Hello, and welcome to What Goes Up, a weekly markets podcast. My name is Mike Kriegan. I'm a senior editor at Bloomberg and.
I'm Aldana Hire, Across Acid reporter with Bloomberg.
And this week on the show, Well, the stock market was running at full speed in the first half of the year, then towards the end of July it seemed to well just run out of steam. And whether what we've seen since then is just normal seasonal weakness or something more serious, that's yet to be seen. But it is notable that among the hardest hit in this off patch have been some of the most popular thematic trades, from electric vehicles to travel stocks and even the darlings
of the artificial intelligence world. So what can we expect for the rest of the year. Well, these themes snapped back were is there a new regime in place? We'll get into it with the co founder and chief investment officer at a company that offers some of the most well known thematic ETFs. But first of all, Donna, I have to ask, September is the worst month in the stock market? What's your show?
It was October, November, December, jen that's the joke, Right.
February my worst than what's your worst month personally?
February.
I was going to say February too.
I think it's everybody's worst month. Yeah, because you're depressed by then, you know, the winter's been dragging on, you like have.
Seasonal there's nothing seasonal affected this one, yes, yeah, and there's nothing like Okay, there's the Super Bowls, all right, that's a nice bright.
Spot, but that's only one day and the rest of the time there's no sun. There's nothing like just so dark and depressed.
All right. Well, we finally agree on one thing.
On one thing. Yeah, wow, we both hate February. Yeah, we can pretend like it doesn't exist. I do want to bring our guests in. It's Sylvia Jablonski, co founder and chief investment officer at Defines ETFs. Sylvia, you've been on the show before, and I'm so happy you could join us again. Thanks so much for coming on.
Thanks so much for having me. What about Valentine's Day guys?
Oh no, thank you, that's fair.
Okay, I mean, I guess Parts.
And Stars chocolates, two little.
Bright spots in a very darkened dank.
We get that presence day weekend off.
That's true.
Fun.
Everybody's like, are we all redeeming February now? But Sylvia, Mike had this great introduction of you, and you have been on the show before, but maybe just to start and just to give our audience a refresher, you can just tell us a bit about your background.
Yeah. Sure. So I'm currently the CEO and CIO of Defiance CTFs, but a large part of my background has
actually been in ETF. So I worked prior to Defiance, I worked at a Levern NIVERSITYTF provider called Direction ETF for a decade basically, and then out of college I worked on an equity derivatives delta on trading desk, so I sort of learned about the nuts and bolts and trading them, how to actually kind of create and build the ETFs, and then ended up working in all aspects of ETFs, whether it's educating about their product development, research,
and of course I have a just general passion for markets, so kind of studying markets and figuring out how they all fit it is part of my day to day.
Solbia, let's talk about that idea. You know, we have seen this soft patch in the market. It seems like, as I mentioned in the intro, some of the hot thematic ETFs are doing even worse than the market. Is there just a beta there? How do you think about how thematic ETFs, at least the defiance ETFs perform compared to the market. I mean, is it just natural to expect these themes to sort of do even better on the upside and maybe a little worse on the downside.
What's the sort of your analysis of how they perform in different market cycles.
Yeah, And that's actually a pretty fair way to look at it, right, You do have beta exposure, and when you think about thematic ETFs, oftentimes we're sort of, I think, moving away from thematic and we think about it more like tech growth innovator, so kind of what is the tech of the future, what is innovation for the future, And they're not so much like Kitschy themes, right, so
we just think about how different sectors will morph. But it's a fair point because if you think about twenty twenty two, all of the top kind of like growth stocks and tech stocks really suffered a bear market, and our ETF suffered alongside of that. And if you think about why, I'll use like quantum ETF is a great example. So so quantum gives you access to five G artificial intelligence, supercomputing, quantum computing, right, and all of those themes. In twenty
twenty two, we're just kind of non existent. Tech stocks were down, and what makes up that ETF or some of the top movers like the Apple, Google, IBM, Amazon, the video amts of the world. And then lo and behold, as you said, the first part of the year, up until July, these names sored and so ANYTF like that kind of more than sorted outperformed the NADAQ one hundred because of the same names a MD and such getting a great tail and then five G same thing. It's
made up of sort of semiconductors technology. And if you think about when the market pulls back, right when you have kind of like these little bursts of panic because whatever might be service ism is too hot or whatever it is, we worry about the FED raising rates. Everyone kind of panics, sells off tech sales, off growth and goes back into cash equivalent staples and kind of the
defensive types of plays. But what I think is that these are actually great opportunities, especially if you're a young person investing for the long term, these are amazing opportunities to dollar costs to average. Like That's that's how I
would characterize this market this year. It's not wholly volatile where we have everybody kind of on the sidelines, like like twenty twenty two complete panic highest savings rates ever, I mean, we're still pretty pretty high, but I think this year you're starting to see some of that come
off the sidelines and go into these products. So although the performance is low or is getting hurt anyway by these pullbacks, I think over time these ETFs are want to outperform and the people who kind of buy them on these pullbacks are going to be kind of very happy about that. Right. The future is technology. Every single sector, asset class depends on it. So I don't think that these techniques are going anywhere.
Okay, So, Sylvia, you like investing around some of these themes, including airlines, hotels, cruise companies, the EV trade, AI and machine learning. So I'm just wondering what the reason is behind that, whether or not you're thinking about the consumer and the consumer staying strong.
Yeah, that's a great point, and I think that I sort of have different reasons for the interest in different sectors. So on the travel trade, the cruises, hotels and airlines. You know, I think the big impetus there is that, yes, the consumer remains strong and resilient. They have high levels of savings, and that savings has gone essentially from spending on goods to spending on services. And there are a
couple of factors here. So one is that in the early winter it's the first time that the kind of globe reopened to full travel, right, So you have the connection of the East to west back up, you have Asia to the US and Europe and kind of more global travel happening. You have business travel picking up in the spend picking up there. Cruises, some of the cruise stocks are actually up over one hundred percent year today, right, and I think we're coming off of some loan numbers
because of COVID. But you know, again, the consumer seems to have shifted to spend into experiences and travel and things like this. So Norwegian has been able to up their prices and create these luxury experience same with Carnival
and Royal Caribbean. It's just they've caught a massive tailment from that spent and of course hotels it fits all of it, right, So you have again people traveling it's that time of year, and then on top of that business travel, all of the people flying everywhere obviously up this stay somewhere, so you've seen some major pick up there.
And then during the earning season, the CEOs have just really been super positive about current bookings, future bookings being kind of back to where they were in twenty nineteen pre pandemic. And I think that it's a sector that really has been a great short term trade in terms of why evs, I think EV's or where the puck is going. You know, you look at the growth of the EV market. It went from five percent of all
vehicles sold last year to fourteen percent this year. The projected statistics of this is to kind of double in the next five years and then at some point to
become a multi trillion dollar industry. So there's so many reasons for that, right you have awareness of climate and wanting to be a car but neutral these are obviously better for the environment, and have the support of governments globally around that Inflation Reduction Act, tax credits, all of these sorts of things, and then if you just look at the stats, right it's like one in three cars
in China's an electric vehicle. I think it's close to sixty sixty percent of vehicles sold this year where EV's in China. In terms of Norway, it's like ninety nine percent. So these are real growth opportunities.
And that's really why I like regardless of what's happening in the market today, I think that these are great allocations for the next few years.
Thing Sylvia that's corresponded coincidentally with this drop in equities the last few weeks, perhaps not coincidentally, is this surgeon oil prices. And we have seen some of the airlines come out Southwest Alaska Air another who I can't remember warning about though the jet fuel prices are going to be a little bit higher than expected. How big of a threat is this oil price to that travel theme?
Was the consumer strong enough to handle even higher ticket prices if airlines are forced to raise them because of energy? How are you thinking about how the energy situation, the OPEC plus supply cuts, how that all fits into the travel them.
Yeah, and that's that's a great point. And obviously that can that could certainly have an input negative impact on the travel industry. But you know where where we see oil and gas prices now, I don't think is going to impact the bottom line for for airline companies. Right if they continue to rise and we do have this threat of increasing oil prices, then I do think that
it could potentially hamper the returns for these companies. But I think there's sort of that sweet spot right now, like where these companies can charge higher ticket prices, the consumer can afford it, they're sort of not complaining about it.
If they go a little higher, it sustainable. But yeah, it's certainly something that we would have to keep an eye on in the longer term and the shorter term, though, I think next two quarters of earnings for these companies are going to continue to remain stellar.
A lot of the projections that people had for twenty twenty three, including recession and whatever other negative impacts people were thinking about on the economy, a lot of those have been pushed out and pushed further and further into the start of twenty twenty four, maybe even later. And I think one of the thoughts that's going around now is that the consumer is going to run out of
steam at the start of twenty twenty four. Do you foresee the same or do you continue to see the consumer staying strong.
I continue to see the consumer staying strong. I don't think anything will sort of happen that quickly. Twenty twenty four is really just a few months away. If we think about it, and if we look at the data, if we look at corporate earnings, if we look at spending data, it is unlikely to fall off of a cliff, especially because, as you said in your intro, September is
you should terrible. October is a little bit rocky too, But November December tend to be positive months for the market, positive months for retail, for spending and things like this. I just don't see that happening. I think you get some tail and went from that and that kind of holds you over till next quarter. It depends on the FED and what the FED does right and how that impacts the economy. So I think that jobs are going
to level off. I think part of the reason why jobs have remained strong is, you know, also because we've seen some economic expansion, we've seen some growth, we've seen some innovation and technology and things like this. Eventually that stabilizes, We just stabilize, But you know, if the FED sort of holds rates higher for longer, continues to raise rates, I do think that impacts kind of a lot of things in the market. It'll impact corporate America, It'll impact spending.
We'll kind of go back to this like huge risk of recession fears and things like this. But if we kind of are at a point where we think that we're closer to the end of right hikes and potentially thinking about kind of a reduction of rates in the next year or so, you know, then I think we pulled off that soft landing and I don't expect that
massive pullback to come. Of course, things have happened in the last couple of years, right, Nobody anticipated COVID, Nobody anticipated kind of like Russia and Ukraine and tensions with China. So we always have to be aware of the geopolitical events. But that aside, if the market continues holding up the way it is, corporate America continues to hold up the way it is, cutting jobs, becoming more efficient, then I think the consumer will be justified and we avoid that big recession.
Yeah, Sylvia, obviously we've all kind of talked ourselves blue in the face over but AI such a big theme this year. Artificial intelligence one of your newer products QTUM, the Quantum and Artificial Intelligence ETF. What I find interesting about the ETF is that so much focus has been placed on the big megacap tech companies, you know, in Nvidia, Alphabet, the Magnificent Seven as they're called, how they are sort of at the sweet spot to be beneficiaries of the
AI craze. But your ETF has some more interesting small cap companies that I don't think many people are necessarily aware of, So companies like Ion C. Brighetti Computer also innovation. I'm wondering if you could talk to us a little bit about some of the lesser known names that are held by this ETF and sort of what the thinking is about being included in this Quantum and Artificial Intelligence ETF.
Yeah. Sure, I'll kind of give you the macro overview of like why the smaller name is in general, and like what kinds of things they do and why the bigger names. Right, So, when we think about themes and innovation and things like AI and machine learning, there is a lot of hype about it, right, And so when there's hype about something, but it's also coming to fruition and you're starting to see revenue as a results from this.
You're starting to see the actual impact of AI and how it's being You just quickly note that AI will change every sector and kind of asset class. I think out there for example biotech, right, you can use AI for better data to create better drugs to have better results and surgeries, to power robots. If it's defense, better targets and information. If it's retail targeting more accurately what you're going to buy and purchase and you know where it should be in the store of things like that.
But we can go through every sector and find the application of AI. And so the big companies that power AI are the Navidia, the AMD, the Google and Amazon companies are the companies that have money, they have budget and they're going to be immediate benefactors of this and
we've seen that play out this year. And so you want them to have a big place in an ETF like this because you get quality, balance sheet stability, but with innovation, they're going to be winners and losers, right, And some of these smaller companies that you mentioned, you know why we have the smaller companies in there because you think about innovation, you don't know who the winners and the losers are going to be. So some of
these smaller company these are chip companies. Some of them are like Amberella that deal with the visuals and graphics and we're getting and things like this. There are different parts of AI. There's data parsing, there's the actual chips
part of it, there's a supercomputing part of it. And we believe in the whole kind of ecosystem of AI, and we think that having exposure to some of the small caps that can become major players here and eventually MNA targets, it's a good way to kind of diversify your exposure there.
So a lot of attention, as Mike said, and as you just said, has been paid to Navidia and some of the other bigger ones. I spoke with Rob are Not from research Affiliates a couple days ago, and he's pointing to Navidia as being potentially in a bubble, wondering if you are looking at some of these AI companies and thinking the same that maybe potentially some of the bigger ones are overvalued at this point.
I actually don't think that they're in the bubble because I think that you know that once we get past the kind of like the fat and the hype around AI and we actually see the practical appation of AI and how it's impacting top and bottom lines of major companies, I think that these companies can only grow further. And a Video, without a doubt, has set themselves to a
part to be the AI provider. The only way I think that this doesn't sort of shake out for a video to continue growing is if they can't actually supply the chips that are that are needed. Justin Wong came out and gave us his view of the twenty twenty four forward looking orders and said that they're beyond kind of his expectations and well beyond what the company expected.
So when you have the CEO that has actual clarity into his orders or his chips, as long as they can provide those chips, and barring any major there's so much government intervention now with chips and China and all these things, so there are things that can come up. But barring any kind of like political event, it seems that the demand will be there to justify the price and perhaps the price appreciation. In my opinion, Sylvia.
One more interesting thematic ETF is the hydrogen ETF you guys offer, And if you go back, I don't know what decade or more, there was a lot of optimism that sort of vehicles would have one day be hydrogen powered. I mean, I guess there are some currently that are, but it never quite reached that goal that they had for hydrogen. Where is the growth for hydrogen hydrogen? What's in the CTF that has you excited? What sort of opportunity sets are there for the companies that are owned by the CTF.
I think it goes back to the macro story of alternative energy. We have to find better ways to power things, whether it's vehicles, factories, or otherwise that are friendly to the environment. So it's not to say get rid of all fuel based cars, but EV is one way to go about it, and hydrogen fuel cell power is another way to go about it. So, although it's not super well known in the US outside of California, California is
actually seeing great growth in hydrogen powered vehicles. But it is actually something that's taken shape around Europe and Japan and different places around the world. So in Japan, for example, you see you see hydrogen powered buses, you see hydrogen powered boats and ships and all sorts of vehicles and things like this, and it's starting to play out in
Europe too with some of their mass transportation options. So I do think that we've seen companies like UPS and NASA and Amazon having fuel cell powered kind of like a crane machine, but all of their kind of manufacturing equipment is powered by hydrogen. And of course they have that investment in ribbon too, so you see the electric vehicle side there. So there is growth in the space. I think that we believe that there will be enough growth in the space where it will be an interesting
alternative energy asset class alongside electric vehicles. But you are right, it hasn't seen necessarily that hyper growth that these have seen, so I think that that takes some time to play out. Interestingly enough, though, remaining one of our most popular ETFs, it's getting a lot of that ESG type of alternative energy investment.
Well, Sylvia Jablonski of Defiance ETFs really great to hear your thoughts. Can't let you go quite yet, though. He's a contestant for our craziest thing that we saw in markets this week. Well, why do you get a started, Bildina.
You probably saw this headline and you definitely thought of me.
Sure, yeah, well let's hear it.
Taylor Swift's Eras to Our Concert film broke AMC Entertainment's advanced ticket sales record in just three hours.
Wow.
So AMC announced that they're going to have like a movie film version of her concert. They sold twenty six million dollars worth of tickets on the first day, and I think the stock rose like nine or ten percent at first, and there was like so much excitement. I didn't buy an advanced ticket yet, but I will definitely go see.
It's so AMC is back stock.
No, but then they took the opportunity to do stock offering like two days later. Yes, but the previous record was like almost seventeen million by Spider Man, which like is well known for breaking all kinds of records.
I want to know it. Will these be normally priced tickets or like Taylor Swift sized ticket prices for this.
She loves the number thirteen, so I could see them being like thirteen bucks or something. I know that they're selling like themed popcorn buckets or soda cups or something like that.
Yeah, well, I know I will be sending all three of my daughters to see this at some point. You can go with them, right, I'll go with them. What the heck? All right, that's a good one, Sylvia. How about you? Have you seen anything crazy lately in markets?
I think that the market itself has just been crazy. Like if you this has been the most interesting market that I've want for the entire year, and the last week is no exception, one little piece of data that's the whole thing off, child, right, So I think it's just if you think about like classic investing, right, we're supposed to buy low, sell high holds for a long time,
you know, minimize our taxes, all of these things. And if you just look at the gyrations of what a lot of retail investors are doing, they're buying high and they're like, just get an ISM service number that's too hot and selling the whole thing off and losing four or five percent in a day. So it's just a very erratic market. It's an emotionally charged market that is very difficult to predict. And I think that that's the weirdest thing about it, this ISM number and the reaction
by the market to me is the weirdest thing. I mean, if that's not going to hike one percent this year, like what are we not to say that things can't kind of turn but in the next couple of months, like what changed?
Yeah? Yeah, how much is the needle really moving compared with expectations?
Right?
And it's funny because it is that notoriously seasonal viotal time of the year, but it's it's kind of like the drama surrounding interest rates and the fed and the fundamentals are are sort of peaking right at the seasonal vault all time. It's an interesting mix that we'll see how the rest of September plays out. But yeah, I agree, it's been It's been fascinating, all right, I'll give you mine this once again. My favorite is the alternative asset
space for Donna. So Freddie Mercury Do you know who he is? Freddie Murcer of course, Yeah, the lead singer of Queen. Don't ask me his real name. Actually I think I might be his real name. I don't know, No,
can't be anyway. They sold a bunch of his stuff at auction Southeby's sold all sorts of stuff, lyrics, clothes, artwork, but the star of the show was his Yamaha Grand Piano, which it really hyped this up in the material for the auction, saying, let me read it here from our Bloomberg coverage, Yamaha Grand Piano that Sotheby's with uncharistic immodesty called quote the instrument used to compose some of the greatest songs of the twentieth century. Which, fair enough, it
is true, we know some good songs. I'll give that time to play. The prices precise, Sylvia, this is this is where this is your time to shine. Yeah. What?
Oh gosh?
Okay.
Freddie Mercury's Yamaha Grand Piano self war at auction by sothebys will give you one hint. It was lower than the expected range.
Oh damn. I was going to say I'm going high.
Yeah, not to say it was a low number, mind you. It's like I said, it was considered to be the centerpiece of this auction, but a little came in a little under the rest.
Interesting pianos are expensive, no, okay, So then a famous person's piano. I'm gonna go with three hundred and fifty.
Dollars, okay, oh pounds? What I'll accept either. I'll accept either. I can do the conversion for you.
That's too low, isn't it. Can I revise? I'm gonna go with two million.
All right, Sylvia? I don't know will Sylvia, Will you let her revise her guests please? You're the other content.
I'll let her revise.
Okay, So now you gotta get you gotta give us years now.
So I wonder what Taylor Swifts piano for there, I say so.
I think if I think hers goes for five million, I'll give him just because half of the world that is alive now maybe it doesn't know who he is, like two and a half.
Man, you guys more or less split the difference there.
I know who he is, but of course.
One point seven million British Browns, so two point two something million, you guys are kind of I think we have a draw.
No, I think I will. I definitely win. Hello. Sorry, Sylvia, I.
Don't know you because.
Once once I said it, it was so obviously too long.
Giving it to Sylvia. You defaulted seven to eight.
I what what do they expect?
They expected more than that? I don't know. I forget the exact I think it was like two to three million British pounds. So they got one point seven something million British pounds. So I mean, who's got room for a grand piano?
Yeah, paid two point two exactly million for it.
I tell you they never let you know who bought it. Maybe Elton John bought it. That'd be my guest possible anyway, So be a Jablonski of Defiance eats apps. Really pleasure to catch up with you and hear your thoughts on some of these big trends of the markets here. Hopefully we can get you back again some day.
Thank you so much.
Thanks Thanks Sylvia.
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