WEBVTT - Takeaways From the Carnage 0:00:07.160 --> 0:00:14.480 Welcome to Trilliance. I'm Joel Weber and I'm Eric val Tunis. Eric. 0:00:14.480 --> 0:00:18.439 I'm recording in my closet again. I'm in my home office, 0:00:18.480 --> 0:00:22.439 so you may hear uh yeah, you could hear some 0:00:22.520 --> 0:00:24.960 noises downstairs. Um. You know, we have a four year 0:00:24.960 --> 0:00:26.840 old and nine year old. Every now and then they 0:00:26.840 --> 0:00:30.240 get into it, but um, hopefully quiet. Speaking of which, 0:00:30.240 --> 0:00:34.240 how are you holding up good? I looked like Tom 0:00:34.280 --> 0:00:37.440 hankson cast Away rate when he discovered fire. Not quite 0:00:37.680 --> 0:00:42.800 you know, when he's spear fishing. But halfway through next week. Yeah, yeah, 0:00:42.840 --> 0:00:45.519 that's that's like end of April, I think. But I 0:00:45.960 --> 0:00:48.760 feel good. I you know, we're all healthy. We're just 0:00:48.840 --> 0:00:51.920 getting little cabin fever here that that beard looks healthy. Yeah. 0:00:52.080 --> 0:00:53.680 We have a four year old as well, and the 0:00:53.720 --> 0:00:55.720 four year old and the and the dog who a 0:00:55.760 --> 0:00:59.040 puppy who's one year old, both of which are testing 0:00:59.200 --> 0:01:02.240 our sanity. It good to see you, and um, I'm 0:01:02.240 --> 0:01:04.000 really excited to talk to you about what's been going 0:01:04.040 --> 0:01:07.399 on in in e t f Land of late. We'll 0:01:07.440 --> 0:01:11.360 bring in Tom saraphagus Um also in Bloomberg Intelligence with you, 0:01:11.880 --> 0:01:14.120 and we're gonna kind of get a rundown of what's 0:01:14.120 --> 0:01:16.920 been going on. Yeah, so let me give you insight 0:01:16.959 --> 0:01:21.720 into our research team. So, um, we have two continuous 0:01:21.800 --> 0:01:24.000 chats going on. One on an IB which is the 0:01:24.040 --> 0:01:29.280 Bloomberg terminal chat with me, Tom Morgan, and James. That's 0:01:29.280 --> 0:01:32.520 our four person team. And then we have a chat 0:01:32.560 --> 0:01:34.840 on Twitter in d M where we're throwing in people's 0:01:34.840 --> 0:01:38.040 tweets saying this is interesting, should we cover it? And 0:01:38.319 --> 0:01:40.959 I don't think both the chat rooms are as busy 0:01:40.959 --> 0:01:44.080 as as they've ever been. Um, even though we're we're 0:01:44.080 --> 0:01:47.000 all working from home and it's surreal and the streets 0:01:47.000 --> 0:01:49.960 are empty, we are as busy as we've ever been 0:01:50.040 --> 0:01:53.040 because of the sell off, because of e t s 0:01:53.080 --> 0:01:55.640 tend to be in the middle of this. They're so visible. 0:01:55.720 --> 0:01:59.520 Everybody talks about them. There's it just basically sell offs 0:01:59.560 --> 0:02:01.760 or rough your portfolio. But if you're in the business 0:02:01.840 --> 0:02:04.880 of content, they're they're actually very good because there's so 0:02:04.960 --> 0:02:07.040 much to write about and talk about now. So we're 0:02:07.080 --> 0:02:09.920 we're very busy and those chats are very busy. And uh, 0:02:09.960 --> 0:02:12.440 you know, it's good to get Tom on because he 0:02:12.680 --> 0:02:14.920 is he's been in He's a guy who's been in 0:02:14.919 --> 0:02:17.680 the industry as an issuer and at an exchange, and 0:02:17.760 --> 0:02:19.520 he's very good about bringing in some of that to 0:02:19.560 --> 0:02:22.760 our discussion. And it's a perfect time because we're literally 0:02:22.800 --> 0:02:26.960 we just saw like one of the most catastrophic quarters 0:02:27.000 --> 0:02:29.840 in investing history and we're at the beginning of Q two. 0:02:30.120 --> 0:02:32.120 By the way, Eric, I feel like you've been a 0:02:32.120 --> 0:02:35.600 little tone deaf just on how bad the virus is. 0:02:36.480 --> 0:02:39.200 Uh and uh, you know, I wanna just you know, 0:02:39.280 --> 0:02:41.480 straight up ask you, like, do you think the return 0:02:41.520 --> 0:02:45.200 to normal is going to happen in April? Um? Yeah, 0:02:45.240 --> 0:02:47.200 I have on the podcast where we had the guy 0:02:47.240 --> 0:02:49.240 from the bio thread E T f on, I think 0:02:49.320 --> 0:02:51.760 I said my fear level was like point five out 0:02:51.760 --> 0:02:56.320 of ten or something. Yeah, among the words yeah, you know. Um. 0:02:56.480 --> 0:02:58.760 I even got crap from my mom. She said, you're 0:02:59.040 --> 0:03:02.400 you sounded glit. You're not taking this seriously enough. That's 0:03:02.440 --> 0:03:04.760 when you know you probably went too far. Um. But 0:03:04.800 --> 0:03:07.080 at the time, I don't know, I just um, I 0:03:07.160 --> 0:03:08.840 was kind of in the It's like when your mom 0:03:08.840 --> 0:03:10.760 tells you you're an idiot. Yeah, I would say that 0:03:10.840 --> 0:03:14.880 you've gone too far. But I think what really turned 0:03:14.880 --> 0:03:18.239 me around is the obviously death there's the death rates 0:03:18.320 --> 0:03:20.520 higher than in the flu. And also, um, you know, 0:03:20.520 --> 0:03:22.799 when you think of elders like my mom, it really 0:03:22.840 --> 0:03:25.960 hits home. And I think I've definitely come around that said, 0:03:26.639 --> 0:03:30.040 I still think it's you know, May. I don't know. 0:03:30.040 --> 0:03:32.640 I've hear people say June. I still feel somewhat optimistic. 0:03:32.639 --> 0:03:35.440 And I'm just gonna do my part as a citizen 0:03:35.520 --> 0:03:38.000 and stop. I'm not commenting on it anymore. I don't 0:03:38.000 --> 0:03:40.160 know enough. I just lay off it. I'm just gonna 0:03:40.200 --> 0:03:42.880 do my part as a citizen and you know, uh 0:03:43.120 --> 0:03:47.760 say six six ft away from people and watch Netflix 0:03:51.880 --> 0:03:57.160 this time on trillions Takeaways from the Carnage, Tom, welcome 0:03:57.200 --> 0:04:01.040 back to Trillions. How's London, man, Yeah, London is great. Um, 0:04:01.080 --> 0:04:03.760 you know, we're obviously on lockdown like the rest of 0:04:03.800 --> 0:04:06.720 the world, but London's going going great. It's been like 0:04:06.760 --> 0:04:08.600 a full year I think since the last time I 0:04:08.640 --> 0:04:11.720 was on so one thing in New York. Um, I 0:04:11.760 --> 0:04:15.080 live in Brooklyn. I can get to go cocktails at 0:04:15.120 --> 0:04:17.159 a couple of places. For off, can you get to 0:04:17.160 --> 0:04:21.120 go pintes anywhere? Uh? But you can't. But luckily all 0:04:21.160 --> 0:04:24.679 the regular bodegas here or the Superman could sell beer, 0:04:24.720 --> 0:04:26.400 so it's really easy to be able to get uh, 0:04:26.560 --> 0:04:28.680 and not only beer, they sell hard liquor too, so 0:04:29.680 --> 0:04:31.960 fully stocked and I'm looking for you, so you're good. 0:04:32.560 --> 0:04:36.520 The clubs are closed though, right, yeah, clubs are closed. Um, 0:04:37.000 --> 0:04:39.000 they've got like a little bow speaker, So I just 0:04:39.240 --> 0:04:45.000 recreate my own clubs here by yourself. Okay, the Tom 0:04:45.040 --> 0:04:49.440 dance party. Okay, well maybe I'll ask to see that later, um, Eric, 0:04:49.480 --> 0:04:51.120 But there's about five topics I want to hit on 0:04:51.160 --> 0:04:55.960 in this episode. Number one is the FED. Yeah, so 0:04:56.120 --> 0:04:59.000 my initial takeaway is, you know, for about a month there, 0:04:59.760 --> 0:05:02.719 every anything was just brutal uh in the FED step. 0:05:02.760 --> 0:05:04.200 Then a couple of times, you know, they tried a 0:05:04.200 --> 0:05:06.839 couple of things, but we we you know, we look 0:05:06.880 --> 0:05:10.000 at the discount of a bond ETF it's price versus 0:05:10.080 --> 0:05:12.240 n A V as a sort of temperature gauge on 0:05:12.320 --> 0:05:14.880 how a liquid the underlying bond market is. And for 0:05:14.960 --> 0:05:17.279 most of the sell off that was of those discounts 0:05:17.279 --> 0:05:19.479 were there. The FED would come in here and there 0:05:19.560 --> 0:05:21.159 and it would close it for like a day or 0:05:21.240 --> 0:05:24.040 even an hour. But then they go back and it 0:05:24.120 --> 0:05:26.680 just told you that there's just weren't any buyers and 0:05:26.920 --> 0:05:30.719 for bonds, and that was a real problem for everybody. 0:05:30.839 --> 0:05:33.480 Then they came in UM with this sort of bazooka 0:05:33.560 --> 0:05:36.920 approach and just said, you know, we're we're here, We're here, 0:05:36.920 --> 0:05:38.599 We're gonna do whatever it takes. That kind of a 0:05:38.640 --> 0:05:42.239 deal a lot of trillions being used, and that really 0:05:42.279 --> 0:05:44.880 did change things. We saw a lot of those bond 0:05:44.880 --> 0:05:49.240 dislocations come in UM and we also even saw some 0:05:49.279 --> 0:05:51.960 people front run the FED, buying in e t f 0:05:52.040 --> 0:05:54.160 s like l q D. And what was also interesting 0:05:54.160 --> 0:05:56.920 about the FED is two things. Which is, first of all, 0:05:56.960 --> 0:06:00.640 not just that there you know, this powerful dying force 0:06:00.800 --> 0:06:02.719 that's sort of saying we're going to hold the aren't 0:06:02.760 --> 0:06:06.000 the hand of the industry here UM and make sure 0:06:06.040 --> 0:06:10.400 there's liquidity. But they're going to use e t s 0:06:10.440 --> 0:06:12.159 for the first time ever. This is something that Bank 0:06:12.200 --> 0:06:15.400 of Japan has done India, governments elsewhere in the world 0:06:15.400 --> 0:06:17.200 have used the t s as part of their policies. 0:06:17.480 --> 0:06:19.040 This is the first time the FED has done it. 0:06:19.040 --> 0:06:22.479 I think it's somewhat of a credibility moment. I guess 0:06:23.040 --> 0:06:25.320 that they're going to use this. They also said they're 0:06:25.320 --> 0:06:28.560 going to hire Blackrock as an advisor and help all 0:06:28.600 --> 0:06:32.320 of that, all of that, that's huge. Yeah. So so Tom, 0:06:32.360 --> 0:06:35.400 when you think about the FED stepping in and using 0:06:35.440 --> 0:06:37.279 e t f s, you know, what what do e 0:06:37.360 --> 0:06:40.200 t f s have to show right now? Yeah? I 0:06:40.240 --> 0:06:43.039 mean I think in in the main part, when you 0:06:43.080 --> 0:06:45.880 look at everything that's happened, right, I think a lot 0:06:45.920 --> 0:06:49.200 of active funds, oh thanks to e t s. And 0:06:49.480 --> 0:06:51.200 I know that's a bold statement, but if you look 0:06:51.200 --> 0:06:53.960 at et getting a lot of criticism about the discounts, right, 0:06:54.000 --> 0:06:55.640 they were saying, oh x y Z, et F was 0:06:55.680 --> 0:06:58.080 trading at a big discount. But if you actually look 0:06:58.200 --> 0:07:00.719 what was happening with active funds, right, a lot of 0:07:00.760 --> 0:07:03.839 their navs weren't being adjusted downward as fast as they 0:07:03.880 --> 0:07:05.920 were on the e t F, right, which are exchange traded. 0:07:06.160 --> 0:07:07.920 So really what was happening is the e t F 0:07:08.080 --> 0:07:11.760 was signaling potential problems in the underlying market. Right. If 0:07:11.760 --> 0:07:13.680 you were just looking at funds, you would say, oh, 0:07:13.720 --> 0:07:15.520 well things are down, they're not down as much. And 0:07:15.520 --> 0:07:16.920 if you look at the e t F you're like, wow, 0:07:16.960 --> 0:07:19.240 things are down probably a lot more than what some 0:07:19.280 --> 0:07:22.440 of these funds are indicating. So when the FED decided 0:07:22.480 --> 0:07:25.120 to come in and buy e t F and provide liquidity. 0:07:25.120 --> 0:07:27.440 Who I think some of the biggest beneficiaries of that 0:07:27.480 --> 0:07:30.320 we were mutual funds, right because they were just starting 0:07:30.360 --> 0:07:33.280 to see their navs come down um compared to e 0:07:33.320 --> 0:07:35.200 t F that we're settling this maybe a good week 0:07:35.280 --> 0:07:37.720 or so before. So I think that that, you know, 0:07:37.760 --> 0:07:40.080 active funds are a big thanks to the ETS by 0:07:40.120 --> 0:07:43.480 being able to to signal distress a lot sooner than 0:07:43.520 --> 0:07:47.320 they could have. Yeah, and the thing with active mutual 0:07:47.360 --> 0:07:51.040 funds is we look at flows in e t F 0:07:51.120 --> 0:07:53.559 s and they were actually positive in March as a whole. 0:07:53.560 --> 0:07:56.520 But bond ETF did see I think maybe ten billion 0:07:56.960 --> 0:08:01.160 over the month and outflows, but active on mutual funds 0:08:01.160 --> 0:08:03.640 saw a hundred and fifty billion and that was just 0:08:03.640 --> 0:08:08.040 through March, So they destroyed their monthly outflow record and 0:08:08.080 --> 0:08:10.200 the flows were getting worse and worse as the days 0:08:10.200 --> 0:08:13.560 went on, and we think, uh, you know, we we 0:08:13.600 --> 0:08:15.600 don't know exactly what went on, but we think that's 0:08:15.600 --> 0:08:18.480 probably something that FED was looking at because that's a 0:08:18.520 --> 0:08:21.080 lot of money. And those active funds are now going 0:08:21.160 --> 0:08:24.040 to they can't um, they have to sell the bonds 0:08:24.080 --> 0:08:27.000 into a market where nobody wants them, so that actually 0:08:27.040 --> 0:08:28.920 added to pressure, and then the e t F is 0:08:28.960 --> 0:08:32.080 downstream from that because all that selling pressure makes it 0:08:32.080 --> 0:08:35.199 harder to do arbitrage and the et F discount grows. 0:08:35.240 --> 0:08:39.320 So if if this the FED UH definitely helped ETFs, 0:08:39.360 --> 0:08:42.679 but they may have saved active mutual funds the bond side, 0:08:42.679 --> 0:08:45.800 because think about it, if the if they get to 0:08:45.840 --> 0:08:47.599 sell bonds where there's no buyers, they're gonna have to 0:08:47.640 --> 0:08:49.640 take bad prices. That's going to ratch it down the 0:08:49.720 --> 0:08:53.199 NAP further make their performance worse and probably trigger more outflows. 0:08:53.679 --> 0:08:58.200 That creates this sort of doom loop illiquidity doom loop 0:08:58.240 --> 0:09:00.120 that people sometimes tie with e t f s. I 0:09:00.160 --> 0:09:02.800 think that was potentially about to happen with some mutual funds. 0:09:02.840 --> 0:09:04.840 We saw a couple where there ana went from ten 0:09:04.880 --> 0:09:07.080 dollars to three dollars in a matter of a couple 0:09:07.120 --> 0:09:09.360 of days. Although those were in since some exotic stuff, 0:09:09.400 --> 0:09:11.200 but they were kind of canaries in the coal mine. 0:09:11.280 --> 0:09:15.200 So UM, I agree with Tom that mutual funds just 0:09:15.200 --> 0:09:18.439 just less attention paid to them, but they're way bigger, 0:09:18.600 --> 0:09:22.200 and I think they're the ones that really UH probably 0:09:22.200 --> 0:09:25.360 the biggest winner from the FED bailout. And what do 0:09:25.400 --> 0:09:27.559 you think of black Rock? I mean, this seems like 0:09:27.640 --> 0:09:29.520 a conflict of interest, right, How how are they going 0:09:29.559 --> 0:09:33.360 to navigate this? Look? I think, um, black Rock has 0:09:33.640 --> 0:09:36.240 to be very careful here not to look like there's 0:09:36.280 --> 0:09:38.560 conflict of interest. They've come out and said they're not 0:09:38.559 --> 0:09:41.160 going they're gonna wave the fee for any FED money 0:09:41.160 --> 0:09:43.839 that buys LQD or whatever e t f s. The 0:09:43.880 --> 0:09:45.480 other thing is you gotta remember the FED. I mean, 0:09:45.520 --> 0:09:47.480 how much are they putting in two trillion or something. 0:09:47.480 --> 0:09:50.520 It's the amount that they could possibly uses. I think 0:09:50.520 --> 0:09:53.720 the account they're going to use to buy bonds and 0:09:53.840 --> 0:09:55.720 e t f s is in the billions, and I 0:09:55.760 --> 0:09:59.240 think I think we whittled it down to it's possible 0:09:59.280 --> 0:10:01.120 a couple billion and get used on the e t 0:10:01.240 --> 0:10:04.600 f So we're talking, uh, speck of sand relative to 0:10:04.640 --> 0:10:08.000 their buying power and what they might ultimately buy. I 0:10:08.040 --> 0:10:10.079 think e t s they just wanted in the arsenal, 0:10:10.320 --> 0:10:12.280 so something they can do, and black Rock will have 0:10:12.320 --> 0:10:15.040 to be careful. They've done taken those steps to say, 0:10:15.040 --> 0:10:16.400 you know, we're not going to take fees if the 0:10:16.480 --> 0:10:20.000 FED buys our fund Um, and they'll have to make 0:10:20.000 --> 0:10:21.880 sure they keep doing that because a lot of people are, 0:10:21.960 --> 0:10:24.480 you know, kind of out there saying that, how could 0:10:24.559 --> 0:10:27.880 the FED have the biggest asset manager. Uh, we're you know, 0:10:28.000 --> 0:10:29.640 be so tied with him. And then the people point 0:10:29.679 --> 0:10:31.440 to two thousand and eight and say this, this is 0:10:31.440 --> 0:10:33.719 what happened back then and it worked out. So I 0:10:33.720 --> 0:10:37.000 don't know, there's a lot of debate over the whole thing. No, 0:10:37.120 --> 0:10:38.640 and I agree with Eric. And the other thing is 0:10:38.800 --> 0:10:40.480 you have to be realistic. If you look at the 0:10:40.480 --> 0:10:43.760 size of the fixed income ETF market, UM, black Rock 0:10:43.840 --> 0:10:46.440 is half of that market right between them and Vanguard 0:10:46.520 --> 0:10:48.640 like three quarters and the entire market. So really they 0:10:48.720 --> 0:10:52.240 are like the biggest issue of fixed income ets. They 0:10:52.240 --> 0:10:54.920 were the first they know that market really well. Um. 0:10:54.920 --> 0:10:57.600 I get how it looks optically, but realistically, either of 0:10:57.600 --> 0:10:59.960 them or Vanguard are the only ones that have products 0:11:00.000 --> 0:11:02.160 big enough that the STEAD bought and won't have any 0:11:02.200 --> 0:11:05.840 type of impact. Okay, topic number two, are there any 0:11:05.960 --> 0:11:11.280 signs of normalcy returning to the market right now? It's interesting, Um, 0:11:11.320 --> 0:11:13.400 the sell off did kind of have a break after 0:11:13.400 --> 0:11:16.120 the FED. I think everybody exhaled. I'm not sure it's over. 0:11:16.360 --> 0:11:18.880 Is this a as Rick Ferry put it, He's like 0:11:18.920 --> 0:11:20.720 it's like a roller coaster, you know, there was the 0:11:20.760 --> 0:11:24.240 first there's the the slow move up, the crazy dip down, 0:11:24.679 --> 0:11:26.839 and he thinks we're on that that little rise before 0:11:26.880 --> 0:11:29.440 you go down to the second little dipper. But anyway, 0:11:30.120 --> 0:11:32.319 who knows where we are. But we will say it's 0:11:32.320 --> 0:11:34.680 been a kind of a calmer last couple of days. 0:11:35.080 --> 0:11:37.400 And what we've seen is some normalcy return. For example, 0:11:37.440 --> 0:11:40.439 a five g e t F launched. That is something 0:11:40.480 --> 0:11:42.920 that is just that was happening dime a dozen a 0:11:42.920 --> 0:11:46.680 month ago. Right. We also saw I saw people start 0:11:46.760 --> 0:11:49.640 to debate e S g um. That's something everybody forgot about. 0:11:49.640 --> 0:11:51.320 Remember that was all we were talking about for a while. 0:11:51.640 --> 0:11:54.720 Spy volume got a little lower. We also saw the 0:11:55.000 --> 0:11:58.560 fact that ants active non transparent ETFs are going to launch. 0:11:59.200 --> 0:12:02.760 That's now back into uh, into the debate. So there 0:12:02.760 --> 0:12:05.160 were definitely some signs of normalcy and alb is refreshing. 0:12:05.200 --> 0:12:07.320 To be honest, does that mean the sell us over? 0:12:07.400 --> 0:12:10.480 I don't know, but certainly, uh the industry is trying 0:12:10.520 --> 0:12:13.120 to sort of move on. Uh. You know, even in 0:12:13.120 --> 0:12:17.000 the rubble tom which one stood out to you. Yeah, 0:12:17.040 --> 0:12:20.199 I think the ants ones that Eric mentioned are interesting 0:12:20.200 --> 0:12:23.200 because you had this like drought of not having any 0:12:23.200 --> 0:12:25.960 products launched in March. I think only three products launched 0:12:25.960 --> 0:12:28.360 the mark in March, so that five G one is 0:12:28.360 --> 0:12:30.160 going to sort of break the drought. But the fact 0:12:30.200 --> 0:12:33.080 that ants are coming into the market, now, Um, they 0:12:33.160 --> 0:12:35.920 delayed their launch before this sell off, but apparently they're 0:12:35.920 --> 0:12:38.680 sort of making a call, right, Um, ones are gonna 0:12:38.720 --> 0:12:41.079 be really managed. Their performance is going to be really 0:12:41.080 --> 0:12:43.760 important to how much money they raised, So they're probably 0:12:43.760 --> 0:12:45.400 thinking that, hey, maybe we're going to see a little 0:12:45.400 --> 0:12:47.600 bit of a reversal in the market. Let's ride this 0:12:47.679 --> 0:12:50.240 wave up. So I think the fact that these active 0:12:50.400 --> 0:12:53.520 non transparence are coming to market shows that maybe they're 0:12:53.559 --> 0:12:55.360 thinking that there could be a little bit of reversal 0:12:55.360 --> 0:12:56.640 in the market. But that was the one that really 0:12:56.679 --> 0:13:05.960 stood out to me. Okay, so that's an interesting transition 0:13:06.000 --> 0:13:08.360 to sort of like topic number three, which let's just 0:13:08.520 --> 0:13:11.760 call it winners and losers. Do you think active non 0:13:11.760 --> 0:13:15.800 transparent could be a potential winner in all of this? Uh? Yeah, 0:13:15.920 --> 0:13:17.839 I do, And I think they're a winner because they 0:13:18.000 --> 0:13:21.000 avoided what happened, right, So they were going to launch, 0:13:21.040 --> 0:13:22.760 they were scheduled of launched in February, they would have 0:13:22.840 --> 0:13:25.320 caught this downdraft. I think what could have happened to 0:13:25.360 --> 0:13:27.440 them is optically they would have faced a lot of 0:13:27.440 --> 0:13:30.800 the scrutiny that ets were getting about their discounts uh 0:13:30.880 --> 0:13:33.520 to NAB and whatnot, um and probably getting a little 0:13:33.520 --> 0:13:35.440 bit of criticism on how these things were going to trade. 0:13:35.920 --> 0:13:39.199 But then also they missed this huge downdraft of performance. 0:13:39.240 --> 0:13:42.240 And um, you know timing is important as well. There 0:13:42.280 --> 0:13:44.679 was just one e t F that launched right in February. 0:13:45.000 --> 0:13:46.959 It was probably the worst type of If they could 0:13:46.960 --> 0:13:49.559 have launched as a travel one and the ticker was 0:13:49.600 --> 0:13:55.200 away out of the gig, I think potentially ants could 0:13:55.200 --> 0:13:57.640 have the benefit of having really strong performance out of 0:13:57.640 --> 0:13:59.560 the gate. So I think that you potentially could be 0:13:59.640 --> 0:14:03.679 away ner I'm coming out of this. Who else strikes 0:14:03.720 --> 0:14:06.280 you as a winner and all of this, Um, you 0:14:06.320 --> 0:14:09.760 know that when I look at the league table of issuers, 0:14:09.800 --> 0:14:15.320 I see Vanguard, and I see these issuers of leverage products. 0:14:15.920 --> 0:14:19.000 It's interesting total bar belt, right, and we see this 0:14:19.160 --> 0:14:22.080 in if you break down flows by expense ratio buckets, 0:14:22.560 --> 0:14:24.640 all the money is going to stuff below twenty basis 0:14:24.640 --> 0:14:27.960 points as usual, or stuff over eight basis points, which 0:14:28.000 --> 0:14:30.800 is the trading tool, stuff like the you know, double 0:14:30.880 --> 0:14:34.320 leveraged to accuse and all this. UM. This kind of 0:14:34.320 --> 0:14:37.200 a sell off is great for those companies because the 0:14:37.320 --> 0:14:40.480 swoons up and down are where the adrenaline gets better 0:14:40.520 --> 0:14:44.600 for traders, so they tend to attract more money. UM. 0:14:44.720 --> 0:14:47.320 People love to play the swing back, and so this 0:14:47.360 --> 0:14:50.840 has been been like like a roller coaster is what 0:14:50.880 --> 0:14:55.760 they're looking for. Most investors don't want that Vanguard that 0:14:55.880 --> 0:14:57.920 it's just it's amazing what they do. We looked at 0:14:57.960 --> 0:15:00.000 Q one flows. I think ETS took in about six 0:15:00.040 --> 0:15:04.200 the six billion Vanguard took in se of that net number. 0:15:04.640 --> 0:15:09.560 That is a ridiculous amount. Normally they take in maybe UM. 0:15:09.680 --> 0:15:12.920 So Vanguard typically is always the big winner in bear 0:15:12.960 --> 0:15:16.240 markets and sell offs because everybody else is gets more 0:15:16.320 --> 0:15:18.560 hurt than they do, and they tend to just keep 0:15:18.640 --> 0:15:23.080 doing their thing so relatively, so their normal thing becomes 0:15:23.240 --> 0:15:26.960 strong when everyone else is suffering. That sort of signal 0:15:27.080 --> 0:15:30.800 that retail hasn't really freaked out that much on all 0:15:30.840 --> 0:15:33.360 of this. So that's a great question. I think it 0:15:33.600 --> 0:15:37.240 depends Uh. If you look at mutual funds again, the 0:15:37.400 --> 0:15:41.400 two billion out of mutual funds, uh this year so 0:15:41.440 --> 0:15:44.800 far active mutual funds, that's retail, That would tell you. 0:15:44.920 --> 0:15:48.280 But I find that active mutual funds have less loyalty 0:15:48.400 --> 0:15:51.640 then e T. People who buy Vanguards seek Vanguard out. 0:15:51.920 --> 0:15:54.080 They're not really like sold Vanguard. They seek it out. 0:15:54.440 --> 0:15:56.160 So when you seek it out and you know you 0:15:56.200 --> 0:15:58.960 want cheap, you're usually kind of investor who understands behavior 0:15:59.040 --> 0:16:01.480 and like not panicking and long term. So I just 0:16:01.520 --> 0:16:04.800 think Vanguard happens just attracts those types. So I would 0:16:04.800 --> 0:16:08.320 say the vanguard type retail investor not panicking. I would say, 0:16:08.720 --> 0:16:11.520 you know, the baby boomer who's close to retirement with 0:16:11.560 --> 0:16:14.080 some active mutual funds. We are seeing some signs that 0:16:14.120 --> 0:16:16.440 they are. Because the two billion out of active mutual 0:16:16.440 --> 0:16:18.920 funds is a ton. I mean, even in their worst 0:16:19.000 --> 0:16:22.400 year two eighteen, they saw just over double that. But 0:16:22.440 --> 0:16:25.400 that wasn't a year. This isn't a month, um, So 0:16:26.160 --> 0:16:29.040 I'm sorry, this is two billion years to date. Sorry, 0:16:29.080 --> 0:16:31.880 so in a quarter. Either way, it's a gigantic number, 0:16:32.600 --> 0:16:35.000 and I think it does show some some retails, you know, 0:16:35.600 --> 0:16:38.960 crackage and Tom who strikes you as a as a loser? 0:16:39.720 --> 0:16:42.200 I want to say State Street, But the thing is 0:16:42.800 --> 0:16:46.680 most of it is Spy, right, um, But Spy is 0:16:46.760 --> 0:16:49.280 so big and the sheer size of its flows go 0:16:49.440 --> 0:16:52.000 up and down. So like for example, in February UH 0:16:52.120 --> 0:16:55.120 it was the flow laggard and this list month it 0:16:55.160 --> 0:16:57.000 was a flow leader. But what tends to happen with 0:16:57.000 --> 0:16:59.520 State Street is a lot of their products are used 0:16:59.520 --> 0:17:03.400 for trade, but they slowly bleed assets. So, um, I 0:17:03.440 --> 0:17:06.359 think what ends up had happening Ultimately when the market 0:17:06.400 --> 0:17:09.320 sort of calms down and that trading advantage goes away 0:17:09.359 --> 0:17:11.760 for State Street, they sort of tend to lose assets 0:17:11.800 --> 0:17:14.159 a little bit, so they slowly bleed off some of 0:17:14.240 --> 0:17:17.359 the assets. Um when mark when assets sort of come 0:17:17.359 --> 0:17:20.639 back after these sharp sell offs. Interesting about State Street 0:17:20.760 --> 0:17:25.400 is if you look at the UH flows during the 0:17:25.400 --> 0:17:27.840 worst of the sell off, the number one flow getter 0:17:27.920 --> 0:17:31.080 was built, which is there one to three year month treasury, 0:17:31.119 --> 0:17:34.280 which is basically cash. Big surprise cashes the top of 0:17:34.280 --> 0:17:36.840 the list, but normally you'd see s h V or 0:17:36.920 --> 0:17:39.800 s h Y the I shares short term treasuries up there. 0:17:40.080 --> 0:17:42.960 The fact that Bill was able to outflow. Um I 0:17:43.119 --> 0:17:46.560 shares products. I thought was an interesting maneuver, and I 0:17:46.560 --> 0:17:49.400 think State Street was number one in March flows. So 0:17:49.880 --> 0:17:52.600 they've done better, I thought, than in past times when 0:17:52.640 --> 0:17:55.640 spy drags them down and they're negative. They've definitely sort 0:17:55.640 --> 0:17:57.280 of I think saw some reading on the wall a 0:17:57.320 --> 0:18:00.000 couple of years ago. They have cheap, dirt, cheap products 0:18:00.080 --> 0:18:02.639 now for the core and they're like really pushing some 0:18:02.720 --> 0:18:05.000 of the things, and um, it's it's working. I think 0:18:05.000 --> 0:18:07.360 they're less in the basement in the sell off thing 0:18:07.440 --> 0:18:12.040 they normally are. Okay, Topic number four Smart Beta. Okay, Tom, 0:18:12.080 --> 0:18:13.960 I really want to pick your brain about this because 0:18:14.040 --> 0:18:17.080 during the financial crisis, there was this moment called the 0:18:17.119 --> 0:18:21.239 immaculate rebalance, and here we are just at the end 0:18:21.280 --> 0:18:24.760 of Q one going into Q two. Smart beta basically 0:18:25.240 --> 0:18:28.119 is this robot that hits a reset button at moments 0:18:28.200 --> 0:18:31.720 like this. It just strikes me as this opportunity, like 0:18:31.760 --> 0:18:34.120 what can we learn from smart beta right now? Yeah, 0:18:34.119 --> 0:18:36.159 So you bring up an example in two thousand and 0:18:36.200 --> 0:18:38.959 eight where some of these smart beta funds bought financials 0:18:39.040 --> 0:18:41.159 right Worth. At the time, everyone was really afraid of 0:18:41.160 --> 0:18:43.040 owning those stocks. And I think we're seeing a similar 0:18:43.040 --> 0:18:45.919 parallel with some of the energy companies and especially some 0:18:45.960 --> 0:18:48.560 of the airlines. Right you sort of seeing people on 0:18:48.600 --> 0:18:51.000 Twitter just asking, oh, should I buy airlines? Is a 0:18:51.040 --> 0:18:54.680 good time. But because smart beta is emotionless and it's 0:18:54.680 --> 0:18:56.320 just rules based, what I think you're going to see 0:18:56.320 --> 0:18:59.119 potentially some of these value ets to some of these 0:18:59.200 --> 0:19:02.760 multi factor et take positions and somebody's really beaten down 0:19:02.840 --> 0:19:06.720 sectors like airlines, Um, maybe some energy. So if airlines 0:19:06.760 --> 0:19:08.679 do come back and you see these funds that had 0:19:08.720 --> 0:19:11.320 been rebalancing to them, I think potentially it could be 0:19:11.320 --> 0:19:14.520 a really good trade, just like it was in two 0:19:14.560 --> 0:19:16.399 thousand eight that ended up benefiting a lot of these 0:19:16.480 --> 0:19:20.960 multi factor funds that bought financials. The only caveat to 0:19:21.000 --> 0:19:24.119 that I would argue is that in two thousand and nine, 0:19:24.480 --> 0:19:27.760 I just remember literally everybody hated banks. They were scared 0:19:27.800 --> 0:19:30.320 of them. I don't know if people are scared of 0:19:30.359 --> 0:19:33.639 airlines that I did a poll yesterday asking people what 0:19:33.640 --> 0:19:35.960 what they thought the twelve month return of jets would be. 0:19:36.600 --> 0:19:40.040 You know, uh, and the majority picked over there was 0:19:40.040 --> 0:19:45.200 still half picked flat or negative. But um, a lot 0:19:45.200 --> 0:19:48.439 of people have optimism there. I think, Um, this is 0:19:48.560 --> 0:19:51.280 slightly different in that regard in terms of people's view 0:19:51.400 --> 0:19:54.359 on airlines versus banks. In two thousand nine that said, 0:19:54.920 --> 0:19:58.360 smart Beta, this is when they should shine because they're 0:19:58.359 --> 0:20:01.240