Well, CNA trillions.
I'm Joel Webber and I'm Eric Alchunas.
He sounds like you've maybe even a little sick. Something's off in your voice.
Yeah, I got a I caught something probably from my youngest. Who knows what these kids bring home. But I was kind of down for the count for about forty eight hours. And then I love that feeling when your immune system starts to take the lead and you're like, oh, yeah, here, right, here we come. And then I also had some antibiotics left over from the dentist. It's like dropping bombs on that thing.
Okay, well, welcome back in Happy twenty twenty five because it's still new in the year and I know predictions are a thing and the market has not been off to a great start, but it felt like a good moment to actually still talk about what might happen with the little crystal ball.
Yeah, everybody has predictions in the cell sid It's like, oh, the market has a forty per chance of going up, and it's also opaque, and I don't know, it's like safe. There's a couple of people out there that make very specific predictions and they end up going back and like saying was I right or wrong? I love that because you don't get that a lot from a lot of
the prognosticators out there. This guy, Nate jerrasi from the ETF Store, fellow ETF nerd veteran of the industry, has five predictions every year, and he these are really interesting predictions. I agree with three of the five, only Joel, but I think it's gonna be fun to unpack these because they all really tap into some huge themes that we're probably gonna cover us of the year as well.
So joining us on this episode Nate Jersey, president of the ETF Store. He's also the host of ETF Prime, another ETF podcast, as well as Vildonna Hirich of Bloomberg News. She's a crossasser reporter. This time on Trillions. Nate Jerrasey's predictions for twenty twenty five. Nate, Vildona, Welcome to Trillions.
Thanks for having us, a pleasure to be here.
Okay, so, Nat, you've been doing predictions since twenty eighteen. According to this little helpful memo, you started really strong, you were like five for five, but then last year, well ever since then, things have been kind of trending. Downward and last year one for five. Why should we listen to you in your predictions.
Well, first of all, I will say, from twenty eighteen to twenty twenty two, I went nineteen for twenty four or twenty five, which is pretty darn good. You're right. The past two years have been brutal overall. Actually I've gone two for ten though, I will say, and Eric knows this, I did predict last year that spot Bitcoin ETFs would obliterate every single ATF launch record, which I clearly nailed out one that should be worth at least an extra point or two. But Joel, I feel good
this year. I'm ready to get back on track.
Okay, Well, past performance not indicative of future performances. As we know. Eric tell us about Nate because you go on his podcast a lot, right, Like, what statue does he have in the industry?
Well, I met him because I heard there was this like radio show about ETFs that was delivered through ESPN Radio or something, and this was back in like two thousand and nine when it was very nascent industry, and I listened to it and it opens with the who's won't get fooled again? You know that it's a great intro, and I was like, who are these guys? And they they would they came in from like the Midwest, and they would they would go back and forth about ETFs,
and I was like, Oh, this is great. But what made them extra level was they are managing money.
They are advisors, so.
They have that interaction with the actual investor, which to me helps their opinion of ETF's actually resonate more. And so I think both of us, in separate places, me and Philadelphia, him and Kansas City sort of like saw the ETF as being a big deal, you know, early, and so we had that sort of kindred spirit. And then when I met him, it was obviously like you know, mutual appreciation society.
All Right, Nate, you're gonna wan to drop your predictions on us, and then we're gonna comment on them, and we'll try and be friendly about it, but maybe critical too.
Uh.
Okay, let's hear your first prediction. Okay.
Prediction number one is that either the I Shares s and P five hundred ETF TICK or IVV or the Vanguard S and P five hundred ETF TICK or VO, either one or both will chot fees this year in an attempt to capture the ETF crown.
That ETF chrowme belongs to Spy.
The spider S and P five hundred ETF.
Okay, so within the S and P five hundred ETFs you're predicting this is this is a year that it's gonna get fierce, even fiercer.
Yeah. And look, people have predicted for several years, including myself, that either IVV or VU would overtake SPY in assets. But that's not my prediction here. I think that having the largest ETF buy assets actually means something to these issuers.
And the way that I alloy out this prediction to you is I spoke with Black Rocks Rachel Laguire back in December and she told me that the I shares Bitcoin ETF, which we can talk about crypto in a minute, but she said that was attracting a lot of new investors who were then actually looking at other I shares ETFs. So in other words, the bitcoin ETF was serving as like a magnet to bring in investors who then bought other I shares ETFs. I think it's a similar situation
with these S and P five hundred ETFs. Right if an investor chooses, say IVV, I think they're much more likely to look at other I shares ETFs, and the issuers know this, And since these ETFs all do the same thing, they invest in the S and P five hundred. I think it really comes down to fees, And so I think one of these issuers is going to chop fees because they want that ETF crowd but want.
These back already, like just like barely existent, like they're so cheap to begin with.
Yeah, they're three basis points. I don't think investors really trust zero or want zero, but two or one maybe. I think it has to be Blackrock. Vanguard probably doesn't need to do it, and I've actually advised them, instead of cutting fees anymore, put that money towards customer service next time you have that extra profit that you need to spend. But I could see Blackrock doing it in your I think, so I agree with this probably, I definitely agree.
That VU will take over a spy this year.
Right now, WU is ninety five percent of the way to spy at the beginning of the year. Last year it was ninety percent. It makes up five percent every year, So do the math. It's probably going to pass it this year. IVV probably can't catch VU in this because they don't take in as much flows. So they to me if they cut the fee, and you know Blackrock is very motivated by beating Vanguard. I could see IVV cutting the fee, then then he may see Vanguard tie.
I could see it. So I'm eighty percent I agree with the fee cut. I'm one hundred percent that I think VU will pass Spy this year.
A wildcard that's out there is SPLG, which is a spider portfolios and P five hundred ETF, so we call this mini Spy and its expense ratio is only two basis points, so it's actually cheaper than both IVV and VU, and it finished in the top ten of ETF inflows last year. I just don't think that I shares in Vanguard like a competitor being out there who is lower cost. The other thing I'll mention, I agree with you Eric in terms of Vanguard allocating money towards technology and customer service.
But that Vanguard flywheel, it's like they can't help themselves.
Right.
We know that as their funds grow that allows them to further leverage their back office economies of scale. That allows them to run the fund even cheaper, and then they pass those savings on to investors. With Vanguard's mutual ownership structure. I just think you have to assume that as VU grows, they're going to reach a point where investors will get a fee cut. I think it's a matter of time. So maybe I'm cheating a little bit with this prediction because I just think that's going to happen.
My only counter to that is they're really pushing their active move because they were late, and they may choose to use that to cut the fees on those funds to be the cheapest vandguard Vanguard. Yeah, but again we'll see if black Rock cuts. I just I could see Vanguard responding. But again, we're at three already, maybe two.
I think once you get to one or zero, it starts to look like gimmicky, Like the customer's almost like, you know, I don't want to have be like I don't want to pay nothing, because then I got to worry about how you're going to like screw me somewhere else.
Phil Donna, what do you think?
I have a couple thoughts. One is just conversationally based, Like if I'm talking to non market civilians. Maybe we can call it like my high school friends. If they're talking about the market, they say I'm buying vou like
they don't. I never hear IVV in conversations. But the other point that Nate makes and his predictions is that even if they do cut, one way for them to offset is through securities lending, which a bunch of these issuers do, maybe almost all of the issuers do, so that it's one way for them to make up for cutting the fees, which is really interesting. It's an interesting trend.
But if SBOG already is at point two, you know, it's been like that for a while, why if change or if for IVV wanted to cut, why haven't they yet.
Yeah? Yeah, so take that, Nate, Take that, Nate, Okay, we'll see what happens. Okay. Prediction number two, Nate, Okay.
Prediction number two is that this will be the year of crypto ETFs. Notice I'm not saying spot bitcoin ETFs. That was twenty twenty four. I think twenty twenty five will be the year of crypto ETFs. And I have ten predictions. I won't go through all of these, but they range everything from spots Salona ETFs will be approved to Vanguard, will allow clients Brokeragje access to Spot Bitcoin
and ethere ETFs. Spot ethere ETF staking is a proved It's really a cornucopia of predictions here that I think all tie into a huge tailwind behind crypto ETFs.
So do you think to kind of summarize, are these going to be coin specific ETFs or are we going to start to see the indexing of crypto into a product.
I think it will be both. So I think we will see spot Salona ETF's Spot XRP ETFs, their filings from both Grayscale and Bitcoin for index based ETFs. I think we're going to see everything, and I'll just tell you in a nutshell, really, this is all one huge bet on the Trump administration that they're actually going to deliver on their campaign promise or the innuendo that we heard that they're going to be pro crypto, and if you look right now, the early indications are that they will.
Right we have Paul Atkins set to succeed Gary Gensler's SEC chair. He's clearly viewed as being pro crypto. David Sachs, who he runs a VC fund he's sought to be very tech savvy. He's filling this new crypto's our role. There's also a Crypto Advisory Council being formed. The point here is that it does look like the Trump administration will be much more supportive of crypto. And if that's the case, then I'm highly optimistic on all ten of these crypto predictions, or I should say nine to ten.
The vanguard one we can talk about. Not quite as confident there.
Yeah, I agree with that, he says, fifty launches. Yeah, it's going to be like instead of the coin Tucky Derby was just Bitcoin, it's gonna be like this all out like Derby Derby. Yeah, universal alt coin Derby. It's gonna get crazy.
Now.
A lot of this stuff is just going to get ignored. I mean, you still think bitcoin ETFs take the lion's share of this category. But you know, one of these coins is going to have a nice run and gonna be like the playful thing for a minute. But it's still going to be prominently Bitcoin bringing in the big boy flows.
So are you two for two with are you like is it one and a half or no?
No, No, I'm gonna agree with this one. Too, except number ten, So I guess I'm one tenth. This isd Vanguard capitulation allows clients broker j access to spot bitcoin and E three ETFs. I think it happens. I just think you're early. I think it takes. It's gonna take a littlehile because remember Vanguard's pretty proud and they came out and said, we don't like this. It doesn't have it can wreak havoc in portfolios, it has no real world usage, and they let GLD trade. That's a total
slap in the face the bitcoin. The crypto people are so pissed off by this, and I tell them, listen, she's just not that into you, you know what I mean, Like you got to get over it. Because they they're like, no, Vanguard will bend the knee, and I'm like, Ben, what are you talking about. Vanguard is doesn't need you.
So they guards not thinking about you.
They're not thinking about you yet.
It's like that meme, so Joel, I think in time, Vanguard may relent simply because if bitcoin becomes a strategic preserve for the US, if there's more advisory assets in Vanguard that demand crypto is part of the portfolio. If Selim Ramsey has more time to like grow his influence there. I know he launched I a bit at black Rock, so the new CEO there is clearly a fan. There's a couple of things that will germinate. I just think they take longer than the year, Nate.
Okay, Joe, Well, you should know.
Any time that I'm wrong on a prediction, I always say I'm just too early. Eric knows that, and Eric and I tend to be very early on a lot of predictions.
Right on say I don't do these, but I do bets with Todd Rosenblue. That's my version of the predictions. And I'm early. I've never been wrong. I've just been early.
But Nate himself in his prediction sites Howard Mark saying being too far ahead of your time is indistinguishable from being wrong, So being too early could mean you're wrong.
Okay, yeah, so no rebuttal date that's what you get. What do you think of more crypto ETFs?
I think I agree with Eric and Nate in that we'll see, you know, like throw all the jargon words in covered call zero DT, inverse leverage two x X, all kinds of weird stuff. I don't know about the Vanguard part. I mean, I'm gonna trust what Eric says here, because he's like the Vanguard whisperer.
Okay, Nate, now go ahead, proceed with here Rebut.
Okay, so Eric said the magic words, which is Selim Ramji, the new Vanguard CEO. So before he came over to Vanguard, he was instrumental in moving the eyes Shares BITCOINYTF forward while he was at Black Rock. And look, it's one thing for Vanguard to not offer their own spot crypto ETFs. That's perfectly fine, but it's another thing to treat clients like their kids, like they can't have ice cream or whatever. And I think Selim knows that he can't just withhold
access to these products. I think Vanguard will capitulate on this decision to gate access to crypto ETFs. And the other thing that I would say is, like myself, I love Vanguard's investment approach. I personally invest in low cost stock and bond funds, as do our clients, but I also like a little crypto, a little hot sauces Eric call.
I don't think I'm alone. Yeah, well, I just think Vanguard is actually alienating younger investors who view crypto as a normal part of a portfolio, and at some point I think that's going to impact their business. And I think somebody like Salim's going to see the bigger picture.
Okay, all right, all right, speaking of bigger picture private markets, what's your prediction? Your third prediction?
Yeah, So, private credit ETFs received a tremendous amount of attention last year. There was this filing from State Street for the Spider Apollo Public and Private Credit ETF, and a lot of people in the industry are saying this is going to be the next big thing. I just can't get my head around this and how this will work. And you know, very simply, what State Street is trying to do is partner with Apolo, where Paula would be
the sole liquidity provider. In other words, they're going to be both the buyer and the seller of the private credit for this private credit ETF. They'd obviously determine the value of this stuff as well. That seems like a clear conflict of interest to me. Right, if they own private credit that they believe, say is overvalued, how do we know that's not what they're selling to State Street or vice versa. If State Street needs to redeem shares.
How do we know Apollo isn't buying the most attractive private credit out of the ETF, especially if you were in a market where it's under duress. So I just think this whole thing is simply a conflict. And I'm telling you that the SEC hates conflicts of interest like this. So even if we have a more lenient SEC under the Trump administration, I just don't see them getting comfortable with this. And then the other piece that I'll add here is private credit is by definition private right because
it doesn't trade on a public exchange. It's essentially a liquid whereas ETFs or daily liquidity vehicles, and so you have a true mismatch here. I just don't see how that can work where you put investor's best interest first.
We have to add. So Bloomberg reported a month ago that Apollo is already the desk that they have set up to try to facilitate the creation of the CTF. It's already up and running. They're already trading this stuff.
I mean, I think Nate's point about being conflict of interests, it's a good point. And there's been some people saying that, like Apollo will be able to dump all the stuff they don't want to actually own into the ETF. But I would think that State Street, to me, is the offset of that conflict of interest. That's who's on the label, and State Street is going to make sure that their investors don't get screwed.
So I trust State.
Street enough, and they're thirty two year history of running ETFs well, and I just don't want my crap any other way.
I want it in an ETF.
You may say that privates are better in an interval fund or even a mutual fund or a hedge fund, but I don't trust any of those. I'm not I don't want to pay that money, and I'm right now I'm in a character of all the investors.
I'm not actually me.
That's how investors have decided to like That's what they've been showing with their feet. They just wanted an ETF and Nate. There's plenty of ill liquid stuff in ETFs.
Currently.
There's times where stock markets close. In the ETF trades HYD which is high yield muni's during COVID trade at twenty nine percent discount. I think ETF investors would rather have this in an imperfect way with discounts or stretched arbitrage bands and even a potential for conflict of interest. Then go to some interval fund and I will show you proof. The XOVR, which is the private equity public equity crossover fund that owns SpaceX, has ten percent SpaceX.
That has two hundred million already.
That's double Kathy Wood's Arc Venture Fund, which was launched at the height of arcmania, and that has one hundred million.
But it's an interval fund.
That's like making a great album, but you're only putting it on eight track cassette tapes.
Who's going to buy it?
So, but Nate isn't saying that this ETF will never come, right, He's just saying it won't come in twenty twenty five.
Well, he's saying that this filing as it is. I will okay, I mean, I'll bet you. I will bet that the Apollo State Street ETF will launch this year.
You're betting, Nate, Yeah, steak dinner.
I will take that, okay, because I stand behind my my predictions. Hey, here's here's my question, though, where do we draw the line? Right? I think we would agree private credit is a liquid So what else can we put in an ETF wrapper? Is it art baseball cards?
Yes, wine, Yes, where do you draw the line?
So I just think ETF's sometimes trade like clothes unfunds in crisis. I just think you're gonna see a situation where ets become hybrid clothes und funds and they just trade away from the NAV. But people are like, I'll take that over getting screwed on these other kinds of vehicles.
Do we still think this is the next big thing, Nate?
I don't. And part of that is I'm not so sure that the average invest really needs access to private credit. I would make that argument right now that that's a frothy area of the market in general. But even if it wasn't, I don't know that the average sixty to forty investor needs the ability to access private credit. I don't know what this really adds to a portfolio other than complexity.
That doesn't adding bitcoin to your portfolio also add complexity or a ton of crypto.
That's a fair point, But I would say bitcoin is a much more transparent market, okay, all right, a lot more liquidity there paying.
It forward in some sort of prediction. Let's hear number four Nate.
Okay, Prediction number four is that three point fifty one exchanges go mainstream and this definitely gets on the weed.
So what that means.
Okay, So in December, an issuer by the name of Cambria launched this Cambria Attacks Aware ETF and basically the way that it takes it's a great ticker. The way this worked was that investors of a certain size, so they had to be a bit larger, they could contribute their individual stock portfolio into the ETF. Okay, so they provide their individual stocks to Cambria and in return, they receive shares of the Cambria ETF. At a high level,
this is called a three p fifty one exchange. And there are a lot of nuances to this because you're dealing with a tax code. But as long as these investors met certain criteria, this was not a taxable event. And so let me just give you a real quick example. So let's say an investor owned a portfolio of Tesla and Nvidia and micro Strategy and some other stocks that have gone up a lot and where maybe the valuations
are elevated. Well, that investor may want to reduce their risk now, but the problem is if they own those stocks in a taxable account, they obviously have to pay taxes if they sell. So what this three to fifty one exchange allows them to do is diversify into an ETA and then they can defer taxes until when they sell the ETF shares. Plus they get all the benefits of the ETF rapper right that tax efficiency and low
cost and all of those things. So my prediction is that we are going to see more issuers pursue this. I think this is going to become pretty popular.
Huh So, and do you think it's more relevant for people who have been acquiring shares of late or do you think it could be more impactful for people who, say, like have owned Microsoft since the nineties or Apple.
I think more impactful for people who have owned shares for a while. But I think it just depends on the composition of the portfolio. I also think this is going to be more applicable to higher net worth investors. Right, investors who have a higher net worth, they're probably in a higher tax bracket, they have a larger portfolio. This is going to make more sense. I also think this could make sense for some advisors who are running separately managed accounts.
Advisors will tell you.
I'm not sure if will agree, but I've heard that real rich people hate paying taxes more than they actually like getting like good returns, and so I think avoiding taxes is going to is.
There's the demand there. And there's an ETF mouth.
Architect called Box, which does I won't go into it, but it does a tax maneuver and I think it's got four point seven billion, and that's from a small indie issuer. There's going to be tax innovation in the ETFs, and I agree with Nate on this one. I think we'll see more of this.
Godana, I love this, I love tax I think this is the big theme, the big story, the ways that ETFs are being utilized to help offset your big tax bills. The one caveat is that tax the ETF that Nate was talking about it it has already launched, but it only got thirty one million dollars, which isn't huge. It's a it's a nice sum, but it's not huge. So
we'll see how that grows, if it grows. But the guy behind mind all of these, including Box, the one Eric just mentioned is Wes Gray, and he's really his white label company ETF architect is really like coming up with these ways or coming or innovating the way that people are doing tax aware conversions. If we can call them from SMAs or you know, family office stuff hedge funds into ETFs. So I think it's very interesting. I love it.
Are they going to bock at anything, Nate like if say, like I bring them something from you know, somewhere in my portfolio, like they don't have to take anything, right.
Yeah, there are some very specific rules and requirements in terms of how you conduct these three fifty one exchanges, So you can't just take any portfolio and do this with and to what Viil Donna was saying with the thirty million or so into the Cambria TAXIWARYTF, I think a reason for that is and that's not bad, but I think a reason it's not more is there is a huge educational hurdle surrounding all of this. There's a lot that investors and advisors have to get their head around.
So let's just try and make your prediction be a little bit more specific, which is okay, you say the three fifty one exchanges go mainstream, can you actually put something quantifiable there for.
Us, I will say five ETF issuers who we all know will pursue this approach. And as a matter of fact, I saw last week Alpha Architects, so that's the ETF side of ETF Architects white label. They're actually launching one of these. So I'm cheating a little bit, So we'll say four others. All right, four other issuers?
Eric, are you four for four right now? No?
I didn't agree with the him saying that Apollo we already better staked dinner on it.
So three for four, three for four though, okay number five, Nick, go ahead, Okay.
Last prediction is that a leverage single stock ETF implodes. And what this comes down to is that issuers are launching a boatload of leverage single stock ETFs on the most popular companies, which, if you think about this, that makes sense from the issuer's perspective, right, because they want people to buy their ETF, they need interest, and so of course they're going to pick the most popular stocks. The problem is that a lot of these stocks are
also many of the high flyers. So again it's the micro strategies and NVIDIAs Tesla's right, Paletaire and I'm not here to make any investment calls. I'm trying to make ETF predictions. But there is absolutely a case to be made that some of these companies are significantly overvalued. And even if we put that aside, So let's put the
valuations aside. These stocks are very volatile. If you look at something like micro Strategy, this thing moves around a tremendous amount, and so I just think it's a matter of time before one or even more of these stocks drops fifty sixty seventy percent over a few days or a week. And if you just do the math on that, that would be enough for one of these leveraged ETFs to implode.
And your point is that there's going to be one, at least one or one.
I'm saying one, but I wouldn't be surprised if we see more than that.
So I disagree with this one, but not enough. I don't feel strong enough to better steak dinner, but I lightly disagree. I just think in this Trump era, especially with limit up, limit down, a stock can go down seven percent right then they halt it.
And I just see the.
Trump administration leaning on the FED and basically like coddling the market. So I don't see a stock having fifty percent draw down in like three days. If I'm wrong, you're right, and that would be like a COVID type sell off. It would take a black Swan event, in my opinion, not a routine pullback. But I also think that you know, if you look at MSTU and MSTZ,
these would be the canaries in the coal mine. I think these are the most volatile ETFs on planet or in the US, and they have twenty percent up twenty percent down days, but not too much more than that. So they can handle again, a couple serious pullbacks with being fined. They couldn't handle COVID right, and we saw a bunch of leverge gtfs blow up in COVID. So I just don't think we get another COVID with Trump. Is he's just too into the stock market.
Final word, I don't want.
To call out any one of these, but you so, Eric, you don't think one of them can drop forty without an exogenous event. I could see it happening.
It would have to be it would have to be something specific to like micro Strategy or Navidia, But Navidia has got so much going on even if it sells off, it might solve twenty per I mean, it's not going to self eighty percent unless the whole thing's a fraud. Micro strategy Okay, I mean what we know everything about Michael sit he's clearly into bitcoin.
What if he got a new interest maybe I don't know.
Micro Strategy is high beta to the stock market, and these are high bata to micro strategy. So the key is the stock market. If the stock market goes into a COVID freefall, then micro strategy is really in trouble because bitcoin is high beta to the stocks. So that's my point on you got to really have a negative view of the stock market having a COVID like month to think this is going to blow up.
I will just add if you look in December the leverage micro strategy ETFs, those are down like forty percent plus and that was just a run of the mill pullback. In the broader market.
Negative went up forty percent and that these people already love that. That's like a good day for these traders. But again it would take us sustain like a couple of days, a couple of weeks I think, before this thing's But that's why I'm not betting steak dinner, Nate. I would just say I would take the under.
Okay, So how about we bet we bet a nice glass of wine along with the steak dinner.
On this one?
Okay, dessert there any I'll get you. I'll get you a Chief's cake. No, not a whole cake, just the slice with the Chiefs colors. He's cake, He's look. The Chiefs are the new Yankees and Duke the most annoying sports fan on earth are aren't you sick of Patrick mahomes stupid snake farm commercials? And then Andy Reed completely embarrassing himself coming in, Oh, where's the chicken nuggets? It's like, get these people off TV?
Yes, all right, hey, Jola.
Fun fact is that Eric has lost another bet to me in the past, and I am the proud owner of a Patrick Mahomes.
That's why I'm like, I am bloodthirsty.
All right?
On that note, Nate Jracy, thanks so much for joining us on Trillions, Phil Donna, welcome back.
Thank you go Bills.
Thanks for listening to Trillions. Until next time. You can find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify, or wherever 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 Balchunas. This episode of Trillions was produced by Magnus Hendrickson. Bye.