What can itellions.
I'm Joel Webber and I'm Eric Belchunos.
You know, we should talk about mar Eric in video as a stock. Ever done anything like this.
No, I can't recall. I mean, Tesla Apples was a little more of a slow build, and it's been on the top of the mountain federal distinguishes in video.
It's like, it feels like it almost came out of nowhere and just as larger than anything else.
Yeah, it's sort of even though it's happened over a couple of years, that is a short amount of time to grow as fast as this stock has and so on. Our team as ETF analysts were sort of like scientists in a way, and this stock provides such an interesting way to analyze how indexes are reacting, how product is being changed. It is there's so many little subplots because of the rise of Navidia. And I was looking at our notes and I'm like, wow, about half of our
notes have been on Navidia. And I think the only other time we talked about this recently was with Will Rind of the Navidia the double leverage Navidia ETF at which we have covered. That's one of like six seven angles that we've taken on the video, so I thought we should cover the rest.
Yeah, you think you're really a scientist, I'm gonna I'm gonna.
Give a little bit.
Yeah.
I mean yeah, like.
There are I think actual scientists may take an issue.
You remember the scene it sounds the lamps when uh Jodie Foster brings this sort of specimen bug to those two guys with the thick glasses and they're like, oh, look at this, and they and they get all excited. That's us with stuff like this. I swear to God, Well.
We'll test that theory. Uh. On this episode, we're gonna speak with Athanasio, Sarah Vegas, an ETF analyst with Bloomberg Intelligence, as well as Emily Grefeo, a cross asset recorder with Bloomberg News for first time on the podcast, this time on trillions. The Nvidia Effect. Emily Athanasios, what can allians?
Yeah, nice to be back, Thank you for having me.
Okay, Emily, let's start with XLK. What is XLK. How does Nvidia factor into it?
So? XLK is a technology sector ETF that investors used to gauge. Okay, I want to invest in tech stocks, they can buy the cues, but they can also buy XLK. And due to the way that the index that XLK tracks was constructed, it didn't really have a large weight
to Invidia. In the beginning of the year, it had big weight to Microsoft and Apple, and then Nvidia's weight was like only six percent, so it was actually underperforming the S and P five hundred, the cues, and it really wasn't a good gauge for Okay, how are tech stocks doing because it only had this six percent weight. So then it had to rebalance, which we've seen recently, and the weights basically switched around. So now in Vidia has a much higher weight and the fund.
What's weird about this index is you look, if you were to pull it up before the reboundce, you'd see Apple and Microsoft like twenty two percent waiting each. So like half the fun is these two stocks. That's all that's weird. First of all, then there's this huge drop off, almost like a cliff in the ocean, and then Navidia was six percent, and so now the question was will because will Navidia get big enough and pass Apple by the rebound state to be the second spot. It's the
difference between eleven billion dollars of buying. Basically, like, if Navidia passed Apple by this Friday deadline, it got eleven billion dollars in buying from the ETF because it would go from six percent to twenty two percent. Just like that, an Apple would have eleven billion of selling because it would just fall off the cliff and it beat it like that in the last hour of trading. It was like a photo finish and a horse race. So Navidia is now twenty two percent, Apple down to I think
five percent. And the rule I just talked to James, who's covered this. The index has a rule that any stock over five percent waiting five of them can't make up over fifty percent. So what happens is the two biggest stocks are so big Apple Microsoft at the time, they took up all the budget of the five stocks, so everybody else got like crumbs. So it's a really quirky I think they should design it differently, they should
have it cascade more. And so this to me is a fascinating index situation that Navidia shined a light on. And now it's so funny that Apple, the great Apple got kicked down to the bottom rung, the crumb level.
But when's the next rebalance.
I don't This would be in the next quarter or so on the calendar quarter. But I mean Index's rebounds all the time. I can't remember such a big deal, right, There's been a few over the years, but this one was a really big one. And I remember when someone had brought it up. It was even our group chat. Oh and video is only a five percent way. You
guys had mentioned how it came out of nowhere. I'm like, oh, that sounds normal, like in videos still like really small, Like no, it was like almost the same size as Apple. So anyone who thinks that are passive should read through this document. It is insane, like you need like a
PhD to figure out, like what is happening. But yeah, this was a big deal, and so we'll see this might all be in vain because if Invidia doesn't hold this weight in the next quarter, it's going to reverse this entire trade and just go back to the way it was the beginning of the year.
Which speaks to what we want to talk about, which is the effect in video is having within ETF says, so what else is your research born out, so.
We actually covered something the opposite. So, as you can imagine, some of the best performing ETFs all had a pretty lofty weight ten video. We actually wanted to look at the ones that weren't depending on in video, like who's done well without it?
Oh, there's been products that have done that.
Yeah, there's not many, but there was some interesting finding. So we looked at any ETF that's beat the SMP since this in video run with a very low to no weight within video.
This is like winning the Tour de France in the nineties without doping.
Did that happen? I don't think it actually happened.
Though, That's what I'm saying. Yeah, yeah, that's how crazy.
This is really impressive.
I'm sure your you know, your listeners might be happy about this one. But Crypto was at the top, very little. I'm sure at one point maybe these worlds like converge, but they don't. A lot of the Crypto funds don't have in video exposure. The other one was and this is a very kind of like pro America story, but a lot of reshoring anything sort of American industrial revolution bringing manufacturing back had done really well, and then it
was just a splattering of random countries. Japan, Greece, actually, India had all done really really well without Nvidia.
Was it homebuilders on there too?
Yeah? And homebuildings.
That's interesting. Homebuilders beat in video beat, we'll beat the market okay, well out the video, yes.
Yet, But it wasn't a lot of ETFs right now, just ninety six out of a universe of more than two thousand.
It's hard, it's impressive, like Eric's point, like trying to it.
So not many.
But the reason this came up is there was that little correction about a month ago within d and they're sort of dragging the market down. So you know, it's a double edged sword, a lot of dependency on the video and it could go the other way if it does.
And this is something David Cohene, who covers mutual funds and active managers for US found also is that large cap growth managers, if you outperformed, you probably had an overweight to Nvidia. If you underperformed, it was less. So it's funny that it's come down to Navidia plus maybe the mag seven. Do you overweight or underweight? That is the question, and who knows every time you've underweight because hey, could they really go up more? You've lost, but at
some point you're going to overweight and lose. But when will that be?
So another thing that you seem to have honed in on, and you mentioned it here is how Nvidia and passive interacts, because there's this, you know, ongoing debate about active and passive, but like who's actually buying in Vidia and ETFs that hold in video.
We've also been working on broader pieces about like the effect that passive is having on the markets, right and I and Video is a really great example, like it just didn't decide that one day. Path was like, oh, let's make in video like the top stock in the world, and all of a sudden it moved up the rankings. Like that's still hedge funds and retail and institutional buyers decided they liked the stock, they bought it, and it
moved up. But you have to remember eight or so years ago, and Video is like three hundred or so in the SMP, like it's ranking and it just moved up, right, and while Apple, Microsoft all stayed at the top, So it wasn't you know, this is still very much active setting the prices on these stocks. So I thought this was a really perfect example that passive is not the one deciding to move these stocks higher, artificially keeping these
stocks higher. So I thought this was like a really really prime example of how interest in the stock in active buying is what's going to move it up, not just passive flows.
Let me break that down a little more. So, you have an index. Active managers love Navidia, retail investors love Nvidia. They start buying it, the price goes up, the market cap goes up. The index, which has rules, is like, okay, this thing is now a couple trillion dollars. It should be second or third in the index. And it's just simply a market cap decision that is made by active on the flip what was it, General Motors or ge ge ge they hate so they started selling it and
that went out of the top ten, top twenty. I think it's not one to fifty or something. So you know, active is it's ironic. Active controls the index waitings it's it's ironic, but it's true. And I also what I thought was interesting about yours was that those top stocks have been in the top ten for like seven years. Only na Video has like broken through that, like, I guess you'd call them like the studs, And it's hard
to break through, let alone go to number two. It's easy to go from three seventy to like one fifty, but to get to two from three seventy is crazy.
Yeah, if we see kind of the it's literally like a parabolic chart since there's no stock. I think that's ever sort of had a run from where it's been to where it is now.
Emily, how is this born out in your reporting? Where are some ways that you're seeing the effects show up?
Well, you can't really write a story about markets in twenty twenty four without mentioning in video. So every time we're writing about an ETF that's underperforming, the reason this year has typically been that it doesn't have in Vidia, and one that's outperforming the S and P five hundred probably has an outsized weight to some AI name, typically in Vidia. So that's kind of been what I've noticed as a reporter. You literally like can't not mention it
and not think about it. And it has been interesting too when we talk about the passive versus active, because you know, I write a lot about like retail investors who just buy these low cost index funds, and you can pretty much get a really large weight to in Vidia, the most important stock of the year, if you just
buy SPY or VU. I think a lot about like portfolio construction, Like why would you buy an AI ETF that has a big weight to Nvidia If you're already buying the S and P five hundred, you already have that big in video weight.
Yeah, and it's interesting. I agree with you. I think the AI story is a little bigger. But personally that's what's great about NEDEX investing. You don't have to worry about whether you own something you do, so it's like you can just be like walk around, but you don't arn a lot of it now. One example I thought
that is interesting is robotics and AI ETFs. So Robotics ETF's been around for like fifteen years and they had this huge run up, then they fell, people left, then actually came back, got some more money, but then they fell again, and I was like, Okay, I think these are just gonna die off. But then Navidia kind of
gave them a third bite of the apple. And so I think I know from my personal experience, like people I know have asked me about AI investing, and you know, if you look at Chat, there are stocks outside of Navidia, but Navidia clearly is is the big winner here right now. And so the good news is most people already own it. But people are a little greedy that they want more. They want more, you know, to get deeper into AI
and not miss anything and kick themselves later. So I think that's why Robotics ETFs got that rare third buddy at the Apple, which we also wrote about.
Ethanasia is another thing that you wrote about that I think was an interesting insight that I hadn't considered before. Is the actual price of the ETF that holds in video compared to maybe the stock itself, right, So what does that look like?
Yeah, we don't think about this that often, but it got up to like a thousand plus in video, did Yeah? And video got up to a thousand or so a share. And this just comes from text messages with my friends sometimes like oh, I don't want to buy in Vidia
its one thousand dollars to share. It's expensive. So I think sometimes retail has this association that if it's a low price, handle it it's cheap, right, And then now you have all these single stock ETFs, and something you don't think about is they trade at a lower handle. They're twenty five to thirty dollars to share. Yes, they
might be leveraged or whatnot. But I think before the in video split, a lot of people were using single stock ETFs just as like fractional trading in a way, while you can do it on the platforms, didn't really take off as much as just kind of buying a single stock ETF or even white people buy bond ETFs, right, you don't have to buy a full bonding, just buy a fractional share of a bond. So I think that's an unintended advantage of the ETF that doesn't get covered.
Enough because instead of paying even a fractional share of say in video, there's this psychological effect that it's like, oh, that feels expensive versus I can buy something that's in an ETF wrapper in a fraction of the price totally.
Would you rather have one share of the queues or like ten shares of QQM. I think psychologically that impacts people, so I have ten shares versus just one. I don't think it's the main reason why they would buy like a two x leverte in video. But I think it's it's something that is advantage.
I don't know. You guys call yourself scientists and you're like talking about text messages with your friend. Is there any real research or analysis here?
Yeah, I mean a lot of there's been jail D had a huge handle. I think it was like six hundred bucks or something. Don't ding me if I'm wrong, but it was high, and then the minime Gold came out and purposely made its handle what like forty bucks. So a lot of times when they do introduce a new fund, first of all, all the handles are typically low, but sometimes if somebody creates a minime of a large fund,
they do lower the handle. Now, a large price handle can actually help institutions who sometimes pay per share, so they actually like to have the big handles. That's why there are these old stallwart kind of ETFs that keep the high handles and then the minimes with the lower handles. They can serve both worlds. But I'm with you. Retail definitely likes that this probably is benefiting the bitcoin ETFs to a degree. You can buy many shares of ibit, but to buy one bitcoin would be what fifty four
thousand dollars, which is a lot. So I think people do like to have that satisfaction of owning more than one share.
By the way, we've said it like thirty times already. How do you actually say Nvidia? That's how I say it video.
I think I've said it wrong already. Katie Greyfield and Scarlett correct me all the time. It's n video, yeah, in video, but I tend to say in video like en video, like too quick or something. I don't know. I don't know. I've been correcting again, the the Eric or the real way the Eric in video Okay. They would say N video. Okay, it's almost like you're pronouncing this capital N. Then you're going video N video.
Yeah, but I don't say it right. Yeah, no, I'm self conscious. Thanks for that. Welcome, okay, Eric. We talked about how in Nvidia felt like it almost showed up out of nowhere even though it was actually kicking around, but then it had this kind of super serge and has become such a you know, integral part of the market. What long termplations does this sound? Because one thing about this company, it seems like it has a pretty deep moat. There's not a whole lot of people who can do
it in Nvidia does. So what implications does that have for the market indexes and ETFs as a whole.
It's a good question, you know, It's something we're watching. I think the advent of single stock ETFs is really one thing because you take a stock that trades a lot and is huge, and you just add different ways to bet on it. Let's go short, let's go double long, let's add call options, and you're going to sell that. So I think anytime a stock gets hot or big,
you're going to see an ecosystem build around it. The ETF industry is going to give you one hundred ways to play it, to bet on it, and that'll be one thing. Now. I don't know if Navidia is that unique. I mean apple Com went up and down, Tesla went up and down. I think the mag seven though, and these big megacaps are so big. I think like, if you take a couple of them, they're bigger than the entire stock market combined or something. Gina had some set. I think the top five stocks in the SMP are
bigger than the the bottom two fifty. It's something ridiculous. I think that the indexes I don't know, like XLK. If I were it, I would make a change. I would not do twenty two to twenty two and then five. I would cascade that. So these megacaps I think does pose some questions for index makers. That said, as much as these index gets kind of like mocked on Twitter sometimes for like being like dumb and not having these rules, they still beat active because you can get them for free.
The cost factor well overwhelmed some of these dumb quirks that you see. Yeah, those are all great points.
I think there's a lot of ways to play in Vidia in AI companies. I think the next frontier is going to be using AI to pick stocks right or make make assy allocation decisions. There's a couple products out there, AI EQ which is like one driven by AI. But what's interesting about that it doesn't own in Vidia, Like how does AI not know.
To own beck?
Like bet on me, Yeah, so she didn't figure that out. But anyways, I think maybe the next frontier might be AI powered ETFs. Why it doesn't it own Yeah, I don't know, I gotta ask you algorithm.
Yeah, maybe just doesn't think.
They did come out with the one IBM Watson picking stocks, which is aiish I guess, And it didn't do that well. It traded too much. The turnover was intense, and yeah, I think it returned half the S and P I think. I think you're right. AI will be used to pick stocks, but it's going to run the same problems human have, which is when do you buy and sell how much of your costs. I don't know if it'll be able to AI out of that.
I think of that meme with DJ Khaled when he says, congratulations, you played yourself, and that's kind of like when an AI powered ETF is underperforming actual AI stocks.
That's good, that's pretty good. Yeah, it's it's because they're not to pick on the IBM Watson one. But they were like when they came out, they came out hard
with the marketing. They're like, we can analyze this, you know, eight million pages of research that eight thousand analysts can do in eight seconds, like it was something so crazy and then you know, but my theory is the machine learning, the computer is going to end up going wait a second, It's going to end up into into getting into bogol land. It's going to go, wait, what if we trade less
and lower our fees, that's how we win. And it's going to end up the AI AI parwerd etff it has a machine learning will end up being voo.
All right. On that note, Eimmling Athanasius, thanks for joining us on Trillions, Thanks for having me, Thank you, Thanks for listening to Trillions until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify, or wherever else you'd like to listen. We'd love to hear from you. We're on Twitter, I'm at Joel Webber Show. He's at Eric Paulchuna's. This episode of Trillions was produced by Magnus Hendrickson. Bye