WEBVTT - ETF Regime Ch-Ch-Ch-Changes 0:00:06.120 --> 0:00:12.119 Welcome Trillians. I'm Joel Webber and I'm Eric Beltunas Eric, 0:00:12.160 --> 0:00:15.160 the markets have not been going completely like they've been 0:00:15.200 --> 0:00:18.599 doing for the past ten years. Yeah, I mean sixteen 0:00:18.720 --> 0:00:24.360 was utopiaen was utopia squared. This year's like reality what happened? 0:00:25.800 --> 0:00:27.639 I mean, there's a lot of theories, a lot of 0:00:27.640 --> 0:00:29.680 things going on. FED. The FED his raised rates on 0:00:29.720 --> 0:00:31.560 the short end of the curve. That's been one thing, 0:00:31.600 --> 0:00:33.760 which is trade war. There's a trade war, although I 0:00:33.760 --> 0:00:36.800 think that's overrated. Earnings haven't been as good. I think 0:00:36.800 --> 0:00:38.839 that's probably the bigger one. And I also think just 0:00:39.560 --> 0:00:43.440 investors are under They acknowledge the market has been so 0:00:43.560 --> 0:00:46.240 good for ten years, and I think that that weighs 0:00:46.240 --> 0:00:48.600 on people. You know, you know what, I got a 0:00:48.680 --> 0:00:51.280 nice amount of profits, so I think that all combined 0:00:52.000 --> 0:00:56.000 probably equals this sort of um change in mindset. And 0:00:56.040 --> 0:00:57.800 you can see this change in mindset in the e 0:00:57.840 --> 0:01:00.920 t F flows with what we're calling regime changes. Uh, 0:01:00.920 --> 0:01:04.080 it's not the typical year where you know, a good headline, 0:01:04.200 --> 0:01:07.800 you see all this money rush into the SNPTFS bad headline. 0:01:07.920 --> 0:01:09.880 It all comes out. You see a little of that, 0:01:10.240 --> 0:01:13.480 but underneath you see some real different dynamics going on 0:01:13.600 --> 0:01:16.560 that is very, very different, and it could be the 0:01:16.640 --> 0:01:21.320 transition year to a sort of more rougher, different kind 0:01:21.319 --> 0:01:24.200 of defensive future, not that we know, but we don't know, 0:01:24.319 --> 0:01:27.760 but it the flows feel and look different. And joining 0:01:27.840 --> 0:01:30.760 us for this episode Caroline Wilson, who's a reporter with 0:01:30.800 --> 0:01:33.920 Bloomberg News covering e t fs, and Tom Sara Vegas 0:01:33.959 --> 0:01:36.920 with Bloomberg Intelligence. Both of them have been on the 0:01:36.920 --> 0:01:46.679 show before. Welcompareds this time on Trilliance Regime changes. Tom, 0:01:46.720 --> 0:01:50.320 you do a lot of charts at Bloomberg Intelligence, Eric says, 0:01:50.400 --> 0:01:52.360 this is a top five for the year. What did 0:01:52.360 --> 0:01:55.160 you recently chart? This is a big year for e 0:01:55.240 --> 0:01:57.400 t s. I think there's this chart shorter sort of 0:01:57.440 --> 0:02:00.560 tells a few different stories. Is one, the market is 0:02:00.720 --> 0:02:02.520 a lot more volader than it was in past years, 0:02:02.520 --> 0:02:05.600 but overall ETFs are still taking in money, right, so 0:02:05.640 --> 0:02:07.919 it's still positive on there. It's not like everyone's flocking 0:02:07.920 --> 0:02:10.640 out of ETFs. But also there's a lot of like 0:02:10.760 --> 0:02:13.440 sort of rejiggering going on, and I think that speaks 0:02:13.440 --> 0:02:15.799 a lot to the way e t s are being 0:02:15.880 --> 0:02:18.079 used right very actively. It's not just your buying sp 0:02:18.120 --> 0:02:20.639 F a hundred. That's it just et F investors themselves 0:02:20.680 --> 0:02:23.160 are being very tactical on how they're allocating money. So 0:02:23.200 --> 0:02:25.919 what I looked at was, with all the volatility this year, 0:02:26.200 --> 0:02:28.760 let's look at the more defensive areas of the market. Right, 0:02:28.880 --> 0:02:33.280 so like boring sectors like utilities, low volley, tfs, etcetera. 0:02:33.760 --> 0:02:37.560 Um As a percentage basis, everyone's been going into those areas, right. 0:02:38.160 --> 0:02:40.080 Tech has been so hot for such a long time 0:02:40.280 --> 0:02:42.760 the market genergist here sort of pulled everyone to go 0:02:42.800 --> 0:02:44.960 to these more safer areas of the market. So on 0:02:45.040 --> 0:02:48.320 a percentage basis, it's actually one of the highest flocks 0:02:48.320 --> 0:02:50.760 of these defensive areas of the market that we've ever seen. 0:02:51.040 --> 0:02:53.480 And was this a like a Q one, Q two, 0:02:53.560 --> 0:02:55.880 Q three thing or like a Q three thing. It 0:02:55.919 --> 0:02:57.520 was really in the second half of the year, it's 0:02:57.520 --> 0:02:59.919 like Q three, right, and then also with October and 0:03:00.000 --> 0:03:03.079 then even November, so that really helped accelerated to a lot. 0:03:03.120 --> 0:03:04.880 And like even now in December, I mean, the market 0:03:04.919 --> 0:03:07.800 has been pretty volatile, so it's it's we're still seeing 0:03:07.800 --> 0:03:10.079 money sort of fall into these defensive areas. And Eric, 0:03:10.080 --> 0:03:13.160 what did you think when you saw that. Uh well, 0:03:13.160 --> 0:03:16.040 we discussed this and we thought, let's just group everything 0:03:16.080 --> 0:03:19.560 into defensive versus more offensive. Gold is in there too, 0:03:19.600 --> 0:03:23.800 by the way, that's been doing okay, is of the 0:03:23.800 --> 0:03:25.600 flows going into e t f s in the fourth 0:03:25.680 --> 0:03:27.760 quarter have gone into these defensive e t f s. 0:03:28.160 --> 0:03:31.320 That's up from what almost nothing right, And it's hit 0:03:31.400 --> 0:03:33.600 this point a couple of times in the past ten years. 0:03:34.000 --> 0:03:37.000 When else did it hit about number sure, and it 0:03:37.080 --> 0:03:39.960 was sort of coincided with like in two thousand eleven 0:03:39.960 --> 0:03:41.840 the market was down right, we had the beginning of 0:03:41.880 --> 0:03:44.440 two thousand and sixteen the market was really volatile, but 0:03:44.440 --> 0:03:46.160 there was also a lot of other things happening to 0:03:46.240 --> 0:03:48.000 Like remember a couple of years ago, like the Taper 0:03:48.080 --> 0:03:50.120 tantrum was like a really big thing when rates would 0:03:50.160 --> 0:03:52.400 go up and the market was trading around it, um 0:03:52.400 --> 0:03:54.920 money would flock into like really short term areas, like 0:03:54.920 --> 0:03:57.200 like the fixed income market. But most of the time 0:03:57.320 --> 0:03:59.720 this has been associated with with the market going down. 0:04:00.080 --> 0:04:01.880 And I think Tom brings up a good point, which 0:04:01.920 --> 0:04:05.200 is especially on Twitter, I hear this a lot. People's like, oh, 0:04:05.240 --> 0:04:09.120 wait until the passive bubble pops, or wait until the 0:04:09.200 --> 0:04:12.200 SMP or beta stops working. But passive and e t 0:04:12.360 --> 0:04:16.200 f aren't just equity beta. They actually make products to 0:04:16.360 --> 0:04:21.280 play or hedge against equity beta falling, like cash like ETFs, 0:04:21.839 --> 0:04:25.120 hedge fund like e t f s, gold alternatives. So 0:04:25.160 --> 0:04:28.440 I think that's the two seventy into et f this year, 0:04:28.720 --> 0:04:30.719 and a lot of it going into defensive speaks to 0:04:30.880 --> 0:04:33.640 e t f s providing the tools for any kind 0:04:33.640 --> 0:04:37.520 of market, and the bigger area of that defensive is 0:04:37.600 --> 0:04:40.200 short term and ultra short term dead. Etfcs are very 0:04:40.200 --> 0:04:45.000 boring and they hold treasuries sometimes corporates Carolina um. In 0:04:45.040 --> 0:04:47.039 my opinion, this is probably the flow story of the year. 0:04:47.200 --> 0:04:50.440 Is the money into these really safe and boring? Why 0:04:50.880 --> 0:04:53.599 the surgeon to these and which ones are seeing action? 0:04:53.880 --> 0:04:55.800 This is something that you've written about too a lot, 0:04:55.839 --> 0:04:58.159 and thanks for for setting this up to be so boring. 0:04:58.240 --> 0:05:02.839 But everyone can doze off now. No, but Joel was 0:05:02.880 --> 0:05:04.840 mentioning or asking is this a Q one, a Q 0:05:05.000 --> 0:05:06.880 two or Q three thing? I mean, it's been an 0:05:06.880 --> 0:05:10.120 absolute craze these flows into this area of the fixed 0:05:10.120 --> 0:05:12.080 thing called market all year. It's been a hot spot. 0:05:12.120 --> 0:05:13.680 I mean to give you a little size and scope 0:05:14.000 --> 0:05:16.560 because it really just has been massive. Funds tracking not 0:05:16.600 --> 0:05:19.120 a Bloomberg news story unless it has size and scope exactly, 0:05:19.080 --> 0:05:21.880 and it doesn't if it doesn't have the word massive superlative. 0:05:22.480 --> 0:05:27.000 Most since exactly, funds tracking ultrashort bonds have taken in 0:05:27.000 --> 0:05:29.840 close to thirty billion dollars this year UM. So that's 0:05:29.839 --> 0:05:32.800 not only a clear record for the category for any 0:05:32.800 --> 0:05:35.160 other year, but it's also so much more than the 0:05:35.560 --> 0:05:38.719 second most year, which was when they only took in 0:05:38.839 --> 0:05:41.400 nine billion dollars. So we're talking about thirty billion this 0:05:41.480 --> 0:05:44.880 year compared to that nine billion. And so why do 0:05:44.960 --> 0:05:47.280 these funds learn so much cash? I mean, as the 0:05:47.360 --> 0:05:50.159 yield curve flattens, bonds on the shorter end of the 0:05:50.200 --> 0:05:53.359 curve are just more attractive from a yield perspective, So 0:05:53.360 --> 0:05:56.799 why would you not opt for a strategy offering less 0:05:56.960 --> 0:06:00.760 duration risk? And so investors race to the end and 0:06:00.839 --> 0:06:03.599 howe how short are we talking? So I like to 0:06:03.600 --> 0:06:06.200 call them the Fab five. These are the five funds 0:06:06.240 --> 0:06:08.640 that I really can't write about flows into one without 0:06:08.640 --> 0:06:10.400 writing about flows into all. Five of them were the 0:06:10.400 --> 0:06:13.640 Fab five In e t F bill, that's the Spider 0:06:13.680 --> 0:06:16.359 Barclays one to three month t bill very ultra short 0:06:16.520 --> 0:06:19.360 g bill that's the Goldman Sacks that's zero to one year, 0:06:19.440 --> 0:06:22.440 a little more exciting, JP s T, JP Morgan ultra 0:06:22.520 --> 0:06:24.960 short income shy, the I shares one to three year. 0:06:25.000 --> 0:06:26.960 Now we're going out in duration a little bit more 0:06:27.200 --> 0:06:29.719 still short term but not ultra short and near the 0:06:29.800 --> 0:06:33.480 A shares short maturity bond ETF and talk about near 0:06:33.520 --> 0:06:36.320 a little bit. That one's active, right, So within this 0:06:36.400 --> 0:06:40.520 rush to protect yourself from equity shocks to go short 0:06:40.600 --> 0:06:44.120 term and also the yield you get, right, active has 0:06:44.160 --> 0:06:47.000 these active has done well in these categories right, better 0:06:47.000 --> 0:06:50.000 than other categories. And so that's interesting because from fixed 0:06:50.040 --> 0:06:52.200 income more largely, I know that you like to bring 0:06:52.279 --> 0:06:55.000 up this idea about active and passive in the space, 0:06:55.040 --> 0:06:57.679 and these bond funds that have done well and they're active, 0:06:57.760 --> 0:07:00.240 it's because they've dipped into high yield a little bit. 0:07:00.279 --> 0:07:01.960 But it brings up a good question about whether or 0:07:01.960 --> 0:07:04.159 not that's something that can be indexed, right, Like can't 0:07:04.160 --> 0:07:06.200 we just index that instead of having to rely on 0:07:06.240 --> 0:07:09.280 the actively managed strategy? I think mint and near right 0:07:09.320 --> 0:07:11.880 are the two and jps T, yeah, those are all active. 0:07:12.480 --> 0:07:14.280 I think they're all like what a duration of less 0:07:14.280 --> 0:07:15.920 than a year. But they can do corporates, they can 0:07:15.920 --> 0:07:17.960 go international. They're just trying to squeeze out like one 0:07:17.960 --> 0:07:24.600 point five yield. So Tom, that maybe is not that 0:07:24.760 --> 0:07:28.240 surprising that fixed income would be a place that would 0:07:28.280 --> 0:07:32.440 get see a lot of inflows. Um as people go defensive. 0:07:32.640 --> 0:07:36.480 What's something that was surprising to you? What, let's taken 0:07:36.640 --> 0:07:39.400 fixed income right. So with so there was almost this 0:07:39.440 --> 0:07:42.480 perfect storm this year for these products. You had interest 0:07:42.560 --> 0:07:45.480 rates going up, right, so that hurt fixed income ETFs. 0:07:45.560 --> 0:07:47.600 So people are trying to shorten the duration they went 0:07:47.640 --> 0:07:50.040 into that. But also they go to these products when 0:07:50.080 --> 0:07:52.120 the equity market is a little bit floppy, right, So 0:07:52.120 --> 0:07:54.280 you sort of have two avenues that are feeding into 0:07:54.320 --> 0:07:58.360 the short term debt products. But before this whole story, 0:07:58.360 --> 0:08:00.280 if you remember, like everyone was saying, oh, rates are 0:08:00.280 --> 0:08:01.560 gonna go up, Rates are gonna go up, So all 0:08:01.560 --> 0:08:04.320 these products had come out before that saying hey, you 0:08:04.320 --> 0:08:06.320 can still buy your bonds, but we're going to hedge 0:08:06.320 --> 0:08:09.080 out all that interest rate risk. So these slew of 0:08:09.120 --> 0:08:11.800 products come out that just interest rate hedge. I thought 0:08:11.840 --> 0:08:13.720 these were going to take off, especially with like the 0:08:13.800 --> 0:08:17.480 environment this year, those have been really underwhelming, like just 0:08:17.640 --> 0:08:20.560 there's not a lot of interest in those products. I 0:08:20.600 --> 0:08:23.400 think what's been happening is investors are just saying, you 0:08:23.400 --> 0:08:26.160 know what, I'm gonna sell my long term that etfn't 0:08:26.200 --> 0:08:28.400 just going to these short ones, because that's actually what's happening. 0:08:28.640 --> 0:08:30.480 No one seems to be buying these ones. That it's 0:08:30.520 --> 0:08:32.880 sort of like doing it for you, um, sort of 0:08:32.920 --> 0:08:34.800 like a one stop solution. I was sort of just 0:08:34.920 --> 0:08:37.439 moving money themselves a little bit shorter and let me 0:08:37.520 --> 0:08:39.600 jump in. L q D H, which is the hedge 0:08:39.679 --> 0:08:42.480 version of l q D is flat. L q D 0:08:42.559 --> 0:08:45.440 is down four point four, so it didn't have the 0:08:46.200 --> 0:08:49.000 it didn't have that breakaway that the currency hedged et 0:08:49.160 --> 0:08:51.800 s did, were they almost like doubled the non hedged one. 0:08:52.480 --> 0:08:54.320 I just think the breakaway might have to be a 0:08:54.320 --> 0:08:58.280 little bigger. And you know, I don't shiny object ish 0:08:58.440 --> 0:09:00.520 for for that. And you're right, there's more choices I 0:09:00.559 --> 0:09:03.280 think for on the bond side to hedge besides the 0:09:03.280 --> 0:09:05.920 interest rate hedge. But I agree these things were made 0:09:05.920 --> 0:09:09.600 for this moment and they're not really getting much action. Yeah, 0:09:09.600 --> 0:09:12.360 and it's sort of UM goes back to about the 0:09:12.360 --> 0:09:14.520 currency hedge stuff. Like that's a package trade, right, so 0:09:14.520 --> 0:09:16.400 it's doing it for you, same with these products. So 0:09:16.440 --> 0:09:18.520 it's just maybe it's not like it's not enough juice 0:09:18.559 --> 0:09:20.280 in the last like couple, you know, last year or 0:09:20.280 --> 0:09:22.720 so to spark enough interest. And there's just so many 0:09:22.760 --> 0:09:25.040 market concerns right now, right, I mean, raising rates is 0:09:25.040 --> 0:09:27.240 one of them, but there's also slow and global growth, 0:09:27.240 --> 0:09:30.600 there's trade war attention, so people are finding ways to 0:09:30.720 --> 0:09:33.599 find safety depending on what which risks they perceived to 0:09:33.640 --> 0:09:35.960 be greater. Yeah, I mean if you look at the 0:09:36.000 --> 0:09:39.559 best performing ETFs of the year, these again these boring 0:09:39.559 --> 0:09:42.760 ETFs that are short termed, they're actually like all in 0:09:42.760 --> 0:09:45.800 the top best performing there, in the top quartile or 0:09:45.840 --> 0:09:48.600 top ten percent of that, and so they're not really 0:09:48.640 --> 0:09:51.320 boring in that regard there. And this is why Todd 0:09:51.400 --> 0:09:54.480 rosen Bluth he has a problem with me calling this 0:09:54.559 --> 0:09:57.720 a craze, like the way people went into currency hedgettfs 0:09:57.800 --> 0:10:00.800 or low vall back. I do consider this a craze 0:10:00.840 --> 0:10:02.800 because I think this is performance chasing in a way. 0:10:03.080 --> 0:10:05.559 It just is performance chasing and something that doesn't seem 0:10:05.600 --> 0:10:08.000 like that. But I would argue probably half the money 0:10:08.040 --> 0:10:10.880 will leave if other things get better. I don't think 0:10:10.880 --> 0:10:13.679 this is sticky money. I think this is mostly temporary, 0:10:14.080 --> 0:10:16.880 and thus craze is apropos. But I could see why 0:10:17.040 --> 0:10:18.640 you would be like, how can it be a craze 0:10:18.679 --> 0:10:29.000 going into treasuries? What else have people been doing when 0:10:29.000 --> 0:10:30.760 you look at it from a strategic level, where else 0:10:30.760 --> 0:10:32.920 are they going other than sort of the short term 0:10:33.040 --> 0:10:36.839 duration fixed income stuff. So let's go to equities, right, 0:10:36.840 --> 0:10:39.760 So even though the market has been down and pretty void, 0:10:40.120 --> 0:10:42.600 moneys still sort of been shifting even within equities. Um, 0:10:42.640 --> 0:10:45.160 let's talking about factors, so like lovall, so these are 0:10:45.200 --> 0:10:47.200 gonna be stocks that are gonna drop blessed in the 0:10:47.240 --> 0:10:49.640 market or whatnot. It's sort of expected. We see it 0:10:49.679 --> 0:10:51.760 in other years when the market goes down, money sort 0:10:51.760 --> 0:10:54.200 of poles into these products. So that's been happening to 0:10:54.760 --> 0:10:58.080 And then also like value, like there's this whole thing 0:10:58.120 --> 0:11:00.679 about value has been under performing for all along, and 0:11:00.920 --> 0:11:03.439 when the market goes down, people sort of switch and saying, hey, 0:11:03.520 --> 0:11:05.360 maybe I'm gonna go buy the cheap stuff, right the 0:11:05.440 --> 0:11:08.280 more like attractively valued stuff. So there's been a pretty 0:11:08.400 --> 0:11:12.520 substantial uptake and value, like the value factor value focused 0:11:12.559 --> 0:11:16.280 ets too. Um so value is one, and then you've 0:11:16.280 --> 0:11:20.160 also seen some action into quality and low volatility factor 0:11:20.240 --> 0:11:22.320 et f s. Right, so if we go those are 0:11:22.320 --> 0:11:25.800 more of the sort of conservative factors and growth e 0:11:25.960 --> 0:11:28.640 t f s have seen outflows and even momentum had 0:11:28.640 --> 0:11:31.240 a good first start but has been struggling a little 0:11:31.240 --> 0:11:34.280 bit in the in the second half. Yeah, exactly. Momentum 0:11:34.280 --> 0:11:36.720 it was like tooken so much money early in the years, 0:11:36.720 --> 0:11:38.839 so still on the year, I think it's the best, 0:11:38.960 --> 0:11:40.600 like has taken in more money in the end of 0:11:40.600 --> 0:11:42.640 the factor, but sort of in this last quarter it's 0:11:42.679 --> 0:11:45.480 been a brittick shift. And just a quick note on this, 0:11:46.080 --> 0:11:51.240 Momentum is just performance chasing. So momentum is actually starting 0:11:51.280 --> 0:11:55.640 to rebalance into value stocks because they're getting hot. Growth 0:11:55.720 --> 0:11:59.280 is looking at more tech stocks, higher p ratio stocks. 0:12:00.120 --> 0:12:02.760 Growth has beaten value for ten years, and that if 0:12:02.880 --> 0:12:06.480 value starts to outperform growth, that could be a regime 0:12:06.600 --> 0:12:08.680 change they could lock in for a decade. I mean, 0:12:08.720 --> 0:12:11.880 that's I think the kind of regime change that could happen. 0:12:12.320 --> 0:12:14.800 We don't know, but that would be a major one. 0:12:14.880 --> 0:12:22.880 Does it wear a yellow vest that's a third rail? Yeah, sorry, 0:12:22.880 --> 0:12:25.800 there you go. Definition third rail right there, curly and 0:12:25.840 --> 0:12:29.000 what else has caught your eye? Well, momentum sideways nicely 0:12:29.040 --> 0:12:32.640 into what I was gonna say about healthcare, because there's 0:12:32.679 --> 0:12:35.120 my word massive again, the massive mode could get some 0:12:35.200 --> 0:12:41.640 size and scope you a little size and scope. All 0:12:41.640 --> 0:12:44.640 thetfs tracking the healthcare sector have taken in more than 0:12:44.720 --> 0:12:47.360 eight billion dollars this year. So that's a record year 0:12:47.360 --> 0:12:50.800 of influence for the sector. And back to my momentum point, 0:12:50.880 --> 0:12:53.160 m t U M, the the big I shares momentum 0:12:53.160 --> 0:12:57.400 ETF really boosted in its recent rebalancing its exposure to healthcare. 0:12:57.440 --> 0:13:00.360 So you have some of these drugmakers Mark Fiser, Eli, 0:13:00.400 --> 0:13:03.520 Lily all having their shares explode to the highest level 0:13:03.600 --> 0:13:05.720 in more than seventeen years. And all of those names 0:13:05.720 --> 0:13:08.400 were added recently to m t U M. So there's 0:13:08.440 --> 0:13:12.200 another example of investors looking for a traditionally defensive sector 0:13:12.440 --> 0:13:15.640 like healthcare, but also going there for the performance chasing 0:13:15.679 --> 0:13:18.440 for that yield play. And let's talk about utilities, right, 0:13:18.520 --> 0:13:20.640 talk about I mean, if we're gonna talk boring, that's 0:13:20.640 --> 0:13:24.720 probably the most boring sector. Que we all agree with that, yes, okay, 0:13:24.720 --> 0:13:27.560 but they're hot, right, They're out performing tech um and 0:13:27.640 --> 0:13:29.640 we're seeing money go there right right, Also a lot 0:13:29.679 --> 0:13:31.600 of money going into that. Xl U is sort of 0:13:31.600 --> 0:13:34.520 the poster child there. That's the spider utilities E t 0:13:34.679 --> 0:13:38.000 F and also consumer staples another very sort of safe sector. 0:13:38.160 --> 0:13:41.080 And what's in that when you look at what utility 0:13:41.080 --> 0:13:43.760 e t F holds, what where do you see them 0:13:43.800 --> 0:13:47.400 putting the most of their money? Uh? Well, XLU will 0:13:47.440 --> 0:13:50.360 be a pretty concentrated portfolio. I think it's about thirty stocks. 0:13:50.760 --> 0:13:52.760 I can name name a couple, but just real quick, 0:13:52.920 --> 0:13:55.280 xl U is up ten point six percent this year, 0:13:55.840 --> 0:13:58.760 I mean considering the markets flat and it looks like 0:13:58.800 --> 0:14:01.560 tech is up three percent. That some major outperformance there. 0:14:01.920 --> 0:14:05.800 Again back to if utilities start to permanently outperformed tech 0:14:06.080 --> 0:14:09.120 and communications, which have destroyed it for ten years, that 0:14:09.200 --> 0:14:17.440 again would be an amazing change of events. One more thing, Um, 0:14:17.480 --> 0:14:19.400 I want to go to Tom on this. So Tom, 0:14:19.440 --> 0:14:21.640 you actually looked, and I love this deck you did 0:14:21.640 --> 0:14:25.840 where you looked at the non cyclical sectors like utility, 0:14:25.880 --> 0:14:30.520 staples and healthcare for the took in the most relative 0:14:30.600 --> 0:14:33.040 to the cyclicals. Right in the what was there? What 0:14:33.080 --> 0:14:35.360 was the superlatical that most in a couple of years. Yeah, 0:14:35.360 --> 0:14:36.960 And that's good context because I would like to look 0:14:37.000 --> 0:14:38.520 at relative to each other, right, because you can just 0:14:38.520 --> 0:14:40.280 throw out an absolute number. So I looked at it 0:14:40.320 --> 0:14:44.320 relative to like tech, uh, like the really cyclical sectors 0:14:44.440 --> 0:14:47.360 versus the defensive. And it's been three months in favor 0:14:47.440 --> 0:14:49.800 of the defensive. So it's been like this total buzz 0:14:49.840 --> 0:14:52.560 kill for the last like three months. But the spread 0:14:52.560 --> 0:14:55.320 has been really wide too, So it would be really 0:14:55.360 --> 0:14:57.920 interesting like sort of unwinding because so much money has 0:14:57.960 --> 0:15:00.640 gone into tech ETFs in these other sectors. We'll see 0:15:00.640 --> 0:15:03.200 how much of that shifts back into utilities because those 0:15:03.200 --> 0:15:06.240 sectors from an asset perspective is still pretty small. But 0:15:06.320 --> 0:15:07.960 it be interesting to see how much money sort of 0:15:08.240 --> 0:15:11.320 reallocates from tech and some of these other sectors into 0:15:11.480 --> 0:15:14.000 into staples and whatnot. So a lot of this stuff 0:15:14.000 --> 0:15:16.880 has been US centric. What about international? So we just 0:15:16.920 --> 0:15:19.920 wrote about this yesterday because there are investors that are 0:15:19.960 --> 0:15:23.360 just over the US market altility and they are piecing 0:15:23.440 --> 0:15:28.720 out and they are going global. How's that for headline writing? Um? 0:15:29.120 --> 0:15:32.560 So we wrote about the I Shares Fund with the 0:15:32.600 --> 0:15:35.040 ticker a c w X. So the e t F 0:15:35.080 --> 0:15:38.320 gives investors exposure to like virtually every corner of the 0:15:38.320 --> 0:15:41.920 globe except the US. Almost seventent of the holdings are 0:15:41.960 --> 0:15:45.320 in Japanese equities, a chunk in in the UK. And 0:15:45.360 --> 0:15:47.720 so traders say the US market is overvalued, right, so 0:15:47.760 --> 0:15:50.320 they want to take their bets elsewhere. Just a quick 0:15:50.320 --> 0:15:53.560 stat there, I V that's the I shares SMP value 0:15:53.600 --> 0:15:56.800 E t F. The average PE ratio there seventeen for 0:15:56.960 --> 0:15:59.440 a c w X, the x U S E t 0:15:59.600 --> 0:16:01.840 F the HP there is about twelve point five. So 0:16:01.920 --> 0:16:04.840 international stocks according to PE ratio is cheaper than US 0:16:04.920 --> 0:16:07.480 value stocks. And how much? How much? Were we talking 0:16:07.560 --> 0:16:10.640 from a flow perspective there? It was a record I 0:16:10.680 --> 0:16:16.040 don't have scope, alright, alright, I'll take it a c 0:16:16.320 --> 0:16:18.240 w X by the way, so we're talking everything about 0:16:18.280 --> 0:16:21.240 the US versus the US. The s p Y, which 0:16:21.240 --> 0:16:24.000 is the US is up six in the past five years. 0:16:24.040 --> 0:16:26.760 A c w X is only up eight percent. So 0:16:27.240 --> 0:16:30.960 you could see how this five to ten year period 0:16:31.000 --> 0:16:34.640 has been a one regime and it's been all basically 0:16:34.720 --> 0:16:39.840 tech US bullish. This If this flips in growth, you 0:16:39.880 --> 0:16:42.440 could see, you know, five or ten years and it 0:16:42.560 --> 0:16:43.960 might not. But that's why I think this is a 0:16:44.040 --> 0:16:47.360 very fascinating year. I've thought things were going to change 0:16:47.360 --> 0:16:49.720 before and they snap back to this sort of fang 0:16:49.800 --> 0:16:52.000 raw raw thing. But I don't know. This year feels 0:16:52.000 --> 0:16:55.040 different to me. Eric. You also think that there's a 0:16:55.080 --> 0:16:59.600 bigger backdrop to this, right, there is regime change going on, 0:17:00.080 --> 0:17:03.000 but there's something else. Yes, I do, because there's really 0:17:03.040 --> 0:17:05.919 two types of flows in my opinion. There's the trading 0:17:05.920 --> 0:17:09.520 crowd and there's the allocators. The trading crowd is gone. 0:17:09.880 --> 0:17:12.120 They have been spooked, and that's why you see money 0:17:12.119 --> 0:17:14.680 out of spy E M and E F A. Those 0:17:14.720 --> 0:17:18.120 are very liquid but a little more expensive. Allocators don't 0:17:18.119 --> 0:17:20.600 like them. They want the real cheap stuff. That's what's 0:17:20.680 --> 0:17:22.480 leading the flows. Even though some of that stuff is 0:17:22.520 --> 0:17:24.840 down like I E F A, I E M, G 0:17:25.119 --> 0:17:28.320 I V V, so allocators are still pouring into this 0:17:28.720 --> 0:17:32.200 the cheap etf So if you clear out the trading crowd, 0:17:32.200 --> 0:17:33.920 that's why the flows are a little down from last year. 0:17:33.960 --> 0:17:36.480 You have two dred and sixty five billion in flows, 0:17:37.640 --> 0:17:39.639 and then you add in index funds which took in 0:17:39.680 --> 0:17:42.119 about another one fifties, So your four hundred billion in 0:17:42.240 --> 0:17:48.000 quote passive flows. We looked at that number of those 0:17:48.119 --> 0:17:51.560 dollars are going to products that charge twenty basis points 0:17:51.600 --> 0:17:54.840 or less. That's the highest on record. In other words, 0:17:54.880 --> 0:17:57.760 the more volatile and wild it is out there, the 0:17:57.800 --> 0:18:00.000 more the trader trading crowd leaves, who buy the more 0:18:00.000 --> 0:18:03.400 expensive products, and the more cost matters to the allocators. 0:18:03.960 --> 0:18:07.359 And so this is a bigger climate change type issue 0:18:07.359 --> 0:18:09.480 for the asset management industry and probably speaks to why 0:18:09.520 --> 0:18:14.240 asset management stocks are struggling is because it is insatiable 0:18:14.400 --> 0:18:17.960 the obsession for cost that advisors and allocators have. And 0:18:18.000 --> 0:18:21.480 you don't see that as clearly until the trading crowd leaves, 0:18:21.480 --> 0:18:24.480 But when they're gone, that's all there is. And this 0:18:24.560 --> 0:18:26.840 is a This is the big, big trend that sort 0:18:26.840 --> 0:18:29.679 of has been going on the whole time, the vanguard effect. 0:18:29.680 --> 0:18:31.879 What have you. I feel like we could take a 0:18:31.880 --> 0:18:34.480 tour of the Natural History Museum and there'd be like 0:18:34.520 --> 0:18:38.080 a little diorama and you would like describe like, Okay, 0:18:38.160 --> 0:18:41.000 here are the hunter gatherers leaving the scene and there's 0:18:41.000 --> 0:18:44.200 a new regime taking over. This to me is a 0:18:44.240 --> 0:18:47.440 permanent change. We call it the Great cost Migration because 0:18:47.480 --> 0:18:50.480 it's great. It's about cost and it's migration, meaning it 0:18:50.560 --> 0:18:53.840 is permanent and high cost to low costs. Arguably the 0:18:53.920 --> 0:18:57.840 bigger or the more dead on trend and active passive 0:18:57.880 --> 0:19:00.200 I think active passive can be. It's a there's a 0:19:00.240 --> 0:19:02.080 lot of gray area in that. What do you guys 0:19:02.440 --> 0:19:05.200 think about this sort of cost thing? Is anything surprised 0:19:05.200 --> 0:19:07.720 you about that? No, it doesn't. And I think it's 0:19:07.720 --> 0:19:11.280 probably only going to accelerate, right because as these as 0:19:11.320 --> 0:19:14.800 these companies scale up, like they're gonna products gonna get cheaper, right, 0:19:14.880 --> 0:19:17.520 So they're gonna keep getting bigger. As money keeps going 0:19:17.520 --> 0:19:20.000 to the cheaper products, they're just gonna keep scaling and 0:19:20.000 --> 0:19:22.240 bigger and bigger um. And that's why they can offer 0:19:22.240 --> 0:19:24.360 it cheap, right, So like Vangor can offer really cheap. 0:19:24.359 --> 0:19:26.560 But as some of these other newer sponsors are taking 0:19:26.600 --> 0:19:29.080 in money um, their costs are probably gonna come down too. 0:19:29.119 --> 0:19:31.919 So this trends probably just gonna keep accelerating. And we 0:19:31.960 --> 0:19:34.040 even see the migration with hedge funds. I mean we 0:19:34.280 --> 0:19:36.440 sort of pour into the thirteen F filings to see 0:19:36.440 --> 0:19:38.679 how hedge funds are changing their et F exposures, and 0:19:38.720 --> 0:19:40.960 you see them out of E E M, which is 0:19:41.000 --> 0:19:44.160 the traditional I shares Emerging Markets fund and into i MG. 0:19:44.359 --> 0:19:49.360 So that's the cheaper core like smaller emerging markets. Even 0:19:49.359 --> 0:19:52.280 hedge funds are like they are, they go cheaper. Carolina, Tom, 0:19:52.400 --> 0:19:54.880 thanks for joining us and Trillion, Thanks for having thanks, 0:19:57.080 --> 0:20:00.040 thanks for listening to children. Until next time you and 0:20:00.040 --> 0:20:04.680 find us on the Bloomberg terminal, Bloomberg dot com, Apple podcast, Spotify, 0:20:05.119 --> 0:20:07.440