Speaker 1: Well, CNA trillions.
Speaker 2: I'm Joel Webber and I'm Eric Alchunas.
Speaker 1: He sounds like you've maybe even a little sick. Something's
Speaker 1: off in your voice.
Speaker 2: Yeah, I got a I caught something probably from my youngest.
Speaker 2: Who knows what these kids bring home. But I was
Speaker 2: kind of down for the count for about forty eight hours.
Speaker 2: And then I love that feeling when your immune system
Speaker 2: starts to take the lead and you're like, oh, yeah, here, right,
Speaker 2: here we come. And then I also had some antibiotics
Speaker 2: left over from the dentist. It's like dropping bombs on
Speaker 2: that thing.
Speaker 1: Okay, well, welcome back in Happy twenty twenty five because
Speaker 1: it's still new in the year and I know predictions
Speaker 1: are a thing and the market has not been off
Speaker 1: to a great start, but it felt like a good
Speaker 1: moment to actually still talk about what might happen with
Speaker 1: the little crystal ball.
Speaker 2: Yeah, everybody has predictions in the cell sid It's like, oh,
Speaker 2: the market has a forty per chance of going up,
Speaker 2: and it's also opaque, and I don't know, it's like safe.
Speaker 2: There's a couple of people out there that make very
Speaker 2: specific predictions and they end up going back and like
Speaker 2: saying was I right or wrong? I love that because
Speaker 2: you don't get that a lot from a lot of
Speaker 2: the prognosticators out there. This guy, Nate jerrasi from the
Speaker 2: ETF Store, fellow ETF nerd veteran of the industry, has
Speaker 2: five predictions every year, and he these are really interesting predictions.
Speaker 2: I agree with three of the five, only Joel, but
Speaker 2: I think it's gonna be fun to unpack these because
Speaker 2: they all really tap into some huge themes that we're
Speaker 2: probably gonna cover us of the year as well.
Speaker 1: So joining us on this episode Nate Jersey, president of
Speaker 1: the ETF Store. He's also the host of ETF Prime,
Speaker 1: another ETF podcast, as well as Vildonna Hirich of Bloomberg News.
Speaker 1: She's a crossasser reporter. This time on Trillions. Nate Jerrasey's
Speaker 1: predictions for twenty twenty five. Nate, Vildona, Welcome to Trillions.
Speaker 3: Thanks for having us, a pleasure to be here.
Speaker 1: Okay, so, Nat, you've been doing predictions since twenty eighteen.
Speaker 1: According to this little helpful memo, you started really strong,
Speaker 1: you were like five for five, but then last year,
Speaker 1: well ever since then, things have been kind of trending.
Speaker 1: Downward and last year one for five. Why should we
Speaker 1: listen to you in your predictions.
Speaker 4: Well, first of all, I will say, from twenty eighteen
Speaker 4: to twenty twenty two, I went nineteen for twenty four
Speaker 4: or twenty five, which is pretty darn good. You're right.
Speaker 4: The past two years have been brutal overall. Actually I've
Speaker 4: gone two for ten though, I will say, and Eric
Speaker 4: knows this, I did predict last year that spot Bitcoin
Speaker 4: ETFs would obliterate every single ATF launch record, which I
Speaker 4: clearly nailed out one that should be worth at least
Speaker 4: an extra point or two. But Joel, I feel good
Speaker 4: this year. I'm ready to get back on track.
Speaker 1: Okay, Well, past performance not indicative of future performances. As
Speaker 1: we know. Eric tell us about Nate because you go
Speaker 1: on his podcast a lot, right, Like, what statue does
Speaker 1: he have in the industry?
Speaker 2: Well, I met him because I heard there was this
Speaker 2: like radio show about ETFs that was delivered through ESPN
Speaker 2: Radio or something, and this was back in like two
Speaker 2: thousand and nine when it was very nascent industry, and
Speaker 2: I listened to it and it opens with the who's
Speaker 2: won't get fooled again? You know that it's a great intro,
Speaker 2: and I was like, who are these guys? And they
Speaker 2: they would they came in from like the Midwest, and
Speaker 2: they would they would go back and forth about ETFs,
Speaker 2: and I was like, Oh, this is great. But what
Speaker 2: made them extra level was they are managing money.
Speaker 5: They are advisors, so.
Speaker 2: They have that interaction with the actual investor, which to
Speaker 2: me helps their opinion of ETF's actually resonate more. And
Speaker 2: so I think both of us, in separate places, me
Speaker 2: and Philadelphia, him and Kansas City sort of like saw
Speaker 2: the ETF as being a big deal, you know, early,
Speaker 2: and so we had that sort of kindred spirit. And
Speaker 2: then when I met him, it was obviously like you know,
Speaker 2: mutual appreciation society.
Speaker 1: All Right, Nate, you're gonna wan to drop your predictions
Speaker 1: on us, and then we're gonna comment on them, and
Speaker 1: we'll try and be friendly about it, but maybe critical too.
Speaker 3: Uh.
Speaker 1: Okay, let's hear your first prediction. Okay.
Speaker 4: Prediction number one is that either the I Shares s
Speaker 4: and P five hundred ETF TICK or IVV or the
Speaker 4: Vanguard S and P five hundred ETF TICK or VO,
Speaker 4: either one or both will chot fees this year in
Speaker 4: an attempt to capture the ETF crown.
Speaker 1: That ETF chrowme belongs to Spy.
Speaker 4: The spider S and P five hundred ETF.
Speaker 1: Okay, so within the S and P five hundred ETFs
Speaker 1: you're predicting this is this is a year that it's
Speaker 1: gonna get fierce, even fiercer.
Speaker 4: Yeah. And look, people have predicted for several years, including myself,
Speaker 4: that either IVV or VU would overtake SPY in assets.
Speaker 4: But that's not my prediction here. I think that having
Speaker 4: the largest ETF buy assets actually means something to these issuers.
Speaker 4: And the way that I alloy out this prediction to
Speaker 4: you is I spoke with Black Rocks Rachel Laguire back
Speaker 4: in December and she told me that the I shares
Speaker 4: Bitcoin ETF, which we can talk about crypto in a minute,
Speaker 4: but she said that was attracting a lot of new
Speaker 4: investors who were then actually looking at other I shares ETFs.
Speaker 4: So in other words, the bitcoin ETF was serving as
Speaker 4: like a magnet to bring in investors who then bought
Speaker 4: other I shares ETFs. I think it's a similar situation
Speaker 4: with these S and P five hundred ETFs. Right if
Speaker 4: an investor chooses, say IVV, I think they're much more
Speaker 4: likely to look at other I shares ETFs, and the
Speaker 4: issuers know this, And since these ETFs all do the
Speaker 4: same thing, they invest in the S and P five hundred.
Speaker 4: I think it really comes down to fees, And so
Speaker 4: I think one of these issuers is going to chop
Speaker 4: fees because they want that ETF crowd but want.
Speaker 1: These back already, like just like barely existent, like they're
Speaker 1: so cheap to begin with.
Speaker 2: Yeah, they're three basis points. I don't think investors really
Speaker 2: trust zero or want zero, but two or one maybe.
Speaker 2: I think it has to be Blackrock. Vanguard probably doesn't
Speaker 2: need to do it, and I've actually advised them, instead
Speaker 2: of cutting fees anymore, put that money towards customer service
Speaker 2: next time you have that extra profit that you need
Speaker 2: to spend. But I could see Blackrock doing it in
Speaker 2: your I think, so I agree with this probably, I
Speaker 2: definitely agree.
Speaker 5: That VU will take over a spy this year.
Speaker 2: Right now, WU is ninety five percent of the way
Speaker 2: to spy at the beginning of the year. Last year
Speaker 2: it was ninety percent. It makes up five percent every year,
Speaker 2: So do the math. It's probably going to pass it
Speaker 2: this year. IVV probably can't catch VU in this because
Speaker 2: they don't take in as much flows. So they to
Speaker 2: me if they cut the fee, and you know Blackrock
Speaker 2: is very motivated by beating Vanguard. I could see IVV
Speaker 2: cutting the fee, then then he may see Vanguard tie.
Speaker 2: I could see it. So I'm eighty percent I agree
Speaker 2: with the fee cut. I'm one hundred percent that I
Speaker 2: think VU will pass Spy this year.
Speaker 4: A wildcard that's out there is SPLG, which is a
Speaker 4: spider portfolios and P five hundred ETF, so we call
Speaker 4: this mini Spy and its expense ratio is only two
Speaker 4: basis points, so it's actually cheaper than both IVV and VU,
Speaker 4: and it finished in the top ten of ETF inflows
Speaker 4: last year. I just don't think that I shares in
Speaker 4: Vanguard like a competitor being out there who is lower cost.
Speaker 4: The other thing I'll mention, I agree with you Eric
Speaker 4: in terms of Vanguard allocating money towards technology and customer service.
Speaker 4: But that Vanguard flywheel, it's like they can't help themselves.
Speaker 1: Right.
Speaker 4: We know that as their funds grow that allows them
Speaker 4: to further leverage their back office economies of scale. That
Speaker 4: allows them to run the fund even cheaper, and then
Speaker 4: they pass those savings on to investors. With Vanguard's mutual
Speaker 4: ownership structure. I just think you have to assume that
Speaker 4: as VU grows, they're going to reach a point where
Speaker 4: investors will get a fee cut. I think it's a
Speaker 4: matter of time. So maybe I'm cheating a little bit
Speaker 4: with this prediction because I just think that's going to happen.
Speaker 2: My only counter to that is they're really pushing their
Speaker 2: active move because they were late, and they may choose
Speaker 2: to use that to cut the fees on those funds
Speaker 2: to be the cheapest vandguard Vanguard. Yeah, but again we'll
Speaker 2: see if black Rock cuts. I just I could see
Speaker 2: Vanguard responding. But again, we're at three already, maybe two.
Speaker 2: I think once you get to one or zero, it
Speaker 2: starts to look like gimmicky, Like the customer's almost like,
Speaker 2: you know, I don't want to have be like I
Speaker 2: don't want to pay nothing, because then I got to
Speaker 2: worry about how you're going to like screw me somewhere else.
Speaker 1: Phil Donna, what do you think?
Speaker 3: I have a couple thoughts. One is just conversationally based,
Speaker 3: Like if I'm talking to non market civilians. Maybe we
Speaker 3: can call it like my high school friends. If they're
Speaker 3: talking about the market, they say I'm buying vou like
Speaker 3: they don't. I never hear IVV in conversations. But the
Speaker 3: other point that Nate makes and his predictions is that
Speaker 3: even if they do cut, one way for them to
Speaker 3: offset is through securities lending, which a bunch of these
Speaker 3: issuers do, maybe almost all of the issuers do, so
Speaker 3: that it's one way for them to make up for
Speaker 3: cutting the fees, which is really interesting. It's an interesting trend.
Speaker 3: But if SBOG already is at point two, you know,
Speaker 3: it's been like that for a while, why if change
Speaker 3: or if for IVV wanted to cut, why haven't they yet.
Speaker 1: Yeah? Yeah, so take that, Nate, Take that, Nate, Okay,
Speaker 1: we'll see what happens. Okay. Prediction number two, Nate, Okay.
Speaker 4: Prediction number two is that this will be the year
Speaker 4: of crypto ETFs. Notice I'm not saying spot bitcoin ETFs.
Speaker 4: That was twenty twenty four. I think twenty twenty five
Speaker 4: will be the year of crypto ETFs. And I have
Speaker 4: ten predictions. I won't go through all of these, but
Speaker 4: they range everything from spots Salona ETFs will be approved
Speaker 4: to Vanguard, will allow clients Brokeragje access to Spot Bitcoin
Speaker 4: and ethere ETFs. Spot ethere ETF staking is a proved
Speaker 4: It's really a cornucopia of predictions here that I think
Speaker 4: all tie into a huge tailwind behind crypto ETFs.
Speaker 1: So do you think to kind of summarize, are these
Speaker 1: going to be coin specific ETFs or are we going
Speaker 1: to start to see the indexing of crypto into a product.
Speaker 4: I think it will be both. So I think we
Speaker 4: will see spot Salona ETF's Spot XRP ETFs, their filings
Speaker 4: from both Grayscale and Bitcoin for index based ETFs. I
Speaker 4: think we're going to see everything, and I'll just tell
Speaker 4: you in a nutshell, really, this is all one huge
Speaker 4: bet on the Trump administration that they're actually going to
Speaker 4: deliver on their campaign promise or the innuendo that we
Speaker 4: heard that they're going to be pro crypto, and if
Speaker 4: you look right now, the early indications are that they will.
Speaker 4: Right we have Paul Atkins set to succeed Gary Gensler's
Speaker 4: SEC chair. He's clearly viewed as being pro crypto. David Sachs,
Speaker 4: who he runs a VC fund he's sought to be
Speaker 4: very tech savvy. He's filling this new crypto's our role.
Speaker 4: There's also a Crypto Advisory Council being formed. The point
Speaker 4: here is that it does look like the Trump administration
Speaker 4: will be much more supportive of crypto. And if that's
Speaker 4: the case, then I'm highly optimistic on all ten of
Speaker 4: these crypto predictions, or I should say nine to ten.
Speaker 4: The vanguard one we can talk about. Not quite as
Speaker 4: confident there.
Speaker 2: Yeah, I agree with that, he says, fifty launches. Yeah,
Speaker 2: it's going to be like instead of the coin Tucky
Speaker 2: Derby was just Bitcoin, it's gonna be like this all
Speaker 2: out like Derby Derby. Yeah, universal alt coin Derby. It's
Speaker 2: gonna get crazy.
Speaker 3: Now.
Speaker 2: A lot of this stuff is just going to get ignored.
Speaker 2: I mean, you still think bitcoin ETFs take the lion's
Speaker 2: share of this category. But you know, one of these
Speaker 2: coins is going to have a nice run and gonna
Speaker 2: be like the playful thing for a minute. But it's
Speaker 2: still going to be prominently Bitcoin bringing in the big
Speaker 2: boy flows.
Speaker 1: So are you two for two with are you like
Speaker 1: is it one and a half or no?
Speaker 2: No, No, I'm gonna agree with this one. Too, except
Speaker 2: number ten, So I guess I'm one tenth. This isd
Speaker 2: Vanguard capitulation allows clients broker j access to spot bitcoin
Speaker 2: and E three ETFs. I think it happens. I just
Speaker 2: think you're early. I think it takes. It's gonna take
Speaker 2: a littlehile because remember Vanguard's pretty proud and they came
Speaker 2: out and said, we don't like this. It doesn't have
Speaker 2: it can wreak havoc in portfolios, it has no real
Speaker 2: world usage, and they let GLD trade. That's a total
Speaker 2: slap in the face the bitcoin. The crypto people are
Speaker 2: so pissed off by this, and I tell them, listen,
Speaker 2: she's just not that into you, you know what I mean,
Speaker 2: Like you got to get over it. Because they they're like, no,
Speaker 2: Vanguard will bend the knee, and I'm like, Ben, what
Speaker 2: are you talking about. Vanguard is doesn't need you.
Speaker 3: So they guards not thinking about you.
Speaker 5: They're not thinking about you yet.
Speaker 2: It's like that meme, so Joel, I think in time,
Speaker 2: Vanguard may relent simply because if bitcoin becomes a strategic
Speaker 2: preserve for the US, if there's more advisory assets in
Speaker 2: Vanguard that demand crypto is part of the portfolio. If
Speaker 2: Selim Ramsey has more time to like grow his influence there.
Speaker 2: I know he launched I a bit at black Rock,
Speaker 2: so the new CEO there is clearly a fan. There's
Speaker 2: a couple of things that will germinate. I just think
Speaker 2: they take longer than the year, Nate.
Speaker 1: Okay, Joe, Well, you should know.
Speaker 4: Any time that I'm wrong on a prediction, I always
Speaker 4: say I'm just too early. Eric knows that, and Eric
Speaker 4: and I tend to be very early on a lot
Speaker 4: of predictions.
Speaker 2: Right on say I don't do these, but I do
Speaker 2: bets with Todd Rosenblue. That's my version of the predictions.
Speaker 2: And I'm early. I've never been wrong. I've just been early.
Speaker 3: But Nate himself in his prediction sites Howard Mark saying
Speaker 3: being too far ahead of your time is indistinguishable from
Speaker 3: being wrong, So being too early could mean you're wrong.
Speaker 1: Okay, yeah, so no rebuttal date that's what you get.
Speaker 1: What do you think of more crypto ETFs?
Speaker 3: I think I agree with Eric and Nate in that
Speaker 3: we'll see, you know, like throw all the jargon words
Speaker 3: in covered call zero DT, inverse leverage two x X,
Speaker 3: all kinds of weird stuff. I don't know about the
Speaker 3: Vanguard part. I mean, I'm gonna trust what Eric says here,
Speaker 3: because he's like the Vanguard whisperer.
Speaker 1: Okay, Nate, now go ahead, proceed with here Rebut.
Speaker 4: Okay, so Eric said the magic words, which is Selim Ramji,
Speaker 4: the new Vanguard CEO. So before he came over to Vanguard,
Speaker 4: he was instrumental in moving the eyes Shares BITCOINYTF forward
Speaker 4: while he was at Black Rock. And look, it's one
Speaker 4: thing for Vanguard to not offer their own spot crypto ETFs.
Speaker 4: That's perfectly fine, but it's another thing to treat clients
Speaker 4: like their kids, like they can't have ice cream or whatever.
Speaker 4: And I think Selim knows that he can't just withhold
Speaker 4: access to these products. I think Vanguard will capitulate on
Speaker 4: this decision to gate access to crypto ETFs. And the
Speaker 4: other thing that I would say is, like myself, I
Speaker 4: love Vanguard's investment approach. I personally invest in low cost
Speaker 4: stock and bond funds, as do our clients, but I
Speaker 4: also like a little crypto, a little hot sauces Eric call.
Speaker 4: I don't think I'm alone. Yeah, well, I just think
Speaker 4: Vanguard is actually alienating younger investors who view crypto as
Speaker 4: a normal part of a portfolio, and at some point
Speaker 4: I think that's going to impact their business. And I
Speaker 4: think somebody like Salim's going to see the bigger picture.
Speaker 1: Okay, all right, all right, speaking of bigger picture private markets,
Speaker 1: what's your prediction? Your third prediction?
Speaker 4: Yeah, So, private credit ETFs received a tremendous amount of
Speaker 4: attention last year. There was this filing from State Street
Speaker 4: for the Spider Apollo Public and Private Credit ETF, and
Speaker 4: a lot of people in the industry are saying this
Speaker 4: is going to be the next big thing. I just
Speaker 4: can't get my head around this and how this will work.
Speaker 4: And you know, very simply, what State Street is trying
Speaker 4: to do is partner with Apolo, where Paula would be
Speaker 4: the sole liquidity provider. In other words, they're going to
Speaker 4: be both the buyer and the seller of the private
Speaker 4: credit for this private credit ETF. They'd obviously determine the
Speaker 4: value of this stuff as well. That seems like a
Speaker 4: clear conflict of interest to me. Right, if they own
Speaker 4: private credit that they believe, say is overvalued, how do
Speaker 4: we know that's not what they're selling to State Street
Speaker 4: or vice versa. If State Street needs to redeem shares.
Speaker 4: How do we know Apollo isn't buying the most attractive
Speaker 4: private credit out of the ETF, especially if you were
Speaker 4: in a market where it's under duress. So I just
Speaker 4: think this whole thing is simply a conflict. And I'm
Speaker 4: telling you that the SEC hates conflicts of interest like this.
Speaker 4: So even if we have a more lenient SEC under
Speaker 4: the Trump administration, I just don't see them getting comfortable
Speaker 4: with this. And then the other piece that I'll add
Speaker 4: here is private credit is by definition private right because
Speaker 4: it doesn't trade on a public exchange. It's essentially a
Speaker 4: liquid whereas ETFs or daily liquidity vehicles, and so you
Speaker 4: have a true mismatch here. I just don't see how
Speaker 4: that can work where you put investor's best interest first.
Speaker 3: We have to add. So Bloomberg reported a month ago
Speaker 3: that Apollo is already the desk that they have set
Speaker 3: up to try to facilitate the creation of the CTF.
Speaker 3: It's already up and running. They're already trading this stuff.
Speaker 2: I mean, I think Nate's point about being conflict of interests,
Speaker 2: it's a good point. And there's been some people saying that,
Speaker 2: like Apollo will be able to dump all the stuff
Speaker 2: they don't want to actually own into the ETF. But
Speaker 2: I would think that State Street, to me, is the
Speaker 2: offset of that conflict of interest. That's who's on the label,
Speaker 2: and State Street is going to make sure that their
Speaker 2: investors don't get screwed.
Speaker 5: So I trust State.
Speaker 2: Street enough, and they're thirty two year history of running
Speaker 2: ETFs well, and I just don't want my crap any
Speaker 2: other way.
Speaker 5: I want it in an ETF.
Speaker 2: You may say that privates are better in an interval
Speaker 2: fund or even a mutual fund or a hedge fund,
Speaker 2: but I don't trust any of those. I'm not I
Speaker 2: don't want to pay that money, and I'm right now
Speaker 2: I'm in a character of all the investors.
Speaker 5: I'm not actually me.
Speaker 2: That's how investors have decided to like That's what they've
Speaker 2: been showing with their feet. They just wanted an ETF
Speaker 2: and Nate. There's plenty of ill liquid stuff in ETFs.
Speaker 5: Currently.
Speaker 2: There's times where stock markets close. In the ETF trades
Speaker 2: HYD which is high yield muni's during COVID trade at
Speaker 2: twenty nine percent discount. I think ETF investors would rather
Speaker 2: have this in an imperfect way with discounts or stretched
Speaker 2: arbitrage bands and even a potential for conflict of interest.
Speaker 2: Then go to some interval fund and I will show
Speaker 2: you proof. The XOVR, which is the private equity public
Speaker 2: equity crossover fund that owns SpaceX, has ten percent SpaceX.
Speaker 5: That has two hundred million already.
Speaker 2: That's double Kathy Wood's Arc Venture Fund, which was launched
Speaker 2: at the height of arcmania, and that has one hundred million.
Speaker 5: But it's an interval fund.
Speaker 2: That's like making a great album, but you're only putting
Speaker 2: it on eight track cassette tapes.
Speaker 5: Who's going to buy it?
Speaker 3: So, but Nate isn't saying that this ETF will never come, right,
Speaker 3: He's just saying it won't come in twenty twenty five.
Speaker 2: Well, he's saying that this filing as it is. I
Speaker 2: will okay, I mean, I'll bet you. I will bet
Speaker 2: that the Apollo State Street ETF will launch this year.
Speaker 5: You're betting, Nate, Yeah, steak dinner.
Speaker 4: I will take that, okay, because I stand behind my
Speaker 4: my predictions. Hey, here's here's my question, though, where do
Speaker 4: we draw the line? Right? I think we would agree
Speaker 4: private credit is a liquid So what else can we
Speaker 4: put in an ETF wrapper? Is it art baseball cards?
Speaker 5: Yes, wine, Yes, where do you draw the line?
Speaker 2: So I just think ETF's sometimes trade like clothes unfunds
Speaker 2: in crisis. I just think you're gonna see a situation
Speaker 2: where ets become hybrid clothes und funds and they just
Speaker 2: trade away from the NAV. But people are like, I'll
Speaker 2: take that over getting screwed on these other kinds of vehicles.
Speaker 1: Do we still think this is the next big thing, Nate?
Speaker 4: I don't. And part of that is I'm not so
Speaker 4: sure that the average invest really needs access to private credit.
Speaker 4: I would make that argument right now that that's a
Speaker 4: frothy area of the market in general. But even if
Speaker 4: it wasn't, I don't know that the average sixty to
Speaker 4: forty investor needs the ability to access private credit. I
Speaker 4: don't know what this really adds to a portfolio other
Speaker 4: than complexity.
Speaker 3: That doesn't adding bitcoin to your portfolio also add complexity
Speaker 3: or a ton of crypto.
Speaker 4: That's a fair point, But I would say bitcoin is
Speaker 4: a much more transparent market, okay, all right, a lot
Speaker 4: more liquidity there paying.
Speaker 1: It forward in some sort of prediction. Let's hear number
Speaker 1: four Nate.
Speaker 4: Okay, Prediction number four is that three point fifty one
Speaker 4: exchanges go mainstream and this definitely gets on the weed.
Speaker 1: So what that means.
Speaker 4: Okay, So in December, an issuer by the name of
Speaker 4: Cambria launched this Cambria Attacks Aware ETF and basically the
Speaker 4: way that it takes it's a great ticker. The way
Speaker 4: this worked was that investors of a certain size, so
Speaker 4: they had to be a bit larger, they could contribute
Speaker 4: their individual stock portfolio into the ETF. Okay, so they
Speaker 4: provide their individual stocks to Cambria and in return, they
Speaker 4: receive shares of the Cambria ETF. At a high level,
Speaker 4: this is called a three p fifty one exchange. And
Speaker 4: there are a lot of nuances to this because you're
Speaker 4: dealing with a tax code. But as long as these
Speaker 4: investors met certain criteria, this was not a taxable event.
Speaker 4: And so let me just give you a real quick example.
Speaker 4: So let's say an investor owned a portfolio of Tesla
Speaker 4: and Nvidia and micro Strategy and some other stocks that
Speaker 4: have gone up a lot and where maybe the valuations
Speaker 4: are elevated. Well, that investor may want to reduce their
Speaker 4: risk now, but the problem is if they own those
Speaker 4: stocks in a taxable account, they obviously have to pay
Speaker 4: taxes if they sell. So what this three to fifty
Speaker 4: one exchange allows them to do is diversify into an
Speaker 4: ETA and then they can defer taxes until when they
Speaker 4: sell the ETF shares. Plus they get all the benefits
Speaker 4: of the ETF rapper right that tax efficiency and low
Speaker 4: cost and all of those things. So my prediction is
Speaker 4: that we are going to see more issuers pursue this.
Speaker 4: I think this is going to become pretty popular.
Speaker 1: Huh So, and do you think it's more relevant for
Speaker 1: people who have been acquiring shares of late or do
Speaker 1: you think it could be more impactful for people who, say,
Speaker 1: like have owned Microsoft since the nineties or Apple.
Speaker 4: I think more impactful for people who have owned shares
Speaker 4: for a while. But I think it just depends on
Speaker 4: the composition of the portfolio. I also think this is
Speaker 4: going to be more applicable to higher net worth investors. Right,
Speaker 4: investors who have a higher net worth, they're probably in
Speaker 4: a higher tax bracket, they have a larger portfolio. This
Speaker 4: is going to make more sense. I also think this
Speaker 4: could make sense for some advisors who are running separately
Speaker 4: managed accounts.
Speaker 5: Advisors will tell you.
Speaker 2: I'm not sure if will agree, but I've heard that
Speaker 2: real rich people hate paying taxes more than they actually
Speaker 2: like getting like good returns, and so I think avoiding
Speaker 2: taxes is going to is.
Speaker 5: There's the demand there. And there's an ETF mouth.
Speaker 2: Architect called Box, which does I won't go into it,
Speaker 2: but it does a tax maneuver and I think it's
Speaker 2: got four point seven billion, and that's from a small
Speaker 2: indie issuer. There's going to be tax innovation in the ETFs,
Speaker 2: and I agree with Nate on this one. I think
Speaker 2: we'll see more of this.
Speaker 3: Godana, I love this, I love tax I think this
Speaker 3: is the big theme, the big story, the ways that
Speaker 3: ETFs are being utilized to help offset your big tax bills.
Speaker 3: The one caveat is that tax the ETF that Nate
Speaker 3: was talking about it it has already launched, but it
Speaker 3: only got thirty one million dollars, which isn't huge. It's
Speaker 3: a it's a nice sum, but it's not huge. So
Speaker 3: we'll see how that grows, if it grows. But the
Speaker 3: guy behind mind all of these, including Box, the one
Speaker 3: Eric just mentioned is Wes Gray, and he's really his
Speaker 3: white label company ETF architect is really like coming up
Speaker 3: with these ways or coming or innovating the way that
Speaker 3: people are doing tax aware conversions. If we can call
Speaker 3: them from SMAs or you know, family office stuff hedge
Speaker 3: funds into ETFs. So I think it's very interesting. I
Speaker 3: love it.
Speaker 1: Are they going to bock at anything, Nate like if say,
Speaker 1: like I bring them something from you know, somewhere in
Speaker 1: my portfolio, like they don't have to take anything, right.
Speaker 4: Yeah, there are some very specific rules and requirements in
Speaker 4: terms of how you conduct these three fifty one exchanges,
Speaker 4: So you can't just take any portfolio and do this
Speaker 4: with and to what Viil Donna was saying with the
Speaker 4: thirty million or so into the Cambria TAXIWARYTF, I think
Speaker 4: a reason for that is and that's not bad, but
Speaker 4: I think a reason it's not more is there is
Speaker 4: a huge educational hurdle surrounding all of this. There's a
Speaker 4: lot that investors and advisors have to get their head around.
Speaker 1: So let's just try and make your prediction be a
Speaker 1: little bit more specific, which is okay, you say the
Speaker 1: three fifty one exchanges go mainstream, can you actually put
Speaker 1: something quantifiable there for.
Speaker 4: Us, I will say five ETF issuers who we all
Speaker 4: know will pursue this approach. And as a matter of fact,
Speaker 4: I saw last week Alpha Architects, so that's the ETF
Speaker 4: side of ETF Architects white label. They're actually launching one
Speaker 4: of these. So I'm cheating a little bit, So we'll
Speaker 4: say four others. All right, four other issuers?
Speaker 1: Eric, are you four for four right now? No?
Speaker 2: I didn't agree with the him saying that Apollo we
Speaker 2: already better staked dinner on it.
Speaker 1: So three for four, three for four though, okay number five, Nick,
Speaker 1: go ahead, Okay.
Speaker 4: Last prediction is that a leverage single stock ETF implodes.
Speaker 4: And what this comes down to is that issuers are
Speaker 4: launching a boatload of leverage single stock ETFs on the
Speaker 4: most popular companies, which, if you think about this, that
Speaker 4: makes sense from the issuer's perspective, right, because they want
Speaker 4: people to buy their ETF, they need interest, and so
Speaker 4: of course they're going to pick the most popular stocks.
Speaker 4: The problem is that a lot of these stocks are
Speaker 4: also many of the high flyers. So again it's the
Speaker 4: micro strategies and NVIDIAs Tesla's right, Paletaire and I'm not
Speaker 4: here to make any investment calls. I'm trying to make
Speaker 4: ETF predictions. But there is absolutely a case to be
Speaker 4: made that some of these companies are significantly overvalued. And
Speaker 4: even if we put that aside, So let's put the
Speaker 4: valuations aside. These stocks are very volatile. If you look
Speaker 4: at something like micro Strategy, this thing moves around a
Speaker 4: tremendous amount, and so I just think it's a matter
Speaker 4: of time before one or even more of these stocks
Speaker 4: drops fifty sixty seventy percent over a few days or
Speaker 4: a week. And if you just do the math on that,
Speaker 4: that would be enough for one of these leveraged ETFs
Speaker 4: to implode.
Speaker 1: And your point is that there's going to be one,
Speaker 1: at least one or one.
Speaker 4: I'm saying one, but I wouldn't be surprised if we
Speaker 4: see more than that.
Speaker 2: So I disagree with this one, but not enough. I
Speaker 2: don't feel strong enough to better steak dinner, but I
Speaker 2: lightly disagree. I just think in this Trump era, especially
Speaker 2: with limit up, limit down, a stock can go down
Speaker 2: seven percent right then they halt it.
Speaker 5: And I just see the.
Speaker 2: Trump administration leaning on the FED and basically like coddling
Speaker 2: the market. So I don't see a stock having fifty
Speaker 2: percent draw down in like three days. If I'm wrong,
Speaker 2: you're right, and that would be like a COVID type
Speaker 2: sell off. It would take a black Swan event, in
Speaker 2: my opinion, not a routine pullback. But I also think
Speaker 2: that you know, if you look at MSTU and MSTZ,
Speaker 2: these would be the canaries in the coal mine. I
Speaker 2: think these are the most volatile ETFs on planet or
Speaker 2: in the US, and they have twenty percent up twenty
Speaker 2: percent down days, but not too much more than that.
Speaker 2: So they can handle again, a couple serious pullbacks with
Speaker 2: being fined. They couldn't handle COVID right, and we saw
Speaker 2: a bunch of leverge gtfs blow up in COVID. So
Speaker 2: I just don't think we get another COVID with Trump.
Speaker 2: Is he's just too into the stock market.
Speaker 1: Final word, I don't want.
Speaker 3: To call out any one of these, but you so, Eric,
Speaker 3: you don't think one of them can drop forty without
Speaker 3: an exogenous event. I could see it happening.
Speaker 2: It would have to be it would have to be
Speaker 2: something specific to like micro Strategy or Navidia, But Navidia
Speaker 2: has got so much going on even if it sells off,
Speaker 2: it might solve twenty per I mean, it's not going
Speaker 2: to self eighty percent unless the whole thing's a fraud.
Speaker 2: Micro strategy Okay, I mean what we know everything about
Speaker 2: Michael sit he's clearly into bitcoin.
Speaker 5: What if he got a new interest maybe I don't know.
Speaker 2: Micro Strategy is high beta to the stock market, and
Speaker 2: these are high bata to micro strategy. So the key
Speaker 2: is the stock market. If the stock market goes into
Speaker 2: a COVID freefall, then micro strategy is really in trouble
Speaker 2: because bitcoin is high beta to the stocks. So that's
Speaker 2: my point on you got to really have a negative
Speaker 2: view of the stock market having a COVID like month
Speaker 2: to think this is going to blow up.
Speaker 4: I will just add if you look in December the
Speaker 4: leverage micro strategy ETFs, those are down like forty percent
Speaker 4: plus and that was just a run of the mill pullback.
Speaker 4: In the broader market.
Speaker 2: Negative went up forty percent and that these people already
Speaker 2: love that. That's like a good day for these traders.
Speaker 2: But again it would take us sustain like a couple
Speaker 2: of days, a couple of weeks I think, before this
Speaker 2: thing's But that's why I'm not betting steak dinner, Nate.
Speaker 2: I would just say I would take the under.
Speaker 4: Okay, So how about we bet we bet a nice
Speaker 4: glass of wine along with the steak dinner.
Speaker 5: On this one?
Speaker 2: Okay, dessert there any I'll get you. I'll get you
Speaker 2: a Chief's cake. No, not a whole cake, just the
Speaker 2: slice with the Chiefs colors. He's cake, He's look. The
Speaker 2: Chiefs are the new Yankees and Duke the most annoying
Speaker 2: sports fan on earth are aren't you sick of Patrick
Speaker 2: mahomes stupid snake farm commercials? And then Andy Reed completely
Speaker 2: embarrassing himself coming in, Oh, where's the chicken nuggets? It's like,
Speaker 2: get these people off TV?
Speaker 5: Yes, all right, hey, Jola.
Speaker 4: Fun fact is that Eric has lost another bet to
Speaker 4: me in the past, and I am the proud owner
Speaker 4: of a Patrick Mahomes.
Speaker 5: That's why I'm like, I am bloodthirsty.
Speaker 2: All right?
Speaker 1: On that note, Nate Jracy, thanks so much for joining
Speaker 1: us on Trillions, Phil Donna, welcome back.
Speaker 3: Thank you go Bills.
Speaker 1: Thanks for listening to Trillions. Until next time. You can
Speaker 1: find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify,
Speaker 1: or wherever you'd like to listen. We'd love to hear
Speaker 1: from you. We're on Twitter. I'm at Joel Webber Show.
Speaker 1: He's at Eric Balchunas. This episode of Trillions was produced
Speaker 1: by Magnus Hendrickson. Bye.