Jeremy Schwartz Discusses Investment After the Financial Crisis

focusing on valuation, dividends, earnings. They have carved out a niche in the world of investing in ETFs um that kind of bypassed the question I was gonna ask, Hey, what makes you guys different from filling the blank, Black Rock, Vanguard, Dimensional funds, whatever. But Jeremy does a great job explaining what they do, what it's like to work in a fund where you have legends of finance like Michael Steinhardt as chairman and Jeremy Siegel as as one of the

chief advisers, and Jonathan uh Stein putting this together. Really a fascinating conversation for anybody who is at all interested in indexing factor based investing valuation e t f S. I think you're gonna find this to be an absolutely fascinating conversation. It's something I've been trying to do for a long time. We we Jeremy and I just keep ships in the night. Our schedules just didn't work out, and I'm glad I finally got him into the studio

with no further ado. My conversation with Jeremy Schwartz. My special guest today is Jeremy Schwartz. He is the Director of Research at Wisdom Tree Investments, where he has been asconce since two thousand and five, having risen through the ranks from senior analyst to deputy director to essentially head of research at the firm. He is responsible for the construction process and oversees all of research across the wisdom Tree equity family. Jeremy Schwartz, Welcome to Bloomberg Berry. Thanks

for having me. Let's begin with the fun stuff. You were um an early higher at wisdom Tree. You started in oh five, is that right? That's right, and you had around two thousand and eight, recently received a promotion right into the midst of the financial collapse. What was that collapse like while you were working at wisdom Tree and since also a startup asset management firm going into

the biggest financial crisis. It's the Great Depression, pastic time and you have value oing to investment philosophies, dividend based investment strategies. Financials were big parts that dividend paying universe, right,

So it was a tough environment. Also, you know, wisdom Tree was really trying to establish yourself as a pioneer in e t s. It was early days in ets when we started, oh six, there was three t s maybe three billion under management, so we were trying to novel indexing approach and so we were built not for small success. We really had bigger ambitions in mind. So we had high break events um and really trying to have a big team to to put us on the map.

So it was certainly a challenging moment going through the financial crisis UM. But we bottomed around three billions of assets in two thousand nine, a little bit below three billion. Today were forty five billions. We've seen mammoth growth over last ten years. But yeah, it was very trying times and you didn't know could you survive, could you get

past that crisis point. Everybody has a story about what was going on in their shop in the midst of the crisis, from from Vanguard to Morgan Stanley to Dave Rosenberg tells the story of his first day at work in the private sector was the day of the eighty seven crash. Tell us what was going on behind the scenes at Wisdom Tree when it felt like the world was coming to an end. I mean, what's amazing is I was on vacation in the first week of October.

We had a family vacation plan. We were on a cruise in two thousand and eight, October two thousand and eight, leaving from Asia and Asia cruise. You know, we're in starting in Japan, going to Hong Kong, China, and I looking at the screens on TVA, Am I gonna have a job when I get back? I mean, it was

really unbelievable. You see the market falling ten percent um and I didn't know, you know, where we were just as a firm wise, like how close we were to just not surviving during the depths of the crisis, Like we were weeks away from not being able to make payroll? Is that true? You were actually that close in March of O nine. Yeah, I mean we were definitely bleeding losses. We definitely had you know, a capital raising in March

of O nine. Um, and that put us on. The markets turned around and we were sort of off to the races after that. But yeah, we were we were close in March of O nine. Did you guys have a white night? Or was it the existing funders and founders basically reached a little deeper into their pocket. It's a combination. Um. So A I G came in during two thousand nine. Uh, and there was a you know, that's hilarious, isn't it. A I G said it's a Wisdom Tree. Hey, let us help you out. You guys

look like you can need a little assistance. They were investing in the investment management side. They saw the growth potential of ETS as part of ASID management and they did make an investment that that's that's fascinating and the structure currently of Wisdom Trade, it's been a publicly traded company. And one of the background is we had Jonathan Steinberger CEO, had a media company in nineties and two thousand's and he saw INDEXI and ETS when he was doing publishing.

Was called Individual Investor Group, and so he was. He saw McGraw hill, he saw indexes, he saw ETS and he's trying to create his own indexes, license him to become ETS. Well. During the tech bubble, he sold the magazine, kept the indexes and was trying to relaunch the firm UM and it was really he had this shell company is really literally a penny stock trading and then he

re raised capital and No. Four to real waunch the business UM with Michael Steinhardt, Professor Siegell, Jim Robinson from American Express funding the business and OH four and relaunching UM. But that was that was the history back back then. So it's always been publicly traded because of Johano's previous magazine days. So that's some trinity behind behind the company.

That's quite a list of heavy hitters. Yeah, I mean, you think going from trading at a few pennies right before the funding, Michael funded it in oh for at sixteen cents and the day they announced, just these these people coming together, I think it closed at a dollar dollar dollar fifty something like that. That Steinhardt guy is an up and comic. Keep an eye on, Keep an eye on him. The other thing that I find kind of fascinating, And I think I kind of knew this

about you, but forgot about it. You were Jeremy Siegell's assistant at Wharton. You helped him edit subsequent editions of Stops for the Long Run. You practically co authored a book with him. What on earth was it like being next to Jeremy Seagal during all the unbelievable um? And he was he was a fountain hose of knowledge. I was just trying to soak it all in. Um. I mean, I got so lucky of when I got to Warrant.

It was so the bubble um. That's when I first got to warr And I've done internships at Prudential, you know, sort of caught up in the tech craze. You know, he wrote our Internet socks that were valued in April, then big cap tech socks or suckers bet in March of two thousand. I meet him right after that article comes out. He's, you know, reevaluating his own portfolio from being just vanguardists and fire from the nineteen seventies and

all of his researches around. Okay, I'm telling people to sell tech stocks, yet my own portfolios vanguardist be five hundred. What should I be doing? And so I helped him do a lot of that research. I met him in two thousand one. I took well, I met him through a bunch of programs. I took his class in oh one. I needed something to do for a few months before I supposed to go to Australia from a semester abroad,

ended up working for him. Never went to Australia. Took off like two years of school to work for him full time on his books. You know, obviously set my future path. I just dedicated really my life after that towards working with him, and I sort of knew it

could be more than books. One day, because I sat in his office, I heard every conversation he had, and I knew what people wanted to do with him, and he just you know, he was very much in low fee I Vanguard, I buy the market, but he really was struggling with what is the best way to index? And so I saw there could be a potential to do more with him. Um and wisdom Tree came along with the perfect fit. But it was you know, he wasn't just unbelievable mentor and teacher and still is something

I still interact with him all the time today. How has the company changed over the past decade since the financial crisis? You know, when we started out that the idea was very simple, is everything's market cap weighted. You need some relative discipline to rebounce back to value, help try to protect investors from bubbles and things get it

really expensive. So the original conception was these value based rebalancing dividend earnings waited type portfolios and in other words, moving away from the heavy market cap waiting towards something with a different flavor. Yes, the idea was to be simple, rules based, transparent but managed valuation risk for the market. And that was the original conception, and that just applied in every region around the world, and we blanketed the

world with equities for that. UM. We've certainly branched out and continue to develop products UM currency hedging became a very major focus of the firm. UM that's one things that's really taken off. It's one thing that I'm very passionate about, where I think we have some really unique ideas that are different than the way people traditionally allocated or nationally and let's talk about that because d x J was essentially your baby. That's the wisdom Tree Japan

Yen currency, hedged e t F and full disclosure. I own it, clients of my firm own it when we want a Japan exposure, and recognized that uh Abonomics and their version of QWI was gonna really put a little pain on the end as the dollar was getting stronger. It was the perfect product. Thank you well, we appreciate your support, UH And I think, listen, I think currency is one of these very misunderstood phenomenas, and I you know, I think so it's great to see Japan take off.

It was the first currency GT have to really illustrate how currencies and stocks can work together. That often a declining currency can be very good for the stocks in that market and they move in such big directions. I mean. So, so let me interrupt you there because there's a really interesting story about d x J. It's been trading for how long now. It was one of our original et s and O six now it was unhedged when we

launched it. It was given way to Japan and it was going it was doing better than the MSCI capway of Japan by points a year, but it was you know, nobody cared enough. And as we were looking at it, and we're saying, and at the time, the end was super strong and the stocks were super weak. Dollar was weak, The end was strong, and things were about to reverse, and we kept saying, this may not go on forever, this might turn around. And you could say, everybody else

has these two bets. They have the stock bet and the currency additional risk, and the currency moving ten to fifteen percent a year. So while our our our value added on the stocks that might have been a hundred basis points, if the currency goes against you ten percentage points a year, good luck, right, So we said, just he'ld be so different by just focusing on the stock alone and not take this second So when did the

currency hedge enter that particular holding? Ap All? Right, now, I remember I haven't seen that holding, and your a u M was fairly low, the inflows were fairly low. It was doing okay, and then suddenly, you know, suddenly it was like a fuse was lit and off to the races. How did that come about? And what was it like watching these giant inflows on a product you essentially created? So we were the first firm to do currency hedging in e t F FORMA. It's not a

new concept. People have been doing charging and they've been teaching on the c f A text books for years, but we're the first one to do it in ETS. We've done our first one on a broader national basis a few months before d x J, which was what was the which is now h E d J, which was we start off with just broad EFA hedging. And what's interesting is we then made the second for listeners who are IFA is your is your core international index

that people follow? It's all the twenty one developed markets of the x US without the emerging markets Europe, Australasia, Asia, so Hong Kong, Australia, it's it's Europe, Australia, Far East. Is that essentially the shorthand? Yes? And so now how do you do a currency hedge on a broad region

that has a dozen different currencies. It's really the same way as d x J, just with multiple currencies, as you have the underlying stock exposures, and then you add a currency forward on top that's designed to neutralize and get you back to just the underlying stock exposure. So you're rolling these currency forwards on a monthly basis. But it's pretty plain vanilla, simple um. Which is the ironic thing is people think of hedging as the more exotic play,

and I say, it's actually more plane vanilla. So it's expensive. You're dealing with a lot of different it's complicated, and make the counter argument, so it's really not expensive. So it's expensive in Brazil. Brazil costs you ten percent a year in Ifa, you're being paid to hedge is actually a better than free proposition, and it's been better than free probably for the last thirty years. So the idea that it's expensive is one of these myths that I

keep trying to come back on. And I actually feel like we have this branding problem in hedging, which is you can't go back and change history. But if I if you call your international stock fund, your international double decker fund, which is your international stock plus currency fund, who would buy that? I don't know. They wouldn't. They would say, I just want the stocks. I don't want a double decker fund. And the problem is people think of the hedge is a double decker. No, the hedges

plane vanilla stock exposure, not stock plust current. So let me push back a little bit on the European hedge fund. You have a eurohedged e t f UM, but not every country in Europe is on the euro so you're ex Switzerland, your excellent, a lot of the Nordic countries, your Xenland. How European is the European fund. So HD d J, which we start off as our broad EF proxy. We saw the success in d x J. The japan

in you know, went from a hundred million. The earthquake happened and people really started training it after literally the earthquake to tsunami, everything that took place there that whacked the end and suddenly you had some well the end went up a lot, but people were starting to say it might not continue. And that's when it really started. That was trading five years six years ago, and so that's when I started training and started seeing some interest UM.

And that's when we had the idea to make the broad h E d J, which was at the start just the whole international basket. We focused it on the single currency, the Euro because we saw, hey, people can grasp the idea that a single currency the end. They started training d x J. We made the hedge h e d J just the euro Zone only, so it is just zero specific um. Euro is the biggest currency in the IFA international complex. It's a third called a

third of IFA's Euro traded stocks. So we did focus on the single currency so we can make it easier for people to make that decision. One currency Germany, France, Spain, all those Euro only countries. So yes, each e J is Euro only, but you could you could have a broader Europe fund that you hedge the euro the pound. This was frank the Norway. You could do that too.

We've focused on Euro only. That that's what I I think d x J is unique because you have one country with one currency, with a fairly uniform population and a behavior set that is very very similar. I'm not saying everybody acts and things alike in Japan, but it is unique in that there is no other sizeable country other than the United States that that has that same sort of Japan is also unique in the currency market where you actually need a week end for the stocks

to do well. So it is correlated, right, There is a real economic linkage between the currency and the stocks, and you do see profits the last five years as the currency is weaken profits have soared, so there is a real direct economic benefit. But even for small cab companies which are more local to Japan, even they trade inversely correlated to the end. So Japan just the way people trade it, you need a week end to really

be bullish Japan today. Um So it's one where when you hedge, you actually increase the volatility for the broader international basket where I'm talking about. That's where the opportunity really is. You know, for the going forward basis Europe and Japan. Maybe there's a hundred billions of assets between Europe and Japan. Mutual funds, there's one point a trillion dollars in IFA that are basically unhedged, but thirty percent

of Japan's now hedged, of Europe's hedged. The big opportunity and that I'm focused on, or we had with some tree really focused on our the EFA complex. We're adding currency adds your expected risk profile, not your expected return profile, you're did risk profile. That's pretty fascinating. Let's talk a little bit about what's happening in the world of asset management. We've heard that indexing is worse than Marxism, that this

is an American. It's the end of the world. I think that everybody who is making those arguments are sort of self interested in talking their own books. But let's at least discuss how indexing might be affecting, uh, the price discovery mechanism. What what are your views on this? Yeah, I don't think it's worse than Marxism. It's actually the definition of what people need. They want lower fees. Right, Amazon is bringing down fees for retail customers, and essentially

indexing is bringing down fees for active or asset management generally. Um. Now, there's this idea that our et s to story of the market is that flows to passive causing this quote unquote bubble in the markets or pushing up prices. For every buyer there's a seller. So I just see fees coming out of the system. Investors are being better off with fees not going to the active managers are keeping

it in investors pockets. For you to say that the flows too passive over the last decade, and passive is taking a large amount of money or last decade for them to be driving up the market prices. There people are buying the passive, who are they selling? Are they selling value managers? Are they selling the people who's who buy cheaply and just buying the more expensive stuff? And it has been a growth led market over the last

ten years. But when I look at the flows to the styles, let's say us large cap, I don't see the flows dramatically leaving value if anything. Or the last ten years you've seen flows leaving growth. You're seeing active growth, seeing out flows, and you're seeing just general trends towards indexing, which makes you question, are the flows to passive really driving up the prices of these sort of quote unquote expensive parts of the market. So I see it as

a big win for investors are keeping the fees. I don't see them as dramatically changing. And I think Vanguard did a study saying that feed compression saved investors over forty billion dollars over the past twenty year. That's a lot of money, and that's going to continue. I mean that's people people worry. You know, what percentage of the market can be indexed. It could be a lot higher than where we are today, and it should be a

lot higher. There's a lot of active managers who aren't adding value, and so in the future are not adding value active managers that Bill Miller calls them the closet index. Yeah. I love that conversation, and it's it's I see more and more of what we're trying to do at Wisdom Trees is you know, we started off ten years ago trying to provide low tracking indexes so get you very

broad exposure. Are broad diven weighted portfolios have fifteen hundred stocks, are broad earnings waited portfolios have two thousand stocks, And there we're tilting towards value and quality factors that we think can add value over the market. So maybe we add a hundred bases points over long periods of time with two percent tracking error in the earnings indexes. That's low tracking air portfolios. Those are the closet index trackers Miller is talking about, and we're doing it in sort

of low fee index type format. Increasingly, where I think the future is that we're going to be going for the higher active share, higher alpha strategies and trying to get more activeness into the portfolios as well. So so let's touch on that because that's a fascinating subject. First, I noticed you have I don't want to say a dividend way across everything. But but dear lord, dividends are really the mother's milk of wisdom tree? Is it? Is

it profitability and valuation? Or what is it about dividends that are special? And the past decade is seen a cheat money allowed a ton of buy backs? What does what do all those buy backs due to dividends? I personally would rather see dividends as an investor than buy backs. But tell me your perspective. Yeah, finance one oh one, assets are president value of cash flows for stocks? Cash flows are dividends. Where do we do is come from?

They come from earnings. So when we started ten years ago dividends and earnings, where the two families we created dividends and earnings? Okay, two separate families. We launch the US Earnings Family Global dividen. How many different funds were in that group in in earnings? We have today approximately six across different regions and different that's in the US. So what are the six in the US? Total market? Large, mid, small, And then we have some specific um sort of domestic

economy and exporter strategies. And then and what about dividends? There's a the exact number I'm gonna lose because it's like it's a large number. UM. So we do cover the world with dividend focused strategies. UM. We do India. We have an earning fund because diven end earnings fund. India is earnings because they don't pay a lot of dividends, and so we're the first firm to do India local

shares in two thousand eight. So we have the broadest India Index or India Earnings Wait Index, and that's the country we're super bullshot over. The I couldn't agree more. But it's valuation sensitive and we wanted to own the broadest cross sections. So the tradial Eta sixty seventy stocks, we have two D plus stocks, so that's one where earnings waited. We did do UM, but the idea was dividends are the subjective measure around the world, and every region outside the US N plus to the market pays

a divon. It's really the U S where we do a lot of buy backs because of stock options. If you have a stock option, you don't like to pay a DIVD because your stock goes down by the amount of the dividend. Because we have literally penny for penny and so that's what when we started doing stock options. Two is when we started paying divids less. I mean the power issue used to be seventy in the old days. It's been you know, thirty to pent in the last

twenty thirty years. UM. But so clearly buy backs are impacting the available cast for dividends. People are doing as much buybacks as dividends today. So when people look at the two percent diven yield and say we used have a four percent diven yield, will net buy backs have been one and a half to two percent? And so that what that means is and they're actually net buy back So there who docing shares out standing, which means

future dealing growth will be higher. Um. And so i've you know, we've focused when people say, do you have a dividend plus net buy back index, we've often set our earnings indexes represent that because you would basically add at historically would more technic alogy companies, which is what

had earnings and buybacks but no dividends. Now in our large cat doing next you have more tech companies financial So, UM, I gotta ask you the question that always has been scratching my head on an earnings based set of holdings. The US, we have completely wacky accounting rules and regulations. How do you manage to square the circle of every

region of the world. Every country in the world has our own set of accounting standards and and rules, and you end up with, Hey, a pe of ten in this country maybe nothing like a pe in ten of ten in a different country. You just made my case for divin waiting around the world. That's exactly why we did dividends around the world was it's an objective measure. When we started ten years ago, you didn't have to worry about different accounting centers. Now we really don't have

any cross country earnings waited funds. I mean, we have the India Fund. Um we do have any that's not exact. You are emerging market consumer fund has an earnings model, but that's you know, it's like a one off fund for US. So so in other words, when you go in country by country, you're really doing the valuation screen specific to that country, and the top ten percent across every country. What does it make a difference how their math is. It's still the cream of the crop in

each country. And that is why dividen just cut across all the countries, and so I think that's the that's the key there. Um, you can fake earnings, you can't fake dividends. For only so long can you fake the dividends. Let's talk a little bit about the future of asset management. Um, there's a sense that the Vanguard effect, the compression of fees everywhere, is not just a brief phenomena or a

shallow phenomena. But hey, it's all going to zero eventually, discuss Listen to the drive for fees lower puts more money back in investors pockets. I think it's generally the trend it's going in. It's across all segments, from asset management to advisors to everywhere. Is that's where it's going. How low can it go? It's getting close to zero. I mean it's at a few basis points for pure beta.

I mean wisdom Tree was set up living in a Vanguard world, and we were saying, we have our mission in life only mission life was can we do better than Vanguard after fees, after taxes? You got improved on the Vanguard experience because you know they're gonna always have

the lowest fees. Nobody can compete, So they're built for that for forty years, there's nobody even close to them, So dimensional funds maybe, so it's no, I mean, they're they're they're well, they're a little more expensive, they have a little deeper research bench, but you know, they're considered factor slash active. So it's there's a there's a little more on it, pure beta, zero cost beta. You're going to have that out there. But so the question is how can you add value on top of that? So

we think of that as an investment firm. Can our individual products add value after fees, after taxes? But then also then how when you deliver advice, can you try to package it in a way that adds value as well? And that's really so our first ten years that was in was about building great products, and I think the next ten years is really how do we help our clients and how do we deliver advice in a cheaper

format enabled by technology. So we're making a lot of investments in that technology side to really help advisors grow and and and leverage their businesses and then um, you know, just bring costs down there as well. So let's let's look at that um advisory firms and advisors are looking for more than just asset management. What do you you sit in a fairly unique position in the in the food chain. What do you think the financial advisors are looking for and how do you guys create something unique

for that audience. Yeah, everybody is talking about the robo world, right, the betterments of the wellffronts and and this online direct to consumer model. We are very advisor driven, so you know we're we have an advisor solutions program. We made a big investment in a firm called advisor Engine that is really a full technology stack try to help people manage from client on boarding, account opening digital. It's a very digitizing your investment practice and that's gonna be an

increasing part of what we do over time. I see it from just the conversation we've had in the last few months going out with Advisor Engine together. Um, they're becoming an increasing partner. But as well as you know are we're also we've been investing in technology ourselves for the last few years, and so we created some great tools. We call it portfolio construction services on our website, just digital portfolios, a way to do analytics, institutional caliber stuff

that people pay very high fees for. We're trying to provide for free that will help you look at your portfolio, look at different factor exposures, stress test, it creates some mappings, edit your own what we spit back out it there for you. So it's a really trying to help people

with their portfolio management side. That's available to any advisor or anybody who goes to the wood and financial professionals uh through you know, there's you gotta have to log in on our website and that's all you need as a financial professional and you can get access to the

portfolio tool. So you mentioned robo advisors. I'm a little bit of a contrarian because, hey, you know what, if you give me two hundred million dollars in venture capital money from marketing, I could raise three or four billion dollars. But the better way to think about it is, Wait, you've spent a hundred million dollars to generate four or five million dollars a year in revenue. How is that

going to take over the world. Yeah, I don't want to comment on valuations there, but it's it's everybody's going to have some element of that. I mean, it's that that technology all clients are going to access their accounts online. I think everything place already now is increasingly I mean, if you think about it, everybody who's got a custodian be a Schwab or TV, your fidelity, you get a full dashboard online. You could see your holdings. You can

more or less see your performance. What what the robos seem to do is come up with an asset allocation mob all relative to your risk tolerance. How unique is that and and is that gonna spread to the rest of the industry. I think, you know, our our firm has been investing on the advisors side. We think there there will be some people who like to go direct to consumer and people manage our own money and do that through through what they're offering, and they have very

good jet you know, generic offerings. Is that Is that going to be true for the average high net worth family. Someone has three million dollars five million dollars in the market. Do they want to pick up the phone and speak to somebody or they want to log in? I think most people there's a spa is how much of the wealth around is is advisor overseeing versus direct? I think we're still we've always from the beginning in position for

working with advisors and financial intermedis. I think that's how we continue to see. You know, so all of our investments in technology advisor solutions is really trying to help advisors build their businesses and it's very tough to find that individual client, and that's what we're going to continue

position for. I'm curious as to how much of a fear of robo advisors is a generational thing that the older advisors see the new technology and fear it, and the younger advisors say, yeah, this is just another tool in our another arrow in my quiver. And the research we've seen is that even the older generations they've been working with technology, you know, the successful people, they've been operating with technology. So they even the seventy year olds,

they need they want your a digital experience. UM So if you if you're not on board with upgrading your technology, if you're still in the paper world, clients are going to go to firms that have the digital offerings. And so that's that's the trend that we see just continuing and we want to help on the clients that we work with do that and do it do it well. So you mentioned fees earlier, we've been talking about that

for for forever. UM Very recently Fidelity introduced the concept of the Falcrum fee, which is a reduced fee if they're not out not out performing a particular benchmark. Is that's something that potentially can catch on. What are your thoughts on these fulk room fees. Conceptually, it's a very interesting I mean, it's a it's what you would think you want as a consumer products. If you're manager, you're trying to outperform. Your manager doesn't outperform, you should pay less.

And so conceptually I'm I'm aligned with it. The incentives are very hard to align it in sort of a public vehicle like in ETFU. There are some people who are starting to experiment with that, so we're definitely watching that closely, UM, and and you just you want to make sure if you're doing it, you've got align when people are invested in the fund, you know, time periods,

the incentives for both the investors in the fund. Properly timing up who's paying what when is not a straightforward proposition in the public vehicle like ETFs, I mean, as a doing a one on one, separate account where you can manage your time horizon with your performance in the fund super easy to think about. But as a ute et f rapper, that's a challenge that seems challenging me. But you know, I'm sure there's gonna be ways of looking at that and we'll we'll study that and see

think about it. So you guys are are pretty heavy value oriented, you're pretty heavy divinend oriented. These are part not that dividends are. But it's the same traditional FAMA fringe factor models. What do you think of the rise of so called smart beta, which really is factor investing with a little bit of a different marketing twist, and

you guys get painted with that same brush. What you call things is always an interesting term, and we used to call things passive alpha when we first started passive alpha, trying to get rules based ways of generating alpha in a lot of ways. I think what we're trying to provide is lo fi alpha, or you could say modern alpha. You know the idea I like that modern alpha in other words, low fie passive technology twist. And so you're

using technology algorithms to add value. It's going to be increasingly you're you're using smart technology, which is its century technologies to try to add value UM and so increasingly, where we might have been low tracking error alpha, we're increasingly going to be going after the higher tracking air real value added defined tracking a sort of how much risk versus the benchmark you're taking. So we're not talking about active share, we're talking about risk adjusted returns. Yeah,

we active share is a component of that. So the more active share you are, the higher tracking AIR is likely to be because the more mismatch you are from the front. So UM, I think about it as the closer you are to the benchmark, the lowrier tracking AIR will be. And that's what just a total market, if you have two thousand stocks, you're gonna have a pretty low tracking air. Let's talk about a little bit about bonds. We haven't gotten to fixed income at all. How are

you perceiving what's going on in that space? Can you create alpha in the fixed income side? What? What do you guys? Absolutely so we do. We have enhanced yield bond indexes. And actually you know we're here in the Bloomberg offices. Were part here with bloom Bloomberg on a number of fixing come indexes Yield Enhanced Bloomberg Barclay's Total fixing income indexes where you're just you know, historical yields are as low as they've been in the US market,

duration is the highest. But can you sort of rewaight the agg away from just treasuries, which have been huge issuance, low yield, high duration, reweight towards credit, which is what your traditional active corporates tips, what reads. What are you adding to. It's the traditional investment grade agg universe, but just rebucketing it to have constraints so you don't an increase ration too much, You don't tilt to credit too much, but it really it tilts to credit in away from

treasuries and a constrained fashion. So we have a short term version the e t F is SHAG s h a G. The longer term is AGGIE so AG y UM as a way to just yield enhancing the agg we're definitely seeing traction there. It's early days um, but I think that's our first factor investment in fixed income.

But we've also done fundamentally screened sort of credit screen so looking at in the high old market as an example, screening out bonds with negative free cash flow, not just issuing market cap, which gives the biggest way to the biggest indebted issuer, screen out those bonds with negative free cash flow, and that's a quality portfolio on bonds that we've we have four different funds screened around that as well. Can you stick around a little bit about we'll keep talking.

We have been speaking with Jeremy Schwartz. He is the director of research at Wisdom Tree Investments. If you enjoy this conversation, be sure and stick around for the podcast extras where we keep the tape rolling and continue chatting about all things value, et F and divinend oriented. Be sure to check out my daily column. You can see that at Bloomberg view dot com. Follow me on Twitter at Hults. I'm Barry Riholts. You're listening to Masters in

Business on Bloomberg Radio. Welcome to the podcast. Jeremy. Thank you so much for doing this. We have been talking about doing this for like a year and a half. I'm like, oh, I have to get you on the show for for forever. So I'm so glad we managed um to get in to get you in. And by the way, Medina and you could keep this in that last conversation where he was describing Junior Jeremy in the intro. I love that we should keep that on the broadcast portion.

So just just not or say yes or something, and I'm fine. Um So, so anyway, let's talk a little more about Siegel, because I'm endlessly amused by him. In full disclosure, I used to bust his chops heading into O eight o nine about um, just buy and hold and kind of forget to me. The O eight o nine crisis was You're never gonna call every crisis, but dear Lord, you can if you looked. I used to

call it the leaping dolphin. Remember the three D pictures people used to have on the wall, the posters where it didn't look like anything, but if you caught it at just the right angle, Oh, there's the leaping dolphin. That That's kind of how I felt about the last crisis. But full full disclosure, I'm endlessly impressed, entertained, amused by Siegell for so many reasons. Him and Bob Shiller buddies. Are there two more opposite personalities. I've got a great story on sea so um in a way of when

I was courting my wife. So my wife likes to joke that, you know, I met her in two thousand one, and I met the love of my my true life, of my life in two thousand one, which is when I started working for Siegel also, but you know that first summer I started working for him, she was taking a class where she had to do a book report reviewing and contrasting Irrational Exuberance with which Bob Schiller's book where he had had briefed Um green Span in ninety six,

and then green Span went out and gave the Irrational Zuberan speech based on Schiller's work, and then Schiller named the book Irrational Zuberans. Yeah, And so you know, they talked about how they vacation together. So on one of those two thousand one summer vacations there in Ocean City, Segul invited me to a barbecue and stay with them

for the weekend. In Ocean City. Schiller was coming down, The New York Times was coming to profile and they did the walks on the beach with the New York Times Profile, And so I got to invite my wife to the she was my girlfriend obviously at the time, just to impress to the barbecue, and she had to be she was doing this book report on Irrational zuber and she tells the professor, I have to miss class. I'm going to this barbecue with siegu and Schiller and

can I come? But she got to, you know, she wrote her paper and she was giving examples of we went to Atlantic City and they're playing black jack and Siegel was into black jack, playing the cards, best odds in the house, and Schiller didn't even you know, didn't want to play the black chacked tables. And she put that in her paper on the stories of how even they're gambling. You know, Siegel embraced the risk of liking to play black shack and Chiller was so risk averse

and didn't want to play blackjack. She gotten you know, eight plus on the paper. But that was, you know, in an interesting time. So that's those stories of them vacation together are real. Um. And actually my first project where I got to show Siegel my writing was also really to Bob Schiller. So in what way go explain that? So Stocks to the Long Run you know, came out,

he did the second dition. I was working with him on the two thousand two edition, and right after I spent the weekend or you know that vacation, I said, you know, of all the stuff topics you have in socks long when you have nothing on behavioral finance. Um, and your best friend is Bob Schiller. Come on, and you wrote a paper with Richard Taylor, and Faylor just won the Nobel Prize for a lot of his work, and Siegel and Taylor had collaborated on some work together.

So I said, let's you should add a chapter. And he's always had quantz and math people, but he never had a writer. Um, So I said, why don't you let me take a stab at it? And so I wrote the behavioral finance chapter for a Doctor long Run. And you could see if you read it, it's very different than any other chapter in the book. Is actually

written as a conversation between a psychologist. You know, a couple goes to their psychologists and having all these behavioral issues and the psychologist walks him through all their behavioral finance problems. You can see it's very different than the rest of the book. That that that's so funny. You know. I have a number of Schiller stories, but the only one I want to share is after he did the show, I wasn't gonna put Bob Schiller on on a subway.

He had to go somewhere else. So I got a car and I took him in a cab pouring rain, tons of traffic. I was afraid we're gonna be late, but he gets into the back of the cab and immediately puts on a seatbelt, and I'm like, Ah, this is a person who really understands risk. Yeah, you can see carry throughout there all all their lives. So so let's talk a little bit about segull. I have a couple of seagulls stories. Also, I really enjoy him. When

he was on the podcast. I think it was the first time I met him in person, as opposed to a disembodied head on tv um or a voice in in an in an earpiece while you're debating him about something. And the only way I could really describe him is filled with childlike wonders. Am I overstating that at all? I mean his passion for teaching, his passion for the markets. It's just that's what gets people excited. I mean why he's the most popular professor at Wharton, And let me

stop you there. Year after year he is consistently voted by Wharton students their favorite professor, and in the NBA World you have to pay for your classes, so it's a real market based system. If you have a certain number of points, you can allocate it. And I remember when this was. I haven't kept tracked with the points, but when I was there, he was always the most

highly bid professor. And it's why it's while he starts his class, his first half hour of every class is essentially just to look at the markets, and he that day he has his Bloomberg term know up, He's walking through what's going on news wise, and so it's the only you go to Wharton and you think this is the most practical thing to learn about the markets, but it's really the only class that actually does really go

through what's happy in the real time, actual market. And looking at the other thing about him that I found so amusing, he look, we go a little long the whole ideas. These are deeper dive conversations. He's sitting where you were sitting, and about an hour into the conversation and I'm doing it now, he starts just you know, it's it's swivel chair. He just starts rocking back and forth while while gesticulating and and answering the question. And

then he started and I'm wearing just one earpiece. The guest isn't wearing anything. He starts spinning in circles on the It was the most amusing, charming and transing thing. And if you listen towards the ends of the Seagull podcast, you could kind of hear him whipping around the microphone as he spins around, because like he really gets into it and was he's presenting. He's pacing back and forth, and he's like I can see him jumping on a

desk and waving his arms. He gets animated. That's for sure. That that's that's really interesting. Um, So let's talk a little b about some of the things we missed during the broadcast. There were a couple of questions I had to ask you because, uh, we talked about a lot of things we hardly mentioned. Some guy named Michael Steinhardt,

legendary investor, uh, founder of Wisdom Tree. Tell us about his role with the creation and development of the country of the company and what sort of working relationship you have with him. So I would say, he's the chairman of the company. He was the original backer and the sort of he funded the company. So Jonathan Steinberg was in Luciana Sasano was their intellectual property stort, developing the firm after the magazine initial investor group. But Michael, you know,

he hadn't done anything. He had retired, He closed his fund after literally starting the hedge fund industry, hadn't the best for twenty nine years, I think something like returned an incredible track record, and then he closed the fund in ninety four, dedicated his life to charity, Like you still have seven years of a booming bullmarket. He's like, nope, I'm done. Yeah, he just he That's another story for another day. But he closed it. He didn't do anything

finance wise. He was giving back, giving his money to charity, and he didn't do anything literally in finance until Wisdom Tree uh in decade later, two thousand four year, so he met John oh and John O was had the idea about the et F structure and and really this better way performance based indexing was his concept, and Michael was. I mean, there's a story I remember from the early days that Michael said, you know, if I was presented with the opportunity to fund Vanguard, I would have that

I would not have. He would not have because he was not about tracking the market. He was about beating the market and he wanted he saw this idea of trying to generate better performance, a very performance oriented culture, and so that's what really inspired him to get involved with JOHNO and John Oh you know, linked it up with Siegel and we helped validate their initial research and gave some academic back into why we think this could work going forward and that there was something to this.

And that's how the that sort of trinity came together of Steinhardt funding, Professor Siegel joining and also fund to get back and back in a four and joining the senior advisor, and then they brought me on together. But it's it's um, it was that performance oriented mindset that Steinhardt really wasn't inspired by. H That's quite fascinating. And I don't know Jonathan stein but I know his father was Soul Stein, who ran Reliance Insurance. This is back

in the eighties and nineties, way back when. Yeah, and I didn't really get to know Saul, but in the in this in this small world, um, you know, I used to work in the Steinberg teacher call at Wharton and Professor Siegel is the shared by Saul Steinberg. So it's a small, interconnected world of how it all comes together. Um, but yeah, it's been. It's been a great relationship. And he's also one of these passionate about et s, passionate about what we're doing, and really is assembled just a

remarkable team at with some tree. So you guys are so valuation oriented, I would be remiss if I did not ask you about valuations of stocks and bonds. First, since we talked about Chiller, let's talk about the cape ratio. Does the cape ratio tell the full story? Um, it's

a it's a it's a complicated question there. Um you know it's Siegel has done a lot of work on this, and which I find, by the way, I find hilarious that the two of them are arguing in white papers, good naturedly about what is the value of the cape? Is it worth something? Is it not worth a lot? Is it just here you're expected returns? Or does it really give us buying cell signals? And Siegel loves the framework. He thinks that it has been one of the better

predictors of long term returns. He thinks the earnings numbers are biased and that is creating problems. So counting numbers changed the O nine crisis, which is still in the CAPE. Basically, three firms wiped out all of the earnings of the spire. They were small firms. Wait to say that again? Three

How is that possible? Three firms wiped out all of the earnings of the sp basically Bank of America's City Group A I G. The way they do not exactly small firms, no, but but at the time they were by market value, they were small by market values, almost giant companies with the so so go go. We'll go through an example here, but by market value they were small at the time, and they destroyed all of the earnings.

So you're investing, and take a simple to stock example the city and but take a simple example you have of your portfolio. Okay, let's say you have a hundred forty billion ten billion dollars. One firm is is ten billion of profits, another firm is is negative nine billion, okay, and the first one So you have a hundred fifty billion market cap set and firm nagative nine billion profits

called ten billion. So you have one billion of total profits for the combined firm hundred sixty billion market cap. So is your p D sixty, or is your pe of your portfolio at what is the trooper? What is the troop or folio P? And the way S and P does their earnings is dollar for dollar, and so that's makes sense. It's a it's a problem in the way of the accounting on the on the P ratios. So so here's the pushback on that. When you look

across the universe of earnings. Let's let's hold McDonald's and g e Aside, who absolutely in the recession, so we're an earnings crunched, but they still were on the green side of the ledger more or less. But you have Lehman Brothers going to zero when Bear Sterns earnings you know,

both of them deeply negative. And then there's a hundred other financial related firms who saw their earnings compressed, be it Black Rock or U B A U B S is a A d oh, so not that, but you could look at a ton of different Every bank, the home builders totally one of the crapper, The broker dealers

got slacked, the community banks did really poorly. So while those three firms had like a massively negative earnings number, everybody else's numbers really came down or we're you know what best flat, And that's before we start talking about industrials. Auto sales fall off the cliff. I mean, you could go down the list of of sectors. So while for sure these three companies had an outsized impact, the rest of earnings fell. Well that that's the question how much

did they really fall? And so I think if you look at things like the niper profits um National incomproduct account profits or their GDP numbers where they count profits, they didn't fall anywhere near as much. And so when you do these perations, but that's not what we use for pe earning, the questions how do you get a real earnings number? And what is the real earning series? And so there's there's biases in the numbers, and you could you could debate on how much the magnitude is.

But they changed the accounting rules, so now you're forced to mark down losses. I mean, Buffett writes about this all the time. He says, I can never write up the value my assets. You can only mark down the value of assets, and so the accounting rules are one side of there. But they suspended that for banks right after what was it the October o eight debacle, and then again in um the first the whole, um, the whole.

I'm trying to remember with the which accounting rule changed, but essentially essentially we allowed banks that you could segment them, you don't have to write them down. So for all we really know, these banks were insolvent and we're running on fumes and government handouts. So I'm pushing back on the well, things really weren't that bad, they were got awful. Then, Oh no, I get that they're got awful, um, but the question is that it's been a poor in the

last three years. It's certainly been a very poor predictor, and so the question about that. So the question is, in fact, you're you're better off buying when earnings are worth their worst than buying when the earnings are worth the better best. And it will kept you out of the market for basically all but a few months, I mean even O nine, right, a few months after the market rebounded, oh nine, it was telling you to stay out of the market. And the market's up to two

to three x since then. So and then the question is at least three x in the US, to say the least. And so you know, in terms of going forward, how do you look at valuations today, I'd say, you know, the S and p P s around twenty times earnings. And this is going back and forth with Seagull, but he would say the earning seal is close to five percent today, and so you get a real earning seal of five percent versus historical average of what sixteen is

the average pe. So when he says stocks are long, when you had a six seven long term real return, that's basically one divided by the six team. So that's where you get the sixth six seven real return. Inverting it will take out the zeros. It's just the earning sale. It's just povere versus EO repeat, and so you get six seven um today. If it's the piece twenty, you get a five percent earning sield. You know, the historical

equity premium phrase two years of data was three. Today the real equity you could say the real equity premium is like four and a half because the tenure tips is at fifty and you have a five earning sield. And on top of that, and this is a whole another conversation, but on top of that, when you look at the money being thrown off by companies like Google and Amazon and Facebook. It's not like the old days where you're building a railroad, you hire ten thousand people

and buy you know, endless tonnage of steel. Look at look at what'sapp or look at Instagram or some of these other things where it's twenty people are worth five billion dollars and their core structure is a handful of laptops and some Internet connectivity. And that's the worry that people say, Well, margins are going to mean revert and they're gonna be the problem that we're at these high valuations and margins are are high and they're gonna head downward.

So that the most barrish argument is that margins have to mean reversion, but they may not because of what you're saying, that different return on capital, that you just have a different profile. M You know, the problem with mean reversion is, hey, if you're waiting for mean reversion and the leather belt companies and steam engines, that that isn't happening. And you know, I always I never want

to come across as an apologist for expensive stocks. But that's before you even start talking about the frictions of executing a trade. Buying a stock buying an ETF. It used to be immensely expensive to go out and just

buy a stock. That isn't the case anymore, right, So if you may have had to pay more than one probably paid more than one to two percent to actually get market like portfolios and get these diversified portfolios where now, like we talked in the first segment, they're basically free

to get diversification. And so how much higher should pe ratios be going forward compared to the past, and you don't have that friction, You can say you could justify a compared to a six ten p um And whenever you really did have single digit ps, you had double digit interest rates. So how far are we from double digit interest rates? So the pushback on stocks are expensive? Stocks are cheap? Hey, stocks are cheapest hell throughout the

seventies because you can get ten percent in treasury. So why would you be invested in stole if you could get ten percent in treasuries today? And we gladly go all my portfolio bonds. But if you're getting tempercent treasuries, we have an inflation problem which is going to be different, which let's talk about bonds. So there's a huge swath of bond bears who have been declaring the end of

the thirty year Paul Volcan induced bond bull market. For I don't know, about ten years we've been hearing this is the end of the bond market our bonds. By the way, you guys value the way Wisdom Tree values fixed income? Are we in a bond bubble? Well, segu and I had did some op eds in the Law Street Journal together. You don't get to choose your title in the Wall Street Journal. So that's true. By the way, for everybody who writes a column. People don't know this.

The editors choose the headline and very often it's clicking and catchy, but may not reflect the nuances of what you wrote. And the nuance of the article was by different paint stocks over tips because you had a you know, a one percent ten year tips. The first article in had one percent ten year tips, and we said you could get stocks yielding three and six years ago. That worked out. That was a good, good call. The article is the Great American bond Bubble. So the title was, yes,

there's this huge bubble and bonds. Because you had this one percent tips, then you had this negative tips shield you had negative one percent, which was really and which a few years later you had bond yields. In the U S. You would say, I'm going to give the US government a hundred dollars and get back ninety dollars after inflation ten years later on the expectation that it wasn't even disinflation, that there was full blown deflation coming away.

It was just massive risk aversion. It's like, why would you give the government and take back You would never think you would have a ten year negative tips shield, but guess where you do have that today? You still have huge negative tips or inflation adjust body was in Europe. I mean Germany's tenure tips are negative, which which is not a surprise when you look at you had a financial crisis hit the whole world. But the order of recovery was the U S was the first and most

aggressive responder. As much as people screamed about KWI and Zurup, we were the first there. Then it's arguable that Japan was next and Europe is still the lagger. Is that a fair description? Yeah? And I think even from where quee and monterary policy is going, you have the FED is quote unquote normalizing we're raising rates, we're reducing our balance sheet. You have Japan targeting zero yields on the tenure, so they sort of outsourced their monetary policy to the US.

You have the ECB negative rates at the short end, you have them still aggressively expanding the balance sheet. Um, but you could still say, why should somebody have a negative inflation adjusted body for tenure? And that's a pretty aggressive statement that that's rational unless you're you really have an expectation that we're entering a period of deflation and your money is worth more today than tomorrow. I mean, that's the only way I can rationalize it. And these

inflation adjusted yields, I mean, it's it's it's hard. It's just a sign of risk aversion that you don't trust money in the banks, that makes sense, and you don't want to get the negative you know, the CBS at negative forty and so they're they're they're sort of taxing your money by keeping them in and cash at the bank. You and I can talk about this stuff forever, but I only have you for a finite amount of time. So what say we jump to my favorite questions that

I ask all of my guests. The first one is tell me something about your background that most people don't know. You know. So, and I think about this. I have two young daughters there, two and five, and you think about how much of where what you do at a young age influences You're like, you sort of think back to like where how do I get to where I am?

And there's obviously the proximate causes getting linked up with Siegel at at Pen and how did I get hooked up with that and the people you met at Pen? But I actually go back to my dad says it goes back to when I was two and he would read me the you know, the Wall Streetjournal page in stock pages, showing me numbers and getting me interested in stocks from two years old on his knee, you know. So he thinks it was that that early. Um, I think about when did I really get good at math?

And so when I was in first grade, Um, my parents moved to Baltimore for six months and I went to this Hebrew day school where they taught half the day in Hebrew and half the day in English Hebrew. So I spoke more Hebrew in first grade than I ever did ever. Again, so we moved down to Florida and that was end of that. But I was you could could have started speaking Yiddish in parts of so Supposedly when I moved back to South Florida, I was

teaching people Hebrew in my class. But in first grade I was already in second grade math, so they accelerated me. And then I just always thought of myself as really good in math, sort of advanced from that one. You know, that first grade where you just get this edge from a different school and you transfer back to a different schoo And how much that then to establish my foundation throughout the rest of middle school, high school, college, coming in with a year's worth of credit so I could

take off a year to work with Siegel. All these things started from basically when I was in first grade. You had you had an edge in first grade, and you just carried that forward, never let anybody catch up. I mean, it's it's hard to but I think it does carry all the way back there. So here's a silly question for you, but I'm assuming we can expand on it. Who are your early mentors and feel free to talk about Siegel although we've really discussed him a lot.

At what you want or or describe other mentors. Yeah, I mean, so he's obviously been the number one that shaped the last twenty years. Um. I think one of the things that I hope to embody UM is he he said to me, you know, despite all he had obviously was successful from the books and the speaking and then wisdom he took it to another level. But he told me once that despite all that success, se um like, the impact he had on me over time was like just more even more rewarding. So I hope to have

that influence on people who work with me. And so for I'm sure that my team is listening in when the podcast comes out, I hope to have that influence on them. And uh, you know, you have to embrace it like I embrace it with him, and you gotta push me to hopefully know my team tries to take me up on that. Beyond that, I mean the co founder's Wisdom Tree Jonathan Steinberg, which Channa Circustano gave a

trust in me at a young age. I mean I was when I joined them twenty two years old, twenty three years old, and they made me head of research for his twenty seven managing a few billion dollars. So the trust and confidence in just seeing talent and trying to help you put them in a position to do well. Was was unbelievable. So they've mentored me in in unbelievable ways, um and and Seorat of I try to aspire to be.

I mean, John O, our CEO, is really unbelievable character and it really leads us in a way that just what he's been able to overcome in terms of building Wisdom Tree, I mean, it's the odds were definitely stacked against him, and he's just built this incredible team and motivated us all to rally around it and keeps us motivated every day. So let's talk about investors. What investors

influenced your approach to markets? Valuation, ETFs, etcetera. UM, some of the standards, I mean, it's very value based investing. So it's it's you know, you've read everything Buffets written and so the Behavioral Finance Crew from Failure and all all that he's written on on behavioral finance Schiller and that it's it's it's a it's a standard thing in the value quality type investing is a lot of it. UM. The one of the books I remember and he's they're

also getting a great following now. You know, in terms of the quant finance group, you know, you've read things like What Works on Wall Street from the O'shaughnessys. That was one of the first books I read with working with Siegel, So all those, So it's a lot of the standard quant value quality type folks. So let's let's talk about books. This is everybody's favorite, UM question. I'm going to put down O Sam's What Works on Wall Street?

What are some of your favorite books? By the way, fiction, nonfiction, investment related, whatever? What? What do you what have you enjoyed reading? What are you reading now? Yeah? And and and there's actually an overlap there from from O. Sam. So Patrick's reading list is probably one of my go

to sources. UM. I think on a personal level, one of the books that I read that has influenced me in my thinking is there's a book Mountains Beyond Mountains from from Tracy Kidder who profiled Paul Farmer, and you know he it was a really moving book for me and as I thought about how do I become, you know, is there some charities to embrace? But Farmers started this group, Partners in Health, and it's one that I've embraced personally partners in health. Yeah, so he's just as a one man.

He's a Harvard doctor goes to Haiti. That the book was all about his expeditions to Haiti and how is devoting his life to improving the health conditions in Haiti. But it's now expanded to their like in twelve different countries. But it was one that I found an O'Shaughnessy's list, and it's it's one that it definitely touched me and I sort of spread that to my friends who are involved in health and in health policy. It's it's a really fascinating book. What are you reading right now? What's

on your nights? Then one that I think is actually for the next decade that I just i'm sort of in finishing is um Destined for War, which I Destined for War Wow, which is some title which I picked up from Kyle Bass on one of the other podcasts I just listened to, and so he it talks about it's a Graham Allison, I think is the author, and it talks about it really the US versus China, and so it's it's as you think about the two rivalries

over the next ten years. China is ascending, It's challenging the US, and the book goes through the times in history you had these ascending rival and it's it goes back to Athens and Sparta, and it goes through all these different examples of when you had these up and comers rivaling. You know, the statu the embedded powers and attentions that creates. And I do think China's ascendance is one of the big stories for the next ten years, no, no doubt. And thank you for not using the word frenemies.

I I we all really appreciate that. Um. So you've been in the industry for almost twenty years. Is that a fair statements? Since when did you graduate? Warden? So I've been working, I'd say, really I would. I would mark my start date of two thousand one once I started working for Segull, but we graduated three al right, So you're you're fifteen years coming up on on on twenty years. What do you think is the most significant changes that have taken place taken place over the course

of that arc of time within the financial industry. Certainly ETFs have exploded, and that's right where trillion now something that we were three billion to ten times that, right, So that's certainly the one of the major trends and we're I'm lucky to be part of it and trying to shape it and try to continue to shape it.

And certainly technology has just advanced just such remarkable space that that's the next ten years is gonna be all about how you marry technology increasingly with investments, and that's I hope to be part of that as well. And um, your ears must have been burning last week. I was in an e t F event, um, and your name had come up several times. I believe one of your staff members was was actually there. Um, So let's talk

about the next major shifts. It's the rise of etf is is the biggest single factor over the past ten fifteen years. What do you think the next major change is gonna be. Well, everything has been broad based exposure so far, so you really where there's still the highest feet So if you think about this active passive shift, there hasn't been. I mean, the hedge funds is in some ways so the most expensive part of the market.

Where you know, our CEO likes to say, John likes to say that the rich get the worst advice, and so they get put in this most expensive advice for sure. Yeah, the most expensive and worst together. Come. Come for the high fees, stay for the under performance and the not ability to get your money back, no transparency, and so it's it's going we're going to increasingly go after that. And and so we start off as very broad based beta. We're doing more along short, more alternatives. We're gonna go

after that too. So alternatives being hedge funds, private equity, venture capital. You think that entire UM, well, private equity can't be in ETF al right, that's no doubt about that. But is that sector of the of the investment world ripe for disruption UM We definitely, we definitely think about that. We figured out how do we rope that into things like our advisor engine UM Investment partnership in terms of

bringing that technology oriented to the masses. But there's gonna be elements of trying to I think there's more we can do there on the private side. But but in the where the public side where you can where we focus on the et F market, we're definitely gonna think about doing alternatives and long short strategies. Tell us about a time you've failed and what you learned from the experience. UM, I mean I think about our E T s. I mean every E t F is a little startup, and

so we have a number of ETFs that fail. You close ets down, UM, you try to examine why your thesis when you start, UM, when you launched it, and it didn't gain assets attraction? What caused that? So we're constantly evaluating our failures and trying to learn from them and figure out can we do things differently over time? And a means of our greatest success stories have come

from changing. As we talked about earlier on, you change funds that didn't take off, and you change them UM, and then you say, you know, why did I miss that segment? Things that took off that you could have been their positioned well for and you try to learn from all those things. So let me let me ask the part B to that question. You guys have over fifty different funds, how and some of them have clearly caught a little lightning in a bottle. They've done really well.

How do you try and sprinkle that into a fund that might not be doing as well as as you had originally hoped for when it was launched, and I mean doing as well in terms of performance, I mean resonating with investors in attracting assets. Yeah, we close. We have close to a hundred funds in the US today, so we have a very broad menu um and they are all I actually view all of our ets as

little options where your paints. You know, you're paying a fixed cost and you've got to figure out until they get to break even, and so you're paying this sort of option premium until they potentially can have big upside. And so at some point you have to say, that's a good way to contextualize that. It's it's right they either you're either willing to pay that option premium because you still think that option might really take off and then it has really big payoffs. It makes sense to me,

and so that's really how I think about it. And so as long as we're still convinced there's a market opportunity, we you know, when we started in O six oh seven, we didn't have that kind of runway. We had to be much more careful. We have more runway today. You can afford to nurture things that might be a little pricey while internally to run it while waiting for it to hit break even for better because you believe in the you have a high degree of conviction and in

the idea, and we do close things down. You know, of course from time to time when you've just given up and you think you've given it its time and you've let a play out, but you know, we want to try to give things to take three to five years before you evaluate whether or not it's really been why you haven't been successful, and you could still close things down, then you wish you didn't close it down.

That's interesting. Alright, we're down to our last few questions. UM, you're a relatively young guy, so I'm going to ask this differently. What do you do to relax outside of the office. Um? And my wife got into yoga, so she she got teacher trained as a yoga teacher. So this summer's she we go down the Jersey Shore by the beach there and that's where we do with the most yoga. Um is our We have a Jersey Shore yoga teacher. That's it's like our guru. UM In in

in Philly where we live, we have a pool. And she says, if I ever finance doesn't work out, I should be a swim teacher. So lovelet's spending time in the water with the kids, and but a combination of yoga walking and we did the alf architect mark for the fall and which was that looks fascinating. It was a big New York Times article about that. West is great. I really like everything those guys do. Yeah, so it's a lot of walking as well. Um, you're a relatively

young person who graduated school not too long ago. But if a millennial or a recent graduate came up to you and said, hey, I'm interested in the career of finance, what sort of advice would you give them? You know, when I think back to how I got hooked up with Segell, obviously can you find that mentor who can be useful for you? And the keywords I used there when I made my pitch was free work for free. And in reality you should pay people because it's really

investment in their time. But I think out interns and even my cost to bring an intern on. If you're gonna have to spend time with things, they're not gonna add a lot of value upfront, and so they're actually a drag on you versus the time. And so you know that's true. Um, so you want to get find the right people who can mentor you and get the right opportunity, and and you got to put in a lot of time and effort early on don't come. You know,

the millennials mentalities. They're entitled, So you've got to not feel entitled and work hard and and and a lot of good things will come. And our final question, what is it that you know about investing, indexing E t FS, dividends valuation today that you wish you knew seventeen years ago when you first started UH divid investing. When we looked at history going back fifty sixty years, I mean,

dividends did very well during most down markets. Um, the O eight oh nine down market financials paid a lot of dividends, so it was not your typical down market in terms of how much down market protection you've got. So I think I learned more about sector concentration risk and just the risk of overly becoming concentrate in sectors

despite what their value signals might say. So it's something on sector concentrations that you know, I've tried to think about more over time as we developed future products, is what what sort of the sector biases or how can you control for sectors in a way that you don't get overloaded in those times of crisis. We have been speaking with Jeremy Schwartz. He is the director of research at Wisdom Tree Investments. Uh, thank you, Jeremy for doing this.

I really appreciate you being so generous with your time. Thanks for having me. If you enjoy this conversation, be sure to look up and intro down an Inch on Apple iTunes and you could see any of the other hundred and fifties something previous conversations we've had. We love your comments, feedback, end 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 me put together these podcasts each week. Medina Parwana is

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