Put them together, you get paidweb. We look at one of the bestperforming china etfs this year. Whether you embrace or fear etfs, there is no getting around their influence. Of course, we want to bring in Eric Balchunas now to get a sense of where the money is coming and going. Eric you brought it up, it is deja vu all over again when it comes to etf flows. December flows going from 2 billion a day to 3 billion a day. Institutions have gotten back in the market because of tax reform. I can tell by the products they are using. A ton of flows. A lot of hot money excited. It is really dia that seals the deal. When we look at dias historical flows, the last time we saw flows like this was right after the election. Dia is the dow jones etf, which is largely forgotten. After trump won, we saw a lot of flows into the dow. Weve seen 1. 5 billion in december. Why do people like of the dow to play trumps agenda . Lets look at what the dow actually looks like. It is an odd index. It is price weighted. I sometimes say that is the index equivalent of a rotary phone. The dow has interesting weighting. Industrials are 23 of the dow. Tech is only 17 . The s p is kind of inverse that. Top holdings at boeing and goldman. You have apple and microsoft on the s p. This is much more of a trumpian kind of agenda etf here. Scarlet, when it comes to playing trumps agenda, i look for dia. If dia starts getting hit, that is trump inspired flows. Scarlet we are seeing that continue. Lets bring in peter tchir from academy securities. I thought and people were saying that tax reform was already priced into the market, but we are seeing increased flows into dia. Is this something that is sustainable into 2018 . Peter i think it is running out of steam a little bit. Dia attracted money. What i have really been noticing is iwm, the russell 2000, and that peaked november 30. It is slightly lower than it was on november 30. Scarlet you spend a lot of time thinking about high yields. Focus in with the tax plan. Is the tax plan good or bad for the highyield companies . Peter i think it is a slight negative for these companies. There is the interest deductibility. How much interest is taxdeductible. That impacts highyield. A lot of highyield companies have net loss carried forward. So that is a little bit of an issue. Finally, i think the worst thing is, as yields have been rising, the two yield is now 1. 9 , income seekers have a differentiated thing. They can go for 2year yields and pick up 2 . Last year, they could get 60 bits for that. That is a real change. Eric when it comes to hyg, you have written about this etf spiral. It is a thing you have when hyg sells off, there is possible there are discounts beyond what we think. It has survived a lot of storms. What worries you about hyg, which is always controversial. Peter for smaller yields, hyg and jnk are great. Sometimes you get a discount or premium to nav. People sometimes think that is a failure of hyg and jnk. I think that is a success, that is where the market is and people are willing to take risks. The problem is if you get ongoing selling, people are forced to sell bonds which is definitely less liquid. I think you need a 3 sort of move before that kicks in. Eric when it comes to high yield this year with flows, hyg and jnk are net negative, but it is the short term junk stuff taking in a ton of money but yield more. They have a lower duration. What is your take on hyg and jnk . Is it worth it . Peter i am anti them. They have been most competition compared to twoyear. If there is weakness in high yields, which always happens with this inversion yield curves, and the real investors want to buy longerdated bonds. That leaves front end bonds a little bit orphaned. To the extent they have been rising with indexation, in the index product, they buy those shortdated. Theyre subject to outflows. Scarlet apply the etf spiral concern to these shortterm highyield etfs. Is the prospect of a spiral more pronounced with these products . Peter yes, i think so. You have a bond at 150 and somebody wants to sell that and it is yielding 3 , it is not really good for highyield Asset Managers who are trying to generate returns. It almost has to price down quicker than the rest of the market. We saw that in november. The short dated junk bonds, each move was roughly done the same percentage, which is unusual, a sign that the front end space is tired. Eric how should investors play highyield . Are these mutual funds or buy the bonds directly . Peter i think you are supposed to look at mutual funds, especially if it is longer than a threemonth term horizon. I look at etfs as trading vehicles. If i want to play highyield, i play it through the leveraged loan space. I play that through Asset Management right now. Dkln only has 100 issuers. You do not see the diversification i would like. Scarlet lets talk about the vix because this is something you write about quite a bit. The tranquility in the equity market has become a golden goose for many investors. They bet on something that shorts the vix features in the futures in the shortterm. It has been a home run this year. About 180 gains this year. Eric yes. It prints money, basically. Peter i called it the golden goose because it keeps laying these golden eggs. I think at some point my concern is that there are too many strategies chasing low volatility. The one concern i have is Something Like an svxy, it has a trigger, if it ever lost 80 in a day, it would have to unwind. The total market cap a total move could trigger it. If it fixes down and eight, an 80 move get you to something that is a normal level. Scarlet your concern is people are selling volatility as its own risk vehicle rather than using it to hedge other positions. Peter that is the shift that has occurred in the last 18 months where people are using it as a carry or yield product, selling that, and relying on the fact that it immediately comes back down. Scarlet buyer beware. Peter, thank you so much. Coming up, the lawyer known as a spider woman in etf circles talks about the odds of bitcoin etf next year. And here is something that caught our attention this week. Closing credit reflects some unease heading into next year, investors pulling money out of etf that track Corporate Credit in december for the first time in 14 months. This is etf iq on bloomberg. Scarlet i am scarlet fu. This is bloomberg etf iq. Every week, new etf filings, on liquidation. Stage one is the filing, the granite shares bitcoin etf and the granite shares short bitcoin etf do exactly what you expect, one will be long, the other will short them. Stage two is the launch. The new economies etf will invest in companies propelling the socalled fourth industrial revolution, that means they will focus on intelligent infrastructure, transportation, and security. Finally, liquidation for the ishares ibonds corporate etf. Its sole purpose was to invest in u. S. Dollar investment Corporate Bonds maturing in 2017. Its closing because it has reached its objective, mission accomplished. Kathleen moriarty knows the etf lifecycle more than arguably anyone. As a partner at chapman and cutler, she is known as spider woman for her role at building a legal framework. She joins us now. Great to see you. Thank you for speaking with us. Kathleen thank you. Scarlet you also represented the winklevoss twins. There is concern that bitcoin etfs would be a derivative of a derivative. From where you sit, talk to us a little bit about the structure of the etf and why the wrapper of the etf should not inspire confusion or bewilderment. Kathleen it usually involves a physical deposit, and those are deposited into a trust and shares are issued, those ripping full on the exchange and those things are redeemed. When a redemption occurs, you get back in proportion to the number of shares. When you talk about a derivative etf, that would be one that has derivatives in it like futures or swaps. Scarlet when we talk about the bitcoin etf, that would be a derivative. Kathleen there are several different kinds pending. One is with the coin futures. Scarlet the launch of Bitcoin Futures paves the way for a bitcoin etf. Here is what Dan Gallagher told us. Dan truth be told, the substance of some of the concerns that fec had will remain. I dont expect this to be an area where the sec moves precipitously just because you have some futures trading. Scarlet you know the sec well, you know what they are hesitant on and are familiar with their checklist that they go through. Will we see a bitcoin etf in the next six months . Kathleen its possible, anything is possible. The question is whether or not the sec will feel the Derivatives Market sufficiently established that it provides regulatory relief because the underlying bitcoins are not regulated at all. The question is, because bitcoin derivatives were only released a week ago, the question is how long will the sec take to feel that is established . Scarlet what is your instinct . Kathleen at least six months. Scarlet before they seriously consider it. At a recent conference, you said bitcoin approval reminded you of the process of getting a gld approved. Talk about that. Kathleen the same questions were asked. Gld, although it is an ancient kind of investment, it was similar in that it was not sold in a stock market. The sec was concerned with the sale of gold in gold markets, they wanted to know could they establish surveillance and information sharing with the markets, and all of those things were yes. So thats why they finally permitted the gold and subsequently platinum and all the other precious metals. Scarlet everything was easier after that. Thats what were looking at here, as well. Kathleen right. Scarlet theres a lot of excitement about the sec may be getting rid of the exemption release order, making it easier to create etfs. Is a speeding up the approval process a good thing . Or could we get too many etfs . You will get a lot of headlines but they cant last. Kathleen but you look at them anyway. As if they will take a while to go through the exception process or it will be quicker and it wont have an exception process to go through. Either way, all of those things will be introduced, and the question is, do they survive . Scarlet why is that . Kathleen because there are a lot of sponsors who believe their special sauce will capture they want to present their product to the world. Scarlet do you think we are at peak etf . Are we in a bubble . Kathleen i think people are endlessly inventive, and we will always have new ones. Scarlet what would be the next etf . You have been out front of so many different products, whether it was advocating for the bitcoin etf, what could be next . Kathleen probably in the area of cryptocurrency. Bitcoin then etherium. It will probably work its way through that. Scarlet we are not done with crypto yet. Kathleen moriarty, thank you so much. Spider woman, from chapman and cutler. Coming up, never mind that growth is beating value this year, we bring you a responsible etf that offers a new twist on value investing. Thats the tip of the iceberg. For a drill down into all our content, check out bloomberg. Com markets etf. This is etf iq. Scarlet im scarlet fu. This is bloomberg etf iq. For every etf that offers exposure to a sector, country, or style, its not long before others promise the same. The chief Investment Officer at cream Fund Advisors with its suite of china etf is here. First, we get a drill down into kweb. Eric kweb is the China Internet etf. It is hot right now. Up 68 , doubling the performance of fxi, the largest china etf. If it wasnt for bitcoin, this would be a bigger story. Obviously bitcoin has taken over everybodys brain. Still, 68 is a big deal. Why is kweb outperforming fxi by so much . You have to look at the holdings. If you look at the holdings, we will find companies you may or may not know, but ultimately this is the onlineization of china. You have companies here, tencent is like facebook, alibaba is like amazon, waibo is like twitter. You also have shares, Chinese Companies that have primary listings in the u. S. They are not necessarily big weightings in emerging markets in china etf. This provides exposure to help you catch the heat of the performance. However, there is definitely a but, and that is the pe, it is 70 on this. Let me put this in perspective, the s p is 24 and emerging markets are 15. This is beyond growthy. Thats part of what you have to look at. Its also a little pricey, Expense Ratio of 72 basis points. When youre up 35 over the market, people overlook that. Scarlet they definitely do. Thank you. The chief Investment Officer at crane Fund Advisors is with us. When you look at those returns, one thing i found kweb might be vulnerable to is is part of a craze. When sentiment turns against tech stocks in the u. S. , chinese internet names might get caught up in the downdraft as well. This could end badly. I think we saw this last year when President Trump elected, we had this value to growth, from growth to value, at lasted two months because ultimately the growth is in these companies. Our portfolio is growing at twice the rate of u. S. Equivalents, and therefore justifying higher valuations. Scarlet also, china has heavy censorship of the internet, which means no competition. It means the temptation to overspend abroad. Brendan those holdings eric showed, the founder is the ceo of each of those companies. Their net worth is invested in the same securities we are, as well as during the sweet spot of the chinese economy, domestic consumption, which increasingly takes place online, the barrier to most in china isnt that the u. S. Cant get in, they are not willing to abide by local rules. Ebay got beat by alibaba. Its not necessarily access so much as being able to navigate the local rules. Eric lets talk inclusion. When you look at, i have calculated 7 trillion mainland market there, when you add in em, you get 400 billion coming over to buy eshares. Is that a nobrainer trade . Brendan you have your specific on which etf you buy, they are not adding 3000 stocks in china. Theyre not adding the csi 300. Msci is adding a very specific definition, which is why almost four years ago, march, we listed kba on the new york stock exchange. We want to skate to where the puck is going. Scarlet you also have a China Environmental etf, which seems like an oxymoron considering how polluted chinese cities are. China is committed, but were talking about a 10, 20, 30 year investment. What kind of time horizon are people looking at when they invest in kgrn . Kgrn is picking up steam. It is going to happen. President xi said environment more times than economy. We are longterm investors are willing to ride out bumps in the road. Eric back to mainland, this is a whole new frontier. If you think the equity side of the frontier, the bond side is bigger and there is less foreign ownership. Is that a good place . Brendan the three longest fixed income indices, zero exposure to chinas onshore bond market. We actually own those. With the appreciation, it is a sleeper trade of the year. Who would think a chinese bond fund is one of the best bond funds listed in the u. S. . Scarlet you might still be getting ahead of the curve until Foreign Investors are allowed in. Brendan ahern, thank you, chief Investment Officer at crane Fund Advisors. You heard of responsible investing, and about investing according to religious beliefs . We bring you a fund that is up more than 13 since launching in february 2017. Scarlet the inspired global hope etf, or bless, it has a goal to uphold biblically responsible investing standards, finding Companies Based on their alignment with biblical values and the positive impact they have the world. Bless has more than 50 million in assets, a minor miracle for an etf launch. It holds over 300 names, including michael kors. What is excluded are Companies Involved in what they call immoral practices. The majority of the Holdings Market value is in the u. S. About 1 5 is from the u. K. , australia, and france combined. It will cost you. The issuer says it donates at least half its corporate profits to charity. Of course, because there is an etf for that, are there other religiously themed etf . Eric funny you should ask, there is one that Just Launched but it takes a quantitative approach. We now have a smartbeta on the market. Scarlet that does it for etf iq. Catch us each wednesday at 12 30 p. M. New york time. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Nejra the final countdown, we are near weeks away from the mifid ii deadline. Are we going to see market disruption . And the corporate question, what unintended consequences could it have . When did the regulators step in . Welcome to Bloomberg Markets rules returns. I am nejra cehic in london. Rules and returns is the show where we dive into Financial Markets and opportunities across the globe, but first, lets get the news on regulation. Sebastian Goldman Sachs says it will deal in bonds, derivatives, and Exchange Traded funds for a new type of venue with the mifid ii roles. Joining rivals like j. P. Orn