The Secrets of an ETF Master Picker

To me there they remind me of you ever go to the video store, and of course like the old day where you get a little token and give it for any millennials listening just google it, may watch a YouTube video. It was a fascinating place. But there'd be a shelf that'd be like um staff picks, and you'd go in there like if you're done all the new releases, you couldn't find anything. Sometimes the staff pick would have

a gem in there. A lot of them were good, right, and maybe movies you might not have heard of foreign film. This is what E t F strategists are to e t F s. They go deep in the toolbox. All they do is pick e t fs, trade ETFs and so they're kind of aficionados and they'll go and they'll

spend the whole spectrum. So when I did my book, when I got into the section on each as a class and each category, I had a lot of quotes that I would use from E t F strategist because you could throw out any ticker at them and then have an opinion on it. Yeah it does this, but it's a little expensive, blah blah blah. They have an

instant review for you. So they were really valuable as I was going through each as a class and category to like put a quote in there from one of the users, I think it really enhanced the reading experience hopefully. And Gary was one of the best interviews I had. So,

how what are we going to talk to him about? Well, he has over a hundred million in assets, so he has to file a thirteen F so at Stringer Asset Management, that's he's the president and CEO of So we went through his thirteen F and just we've we're gonna pick some ETFs out that he has and just find out why is why does he own them? So I think for for this episode, it's just a um for any investor out there to sort of go into the mind of a master user find out why they picked them,

both the macro reason and the product reason. This time, I'm trillions E t F picks with a master E t F picker, Gary, Welcome Trillions. How did you get into E t F? We were managing assets at a regional broker dealer and found that the biggest way to for us to add value was to get the general calls as good as we could, for example, countries, sectors. How do we want to be tilted? And what we found over time is a very efficient way to do that is via E t S versus other investment types.

And how long have you been managing what was a hundred million actually were over seven thirty million. Now I'm just saying they're over That's not nothing. How did you get into this? Via managing money within the regional broker dealer?

Our firm was eventually purchased and gave us an opportunity to go out independent as an independent organization, So we took our tool box, our research, our team with us and started as an independent esset management firm, but it all started with managing money within a regional broker dealer for individuals and families. Now, just to be clear, though, when we interview advisors there tend to be buy and hold a couple of Vanguard ETFs, You're a whole different situation.

You're you're trying to outperform and do better than a buying whole portfolio. Right, So in a way, you're an E T F picker in the way people know a stock picker, right, very similar or a top down work we do earlier goal is to try to achieve better risk adjusted results. So to help people do better. You know, you all seen the studies that suggest that individuals capture only a fraction in the market opportunity. We believe a lot of that has to do with behavior finance and risk.

Markets are scary. When market volatile, people panic. So if we can develop a strategy that can help people get from here to there with a smoother ride, that risk managed component is super important to us. It's all based on behavioral finance, and we can do that with ets through risk manage strategies. We end up with a result that's at least better than the market with twenty less risk. And if you look at that seven million plus that you guys are managing, what portion of that is in ETFs?

All of it? All of it? Like I said, man, they're all in Wow. Okay, So break it down, like what how does that? How does that portfolio look like? We run a series of five strategies from global equity all the way down to an income portfolio. The same themes are pac Investors can kind of pick and choose which one they want to be in, and you can allocate, so if you want something and something else exactly right. Yes, So I thought we would just go through and throw e T F s at him and find out why

he owns them. Do it? Okay? And so you guys pulled the thirteen F which thirteen F is this? Gary had a couple you want to talk about. We go through those, and then I asked my team for ones in his thirteen F that intrigued them and we'll throw those and this is Q four Q three Okay, So throw throw one out at him. All right, let's we're gonna start basic. And honestly, I'm surprised at this one is a basic pick that an institution would use, which is XLV. It's the spider healthcare sector e t f UM.

I would expect it something a little more obscure from you, Gary, why XLV, Well, why healthcare? But why this one, which is the popular, big liquid one. Yeah. So it's interesting you say that because our previous healthcare plays have been more defined, more specific things like medical devices, for example. But we did very well in medical devices over a short period of time, and it just got to be expensive.

A lot of good news priced in, and at the same time, we saw a lot of political risk coming in. As you approach an election year, both sides of the aisle like to beat up on big pharma and all of these healthcare companies um and so we tend to shy away from from it coming into this. But we think so much of the risk is already priced in.

In fact, the broad healthcare sector has been lagging or the price performance, yet it is the top sector in the SMB five hundred for revenue growth over last twelve months, so it's it's literally the best performing sector from a fundamental basis and one of the worst sectors from a performance basis. So we picked up the broad one because it does have uh still exposure to some of the areas that we continue to like, but it also has a nice exposure to things like pharmaceuticals, which is one

of the biggest parts of the broad space. We don't want to do a pure play pharma because there is risk associated that with that, especially coming into an election year, so we went broad based. We went from being very precise to something more broad to be able to capture the broader valuation opportunity. And so how often will you just be in something like XLV versus you know, three or four other healthcare picks, So it really depends with

the markets giving us. At this point, we felt like it was made more sense to be a little bit broader. But usually when we're doing something like that, we will get more specific. One of the raps on healthcare tastes back in the day was that they're too farma heavy. It looks like at one point they were fifty I think XLV looks like it's but you like that it's that at that into pharmat that's part of the that's a feature. Okay, that's exactly right, that's part of our thesis.

We wanted to pick up more farm exposure, but we didn't want to pick up all the farm and we didn't want to be just pharma. And have you done that before? And like, what other ETFs have you used in the to concentrate a healthcare butt. So the last one we used was I HI, which is medical to vices. Uh. Previously actually a couple of years ago, we use the pure pharma. This I h I is unbelievable. I think it's like doubling the SMP. It's just medical devices. And you were telling me he was on E T F

i Q a couple of months ago. His reasoning for this was fascinating. Why I H I instead of another sliver or slice of the healthcare space, like say biotech, which is where most people go if they want to jacked up version of healthcare. Yeah, biotech though, is a real way You're you're either gonna crush it or get crushed. Right, that's really ah, that's really the way that's gonna go in And for us that that kind of play doesn't make a lot of sense, especially for our client base.

But when you think about medical devices, we have the world's wealthiest country with an aging population, uh, and so people are going to do things like get artificial hips and knees done right and all the equipment that goes along with it, really regardless of what the economy is doing right. And so it's a great fundamentals and it's much less politically sensitive than say pharma. You know, you don't hear about politicians stumping about the price artificial hips

and knees. What you're gonna need? Isn't that cool? Yes? I like that? Um, And you know, the Vanguard Healthcare owns three and sixty healthcare stocks. The spider one that you have is sixty one. You want the concentration, though, you don't want it spread out because the Vanguard we call cheap and deep, but maybe that would be better long term, whereas x LV better for more pop. Yeah, that was really our thesis because again we wanted to pick up the pharmacide but not not too much. It's

sort of like not too hot, not too cold. It was just a nice fit for us for what we were looking for. And some of those things be so spread out. So what is the turnover like for you guys? I mean, you have this one bet now you've transitioned to something else based on sort of the outlook and the political environment, but like how often what's the turn like? So on average, in our global equity portfolio, for example, you're gonna have more turnover there than in our balance strategies.

Uh since ince option over a decade ago, it's average about eighty five percent a year. What tends to happen is and so on average we end up trading about once a month or so, but that doesn't mean we trade to a month. What tends to happen is the market will give us an opportunity, will position for that opportunity, and then things will work itself out, and then it sounded reposition all right, Ready for the next one, which

is sort of the opposite situation. Q Tech q T e C, which is the first trust and as that one hundred, So it's like the cues, except that equal weights them, and so every one of the hundred stocks gets a one percent waiting. But a couple of things here. First of all, most the cues is kind of like the ipso facto FANG E T F because it's very heavily weighted in those names. This unfangs it a little bit. Is that was that your goal here was to unfanged

the cues or what are you going after here? Because part of the NASTAC also has non tech in in as well, you wanted that exposure, Well, what we wanted in this one and this is UH specifically more tech tech oriented. We liked the technology sector, but kind of similar to where we talked about why we picked XLB with its broad exposure heavy on pharma q tech because it's equally weighted gets you more semiconductor exposure. So it's

something like what percent semis. We didn't want to go on semis because that's volatile, right, there's a lot of risks there. It's it's you're gonna win or lose, similar to biotech. But of the technology sector, UH, semi conductors we think is though they rallied pretty strongly last year, they got crushed so badly or so hard that the valuations still look attractive. In fact, when we think the SMP, when we bought this, we thought the SMP was roughly

ten percent overvalued. Semi conductors were still ten percent under their historical average, so just to get back to average ahead to come up ten percent from there. But again we didn't want to go so heavy in this in the semiconductors that we it's either a flippical point we're gonna get We're gonna crush it, or get crushed. We want to do it more broad based, but with semi

conductor emphasis. So one theme that I'm kind of noticing here is that you actually are you kind of using e t f s with built in hedges almost where it's like you get a concentration, but not all of the concentration that you would get maybe with a different ticker. Well, that's correct, and so there's a theme that that, Um, I think it's warm. Buffett one said we'd rather be generally right than precisely wrong. Um, so we try to play off a Buffet quote. It's good a quote he

has on the wall. Are there other ones that you guys are using right now that sort of are part of that same trend? Now you have a dividend one which a lot of people are into divid ets. They don't get a lot of coverage because they're kind of boring, but they're huge. Yeah, so d grow d g R. Oh, it's the I shares Core dividend growth ETF only charges eight basis points, so very cheap ten billion dollars. Why do you like this? One well because is boring. Actually,

it's one of our themes that we're playing in this environment. Um. It happens to be our macro view from the top down in our bottom up work suggests that we're just gonna be grinding it out with respect to a capital appreciation of the markets with the markets moving higher, not a whole lot of pop. We don't think left in the markets, um. And we want a little bit of quality tilt in case we get a shock. And so this is an inexpensive way to get high quality companies

that consistently grow the difference. So it's not a high dividend e t F. It's about consistent dividend growth. So you have a very high quality companies that can go ahead and continue to appreciate, but do a really good job of protecting in volatile markets. And what are the

holdings like in there? It looks at the SMP. I mean, it's basically and this is a great point because divid and dtfs all sound the same, but the growers are you're gonna have Microsoft's apples, Johnson and Johnson looks very much like the SMP. In fact, the yield is only two point two per cent so and the SMP is one point seven, so you're not getting much yield. You

get that stability. Now the the high dividend, they'll go after the high yielders, but you end up in utilities and staples and overweight, but your yield will will go up, so you sort of pick your poison. Sounds like you're actually want the side benefit of the quality names in here in the low ball. That's exactly right. And if you went for the high dividend, to your point, you might end up with a lot of utilities, which we think are pretty expensive in here. It's a defensive play um,

but they're a little bit rich. Or with some of the high yielding stuff, you end up with junk companies who just haven't yet cut their dividend. So you've gotta be careful about that. And were there ones that bier beware that you would keep an eye on in that category, there are a couple out there. Basically, anything that has a yield that's too good to be true we tend to stay away from because those things it's just a

matter of time before reckoning comes. Alright. Next one in the list is BAB Now, I gotta be honest, I thought this was the Build America Bond ETF, which there's a couple of them. Remember that when Obama came up with those UM, there there were three t F but it's called the Investo Taxable Municipal Bond e tf UM. So you tell me did this did this switch over to become a more traditional muni from the Build America

bond one did? They had to broaden their scope because there are only so many Build America bonds out there, so they brought their scope to be more taxable munis, which isn't so muni bonds are traditionally not taxible, right, but then you have the taxable side, which offers higher yield, so it out yields the like treasury. But it's still

very high quality. That's why we like it. It's got some duration to it's some interest rate sensitivity to it, so it's a really good equity market hedge UM, but it's not as expensive, meaning it has a higher yield, high quality yield than treasuries do. Yeah, if I'm looking at the holdings here, I do see, uh, there are some Build America bonds in here, so it's definitely still still with those, and that's the thing we build America bonds, right, every now and then this little corner of the media

market will really shine. Um. And it is the duration though, right, So what's the duration on an e t F like this? Meaning how much interest rate risk are you taking? Yeah, so it's about ten years, so it's not super long. Like you can stretch out even longer if you wanted to. But we're not afraid of taking interest rate risk in this environment. We don't think interest rates moved significtyly higher from here, um, But we also don't think you're gonna

compensated if we're going way out in the curve. So, for example, the broad market is about a duration of six years, right, So this has more duration sensitivity to it than the broad market, but it's not super long. So when you look at the MUNI space, I tend to think people going in for the tax exempt the tax equivalent yield. The only thing I know about it is like, that's why you do it. But you're not buying this for that, correct, You're just you think the

return is there. We think the return is the vast majority of our assets are tax sheltered in i A. Rollovers and those kinds of things. The tax tax equivalent yield isn't all that important to us, but the yield is, and the high quality is, and it, like I've mentioned it, out yields the duration treasury. So we're getting very high quality fixed income um with a higher yield, largely because it's not the most liquid space in the world, right

but still, uh, we'll take that. So will that be when an example of something that you probably hold on too longer and has a little bit less churn or or or are you actually actively trading that throughout the course of the year. That is something that we tend to hold onto a little bit longer. Now, if we if our viewpoint changed and we became concerned, and I hope this happens, I hope that the global economy accelerates and we're thinking, all right, long term intertrat is gonna

be higher because of accelerating economy. That would be great, and we would back off of this. That's not our core thesis. So for now, it's a tactical position for us and most of our our allocations. And how often are you reformulating your thesis? Is that part of your monthly rebalancing. Well, we rereformulate in real time. It turns out the markets in the economy don't work by a calendar.

We do have funny how that happens. Yeah, we do have formal weekly and monthly conversations where the reports ge published, the data gets published, and we review all the data. But we can make changes at any time. So another thing I'm noticing is that you seem to be more US centric than maybe international. How do you think about that? We are more US centric, especially these days. UM. A couple of years ago, we were more excited about the

foreign markets. We thought there was a good opportunity there from a valuation basis. And in seventeen, for example, the Eurozone was growing at about two percent GDP growth, which is roughly double what we think their long term potential is. Now they're struggling for any growth at all, right, and so we think the US grows at about two percent

and the Eurozone struggles to grow at one. Japan similarly. UM. So, though there's a valuation opportunity over there, potentially, it's hard to get excited about anything that unlocked that opportunity set. So we would rather be in the US where we get higher quality um and more stable outcomes. We think there is an internationally TF I'd like to ask you about in your portfolio DWM, which you don't see a lot. You assume people have E E F A or I

F A or something like that. This is the Wisdom Tree International Equity Fund and it looks like it's dividend weighted, correct, Probably is it screen on dividends too? And why that you want international with a little less edge? Well, so the actually neither that either. So let's think about when

we're when we're investing overseas. Different countries have uh different accounting methodologies, right, so a dollar of earnings in one country might be different than a dollar earnings in another country, but nothing speaks to earning stability, like can you make a consistent dividend? And so that is a core holding for us in our international exposure. It starts with that very consistent dividends. The dividend is about making sure you

lock into companies that produce earnings exactly right. Wow, it's cool stuff, right, I mean, he's blowing my mind. I actually out of right field. Question Jedi is the right metaphor? How many ETFs are there in the in the universe? How many of those do you think you've dabbled in or looked at at least oh jeez, yeah, well it's a lot. So but what we do is we try to approach the theme first and then try to find an ETF that fits that theme. So over the years

we've touched a lot of them. But like a lot of things with any growing industry or innovation, there's a lot of stuff that comes out most but frankly isn't gonna work. Most of it's not great, so you end up with a few things that are really doable. But that theme thing, I mean, it's such a prevalent part of the E t F landscape now because I mean, we talked about thematics all the time. They're they're great

talking points. So it's like you must just be like swimming through cream as you like formulate feces and ideas, and then it's just like, well, which flavor do we want? It's like Basking and Robbins, And over the years it's been good that there's been so much new product coming out, right, so that gives us. If there's tenu ets that come out, maybe one or two are actually really legit for us. But the more that come out is the more opportunity

for us to capture some ideas. Okay, so actually I'm just noticing that there's a couple of shares in here. How do you bring something like a black rock offering into the portfolio when a lot of these other ones are from maybe smaller issuers. Again, it gets back to the theme what are we trying to capture? And then who's got the right products? You even think about it from that end, it's sort of like, what's the product? Right?

You will use smaller shores if need be, Yes, you have an index i Q product or you did M and A correct that's pretty smaller shore, but they're not tiny. Okay, let me let me look again. Okay, Uh, I'm gonna go to flex share stocks in f R. What's that You've got almost five percent in that? It's global infrastructure. So the idea being here, So we talked about how we're not real excited about an acceleration in global economic

growth when we talk about like Europe and things like that. Um, this is an e t F that and specifically focus on infrastructure but not capital or not economically sensitive. So it's not like the caterpillars of the world. But these are things like global utilities companies, national railroads, cell phone towers, these types of things that if the economy, they're gonna going to continue to generate consistent earning. Was gonna say, sounds like your health care strategy, which is like it's

like the hips, the artificial hips of America. That's right, that's right. Canadian Railroad is gonna do just fine. Japan Railroad is gonna do just fine in almost regardless of the economic So if the economy accelerates globally, these companies will lag, the prices will lag. But if we're talking about a choppy or even a difficult environment, these guys hold up really well. Two of your biggest holdings are the I shares m t u M, which is momentum, and the us m V, which is the minimum altility.

When you go out and you you know, mingle with quants, you know, you quickly realize that the I shares will put a little beta into there because their sector constrained, they don't move that much different than the SMP. But then hardcore quants will say, we you're not really capturing any kind of factor here. Maybe a little it's like diet quant but you like do you like that beta in there. Is that why you pick them or is it more about the liquidity or the cost. So there's

a couple of things to that. So, especially if we're talking about M t U M, which is very different from US M V M t U M is a momentum strategy, right. One of the challenges with momentum strategies is when you have a momentum crash, that's awful violent these strategies, if they're unconstrained, completely unconstrained, you end up loading up in whatever single single factor or two or

driving the market at that time. So you might be six technology or real heavy and biotech, and that looks great for a couple of quarters, and if that turns against you, it blows up right. And so we liked M t U M because it takes those momentum names but inversely waits them relative to volatility, so it ends up with a smoother ride over time. You're still capturing that momentum factor, but it's as much smoother ride than

some of the other things that are completely unconstrained. Understood, and then what about rebalancing, because momentum mtum sometimes will notice that it rebalances a little oddly around a uh, something that changed in the market. Um, I think over the long runs trying to capture it. But how important is the rebalancing frequency? I think most are quarterly, but some are semi annually, some are annually. How important is that for you? When you select one it sounds like

you maybe even do monthly. Well. For us, it depends on the strategy that we're trying to capture, right, So we're always looking at our portfolios and what's coming out, and then you have the ets rebalance and some of them it's not as important if they're more sort of like like some of the dividend ordinany ones we we talked about that are just kind of or d g r oh where you're just trying to capture a good

dividate grower. That thing doesn't need to be rebounced all that often, but you have something like momentum that needs to be rebound more frequently, so that m TM gets rebalanced twice a year. And then they have these ad hoc rebalances, and that is very important to us, because, um, you like the ad hoc rebalances. Well, we think it's important to acknowledge that the market's changing and that the et F has a change with it when you're looking

at a momentum thing. But it's also important for look at a portfolio construction that we have to read then dig under the hood again to look at our our allocations overall and how that rebalancing affects our positioning, because you don't want to end up with your thesis exactly, and you don't want to end up with an unintended

bet somewhere. I mean, it's hard enough to be successful investor, and then when you have unintended bets because you weren't paying attention to rebalancing of one of your bigger holdings, that's problematic. Yeah, So what about like a like a smart beta offering? Like how much of that do you have in your portfolio right now? We do a fair amount in the smart beta world. So it depends on

how you define it. But some people will say momentum is a smart beta et F. We also have multi factor stuff UM and us m V and those those types of things. And if you have VTV, which is the Vanguard value, right, which would I don't know barely be smart beta. I mean, this is VTV is as close to beta as you could possibly get it with

a value fund, right, which that's intriguing to me. Normally i'd picture an advisor putting grammar on this because they would never get fired because it will always be around the SMP. But you, I would I would think you'd go to something a little more exotic, But but you like it. We do like it because it's a long

term core holding for us. It allows us to maintain a long term value bias, and we have a we have a tilt towards value anyway, and some of these things that are more exotic or more pure play value are gonna work really good when their time is right, and then when their time is not right, they're not working at all. And so we like the v The VTV is a long term core holding for us. We've owned that thing for for forever and have a very

low cause basis in it. Um. But so, for example, if the economy is to accelerate, like maybe we're coming out of a recession and and things are trying to turn, that's when you want that pure beta or pure play value style and when if that's our thesis, we will move into that. But that's not our thesis right now. UM, and Joel, I have one for you. Um, this is one that Tom from our team actually wanted to bring up, which is ao Tom saraphagus. Yeah. Um, you know you

always ask about why isn't there an ETF just does everything? Yeah, that's what a okay does. It's a it's a okay is a kind of a great ticker name. So it's a conservative core conservative allocations, an ascid allocation ETF. So it holds basically like seven other e t f s, the track bonds, stocks, small caps, midcaps. So in a way it's full Yeah, the meta e t F. Aren't you the ascid allocator? So why would you own an

ascid allocation ETF for that one? In particular, we own that for a particular investor who's rather limited in what we can own, and so it fills us a spot for us where in our full blown ETFs strategies we actually don't own it. We do own some other acid allocation e t F s um that a little more esoteric um things like m D I V and I yield. Let's talk about MDEV real quick, because this is a multi asset income ETF, which sounds you know, boring and convoluted.

But really it's the way I would phrase it is it's like um all of the above for yield goes into junk bonds. Uh, you know, dividend stocks, you know everything that has like a nice yield. It kind of just does it all in one shot. And you like that. We do like that when that one's got a little more zing to, a little more beta to it because it picks up things like um M LPs and the like, and so it's got a it's got a healthy yield

of about six percent. So we look at this as something that can capture our forecast for equity returns for example going forward is about seven percent total ry to return M D I V gives us about six percent of that just out of yield. And uh, now it's it's gonna have some volatility to it. We think it will get us probably about seventy of the risk of the market. But it's capturing something like the potential return of the market. So we like that. And it's got

a relatively low correlation. It's about a point eight correlation to the broad equity market, so it gives diversification benefit. Why do you think an a OK type et F or an m did frankly, but let's stick with it. Okay, Why aren't these more popular? Is it because advisors they kind of disintermediate a layer there, Because Joel wonders this all the time, Like and Rick ferry Um who's an advisor himself, thinks there's a market that hasn't been tapped

yet for these. But I'm like, they're out there and they don't have much money. My thesis actually is that everyone has somebody in the middle, so that stuff doesn't quite get picked up because you're gonna put me in another things that could be um And maybe it's just people who make look like it's too easy, right? Why would you pick one et F that does all this stuff?

But to us, we really like that because that covers a lot of ground for us, because I don't want to own to present positions and m LPs and to present positions in this and that I can own one broad e t F that I know what's gonna do. It's gonna cover that ground for us and get us that that consistent return with less risk with one ticker symbol. So that makes a lot of sense, and then we could build around it, give us room to do things like q Tech and I h I when we own

own it. So how often do you have you mentioned this is one particular investor that you basically built a separate strategy for. How often do you do something like that? Very rarely? They were a big investor for us and a put investor for us. So somebody comes knocking on the door like that, you're gonna take it and say, hey, okay, uh so I'm notssing though that it seems like you're long only? Are you short anything? Because that would be revealed.

You know, the long only stuff is what's going to come out in the thirteen f But do you have shorts? We don't have shorts. We do use from time to time ETFs that do long short within them, but our broad clientele really don't want us to do anything in verse. And so what about other exotic stuff that Eric would put on his red light system. You don't do leverage, right, We do not do. Do you do any commodities that

hold futures? We can? We haven't lately. Um, we just don't think it's a time at the time is right to own those. Do you do you own senior loans or junk bonds? We do not we have in the past. We don't have EUROPG and G it's like with a little yellow he's uh, he's he sticks to the family movies. Well for now that we have like for example, for an stop Friday night, let's ask about his personal account.

We have owned high yield in the past. Last time we owned hig yield in a big way was when we are work suggested that the price of oil is vulnerable and how yield that market is something like energy related, So we didn't want to own that going into it.

And we still think that sector is vulnerable, so we're not gonna own it now, and we think we're shorter inter strates are now we're not getting compensated very well for taking uh, the senior loan risk, But we did years ago when the FED just started hiking interest rates. The market price in the probability that the FED was going to continue to do that, we thought it was

a lock. So we wanted to use that variable rate that floating right on the short end of the curve, and we did pretty well with it at that time. You know you you said something interesting that I'm interested about. Do you eat your own cooking? Yes? Everything I own our clients own. In fact, I'm just invested in the same portfolios our clients are invested in. So now we're each we're gonna ask you about an idea that that we're kind of intrigued with and see what you think

as the master user. Here. One thing I'm just I can't help be super intrigued about is uranium miners because you know, nuclear power according to Bill Gates and a lot of people starting to read more about this. If you want to fight climate change, but yet you want economic growth and nobody wants to like stop moving around, it kind of needs something to help out wind and solar, right, So nuclear is a clean, cheap seven method, and I get that has to get over this public relations hurdle.

But a new E t F came out U R n M. And there's also you are a after an eight downturn in the market over the past eight years, and I've never seen an e t F come out with a back test quote unquote that bad. The whole thing made be intrigued in that A, Um, here's a of story, and B it's been beaten up so much that the smallest little catalyst seems like it could be massive upside thoughts. So that's a very specific, particular idea.

And if we think about our client based being individuals and families, not that nerdy right right, And and if we do that, so let's say we go ahead and invest in that and it works great, you know that's what they expect of us. But if it doesn't work, now I've got something. Why did you put me in? What? Why am I in Urania? Right? And so for us it's such a specific particular thing. And how much of that would you really own in a portfolio? Is it really going to add that much to the contribution to

the overall return of a strategy? Um? For us, when we think about all those kinds of things, that's gonna be so specific. It's an interesting academic exercise, um, But it's hard to say, hey, I want to own ten percent of your portfolio and I right your Okay. So

here's a different one. And we we did a sort of a game show last spring where we had a bunch of people pitch an idea that we think would make for a good d t F or that person would think for a good DTF the one that I'm actually interested in his millennials, right, Like here's a gigantic generation, bigger than the boomers. So if you believe that's part of the thesis, these are going to be massive consumers. Will you that seems like a long term play that

you could get into. How would you approach something like that? We actually did approach uh, the millennial generation a couple of years ago when we thought about I remember during the global financial crisis two nine. The whole story was, you know, these people are graduating college and they can't find jobs, right, so they had the boomerang generation. People have been back into their parents basement. Well that was

ten years ago. So now you're thirty years old living a mom's basement, right, and so you're not gonna keep doing that. So we thought, Okay, they don't have money to buy holms, so what's the next best thing? Apartments multi family housing. So we picked up on our easy which is the mortgage that's heavily invested in that, and that did fairly well for us that way. You know, the millennials also that e t F sounds gimmicky, but when you think about it, I think every company there

has to have of its revenue from millennials. And you know how tech savvy and and picky. They are. I think if you can serve them, you know, you probably are gonna eventually bring over other people from other demographics. That's and it has done pretty well. Although the problem with comparing a millennial ETF. It beat the SMP over many periods, but then you throw in the Russell growth and it does now perform that. Like, that's a tough part about some of these themes. If you if you

slap on the growth index, almost nothing beats it. It's like, well, what's the point anyway? That's exactly right. Yeah, so when you actually dig in do that kind of work, you've got this cute theme, or I can do it using the broad growth and get it like five basis points and be done. Okay, So I just want to kick the tires on this a little bit more because you know, we've we've got to interview Jack Bogel Buy and hold guy kind of anti et fs. You're almost exact opposite.

We're very t f s and we're treating not constantly but frequently right and using you know, uh ccs to sort of inform how how your performance might be able to beat the market. Right, what do you have to say through you know the large swath of the world who just as a buy and hold investor and maybe

using still right. So Bogel has been a great inspiration for us over the years, and a couple of things that he said, like, for example, he talks about how most of the marketing stuff we we see out there's bogus right, it's all malarky. A lot of it is, and we actually agree with that. A lot of the stuff that he's he's talked about and he's inspired us to be a little more cynical the way we look at the world and not necessarily accept what you might

the researchers might might give you. Now, the challenge with being a buy and hold investor only is that people don't actually do that. If you look at the average holding time for a mutual fund over the years, it's something like eighteen months. Because markets are volatile and people get scared and they end up bailing at the wrong time. So a lot of our tactical work is to act as behavior relief valve to help our investors stay the course.

So I appreciate Mr Bogle's viewpoints on how there's a lot of marketing bs out there and I get that. I think that's right. Um, but we've demonstrated over more than a decade that we can perform as good as a market while taking less risk and help people stay the course. So, speaking of which, over that decade, what's performers been like for our our core three portfolios that we launched, Um, actually in September, I'm sorry, two eight

is when that track record starts. Each of those strategies has outperformed their respective benchmarks while taking between ten and less risk. And that's the key, if you can smooth the ride for people and help folks especially in down periods. You know Richard Taylor when the Nobel Prize for his working behavior economics, and one of his key thesis is that downside volatility affects people at least twice as much

of the befort have a gain. So protecting in the downside is at least it's worth at least twice as much as being able to outperform on the upside. Right, So if we can protect on the downside, that's what helps people stay the course and achieve these long term results. Well, the buin whole thing works great in a classroom in academia,

in the world. World people don't do that. And on the flip side to Bogel's complaints, there's the hedge fund guy complaint I call it, which is, uh, e t f s are going to blow up their systemic risk passive makes everything dumb. They're distorting fundamentals. You've heard them all or you are a user of these. Does any of that affect you as any of it true? Um, you know, as somebody who's actually putting other people's money

in it. What do you think when you hear that there are narrow parts of the market where you can get trapped holding an e t F. You might remember the junior gold miners a couple of years ago got locked up. But how big is that market? You know, the et F is going to dominate that more so. But the broader based e t F that's not an issue. And in fact, it's just another market participant. You always

have buyers and sellers participating in the market. And if you look at it taking a step back, the market is driven by the large institutions and the big mutual funds that together combine make the market. So just one more entrance isn't broadly speaking, isn't going to be that impactful. So at four trillion dollars roughly the et F landscape, and it's got a pretty big parabolic growth rate. But mutual funds are still right around three are thirty trillion,

and the global liquidity is around three hundred trillion. So what are we talking about. We're talking about marginal stuff. And anytime something locks up, like junior goal miners, it hits the press and everybody gets excited about it. But sp y doesn't have that problem. The big broader things that we invest and don't have that problem. Yeah, we call it the big fish in the small pond phenomenon.

Every now and then, like an xt I V, something just gets a little bit bigger than the issue where thought it would and it owns a little too much of the stocks s d Y that dividend aristocrat one recently had it. But largely I would agree with you. I think sometimes times, uh, you cannot perform. So I don't know. It sounds like sour grapes to me. But also I think showed the sell off was pretty violent in some parts of the FED wasn't having the markets back,

and they seem to work fine. We saw in two thousand eight two, which is the biggest crisis and it US ever seen since a great depression, and they held up just fine. What are we not talking about that we should be talking about right now with the t s, yeah, or or just in your investing philosophy. So, um, there's some risks out there that we're paying a lot of attention to. And uh, you mentioned the FED didn't really

have the markets back in December. Um, we're a little bit concerned that the FED is a little bit sleep at the wheel right now. We'd like to see them cut interest rates for because we can't forget that the yield curve inverted last year and that's a one in two year lead time, so we're still in that cautionary window. Um. So the markets at all time highs. There's a lot of risk out there, and we think uncertainty is doing

nothing but increasing for the new yar term. And so ets are actually a great way to to be able to participate in the upside while managing that risk. And you can quickly pair act which is what works. Do you have a Bernie Sanders et F just in case, just in case he starts to climb a Polese and whatnot? You what are you gonna go to g l D. Actually no, if if if the market gives us an opportunity, like the market pulls back because of Bernie Sanders election,

we would buy that. We would buy just basic beta because our work shows that who's in the White House really doesn't have a broad effect on the global on the economy, and then therefore the markets. Now, certainly you can affect individual sectors and industries, so you probably don't want to be in the energy space in a big way under a Bernie Sanders kind of environment. Um, but everything else let's just fine to us. Okay, I can't think of a better person to ask my closing question too,

which is what is your favorite ticker? Oh? That's probably would? Oh interesting inspired choice, which, by the way, is the timbo et F And there's an other one called cut, which is a it's right up there. Yeah, but he goes, would why would? Uh? Hey, you know what it is? Right, It's like even tan you have to think about it for a second. What does that mean? Well, what I'm buying? What I'm buying November? All right, Gary, thanks for joining

us on trillance. Thanks for having me this pleasure. Thanks for listening. To Trillions until next time. You can find us on the Bloomberg terminal, Bloomberg dot com, Apple podcast, Spotify, and whoever else you'd like to listen. We love to hear from you. We're on Twitter, I'm at Joel Webber Show, He's at Eric fall Tunas, and you can find Gary at Asset Stringer. This episode of Trillions was produced by Magnus and Rickson. Francesca Levie is the head of Bloomberg Podcast. Bye.