Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg BusinessWeek with Carol Masser and Tim Steneveek on Bloomberg Radio.
Hey Carol, before I do anything when it comes to ETFs, I get in touch with the folks at Bloomberg Intelligence because they know everything when it comes to ETF. So shout out to BI ETF analyst James Seyfert, who pointed me to a recent note that he wrote that says ETFs are on track to overtake mutual fund peers and assets within a decade. And then there's the question of passive versus active, because when we talk about ETFs, we
talk about oftentimes index funds. Passive ETFs dominate. Here's some numbers from Bloomberg Intelligence five hundred and ninety five billion dollars in twenty twenty four. But don't shrug off those active equity ETFs because they're booming too, inflows exceeding thirty five billion dollars each quarter in twenty twenty four.
It makes me wonder do we need to have mutual funds. I always wonder about this, although people have said the reason why you need mutual funds, you.
See mutual funds to moving to become ETFs.
Incre right increasingly. All right, let's get into it with Eli Horton, and senior portfolio manager at TCW's Active ETF Investments. He joins us from Los Angeles. Eli, good to have you here. First of all, in terms of active versus passive, where do you see the new money flowing into and where do you guys think about focusing more of your efforts going forward in terms of fun creation.
Well, it's nice to be here.
Thanks for having me.
Look at TCW. We have we've really identified the ETF rapper is very compelling from a tax perspective. We also are seeing a really incredible opportunity on the active investing side. I would highlight this is one of the best stock picking markets that I've certainly seen in my career. We're seeing significant levels of concentration, really the highest levels of concentration in about a century. We're also seeing mediful levels
of dispersion in stocks, significant volatility. That's really our best friend when it comes to being an active store.
Okay, so in terms of active stock picking, how do you see that going into somebody's portfolio if their portfolio is dominated by index funds. Eric Belchunis at Bloomberg Intelligence loves to call it the hot sauce effect. You know, it's like you have the boring S and P five hundred ETF for the you know, VTI Total stock Market Index from Vanguard or something like that, and then maybe you throw in like an ARC fund for three percent of your portfolio or something. How do you think about it?
We look, you can look at the S and P five hundred and look at the concentration at the top of that index. You know, over thirty five percent is really in in ten companies, and so while many investors think they own a very diversified basket, there's a lot more concentration than folks think. A couple of strategies that we manage here at TCW. One invest in the energy transformation, the other invest in the reshoring of supply chains and
bringing manufacturing back to the US. These are actively managed twenty to thirty stock portfolios investing in multi decade mega themes. And you wouldn't actually find those structural themes represented very high highly in the SB five hundred at all. You
probably have somewhere between eight to twelve percent exposure. So I think that is extremely complementary too many investors, and it also provides that active stock picking, which, like I said earlier, I think this is one of the most favorable markets I've seen in my career for stock picking.
Yeah. Interesting, all right, So thematics make a difference, right, And I am curious about the thematics that you think are going to be most appropriate in this environment or is it just everything, just everything, or not necessarily?
Well, I think you have to be very selective and avoid fads and look for we'll call it mega themes or mega trends, themes that will be multiple decades in durations. So I'll hit one the energy information. So we have a strategy that we call transformed systems the ticker's power at PWRD, and we're investing in the migration of the world's energy system from a fossil fuel system to renewable energy.
We are probably twenty years in to this process, and if you just look at where power and energy are source from, only about fifteen to twenty percent is truly renewable and the rest is hydrocarbon based. So even twenty years in, we're nowhere close to the endgame and the world's investing about two trillion dollars per year to migrate towards this end state. That two trillion dollars is growing
every single year. It's largely non discretionary, and it's creating tremendous opportunities, whether it's the power and electrical grid, transportation, commercial services, a variety of different businesses. Again going back to my earlier comments, many of these companies are old economy companies unless represented in the broader markets. And this is a theme where you've got a nice tailwind at your back for decades. That's one of the examples I highlight.
Yeah, I'm looking at PWRD, as you said, the TCW Transformation Systems ETF. It's up about thirty two percent in the past year, up about eight percent so far year to date. And if I look at some of the holdings, it is it's ge it's Airbus, it's Vistra, which we know has been a big you know, been rewarded by the AI spend in terms of the energy expectations Union Pacific. So it's kind of a so what's the theme there. It's just anybody that's impacted by the move towards renewables.
So the point I think we should try to drive home here is that investing in the energy transformation requires a much broader subset of businesses and value chains and systems than most think. It's not just energy, it's not just batteries when solar, there is so much more that goes to play here. So you mentioned THISRA is a generator of power, not gas nuclear. Our grid needs to be expanded massively. We're short power. This RA is enabling
the transformation. You mentioned GE. Most folks wouldn't think of an aerospace engine company as being part of the energy transformation, but GE makes one of the premiere engines that go on the planes we all fly around. It burns twenty percent less fuel. That's obviously great for the environment, but it is extremely valuable to the airline customers. We're spending
a third of their operating cost on fuel. So we've got a power producer, an aerospace engine supplier, a variety of other types of companies that are actually vital to transforming the systems or our energy system, if you will. It's much bigger than just traditional energy or renewal energy.
You've also got waste management services in there as well. We like talking trash here. We've talked to the folks at some of these huge companies Republic Services that are listed. What's the opportunity that you say, We.
Love talking trash too, and Republic has been one. It's been one of our large investments since inception of the strategy three years ago. Amongst other merits that Republic has that make it such a great business, it is actually taking its landfills, and inside these landfills there's a bunch of biograded, more biodegradable material that emits gases, primarily methan. Republic can capture and capture that gas, run some industrial processes on it, and out the other side comes renewable
natural gas. So they're literally taking trash turn it into natural gas that can then be sold into the market perfectly circular. The net IRRs on these projects are in excess of fifty to sixty percent, so it's very high value business and no one ever thinks about that when you think about Republic's business, but it's actually very important for the energy transformation, very valuable to the stock and so we've been proud owners of Republic for a few years.
Now.
What's the can you just take me through as portfolio manager, your process for adding to a stock, adding a stock, selling a stock, or removing a stock, like what goes into that look.
So at the end of the day, our investment process is one that we strive to have be repeatable, teachable, proven through cycles. It's very fundamentally oriented, very bottoms up driven, and we're looking for companies that are misunderstood or have
secular growth opportunities that the market's not appreciating. And when we find a great business where we think there's an asymmetrical range of outcomes where rewared really offsets risk by large magnitude, you'll see us express conviction in the form of sizing, and so businesses like Republic or ge where we are extremely optimistic about the multi year prospects will
make them large investments in the portfolio. I believe as an investor that type of concentration and sizing is how you beat the market through the cycle.
All right, we're gonna leave it on that note. Listen, there's so much happening in the energy space, so really kind of cool to see your perspective and take on all of this. Eli, Thank you. Eli Horton, Senior portfolio manager at TCW's active ETF Investments joining us from Los Angeles Opening.
I had a commercial at last night's Super Bowl, and by the way, the cost of those ads risen to a record of over eight million dollars. A Week pointed out that Duncan, Pfizer, T Mobile, Nike, Jeep and others are among the companies that spent the most opting for some sixty and ninety seconds.
At spot Duncan Spot was long.
The boy band one No, the.
One where what's his name was in the that of coffee beans. Okay, but with.
Yeah, I don't know, Okay, no idea what you're talking about.
But Ben ben Affleck, you know.
You know, I guess Doug Zarkin is going.
To the bathroom during the Super Bowl. I'm just going to say, you can't watch all the commercials.
Doug Zarget is chief brand officer of Modern Performance and Recovery Brands. It's a holding company that counts the Good feed Store, IMG Source, Stretched and Compression out the mung Its brands. Doug's also held executive roles in marketing at Leuksotica, Avon and Victoria's Secret and more. He's also the author of Moving Your Brand out of the Friend zone, he joins us from New York. Doug, is that money well spent? Carol can't doesn't even remember the duncan.
At I do remember, so I can't remember the actor who was also in it, the Jeremy Stu was it Jeremy.
Strong in the Jermy Strong from Succession?
Yeah, eight eight million dollars for a thirty second spot is actually the most cost fish and media buy on the planet because it reaches about one hundred and twenty five million people. The challenge is you got to go bigger, go home. You have to be either really sentimental in teer jerky or really over the top funny because consumers, and I talk about this in my book, make emotional
decisions before they make rational choices. And the commercials that we're talking about today were either very emotional on one side or the other side.
Of the aisle.
When did it like it becomes socially acceptable for celebrities to do whatever they to do anything for money? Because I was I was part of the generation Carrol and I you know, I think you probably remember this, like the whole concept of selling out. Yeah, it was like a thing. Oh yeah, that doesn't exist anymore. When did that happen.
No, and brand's like being I feel like affiliated with celebrities.
Yeah, it used to be a dirty little secret.
They would go overseas and they would shoot a commercial, you know, Oscar winners would maintain their creative integrity. Well, creative integrity started to go out the window when the paychecks started to be seven and eight figures. When you're seeing George Clooney do an espresso commercial, I scratch grait, you're going on the money must be really good. And I would say this because you can doesn't mean you should.
And I mean that specifically with celebrities. If it's not adding real value to your brand message, you're just sticking them in and you're paying a huge out of pocket cost for what may not add to the story or the memorability of your ad.
Yeah, I have to say I do stop when there's a celebrity. You know what's interesting. I think of kind of like all the fashion magazines when they were still you know, I mean some of them were still in print, a lot of them, but like a Vogue or something, and it became no longer that models like the supermodel era of how many years ago, But it was celebrities that are on in Style magazine was always a celebrity on the cover. It really wasn't models anymore, and it's
just speaks to the power of the celebrity. I don't know, I feel like the last couple of Super Bowls, the commercials were really, really boring. I thought they were more interesting last night.
You know, there were some definite big winners, you know. I think the NFL came out huge, yes with their girls played flag football, really strong, emotional spot, the Laze Little Farmer spot where the girl plants the potato and raises the potato to be a potato chip.
Super sweet, super sweet.
But then there were some that kind of jumped the shark, you know, bud Light with Shane Gillison, post Malone. That's an example of because you could, I don't know if you should. You know, what did they add to the story. And if there's another commercial with Peyton Manning or Tom Brady in it, I honestly mayor shoot myself.
It is so over the top.
But there were some definite big winners. I think everybody loved the Mission Impossible trailer.
That was a big, big win.
The Stellar ar twa ad with David Beckham and Matt Damon really really funny.
Oh it was great.
Yeah.
The only thing is I think we're over the joke of the Matt and Ben relationship. Duncan played into it in the duncan Ad you were talking about. Yeah, Stellar ar twa played into it. There's a lot more ways to skin a cap and going to that old tried true gag of Matt and Ben.
But there were some real big winners last night.
He does some big losers thirty seconds left. If if it's such a great ROI for eight million dollars, why are they only charging eight million dollars?
Because it's eight million dollars, it's still a pretty darn big number. Because it is a go big or go home, you risk it. It's a highly visible but it is also a highly critical opportunity. People are going to lambast you if it's bad, and they're going to tell you it's really good. If it's really good, you win bigger, you lose big on the Super Bowl.
What I also thought was interesting, and I know we're running out of time, but something like the Nike spot and women and in sports like we are wondering whether corporations are rolling back on diversity and inclusion and efforts and being very careful with the new administration. Some would say that they are, but it was interesting to see something like that Nike spot very you know, behind women and behind women in sports just quickly.
So a great opportunity for companies to show their values to the consumers all over the world.
All right, good stuff, Hey, this was fun, Doug, Thank you so much. Doug Zarkin. He's chief brand officer at Modern Performance and Recovery Brands. Joining us in New York City. You are listening and watching Bloomberg Business Week, Carol Master of Timstead back.
From Algeria to the Seychelles to the Upper East Side and everything in between. Our Bloomberg Pursuits team has got you covered. Check out the magazines where to Go in twenty twenty five interactive feature. It gives you personalized month by month estimates for hotel and flight costs alongside each recommendation.
It's super fun to play with. We did it and we've done a deep dive into it. So if you missed it, you can just check out our podcast feed because it's got some pretty cool stuff. Well.
For more on travel this year, we're joined by Haley Berg, lead economists travel app Hopper. She joins us from Boston. They have done some serious number crunching over at Hopper this year. Hayley, what can you tell us about the American consumer in twenty twenty five and how much we're going to spend on travel?
Well, the answer is most consumers are going to be spending a lot on travel, and if they aren't spending the same as they did last year, they're expanding it. We found that more than half of Americans planned to spend at least the same amount as they did last year on travel hotels, airfare, activities, and about twenty three percent, so almost one in four are going to spend even more. And that's true across income ranges, across ages of those travelers.
Expansion is in the air. Who's traveling, young people.
Old people.
Everyone is hitting the skies and staying. We are seeing the greatest growth from younger travelers gen Z who are built wealth, millennials who are enjoying some wealth. But we are also seeing that retiree ages boomers, they're spending more on premium, they're taking those end of the career trips. So really, expenditures coming from everywhere.
Got to say one of our colleagues, who will remain nameless, just took an amazing trip that took eighteen hours to get there. Incredible remote resort. We're not going to say who because we keep secrets around here.
Well, he does talk about it on a new podcast, a new edition of his Hot Pursuit podcast. So I just want to give a little.
Matt miller'er outed. I'm just going to tell you he's going to talk.
About it on the podcast, so apparently.
But it's pretty remarkable and it looks like a really cool thing. No kids, no kids came along, just see and his wife. So sorry, Matt, We just like laid it out for everybody. It is interesting that that's continuing. Are there certain parts of the world where people are going increasingly? Like we've talked about Japan has been a pretty hot spot, right everybody went to Italy? Was it last summer? There's summer summer before. Where are people going?
Well, Matt's not alone. Ends of the Earth destinations are actually one of the fastest growing segments. Patagonia greenland destinations that take a very long time to get to and are difficult to traverse, are definitely growing in popularity. But also some more mainstream destinations. You know, at this time of year, it's a lot of Caribbean destinations this summer. We are expecting to see an uptick in demand for
Bangkok after The White Lotus premieres later this month. We've seen in the past couple of years, as each season of that show releases, it's followed by a huge surgeon demand for where they filmed. So we are seeing ends of the Earth, but also some more of those mainstream destinations in Japan. Nothing is stopping the demand in Japan. It remains the number one international destination seeing growth.
That's pretty amazing because I was going to say, Carol, did mention that you've told us about Japan, but it was last time you were on with us you said Japan. The time before that you were on with us, you said Japan, Kaylee, what's the next Japan. By the way, what's the next Japan?
It could be Bangkok. You know, we haven't had one of these set jetting destinations that it's what we call them when media drives where people travel. We haven't had one in.
A few years.
We saw Croatia, we saw Iceland. With the Game of Throne series, We've seen Yellowstone with that series, driving to band to Montana, so it might be Thailand that's up next.
Very cool you say that like all different ages, but are people looking I mean for like value, are their deals? Are they booking in advance to get the best prices? What else can you tell us about the state of the consumer. They're obviously, as you're saying, or traveling, but I am curious if increasingly we're seeing people looking for a deal.
Absolutely, we track what we call deal seeking behavior when people are booking, how often they're checking the price before they book. And what's really interesting is that about two thirds of travelers are checking multiple websites or apps at least three or more before they actually make their travel bookings. And that shows us that there is price sensitivity. But on the flip side, we've heard from the airlines, we've heard from the hotels that this demand for premium is
just not exhausted yet, it's still growing. And I am seeing that as well. We have these price sensitive customers who are checking multiple sites, really doing their homework, but they're also willing to pay extra for things like flexibility, disruption protection, a room with a view or a hotel with a nice restaurant. So it's a little bit of
a balancing act. The youngest travelers are definitely the most price sensitive, but there is a balance between how price sensitive Americans are and how much they're just trying to kind of hack that budget to get the most out of it.
And yet, according to your research, the folks at the lower end of the income spectrum expected to spend more on travel this year. What's the explanation for that?
About twenty two percent of the households earning the least in the US are actually expanding this expanding their travel expenditure next year. And I think a big part of that is getting more out of their existing or a slightly bigger budget. But also it's this shift that travel and experiences are what households want to spend on once they've paid for their needs, and that's why they're continuing to expand this travel budget.
Hey, where do cruises come into this? We caught up with the CEO of Royal Caribbean and they reported a full year profit forecast that blew away past street I should say expectations cruise demand. They talked about continuing to ramp up. This was just at the end of January, and then they're moving now into the river cruises, which we've seen certainly other lines, whether it's Viking, Carnival has been doing it. To Carnival's upbeat as well. We've talked
with the CEO there. How does cruising fit into this and what are you seeing in terms of demand.
Cruising is definitely an area of growth, especially as you say, those river cruises which offer a more intimate, smaller, but more of a unique experience. We know those types of experiences are hugely popular. They're growing in demand, especially among younger travelers. Historically, some of those river cruises have been more focused on an older generation of traveler, but that
is shifting. I think a lot of travelers see cruises as a great all inclusive They know the price tag for everything food, where they're going, the activities that they're going to be able to do. So cruises are actually a way to really manage that travel budget. And I'm not at all surprised that we're still seeing surging demand for trips on cruises, whether they be short river cruises, are some of those bigger Caribbean ones.
All right, got it, hey, Hayley, We're going to leave it on that note, Haley, thank you so much. Hailey Berg lead economist over Opper, joining us on this Monday from Boston.
Where are you going?
Maybe some beach time. I don't know about anything else. Sam not complaining, it's just it's a little early to be planning the beach. Carol, It's never too early