Global leader. Of course, there is an etf for that. Whether you embrace or reject etfs, they are here to stay. The flows signal Broader Market trends. Lets check in with Eric Balchunas for a snapshot of the flows and the theme is risky assets like the stocks. Eric thank you, scarlet. Im starting to feel like a broken record. Every week, i am saying people are excited about the fed being accommodative. It felt like about two months. Another week of the same thing. 15 billion into etfs. That is a bomb. We have spy, the qqqs. You also have ibb and some vanguard funds. Both major player types are buying in. I thought, this seems to have started in the beginning of june when the fed reassured markets. Lets capture june and july. Compare it to the rest of the year. The complexion of the flows is changing and this chart shows it is. Look at the fact that june and july, etfs took in 85 billion. That is more than the rest of the year combined. That is a lot of money coming in. Also u. S. Equity etfs are taking in three times more than they did at the beginning part of the year. More than fixed income. They are now the leaders, which is what we are used to seeing with etf flows in 2017. Lets look at june and july versus other june and julys. Just to give you an idea of how accelerated the flows are. It is the biggest june and july period on record. This is what 2. 2 billion a day in flows look like. The etfs generally take 1 billion. When the trading crowd get excited, it is another 1 billion. With both hands on deck, that is why you are seeing this kind of accelerated level of flows. They should break the record if they keep this up. Scarlet making up for some lost time at the beginning of the year. Lets bring in meb faber. He is founder and cio of cambria. In new york, we have annie massa with bloomberg news. Meb, lets start with you. You saw the flows. How it exploded into june and july. What part of the rush into stocks and risky assets over the last few months surprises you . Meb it does not really surprise me. It is a bull market. U. S. Stocks are up 20 . The parking lot at bloomberg is an indication where there are only four people working and everyone else is on vacation. It is not just u. S. Stocks. All asset stocks are having a romping, stopping year. Real estate is up, bonds, even gold and some commodities are starting to pick up. It looks a lot like the exact opposite of the end of last year when everything was going down. The good news about the big dislocations and moves in the markets, it sets the stage for the next regime. We have been in one regime for the past decade, which is u. S. Stocks cream Everything Else in the world. The flows make sense to me because everything has been going up. Scarlet we talked about everything going up. We keep talking about how we are at the late stage of the economic cycle. I keep hearing about it constantly. If so i wonder if what we are , seeing is the last hurrah. Every asset class is higher in contrast to last year. Give us a rundown of what you are seeing. Annie you are seeing a rally in a lot of different asset classes. Even some you might not expect to move in tandem upward like u. S. Largecap stock and gold. You are also seeing this in bitcoin. It marks a reversal from last year when you were seeing a lot of these asset classes, a downward trend in prices in a lot of these asset classes. With the more hawkish signaling then we were getting last year from the fed. We have seen that reverse. We have this everything rally. Scarlet this everything rally is one of the reasons we have seen value stocks remain laggards. Eric a lot of people pronouncing the death of value. Meb, there was an article last week about the value versus growth ratio being the lowest it has been since the year 2000. This got a lot of attention. I want to get your take on this. Is now a good time to go into value given everything is up . How deep should you go . A lot of the flows that go into value tend to go to ones with a lot of beta in it. Can you give your take on that . Meb the nice thing about value, it is a pretty blunt tool. You do not need to do it to two decimal points. It should be a fairly simple decision. For example we wrote an article , this year called the largest valuation spread in 40 years. It is looking at the spread between u. S. Stocks, which are trading at a pretty lofty multiple. Not a bubble like the late 1990s yet, but expensive. Versus the rest of the world. Four development is reasonably priced, foreign emerging, downright cheap. The cheapest stuff, things trading in the low teens and single digits, we are talking greece, which you mentioned, russia, a lot of europe. Some of these stock markets are trading at a massive valuation spread to the rest of the world. We have been talking about this for years on bloomberg. We think it is a huge opportunity to invest a lot and a lot of these countries in a lot of these countries. Quietly, a lot of these countries are having monstrous years. Russia is up almost 30 . Greeces stock market up 40 . You have this scenario where people are no longer talking about these countries. Starting to see some momentum shifting. They could have some strong outperformance for the next five to 10 years. Scarlet lets transition to something few people would argue are value stocks. Which is pot companies. Give us an update on the pot etf race. We are five or six in the u. S. . Annie five listed in the u. S. And then one more in the pipeline with global x trying to come in. The state that we are in right now is really there is a lot of excitement over pot etfs. It has been a big year. You have two new launches with yolo and thcx. That came recently. One new note is that the sec is asking for statements squaring away some of the legal issues that might be hanging over these funds. That has been a development as well. Eric meb, let me talk to you about this. Besides the great ticker toke, which is Mount Rushmore worthy already, and the cheap 42 basis points or. 420, one thing i noticed, the thematic capture score is a little lower. Your media market cap is higher. Are you purposely going into some of the bigger names by design . The other ones seem to be going after smaller, more peer place. Pure plays. Meb theres also a little bit of cash. Here is the thing. We have launched 12 funds. Never launched a thematic fund. In general, i would tell people the thematic funds do not offer any value over added benefit over the longterm. Why are we doing it . We think there are times when thematic funds make sense like the Cannabis Space today. You can have value. You can have momentum. You can have mean reversion or you can have a situation where it is a structural behavioral trade. You want exposure to the entire industry. You want exposure for the next decade, but you still have to be pricesensitive. You cannot say im an unabashed bowl about cannabis. Run telling a everyone you have to buy cannabis. The way i approach it is, you need to buy a basket for the next 10 years. We wrote an article about this. A lot of people have picked it up. Very similar to prohibition. We studied cannabis stocks in the 1930s beer stocks in the 1930s postprohibition. They did 20 per year almost double the returns of the stock market. But it was lumpy. You cannot just say cannabis is great, you have to buy everything. We need to be thoughtful. You need to be mindful. Cannabis stocks have struggled the past three months. A lot of these companies are preearnings. Some of them are prerevenue. You see some of the tilts maybe because of that in the portfolio and we dont like to talk specific names. Having a basket approach eventually this industry will , mature. It will not just be u. S. And canada but global. Scarlet you need a discerning eye. Meb faber along with our annie massa. Coming up, we speak with julian klymochko. He is the ceo of accelerate financial technologies. He is trying to democratize hedge funds and pes through etfs. One etf that caught our attention, the Ishares Silver trust fund. Its assets touched the highest since 2016. Silver prices have been following golds rally in recent weeks fueled by increasing geopolitical tensions and expectations the fed will cut rates. You can catch that and the other charts we feature on bloomberg on gtv. This is etf iq. Scarlet im scarlet fu. This is etf iq. It is time for the etf lifecycle. We walk you through the three main stages of the fund. Step one is the filing. More annuity type etfs are coming your way. Registrations for the best u. S. Equity buffer etfs august and the deep buffer etf. Annuitylike etfs have over 1 billion in assets under management. Step two is the launch. Looking to ride the u. S. Rate curve. Listing in london this week is elixir. Ticker stpu. While there are similar projects available on u. S. Exchanges, this is the first product for europe that allows investors to bet on a steepening 210 yield curve. The final stage is liquidation. Remember when Sanford Bernstein made a splash in with a report 2016 titled passive investing is worse than marxism. The firm followed up with launching a pair of etfs tracking its recommendations. Bernstein is quitting after they failed to attract enough assets. Lets get passive aggressive and track the tensions between active and passive investing. As passive products gain popularity, hedge funds and pe together have become the last frontiers to be democratized by etfs. Julian klymochko is trying to change that. He joins us from toronto. Great to see you. My first question, can you copy hedge funds in an etf wrapper given the liquidity requirements of an etf . You have to be able to redeem shares whenever needed. Whereas, a hedge fund is more flexible. Julian certainly. Historically hedge funds have focused on liquid securities. What we are bringing to the market we believe is institutionalcaliber hedge funds within the easy to use etf structure. We have been in the business of running hedge funds for about 10 years years with another firm. We really are bringing that model with liquid securities in long short strategy utilizing alternative etfs. Scarlet lets talk about the fee structure. You call yourself the peoples hedge fund manager. Running hedge funds for about 1n because you do not charge a management fee. You only charge performance fees. Instead of say 10 and 20, or two and 20, youve got zero and 15, zero and 50, and zero and 20. Zero and 50 is high. Explain your thinking here. Julian it is 50 above the index total return. Our benchmark is the total return. It is only 50 of the alpha or outperformance above the equity index. Scarlet i see. I got it now. The thing with hedge funds in general especially of late is as a whole, hedge funds have seen the correlation with the s p 500 increase. It is now at a record, about 92 . What do you make of the increased correlation . Have they lost their way or are they being dictated by investors who are rewarding the ones who looked the most like the s p 500 . Julian i think you are right. Number beta has been doing one, exceptionally well in the u. S. With the s p 500 up 20 . Investors are rewarding that. Hedge Fund Managers want to be longer than they probably should, which could hurt them in a downturn. As you saw in q4 of last year, stocks took a hit with the s p 500 hitting a bear market. I think that if you are running a hedge fund, you should run it with low correlation. Low beta with compared to the index. If you are an investor in a fund that is exhibiting high beta, high correlation to the index, perhaps they are not offering you a naturally hedged structure. Scarlet the knock against etfs is that they have struggled in the u. S. , even with brand name issuers like jp morgan. As a group, they have gathered some 3 billion. What is the bigger obstacle to quicker adoption of investment etfs . Julian one main thing is education. Getting out the fact that stocks and bonds in this day and age do not truly offer a diversified portfolio. You are seeing record equity valuations in the u. S. You are seeing almost 14 trillion globally in negative yielding bonds. In europe, 2 junk bonds with negative yields. I think investors really need a third uncorrelated asset aside from stocks and bonds. I think alternatives provide that. What we are bringing to the market is the endowmentstyle asset allocation. If you take yale, which runs 30 billion. They have 55 in alternatives. 26 in hedge funds. 14 in private equity. Only 4 or 5 in domestic equity. They have had strong longterm returns under the endowment model. I think that is only going to be copied more in the future not just by other endowments and institutions, but increasingly advisors and smaller institutional investors. Even retail investors. Scarlet i get what youre saying about uncorrelated. One of your funds attempts to copy private equity returns through publicly traded companies. One of our guests last year voiced skepticism on the strategy. He said it is hard to capture the real liquidity premium you get from a 10year lock up. To do that synthetically is very difficult. That make sense to me. You mentioned that people like alternative investments because they are not correlated. But if you are mimicking p. E. Returns through listed stocks, arent you correlated with the broader equity market . Julian you have a point. Specifically our private equity replication strategy would exhibit a high correlation to the broad equity index than a traditional hedge fund strategy. Our Hedge Fund Strategies exhibit lower beta. They have long and shorts but our private equity strategy i disagree with the notion that private equity returns are due to this illiquidity premium. I think they are more so due to four factors. By private equity, were talking about leveraged bio. If youre looking at what drives returns, these four factors are size, quality, value, and leverage. We put together a multifactor model to mimic that within liquid public securities. Scarlet julian in toronto, thank you so much. Coming up, the disclosure of a hack of capital one raises some eyebrows about putting Financial Information up in the cloud. We dig into one of the main Cloud Computing etfs next. This is etf iq. Scarlet im scarlet fu. This is etf iq. For every etf that offers exposure to a theme, it is not long before others promise the same. Jay jacobs knows this well. His global x funds has been out front in identifying emerging trends whether it is robotics or fin tech. Before we talk to him, Eric Balchunas is going to give us a drill down into the latest fund. Clou. Eric the reason this caught my attention is its got 508 million. It only came out three months ago. It is the third best selling etf out of 135 launched this year. What is interesting is there is already Cloud Computing. It is hard for a me too product to do that. It comes down to the holdings. If you look at the holdings, it is going after Software Companies that are selling their software selling their software through the cloud. If you notice, a lot of these Companies Might not be big, giant cap companies. That is what makes it unique and different from skyy, the first trust etf. It has microsoft and oracle at the top. Lets look at a tale of the tape between skyy and cloud to get an idea of this. The key metric is the median market cap. This one is going to be much lower. Here is the market cap. 7. 2 billion. Look at skyy. Much bigger companies, and that gives it a lower thematic capture score. In a way this is more pure. This one less so. This one is up 10 . This one is flat. That performance is part of the reason. It also shows you how you have to look under the hood. They are named the same have while differences. Scarlet very different components. Still with me is jay jacobs. How did you get up to half a billion dollars in assets so quickly . Jay it was clear to us that investors like the cloud theme, but they felt like they needed more purity to the exposure. Its hard in thematic investing to really kind of zero in on those companies that are getting that triple exposure. P are play exposure. That pure play exposure. Especially in Something Like cloud where you have huge players like amazon and microsoft involved. We crafted an etf to downplay the exposure to the major hyper scalars and upplay the smaller midcap names. Scarlet that gives you probably more bang for your buck as things are going up. What about the recent cloud hack of capital one . For years, the credit card lender was beating the drum on how the cloud is better and faster and safer. This certainly highlights the risk of being cloud forward. Jay putting data anywhere is a risk. If it is locally on your desktop, there is a risk. If it is in the cloud, there is a risk. We see these themes being very closely related to each other. Cloud computing and cybersecurity go handinhand as partner themes. Eric i want to turn to one of your popular etfs. There is another one from inspire. These bible etfs are punching above their weight. They have almost 1 billion. They have ramped up in assets. Can you talk about there are while differences between them. The difference between cas and bibl . Jay with cas we are tracking an s p 500 index. It starts with one of the most famous indexes in the world. It is screening out companies that donate to the conference of catholic bishops. On the index committee, they have bishops and consultants who are in tune with what the catholic religion is trying to convey through their investments. It is very broad. It is not screening out tons of names. It is trying to give the s p 500 flavor. Scarlet we mentioned earlier about the pot etf race. You guys are coming in sixth to the pot party etf. What are you learning about watching everyone elses effort at dipping their toes into the water . Jay i cannot talk too specifically about an etf in filing. As we saw with cloud and bots, as we have seen with a few thematic etfs we have launched it comes down to the exposure and giving good exposure and supporting it with research with sales from marketing to tell the story in an effective way. Scarlet jay jacobs, thank you so much. I feel like global x funds is an embodiment of there is an etf for that. Lets check out one of the best performing etfs of the year overall. Scarlet the global x msci greece etf is known by its ticker. It invests in the largest and most liquid companies in the country. It is one of the bestperforming etfs this year, outpacing thee. It took off in late may. Investors tiered evidence of new political leadership. As a first and only u. S. Listed etf to directly target greece, the fund offers access to a broad basket of more than 30 market cap weighted greek names mainly in the banking, telecom, and transportation sectors. Top holdings include Hellenic Telecommunications and euro bank. Grek held up well in the 2015 financial crisis with investors using it as a liquidity hub and price discovery vehicle when greece closed the stock market for five weeks. Today, the fund has amassed 400 million in assets. It has an Expense Ratio of 59 basis points, and gets a green light in the Bloomberg Intelligence traffic light system. Global x ahead of the curve with their thematic etfs. They have great tickers. I wonder what they are going to use for their pot etf. Toke will be hard to top. I did a poll. That was instantly voted as the best all time. Scarlet ufo is good. What was the other one . It became rokt. Eric that unchanged. Tickers matter. Scarlet that does it for bloomberg etf iq. Catch us each wednesday at 1 00 p. M. New york time, 6 00 p. M. In london. This is bloomberg. Alix i am alix steel. Welcome to a special edition of commodities edge. We are going to take a deep dive into bps trading business. And into the refining and shale strategy. First, a look at their strategies. Bp is an energy giant