Welcome a trillions. I'm Joel Webber and.
I'm Eric Belchunis.
Okay, Eric, A lot of things have happened so far this year or didn't happen. I should say that now that we're in the second half of the year, it felt like I wanted to huddle with you and get a better sense of what could happen in the second half of the year, because look like there's a nineteen percent up year to date in the S and P five hundred. That's crazy. Nobody expected that We're supposed to be like mired in a recession that has yet to happen, right.
Yeah, it's been a wild year.
And you know, a few episodes back, we had Athanasios on my team on to talk about the Fomo drought. You know, all these the cues and spy were up a lot, but nobody.
Was buying, and that that kind of ended.
The flows are back, so that's one sort of baby that's been put to bed. Is the flows now matched the performance. But yeah, there's you know a lot of excess return right now. I'm always nervous when when the ques are of thirty six percent in like the first half of the year, I'm like, all right, when's when's the shoe gonna drop?
What's gonna happen to pull us back?
Maybe there'll be an inflation print, although there hasn't been, but yeah, it's unexpected and all of a sudden, growth and tech are back, and that's the sort of thing just like seven stocks leading everything, and it kind of feels like twenty and twenty one again, like twenty twenty two never happens.
So that's the macro scene.
But certainly there's other things in the ETF world I think that are really interesting that I don't know, get me out of bed in the morning, jowl. There's a lot of interesting stuff that we're looking for in the second half that really could make news.
Okay, So for your summer listening, we're gonna go back to Athanasio, Sarah Vegas of Bloomberg Intelligence and Analysts with Eric and talk through a few of the things to look out for between now and the end. This time, I'm trying five things to watch in the second half at the Nacios. Welcome back to trillions.
Yeah, glad to be back.
Okay, what's the number one thing that you guys are like as the analyst the ETF analyst at Bloomberger Intelligence. You're like rolling out of bed, fired up to watch in the second half.
Should I pass this one to Eric on bitcoin? Do we want to start there? I don't want to start there, but he already did. I let's go.
We have to.
Now this is a it's an interesting dynamic on our team. James and I are like losing our minds about the bitcoin ETF race, along with nature Racy at ETF store. Every every like ten minutes on Twitter, there's some new document or amendment and we're we're analyzing it. I feel like Jim Garrison in the movie JFK, just basically all this circumstantial evidence coming at me left and right that Lee Harvey Oswell did not act alone, right.
And that's a lot what it feels like.
I'm not sure what is going to in retrospect be the right clue whether the SEC will approve the first ever spot BITCOINYTF. But where we stand now is that the SEC has really recently acknowledged all the filings.
That's good.
Now, in a couple of days they'll hit the public Registry and from there a clock starts, and so we're going to have the next deadline date be August thirteenth for ARC and then sometime in September for the rest, but the SEC could punt, so the first final final deadline will be January next year. So the question is, well, the SEC approven before then, will they deny them again
just as usual? This everything has been changed because Blackrock filed and the black rocks Blackrock, and so that's really changed the game. And there's been other things that have happened in terms of coinbase, you know, maturing, and maybe maybe they're the kind of company that would have a surveillance sharing agreement with NASDAC and the SEC would be okay with that, even though they weren't in the past. Again, there's a lot of very but this is a story that's massive.
Why if they approve.
One, there's thirty trillion dollars plus that is just more comfortable using an ETF and those would be advisors, and so you kind of unlock at least a portion of that money to be in play for this ETF. They love ETF, They trust ETFs, especially once from like Blackrock, and so this would be like a bridge from the boomer advisor all the wealth in America world to the sort of crypto underworld. And that's why this is a
massive story. It involves the biggest asset manager, the highest rugs of government.
I mean, it's it's all the.
Airtrol okay, Athanasios. If you're the SEC, why wouldn't you just let the shot clock run out on this calendar year?
Uh? Yeah, I mean and maybe they might. I think we're going to get right to I think with a timeline it might actually push it into next year. And I don't know if it's just a game of waiting out Gensler or whatnot, But well, I don't share Eric's enthusiasm for it. I think it's time. I think the market can handle it, right, the black Rock is now involved, these products exists in other markets in Canada and Europe.
Like the market can handle it. I think it's about time that actually just approved like a two x bitcoin future is etf too, like ahead of this, so that kind of seemed a little odd, but I think it's I think it's about time move forward with this.
Eric.
Are you confident it happens this year or do you think it happens next year or or just you know, we don't know and it just punts keeps punting.
So James and I are collectively giving our team's odds, and we've come up with fifty percent, which we're getting like getting like mocked on Twitter because like, oh, fifty percent.
Whoa way to.
Take a stand there, But I'm like, listen, stop. Forty percent. That's the cop out number. That's what the sell side always does. There's a forty percent chance of it raining, there's a forty percent chance of the.
Market going up.
That's the cop out. Fifty percent is actually aggressive, and it's relative to our etf peers. You look at Vetify, morning Star and others, I think we're mostly aggressive. Fifty percent would be higher, I think than they would do. And I even have another steak dinner bet on this with Todd Rosenblooth of Edify, one of our friends. I'm still three and two on these and so I don't
want to go five hundred. So I'm really hoping if anybody from the SEC is listening, just to prove the damn thing it's time.
As Ethan said, let me have my steak dinner. I will.
It'll be glorious because he's so such a downer about it, and I just think that Blackrock would not have done this if they didn't think they had somewhat of a winning hand.
I kind of knew.
I had a hunch that you were going to say bitcoin was the number one thing I was going to be watching for by the end of the air. So it surprised me with number two.
Okay, So now let's let's get into some of the ETF weeds and a big thing the share is going to be the Vanguard ETF share class patent and actually what okay, so what yeah, let's talk about what that is. Actually, So Vanguard has this unique advantage that no one else has here that their ETFs are share class of their mutual fund. And they had a patent on this actually and it expired this year, and now this is up for review and other issuers might try to copy this
patent or you know, get access to it. And one thing that also happened last year is all these different estimatgers are coming to the market. So deciding how do we want to do this. Do we want to just launch ETFs, do we want to convert ETFs, or do we wait for the share class patent to come up. So now with this being available to them, we're trying to figure out can they actually get this done. Everyone's
trying to petition for it. We've heard mixed results. The SEC is saying, well, we're not very comfortable with letting everyone else use this. Other issuers are pretty bullish on it. I'm on the team. We're pretty split. I'm very bullish on this. I like the ETF share class. I think it makes a lot of sense compared to some of
the other routes that issuers are taking. Eric is very bullish on conversions, and the reason why I feel more confident into this, you know, talking about this last week DFA, who was like really came in really strong with conversions. They actually now file that they want to adopt the share class, which I thought was really interesting that, you know, sort of like the babies of conversions are like when I wouldn't want to do conversions anymore, we want to
start pursuing the share class. So I think this is going to be I think if they do approve it, we're going to see I think we can see a lot of issuers or other asset managers start to convert their et or tack the sounds of their mutual funds.
Eric how big of a game, ginger would this be if Vanguard is no longer the only one.
This is this is very huge. Again, if for anybody who's still awake after hearing Vanguard's share class structure, I know that's very boring, but it's major because there's twenty six trillion dollars in mutual funds, not all of it, but a good chunk of that for a variety of reasons, is having trouble getting into the ETF world. This would actually give them a bridge over. They would just launch
an ETF share class with their mutual fund. And they're really gnawing to do this because the ETF access something of a dialysis machine for taxes. It's a way to get rid of capital gains in your mutual fund and make the mutual fund more tax efficient. This is what Vanguard has done with their index mutual funds and their
share class. So now, to be sure, it's not a home it's not like a slam dunk because even if the sec allows it, which is a big if, if your mutual funds the outflows, it can be harder to do this correctly because if you have to sell securities to meet the outflows it's possible the ETF takes a capital gains hit that ETF investors are not used to getting. Because of that, Ben Jonson calls it tax contagion, and I think that's a great term.
So, and we know most mutual funds have outflows.
That's the big kind of marketplace problem with that. And then there's a regulatory hurdle too. That's why I'm still more bullish on versions. A conversion, you come over to the ETF world, You leave the mutual fund world behind, bye bye. You come over with your share class. I mean your performance record, your assets, and your dignity.
You all of a sudden a player. And I think this is what most people should just do.
It might be a little cannibalization, but in the long run, it's worth it. And so I'm more bullish conversions. James and Ethan are a little more bullish on the share class. And this is, you know, one of the things that we fight about our debate rather on our persistent chat every day.
Well, you went with the weeds there, Athanasias, and I'm curious you're going to go more weedy or less weedy with number three. Thing to watch between now and the end of the year.
So this is a little bit more market related. And it was something that Eric alluded to in the beginning about the ending of the fomo drought, right, and what was causing the fomo drout, and one was that you were making decent yield on cash and money market funds. I actually think that we might have peaked there a little bit, and I think this is what has caused the fomo drought to end. And I didn't really realize this until recently. For the most part, over the last year,
cash was beating pretty much everything. It was beating stocks, it was beating bonds. Now all of a sudden, because I think we were mentioning the cues are up like almost forty percent this year. Yeah, and now you're like, well, cash is great, but you know it's even better, like forty percent in the queues, and everyone's starting to tilt
over to that now. So now we're seeing that most strategies are beating cash over the last year, and I think that's been enough to start enticing people back into the market. Right.
So that makes me think that we could see inflows go dramatically up between now and the end of the year, just because everybody probably still has a tidy amount still.
In cash, right, uh. Yeah, And you know there's still five trillion or so still money market funds, and I think if it's probably enough to say, you know what, I can leave some in cash, but I'm comfortable enough to be putting some money back to work in the market or not, it's too late, Like forty six months is a lot. It's an aggressive move. So I don't know what, you know, what the second half of the year is going to look like, but I think to your point, flows should pick up. Yeah.
Yeah, just to add, flows into ETFs overall are two hundred and thirty three billion.
That's not a lot.
That's normally what ETFs do in like I don't know, four months and we're into July, so it's been a little but they've really picked up over the last I don't know, six weeks, the two months. They're having a good summer, let's just say. And equity is almost like eighty ninety percent of all the.
Flows coming in.
So equity is like, you know, like the player that you know is having a bad first half, like Tom Brady here, like he's not going to have a bad game, Like at some point equity is going to go full equity. It's the king of the hill, and especially US equity, and it has really turned the tide here and we're seeing the flows and I think we'll see a lot more at the end of the year. But to our point at the beginning, how much more can the queues run if you're up that much?
So it could be.
Interesting if the flows follow. If the mare it turns it downward, and I guess we'll say. And one other related chart that Athanasios has that I love is percent of active beating the market, and that has plummeted because when the six growth stocks are crushing everything, it's bad for active because they tend to be fundamentally weighted and value weighted and they just are like, there's no way I'm buying a stock with a P that hi, I don't care what company it is.
So last year they really did well. So this has been bad for active.
So even no money's coming back into the equity market, it's it's I think a lot of it is, you know, not great for active performance. But active ETF flows have been pretty good, which brings me to number four, which is the active ETF flows. So this would be the fourth thing on our list, and right now they've taken it about one quarter of the flows despite only thirty one percent of active discretion or ETFs outperforming the S
and P why they got cheap. So the fact that active can taking money despite having a bad year is a very good sign. And it shows that once you get dirt cheap, your less performance sensitive advisors have a little more patience. If you're cheap, they have like they feel like they're gonna a better deal. They're not chasing performance, they're they're just looking for a good value and they
want active price correctly. So active ETFs having a good year this year, I think is a great sign long term for them.
Ethan probably agrees.
So are you Are you surprised by that that they were willing to get dirt cheap or was that just the thunderdome which you have to do to survive.
I'm not surprised. And this is a line that's Eric Sigin, but I think he nailed it. Is that you have to come onto the terms of the ETF industry. Right, you can come in and do you could come in and charge whatever you want, but ultimately the ETF industry will decide, and going cheap just seems like where it's going. But it's interesting because people are not anti active, right. Even Eric mentioned the rates are way down, but the
flows are still there. And I think even in the second half of the year, if we think that the market has run up too much, you might want to go active here, right, you might not want to be overweight. Dan videos in these really high flying names in the cues, so it actually might make sense for the back half of the year for active.
Interesting, let me build upon that, because active ETFs cheap ones in particular. What's interesting about that is Vanguard and Blackrock don't really have anything there. They don't really have an answer yet to cheap active. This is dfatis, JP Morgan. Those are the ones that are doing well. And this has made Blackrock and Vanguard taken much less. The big two is taken in much less than.
They normally do.
They are punching below their weight for the first time in a long time, and I think it's because they don't really have an answer for cheap active. I think they'll roll stuff out. I wrote a note saying Vanguard has really cheap active mutual funds already. They should just bring them over and Blackrock is I think of a little more opportunistic on that front, and I think they'll just see the flows and respond accordingly. But I think cheap active is going to be, you know, a really
big area in the future. And the reason is because beta is free, so people just want to get charged for the active. So if you don't have a lot of high active share, you kind of have to adjust your fees accordingly so that you're just paying for that active. And so this is such a big trend. It's actually possibly not only going to curb the Big two's growth, but it's going to swing the pendulum a little bit.
Because you know wory about the passive bubble, Well, if active finally starts getting flows, it should naturally stop those worries that passive is like eating the whole market up. And I think that's good. And again I call this all the great cost migration. Eventually, everybody's just got to get with the program here, and I think Active was just a little late to do it, but better late than never.
This actually, to me speaks to maybe the influence of Kathy. Would like Kathy could come into ETFs prove that active could could work and get attention and like, you know, become a thing really And so this is everybody else realizing that they have to They could have a version of what Kathy can do, right, only they're going to be cheaper than her.
So I think Kathy deserves a lot of credit for kicking down the doors that you can. Actually in some ways she became a little bit of a rock star manager. I thought that those days were over. She kind of proved me wrong. But her Active is a different brand. Her Active is shiny object active. It's hot sauce active, and so she charges over seventy basis points. So that is one thing I think Kathy showed that thematic and hot sauce can work. What happened recently though, is JP
Morgan dfa capital group. They all came out with cheap active, in particular JEPI, the JP Morgan Equity Income ETF that I believe is thirty five basis points around there, and that has been the best selling active ETF of all time. So what we try to tell people again is it comes down if you're active or passive, you kind of need to be cheap or shiny. So I think Kathy broke down the shiny door. I think JP Morgan broke down the cheap active door.
Okay, so let's do the last thing that we're all supposed to be watching for between now and the end of the year or else, Eric Buysi's all steak dinners.
This one also involves a bet.
This is a sushi bet between me and Athan and I made a call on a note that JP Morgan will pass First Trust in assets by the end of the year and overtake the sixth spot, which is kind of crazy because JP Morgan was out of the top ten just recently. I mean, they have made a actual parabolic move up the middle of the charts. So as we stand, and this is where my bet on Athanasio's hinges is, JP Morgan has one hundred and fifteen billion in assets. First Trust has one hundred and forty billion.
That's a twenty five billion dollar gap.
That seems pretty that seems pretty wide.
It is, but JP Morgan has taken in twenty three billion and flows this year. First Trust is basically flat, so you get a little market help another twenty three billion, and JP Morgan is the ETF line is led by a very aggressive guy named Brian Lake. We've had on the show, and First Trust they're you know, I'm not there.
They're a good company, solid, they've carved out their niche, but I think that they do expensive active so they rely more in the relationships, whereas JP Morgan is tapping into the cheap active lane, which has been just a gusher of opportunity. So I just think JP Morgan is going to pass them by the end of the year. It's going to be close. The trajectory wise has him rate at the bout January first, passing them, but again,
anything could happen. That's why these bets are fun. But Athanasios is a little less bullish on JP Morgan than I am.
Yeah, props to JP Morgan. They it's not easy to come in and make a big splash like they have. I think when you start to pull back their lineup, it's a little weak, meaning you know, it's it's it's contingent on one two products. The only thing I respect about First Trust is they've been around a long time. Being able to sell ETFs that cost sixty five seventy basis points is not easy, so I think they've they've
been able to weather a lot of different storms. And something you mentioned too, like the gap is pretty wide. I think they can continue to have that lead for a while. I think eventually Eric will be right. I don't think they're going to get it done by the end of the year, but I always have. You know, any firm that can sell against Vanguard and have success is pretty meaningful.
I mean, I don't know about just a couple of products. I mean they have ready for this nineteen funds that have seen inflows over one hundred million this year. There's just there's there's a good role players in their lineup. It's not just JEFPY, although JEFPY is like the king of jp Morgan, but bb EU is four billion, jef Q is two point eight billion.
I don't count those ones. It's JPST and JEFPY. The other ones are if I want to.
All right, we'll come back to this at the end of the year. We'll figure out who's got steak dinners, who's getting sushi? And you know, Eric, you and I might need to come up with something else too.
Yeah, I mean I think you know. I like bets because they just keep things interesting. I've been doing this for like, I don't know, seventeen years, at this point, and it's fun when they come up organically. When you get into like a little bit of a debate with somebody, it's like, all right, do you really think this or you're just sort of debating to debate, Well, debate's sake, let's see what you really think.
We'll see if anybody has any suggestions for.
Us, and we'll.
Lay it down all right at the nasios. Thanks for joining us on Trillions.
Yeah, thanks for having me.
Thanks for listening to Trillions until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify, or wherever 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 Faultness. This episode of Trillions was produced by magne Is Hendrickson.
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