ETF Rising Stars

so let's talk about what you call rising stars. Right, So when you think about the E t F landscape, there's products of them have less than fifty million dollars, so I would consider that oblivion. So we're talking most ETFs live in oblivion literally, so it's tough to get out of there, including a lot of the fancy tickers that we talk about. Absolutely. Now there's a firm middle class which has about of the products. Although there's lower

middle class and upper middle class. There's a different degree. So between one million and a billion, to me, is this sort of middle class, and then beyond a billion is sort of you're home free. You're now rich. Your upper upper class. That's seventeen percent of the product suburbs. That's right, So oblivion or middle class. Sevent are upper class. So to go from oblivion to middle class is hard enough, but then to like go all the way into the

upper class, it's it's like a swimming up stream. Ye. You know, I think this is actually happens to be a pretty decent week to bring in a little music metaphor, because you know, Spotify is in the background, having just had its sort of a non I p O I p O, right, and you actually just watched the documentary that you think kind of helps frame all of this as well. Yeah, you know, I love my music metaphors, and this one's really good. This is about a radio station.

It's on showtime. I think the name of the documentary is called Dare to Be Different New Wave, and it was basically w L I R in Long Island changed Format two from classic rock, which is all anybody was playing right stair Way to Heaven like all day every day, and in eight two they switched formats completely to new wave, so they're you know, they were playing stuff like YouTube, Duran, Duran,

Depeche Mode, Beastie Boys. This was all became eighties, right, that was the main stream eventually, And to me, that format change is essentially consistent with what E. T F to me are a format change, right, they are completely new wave, and that this radio station had something interesting

called the Screamer of the Week. And what that was They played like a few songs that they just got in that were new and the and the people would call in and vote for their favorite one, and whichever one one they played in heavy rotation the next week. So if you look at a list of their Screamers of the week, this is like early eighties. They've got stuff on here, People or People by Depeche Mode, Pretty Persuasion by R. E. M. New Year's Day by YouTube.

So they had a lot of songs that eventually became classics, but they also had some duds in their songs that you never heard of, like only You by the Flying Pickets, Connecticut by Hillary. So the Screamer of the Week was necessarily a definite classic, but it was them trying to sort of identify as early as possible a song that a breakthrough exactly. And that's what I try to do with my rising stars research when I do it on occasion.

So back to the indie rock thing sort of things are the rocks maybe they make it maybe they don't. This week on Trillions the Rising Stars of the E t F World, we also have a guest Carolina Wilson, who's a reporter with Bloomberg News. She also has a daily column called E t F Watch, so she's almost the perfect person to join us and talk about some of the ones to watch right now. Carolina, Welcome to

the show. You weren't born in the eighties. It's not when were you born in the year that fascinates me. First of all, she doesn't know anything about this radio station that you just talked about. Yeah, and like, to you, you two is probably this sort of like old man

classic rock band, right right, like my dad's rock. But in two, I'm telling you they were new wave, and there is an equivalent to E t F. A lot of millennials that's all they know is E t F. They don't even know mutual funds anymore, and so there's definitely a consistency there. But yeah, what is new wave in current today is is going to seem like old Fogy tomorrow? Do you remember the cassette? Oh the the act. I was like, oh my god, they're gonna start asking

me about bands now that I don't know. Yes, I know what a cassette is. I did, I did? Do you? How do you listen to music now Spotify? Yeah? Me too? You How about you? Are? I listened to through on Sirius in my car and then I still use iTunes old school. Yeah, I like to own it. My dad is too year old. I am. I'm okay with the world's changing. Eric, uh so, so Carolina, Um, we're gonna have Eric present his rising Star system and then we're

going to critique a little bit. But let's look backwards, right, Eric, So you use this and you you look backwards at you know, ten years ago to see if you could have identified ones from history that did break through. What what tickers and e t f s popped? So in June that's about what eighteen months ago, I looked at the fastest growing e t F Here's how we do it. We basically look for a minimum masset level. In the

case in June, I looked at one million minimum. Right, you have to have something going on to start, if you Yeah, if you look at an ETF that goes from one million to ten, that's a thousand percent growth rate. But that doesn't really You're right, so we look at a decent base of a hundred million back then and we saw which one's doubled assets A. So they grew by a hundred percent and broke through the billion dollar mark. Um. So there were five eighteen months ago that that fit

that threshold. Um, they were a mixed bag. If you want to where are they now? And we'll look to today, there was so that's a whole another thing. Yeah. So one of them was the I Shares Edge ms C I us a momentum ETF ticker m t u M. At the time it had broken through to one point three billions, so it made my list. Today it has seven point four billion dollars. It returned in the eighteen months since identified it smash hit. This was like my you know, identifying that band before they break and all

the all the radio does now is play it. That's right. So it's on every Spotify list. And Carolina she's probably written about mt u M because the flows are always making her radar. Yeah. Absolutely, But I feel like with these we have, don't we have the same issue we have with other single factor funds where they're cyclical, right, so we see money pouring into them, but I think on On Monday, m t U M fell three the SMP filed two. We have analysts saying that the momentum

trade is over. Yes, this has grown a lot, but because it's such a huge tech trade count, won't we see investors yank money from this? Right? So the momentum etia, for those who don't know, is basically it's following the heat. It's looking for stocks that are doing well, and it just sort of tries to copy what's done well. And then it also has a screen for volatility, so it's not too volatile. But long story short, it's performance chasing.

Right now, it's heavy tech, and it's it's gonna get hurt. But if tech starts to go down, it's gonna try to like sell the tech and latch onto what's doing well. Maybe it's utilities, who knows, Yeah, that's all it does. So it could have a rebound. But even if it does struggle a lot of times, when assets enter an e t F and it gets the seven eight billion, even if it has a rough year, it's not gonna

lose all the assets. It might lose two three billion, but it's it's it is now a legit and it's the biggest momentum ETF, so it is the go to for the momentum trade. So this one popped. One that was a dud basically was f x U, which is the first trust Utilities alphabex Um. This is utility stocks, but it has an overlay of growth value screens. The reason it made my list and I learned from this is that it was used in a fund of funds and once that fund of funds kicked it out, it

lost it. It's almost like it had like one gigantic investor, and so it's shrunk to two hundred million from having one point seven billion. So it's and it's only up absolutely and there's a couple in the middle, like Jeffrey Gunlock, the famous bond manager, has an e t F t O t L the double line total return. That one is up to three point four billion. That's a billion more than when we identified it. It had a three percent return. Pretty good. And then another one that I

was a pretty big hit was Noble. This is the pro Shares SMP dividant aristocrats. It looks for companies that have increased their dividends for twenty five straight years. It is a rigid screen. How's Noble done in oh, b L, how's that done? Pretty well? It was up eighteen months since we looked at it. It's not three point four billion, that's about double from when we identified it. So to me, Noble was a legit hit from this list, even with

its really strict requirements. Yeah, and Noble is like, look, everyone loves dividend paying stocks, even if you're not going there for yield, because this thing doesn't yield a lot because when you're that rigid, the stocks are going to be low yielding. But people just love dividend paying stocks. Envelope of cash from your grandmother. And it's also sturdy, st already company. So Noble was probably very much in a lot of like retirement accounts people who are conservative. Um,

and it it spawned a few copycats. So you know you mentioned your class system earlier, Eric, because there's different kind of thresholds that ets can kind of climb through. Right, So when you think about what these ones that you identified eighteen months ago, I've done where where? How far did they get and how far could they go? Still? So all of them over a billion? So I identified them when they were sort of middle class into the

elite one billion. They cracked the top. Yeah, they're they're like, they're rich. Basically they they except for f XU, which actually backslid, but the other ones are now firmly in this sort of elite category. All right, So we looked backward, Eric, you've also refined the system because of that. So let's talk about right now some current screamers that you've identified. Yeah, I feel like the when I did in the past, I got some more brand name is, like, you know,

Jeffrey Gunlock and Spider and I Shares. So I tweaked it a little bit to try to get more indie e t s in there, a little more theme ets, because when you use a hundred million base, you tend to screen out some of those. So I went to a thirty million dollar base, and I just looked at which one's had the biggest percentage jump in assets, but

I looked at flows. So in other words, who had the biggest organic growth of the thirty million dollar base, sorted by the percentage growth over the top five over a year, so the past twelve months. And so we'll start with the top. The one that just to me was on top by a mile was Bots the Global x Robotics and Artificial Intelligence ETF. It had thirty million dollars a year ago. It's taken in two point three

billion dollars since then. That's a seven thousand eight increase of organic growth in one e t F. I don't that's literally going from oblivion to like firmly in the elites in one year. It's that you'd never see that. What is it do? So? Bots basically tracks companies that are designing UH machines and robotics things for the military, the household. It's basically tech and industrials, and it's companies really focused on robotics and artificial intelligence. Carolina, had you

known about this one? Had this been on your list? Yeah? Absolutely? And I think that it's it's hard to talk about bots without mentioning it's like arch enemy Robo. Yeah, I like that. Okay, Bots launched in September. Robo also following this robotics and automation theme, launched in October. But since Bots launched, it's basically outperformed Robo. You know, we're talking about Bots being up about sixty one per cent since it launched in September versus robos fifty three percent gain

in that same time frame. Um, it's funny because I think less diversification has paid off. Here Bots holds thirty companies. Robo I think is closer to what was it, ninety holdings. But then you have a significant concentration risk, right, and maybe this is where one of the cons one of those conpoints come in for Bots. Yeah. Bots his market cap weighted, as you know that that makes you have

more large cap exposure. Typically Robo is equal weighted in two tiers, and uh, as Carolina said, it's a lot more diversified. Bots had a few large caps that took off, so it outperformed Robot. And you keep to go from oblivion to the elite, It's usually always going to be some kind of what I call a shiny object moment where the performance is so outrageous people cannot ignore it. They go after it like a shiny object and a little child. Right. And so this thing was up at

one point over the past year. It's come down a bit in the recent sell off, but it crushed Robo. It's like Terminator too. This was like Robert Patrick, you know, in the middle of the movie, just like a object for you. Yeah, exactly well done, man, I like that, say, welcome, there we go, we're cooking with and the fee right, so robot charges basis points. Bots is at st so bots are significantly cheaper the other thing bots has and this is rare for me too. Product right robo existed

bots said, Hey, I like that. Let me come out with one. This is global X. It's more liquid now it's about double the trading volume. So I'm sure robot is not thrilled about bots coming into play. But this is how brutal the et F landscape is. You can come out of the product that's very similar and just um, you know, make you eat into that other person's market specific rit man, every robot gets to find another robot. Okay, so this is shiny object, but how are people going

to use it in their portfolio? When it comes to theme ETFs, I highly recommend looking at two things. The overlap with big indexes, like how much original exposure you getting. So bots only has about one percent overlap with the SMP five hundred in the MSCI world, So it's definitely capturing a lot of unique companies. Now, granted it's got paying companies and small HAPs and whatnot. But it's pretty original.

So I would say that given it that it does have little overlap, which we call high active share, it should be used like hot sauce. You know. It should be something on the edge of a portfolio that you just believe in, but you're gonna you know, it's got what's more volatile than those indexes, so it could underperform

by more than the index. So essentially it's something to be used in small proportions, likely um and something that you have to maybe really believe in the story because you're probably gonna experience some pretty nasty sell offs here and there. Okay, next Rising Star. The next one is the Arc web X point oh e t F, another futuristic sounding et F with the ticker r k W. It had twenty one million dollars a year ago. It's taken in four hundred and three million since then. That's increase.

And this one just went won an award, right, No, So the one that won an award was a r k K a sister e t F called Arc Innovation. So this is a fun family that is managed by a woman named Cathy Wood, and they are all active and all really a lot of the products are looking at like futuristic themes like innovation, the human genome, three D printing, industrial innovation. So they try to see themselves as a the closest thing to a venture capitalist, that

is an active manager. That's interesting, right, and and that's a place that active can actually play, right. So arc A r k W this this e t F is up a hundred and fift since launching in the past year, and even six percent year to date. It's been a rough year for internet type stocks, but it's still outperforming

and it's been rewarded. If you can not just beat the SMP by a couple percentage points, but if you can crush it into oblivion, stomp on it and do a touchdown dance on its head, you will get assets. And that is the name of the game these days. I don't it's either all the money is going to cheap beta or these shiny objects that just basically run circles around the market. So currently, tell me about what this one does. Well, So Eric mentioned futuristic themes, it's

definitely capitalizing on that. But I think another way to say that is that it's it's using these giant buzzwords right now. Right, So internet of things, cloud, computing, digital currencies. I think r W was one of the first U s ETFs to have indirect exposure to bitcoin because it held I think it's largest holding at one point was g BTC, which was this um private vehicle, but this Bitcoin trust and r K it's sister fund that you

had mentioned earlier also held it. But I think that it's using some of those things to its advantage, right, Yeah, And I think if you look at the holdings, let's just look at some of the stocks and here Amazon, Tesla, Twitter, basically fang Fund. Yeah, it's it. There's but it's still not that much overlap with the SMP. It's got only overlap with that or the tech ETF. And it's interesting.

We had Kathy Wood on this the E t F TV show I do, and we asked her about, hey, aren't these high octane stocks just gonna like just crash and the performance will suffer. She said something that you know, was very noteworthy, which is she considers this portfolio deep value. She considers Amazon deep value. She just says, you have to think about it ten twenty years down the road,

and she just Amazon in particular. She's very bullish on that stock more than the other Fang stocks and thinks that that company is just um, you know, going to really change the game and multiple ways. So I think, you know, you make a strong sales case here, but you have to have the performance to back it up. And then for now she does, and then uh, it's look,

the PE ratio is so high it's negative. It's like it's like gone to kill screen because it's got companies with negative earnings, and so it's it's just, look, this is very volatile, high high price to earnings ratio. You're paying a lot for the stocks basically, and it's costly at seventy five basis points. Okay, so the next rising star I like. I like this one because it's somewhat expected, right, and it looks outside the US because it's the emerging

market Internet. Yes, e m q Q went from thirty four million dollars this time last year and it's taken in four hundred and four million, and that's a one tho increase in organic flows. I have a great story here. So I interviewed UM in May almost a year ago. Kevin Carter, he's the founder of the fund. Here in the Bloomberg office, we sat on one of these red booths. Uh, mostly because his fund was up like a whopping. It

was tiny. I had to like beg my editors to let me write about this tiny, tiny, forty eight million dollar fund. And the headline that came out of that story was Chinese tech investments spur huge returns for pint sized fund. And I spoke to him maybe five or six months later. I think he called me. He was like, they had over four hundred million in assets, and he was like, remember when you called my e t F a pine sized fund. Listen these issues given like, no,

it's my editor. Yeah, you forget, like especially this one. This is just one guy and an idea. So he's out there and so he really gets takes the media coverage seriously and that that one idea that he had though, was he wanted more China exposure because he looked at emerging market e t f s and realized that he couldn't get as much China as you wanted, and so e m q Q became the vehicle to do that. Right. It's funny because Eric he coined this perfectly. He said

that this fund had a triple dose of China. I think it holds over sixty of its geographic allocation to Chinese companies. You compare that to e M, the colossal I Shares Emerging Markets fund that has like so that's where that triple dose comes in. But yeah, it's a super targeted Chinese Internet uh play and hugely popular, and yes it's six China. But let's just take a bigger, broader step back. The emerging markets e t f s like e M and vw O that people use, they

only have about seven, eight, maybe ten percent tech. The SMP is like what tech, So you could argue that the big emerging markets in indices are underweight tech. This is a case of an e t F that just saw, and this is how a lot of ETF innovation happens. It sees a flaw in one of the big guys, and it basically comes out and tries to fill that gap.

And this I think was the complaint of hey, my emerging markets e t F isn't really capturing this like juggernaut tech movement in the emerging markets, and so this one comes out and fills a void. Going back to the music analogy, Eric, at one point you said, this is a mash up it's combining two hugely popular trends into one fund. Okay, so we got one more current

rising star that you've identified. What is that? The Crane Shares Bill Serrah ms C I China A share e t F k B A went from thirty five million in this time last year and it's taken two hundred and eighty million since then. And that's a lot for a single country. And it's just part of a single country.

It's just the A shares of China. But what this one does that a lot of people like it's It's performance has only been four percent, so unlike the other ones which have had that shiny object moment, this one has something really interesting, which is that China a share market has largely been out of out of sight because it's only available to mainly investors. China's opening up their markets and so now big indexes like the MSc Emerging

Markets are going to accept China shares years. This a t F holds all the stocks that will ultimately make it into the MSc Emerging Markets. So a lot of people buy it thinking, wow, there's two trillion benchmark to the Emerging Markets index. If I hold this. A lot of these all that money is going to have to buy a shares just to keep up with the index. Therefore, there'll be bid orders coming in for the next five years.

I'll just sit tight here for five or ten years and hold the stocks that they're going to need later. It seems like a crystal ball, but there's no there's no sure thing or free lunch. But that is why the money is going to something that's only up four percent this year. They're they're planting their steak in the ground and hoping that the money sort of comes over because as those stocks are going to be owned more

and more by foreign investors soon. Okay, so we've talked about some hits that have had breakthrough moments, some ones that are on the radio right now. Let's go ahead and like look forward program Carolina's Spotify playlist for for a year from now. What are the future screamers. One is pave the Global X Infrastructure et F. If if the infrastructure plans get done at some point, we're talking a couple of trillion dollars in spenditures. This e t F is all US companies, and we know Trump likes

the higher US. It's also specifically shaved out utilities to a degree where it doesn't have as much rate risk, right because those are sensitive to interest rates. So if rates rise in infrastructure spending happens, this one's kind of built for that, for that long haul. So I could see this one, you know, sort of getting some traction if the infrastructure plan goes through. Pave. Okay, that's good, Carolina.

What's your top pick? I like k Web. I mean this is actually another Crane shares fund, so some learned to the one that we had just talked about. But it's very similar in exposure to e m q Q, except that I think it's an even more pure play China Internet uh fund. It has almost of its exposure to China to internet companies. It's cheaper also than e m q Q is at seventy two basis points versus e m q q is eight six basis points. So I just think it's a more targeted, pure play China

Internet exposure fund if that's what you're looking for. Laying down the tracks on this Spotify playlist, paved, k Web, Eric,

what's track three on your future Screamer playlist? Okay, the Granite Shares has to commodity E T F S BAR, which is just like g l D. It's it's gold, but it charges twenty basis points, so it's like a It's basically they van guarded the commodity space and they came out with the E t F that's half the cost of g l D. And then the other one is also Commodity c O m B, which is a sort of all commodities in one giant basket, and that only charges twenty five basis points. Here's why I think

these could hit. Commodities at some point are going to outperform the other as a classes. It could be this year. It's looking like it could be. And if and when that happens and the money you know, comes over and buys up commodities because stocks and bonds aren't doing well, these are going to be in good positions. Because yes, so they came in last year when no one won of commodities and they vanguarded the category. Currently, they came

in two to three times cheaper than anyone else. Et F Securities also has a couple of cheap But if and when there's this flood of money, I see the advisor crowd choosing the cheaper ones because they love nothing more than the cheapest product. So I look out for granite shares to maybe make some headway into the commodity category.

Commodities on this playlist, Carolina, what's your next track? I like a fund the takers jets US Global Jet CTF, so it holds US and international passenger airlines, aircraft manufacturers, airports, terminal services companies. It launched in April, so a few years ago, and it just crossed the hundred million dollar asset line there and I think it's it's interesting because it is almost like this little smart beta play on a specific industry. It's outperformed the broader airline index by

almost eight percent. That's really boosted by the funds holding of Boeing, which is interesting to this week in light of the China tariffs news. It's interesting. You know, jets, we talked about a weedo We had that ticker competition. Jets is a great ticker, But the E t F that preceded it, that lived and died and is currently the graveyard f a A was the Airline et F. This is a rare case where an E t F

comes out tracking airlines. It fails, but then someone else says, actually, we can make this work, and they launched one despite the failure of the first one. Well, jets is a way better ticker than a government agency. To cale, you got bounced in the first round for picking Tan in our Ticker Madness episode, do you, in hindsight wish you would have picked Jet? No. I stand by my my Tan designation. Alright, Eric, next track on your Rising Star playlist.

Mj X The Alternative Harvest e t F. Which alternative harvest is like code word for pot. It's kind of what marijuna. Yeah, that's what you and your buddies called it in college when you were trying to you know, the down low. Anyway, m j X. The reason I think it's already got four hundred million, But this is just a hot area that could just explode. This could create shiny object if and when it's getting legalized. Well

now it is what Jeff Sessions is on this. But you know, over time, if if pot ultimately just gets legalized in all these places, especially recreationally, I mean, I don't really see how money doesn't come into this and it become a big deal. Right now, it's struggled with performance,

but four million out of the gate isn't bad. It's gonna track pot stocks and this is where you want an e t F. And I've had people ask me for pot e TF for a while because no one wants to pick a pot stock because they could go, you know, to blow up potentials high. So you have a diversified basket of pot stocks. They're all sort of young up and comers trying to make it in this new industry, and this one captures it. And I could see this being um big in the future, if, if,

and when pot does ultimately become legal. So maybe that's a long term play. Kelly, that your last track? What do you? What do you put when you back when we made cassettes, we would try and end that cassette with a really great song. So I'm gonna give you a ticker that I would have swapped mind ticker good setup. Alright's LIT, which is the Global x Lithium and Battery Technology t F. It's a bit older it launched in but it's nearing a billion dollars in assets. Um I

don't know. I mean, like we see global lithium miners and battery producers their their stocks soaring. Obviously there's rising demand for lithium because of electric vehicle makers like Tesla. I think it's gonna continue to be a good go to et F. I mean has that kind of commodity angle, it has that futuristic Tesla electric vehicle angle. It's a it's a good it's very specific, very specific. Okay, that's interesting. I would I would flip the cassette over to keep

listening to her. I think, but we've come to the end. Eric, Do you have a closing thought that you want to talk about with these rising stars? Yeah, you know, just because they've gotten assets in the past and we're trying to identify swells before they become waves. It doesn't necessarily the performance is always a question mark, and we have

to make that clear. Uh. And so I think typically the performance will get an investor's attention, but the question is do you really like the story because that you're gonna have to like the story because the performance is going to come and go. So I think that's where a bots gets a lot of help. And lithium is because people see the performance but they're like, actually, no, wonder it's out performing. I've heard a lot about electric cars.

I've heard about a lot of robots. They buy into the story, and that's key because you're going to have to hang in there because these kind of some of these themes are difficult to do. But also really I think for investors out there, a lot of people now are changing their portfolios as they kick out active mutual funds. They're going real cheap core with real like you know, boring plain vanilla type e t F or index funds

in the core keeping costs almost two nil. Then they're on the outside, they're playing with some hot sauce, and these are kind of I think some of the ones that you decorate the portfolio within small sauce, the new hot sauce. I'm not. I don't like hot sauce, butet you drop it all the time. I do because that that's I can only equate this too. Or you know, putting garlic on a dish, it's like something it's used

in minor proportions to accent the DISHU truffle. It's a good one, all right, Carolina, thank you so much for joining us. Eric Balcinas, thank you, thank you. Okay, thanks for listening. Trillion Until next time, you can find us on Bloomberg terminal Bloomberg dot Com, Apple Podcasts, and a bunch of other places I haven't heard about yet. We'd love to hear from you. We're on Twitter, I'm at Joel Webber Show, He's at Eric Balcunas, and you can

find Carolina Wilson at Caro E. Wilson. Trillions is produced by Magnus Hendrickson. Francesco Levi is the head of Bloomberg podcast Bye