisors for a lot of different reasons.
Speaker 1: Now let's talk about the portfolio, right, So is this
Speaker 1: aiming to replace, uh, the equity portion of your portfolio,
Speaker 1: like the whole thing, or to be like an overlay.
Speaker 1: I'm seeing people think about all the our ways you
Speaker 1: could do it just as an overlay over your whole
Speaker 1: portfolio and say, you know, I want additional exposure the
Speaker 1: SMP five hunder to the market in general, So I'm
Speaker 1: gonna buy this, but I have a buffer built in.
Speaker 1: But we're also seeing uh advisors some taking their entire
Speaker 1: piece of their equity exposure and just say, I'm buying
Speaker 1: this with my for my equity exposure. I'm not going
Speaker 1: to We're at a tenure bull market. We gotta be
Speaker 1: getting somewhere near the top. I'm gonna buffer my clients
Speaker 1: against the loss that's going to happen here over the
Speaker 1: next few years. I don't want to. I don't want
Speaker 1: them exposed to that. And uh so we're seeing a
Speaker 1: good bit of that as well. The other thing we're
Speaker 1: seeing a lot of is gonna saying I don't want
Speaker 1: to expose my clients to fixed income right here, rates
Speaker 1: are super low. I'm not getting paid to hold them.
Speaker 1: Rates move around. I'm taking a huge amount of risk.
Speaker 1: I'm just gonna take some of that fixed income out.
Speaker 1: I'm gonna move it over into the equity market, get
Speaker 1: a good buffer there, get the upside of the equity market,
Speaker 1: and not risk myself in the debt market. Right now,
Speaker 1: of all the moments in time that you could bring
Speaker 1: a product like this to market, it seems like it
Speaker 1: would be a pretty great one. So what what have
Speaker 1: the inflo has been like? Because you guys launched when Yeah,
Speaker 1: we launched last August basically, so about a year ago.
Speaker 1: We launched the July series in August because we're trying
Speaker 1: to get it, you know, to July. So we've had
Speaker 1: one full year in that product and then in October
Speaker 1: we'll have our next full year in that product. The
Speaker 1: July one did exactly what it was supposed to do.
Speaker 1: But to give you an example, we started out no
Speaker 1: one knew what they were, how they worked, or anything,
Speaker 1: and so you know, we brought them out and we
Speaker 1: probably in the first couple of weeks did maybe ten
Speaker 1: million bucks in the three Across the three ended the
Speaker 1: year we had maybe a hundred and fifty million dollars
Speaker 1: in those three and then now we're probably in the
Speaker 1: defined outcome alone, probably around the one point three one
Speaker 1: point four billion dollar mark. It's a pretty successful year. Yeah, yeah,
Speaker 1: I mean listen, you know, UH there's a lot of
Speaker 1: E t F providers uh that are struggling out there
Speaker 1: to get visibility, to get asked uts. We're not in
Speaker 1: any of the big distribution UH systems right now, so
Speaker 1: we are doing this uh hand to hand, going through
Speaker 1: the r I A channel, explain it to them how
Speaker 1: they work, what they are, and they're being embraced by
Speaker 1: that channel. So, like any new sensation, once you hit
Speaker 1: a billion dollars, people start to look at look, maybe
Speaker 1: I'll get into that. And you do have somebody filing
Speaker 1: First Trust has put in filings to track a cbo
Speaker 1: E index that does something very similar. There's look like
Speaker 1: it's ten percent buffer series years or nine I just
Speaker 1: real quick try to suss out how theirs will be
Speaker 1: different or the same as yours. Yeah, well, you know,
Speaker 1: they've had their filings in for a while. I mean,
Speaker 1: it took us a long time to get our filings
Speaker 1: approved by the SEC. So they basically have duplicated our
Speaker 1: products and just made them slightly different levels, is what
Speaker 1: they've done. So we came out with a nine percent buffer,
Speaker 1: the fifteen buffer, and the thirty buffer. They did a
Speaker 1: ten buffer and a twenty five buffer. So those are
Speaker 1: the two that they have versus the three that we have.
Speaker 1: There's another competitor to that. They're not an actually any
Speaker 1: t F structure. They use ETFs. It's a lot of capital.
Speaker 1: They're called M plus funds, so they're unit investment trust
Speaker 1: or u i T that uses options on e t
Speaker 1: f s in the underlying um, so a different legal structure.
Speaker 1: But the founders, they're the guys running these funds, are
Speaker 1: these old school structured note guys. They ran the structure
Speaker 1: note desk at BAML for a while, so I do
Speaker 1: see some similarities there. They like to say they offer customization,
Speaker 1: so you can sort of customize what that payout structure
Speaker 1: is going to look like. For your note, but another
Speaker 1: player out there in the space. Yeah, So how big
Speaker 1: do you think that this overall slice of the e
Speaker 1: t F kingdom might become? And I'm asking you this
Speaker 1: because you're somebody who is there in the beginning of
Speaker 1: smart data, right, and that's become a huge, uh you know,
Speaker 1: plus of the overall one billion of the overall et
Speaker 1: F market. This seems like something that a lot of
Speaker 1: people could say, we can do this. Yeah, well, you know,
Speaker 1: this one is harder to do than those I mean, everybody.
Speaker 1: The the thing about this is, remember we had the
Speaker 1: SMP five hunter. We got different buffer levels. With those,
Speaker 1: everybody can come out with their own slice of well,
Speaker 1: this is how I do it, and this is how
Speaker 1: you know, it's kind of like act of management almost
Speaker 1: this one. But I would say that I think the
Speaker 1: size of the market is tremendous. If you think about
Speaker 1: a lot of the insurance products, people that invest in
Speaker 1: structured outcomes and insurance, you know, is multiple multiples of billions.
Speaker 1: Structure product market is you know, multiples of billions. You know,
Speaker 1: there's probably a true one or two trillion dollars within
Speaker 1: that those marketplaces. So, um, we think there's a tremendous
Speaker 1: opportunity in this space, and primarily because people don't have
Speaker 1: reliable downside protection. You know, they have so called downside protections,
Speaker 1: but there's always things that can go wrong. Rather than
Speaker 1: saying I know I have this buffer, this is the
Speaker 1: buffer I have. I'm good with that. I'm totally willing
Speaker 1: to give up some of my upside. You know, if
Speaker 1: you think the investable assets today from individuals are in
Speaker 1: the baby boomer's hands basically, and they're right at retirement.
Speaker 1: They don't want to make their money with yeah, where
Speaker 1: I got and they're like they're they're like, do I
Speaker 1: really want to lose my money? Do I really want
Speaker 1: to take all this risk on? And and so if
Speaker 1: they can buy something like this and say I still
Speaker 1: have access to the upside, but I'm buffered against losses, um,
Speaker 1: you know, that's a tremendous value proposition for them. But
Speaker 1: insurance isn't free. How insurance it's seventy nine basis points
Speaker 1: and that's all in. It's a unitary fee like most
Speaker 1: ETFs have today. And so that's all anyone's gonna pay.
Speaker 1: And that is if if you go out and try
Speaker 1: to replicate this on your own, it's gonna be more
Speaker 1: expensive than that. If you go out and try to
Speaker 1: buy a structure product, annuity, anything like that, it's gonna
Speaker 1: be much more expensive, regardless of what the documentation says.
Speaker 1: Um you know. Sometimes I know within the annuity products
Speaker 1: they say they're free in this and that, But I mean,
Speaker 1: if you try to get out any year, you know,
Speaker 1: there's a leve percent UH redemption fee. So I think
Speaker 1: you have to just be careful and and and look
Speaker 1: at for what the beauty of these products is, you
Speaker 1: can get out any time, you can buy them anytime
Speaker 1: you're not held. You know, there's even instructured product. You know,
Speaker 1: if they're kind of tie you up, it doesn't happen here.
Speaker 1: You have the transparency. You can see exactly what's in
Speaker 1: the portfolio. There's no counterparty rist remember with the other ones,
Speaker 1: you know, you're relying on the insurance company to be
Speaker 1: in business, or you're relying on the bank that issued
Speaker 1: the note on a structure note to be in business.
Speaker 1: You know, like our thirty percent product. You know, i'd
Speaker 1: like to say if the market crashes is down thirty percent,
Speaker 1: you don't want to hope those guys are gonna stay
Speaker 1: in business. You want to know you got what you own,
Speaker 1: and that's the important time. Can I play a quick game, yes?
Speaker 1: Can we guess of the nine percent know exactly what
Speaker 1: you're doing? Yes? And the thirty percent buffer, which is
Speaker 1: the most popular, I'm going thirty. I'm going fifteen. Also,
Speaker 1: full disclosure, I knew the answer, but but like, break
Speaker 1: it down. What's the percentages between each three? It's it's
Speaker 1: probably fifteen and then the nine and then the third. Yeah, well,
Speaker 1: I mean you're good listen to thirty. The way to
Speaker 1: think about that is and and uh, I think we
Speaker 1: thought it was gonna be a huge seller at the beginning.
Speaker 1: To um is that in the cost the same, Yeah,
Speaker 1: the costs are the same. Is that if you're in
Speaker 1: the thirty, you're what you're saying is I'm willing to
Speaker 1: risk five percent, right, that first five percent you can lose,
Speaker 1: but I don't want to risk anything else. And so
Speaker 1: that's somebody who thinks the market is really gonna completely
Speaker 1: crash and they're willing to take the risk on the five.
Speaker 1: The other ones they started zero, And so I think
Speaker 1: that maybe why fifteen has been a little more that
Speaker 1: changed through the year though, Yeah, it's interesting. Um, it
Speaker 1: depends on where the funds are trading, the et f
Speaker 1: s are trading in the market, because we see a
Speaker 1: lot of people like right now, I haven't seen the
Speaker 1: numbers for today, but like the October series is very
Speaker 1: like over the last few weeks has been very successful.
Speaker 1: He's taking a lot of assets right now because right
Speaker 1: around its starting point, it's starting asset our dollar price,
Speaker 1: and so you can get in today. You can have
Speaker 1: the same buffer and the same cap that you did
Speaker 1: day one, but you only got a month and a
Speaker 1: half left. So they're saying, wow, I got a ten
Speaker 1: percent cap and I got a fifteen percent buffer. I
Speaker 1: like that, you know, for a month and a half.
Speaker 1: So we're seeing a lot of people participate in the middle,
Speaker 1: which we didn't know of what happened, but we've seen
Speaker 1: a lot of assets flowing in the middle. I was
Speaker 1: recently at an event and uh, these came up for
Speaker 1: the downside of the buffer, ETFs came up. One of
Speaker 1: the analysts that I was on a panel with said
Speaker 1: something to the effect, I haven't looked into this yet
Speaker 1: that well, you're only getting the price and it doesn't
Speaker 1: have divot in there. So that's kind of like a
Speaker 1: cost that you're not seeing. Can you address that? Yeah, well,
Speaker 1: you get the price return of the SMP five with these.
Speaker 1: You don't get the return of the SMP five hundred
Speaker 1: with the dividend. Some people look at the dividend as
Speaker 1: a buffer in a sense, and I think that's why
Speaker 1: we've priced ours at a nine percent, and you know
Speaker 1: we don't have it lower than that if you think
Speaker 1: about it. If you if you think about it that
Speaker 1: way as a two or three percent, then if you
Speaker 1: look at nine percent and fiftcent, it's pretty well spaced out.
Speaker 1: Most people, Uh, look at the two percent and they'll
Speaker 1: make that, but that's not enough for them. They want
Speaker 1: more buffer than that. And so you know, the dividend
Speaker 1: isn't included. So if you think that the market is
Speaker 1: gonna be down two percent or less, you probably go
Speaker 1: ahead and stick with it. If you want more buffer
Speaker 1: than that, then you need to buy these. You mentioned
Speaker 1: sp Uh, what all do you think you could do
Speaker 1: this for? Put this rapper around? That's a good question. Currently,
Speaker 1: we have the SMP five hundred, we have the ms
Speaker 1: c I EFA and the ms c I Emerging Markets.
Speaker 1: We just started that and we're gonna have those quarterly.
Speaker 1: Why did you pick those? Really, what we're doing is
Speaker 1: working from the trading level back because you need to
Speaker 1: have options at trade enough that allow these UH products
Speaker 1: to be established on them, and so you need to
Speaker 1: have a very liquid market, and so there's only really
Speaker 1: about five or six markets that allow that. So those
Speaker 1: two international markets as well as the Accus and as
Speaker 1: the Russell two thousand, and we're gonna be introducing the
Speaker 1: the Nazac one and the Russell two thousand here in October,
Speaker 1: so we have five of them, and and and with
Speaker 1: the emerging markets and those we just did the fifteen
Speaker 1: percent buffer, so we don't we're not doing every month.
Speaker 1: We didn't do all three levels. It's it's it's very
Speaker 1: expensive to bring a new product out every month for
Speaker 1: all of them. So we're just doing the fifteen percent
Speaker 1: buffer for each of those until they gain enough assets
Speaker 1: and enough interest and everyone's educated, and then we'll start
Speaker 1: to introduce some more when it makes sense. What would
Speaker 1: you like to do but looks really complicated, You know
Speaker 1: it would be it would be a hit, but it'll
Speaker 1: take some work to get there. You know. What we
Speaker 1: really want to figure out a way to do and
Speaker 1: we haven't quite got there yet, but to put together
Speaker 1: a product similar to this that relates to people for
Speaker 1: like lifetime fixed income, to be able to incorporate something
Speaker 1: like that for fixed income for people within this type
Speaker 1: of structure, using the option structure to be able to
Speaker 1: do that um like options for bonds that well, we
Speaker 1: we've looked at a lot of different structures on how
Speaker 1: we could do this, and we haven't arrived on one
Speaker 1: that we like a lot, but we're we're looking at
Speaker 1: all types of different things to to determine is there
Speaker 1: a better way to deliver some type of an income
Speaker 1: product of people as they're nearing retirement now kind of
Speaker 1: the decumulation phase of you know, everybody's accumulating their assets
Speaker 1: and they don't have a real efficient way to to
Speaker 1: spend that down now, and so to help them do
Speaker 1: that and make it last as long as possible, how
Speaker 1: much you know about your consumer and their age, because
Speaker 1: this is like if you're right around retirement age, this
Speaker 1: is like a perfect thing, Like I'm not getting any
Speaker 1: yield on my fixed income um and I can basically
Speaker 1: hedge my exposure to equities. It seems great for me right. Yeah,
Speaker 1: how much of this is actually in that baby boom, Well,
Speaker 1: I would imagine a good bit of it. But um,
Speaker 1: what we're seeing, like Carolina mentioned, um, advisors are getting
Speaker 1: ahold of this for their business and they're saying, holy smokes,
Speaker 1: I'm putting us across all my clients because it just
Speaker 1: makes too much sense from a strategic standpoint to be
Speaker 1: able to have better outcomes. You know, one of the
Speaker 1: things strategi strategists want when they're investing their assets is
Speaker 1: they want to have a better understanding of what are
Speaker 1: their risks and what outcomes will they have. This gives
Speaker 1: them more control over the potential outcomes rather than one
Speaker 1: of the market crashers I'm not sure what will happen.
Speaker 1: It gives them a little more control. And so strategists,
Speaker 1: I think, are attracted to these products because of that, Carolyn,
Speaker 1: What could go wrong? What if the market goes down?
Speaker 1: What the market goes down, you're gonna well in the
Speaker 1: nine percent, you would lose thirty five last nine you know,
Speaker 1: so you know you uh. The way I if you
Speaker 1: think about these products, I think a great way to
Speaker 1: really think about them is if the market goes down,
Speaker 1: you're going to outperform the market by the amount of
Speaker 1: the buffer, depending on how much the market is down right,
Speaker 1: So you're gonna beat the market of the markets down.
Speaker 1: If the market is flat, you're gonna be with the market.
Speaker 1: And the market is up slightly but below the cap,
Speaker 1: you're gonna meet the market. The only time you're gonna
Speaker 1: underperform the market is if the market has a huge
Speaker 1: boom year and and you get capped out and you
Speaker 1: don't get all the upside that And think about how
Speaker 1: many uh, you know, funder active managers can beat the market,
Speaker 1: very very few on the downside or the upside. And
Speaker 1: so this gives people, you know, they're gonna beat the market,
Speaker 1: and you know, three out of the four scenarios, it's
Speaker 1: it's a pretty good opportunity to be able to participate
Speaker 1: in something like this. Would you ever add leverage to
Speaker 1: the upside and them thinking back on the traditional structured
Speaker 1: note structure or is where you know you get two
Speaker 1: times the underlying up to a cap and then some
Speaker 1: buffer on the downside. Any interest from clients that you've
Speaker 1: heard to add some juice to that upside return people
Speaker 1: like Jews. But you know, the the SEC has moratorium
Speaker 1: on leveraged E t F s and so right now, um,
Speaker 1: you know that's not possible, but you know we were
Speaker 1: hoping in time that something like that will be possible. Eric,
Speaker 1: have you have you guys covered this at all? Yeah? So, um,
Speaker 1: my colleague James Seffert has kind of a it's one
Speaker 1: of his focus ideas. Every one of every analyst in
Speaker 1: Bloomberg Intelligence has to have a focus idea. Mine is
Speaker 1: that there will be more more closures than launches in
Speaker 1: the next twelve months. It's kind of a call. If
Speaker 1: you will not something will go up and down, but
Speaker 1: just the call in our industry, his is that these
Speaker 1: will were bullish. We think that if they can get
Speaker 1: you know, over a billion in this kind of market,
Speaker 1: if the market goes down, they should really do well
Speaker 1: because people are gonna definitely want downside protection there. So
Speaker 1: we find that the fact that they could pull this off.
Speaker 1: So he has a great note go to b I
Speaker 1: E t F you can read the whole things. So, yeah,
Speaker 1: we've covered it, and that note is maybe three mini
Speaker 1: notes for a total of like say twelve bits. I'm
Speaker 1: wondering about the economics of this on your side, because
Speaker 1: this is not like a typical e t F. You're
Speaker 1: you're dealing with options. Obviously it's coming through with basis
Speaker 1: points to the consumer, But what does it look like
Speaker 1: on your side? UM, from a from a cost perspective, Yeah, well,
Speaker 1: from a cost perspective, we are working with Milliman UH
Speaker 1: Financial Essay Management. Don't know you're familiar with them out
Speaker 1: of Chicago. They have offices around the world, but they're
Speaker 1: the subadvisor for the products and UM. They're one of
Speaker 1: the larger insurance overlay contractors in the world, and so
Speaker 1: they sub advise. In fact, they recently did the Transamerica
Speaker 1: e t F work with Transamerica on that UH and
Speaker 1: our billion dollars, I think they seated that with So
Speaker 1: Milliman is our sub advisor, do a very good job
Speaker 1: and know exactly what they're doing. So we have to
Speaker 1: pay them, and we have everyone else to pay. The reason,
Speaker 1: and this one is difficult to do and expensive to do,
Speaker 1: is that we have to have thirty six funds, which
Speaker 1: would normally take three funds to accomplish the same thing.
Speaker 1: And by having to have a new fund every month
Speaker 1: in order to bring the best value possible, there's a
Speaker 1: big expense in doing that, and that's the reason it's
Speaker 1: necessary for us to have a little higher expense ratio.
Speaker 1: Although that fee is pretty much in line with some
Speaker 1: fancier or smart data products, isn't it. Yeah, it's it's
Speaker 1: up there. But this is a institutional kind I mean,
Speaker 1: this is they're doing a lot of legwork and it
Speaker 1: was first. Usually things get priced down is there are
Speaker 1: more and more products, so I was given all you'd
Speaker 1: have to do on your own. I mean that it
Speaker 1: just you can just you heard Bruce describe all this.
Speaker 1: It sounds like kind of a pain, to be honest,
Speaker 1: whereas smart bait a lot of times it's it's there
Speaker 1: is there is their formula, and that's their intellectual property.
Speaker 1: But honestly, it's just holding stocks. It's not as difficult
Speaker 1: as something like this. So and obviously the flow show
Speaker 1: people aren't that worried about it. Out these are specialty
Speaker 1: products like leverage ETFs, there charging nobody cares um so
Speaker 1: and that's good for you because it is hard to
Speaker 1: carve out a living in the et F world anymore.
Speaker 1: Everything has been priced down pretty low. So from a
Speaker 1: business standpoint, it's pretty remarkable. Feet what you're what you're
Speaker 1: doing UM it is you know a lot of people
Speaker 1: like there was a couple of lunches for zero and
Speaker 1: negative fee that didn't get any assets. So I think
Speaker 1: you have to innovate and next your one way around
Speaker 1: the vanguard effect. Yeah, you know, and and I think
Speaker 1: the thing that you don't want to lose on this
Speaker 1: is to get this type of buffer, this type of
Speaker 1: protection of the market. If they wanted to go buy
Speaker 1: this somewhere else, it's going to be much more expensive.
Speaker 1: So it is very economical for any other way that
Speaker 1: they could buy this type of protection in the marketplace. Okay,
Speaker 1: so you've seen a lot from where you started UM
Speaker 1: in power Shares, rise of smart Beta. Now you've got
Speaker 1: this new whole idea. What do you how do you
Speaker 1: feel about the et of industry as a whole? Where's
Speaker 1: it going? Where where else could innovate? Well, I mean
Speaker 1: I think that Uh, you know, when when we were
Speaker 1: power Shares, we did the first thematic fund, we did
Speaker 1: the first active fund. What was it what was the
Speaker 1: first the metic I think it was water Oh p
Speaker 1: h O, yeah, yeah, it's first thematic fund. Check it out. Yeah, yeah,
Speaker 1: So you know we did we were a lot of first,
Speaker 1: and we innovated a lot. We had the first e
Speaker 1: t F of e t F s, you know, so
Speaker 1: we we pushed the envelope and a lot of things.
Speaker 1: And um, we think in this area where we're at,
Speaker 1: where um, you can use other types of products to
Speaker 1: deliver outcomes that people haven't really considered within the et
Speaker 1: F structure, that there's growth potential there. We think that
Speaker 1: the equity market, and you know, pretty much the fixed
Speaker 1: income market has been sliced pretty thin, you know, and
Speaker 1: there there aren't a lot of other rocks to be
Speaker 1: turned over to. You might have people discover this new
Speaker 1: thing that comes up and another hack or another you know,
Speaker 1: cannabis or you know whatever or something like that. But
Speaker 1: I think generally to establish a process of investing something
Speaker 1: that brings true value across the portfolio, not just a
Speaker 1: one hit wonder type of thing. You know, you have
Speaker 1: to look at areas where there are true growth potentials
Speaker 1: and they contribute to people, you know, across the portfolio.
Speaker 1: And we think this area that we're in now that
Speaker 1: you know there are there are legs there and there
Speaker 1: are other opportunities going forward. It's um, sorry, I have
Speaker 1: to say p h O came out in two thousand five.
Speaker 1: I think that probably makes it the first theme ETF.
Speaker 1: You're right, million dollars. Yeah, you know what, I think
Speaker 1: we did. We did. I think the tickers should have
Speaker 1: been used for the Vietnam ETF, But that's another story.
Speaker 1: What about clean energy might have been before that? Clean
Speaker 1: energy I would call E s G. I would call water.
Speaker 1: I mean there's an E s G. Didn't they given
Speaker 1: exist back? I know you were firing on all clers
Speaker 1: we pay asked on the internet, the Internet. Yeah, so exactly.
Speaker 1: You know the e t F better than anybody. While
Speaker 1: we're on the topic, the SEC is wrestling internally over
Speaker 1: whether to prove a bit coin ETF. My take is
Speaker 1: the E t F structure can handle almost anything. You
Speaker 1: can put Mickey Mickey mental rookie cards in it, and
Speaker 1: it would probably be the best possible deal given the
Speaker 1: arbitrage that the market makers can do. Um, what's your
Speaker 1: take on that? Do you think that a bitcoin would
Speaker 1: be fine? An e t F would all work out
Speaker 1: and not not to say it with stuff the volatility,
Speaker 1: but it would track it pretty well. I think probably,
Speaker 1: you know, I would have Magnan. I'm not really up
Speaker 1: on all the cryptocurrencies. But I think it probably would.
Speaker 1: And and because it prices, and you can see the
Speaker 1: prices long and the prices are reliable, you should be
Speaker 1: able to get it. You know. Interesting thing along those lines, Eric,
Speaker 1: is back when we had the financial crisis, and remember
Speaker 1: Fannie May and all those guys were holding all those mortgages.
Speaker 1: I tried to get them to take those trillion dollars
Speaker 1: and mortgages or whatever they were and just put them
Speaker 1: in an e t F and let the e t
Speaker 1: F trade and let the market determine and the value
Speaker 1: of the pool, and then that would have equitized all
Speaker 1: that right. But you know obviously didn't listen to me there. Wow,
Speaker 1: what a story. Yeah, I think we buried the lead.
Speaker 1: You know, do you have that he Edits a little
Speaker 1: magazine like you know, I tried to. I hadn't went
Speaker 1: to d C and tried to you know, tell them, guys,
Speaker 1: you know you want to get this, get rid of
Speaker 1: This is a way to do it. Actually, And have
Speaker 1: you have you gone and back tested your product and
Speaker 1: you know, showing what it would have been like during
Speaker 1: the financial cred We have and we we provide that
Speaker 1: to advisors all the time. One thing that's really interesting
Speaker 1: by this product if if you think about it, all
Speaker 1: products that we typically buy or that I've ever sold,
Speaker 1: or a better part of it, I've looked at historically
Speaker 1: and I've said, okay, what has what did that do
Speaker 1: in the past? Well, we kind of know what the SUPs,
Speaker 1: S ANDP is done, right, So this is one product
Speaker 1: where you actually think forward. You think about, okay, what
Speaker 1: do I think that Margot will do next year? And
Speaker 1: then you buy the one that you think is going
Speaker 1: to give you the outcome that you want for that
Speaker 1: following year. And so this is much more of a
Speaker 1: forward looking product in than any product I've actually been
Speaker 1: involved with in the past. One thing I would think
Speaker 1: of if if you can and pitch me, I might say, well,
Speaker 1: this is why I use treasuries. You know I have
Speaker 1: treasure an allocation to treasuries and cash. That buffer is
Speaker 1: my equity position. How do you sell against that? Or
Speaker 1: is that somebody just probably wouldn't buy it? Well, no,
Speaker 1: they might buy it, but I would say, okay, so
Speaker 1: that debt exposure reduces your upside potential. Right right, market
Speaker 1: goes up, You've got half your money in there, you
Speaker 1: got half the upside right, potentially apparently right, and so
Speaker 1: you buy this while you got all the upside. We
Speaker 1: just saw the buffer in there, you know what I mean?
Speaker 1: So it it uh, you know, that's a drag. That's
Speaker 1: like if you think about a mutual fund manager, right,
Speaker 1: they hold too much cash, they have cash drag, right,
Speaker 1: So that's drag on people's portfolios. Here. You don't on that.
Speaker 1: You put it in equities. You get the upside of
Speaker 1: the market and you can. I think the important thing
Speaker 1: to remember on the cap is if you get uh,
Speaker 1: if you run up and you think you're getting slow
Speaker 1: close to the cap, you could roll of the new
Speaker 1: fund and the next month get a new cap and
Speaker 1: lock in your game. You can get the step up.
Speaker 1: So it gives you that flexibility to be able to
Speaker 1: adjust your position as you go, which I think is
Speaker 1: is really a phenomenal feature. He's pretty good, he's you're
Speaker 1: very smooth. You know, how much of your day is
Speaker 1: spent explaining these two people or how much of your week?
Speaker 1: What percentage of your week are you? I don't know
Speaker 1: a good bit and and uh, I mean this is
Speaker 1: my job. We're pretty passionate about it because it's really
Speaker 1: a neat product, and uh it you know, it has
Speaker 1: its drawbacks. I mean, it can get capped out. I mean,
Speaker 1: and you have those things. But even with the cap
Speaker 1: I mean, I do say, remember you're not locked in there.
Speaker 1: You could roll to the new one. If you start
Speaker 1: to get a cap roll into the new one. I
Speaker 1: mean they I would tell you. I mean, for John
Speaker 1: and I to come back into the industry after selling
Speaker 1: power shares, there was we didn't need to come back
Speaker 1: and try in an industry that is super crowded, super difficult.
Speaker 1: You know, the bologna has been life's pretty thin. You
Speaker 1: know what it's left for anyone? Yeah? Yeah, blowny whether
Speaker 1: you know we had to come back for something meaningful.
Speaker 1: It's almost like this isn't It's like another meat. That's
Speaker 1: the equity. You can't slice it anything. Yeah. One question,
Speaker 1: I have you got the month option, You've got the
Speaker 1: year option. Could you go out farther than that? I think? Yeah,
Speaker 1: I mean now we can go longer right where you
Speaker 1: could have a three year and you know, those are
Speaker 1: some of the things we've evaluated. And uh, the reason
Speaker 1: we kept it at a year and we did the
Speaker 1: three and we're just sticking with that for now is
Speaker 1: we want to stay with the most simple, straightforward structure
Speaker 1: so that people can really get their minds around it.
Speaker 1: And I think that in time, you know, as people
Speaker 1: become very comfortable, we'll probably add some other bells and
Speaker 1: whistles that we think add value, like maybe a longer
Speaker 1: date or you know, other other things that we've looked Dad, Carolyna,
Speaker 1: thanks for joining us as always, Thank you, Bruce Bond,
Speaker 1: thanks for joining us on Trillions than thanks for listening
Speaker 1: to Trillions until next time. You can find us on
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Speaker 1: from you. We're on Twitter, I'm at Joel Weber Show,
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