David Nadig Discusses the Future of ETFs (Podcast)

predecessor to I Shares came about. He spent time working with a number of consultants as a consultant early on in the e t F industry, and he has been working at et F dot com, which is probably the leading media public at about e t F s UH pretty much since the beginning of of the world's understanding

that e t F s were significant. Previously as UH Chief Investment Officers, subsequently when it became part of fact Set as a head of Analytics, and now as CEO slash Managing director since cebo bod e TF dot Com The Chicago Board of Options Exchange Global Markets is now the owner of ETF dot Com. So, with no further ado, here is my conversation with David Natick. When it comes to e t F s. My guest today is probably

the single most knowledgeable person in the world. Dave Nati is a Managing director at et F dot Com, which is a subsidiary of cbo E Global Markets. Dave was e t F dot COM's Chief investment Officer, and he returned to et F dot Com as CEO in November uh He was previously Managing director at Barclay's Global Investors, where he helped to design some of the world's first ETFs, including the development and marketing of the World Equity Benchmark

ETF series. You probably know that by its current name I Shares. He's conducted some of the earliest research on the only financial advisors and the rise of indexing. He is the co author of the Definitive Book on E t F s, a Comprehensive Guide to exchange traded Funds, published by the cf A Institute. Dave nadd Welcome to Bloomberg. Thanks for having me. So. You and I know each other for a long time, and I'm familiar with your career path. Will come back to that a little later,

let's talk about this whole E t F thing. Is this gonna be big one day? Just a temporary thing. So so the key that comes up all the time, what is the underlying advantage of E t F s versus mutual funds. Well, if you think about it, mutual funds are actually one of the most ridiculous financial inventions in history. If I went to you and said, hey, I'm gonna sell you a car, and you're gonna give me a whole bunch of money right now, but I'm not gonna tell you exactly how much the car cost,

will trew it up later. You'd never buy that car, right You'd never say it could be thirty, it could be forty. We'll tell you at four o'clock. And that's how mutual funds work. It's literally the only financial product that has forward based pricing, which is kind of ridiculous. And there have been innumerable cases over the last forty years in which you know, that's been abused or misused.

We had examples in the eighties, we had front running issues and so yeah, exactly, I mean over and over again, this happens anytime you create that you know, intense lengthy time arbitrage between nine thirty in the morning four o'clock, somebody's going to figure out how to game it. And e t S in part one of the things they do is they solve that problem because they allow that

pricing to be negotiated. Uh and I think that's meaning they trade intra day and you can see the price that's on the screen is literally the price it is exactly and you can decide as an investor whether you want to pay that price. Now, there's some costs to that, and there's some benefits to that. If we're talking about US equities, we're trading you know, sp Y, which is

the biggest ETF trade, the SMP five hundred. Anybody can tally up all the stocks in the SMP five hundred and a spreadsheet and come up with what the right prices for that based on the last trade of price of the stocks. A little tougher if you're trying to trade Japan at two o'clock in the afternoon New York, because what are all those stocks actually worth? Well, that's

a negotiation, that's price discovery. So e t f s not only give you access to those markets that are closed or less liquid, but they give you another price discovery mechanism to go along with it. So in other words, even though we don't know the true arbitrage price of Japan two pm New York time, you get at least a rough wisdom of the crowd estimate in how that e t F is trading, assuming it's liquid, because, as we'll discuss later, some et f seem to trade by

appointment only. Yeah, if you're lucky, if you can even get an appointment. Yeah, it is definitely some haves and have not in the et F space. I mean, there's just there's so many of them at this point. So one of the things that comes up all the time when we're comparing mutual funds in ETFs is in a non qualified portfolio, meaning a fully taxable account, you could have a mutual fund that doesn't show any gains for the year, and yet you get hit with capital gains taxes.

That doesn't really seem to happen with you. Yeah, there's a fairness issue and that and that's and I think that's the other big advantage of e t F in a taxable environment because the way e t F shares are created and redeemed um which is done through market makers big authorized participants. They're able to wash out any gains from internal trading. So if you know, even in the SMP, if you know stock X goes out and stock Y comes in and stock X had an embedded gain,

that creates a taxable gain in the portfolio. Even if at the end of the year the SMP is down, they still have to distribute that taxable gain. E t F s get away from that by allowing them to wash out that gain by effectively handing low base of shares out to the street. So the e t F loophole,

what what does that cover? Well, from a tax perspective, it covers anything that you can do in kind transactions with and and technically mutual funds could do this too, but they don't because it's complicated and it requires a lot of coordination with the street. You have to have a partner on the street technically called an authorized participant that's willing to do those in kind creations and redemptions

to share. So complicated that you do profit distributions even on a losing or flat year, it's not worth it. That just seems like that is a huge disadvantage for mutual funds relative to well. One of the challenges in a traditional mutual fund environment is for you, as an authorized participant, to agree to do those in kind trades, you need to know what's in the basket, Like what are you going to get? What do I have to deliver? If you're gonna know, then there's got to be some transparency.

Most mutual funds don't want to tell you what's under the hood, right. Most mutual funds are still actively managed by assets, and most active managers don't want to tell you what they're doing on a day to day basis, and that makes that arbitrage process really difficult. But it's baked into how E t f s work. That in kind creation redemption is sort of a core of how E t f s work, and so that doesn't make much of a difference in terms of the capital gains

distribution or does the loophole cover that? No, the loophole I mean, and loophole is as I think of an aggressive word. But really what we're talking about here is part of the I r S approach rate how the I r S treats et s. It allows in kind transactions to be untaxed, right, and that tax basis then can get washed out, so that covers really any kind of et F, any kind of investment that you want

to make, whether it's bonds, whether it's you know, equities. Uh, you know, you can get away with that in kind creation redemption to wash out those capital gains. So for taxable accounts, ETFs have really caught on. Uh even for non taxable accounts. The fact that you can trade it in traday with some price certainty I think has been the other major issue. Let's talk a little bit about

some of the issues that are surrounding ETFs today. We have a little bit of a fat head long tail problem in that in that e t F issue, ince and underwriting is very top. Have you have Vanguard, black Rock and State Street dominating. I mean that's the vast major assets assets not necessarily what is there twenty one? Yeah, it's over two thousand ETFs right now. Um and by number, sure, black Rock in particular has a large number. I think

it's fourts in the in the stable. Yeah. To put that in perspective, you know, back into the two thousands or early two thousands, there were a hundred and fiftyf So there's been really fifteen years of phenomenal asset and product growth, really now covering virtually every corner of the investment market, from physical gold to junk bonds. So why those?

First of all, why the three biggest dominating? And then the next question is why those three but I kind of have a sneaking space and why those well, so, why just why is it so dominated by these giant phones. Well, because the economies of scale here are dramatic, and one of the sort of accidental advantages of ets it wasn't designed for this is that they have become incredibly cheap, and we're in the midst of a price war that's

driving them down towards the price of zero. They can be that cheap because running an incremental dollar in the SMP five hundred costs literally no money. Right if if if Black Rock, which manages I don't know idea trillion dollars, probably a trillion dollars of that is tie to large capus equity for them, probably more for them to manage

an additional dollar literally doesn't cost them anything. And so the marginal cost of production in big index shops is so low they can price these products at three four or five eight basis points and still eventually make enough money to survive. Very tough for Ritholt's Wealth Management to get into the et F game at three basis points and ever make a dime to launch an e t F, and we I explored this last summer. I looked at

a couple of interesting ideas. It's a couple of hundred thousand dollars to half a million to launch by the time you get done with record keeping and custodian ships and two BIPs here and three BIPs there and five bps. There's a lot of expenses that go into it that it's not like, hey, here's an idea, let's launch an e t F. It's a complicated legal accounting underwriting issue for a small shop. But for van go to black rockwer State Street if they want to crank out a

different ETF every day. How hard is It's not hard at all, and it is getting easier. There's a big new set of rulemaking out of the SEC that's actually in common period right now that would clean up that process and maybe drive the cost for a new issue where down from that couple hundred thousand to maybe a hundred thousand. Uh, you know, it will have become less of an exception to the rule and more of an approved activity. But there's still work that's got to get

done and you have to establish all those relationships. So those big players have that entrenched economy of scale that I think is really tough to compete with, and that's why you've seen very few upstarts. If you will, really get a lot of traction. So we've been spending a lot of time talking about equities, let's talk about bonds for a minute. There are lots and lots of dollars allocated to bond ETFs, so much so that it's had a giant impact on how bonds are traded and what

Wall Street bond desks look like today. You're the first person who brought this to my attention. Explain what what has been taking place over the past decades. Well, we have two things going on at the same time. One is, because of regulation, we no longer have banks having giant bond desk. Right, they had to basically get out of that business. Was it regulations or was it zero interest rates?

And they weren't making any money both, right, So the hoops you had to jump through to to run an eight style bond desk were significant, and the capital a location was no longer making all that much money. They are better things for them to do with that risk capital. So you had that sort of abandonment of the bond market by traditional players, But at the same time you had lots of folks that still wanted to invest in bonds.

Investing in individual bonds, I'm sure you know, is kind of a pain in the neck, right, even even if you're just trying to buy treasury. Sure you can go to Treasury dot gov and and go do it all direct. You want to do a laddered bond portfolio, or you want a portfolio of munies that are high quality in this if you're in a high tax state, it's not easy. It's not easy to do. And even as a professional investor, you're going to pay significant basis point spreads getting in

and out of these positions to say nothing. If if you wait, you can cut those eight bit spreads down to like sixty. There you go. You could. You could find something in the middle. But it's a valid point. It's not easy to to execute these treas but it's an as a class most investors should be in. And so that's why we've had bond mutual funds. Okay, bond mutual funds are fine, but again you have all these

pricing issues. You've got these embedded tax issues, which are even worse than most bond portfolios because most people in their bond portfolios want to hold a certain maturity, like I want to hold your five years my target duration or something like that. To hold that, it means you have to constantly be selling something and buying something else in order to hold that duration of that maturity um.

And that creates taxes when you do that, particularly if you're in a bond market with rising prices and declining rates. So let me, let's just delve into that. When you say people have to sell stuff to hold the same duration, it's as time goes by, Hey, suddenly things that were four and a half years become five years. You duration that's out, and you have to add other stuff to

make exactly. And so if you're in a you know, an I shared bond fund that says that this is a five year muni fund or whatever, um, as that five year becomes four, you have to sell it. And as that seven year became five, you have to buy it. And if you're an environment where the prices of those bonds have been going up, which has been where we've been for a long time. Then you've got those capital gains from that sales process, and the e t F

helps you get rid of some of that. So the thing that I find fascinating is that the bond desks have essentially been replaced by black Rock. Now when people want to do a big bond allocation, they don't call Goldman or Morgan Stanley necessarily or you by S or Credit Swiss. They called black Rock. Is that a fair assessment? Yeah, it's black Rock. And really it's also folks like PIMCO, right, And you know PIMCO, I think is mostly known as being the sort of Bill Gross's old big shop for

actively managed mutual funds. They have a huge et F present it's now they're actually the largest actively managed et F provider. And yeah, they have become the bond desk for the world. If Mexico wants to float a new issue, they call Blackrock, and or they called Pimco and they asked them if they'll take down the whole thing, and that may never trade, you may never actually see it go across. Wow, that's absolutely fascinating. Let's let's talk about

your long and wacky career. You began as an accountant slash screenwriter. How the hell does that act? Well? I, I you know, I think like a lot of people, I went to college having no idea what I wanted to do, and I've got a creative writing degree and then headed to Hollywood to write the Great American screenplay,

uh and instead end up writing the Great American payroll Check. Uh. And uh, you know I went to Hollywood, I I ended up locked into a production company just because I needed work, hoping that I'd be able to write for a living, and actually found that I was more fascinated by the process of producing television than anything else, and um, and got really interested in the big nos itself. And that led me to think I should go back and get a business degree, which is what I did. Uh,

and then sort of fell in love with investing from there. So, so you go to Boston University for an NBA. Is that right? And then how do you then move sideways into finance? So? What what lad you? You were at Surly Associates. Yeah, So when I was at BU, I was studying with v Body relatively well known professor there on investments, and really he sort of sparked a lot

of my interest in investing. UH. And one of my classmates was the then wife of Kurt Ceruli, and he and I started really associates to do really sort of consulting work and mostly advisor survey type work for big asset managers. Because at that time, this was very early nineties, just coming out of the late eighties. UH, we were in this phase shift from the traditional brokerage commission model to true independent fee only financial advisors, and that really

was changing the game for asset managers. That that was early nineties. That was way way early in the process. I mean Ken Fisher was doing this gig then and other people had started back then, but it was still a tiny percentage overall. What made you say, oh, this is the future because that's where consulting clients wanted to pass.

So we had from right marketing for it, says. We had firms like Fidelity and what was then Wells Fargo, Nico Investment Advisors which became Barklay's Global Investors, and State Street UM and and actually one of my first clients was Jean vanak Here in the city of k and uh, and they were all trying to figure out how this shift, both in the defined contribution space, which was really kicking off hard in the early nineties UH, and in the

field only financial advisor business, how that was going to change their investment management practices from a product structure standpoint, from how do I sell to these people if I'm not giving them trips to Hawaii or paying them you know, back end loads or all of those horrible ways of selling products so exactly and so so you know, at that point, as a really wet behind the years early twenties, kid, I was making phone calls to financial advisors and asking

about their practices and and that really, you know, it was it was an exciting place to be because it was very new. When when was the big move from define benefits to define contributions slash four oh one K When when did that really ramp up? Right about that? I mean it was it was sort of towards the end and certainly coming out of the financial well what was what we called then the financial crisis in seven

UM that was a little minor, minor hiccup. Then back in the days of Glass Stiegel, a one day collapse in the market doesn't spill over today. It's a little different, a little different, little different. That was the first time I lost a lot of money was in UM. But the uh, you know, that was really the hockey stick of the takeoff in four oh one K. It's when Vanguard really got into that business. It's when Fidelity got

into that business. Uh. And you know, the assets really started flowing in, and it implied getting rid of all these costs in the system, all these loads, everything else. You can't put any of that into a four o one risk. It doesn't let you, right. So I sometimes describe you as there at the beginning when ETFs were created, and you pushed back on that all the time. What was your role in in the early days of e ts. Yeah, so you're the early days of ets which is really

ninety three was spy uh. Slightly before that with the Toronto Index participation, securities, tips UM and then the webs products that I worked on was ninety four and five. I think they finally launched in ninety five. UM when did the cues launch? It was not much after that. It was in all in the same window. UM. I think the cues might have been a little bit later, like it might have been ninety eight. Um. But the the reason I pushed back is because this is a

classic success has a thousand fathers problem. Um. You know Jim Ross, you know who you've had on the show from State Street, who's great, Um, you know he he often sort of tells the story of like, yeah, I was in the room when Spy was created. I was getting coffee, right, And I think the other way the other guy who started as an accountant and could crunch the numbers, And I said, we better keep Jim around. He seems he seems to understand the plumbing. Yeah. Um,

And I think that that's very true. I was very young. There were, you know, the people who were really the intellect behind this, which really required a lot of thinking through the market mechanics and regulatory issues. Were folks like Nate Most at the Amax, or even Patty dunne It well as far Unico, both of them have passed away. I mean, it is a generation ago of some very bright thinkers that really drove the foundation of this and a bunch of Yahoo kids that were sitting there trying

to figure out how to sell this to people. Quite fascinating Uh, you know, there's a little background. You were c I O at et F dot com right back in the day, and then you leave and you run the t F department at fact Set. Yeah. So originally E t F to confounded by a guy named Jim Wyant. He brought a bunch of us in to sort of build that business in the I've been to Jim's confis events in Spain, which was quite fascinating. Yeah, and he had the vision of building this bis this you know,

a decade ago. And really there were three legs at that stool. There was sort of the media business, which we now know as et F dot Com. We published a magazine, the et F Report, which we've been publishing for twelve years or something like that. Now. Um, there was a conference business which became inside et S. Go to that event. That's a fantastic event. Thousands of advisors to literally two thousand people. That's the bit that may be the biggest single room. I ever stood at a

podium and looked out at it was. It just goes. And then the third leg of the stool was a data and analytics business, which was the part that I came into build. UM and we were a venture capital backed start up at that point, and we sold the pieces off, you know, over the course of a couple of years. The in the conference business was sold to Informa,

which is a huge conference company based in London. The data and analytics business that I was running was sold the fact Set and I went with it to fact Set for a year. Uh. And then the media business was sold to what was then BATS and then became CBOG Global Markets uh, and then they brought me back in to run it. So you're you're hired as CEO. Tip, what is this managing directed? Well, they can't can't have too many CEOs and the publicly traded company, so that

makes a lot of sense. So so let's you're the perfect person to ask this question. I've discussed how e t f s come to be. Someone has an idea and they run through a bunch of machinery and then out of the other end of that factory comes some e t F. But I don't think people really understand how e t f s are actually put together. Walk us through what an e t F launch is like

from from conception to trading. Well, in the current environment, right with the current regulatory structure, you know, you're actually a classic case of a large successful are a believes they have a bit of a better mouse trap, whatever that is. They're actively managed equity strategy, they've got a great stock picker, we have a fantastic bitcoin hedge. We're there turning into an ET right. So you so what

you do, You've really got two options. One is you go down this path entirely on your own, and effectively what you're doing is launching a mutual fund. So it's a Forty Act mutual fund. You have to get a board, you have to get a fund account, and you gotta get all that stuff in place. And then after you've done all of that work, you have to go to the SEC and have this big mother may I conversation. But whether or not you can break all of the rules that are in the forty Act, and it's called

the Exemptive Release Relief process. You're asking for exemptions and they let you do things like treat authorized participants differently than common shareholders and allowing it to trade on an exchange, which a normal mutual fund can't. So there's all these rules that you have to break to be an e t F. That's changing, hopefully, what's what's the new system?

The new system is going to be very straightforward. They'll just basically be the same set of forms you fill out for a mutual fund and you'll check a box for et F instead, and all of those distinctions about like being able to trade on exchange will just come baked in. So you need a special privilege, You'll just be part of an existing piece of regulation. Is that likely to Yeah, so this is going to happen. This is going to happen. We're in the comment period for

it now. It's called the e t F rule, is what it's being called. And it's literally just a new piece of text that's going into to allow e t F to happen, and it should compress the time to market. Right now, it's maybe six months for an easy e t F to come to market. We can probably get that down to two months um and the cost will go from, like you said, a couple hundred thousand bucks to maybe fifty thousand if it's really simple and you

have those existing mutual fund relationships in place. So you specifically said to me earlier, there are over two thousand ETF Once we make it faster, cheaper, easier, to launch these what's that number gonna go? We're gonna have ten? Will there'll be more e t F than the eleven thousand hedge funds that are out or that eight thousand mutual funds um. You know, I think there is a

natural diminishing set of returns on that. I don't think we're gonna end up with eight thousand like we have in mutual funds UM, largely because I think they won't be successful in gathering assets and there are some fixed costs to running an e t F, So I think that will it'll slow down a little bit. Where we haven't seen the big entrance yet is frankly, the big active managers, right, there's no Growth Fund of America e

t F. Right, Putnam isn't in this space. They're all sorts of people who are not in the e t F space. And even the big traditional asset managers like Fidelity really just stuck their toes in the water with a couple of index products. There's no contra fund et F, there's no Magellan e t F, and I think until that shoe drops, we're not going to see massive inflows there. So you you you reference the ability to gather assets, you need a certain critical mass. The number I've heard

kicked about is fifty millions. Some people have said a hundred million or something like that. What what is it that precludes an e t F from gathering that mass? I remember a couple of years ago when the UM hack e t F came out, the cybersecurity that just came out, and then suddenly there was the Sony hack in the North Korean Act and that exploded. That became a billion dollars almost overnight. The biggest issue with e t F is there the classic bought not sold product.

I mean, you make this et F, you put it out there on the exchange pretty much literally anybody who can get access to the to a US equity exchange will be able to buy it. But then how do you convince anybody that they should buy it? And it's

a it's just classic push marketing. They have to you have to put out ads, or you have to get a wholesaler to go call on your office and try to convince you to switch out of this other et F into this new et F. That's just hard, and it requires substantial capital if you don't have an entrenched distribution system So if your fidelity and you've got you know, hundreds of wholesalers that are out there talking to people all the time, tossing ETFs in the bag isn't a

big deal. If you're an r A building something from scratch, not in the business of distribution, that's not what you do. You're in r A A. So figuring out how to catch lightning in a bottle and get all these other people to start participating in your big idea, it's not obvious, and I think we've seen a lot of people come to market with some pretty interesting ideas that never get

that traction. I remember she when she first came out between the stock symbol, which there have been studies that shown symbols make a difference to the whole controversy of the girl facing off with the bull down and lower Broadway right near Wall Street. Uh to is it? Calsters was the one who funded the original couple of hundred couple, which is kind of still where it is. How has that not caught on? I'm kind of shot, Well, you know,

who knows what catches and what doesn't write that? That is a classic first mover into the E S G space and the women in governance is the core behind that product, and it has definitely resonated with a certain institutional audience, but it hasn't resonated with mom and pop investors, It hasn't resonated with a raft of financial advisors. Um. You know, I have some theories on that it is a one off product. It's not part of a suite

of E s G products. I think that can be tough to sell a one off product because what are you gonna do take up billboards that just talked about s A across you know, the marketing spend that would be required would be enormous. What what about? Um there's been a new potty t F floated. I think it should go with the symbol weed. Of course it should, but every but I don't know if that's available, if someone else has it, or if it's two in your face.

It's probably two in your for the sec if it's a medical Maril, well, the other one is m J which is pretty close, right, which is Mary Jane? I mean, how is that? Well they could say it stands from marijuana, but we know what. Um So, so what are your thoughts on these real niche specialty E t F? I think they have a place, right. I mean, niche products in the financial market are not something new. They're tiny, little knitche mutual funds that are covering a lot of

the same spaces. Um, I think they have a place in the market for folks that are speculating on those narrow themes. The danger is because these are bought, not sold, you can create a story about how, you know, my mom ends up reading something you know, or seeing something on TV and gets all excited about it, and it turns out that it's triple leveraged oil or something like that,

which she has no business investing in. And because et f are this sort of great democratizing flatten er of investment assets, really almost anything you could want to do you can do in an e t F, whether that's a good idea or not. And so I think there are some issues around that. But um, you know, I tend to be a little bit of a libertarian on these things. I think we shouldn't stop we shouldn't keep people from making these products because we're concerned they're missus,

they'll be misused. We should focus on investor education so eventually there'll be a Darwinian competition. And when there's whatever e thousand, ten thousand e t fs. Some will catch a little bit of lightning the bottle, as you mentioned, others won't. Is this just gonna eventually winnow down to a core thout or is it going to be like the mutual fund world where there's tens of if you

include all the share classes, is like twenty. Well, the one thing that ets have going for them in this regard is that it actually is expensive and problematic to let a tiny little e t F you know, million dollar et F that never trades. That thing eventually will get delisted, right, these things are listed on exchanges. Exchanges don't want to have their you know, product list just filled up with this cruft junk, So these products will

eventually get delisted. There are sort of ongoing maintenance costs. You have to have a board meeting for this darn thing in the year, right, they're hard costs associated with it. So we do see e t f s closed with I think a higher frequency than mutual funds. That's a good thing. So you know, last year, I think we had a DRETF launch, we had a coupletfs closed. We ended up positive by maybe a hundred new ETFs. That's all it was. I think that's a very healthy thing.

We have been speaking with Dave Natick. He is the managing director at et F dot com. If you enjoy this conversation, be sure and come back for the podcast extras, where we keep the tape rolling and continue discussing all things E t F related. You can find that at iTunes, Overcast, Stitcher, Bloomberg dot com, wherever final podcasts are sold. We love your comments, feedback and suggestions right to us at m

IB podcast at Bloomberg dot net. You can check out my daily column at the Opinion section of Bloomberg dot com. Follow me on Twitter at Rid Halts. I'm Barry Riholts. You're listening to Masters in Business on Bloomberg Radio. Welcome to the podcast, Dave. Thank you so much for doing this. I've been I've been thinking about having you here for forever, and I know you are kind of mobile these days,

talking forth between Boston and New York. Usually we do this over dinner, so it's that that is actually true. And every time I finished, I'm like, I gotta get that guy in the studio. He really knows these E t F things. One one day one day they're going to catch on. So, um, there's a bunch of stuff we didn't get to. Let me, let me go through some of the questions we missed, although you really touched on.

So we talked about the new regulations. We talked about the number of ETFs winking in and out of existence. You have a bird's eye view. What what's the biggest mistake people who are developing new ETFs make in the process from conception to launch. Oh, it's I think it's

absolutely distribution, right, it's it's it's a distribution. If you look at the folks that come in and are successful now, not ten years ago, but now they come in at your your colleague here a Bloomberg, Eric Beltuna says, you know, bring your own assets b y O A. Right, And you know we've recently seen JP Morrigan just basically decide

to get into the space. They decided by moving a bunch of internal assets out of other funds, maybe separate accounts, maybe institutional clients, and just rolling that into et s Boom their multibillion dollar complex. How do you how do you do that? Hey? The that s m A you have congratulations is now in EF But that's what we've seen, right. So Goldman did this when they launched g SLC, which is the Golden Sacks Large Cap is what it stands for,

and it's a smart beta fund. They launched at nine basis points and everybody was like, oh, smart beta and nine basis points, you know, that's really smart of them. I was like, no, that's probably what the s m A was charging, and that's the only way they could map that in, right, So that's just rolling it from A to B. And and you know, there may be you know, depending on the kind of investor, maybe there's

tax implications to keep you from doing that. But for the most part, if your mapping institutional money in, their taxes are not an issue. So what I've been hearing from you is that the et F space, now dominated by three giants um and a whole lot of small little guppies nipping at their heels, is going to be dominated by three giants plus a hundred other really big

companies and a handful of guppies still nipping at everybody. Yeah, I think we're gonna see a healthy middle tier right below that third and I would actually, which doesn't exist now. It's a Barbell. Well, it's a there is a there is a healthy middle tier. It is firms like Goldman

and JP Morgan and Schwab. Right, I don't think anybody's gonna worry about Swab being a guppy in this space, right, gilling in tens of billions of dollars in the space, Now, that's not a lot compared to the six trillion black Rock runs or whatever it is today. But they're they're healthy in it for the long haul players. And then there's a tier of folks that have been in this business for a long time and aren't going anywhere. Wisdom Tree,

Van neck On, Himer, folks like that. You know, they're in this for the long haul and they're doing just fine, Thank you very much. We're going to see more and more new players. Some of those new players are going to have big old names, and some of they're gonna be people we never heard of. You mentioned your mom is in a three X leveraged oil oil et F. What explain the mechanism why all these leveraged e t F s have such dramatic slippage due to the cost

of their their carriage. Yeah, well, it comes down to compounding math and math is always great for radio, right where you can illustrate it. But but but it really comes down to the fact that when you go up ten per cent and then you come down ten percent, you don't know nep where you started. Right. If you have a hundred dollars and you go up ten percent, you're a hundred and ten a hundred and ten, you go down ten percent, you don't go back down to

a hundred, right, you go down eleven dollars. You're right that compounding math up and down is exactly what messes up most of these daily reset, leveraged or inverse products because they reset their exposure every single gold day, and they're using futures and other products that are not cheap. It's usually swaps, and most of these things the cost of carry every day. There's usually a cost embedded in those swaps, which is less transparent than I would like.

I'd love to see explicit swap pricing out there, but as I'm sure you know, swap pricing tends to get buried in the total return of the swap. It doesn't explicitly get called out all the time. Um, and so that's problematic. But most of these products work with a giant cash balance, which is the technically what they own quote unquote is this giant cash balance, which is why they're allowed to do it. And then they have this notional overnight settled swap for whatever the pattern of returns is.

They want triple leveraged oil inverse SMP, you name it. And um, we didn't get to the bitcoin U E t F that's supposedly coming out. Before we do that, I have to touch on g LD, the gold E t F. There was a wonderful wool Street Journal column on how g l D was created by the World's Old Council that had a problem with all this gold piling up in warehouses in what was that early two thousand's and g l D is launched and it just becomes the timing was just fortuitous. It becomes briefly bigger

than the spiders at one point. Um, are we gonna see so it made trading golds. You don't have to buy physical gold, you don't have to buy gold futures, and the hell with the junior miners, which have always been problematic. You could buy g LD. Are we going to see something similar with the bitcoin ETL I think we are eventually. Right now, I'm not I'm not involved

in the regulatory process. You know. I see ABU Global Markets has a group that's working on some of this stuff, so you know, it is sort of out there in the sphere around me. But I think, ultimately I think about bitcoin as being a digital gold variant. Um. You know, some people have argued the rise of bitcoin is why gold, despite all of the craziness and the political world hasn't rocked it. Right, this should be a good environment for gold,

but it's not. Low inflation of saw it. In the end of the problem I have with with bitcoin is the same problem I have with gold in these structures, which is, if you were buying it from sort of a guns and butter fear perspective, you know, you can't go get a bitcoin out of a vault and do anything with it anymore than you can get gold out of a vault and do something with it if what you did was buy it on an exchange somewhere. Now

you're living with the custody issues that are inherent in that. Now. I'm not worried about that. I'm not a guns and butter investor, but guns and bottled water in them there you go more more accurately. But by the way, the bitcoin question I didn't ask you during the broadcast portion. Was bitcoin a fraud or merely just a scam? But the reason I didn't ask is because I didn't want the email to light up. And I don't believe it's

a full on scam. I I suspect North Korea is involved, and I suspect I ran as busy mining bitcoins um and there are a lot of other unsavory characters. When when I have people killed, I do it paid for it with bitcoin? But modern assassin isn't Isn't that some of the issues that the SEC has to be considering When gee, it's such an unregulated currency, we have no idea what's going on with it? Is it legitimately used for money laundering, for drug trafficking, for whatever? How can

the SEC approve that? If the I R S and the Treasury Department is finding their own war against bitcoin people, does that enter the calculus? Well, so, I have no idea what's going on in the regulators had It's not my job, But I would say people made this argument about gold for a long time, really right, People made this argument in the sixties and seventies and eighties about

crew grands, right. And I remember one of my very first jobs before, like while I was in college, was helping somebody at a treasure in a treasurer's office at a global manufacturer. They made water treatment. I never heard that. And and they actually transacted in some kind trees where we had hyper inflation like that. Transactions were literally getting done in stacks of crew grants. And there were real concerns about like, well, gold has become in this post

Breton Woods environment effectively the currency of criminals. Right, That's the exact same set of arguments, right now. That's something you know I used to speak at the The Agora Group used to do this wonderful conference, annual conference in Vancouver every AUGUSTUM around the time we're recording this, and it was another giant event. And if you've ever spent any time in Vancouver, it's a fanta love, love love Vancouver, fantastic food. Everybody in the city is beautiful. It's like

it's such a like exactly right. So, um, I remember they would do this Whiskey Bar, which was a panel where the audience would throw questions at people and um, this was one ten eleven, and I remember being one of the only stock bulls. They're not exactly Especially in eleven, I talked about why how gold will end. It's run not with a whimper, but with a spike and a collapse. And and the fascinating thing was someone asked the question, don't you want to have some some bars of gold

in case you have to up and and flee? And I'm like, well, listen, dudes, you know every all you folks up here. I don't see a whole lot of fellow tribesmen here, and and Jews have learned always have a bag packed by the front door, by the back door, because you never know when there's gonna be a knock and you have to flee. And gold is heavy. You can't take a lot of gold, but you can carry a lot of bitcoin with you. You can carry all

the bitcoin you want, or a bag of diamonds. But to to flee with any sizable amount of gold is just not not gonna happen. And it was said in jest, but the people who are claiming you could do these giant gold trans that you can't move millions of dollars worth of gold as easily as you can do that

with bitcoin. And I you know, I tend to be I'm a bit of a bitcoin skeptic, not because I think I think the underlying technology is super interesting, and I actually think that there's, you know, something like there there will be something that the blockchain ends up driving that will change the way we think about financial transactions. I just think probably I think we're in the MySpace era. I don't think we're in the Facebook era, bit pile

and alta vistas. I call blockchain and bitcoin Linux for libertarians. There you go, So I think I think that works. UM, So, so send your angry emails to UM Dave at cbo E dot com and he'll he'll be happy to respond to any of your your bitcoin questions. You know I left I left out a question about your background that I want to get to UM. In the late nineties, you were running an experimental or co running and experimental funds.

Tell us about that. Yeah. So, after the after Barkley's bought the indexing business and became b G, I myself and my then partner Don Leskin. I'm sorry, Don Leskin, I know one of your favorite people. Uh, I've crossed swords with him. I I used to do cud loan Kramer. He was my my foil and heading into the financial crisis. He seems to think I like actively dislike him. I don't.

He just could not have been more bullish and more wrong in oh seven and oh eight, and I feel on an obligation to call people that when they're wrong. I read something the other day where he thinks I'm like after him or hate him until you mentioned to me that you were working way back when, which I was stunned to learn. I I harbored, no animus. I just think, dude, you're whatever your methodology was, it was he missed the worst financial Don wrote a piece was

the Washington Post piece. I don't know, so I believe there was a piece that was written. I don't remember who wrote it. Maybe it wasn't him. Somebody wrote a piece on the in the Washington Post, an opinion piece um on the Saturday saying, you know, the economy is find everything is great, and then Sunday lemen quoted and those things always happen. And I mean, but the timing

could not have possibly been any well. We we did really well on the timing of our venture two because we launched a tech fund pretty much at the tail end of the hockey stick in the tech boom late nineties, and uh and we did. We raised a bunch of venture capital money. We launched an actively managed tech fund called open Fund, which now, but that was the most interesting part of what you guys did. You were the first totally transparent mutual funds. Yeah, and even more transparent

than ETFs. We actually had a camera on our treating floor and broadcast our tickets like ticket by ticket, so you couldn't have been short a whole lot of stuff. No, but we you know, we mostly we did very very well in our first like six months. We were we'd beat if you remember the under net net fund. We absolutely we beat that one. For the first six months. We skyrocketed, raised a bunch of money, and then somewhere crazily down the other end of this, you know, we

we just roller coastered that thing. Because we know the timing was awful. If we'd launched two years earlier, I probably wouldn't be sitting here talking about ETFs UM. But it was. It was a humbling experience in that I think, until you've sat in the chair of an active manager on a trading desk. You don't quite understand what it's like to lose a lot of somebody else's money. Oh, it's it's horrific. It is a even if you were if you were in a retail brokerage shop, if you

are trading a house account. Anytime you do anything like that where it's someone else's money and market forces going, it's you. It's nauseating. You want to throw up. No, and we I had plenty of folks actually throw up off my trading during during the worst of it, and it was, you know, it was a lot of fun. Sure, we raised a bunch of money. We you know, were

mastered in Universe for a short period of time. Um, but it was I think that experience of losing other people's money and my own obviously because we were you know, all of my money was in this fun So two th hurdle left the mark also, Yeah, that one. That one hurt a lot too. And that was you know, it was to some extent humiliating. You don't love it when your ideas go that bad. Well, but it wasn't

the idea that was bad. It was just the timing. Well, the idea of transparency in in investing transactions and not hiding what you're doing, although you always run into the issue of front running another questions. So if you were transparent on a thirty day delay or even a week delay, that pretty much covers a lot of that issue well.

And a lot of what we were doing was not particularly chastable because what, to be blunt, what we were doing was flipping I p O s. Right, We were getting good I p O alakey asans from the bear Sterns of the world, etcetera in the midst of the dot com boom, and we rode those things and then we flipped them. And that's basically a core of the strategy was new tech. That's what we did with new technology.

UM and so we day traded new technology, which looking back on it is like the most ridiculous sentence that had you kept those insuances, how would you have done? Uh? Not so well because you know, if you think back on those that ere it's it's Juniper and j D S, Uniphase and UM and you know, there was a lot of garbage in there and we were all drinking the

cool aid of the new economy. Man. This time was different so so Mark and Reason apology for the name drop, But Mark and Reason says, there's no bad ideas, just early ideas. And pets dot com was a disaster, but Chiwi is now a giant, uh success story, and it's a set effectively. Pets dot com well, and I'm sure Amazon is probably the largest seller of pet food in the country. You know, I I don't even do anything.

It's just on a regular subscribe and save and all the little dog treats, they all show up every month. I think if I if I look back and say, there was one thing that I got most wrong about my sense of the economy in it wasn't that the you know, the rise of the Internet was going to change how everything worked. It was that it would be

concentrated in so few winners. Like looking at it now, there actually were so few winners from that era, just just handfuls um and yet there were hundreds of companies that we were all excited about back then. I remember when um Wall Street Week with Lewis Ruckiser, the irrational Suberant speech happened. The general recognition that hey, these tech stocks have become unmoored from normal valuations, and a lot of these companies have no you know, Netscape went public

and then and was success. That was a giant hunger and a demand for these companies. And it was five more years before the and that's pretty much it. But you know, if you followed traditional metrics, you missed it. You drum up. So even though there were a handful of all right, Amazon survived, Apple survived, Microsoft clearly survived all these company Google came out afterwards, but all these companies had giant draw down. I remember post dot com,

you could have bought Amazon for eight yucks. Well, all I did was turned me into a passive investor again. You know, I started my career in the indexing space. I had this brief, you know, dalliance with ridiculously active management literally day trading tech stocks. And then I sort of you know, came back to religion if you will. So you you briefly, uh, we're eating trade, and then you went right back to uh, I got it. I

understand how that works. Um that that's interesting. So that we pretty much went through most of the questions I prepped on the way here. Is there any e t F thing that you want to talk about? That's a technical radio term by the way E t F than a t F than is there is there anything I didn't ask that you think is important that should the listeners should be aware. Yeah. I think that it's reasonable to ask questions about this concentration of assets we have

at the top. I think that was a good question, um. And when we look at the black rocks and state streets and vanguards to the world and their ownership of equities, it is intense right they they combined, between all of them, if they all got together as a block to decide how they wanted to vote Apple shares, would have substantial influence on what Apple's board did. That's the pushback to passive is all these guys, they what they can do.

They can't sell the shares, so what do I care what they have to say, But they can vote the shares exactly. And I think what determines how an E t F manager votes their shares, well, they have a proxy department, and I think there's been a lot of

discussion about this, and there have been. I had I had lunch yesterday with a mutual friend, Jan Vannack from chick and he we had a great conversation, Um, But we had this conversation about corporate governance, and he's a proponent of actually limiting the a votability of the shares held by pass managers, which to me is a bridge too far, precisely for the reason you're doing what you're saying, which is that, well, if they just hold the shares

forever and they're never gonna sell, then effectively they're just gonna be rubber stamps from management forever and they sort of block and well, and that this is my counter, which is that I think if you look at, for instance, just the SMP five three huge e t fs, one from Vanguard, one from State Street, one from black Rock, I think in ten years, when you go to decide which SMP E t F you want to buy, you're

not gonna care much about costs. They're all effectively going to be free, They're all going to be well managed, They're the performance is going to be with the basis point of each other. But what will be different is, well, how does black Rock vote their shares? How does van

Car vote their shares? And I think that transparency about what is important in corporate governance is going to start being much more transparent and much more important to investors, not just at the institutional level where it is now. So we haven't really talked about E s G, and that's really a whole another conversation, but even non E s G holdings like the SMP five hundred could have an E s G differentiator depending on how black Rock

van Good State Street. State Street has been. State Street has been really upfront with this with their sort of pushed on women in diversity. You know, they actually were very vocal and said, hey, we actually just voted against management on four hundred board seat elections in large cap US companies because we wanted to increase the diversity on

their boards. That's a pretty bold move. And we've seen, you know, a letter from Larry fankat black Rock that was a big Wall Street total up ed piece about you get your acts together. Yeah, and and so there's a lot of discussion going on around this, and some of this is a reaction to demands from the institutional and alman community, which often has strictures in their investment guidelines that says, you know, we won't invest in fossil

fuels or something like that. Um, they're the ones who are pushing this, but I think it's going to become a marketing issue in the next ten years. I think that's really cool. Larry Fink is another one. I have to get in here. He's on my He's on my list. If you can make it intro, I would, I would appreciate what I can. All right, I don't have you all day, so I want to get to some of my favorite questions. Um. These are the questions I asked

all of our guests, and they often are revealing. And let's start with what's the most important thing that most people don't know about you? Um? You know, I think you know. We hit briefly on sort of my initial foray into into screenwriting, into trying to be a creative writer. UM. I tend to actually think about myself first informist being a writer. Right. I happen to have ended up in finance for most of my career. I happen to have been locked into passive investing in ets for the last

twin of years. But ultimately I think of myself as a writer and a communicator and an educator. Um, and it really does come back. I mean, if I had to go back and change one thing in my career, it would not be getting a creative writing degree from the University of Massachusetts. I would hold on to that forever. I might give up the business degree. Really that that's interesting. There were some parallels there that I didn't realize that.

That's quite quite fascinating. Who are some of your early mentors? Uh? You know, I would say I went to Hollywood with some pretty grand ambitions and the woman that I ended up working for was a woman named Tara Sandler. And she wouldn't recognize me, probably in retrospect at all, but she was the producer for this live TV reality show that we were doing every day in ninety minutes live

TV called Home. And she was an unbelievable force in that business, you know, very male dominated culture, very young culture. And she sort of showed me that you can be both compassionate and a hardass at the same time. UM, and was both of those things to me and sort of whipped me into shape in a way that I think I desperately needed at the age of twenty or whatever it was when I ended up in Hollywood for uh.

And so she's gone on to produce literally hundreds of reality TV shows since then, House Hunters and things like that, and UH, and has had a hugely successful career. But I look back on like, you know, bosses that I've had and mentors that I've had, and yeah, their investment folks. You know, I got to work with Larry Tint at Black Rock and Blake Grossman and folks like that who are super influential. But I, you know, it would I be the same person without her, you know, taking me

in the backside. Probably not. That's that's quite interesting. What about investors who influenced the way you think about the world of investments? You know, it's hard not to say Burton Malkill, just because you know, if if I look at the you know, my current thinking about markets and the difficulty of active management, not the impossibility, but the extreme difficulty of successful active manage meant um, I always end up coming back to the random walk. It just

it rings true. I guess the counter valance that would be um for the same era of my life in my early twenties looking at you know, Peter Lynch and

his you know much more. Go to the mall, find the stories you like, figure out how they run their business, learn about it, and then invest in it, which is sort of the antithesis of the random walk, UM, I think, and then for the Ben Graham intelligent investor version of that, which is like, really understand where the values are in a company, They're They're almost diametrically opposed in some ways. I tend to think of Peter Lynch and and Uh and Ben Graham is sort of opposite ends of the

active investing food chain. But I think that that really helps shape my worldview having those three in the mix. Let's talk You mentioned intelligent investor Ben Graham. What are some of your favorite books? Fiction, non fiction, investing related or otherwise. So Uh, and you and I have talked about we have We've talked about frightening overlap between our bookshelf. I tend to read a lot of genre fiction, science fiction in particular. I'm a big Hineland fan. Do do

Tell mentioned a few Rubberts. Well, It's a Stranger in a Strange Land is one. I dropped that book for sure, Definitely, that's one that UM, I don't reread it every year. My wife does. There's a copy that just sits on her nightstand. Really um and the and she just heard rolls the um Lord of the Rings trilogy. But I had to stop that at a certain point so, but more recently, um, wait before you move beyond Heineland. Yeah.

One of my old time favorite quotes comes from the notebooks of Lazarus Long, which is, never try and teach a pig to sing. It wastes your time, and it always the pig. I just I just love that and and that. Having read that fifty years ago and then rereading it a decade ago, it was like a light bulb went off on, like, oh, I'm teaching pigs to sing, and I have to study that the other one for years. My password for like, it's not anymore, so I'll say it,

but um tan Staffel. There ain't no such thing as a freelan, which is another Lazarus Long is um um that that you know, all of my password had Tan Staffel. In the middle of somewhere you could go through a whole run of of Hinlan books. They were like every ten year old science fiction geek discovers Heinland and works through the whole the whole catalog. To me, the new

Heinland is China. Melville we would who wrote. The most recent book I wrote was called The City in the City, which is this bizarre book about how from effectively a new Jerusalem in which you have it's not explicitly saying this, but you have two cultures that don't agree with each other and can't get along for deep held reasons. City in a city, the city in the city and the city and they and they sort of live in the same physical space but ignore or each other. And it's

a really interesting construct. And then there's a detective story that happens in the middle of it. Um. But She's she's sort of my current favorite. What tell him? What else do you? What else do you like outside of or from within science? I tend to. I tend to also read um stuff that's as far afield from my day to day life as I can get. So I like to read science, UM shows and philosophy, um um. Well go to Lescherbach is one of my favorite. Didn't

we talk about that? I don't so. I had a philosophy class in college and that was one of the books. It's amazing, it's at it holds up, it's not an old dated it's absolutely offend someone else mentioned it. I'll have to go through the my list of books and see who else. But but that is just an unbelievable book. Yeah, so I so things like that. Um, there aren't many things like that, No, there aren't. That is that is a I mean like the Panda's Thumb, like anthropology stuff

and stumb I haven't read. Yeah, did you ever read Last Ape Standing We talked? Yeah, yeah, yeah, that that's a really fascinating science book. And Soul of an Octopus was another, so that you turned me on the Soul of an Octopus, which did right up my alley. That kind of nonfiction where you go into a world that is not related to anything that you normally just give me more. I have my own list books. I want to get your books. So, um the so I'm a

big John Scalz fan. John Scalz is a science fiction writer. I'm reading a great one right now that won the Hugo I think six years ago, called Red Shirts, which is trying to explain why all the Red Shirts and star Trek are always getting killed. Uh, And it creates this whole sort of feasible construct about what what how how Starfleet could exist in a world where they're just killing off all the people in Red Shirt? And Uh. I love stuff like that. I love things that sort

of break the mold. Um. I've actually you had I'm pardon the name, you had a gentleman talking about blockchain six or seven episodes. Yeah, I've read his book on blockchain to books. Yeah, so I've been digging deep into that sort of part of the technology. Um. And then I read a lot of really boring plumbing books about about about the industry. So like so nonfiction nonfiction stuff, um, about the mechanics of of how finance works. Yeah, Like

this is the nerdiest one you'll ever hear of. Rob Posen, who is a fidelity for years, wrote a book called After the Trade Is Made, which is about trade settlement. It's like a thousand pages long, and it is so great. It was. It's one of these books where when you read it, you now know this like arcane knowledge that like eight other people in the industry actually understand. I

love that kind of thing. I love digging deep into something that we all take for granted and then teasing out the actual under knife underneath, you know, underpinnings of how it all works. All right, So I'm going to make a book recommendation to you, and I'm assuming you haven't read it because of the data of it. But

did you have a read Black Monday by Tim Metz. Alright, so it's the entire history before, during, and after, uh the eight seven crash and all of the things you're describing, the mechanics of the introduction of futures and how portfolio insurance worked and how the trades were executed and settled and where it broke down. It's and it's a world that doesn't exist anymore, but it it surprisingly does. Actually that actually still does. We've replaced portfolio insurance with swaps

markets and all sorts of other things. But um, they're surprisingly number, surpurprising number of things that are still true today that we're true in eighty seven. That's a good one that I'll take that one absolutely. So So what is uh, what do you find most exciting right now about the et F space? Uh, well, there's no obviously new ideas like the bitcoin et F I think are interesting. I think the stuff we talked about in corporate governance

I think is interesting. I actually think the most interesting thing related ish to e T S is what's going on in direct indexing, which is what direct indexing. You and I have had this conversation before with custodians explain what direct index. Yes, so their firms like M one Finance and Wealth Front are to the come to the

top of my head, that are doing this effectively. Instead of going to an et F provider, you go to a broker like M one Finance and you'd say, here's my hundred thousand bucks, and you would subscribe to a portfolio, so you would say, I would like to be in the SMP five hundred. Here's my hundred thousand dollars. Well, you can't really buy all this doc in the SMP five hundred and the rate weights because the values don't

line up. So instead what they do is they just roll your desired position into the firm's overall desired position and assign you your fractional ownership of the shares that make up the SMP five hundred. So at the end of the day, and one knows we have a trillion dollars or whatever it is, and Dave's hundred thousand is this economic exposure, So we need to own these errors to back up that economic exposure. So they do the fractional share keeping, So I own a quarter of a

share of Apple is opposed to a whole share of Apples. Now, why is that superior to just spending eight bucks and basis points in buying the TF. Well, it cuts the issuer out of the equation entirely. But it's three bibs or five bibs. Who cares. Well, But if that three bibs can be one, it's four bibs to me, looks between one. So the reason why it's interesting is not because it cuts the three basis points down to what.

The reason it's interesting is because it makes a direct connection between the intellectual property of investing, which is really all we care about, and me as the investor, removing effectively all of the middlemen except the transaction engine, which is always going to be a broker somewhere in the middle making the transaction. So what that means is I can now go and say instead of I want the SMP five hundred, I can say I want the SMP

five hundred, but I don't want Apple. That's impossible to do with an ETN like I have to go short Apple out of the portfolio. So taking the best part about indexing and adding human terrible judgment too, well, you and I have disagreed, So so yes, it does open up that. But what it really does is it lets UH an index provider mass customized and a useful fashion.

So now all of a sudden, you could come up with six different versions of the SMP five hundred that have different E s G slams, no gun ownership, or no sin stocks, or load up on the sin stocks because I think that's oversold or whatever, and now I can have that sort of personalized index service. It also lets you do things that can be very useful, so like if it's a tax account, you can do single

stock UH harvesting, UD those kinds of issue. You can take into account the fact that you know, I, as a CEBO employee have cebow stock, maybe I don't want to load up with more cebow stock make sense? So if only ge UH employees had that, yeah, exactly, well and that and that is a real problem for a lot of corporate America. So I think that direct indexing

model eventually supplants the entire package product market. Like why do I actually need a mutual fund company in the mix if I want to be in a smart beta product? Why do I not just have a direct relationship with rob or not at research affiliates? Like why can't I just subscribe to his raffie. We'll see if that catches on. Tell us about the time you failed and what you learned from the experience, boy, other than the big one, Like I mean, we talked about open fund education one.

Um boy, I've made some really great mistakes as parent. Parent parents, parents make mistakes all the time, and uh, you know, I think I underestimate my kids a lot. Um so specific examples, you know, I've I've I've traveled

with my daughter pretty extensively. She's now in college. And we went to Paris when she was like fourteen or something like that, and we were walking through some museum and I was like, oh, well, we should see this, and we should see that, we should see this other thing, and and she got really annoyed and ended up just saying, I've already seen all of these things on the internet. I want to see all the things that I can't see and created our own, her own path through cors

the louver that never get photographed. And like my failure to realize her intelligence is something that I think I've done over and over and over again. That's that's kind of interesting. Um So, speaking of youth, give us Uh, the sort of advice you would give to a millennial or recent college grad who was um looking for career advice. Yeah, I actually get this one a lot. The number one thing I could say is pick up the goddamn phone, like the number of And this isn't a millennial thing.

I've had folks that I've hired who were in their forties and who were in you know, they're not quite twenties. Yet. There is this reluctance and modern culture to actually pick up a dang telephone and have a conversation with somebody opposed to sending them an email or sending them a text.

And the difference is enormous, Like that human connection of talking to somebody often is the difference between a lifelong relationship where you can get something out of that relationship in a bilateral way, and a transactional relationship where you just simply get a thing done and then forget about it. So, actually learning how to make and have good conversations on the phone and in person is a dying art and

it's not something anybody teaches. Interesting And our final question, what do you know about the world of ets today that you wish you knew twenty five years ago. Oh boy, um, I I know a lot more about how you can step on your own feet with trading. I used to uh sort of dismissed that, like the trading infrastructure works fine, whatever, you work with a broker. Uh. Most of the horror stories that fill up my mailbox are people who don't

have good trading hygiene, who you know, trading right. They do something they shouldn't do right. They put in a market order in the midst of a crazy volatile day, and they put in a market order in some tech e t F and they're surprised when they get an execution five percent different than what they expected. Right. And that's not E t F being broken. It's the e t F relying on an ecosystem which is inherently chaotic, quite quite fascinating. We have been speaking with Dave Natig.

He is the managing director of e t F dot Com. If you enjoyed this conversation, will be showing Look up an Inch or down an Inch on Apple, iTunes, Stitcher, Overcast, Bloomberg wherever final podcasts are sold, and you can see any of the other two hundred plus conversations we've had. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot Net. I would be remiss if I did not thank my crack staff who helps us keep these conversations together. Medina Parwana is

our producer and audio engineer par Excellence. Taylor Riggs is our booker producer. Michael Batnick is my head of research. I'm Barry Ritolts. You've been listening to Masters in Business on Bloomberg Radio