Welcome to trillions.
I'm Joel Weber and I'm Eric Alchernas.
Eric, there's some strange forces in the world of flows right now.
What's going on there definitely is it is an unusual year because if you look at the equity markets, they're doing great.
Yeah. I thought we were supposed to be in like a recession and everything was going to fall apart totally.
The returns of the cues is upwards of twenty twenty five percent s and ps of a lot. You know, these are numbers that are double tripled or annual average, right, So think about it, You're not even happened in the year. You're getting multiple of your the annual return you're supposed to get normally. That attracts all the people. People like to performance chase. Oh it's going up, I'll buy it, right, Get none of that. It's like, as we call it,
a fomo drought. Nobody is buying into this rally and it's very interesting and we have a bunch of interesting charts and aftonasio. So my team put most of this together that sort of show this short bias in the market that existed last year, which is understandable because everything was down but it exists this year too, with stuff going up, and you know, we'll do our best to explain it. But it is a different phenomenon. There's it's almost like strange weather.
To walk us through this phenomenon, We're going to be joined by Athanasio Sera Fagus of Bloomberg Intelligence, this time on Trillions, the Fomo Drought. Athanasius, welcome back to trillions.
Yeah, glad to be back.
Okay, so this is a little bit of a weird year. What's the number one thing when you look at the flows that jumps out to you.
Yeah, I mean there's they're not that strong. That's like the foamodraw. We actually were saying we were gonna make t shirts that we survived the foam.
Modraw of when have we survived it?
Though?
Yeah, we're going through it. Yeah we No, that's the only thing. Might you know, might change the appetite in the moods for sure.
I'd say probably the biggest difference is money market rates being so high. Right, so now you can earn four four and a half percent on the money market fund.
Yeah, just give me that cash. Yeah, and it's safe.
You don't need to go into the market and so that's definitely a big driver as to why people aren't piling into the market. But the performance in the market's actually been pretty good. Like when you look at it, considering what we've gone through Credit Swiss, how many banks have failed, you know, higher rates, the market's been performing okay, So I think all that considering, I would expect the flows to be a little bit higher, but they're not really biting.
The money market effect should not be understated here. This is a big deal. Five percent yield just about on a toll pretty much a risk free asset class. That's pretty good, right, So that those money market mutual funds have grown by about half a trillion this year five hundred billion dollars is almost what ETS took in at like last year in total. That is a ton of money. Some of that money probably would have gone to the US equity market or elsewhere. So the money market funds
in a way have acted like a vampire. They've sucked flows that would have gone to equities, and they've also sucked volume. US equity volume and equity ETF volume is down low, and so there's this sort of sucking effect from the money market funds that is also a very big component of the pomo drop. Athan, you did a great You've dissected this in multiple ways. It's not just that, oh, there's limited money going into US equities. I mean, by the way, when I say limited, I mean barely anything.
If you look at US equity ETFs, they took in just about a trillion dollars roll over the last two years. This year it's like ten or fifteen billion. I mean, it's really it's child's play for US equity ETFs and fixed income is taken in like sixty or seventy. That is a massive, unheard of kind of gap between the two. But what makes that interesting is typically that gap you'll
only see when people are scared. Right, But this is more of a competition for your money now because the fixed income is yielding a ton.
But people could be scared still, right, That could be r That's totally part of it.
It could be part of it. Very great. There's some factor that there's a recession or even the debt ceiling, I get it, or just layover from last year. But Athan, take us through. There's a couple interesting little areas of the ETF world that show this. Give us one.
Example, Yeah, We'll start with international. And what's really interesting is I looked at all all the countries ranked as he's like thirtieth on the list, which is pretty low considering it's always been one of the better performing markets. But when you look at how we invest here, we're very US centric. So most of your portfolio is going to be in the US the SMP fund. You might have a little bit in international, So even if international does really well, you're not all of a sudden going
to move your whole portfolio into International. So even though it's doing really well, it's not enough to entice a bunch of money to keep flowing into it, because you're still gonna want to stay in the US. So that's part of the reason why the US flows are really low. And we tend to be very US centric here though, so it's not really moving the needle all that much on the equity side.
Like what Eric said, Yeah, look international, eh, I get it, I get it, But I just something about international that I don't buy. I don't know if I hung around with Bogel too much when I did the research in the book, because he wasn't a fan of international. He said, you don't need it but I don't know. I think
it's just maybe I'm just too US centric. But so many of the juggernaut innovators are in the US, Amazon, Apple, Microsoft, these companies are awesome, right, and I don't know how many of those you get overseas, And so what you tend to have happen is people go to international for a minute, but they end up reverting back. So there's
been like a couple head fakes. So I would need international and these other countries to go over two years without performing the US before I sort of surrendered or bought into the fact that it's real.
Thirty seems pretty low.
It it is?
Where is it?
Usually it's much much higher A top five, top ten, Yeah, top ten at least, But when you look at the countries that are on the top of the list, you're like, you know, there's some unique standouts, but not enough that you're going to move your whole portfolio into it.
Well that takes a lot of work too. Yeah, so that's okay. So after international, where do you go?
I think one phenomenon that really encompasses it is on the closure side. There's this Vanek crypto minors ETF that's about the close or might have actually closed. Dam was the ticker. It's up like over one hundred percent this year, right, So there, it's like, can you imagine if this was in twenty nineteen or twenty twenty, you have an ETF that's up one hundred percent and it's going to close. No, it'd been the opposite flows have been going into it.
So I think that really sums up nicely this fomo d route that you you know, you have this product that's up, and it's not just this one. There's a lot of crypto ones that are doing really well, but people are just not following into it. Either they've been burned, you know, in twenty one or so. So I think that really comes is very nice over it, just over it.
Yeah, what other crypto related funds are similar or maybe not imminent in the same way, but just up and people don't care. Yeah.
I think a lot the stuff that was really bad last year has done really well this year. It's almost completely flipped, Like energy tech, those positions are completely flipped. So I sort of caught like a junk rally, like, you know, you see this stuff doing really well, is it enough that do I want to get start chasing crypto again. I got burned already. Am I like ready to love again and start doing this again? People just are not.
It's the breakup. It's like we're in the breakup phase.
Yeah, am I ready to love again? So it's like an air supply lyric.
Oh man, this is some deep stuff. If you need to lay down on the couch to continue to just let us know.
No. But you know, I think it's true. Crypto in particular has this other angle of the whole SBF. I couldn't get my money out. There's like a big stain on the whole industry. But I agree there's other stuff that his rally that hasn't gotten bites either. So junk might be a harsh word for it. I would just call it really high beta like supergrowth. ARC even is up big now. It hasn't really seen outflows, but it hasn't really seen like everybody come back in in some
big rush. So across the board, there's just many examples of like again a Fomo drought. It's it's like it's gone. The FED I think probably is what killed it. You know, between always threatening a recession and making the rates so high, you can get great yields elsewhere. The FED. In my opinion, the FED has done so much to derail things like themes ESG crypto. All of these things were sort of high beta things like bull market playthings that people got into.
The FED raises rates. It sort of like sobers everybody up instantly, and so it will take a lot more enthusiasm and big returns and time, I think to get people back to this because of the FED has completely change the way they are approaching the market right now. Instead of helping the market and giving the market tailwind, they're just constantly giving it headwind.
Well, and if you're a little bit scared or timid and to the competition point you raised earlier, there's cash over there and you can get the good, healthy return in that money market fund that you wouldn't have been able to in years past, like take the easy money. I guess right, Okay, So what else.
Leverage ETF trading, This one is pretty interesting. So market's been up for a long time. If you look at through the trend of flows and trading on the leverage side, it's always been very favorite towards the bulls the longside. So even if the market went down, people started buying leverage long ETFs. That's completely flipped on its side now.
So now when the market goes up, you start seeing a pick up in the short side, meaning that seems like people are selling in to the strength versus buying the dip, which is what we were doing the last couple of years. So that dynamic has completely shifted, and you could if you sort of track it over time, you could see that there's definitely a short bias still
in the market even though it's going up. It's maybe just tiptoeing into maybe some lever long stuff, but it's still very favorite on the short side.
So that makes me think of though, is that this is a market that the professionals might have a little bit of a heavier hand than the retail that we've witnessed over the past year or two.
Yeah, I think that's true. I think Probabe macro has become more of a bigger focus now, so I think that might just skew the more to the advantage of more the institutional side.
Yeah, but if you're thinking about remember it was all by the dip BTFB and people would especially retail, would use TQQQ. So anytime TQQQ which is the triple leverage. NASTAC went down a little, they would buy that that was the best way to get the most juice out of a dip rally. Right now, they're buying sqqq on the dip, which effectively is selling the rip. So anytime the market goes up a little, they're going right down to the short side, so they're buying the dip. Still,
it's just inverted. So I do think I don't know if that's fomo, but that's sort of the fomo crowd. And if the fomo crowd keeps buying sqqq on the dips, that I guess speaks to are again the larger issue, which is that the mass I guess group mind share of the market is just generally not really feeling the equity rallies. So sqqq used to be like fiftieth most traded. Now it's upwards of fourth or fifth. Whoa right, And
it's above tqq somedays, and so that thing. What you know, if you look at the if you did a chart of like the most increased volume of ETFs of the big ones, right not the small ones, you know sqqq is going to be right at the top of the list. Because it really had multiple increases of volume over the past year because of this phenomenon, and TQQQ kind of held the same and came down a little bit. So it's the relative of those two that is noteworthy that Tom found.
And you think that's a retail phenomenon or a more of a professional institutional one.
So I'm going to lean retail here, because on the Bloomberg Terminal HDS shows, you like all the holders from like like which big institutions own an ETF And the percentage of holders that report owning sqqq is only three percent, So that tells me it's ninety eight ninety seven percent small investors. That number would be like fifty percent with spy, right, So institutions and big advisors are not reporting owning this, and so my guess is it's a lot like millions
of small investors. And remember with that guy we had on the show when the Robin Hood thing was going crazy. We had that nineteen year old hit on the show, and he just loved TQQQ. He was like an sqqq He was like, I just want to trade these all day every day. They like he became addicted to the adrenaline hit of these that these two kickout and Joel beyond the volume of inverse ets The flows into inverse ETFs are six billion this year. What are they into
the leverage alongside? Almost nothing? And that six billion represents a twenty five percent increase in assets. And again that's weird considering how much the market is up right.
Yeah, people just don't trust the rally.
They don't trust it. Like I said, they what was your line? The air supply? They've fallen in love and again, been in love once bit and twice shy, that's a that's a great white song.
Eric quitelse jumps out at you about the flows.
Yeah, so let's look at individual ETFs, right, So we look the top ten most inflows and the top ten outflows. To me, this speaks also FOMO drop. What's number one? TLT boring treasuries right, Number two is qual So if they are going to equities, this is the black rock trade mostly but qualities thocks right. Voo is third, but Vanguard that's like a different laws of physics over there. They're going to buy no matter what. And then you
got aag in there. That's the fixed on the agri bonding TFBND right behind it BBU is Europe total market. Vanguard doesn't count Schwab five to ten year corporate bond and if so, it's all bonds and quality. So that's again that's weird considering the double digit returns in both the market and the CUES. And then we look at the outflows side JEL the cues has seen two point five billion of outflows. It's up twenty five percent. Wow,
that's weird. Now some people are gonna argue there's a couple there could be a couple nerds listening who are gonna actually me on this and say, well, QQQM, which is the new Invesco knockoff, has taken in some money, but it hasn't taken it enough to offset that. But even if it took in a little, again we're normally it's up twenty five percent. We're seeing six to ten billion dollars in cloths. Now that's where it should be
and it's negative. Again weird. And the CUES is largely used by the trading crowd.
Is that AI enthusiasm? You think.
No, I think? You know? AI is a topic that it gets a lot of press. It reminds me of ESG. The press and the media and the debate is so far out running the actual assets or investor interest. Maybe the assets will catch up, but I think AI right now is just a you know, very interesting thing to talk about the media. We're seeing more names with AI
in it, but they have no assets yet. It's not really a viable category, so I would say no. Also in the outflow list, Joel is XLK the tech ETF and then number one on the outflows, as I've probably mentioned a couple of times this year, is ESGU. Remember ESG is sort of a bull market play like crypto because it tends to favor growth in tech. So you have outflows from ESG. So again, the FED has just
reaped havoc on so much of the market. And you know our Remember we were on talking the beginning of the year and Athan was talking about fundamentals, and I think at the end of the day, if stocks are going to get bids, are going to be a very fundamental sober bid for a while.
Okay, So if John Author's great Bloomberg opinion columnist, we're here, and it was the end of the year. He does a column called hindsight Capital, which is what you should have invested in at the beginning of the year. We are now halfway through the year. If we were doing a hindsight capital episode, what should you have done in the ETF world to have crushed it so far this year?
You should have bought FNGU, that's the micro sectors, Fang plus triple leveraged, it's up. You should have bought ultra short natural gas. And you should have bought crypto bitcoin minors.
I just wanted to say Crypto should have bought what didn't work, anything that didn't work last year, you.
Should have bought this year. Yeah, yeah, no, wonder, no wonder if the fomo drought is a thing? Okay, so so can this drought d because I mean I think about this. You just have this risk free place that you can put your money called cash and these money macrophones, and I'll just sit on the sidelines until it feels like there's a buying opportunity that is more of a sure thing than whatever this outlook is.
Yeah, that might eventually cause the end of the drought. And again this is just anecdotal. You know, talking to my friends who are you know, not in the market or anything, and they're always waiting to like keep asking me when can I come back into the market, Like when can I start buying? So there might be something happening, even a further dip, and then you have this massive buying opportunity, right and you start seeing a bunch of money move in, So that might cause the end of
the drought. But uh, for now, it seems like everyone's pretty content with just earning you know, four four and a half percent.
Yeah, so I pulled. I did a Twitter poll and I got three hundred and ten votes so far, and I said, you know, when it comes to your personal portfolio, have you increased, decreased, or done nothing to your US secretary exposure twenty six percent increase, thirty percent, decrease forty two percent, no change, So that if you net that out, that's more sellers than buyers. So this is again and just pulling the people so they match up with you know,
Athen's friends over there. But in my opinion, you know, just as there was a mystery to why people kept pouring into the market when evaluations were really high in twenty twenty twenty twenty one, people were like, these people are crazy that because the FED had our back, and so now the FED has to deal with inflation, and there's this always this dark cloud hanging above everything that they're going to hike again if an inflation print is
hot and it's going to ruin everything. So it's gone from like a sunny sky to a dark cloud, kind of like following investors. So to me, the FOMO draft ends when the FED just sort of drops his hands and says we're done. And I don't know when that happens.
Athanasios, thanks so much for joining us.
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.
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We're on Twitter, I'm at Joel Webber Show. He's at Eric Balchuna's. This episode of Trillions was produced by Magnus Hendrickson. Bye