Walkrom Chillions.
I'm Joe Webber and I'm Eric Balchuna's.
Eric. We've had a couple of guests on lately, but we have not been talking about what's happening in the markets, which seems like we should do.
Yeah, I mean, in a way, it's because nothing traumatic has happened, but there's always something going on, and that's something is all time highs. Like it's almost like so peaceful and nice and all time high out there, you forget about it. But that's a story in itself because just seems like also we're in a different place than normal. Always felt like last time we were in this bull market and all time highs, there was this sort of quot wall of worry and it was all about how
the market kind of would deal with that. Doesn't seem like there's a lot of things to worry about. So there's like, oh, come on.
There's the threat of nuclear war. There's you know, inflation is popped back up a little bit. I mean there's like it's not like there isn't things.
To worry about, yeah, but all those things I think have been compartmentalized, which brings up one of our big themes this year. Which we have athnocs on to talk about, which is investors being ready for it comfortably bullish. Other sell side shops quote Taylor Swift, we quote Pink Floyd. You know it's all good. But anyway, this idea of not just you're not euphoric bullish and you're not. It's not a hated bull market. It's a comfortable bullishness. You
know I'm trying to say. But it feels right, and the numbness is part of it in that I don't think these things you just mentioned. They're out there, but they're not as up close and present I think for the investor psyche right now, I think they've written them all off. Obviously, the Fed raising rates would be a big deal, but that doesn't seem like it's going to happen. And I don't even think the market expects Feds the rates lower. I think they're okay even if it doesn't
get lower. So it just seems like there's a comfort level here. That might be the story that the story or the feeling this year is and whether that obviously will get disrupted at some point, but it just feels pretty smooth right now.
You guys at Bloomberg Intelligence also did an ETF survey.
We did speaking of bullishness. We have a survey that first ever time we did it. We've had BBH on who did their own survey. We did one. Charles Bond from our data group let it completely. He deserves all the credit. Great job, and we basically got results from over fifty people different areas, and we'll go over some of those results. Some are what you'd expect, some surprises, but a lot of bullishness towards ETF's roll.
And joining us on this episode Athamasio Sarah Feagas of Bloomberg Intelligence. He's an analyst with Eric to help walk us through this moment and diservice.
This time.
I tryins let the good times roll, Athanasios.
Welcome back, glad to be back.
The good times are rolling.
What's going on?
Yeah, it's they are? You know the good thing about you You guys are talking about bushes of ETFs. I we've gotten so large, right, and there's so many different strategies that we can actually like you know, use them as indicators, right, sort of form market strength and market sentiment. And you know, the market hit all time highs and twenty twenty one where at all time highs again, but
I think the dynamics are very different. And Eric had mentioned that earlier about like being euphoric, like we're feeling good, but we're not overly euphoric, which I think is actually a good thing, right, And this is where we came up with the term like comfortably bullish. If you remember in twenty one, it was all like the meme stocks. It was Portnoy's saying stocks only go up, like it was craziness. Right, You're not having any of that this year,
even the world all time highs. I feel like we're just in a good spot now. It was just Nvidia, Nvidia, Vidia, and I feel like every time something happens, some company bails out the cues. It's like Nvidia or Microsoft, like someone is always sort of carrying the market on.
Does it remind you of like a basketball team where like take the Sixers. I live in Philly. Sometimes in be just isn't feeling it or is injured, and MAXI steps up. The Magnificent seven to me is like a team and like Tesla, Navidia kind of balanced out Tesla and they are real players, but they are really kind of lifting this market up, although there's some people who
point out its actually more depth than those seven. But certainly, I know when Navidia's earnings came out, it did people were saying, like the whole world they had memes of like Navidia holding up the globe. The video seems to be like the new Apple in a way in terms of holding the market up, but it delivered.
Yeah, I agree, every like every time if every time I log in every morning with the cueser at a new time like all time high. But I think it kind of makes sense when you look around the world or look at other investments. I think it's all about like relative right, So like if the FED is gonna cut for this year, like for money market funds, we already know that the best of that is probably behind us. So imagine like you already know that that's only going
to go down. It's like, okay, where am I going to look? China's a little rough right now, you know, Like performance wise, Europe is a story so that you know, seems like it wants to work every year, but it doesn't. It just feels like all the roads come back to us stocks. It's just still sort of the best option out there.
And if you could, let's talk a little bit about the BI ETF greed Fear Indicator, which you created with Charles Bond. It's obviously up, but what goes into that? What ETF data are you able to use for that?
Yeah? Yeah, big prop To Trials, we sort of were hashing out ideas, so we look at a couple of things. One is leverage long to short ETF like leverage tradings. We look at moving average stuff, so we got some
technical indicators. We look at short interest how much people are shorting ETFs, and we sort of put that together and we look at it historically to itself, and we look back in twenty one it got overly bullish, right, and then the market corrected a little bit, and then this year we're very bullish, but we're not at this like U four range, So I actually even think it could probably go up a little bit more, Like I
think we have room to get even more bullish. But and when I was talking with Trials, that's how we came up with the the word comfortably bullish, Like I like pink Floyd and whatnot. But we're like, how do you feel, right? I'm like, that's how I feel like. I feel good, not too good, but like in a good spot. Market keeps going on, people are I remember last year when the market was going up, flows weren't biting. People were still very pessimistic about the market going up.
I feel like this year, finally it's all aligned. The market's going up, the flows are aligning. You know, sentiment feels good.
Can you quantify comfortably bullish?
Uh? Well, we attempted to, right, But I think the way we always we look at it is just relative to itself. So even now we're at all time highs, flows weren't as good as they were in twenty one, even though we're at a higher level than we were. And I feel like when you look at it at that flows or leverage, trading spreads, or even what kind of ets people are allocating to, you know, we are bullish, but not how we were in twenty one. So that's
kind of the way we try to quantify it. I can give you an arbitrary number, say, oh, it's a four, right, but I think when you compare it to itself, that's how we sort of approach this sentiment indicator.
And you know, it's interesting. I look at the weekly flow chart every week on ETFIQ and ivvvu qs VTI all at the top right comfortably bullish everybody, But there's every like fourth week, someone tries to get small caps going, like you see IWM there or like bb EU Europe. Someone tries to be like early on the shift or the regime change, and they just get rolled over. And I've seen it happen over and over, and I think everybody out there knows that at some point the regime
will change. But how many times can you get run over before you just stop trying? And I think I've seen in the flows there's less and less of that those attempts. And maybe when there are no tempts at all, ever, you know, we're just like weeks and weeks where nobody's trying. Maybe that's when it turns, and that's when it's like a bubble where even a little pin can pop it.
But small caps. You know, we had a not Doubt that talked about this, and in this case we reference mean girls droll the market to ETF investors stopped trying to make small caps happen, you know, because they tried over and over and over. And I talk with Gena Martin Adams are macro stentagist my boss about this, and she brought up a good point. A if a company gets really good and they're small, they get like drafted up, like all of a sudden, they're a mid or a
large and they're gone. So you lose them like a college to the NBA, and then more companies when the IPO now are going right to the large, they're already big, so that the pool of hotness in the small cap area is also down. And so I think this idea that it has to change. There are reasons where it could be a little more secular than cyclical.
I'm just thinking about how different now is compared to twenty twenty one, when the last time that there was this fever. I guess, and boy, there's a world of difference between those two markets. How is that reflected and how is it showing up not only in the flows, but you know what sectors theos are going into.
Yeah, so I'd say the first thing that's stuck out we observed and I know this is it sounds a little obvious, but more allocations towards the US. I feel like in the twenty twenty one money was getting allocated all over the world, like Europe was taking some flows China. This year it's just all US, and it's US from
other regions. There was even this issue in China. And the thing is the Chinese investors were trying to buy the queue so fast that they had to close the fund in China, right, So they weren't buying Chinese stocks or buying US stocks. So if you actually look globally, I think a big difference is everything's going even more
so into the US. The other thing is we have higher rates, right, So now I think what the important thing was for this year is that we showed that we could live in this like five percent rate world, right.
Which I would have assumed looked like a gold shower almost, But here we.
Are, yeah, for sure. And I don't know if people maybe expected it or I think they've kind of expected the market to go down, and you know, it was pretty violle on twenty twenty two, but now it's like, you know what we've we went through that we're fine, we can handle it, right, and now we sort of know that the Fed's already made it clear that at some point they're gonna cut right, so you know, so I think we have a lot of those uncertainties behind us.
I know there's an election coming up this year and whatnot that at all No could maybe you know, derail this a little bit. But I think it's just we've learned to live in this higher rate environment.
Yeah, it was interesting those big growthy sort of Magnificent seven companies. One thing that impressed me was they went up last year and rates were up, like there were supposed to be companies that didn't work in higher rate environments. But then you look at some of these companies, unlike maybe some of the arcstocks, these companies have a lot of cash on hand, like they can absorb a lot. They're not like high growth, no profit kind of companies.
The other thing about the Magnificent Seven that Sam Rowe pointed out on Twitter. He was talking about how if you take one of them, there's actually three or four even five companies in there that could be like smaller mid caps or even large caps like YouTube to me, could be its own company, a large cap probably. I mean it's taken over TV and it's just one part
of Google. Right. So you go down the list and you see these companies are made up of many, many companies, So maybe it's the magnificent fifty honestly, and not just the seven. What do you think of that? Droll?
Lena conn would have it that way for sure if she got to do some due overs. And look, I mean it does speak to why the cues are the cues, Like I think if you knock those companies out, like they're just more que candidates.
Really right, And then when you look at the rest of the world, and this sounds so US centric, but you know, where are these companies in other countries? I know sometimes people like, well there might be one or two, but we have like a dozen. You know, we have many of these and it's hard to capture that. And it's tough the people coming over from China and Europe, drole.
What I worry about in China particular is their market just went down two years in a row, and they're like at the bottom, that's when you should actually buy in, but they're leaving to come here to buy at the top. Yeah, that's this is like has pain written all over in my opinion, But I just feel like this could end in tears stroll. You know that that movement usually doesn't work out well and It's a shame too, because those investors are you know, they're just the fomo is that bad?
You know, it's like they've lost their minds.
Well they're uncomfortably well no, well.
Yeah, they want to be comfort They're coming over here to have that good feeling.
Yeah, I agree. I think fifty four percent of the cues last year was not expected. I think that messed with people's minds, right, Like every strategist was not bullish last year, right, everyone missed. Now all of a sudden, everyone's bringing up their targets, like fomo is a real thing, right, and it was working when a time was not supposed to work, and now it is supposed to work, and you know, and I think that is keeping people coming back into the equity market.
And I think if if someone's out there listening, it's like, what do you do? Go into more US equities? You know, most advisors were probably advise you to rebalance actually, which is to you know, rebalance into what has not done well. And we see some of that. It's not like the places we're saying have no flows, but generally speaking, people are leaning into US equities and this is opposite. Last year Athan was on this time last year, and what we were talking about was the US market was up,
but nobody's buying in there were no flows. We called the fomo drought. So comfort bullish is the new fomo drought. M what will be next year? God, please help us because everything's gone to Yeah, that's a little long. I've the toile tightened that up on. That is just.
To go through some albums and come up with a good title for next year.
Okay, so you guys had this Bloomberg Intelligence survey of whom and what was the what were you trying to figure out?
Yeah, look, well we got a little fomo because other people were doing these surveys and Charles Bond on our team, who works in data in Europe, said we should do our own and I said, yeah, I've always want to do it, but I've never had the resources. Now we do, we have, you know, the teams bigger. So he basically went through all the hurdles and there are a lot to get a survey downe a bi Normally, Joel, when I surveyed people, I just go to Twitter to a poll and I know in like eight minutes what the
people think. But that's not as official and I can't really put that into a nice formal note. So we polled about I think it was over fifty people, financial advisors, individuals and institutions, and they were all over the world, and we basically largely in North American and Europe. But we basically asked some a bunch of questions and then we put those in the notes, and there were a couple big takeaways. Do you want to go over the takeaways or do you want to hone in on a
couple notes, Let's do the takeaway, okay? Effect me the big takeaways Active is back. I've seen these surveys for years and years, and one thing that was clear was that there's much more openness to Active. And I think this is because active's gotten cheaper. And I think it's because twenty twenty one was rough and people sixteen the forty went down and people were like a little more open to Active. So I think it's good for Active.
Sometimes these surveys are a little bit recncy bias. You know, actors had a good year, but clear that's good news for Active. That was one of our takeaways. Thematic Equity ranked number one in what would you like to see more of discretionary active was two. But thematic and we've always been bullish on thematics because it's a great compliment to cheap beta. It's not competing with it. You can just add a little theme on top of your cheap beta.
You don't disturb all the serious thoughts. You can have a little fun. So thematic equity did better than I thought in terms of what people want to see more of and what really did not do well. No surprises, ESG. That's fallen down. It ranked below money market funds in terms of what you want to see, and nobody wants to see much from money market funds, right, that's pretty boring. It was like number seventh eighth in the list, So there's a shifting going on in some of the you know,
sort of more non beta areas. So that would be probably the biggest takeaway. But there was a couple other little ones in here that we can go over.
Ethan, what jumped out at you in this survey.
One thing that was interesting was how investors are picking ETFs and some of the criteria that they're looking at. So one thing I thought was really interesting. We had asked what is the minimum asset threshold? You want before you buy an ETF, and like more than half was less than thirty million. Some had no minimum threshold at all.
A lot.
So I thought that it shows a lot of progress in the investor right, and that they're not just looking at the big products with the big assets. They're looking at a lot of interesting ideas, right, and products a lot of some of the more interesting ones are small, they're new, they're coming from smaller issuers. So I'd like to see that the investors were looking at smaller ETFs, and I think it shows that they understand the products more and all they work. Right.
Yeah, that was a chakra for me because over the years we come up with a field implied liquidity which is based on Dave Abner's formula from his book The ETF Handbook, and that just tells you how liquid the basket is. Because if you're out there listening and you're looking at ETFs and you look at the volume, it's good to have volume. That's really great. You can trade those all day. But there's new ets for example, they
don't have a lot of volume. But if the if market makers in the market, when they see orders come in for an ETF, they don't look at the actual ETF. They look at the basket because if they're going to sell you the ETF, I'm just going to give you shares of, say ARC, since it's come up a bunch of times, Well I'm now short ARC. Well I'm going to go and buy the basket of the of the stocks because later I've got to go hand in the basket to the issuer and get the shares back. So
I'm flat again. So in order to sell you ARC, I've got to go get the basket of stocks. So if the basket of stocks is a liquid I should be able to give you a good deal, even if ARC doesn't trade a lot. And that's generally why imply liquidity works most in a stock you don't have that. The liquidity on the screen is all there is. But with an ETF, because you can do creations of redemptions by handing in the basket for more shares of the ETF,
the basket liquidity is just as usable. And so in the first book I wrote, which you know, that's how we met, you know, implied liquidity to me is the key to unlocking the toolbox and using more ETFs beyond the most popular ones you can go deep. There are like a handful of ETFs that have neither high volume, they have low volume and low implied liquidity. Like for example, I shares Columbia local Columbia stocks. It doesn't trade a lot,
the stocks don't trade a lot. That's a case where you're going to have to pay up in a big spread. But if you have one or the other, you should demand tight spreads in your trading. And I think that's the takeaway here that people are getting, Okay.
What else helped out you?
The one about would always say, Okay, when you're on this selection criteria, what are some of the things you're looking at, like size, expense ratio, performance, And I think the one that came up first was past performance, which is really interesting and I think.
Yeah, that was weird to me because it's like, obviously past performance not indicative of future performance.
Yeah, exactly. And expensaraition I think was second. So I don't know again if there's some regency bias because of the market has been up, but I think as expensory show goes down, that's probably ultimately a good thing, right. It means that the market is very it's at a low point cost wise, right, So we're starting to look at other things besides just expense rics. We're looking at branding,
we're looking at performance, looking at liquidity. So that was really interesting that perform I don't know if I agree that Performers should be the top one, but I thought it was interesting that expense ratio had moved down on the list.
Well, that's one what I jumped on for Active. I thought that was a sign that Active was getting more looks at the point because you would look at past performance if you're picking an Active manager. But to your point, you know, when you came out with that chart that showed that over half of the ETFs now DROLL are in funds that are less than ten basis points. And if you look at smart Beta you see the same cost migration. Even ESG before it kind of went and
the gutter had this cost migration. Everything goes through this crucible and Active just went through it. And there's three or four issuers that are leading this low cost Active charge. So I think once expense ratio gets below a point where they're not going to care if it's five to six bass points different, but they just give me a good deal. And then after that I can just start
looking at other things. So Active was the last thing to go through this, but now that it's gone through, I think to your point, expense ratios can probably gonna fall down because it's gonna be given that it's cheap. And I think that's what we're seeing. And one more chart to riff off of the active is have you increased your exposure to actively manage gtfs? In the last twelve months, thirty five percent said yes to equity ETFs and thirty percent to bond ETFs. Normally, bond active had
been the main place to go active in ETFs. I mean it had like probably ten to one assets for a while, but equity has finally caught up. So the fact that equity active beat bond active is big deal, good sign for the industry, but again it's also part of it's a mixed blessing. It's good they want it, but I think a lot of managers are going to have to go through the crew ucible of you know, adjusting their fees to this new sort of lower fee era, but over time the flows should make up for it.
So I think that's what we're going to continue to see how much of.
That do you think is rooted in the transparency that an ETF provides, like the fact that you can actually see what the product holds and the prices come down. That, to me, together is perhaps why the numbers are what they are.
Transparency I would put as maybe the third advantage, But I think it matters. I think, you know, I think ARC showed this ARC put it's all its holdings out. It tells you what it trades every day. I mean, it's like out loud and proud. I'm like, here's what I do. And a lot of managers look at that as showing their hand or their IP, and Kathy really made all that look a little silly. And I think, unless you're a gigantic one hundred billion dollar fund front
running shouldn't be too big of a fear. So what we found is the active non transparent ETFs came out and they flopped. The active transparent came out they did well, But there is you can't just correlate that. The reason is if you look at the act of not transparent, they were also more expensive. My thesis on this is that if you're the kind of person who thinks your IP is so special that like your percent weight in
Amazon is so much, it's like so valuable. Because you're a genius, you're more likely to charge more, Whereas if you're somebody who has a little more of a perspective, you're one of like a thousand active managers and we're all trying our best. Here, I'll show you what I hold,
You're more likely to charge a lower fee. So I found that the transparency usually is linked more with people who are willing to charge less, And that's why I think we can't totally untangle it being a transparent versus non but certainly I think it helps.
Yeah. Agree, I think people like to see it. Like I think in video is a perfect case, the stock's been running up. I bet you everyon would go in and say, is this manager holding a via? Okay, they're holding it, and if they're not, I feel like, like why they not? Video?
Right?
So I think whether or not people want to use a transparency is a different question. But I think people like to see it, especially when it comes like a hot stock like that.
All right, let's close it out. I heard you might have some humor for me.
Yeah, So we asked two questions at the end that just were just a little off, open ended, kind of like creative, and so one of them was describe the ETF market in two words or less you got Why don't you guys guess? Can you guess? Like, just give me a word you think is in here? A lot? Or how would you describe it growing? Wow? Dude, that's like the number one answer. This is family feud. You're going right back. Don't even need to hear anybody else.
How fast is it growing? I guess I guess you could have an adjective in front of it.
Yeah, but I mean, honestly, growth or growing was like twenty percent of the answers, by far the most popular. Why don't you guess? Now?
I mean I saw could I maybe say the one I like?
Oh yeah, oh say the one you like?
It was the investor Nirvana.
Yeah.
That that's a little that's very specific, and it's true, right, there's three thousand plus products. There's literally anything Eric mentioned Colombia where you want, you know, access to oil or bitcoin now whatever, it's literally it's just it's paradise from an investor perspective.
And if we go with like synonyms for growing or the spirit of growing, we've got booming uh, fantastic, fast, great, get getting saturated, holy cow with a question mark. That was interesting, irreversible trend just the beginning, mature and growing. Here's a couple that were interesting. Narrow, oversaturated, transparent, cheap wild without alternatives. So yeah, a lot of optimism, a
couple of little digs in there, like narrow. I think some people do worry it's getting too crazy and niche and gimmick me.
The moment you wrap bitcoin and ATF it's like okay.
Yeah, yeah, yeah, what happened to my street? Yeah?
Uh so what was the last?
Uh? I would say, what have they done to my son?
My boy?
They massacred my boy? Okay, ye'll only like on our team, like seven out of ten people will not get that, but they should.
They should. Everyone needs to watch that movie.
I know. There's a couple movies that you need when you enter the like work, just three or four. I'm will glad to listen to arras Taylor Swift albums as a trade off.
Wow, Taylor Swift Down is pretty good. The Godfather is it?
No?
Yeah, there's a decent trade off. Okay, all right, and and your final moment is in okay because it leads to the final question in this podcast, which is what's favorite ticker? Okay, so we got everybody's favorite ticker? Okay, okay, so what do you what do you think the number one answer was, Remember this is across Europe too.
I was gonna say, I mean, move comes up more than anything else. Did move make a showing move?
Had two?
Okay, that's pretty good.
I mean that'd be like the fifth answer, so we would have if it were family feud, that would register. But like low hack in there. Hack was in there, but also a little low. You have to think a lot of people just aren't that creative. Yeah, I mean spy yeah number one, yes, that or people were like, look, I just filled out your nineteen questions. I'll just get the hell out of here.
Yeah, it's like the last one, like nineteen out of nineteen.
Yeah, dude, I'm not thinking. I'm not thinking anymore for you. Okay, spy out, Robo got an answer, Weed got one l e E L l e FP. I guess that's like the magazine li CEFS. I bet that's the person who that person might actually work there. Cow's got one c O w Z cars cath jep Q got one J and K. Somebody picked jps T. Come on, I.
Guess about creative tickers like ones that they like.
It's his favorite ETF ticker not managed by your firm. There is no way somebody picked JPST. What happened is they probably that was the last one they invested in or something, and again they were just like, my brain is, I'm just done.
I mean, I still think direction kind of is the best in this. They got gush drip deposit withdrawal. Yeah, they have so many.
The problem is most srmal people aren't dabbling with those sort of rated R products, but certainly they've got the best ones. My well, my Yin and Yang I think are legendary. It's a three x China inverse.
Somebody put those in there.
No but to me like that, I would pick something like that probably, but there was no levers in here at all. And J and K got a mention mx US power. That's pretty interesting, even though they're not.
I think Cows is sort of like a like a cousin of Mu.
Yeah.
I agree. I think live Stock did well. Yeah, if you add all the live stock, I think it might tie Spy. So there you go. I think that's the takeaway people like cows.
Joel Anthan, thanks for joining us on Trillion, 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 more on Twitter. I'm at Joel Webber Show. He's at Eric Baltuna's. This episode of Trillions was produced by Magnus and Rickson.
Bye