A Conversation With ETF Issuer Jan Van Eck

pretty good, but I'm in the days. Jim Morrison is maybe not the one you want to go with. But otherwise, how are you holding up? I gotta be honest. Like we've gotten into bike riding. That seems to be like a nice way to social distance. If with my oldest son, you ride bikes and there's no cars, so you go in the middle of the road pretty much. Uh, these are small streets where the cars would be going fast anyway.

If a car comes, you dive into the sidewalk, and then you see a person, you dive into the street. And we've had fun doing that all weekend, and so we're being creative in how to get out, but I'm getting a little cabin fever. I can't wait for things to open back up. How about you. I can't wait for you to buy me a sushi lunch at some point, and you know, maybe the summer. That sounds good. But hey, Eric, I'm really excited about today's guest. It's Jon Vanek of

van Eck. What's been going on in his world? Well, Vanek has come up quite a bit, but also we've had an analyst and a reporter on the last two episodes since the crisis started and all the selling and everything, and you know, it's nice to have an issue where somebody who's on the front lines dealing with client inquiries trying to make sure the funds right run properly. Really

just to get his perspective on that. Now, the bonuses Vaneck is UH has some ETFs that are just acutely connected to what we've been seeing with the FED and the discounts and UH in video games, UH those stocks have been doing great. They have a video game et We'll get to all of it. But so there's a couple levels of why I think he's the perfect guest for today, this time on trillions. Jan vneck Yahn, Welcome

to trillions. Thanks so good to be here. So, like Eric said, here, we've talked to a reporter, uh, an analyst, but we haven't talked to somebody in your shoes on the issuer side. And especially with the FED becoming such a player in e t F s of late, really fascinated about your perspective on on that, Like, here's this whale coming into the market, um, and what's your perspective

on that as an issue? Well, it's it's it was really shocking what happened Thursday before Easter, right, the huge announcement by the FED really rocked the credit markets, and you even saw some high LDTs trading at premiums to their prior day and n A v s. So the way, if you and I haven't read all the language, but if you look at what they're trying to accomplish, it's

tilted towards investment grade and everything. But I was saying today earlier today, it's sort of like a really fat elephant trying to be super delicate and tiptoeing through the credit markets. It's would be surprising if it was done well. Let me ask you about this because the FED in their announcement we called the one in Marche the kitchen sink. That's when they went after investment grade corporates. You saw l q D take off. This next one we're just

loosely referring to is the bathroom sinc. They're gonna try to make sure they catch the fallen angels. These are bonds that get downgraded from investment grade to high yield double bees. Now you have fun ang L. We Morgan Barnett and James on My team wrote this morning talking about how ang L is like a glass slipper. It's the perfect fit for what they're after. But it seems like they're gonna probably use h y G, which only has half double bees um and maybe that's not a

perfect fit, but it's a bigger, more liquid one. What's your take on what they should do here in terms of any e t F they buy, the less the better as far as I'm concerned, I mean, I understand that half of the credit and our economy goes through bonds and not through the formal banking system, and that they that credit was falling apart, that system was falling apart, but really you know, we know that people are taking risk and making markets around our ets to make them

function as well as they can for long term shareholders. You know, it doesn't take a lot of money. Even the fear of the FED coming in and knocking your positions out drove prices I think on last Thursday. So by far, the less the better. And if Angel is not part of their buying program, that's a positive as

far as I'm concerned. And this isn't the first time, you know, a central bank has gotten involved with E t F And you know, look at Japan and and sort of the role the central bank has played there. What do you think the FED has learned from the Japanese experiment there well? And then this is the time of radical central bank intervention and where we haven't gone yet. I'm interested in what Eric's analogy is going to be is when they start buying equities or equity E t

F s UM. I don't know if you've got a room left in the house for that, but uh, you know, I think I think we're pivoting more off of the O eight O nine experience where we realized that UM the government needed to come in to make sure that the pipes weren't clogged in terms of the flow of credit, that that was just going to kill the economy even further. And I think they were. They were right at a

high level. And I think I'm not sure how much they're really buying into MMT and the experience of Japan UM in Europe. I hope not too much, because that really distorted asset prices. And one scenario that I'm not sure people are thinking about too much is what happened after O eight oh nine was a big asset melt up. Right. Can you imagine the economy running it's of capacity but asset prices exploding. I think that would have some some

interesting political consequences. The e t F buying, it looks like it might be a couple of billion. You know, they could buy, say up to twenty six billion of bond ETFs if they do max out, but they probably won't. I think the real interesting thing here is I think the flows into l q D and h y G is probably front running just of the underlying bond buying. The other part I would I would also talk about

is that when you talk about QUI. Back in the day, we used to think about how yes, they were buying bonds, but a lot of that pushed people to buy equities. It chased them into risk. So in a way they were involved with that indirectly. Japan just went right, just went right to the equities. And you know, we do look at Bank of Japan and we wrote a piece

last time. They actually became smart beta designers. They actually asked a couple issuers there to design indexes and e t f s that waited the stocks to capex and who paid workers. Well, that way, they just weren't buying companies doing buybacks. So they got that into it. And that's not a horrible idea if you're looking to get the money to the right place. That isn't the worst thing is to make e t f s that hold stocks that reward doing capex and uh, you know, paying

employees higher wage. That's sort of what they're they've gotten into. But there that's a whole another level. I don't think the Fed's gonna do that anytime soon, John, I also wanted to ask you another elephant in the room is the whole black Rock scenario here where black Rock is basically the Fed's preferred partner and all of this um, you're you're an issuer as well. What what's your read

of that? Well, I guess, uh, you know, look, they're supremely qualified with their risk systems and their presence in the markets to execute this buying program. But I certainly hope it's it's well supervised. And as I said before, going back to the elephant, the less they do the better, especially in the E T F markets where you know, our ecosystem with market makers and and everyone has risk on so whatever the FED does, they're hurting someone, if

you want to look at it that way. So I think probably I'd rather have more of black rocks activity towards the underlying markets where they feel there's breakage, rather than messing with the e t s, which you know they're they're big, they're perceived to be liquid, but we're still a fraction of the size of the mutual funds. And you know, we haven't gotten to the whole outflow story of munis and other asset classes, but a lot of that was driven by mutual funds as well. You

just mentioned the word MUNI. Now, during the worst of the sell off a couple of weeks ago, it drove dislocations in bond e t F s. That means their price was trading below their n A V. To me, that's a measure of the liquidity of the underlying Otherwise that would be armed away. Now h y D which is the high old MUNI that's your fund. It wasn't the biggest discount, but it was close to it. I think at one point it was like day after day went is high or low as now it's three post

fed Kitchen Sinc. Bathroom Sinc. Walk us through what it's like to be the issuer of a product going through something like that. Well, the primary mechanism for closing that gap is the market makers, right because theoretically they have the opportunity to buy the e t F at a price that's below what they can redeem those shares for from the fund at the underlying nav. So job one, two and three was pretty much to work with the

market makers as much as possible. One way we did that was to speed up our adoption of the e t F rule, which allows for custom baskets, which is not sort of a full capability that we had. We did that, um, you know, kind of very early on into the crisis, and then there was a lot of as you can imagine, communications with clients because a lot of people didn't understand what's going on. But I really think a lot of this had to do with the

whole selling of munis in general. All Right, prices widened and the market makers were just not comfortable whether they could sell the bonds if they got delivered from the E t F and at what price? Okay? So yeah, and I also want to talk about gaming. Are you? Are you a pretty hardcore gamer, because I mean you have a an E Sports ETF ticker e s P. Oh yeah no, but I can tell you the PlayStation

in my basement's getting overheating these days. I've got I've got three boys at home and even my oldest too, as a job is now reverted back to eleventh grade. I think, so have I. We have an Attendo switch and I've gotten addicted to this Turbo football game. Um, and I've started playing a season. Yeah it's getting um but anyway, UM, I have a on I fell asleep. I took a nap the other day and I woke up with a note on my chest. Asked my son asking me to log in to my computer so he

could play Roadblocks because mommy took the iPad. And this is why I tend to cover the video game ETFs a lot, because I can see the demand firsthand. If you look at your to date, esp O is up five the markets down and during March when the sell off was the worst Spy was down, ESPO was down ten percent. Only talk about what's going on there? Is this just people seeing the demand for these UH stocks when you have a quarantine or is this much more

of a maybe more future demand kind of buying. Well, I think we try to offer et f that are more longer term trends than just a fad UM. So you know, actually last year Eric also had really strong outperformance. It's sort of an aggressive growth type of UH E t F I would call it. And it's really work at work at home e t F. I mean, it's it's sort of like zoom stock right, is sort of a direct play on people entertaining themselves at home when they're stuck and they can't move UM. And the numbers

are astonishing. I mean one of the Asian listed or Singapore based companies has seventy million UH players a day logging in from different places in in in Asia and that's just Asia. So it's it's really it's really an amazing phenomenon. We think it will continue. I think it could morph. My my kind of point is this kind of entertainment can morph into more customer interaction. You know, you're playing kind of static game. But what happens when

the audience can affect the players in a game? In real sports and real sports, people get involved virtual reality. There's lots of ways that can evolve in a very interesting way. I think my nine year old would much rather watch somebody play a video game on YouTube then watch sports real sports with me. So this, in a way, this event just cceleerates an existing trend, right, it doesn't it doesn't necessarily shift the demand function, but definitely it

will be here in a bigger way after this. The thing about s p O is and all the video game et s, I think there's four or five of them at this point. Um, the you know, the returns have been great. If if es p O was an active manager, it would be a feature story in Forbes because they're doing so much better than the market. Right, But it's got a hundred and thirty three million. To me, this is a little light considering the outperformance in both up and down market, what do you equate this to.

My theory is advisors are hesitant to put something called e sports or video games on a client's statement, and there's just a perception barrier because robotics and cybersecurity would clean up if they were posted in this kind of performance. I kind of agree with you, um that the asset growth is a little bit less than what I would have hoped for given the performance. But I think it's just a conversation people love to have with their clients. So I don't think it's the this. You know, they're

not scared to see it on their statements. Uh, it's a very visible trend there. There people playing this in basements, they're playing it in malls. Um, you know, family members are involved. So I it's kind of cutting edge in a way. I just don't You're right, it hasn't quite broken through, but I think it could very well this year. So yeah, how do you distinguish your product from the

other products that are there? Um? You know, the main thing that we like to say that we have in our thematic ets is pure play, so that they're really trying to get a majority of their revenue from the essence of what we're trying to capture. So we we do have some bigger companies in there, but we cap them. And then if you look at the portfolio as a whole, and it reflects a lot of Asian names, and that's

really where there is a very big phenomenon. So uh, you know, when I think we were the second or so ish to come out that the first one was just video games, this was more, uh some of the gaming and online sports aspect of it. So that's uh, that's really how we would focus our you know, that's what we did. We follow our regular rules for pure play. Um,

oh kay, let's change it. We'll stick with equities. But I want to change the topic to something that was put to put on the back burner for the last month, but was on the front burner for like six months prior, which is E s G. Um. It's probably gonna come up again as soon as the market I've already seen bubbling of like E s G debate coming back. You're interesting to me because you have this e t F

that's low carbon energy smog is the ticker. You also have a green bond ETF, but you also are the issuer of k o L, which is the coal E t F, And personally, I kind of dig uh the sort of look, I'm just trying to serve the people, whatever your take is. But is that by design or by accident? Can you explain, sir, having up those two different sides of the coin. Um, well, they're a little irreconcilable, I guess if you want to look at it that way,

So I'll grant that up front. Um, you know, ko L was from our first era of ETS, a long time ago, when we were just trying to capture pure play and people hadn't broken up the resources world in ways that made sense, so um, lots of mining things where everything was just thrown together. So we stripped aside agriculture shares like MoU and KOL was one of them.

It's it's barely an E t F anymore. I think it's thirty million last I looked, And you know, we've considered, uh um, you know, thought about what to do with it in light of changing customer demands. But you know,

you may know we're also an active money manager. We have actively managed funds, and I think there's been a lot of good thinking about E s G. But we certainly spent a lot of time on it, and I would just point out I think I think we're on the same page year that E s G one Dotto and the for Active Managers was making sure that they took more of a three degree look at the different

kind of risks that their companies could have. Environmental and social governance was always a part of what they did, and um, I think now putting them into index funds is a strain and there's a lot of trade offs that need to be made. So we think the pure play on environmental is something that we can execute on now. John, I also want to just ask you, as we sort of come to an end here, what do you feel like the E t F world isn't talking enough about that?

You know, when we get through this moment, we should spend more time talking about Well, I don't know, it's certainly mentioned, but it's an incredibly concentrated industry and the big shareholders really own a lot of corporate America, and you know that's sort of been talked about without a lot of suggestions. You know, Jack Bogo wrote about it in the last PC did for the Wall Street Journal

before he passed away. So I think that's that's a big reality, and black Rock doing the buying for the Treasury and the Fed is just going to be, you know, another another thing to talk about in that vein, but not much we can do about it, I guess as an independent issue or just kind of make it work it through Yahn. We got to ask about Bitcoin. I know, that's another one of these issues that kind of went to the backburner a little bit when when the vix is up, a lot of this stuff just goes away

for a while. But it's gonna come back. Bitcoin and whether it will be an e t F Tyler Winklevoss tweeted out on the tenth April the launch of the Bitcoin fund on the Toronto Stock Exchange was one of the best clothes and fund launches in Canada's history. So it's a closed the funness on an e t F, but it's similar. I mean those aren't too far apart there,

you know, close in the genre, right. What's your take on, you know, whether we could see a Bitcoin ETF here, whether you know the sec is you know softening at all. I know Matt Hogan over a bit wise has been working over time to try to get them to um, you know, change their view on it and look at

it as a good thing. There's a couple o t C products in the US that are private trusts and they trade it, you know, anything from fift premiums, and a lot of people can say, well, you know this, a bitcoin e t F would trade it maybe a one percent premium at that, maybe even lower. Why wouldn't they allow it if these other products are out there and you act actually get hurt buying at a high

premium and lose money even if bitcoin went up. Yeah. Look, I mean you know that we've been trying to get our own bitcoin et F approved for several years now. There's no real legal or uh you know, investment reason to not allow a product like that. And as this episode has reminded us in the markets, you don't need to have bitcoin to have volatility. And I think the e t F would just add to UM the ecosystem for for uh you know, bitcoin e t F would

add to the ecosystem of that investment class. I will point out that, you know, gold, this has been a time when central banks are going so nuts that appetite for gold and and bitcoin goes up. And actually the correlation between bitcoin and gold bullion has gone from about zero before this year to something like a point five

correlation this year, which is actually super interesting. I would say so far both have been uh you know, working independently of the overall markets, but they haven't broken through. And what's amazing is just investor appetite in the traditional world is I think not as big for bitcoin as people might imagine. I could be wrong, but I don't think it's necessarily an instant billion dollar e t F eric. Yeah, and I don't think it's gonna take over Middle America

with Grandma was losing all that. I think people will see a bitcoin and on the name, and it will track the people who seek it out. Yeah, I see it. Maybe the whole category a couple of billion. This is me using the ones in Sweden and Switzerland. They haven't exactly let the world on fire and all of Europe gets there and wealthy people here could buy them. So um, yeah, I'm with you. I think it would find the right audience,

people who I don't know. I I'm very I think it's e t F S gives something the best possible shot at a good deal because of that arbitrage mechanism, which you don't get in the OTC product or closed and fund agree, Yahn, do you have a would you like to leave our listeners with the closing thought today? Um,

it's kind of a macro thought if you don't mind. Um, you know what I said about a month ago, because we do quarterly investment outlooks sort of in the spirit of this podcast, which is what do I kind of see as a CEO that you might not as a portfolio manager or strategists and stuff like that. And I said, listen, we're entering a period of heightened uncertainty, and markets hate uncertainty, so kind of watch out. And I think that period

of heightened uncertainty, because there's always uncertainty, is going away. Um, it's not disappeared, but things are starting to become more visible. It may not be great news, like to go back to work stats and shina I saw las start. You're kind of depressing. But as visibility appears, and despite what the FED did, you know, I think it's time for investors to kind of start buying. Don't don't buy everything, but you you like someone's uncertainty when you're buying so um.

I think we're finishing phase one of this era. I would say, John Vanek, thanks for joining us on Trilliance. Thank you guys. Thanks for listening to Trilliance until next time. You can find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcast, Spotify, and Webber. Else you'd like to listen. We'd love to hear from you. We're on Twitter, I'm at Joel Webber Show, He's at Eric Faltunus, and you can find Yawn at Yon Vanneck with the number three at the end. You can also follow an x podcast

Trends with Benefits. This episode of Trillions was produced by Magnus Hendrickson. Francesca Levy is the head of Bloomberg podcast by