Including a leverage site known as fang. Whether you embrace or reject etfs, they are here to stay. The flows often signal Broader Market trends. Our own etf expert Eric Balchunas is here to walk us through what he is seeing. Eric thank you, scarlet. If you saw the show last week, he would know that yours truly protected a lot of risk on in the flows and i was right. After the fed came and saved the day, people are back into equities. You see spy at the top. You see the top with a little iwm, isa, and what you do not see here is shortterm and ultra shortterm debt etfs. They ruled only two weeks ago. That is how fast things can change on a dovish fed. Lets look at the outflows to see what is coming out of etfs, and again, build shortterm treasury, there is another shortterm treasury. Efa, i think some of that went to ifa. That was a move to cheaper pastures. But ultimately, 25 billion has gone into u. S. Equity etfs this month and 44 billion into etfs overall in june. Lets look at traders versus allocators to see if the hot money has come back and you can see it, clear as day. This was may, right . Etfs used by traders saw tons of outflows and the allocators hung in there, but look at traders came right back and allocators doing their thing. Both of them are rarely together. Scarlet, this is like having everybody at the party. At least for now. Scarlet at least for now, everyone in sync. Lets bring in david martin. He is founding ceo of mcam. Also with us is elena popina. You wrote the story about the level of angst in the markets right now. Investors are obsessed with threats to the bull market, whether slowing economic earnings growth, or yield curve, it is always something. The only irritant that seems to have been removed is rising rates. Elena for all of the risks this year brought to us, it took away just one factor, rising rates. If you look at where investors are positioning their hedge funds, it is so underweight stocks right now. There is concern about the yield curve that is here, and one investor told me it is called paid trade because those stocks are points away from a record high. There is quite a bit of uncertainty going on. Scarlet a lot of that is due to the trade war. Twar, which got negative and positive attention. Some critics say it is gimmicky and opportunistic. How do you respond . David very simply, the only people who have that response are people who never built an etf. It would be nice if we could wave a magic wand and get an etf just as you go, made to order, but in fact, it takes a longterm build and quantitative strategy that understands the dynamic of trade war. Trade war began its roots back in 2003, when we started to see the secession into the wto of a number of countries and companies, which started having interesting favorable positions or unfavorable positions with the governments they worked with. So we knew china was going to be, and mexico was going to be, and russia was going to be a theme. So we started tilting a strategy a long time ago. The fact is i am not going to, at all, diminish the fact that if you have a twitter feed coming out of the white house, and every time the twitter feed comes out, theres something about trade war. It is not a bad time to hit the market. Eric just explain how it is designed. We showed the top five stocks. It is not maybe what people would think. What is the criteria to get into it . David great question, and it also goes to the duration of how people should think about it. So, it is a great question. What we are doing is looking at companies who for whatever reason have decided to build relationships with foreign governments where they have some form of patronage. That may be a longterm acquisition relationships, it may be partnerships on technology development. That is the kind of thing where even when a trade war or a tariff or Something Else hits the market, these companies are going to have the likely protection of that counterparty country, not because the market does not have an effect, but because they have a favored position with the countries involved. Scarlet so they have a consistent revenue stream that is not a threat. Elena, twar is the only pure play trade war etf out there, but there are other ways the investors can play the trade war using etfs. Elena you can look at the market cap and small cap that comes to mind. The iwm, the ishares. Small caps are a domestic wave. They are not that much involved in International Trade tensions. Then there is exposure. You can look at the amca, the ishares u. S. Fewer revenue etfs, so the point about this etf is about one third of this sectors constituents are domestic companies. If you want to be protected from the developments in the u. S. China trade relations, take a look at this etf. Not a lot of assets, about 20 million or so, but still an interesting place. Eric david, you launched another that got less fanfare, inau. I love your ambition with this. You want this to be the new version of beta. You want to shove aside the dow jones and the s p and have this be what beta is. But honestly, it has got 73 active share to the s p and looks more like smart beta. David it is an interesting problem. If we go back 120 years to when the dow was created, the dow was actually set in motion to sell newspapers. We started counting things that did not have a fundamental measure behind it. That is how the dow came into being. Then we decided to start counting things based on their size. There is not a good or bad decision about that, but at the end of the day, we live in a world now where information, asymmetries, new pieces of data that are not just macro descriptors but get into the guts of what a company is about now actually play a role. Now that we have the ability to integrate that kind of convergence of big data and other forms, we now have the ability to actually measure real quality, real performance, and we can show a different style of corporate views. Scarlet quickly, talk about the fees for this, because it is not cheap, either. If you want it to be a replacement for beta, it should be. David when we talked to the New York Stock Exchange about launching this, we had a conversation about this notion of where we go with fees. We have been a Hedge Fund Manager a long time, so we are comfortable at two and 20. For us, etfs are crazy. This notion that you race to the bottom makes no sense. We think there is a market opening for what i call intelligent alpha, and that is what we thought about when we rolled this out. This is a market that says performance matters, exposure is not the only game in town. There is an opportunity for real managed performance. Scarlet david martin of mcam, thank you for joining us as well as elena popina. Coming up, ross gerber. He prefers owning stocks in portfolios but has some notable etf holdings. And one fund that caught our attention, the ishares core u. S. Growth etf. It was among microsofts top holding. A reminder that you can find that chart and all the others we feature on the bloomberg at gtv. This is etf iq. Scarlet i am scarlet fu. This is etf iq. It is time now for the etf life cycle, where we take you through the three main stages of etfs, and we always begin with a filing. Innovator funds registering for the september series of their innovator buffer etf. The firm looks to offer defined outcome funds for each month of the year, with varying degrees of downsized protection but capped upside potential. You can monitor yourself as they come across the desk. Step two is the launch. The tech etf began trading under the ticker ihak. Part of blackrocks attempt to expand etfs, which demands investor interest and higher fees. And for some, the final stage is liquidation. A pair of etf from pro share is the ultra short gold liner fund will start creating in august, offering two times daily leverage on the arco gold miners index. Time to get passive aggressive, where we track the tensions between active and passive investing. Ross gerber is not shy about sharing his views, whether on building a portfolio or defending tesla. He got our attention when he sounded off on etfs, tweeting, by the way, owning stocks is clearly superior to an alletf portfolio. Etf robos are basically tricycles, poorly built tricycles. Lets welcome ross. He joins us from los angeles. Great to see you. You are an advisor who goes beyond traditional duties because you do pick individual stocks. Stocks. Looking at your recent filings, it shows you have about 50 etf, 50 individual stocks. That is a pretty big dose of etfs. Is this your usual allocation . Ross yeah, i mean, we have always kept a pretty decent amount of etfs, especially the sector etfs, which is what we mainly focus on. Just to create diversification in our portfolios because we specialize in areas like technology, entertainment, and communications companies, so we want to offset what we are really good at with the etfs in areas that we dont have the same level of expertise research. Scarlet is there anything etfs allow you to do that individual stocks cant or wont . Ross yeah, i think one of the greatest things about etfs is actually its ability to be in a sector you want to be in without having to pick stocks. For example, we were looking at the solar etf t. A. N. , and i love a lot of the holdings. We looked at each individual holding and we were going to maybe investing in solar edge, the company i like the most out of them, but it was hard to call with the volatility. So we prefer an etf in this case, and the etf has performed very well because we like the sector. Scarlet one of your top holdings is xlk, and with the gix rebalancing, the group saw some of the top names migrate over to xlc. You were not a fan of this rebalancing. Why . Ross well, it was mostly a Portfolio Managers nightmare in that we consider google like a tax stock, for example, and by switching these companies around, it really made us have to rebalance our portfolios to better align with so we dont have too much concentration in our individual stock picks, like we own google individually. You know, it was really just a lot of moving around, and i dont know how much it helped. But, you know, that is s p. Scarlet thats s p. You also hold usnv, the ishares minimum volatility etf, and low vol funds are having a moment. Huge year with 11 billion in inflows. Explain the attractions here and why it is better to use an etf to achieve this rather than individual stocks. Ross well, one of the things we constantly are learning in our portfolio management, you know, it is not a static process. One of the things we learned last year was being heavily weighted in Technology Creates a lot more volatility for our clients, and in the case of especially in the trump administration, with so much volatility in the market, we wanted to dampen the volatility without per se reducing returns. The usnv etf fits the mold for us. We basically dont own any positions in it, so it gave us more diversification, as well as performed well. It lowered our risk, but it did not actually take away from any of our outflow returns. That is an example of the way we use certain etfs to offset the volatility inherent in our stock portfolios. Scarlet got it. Speaking of volatility, i have to ask about tesla. You are an outspoken tesla bull. Which has not exactly been the easiest thing to be lately. Sentiment on the stock has gotten a lot more negative, a 21 ratio of negative tweets to positive tweets. One of our frequent guests has gotten attacked for being bullish on tesla. What is your take on the vitriol out there in social media . Why do you think people get worked about how buying the stock and being bullish about it . It is not like you are talking it up and not owning it. You are putting your money where your mouth is. Ross you know, tesla has struck a nerve in the Investment Community that i have not seen in my whole career, where a company has disrupted or potentially is disrupting so many Major Industries that many of these industries are not going down lightly. They are using some of the same playbooks that donald trump used to win the election by manipulating the internet, the media, and doing whatever they can to help their short positions. Currently, there is over 10 billion short tesla. Investment firms like Morgan Stanley are working hard to make their money on shorted interest and supporting these shortsellers, so you have wall street, the oil industry, the auto industry, you have got a lot of industries that are going to see severe pain because of Companies Like tesla, so they are working really hard to hurt the company. So on the other side, im a big believer that Climate Change is the Biggest Issue that humans face over the next decade for basically our survival, so Companies Like tesla are systemically important to our longterm survival as humans in a lot of ways. So that is one of the reasons why we are big supporters of tesla as a company, but also as an investment. We think over the longterm, the company is a leader in technology in many spaces ev, autonomous driving, and so forth. Scarlet let me just get this straight real quick. Do you think there is a conspiracy on those bullish against tesla . Ross i dont know if there is a conspiracy, like all the separate players are working together. But i think there is a very, very welloiled machine working hard. Look at what is happening in oil today. Prices are slumping, there is so much extra supply. They have resorted to blowing up tankers in the gulf to try to keep prices high. The truth of the matter is tesla is enormously disruptive. Uber disrupted cabs, but tesla is disrupting like five industries. Scarlet in other words, there is a lot of vested interest in preserving the status quo. Ross for sure. Scarlet ross gerber, thank you. Coming up, the protests in hong kong drawing attention to the region. Next, we drill down into an etf that is reliant on listings in hong kong to see if there is any fallout. To drill down into all bloomberg etf content, check out the website. This is etf iq. Scarlet i am scarlet fu. This is etf iq. For every etf that offers exposure to a sector or country, others are quick to follow. The u. S. China trade war leading beijing to accelerate innovation across the economy. Brad loncar is ceo of loncar investments, where they see Investment Opportunities in chinese biotech. Before we talk to him, Eric Balchunas will give us drilldown into loncars chna funds. Eric you will be hardpressed to find a more specific etf out there that tracks biotech and pharma in china. Here, you have got it is very small, 3 million. If you trade it, use a limit order. The ratio is a little high, but this is highly exotic exposure. Look at the holdings. Yours truly, i dont recognize any of the companies here. I spoke with analysts and they say it checks out, but this is specific stuff. A lot of biotech and pharma. Also, all hong kong listed. Lets compare it to chih, the only other health care china etf to get an idea of the difference. You can see here, it is about the same fee and return. Look at this, not that many large caps, so you will get more volatility in this one versus the other one. Youve got to keep in mind about that. And also the allocation, 30 biotech to 8 . Look at the active share to fxi. You literally are not getting any of the stocks in fxi, so the exposure is there but you want to go longterm in order to stomach the volatility that this will throw at you. Scarlet still with us is brad loncar. This is niche with a capital n. You are providing investors to access to a corner of the Chinese Market that has not been accessible. Who is this designed for . Brad a lot of people outside of biotech do not know about this yet, but they will because there is true biotech boom today. The analogy i use is the u. S. Biotech sector. Our Biotech Sector started in the 1980s and 1990s. That is what is going on there, so i tell investors there is a cell gene there, and they are Small Companies that are ipoing and they will play an Important Role globally one day. There is a handful of important changes that are making this happen, the Chinese Government is standing behind this. They want to have a worldclass Biotech Sector. There are entrepreneurs returning home and starting companies that are conducting worldclass science. Their version of the fda also has gone through important reforms. Reforms. Scarlet you bring up a lot of interesting points. Doesnt that make biotech ripe for u. S. Pushback, whether it is restrictions, tariffs, sanctions, in the trade war between president xi and president trump, at least in their negotiations . Brad the trade war itself as you classically think of it should not affect these companies. There are no material tariffs on medicines because, if you think about it, that would raise drug prices, and neither country wants that. Nonetheless, it is an important story that is affecting Asset Classes everywhere. There was some good news about that yesterday. The two president s are going to meat. That has brought up a lot of chinese stocks. We hope that will get resolved soon. Eric your original etf is the cancer immunotherapy etf. Again, specific. It had some decent pops. It might lead for a quarter, but overall it has lagged. What is going on . Brad immunotherapy is harnessing the immune system to treat cancer. One thing important to know about it is it is not one thing. There are many different approaches. The thing that has been impacting the performance over the last year is the Clinical Trials for one of the approaches combined two immunotherapy drugs together in what we call checkpoint combinations and have checkpoint combinations have been very disappointing. We have been working hard to lower our exposure to that. We just did our last rebalance last night, and one out of 25 companies is levered to that space, so im glad we are out of the woods. The future for immunotherapy is very bright. The scientific director of our Charitable Partner won the nobel prize this year, and these companies are doing a lot of great work. Im excited about the future. Scarlet very quickly, one of the reasons why chna looks promising is because hong kong has a new rule allowing Biotech Companies to list in the city despite not having earnings. Did the protests we have seen in hong kong change the willingness of companies to list there, or the reception they might get from International Investors . Brad that is exactly right and actually was one of the primary reasons we created this. Because for the first time ever, Biotech Companies can list there. It used to be if you do not have revenue, they would not let you list, and they created an exception for Biotech Companies. Hong kong is the window to china. What happens there is important. To be honest, im more focused on the u. S. Political situation, the administration and a lot of politicians are sending signals of these companies that their business might not be welcome here. They are choosing between nasdaq and hong kong, and i think most of them will lean toward hong kong. Scarlet brad loncar of loncar investments, thank you. No matter if you are bullish or bearish on u. S. Big tech, the etf industry has you covered. Check out this weeks there is an etf for that. Scarlet investors who have a view on fang names are spoiled for choice. That is because rex shares through products offers Exchange Traded notes that covered the spectrum of exposure to the nyse fang index. There are leverage notes that are long, as well is inversely tied to the 10 companies in the index. Youve got the original fang names, facebook, amazon, netflix and alphabet, plus six other wellknown tech companies, twitter, apple, apple, alibaba, nvidia, tesla, and baidu. We are focusing on the three times in verse leverage etf, also known as fang. Fang uses derivatives to achieve three times the opposite of the fang plus index. Performance wise, it trailed the index since launching in january 2018, but be warned that this family of etfs are not buy and hold investments. Fang has roughly 25 million in assets and is equally weighted with a rebalance every quarter. It comes with a high Expense Ratio of 95 basis points, but that should not be an issue for shortterm positions. Bloomberg intelligence gives fang a red light in a traffic light system due to heavy leverage, daily resetting, and credit risk. It is like a hightech etf video with a 1980s twist. Eric it makes me want to go clubbing in miami for some reason. Scarlet well see you there. That does it for bloombergs etf iq. See you next week. Alix middle east turmoil. The u. S. Moved more troops into the region. Oil prices care more about trade geopolitics. Gold bugs rejoice. Prices spike as jay powell delivers a flock full of doubts. You are hired. Just maybe not if you are a woman. Clean energy looks like big oil dominated by white men. Im alix steel. Welcome to bloomberg commodities edge. 30 minutes focused on the companies, physical assets and the trading behind the hottest commodities with the smartest
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