Getting Ready for the “European Kill Switch”

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Most investors are explaining it away with the standard playbook. They'll say, Well, the stocks were cheaper or the dollar is weak or it's mean reversion because US stocks have dominated. Um, but Matt Tartle thinks that misses the real story. Matt is the CEO and chief investment officer of Tuttle Capital Management. Matt has built a reputation for pioneering high-profile ETFs.

and was instrumental in the launch of single stock ETFs in the US. He's also a frequent guest in the financial media. This is his first time here on the compound. Matthew, welcome. Thanks for joining us. Hey, thank you very much for having me. So you wrote this thing where uh we're talking about Europe specifically, um, and you talked about uh the market missing the bigger story with this international stock outperformance.

And part of what you were saying was the Europeans are working on a kill switch. Um, and I wanted to start there and then we can get a little bit broader. But um for people that didn't read your piece, what is the European kill switch and why should investors pay attention to it? Yeah, and and you know, as you said in the beginning, people are are missing the boat, but they're also missing the boat just jumping into international.

You've got to be thematic. You've got to understand kind of the dynamics going on. So we did right after Trump got elected, we did EUAD, European Aerospace and Defense. figuring that you know the European countries were gonna have to spend you know, in their own companies for their own defense. We see digital sovereignty is a lot similar to that. You know, we've seen that if you're relying on somebody else for your own defense.

That's a problem. If you're relying on somebody else for energy, that's a problem. Digital sovereignty to us is the same thing. So you've got you know, this arms race going on between the US and China on AI, and everyone's kind of forgetting Europe. And Europe is sitting there saying, you know, hey, we don't want to be reliant just on the US.

We want to start bringing in our own companies. So that that that's what we're talking about. Okay. So the Europe so the Europeans in Internet 1.0, they spent most of that time Allowing US dominant technology companies to come in, companies like Microsoft, et cetera. We sold our PCs there, we sold software there. We handled the build out of their websites like we were the dominant player. Then the clo cloud computing era gets underway, let's say twenty fifteen, twenty sixteen.

It's mostly the European cloud computing is US cloud computing. It's mostly the same companies. And as we innovated, they decided they were gonna spend their their energy and attention regulating. This time they don't wanna play the same game and they wanna actually have native I mean, how realistic is it for the Europeans to ever be able to kill switch our stuff, turn our stuff off and light their stuff up. They're

They're they're not there, but you're saying like that's where things are are headed. And you're you're saying the proof of that is look what's happening with the European defense stocks. All of a sudden they want to make missiles. Yeah, and that's exactly it. I mean, there's not a European Mag 7. There's not a European Nvidia.

uh, you know, they still are going to need us. But what I think you've got is a couple of things. You've got, you know, a political situation where our leaders and their leaders are not necessarily agreeing. uh, you know, a situation where, you know, we've got a president who's maybe not doing things the way other presidents did and is unpredictable. And, you know, that they want as much and you're seeing it where

you know, France came out and said, Hey, we want to get off Teams or we want to get off Zoom. So they're only going to be able to do it to an extent. But you know, when you look at and you're talking about, you know, hey, people are investing internationally. To us, you've still got to be thematic there. Where are the areas gonna be? And if you look, you know, and I'm an ETF guy.

But I think a lot of these international ETFs leave a lot to be desired because what you're getting is a lot of financials and you know not that much tech. I would rather say, you know, I want to be concentrated in areas digital sovereignty is one. Okay. So when you buy um a developed market, international stock ETF. You're not cap you're not gonna be able to capture this theme unless it's like sort of a re rating in the multiple.

Which is sort of what we've had so far, like a rising tide lifting all of those stocks. But like if you really wanna play into this idea of the Europeans getting serious about their own defense, their own platforms, their own digital.

What do you do? Let's like let's say somebody agrees with what you're saying, then what? Yeah, I I mean so for digital sovereignty, there is no ETF yet. Okay. What are you so b what are you so busy doing all this time? Uh I mean, we're we're filing for a whole bunch of stuff. I I don't know if that Halo thing was your idea, but we just filed for that on Friday.

Yeah, no, I'm gonna sue you guys for that. Uh sorry. We could we could talk about that. We could talk about that later. Uh but so like what it what is the person who says, you know what, I agree. It really does seem like here, this is what you said. International and emerging market equities have been outperforming United States. Most investors are explaining it away with lazy narratives. Then you said the main event is this.

The world building optionality away from US policy and platform dependence. And once you see it, you can't unsee it. So some of the biggest winning stocks that I've seen internationally are like what what's Rhine metal is a a German munitions maker. Like I am seeing that start to really go. Like all of those stocks are doubling, tripling. So I would love to figure out what's the trade on this. I don't wanna see more belligerent Europe but like this Europe that's starting to feel itself.

Yeah, there are tough. Yeah, well there are some ADRs for the European digital sovereignty. There's Cap Gemini. I mean everyone knows ASML and SAP. Right. Deutsche Telekom. Ericsson, Infian, you know, nit Nebbius is one that I think a lot of people know. So there there are some stocks. There's not a lot on the ADR side, but

You know, there's probably about 10, 12 names that you could go into on the ADR side until someone decides to do an ETF for it. Okay. A lot of people over this weekend, when they looked at

the invai uh I don't call it invasion. The bombing of Iran. And the decapitation of the power structure there. And who knows, you know, where this will go. But a lot of people looked at that and they connected the dot the dots to what we did in Venezuela. And the reason why that's potentially meaningful not just for investors but also for investors, um, is that Venezuela and Iran were the primary suppliers of oil to China. And

Again, we have no idea whether or not Iran will be selling oil today, tomorrow, who they're selling it to. So, but just people looking at that and saying, wait a minute. Is this whole thing like a checkmate to China cutting off its client states that were supplying it with oil? Um, and so now this sort of does become like a macro.

challenge or or puzzle to figure out beyond just the the political ramifications. Can you talk a little bit about that idea and where China plays into the whole digital sovereignty thing in addition to the energy dependence issues? Yeah, and and and the thing that uh that Trump makes interesting when the with the markets is a lot of stuff is art of the deal. So, you know, we don't know.

why did he invade Venezuela? Why did he pull Maduro out of Venezuela? Why you know, why is he bombing Iran? We hear the story, but you figure there's a lot more to it. Um, you know, China as far as AI, physical AI is is gonna be a huge player. Um, you know, they're you know, the but you've got the Baba's, the Baiduos.

You know, those are typical ways to play a K Web, an ETF. Uh you know, no one yet has done a a Chinese specific humanoid robots. What they're doing on robots is interesting. They're also ahead of us. in a lot of areas. So I do think China is some place that you cannot ignore when you're investing globally. But again, I think you focus, you don't just buy a China ETF. You want to focus on the AI stuff. You want to focus on the robotics stuff. A China Tech a China Tech ETF will get you.

Much further down that road. Yeah, I can't see those are the companies that will do. Right. I agree with you. I agree with you. It'll help you express that that major theme. Um you've said that a US China trade fight is increasingly a third country game. The market is slowly waking up to something that central banks and policymakers have been talking about more explicitly. When trade barriers rise, trade doesn't disappear, it reroutes. That means relative winners and losers shift.

uh across European Union, EMAs, Latam, and Selected Connectors. So if you're investing internationally in this day and age, what what is the big takeaway do you think for for investors?

Yeah, so I I think it is thematic um in sticking with today and tomorrow's top themes. So, you know, AI is a game changer in in so many different ways. Бна ітсбин just hey by Nvidia. you know, buy some, you know, infrastructure, buy some cooling. There's so much more going on like the European digital sovereignty, like a Chinese robot.

you're going to see opportunities in emerging markets on the digital side as well. Not nearly as many, but you know, you want to look at and you want to look at those dislocations. You know, the the winners, the losers, the halo idea. There's so much now going on beyond what was going on last year where it's just like, hey, buy AI and forget about it. Um do you think the international stock outperformance can continue throughout the course of twenty twenty six?

I think it can. I mean, but at the end of the day, you don't ignore the US. I mean, we said it at the beginning. The the the real winners are still here. None of this happens without Nvidia. Uh, you know, you look at all the kind of key and and we do a lot of thematic research, you look at all today and tomorrow's top themes and figure out who the winners are, it's still one or more Mag 7 names.

So, you know, it it's it's a rotation. You certainly wanna be over there, but you don't want to ignore the US. A lot of investors have just forgotten that these markets exist. Um, I think on the financial advisor side, we've probably done a better job than average. continuing to build global diversification into our portfolios. But even on the advisor side, there's a lot of advisors just like after ten years.

just got sick of explaining themselves to their clients, sick of saying they're sorry every year that the SP was lapping uh the EFA and the EEM. But I still think like advisors are are better than average. Uh, certainly versus retail. But now retail is starting to rediscover that these other markets exist and that they can outperform. And I think that that's the big shift that's happening now. And my guess is this kind of thing is probably not a six-month phenomenon. I think once this starts.

People just start to learn the companies, learn the tickers of the ETF. And it it it could have three years, five years in it. And it's exciting to me because it's boring to watch the S P just beat everything every year. And that didn't happen last year. And I don't know that it'll happen this year.

Yeah, I mean I I would agree with you. And but the thing I would say is again, you've got to be thematic. I wouldn't just say, All right, I'm gonna buy an emerging market ETF, I'm gonna buy an Ether ETF, check the box. I've got that exposure. You know, there's so much going on, like, you know, aerospace and defense, what we saw that doing last year. You know, if you're just buying a European ETF or an EFI ETF, your exposure to that theme is

you know, minimal if if any. So I still think you've got to be thematic over there. But yeah, I mean I I agree. I don't think this is just a you know one hit wonder. You laid out two different themes.

One is Europe's next build out, and we talked about that defense. uh digital sovereignty, European aerospace. Those stocks have already gone up a lot and maybe they'll keep going, but that's that theme has been proven. The second theme It seems a little bit m uh squishier or more difficult for an investor to put their finger on the opportunity. But um you're talking about the Euro stack. So you say Eurostack is the blueprint, even if the first versions are clunky.

If defense is Europe's hard power rebuild, Eurostack-style thinking is the soft power rebuild, a push toward a European-controlled tech stack across compute, cloud, security, and app. Um it's not European SaaS. That's not where you think this is going. You listed four areas where the winners will be. Compliance required procurement lanes, regulated data environments.

Defense and civilian crossover, meaning security, comm satellites, and then integration/slash implementation. Um Do the products yet exist? For a one-click investor to be able to do that? Would you try to build a basket like this utilizing AI? going on the public platform, for example, they've built a an AI that allows you to express a theme and they will populate it with stocks. Like what would you do?

if you were trying to gain exposure to that Eurostack theme, that concept. Yeah, and you're right. It's not as clean as aerospace and defense. You've got specific defense companies in Europe. They're getting money, earnings go up, stock price goes up. But like I said before, they're, you know, 10 to 12 ADRs.

that you could invest in, you know, a an enough liquidity for an individual investor to invest in'em. And yeah, you can use AI to help you do that. I mean, you know, it's it's an amazing tool. you know, use it and you could create a nice little basket of of these names. Uh, you know, hopefully sometime soon there will be a one-click ETF because I do think you also want to include the locals. And, you know, they're not all there as far as I've been able to see in ADR.

I'm gonna reel off some of these names because I think for our viewers and listeners, they're probably unaware of most of them. And maybe you could react to some of these or tell us how these made your list. So on the Europe uh defense and aerospace story, you've got Airbus, which is obvious, BAE systems. Rheinmetall, if I'm pronouncing that right. Yeah, I think that's a good thing. Leon Leonardo, Saab, Thales, and DeSalt Aviation. Um

Why don't you tell us about those and then we'll and then we'll look at the digital sovereignty names after. Yeah, and in those are all very clean, like you know, the Lockheed Martins, the Raytheons of Europe. That's where the money's going. Uh one of the things that we try very hard to do when we're constructing ETF. is we want pure play.

So I get a lot of pushback on EUAD because people oh it's so concentrated. It's like look, I I could put 40 names that get 10% of the revenue from defense spending if you want to feel more diversified, but I'm not going to do that. I want to create a product that I want and those are the key names. where the money is going, you know, that are building the products that the European countries are are are looking to build for their own defense.

Right. How so that fund E EUAD, European Aerospace and Defense. How long before um the dominoes started to fall where people started to realize what you guys had realized was going to be like investable? How long did that take from the launch? Too I mean too long. Yeah, we we launched it right after Trump got elected because to me this was the obvious.

Trump trade and I was pounding the table for it and really it was it was up 70% and then all of a sudden everyone's like, oh my God, I want to buy this. Dude, you should have been listening to me seventy percent ago. Yes, but they needed to see the seventy percent in order to believe. I it is it is when when you're early. You know, we we we just launched uh you know a UFO disclosure ETF, way early on that.

I'm pounding the table that you know that that's gonna be an area you're gonna want to be in. No one's gonna listen to me on that either. Is what it is. I don't think I could follow you into that one. Um all right. Uh digital sovereignty, the plumbing. So you say these are like cloud, telco. Integration, boring, quote, boring but mandatory. Uh these are your examples of sovereignty adjacent beneficiaries. OVH Cloud, IO, NOS.

Orange, which is pipes and government relationships, Deutsche Telekom, which is pipes and public sector relevance, and Cap Gemini, which is like a migration integration player, as companies are forced to switch. From an American provider to a European provider, Cap Gemini will get some of those workflows. Um then some of the space and satellite stuff, Utelstat and SES. Um, I don't I barely know any of those companies.

So why do those make the list and why do you think investors will get the benefit of of those working in this new world that you described? Yeah, and and again, n none of these are Apple and Nvidia. Um, you know, what you get in Europe is you get telecom, you get cloud, um, you get kind of the business services. And you know, and there's a little bit of semiconductors there. Um, you know, so that's AS ASML most notably. ASML, STM, um used to have ARM, but that's

Yeah, I mean Infinian's another one. So, you know, there there's not a lot there, but though those are the names. that are there and, you know, so they're the ones that are best positioned to get these dollars if they flow out of the US companies.

into the European companies. You know, when you're replacing Teams and Zoom, you know, you're replacing them with some sort of network made by one of these companies. Which US stocks are the most susceptible to you being right about this?

I think probably Zoom. Okay. Which got destroyed last week. I didn't even see it. I've been in and out of that stock for years. I didn't even see what happened last week. Did they lose the thing? Yeah, I I didn't I didn't see what happened last week either. I think they've got a large stake in like anthropic And that could have been it. Don't quote me on that. Well oh anthropic is on the Trump administration shit list. So up yeah.

So that that could be it. Or that could be part I mean, a lot of tech stuff got destroyed. So it could have been a bunch of things. Do you worry about the Googles, Cisco's, and Microsoft's? They're much larger than Zoom. They're much more entrenched in Europe. Um D do you think that those companies are susceptible to some sort of like

nationalist wave or they're just too important? I I mean susceptible, yes, but also too important. You know, I'm not gonna say, hey, I'm not gonna own Google because I'm worried about the EU. Okay. I'm really they've been dealing with the EU since uh two thousand four. Right. To me it's more I'm gonna own Google and I'm gonna own the EU companies, not I'm getting rid of Google and buying EU.

Okay. All right. It's an interesting it's a it's a really interesting idea. Do you think there'll be a big enough market for it that an ETF launch at some point might make sense? Or you think investors are better off just finding a few tickers, learning the stories? and picking their spots. You know, I I think there's probably an ETF coming for this that's gonna make sense. Okay. You know, E ETFs are access vehicles. You know, it's easy to have a one touch

And especially ADRs. I mean, if you don't know what you're doing, you know, it could be a massive company. The ADR might not trade well. Yeah, I I I think this is something crying out for an ETF. Okay. Um tell us a little bit about Total Capital. Uh you founded the firm how many years ago? Uh 2012. Okay. We've been doing ETFs for 10 years. We've got uh a little over 4 billion in AUM, probably about 68 ETFs.

Okay. Um we we just branched out into wealth management as well. So we're we're starting to ramp up there. Okay. And you know, our we like to launch thematic things before anyone's thinking of them. We like to do professional level option strategies. And, you know, we like to do like real index exposure, not hey, here's a hundred names where really only five of them

You know, do that. And then, you know, we're known for the this the levered and inverse 2X stuff as well. I'm a trader at heart. I like to provide products for traders. Uh dude, this has been a pleasure. Thank you so much for uh thank you so much for coming on the compound. We appreciate it. Uh where is the best place for people to uh get Uh your thoughts on a regular basis. Like where can they follow you? Yeah, go go to our website Tuttle C. Yeah.

Awesome. Matthew, thanks again, really appreciate it.