There is no getting around their influence. Our expert is here to get us started with a snapshot. You mentioned the fed and rates. This is a big deal, it has had a big effect on etf flows. We have seen what has gone on the bottom side of things, but we have seen other etf flows. In particular sectors. You would think tech would be number one, that it is real estate. The yield is 5 , 6 , so the thirst for yield has pushed money into interesting places. Our etfs taking over the world . Sectors, itat the is way more owned by passive than other sectors. 5 of real estate etf are owned by passive funds, that is very high. Estate etfsl are owned by passive funds, very high. This company, almost 40 is owned as passive. If we continue to see rates staying low, some of these will be majority owned by passive funds, and if rates rise, look out. Extra selling pressure. Scarlet just a matter of time. Lets bring in the chief Investment Officer of caruso investment. He has a decade of experience in etf investment. Great to speak with you. As eric was showing us, real estate is the most owned sector by passive funds. Is this a problem . What concerns might this present . I think it is. There are a lot of headlines about the etf level bubble. Call it a read hearing, there are tons of etf bubbles, but it is not brought. There may be bubbles in the overall market, but not caused by etfs. Aree it is causing a bubble places like rates. The fact that vanguard owns 40 of Simon Property group makes no sense. 14 of Simon Property group makes no sense. Rlet would you assign assume the passive ownership would drop off once Interest Rates normalize . I think of more about the demand. People want the yield and these multiplet normal on areas. If you look a stock Like National retail properties, the biggest holders from vanguard, sdy, thenhave as dy , andts the midcap sectors vanguard calls it a smallcap stock. It hits so many different areas. If it gets hurt in one of those, kicked out in one of those, you could see the dominoes fall rapidly. You could have a macro fall or a structural fall. Eric to turn a little bit to the tax plan. Big issue this week, and i love the etf you picked for tax reform. Etfael is the classic master, he is an advisor and he picks a little outofthebox. Tell us about the etfs to play tax reform. Lotael sure, there is a about what tax reform will do for individuals. There seems to be a leveling, robin hood tax plan for individuals, but for corporate industry forward. If you asked me about an etf we have used for years, it takes the s p 600, free weights it to free weights it to revenue. Net margins when you waited for revenue, 1 . Slight increase in profitability from tax reform, method earnings enhancement. Scarlet its not just looking at small caps, but small caps based on revenue. Idea is the revenue interesting itself but in the world of tax reform, they can make a big difference on a net margins. Scarlet talk a little bit about lowhich goes along volatility. How and when do you use it . I think it have to tread culturally tread carefully. Michael its my etf for protection. The reason i like it is normally when you buy an inverse product, your upside and downside are one to one, two to two or 66, whatever. Different is the structural factor, by having the ones be low data stocks and the shorts behind it is not that high data stocks, the margin is about 100 when it goes down. The of cap is about 50. It pays you 50 for one dollars worth of protection. It is the type of thing you can have strategic in a smaller position but build up as you have concerns. One thing eric interesting about you is you use etfs but you have launched one. When it came out, everybody freaked out. They thought it was like cdo squared. , this islets be clear an etfs cups holdings are directly involved in the growth of etf industry. Michael thank you for that clarification. Eric there are stocks in the Financial Sector that will gain from the passive trend. Tell us white holes in what you think it is a winner. Michael my partner and i got involved in etfs as private equity investors. We said, how can we make this publicly a vehicle publicly available . Just thestem is not issuers. Jeremy was here a couple of weeks ago, we know that is easy. It is also the exchanges, the index providers, the backup. Msci is a great example. It has reinvented their business model. Offices,the back liquidity providers, you take all five and put them together and capture the growth of the industry. Scarlet it is a little meta for our liking. Thank you for being here. Patrons and money backing ideas. So enter the seed capital provider. How does an early investor decide which etfs to back . Our guest shares his decisionmaking process. And one etf that caught our attention this week, this etf took in a record 40 million last week, the largest in inflows and it began trading in 2009. It has a double focus on ians and tech. It is the best performing nonleverage etf in the United States. This is etfiq, if time for the etf lifecycle where we run through the three main stages of etf speared first, filing, vanguard registered three factor funds to begin trading in the First Quarter of 2018. The funds come with the firms signature low fees, undercutting competition. A programming note, we will stick with vanguard founding founder next week. Then you have the launch, the jpmorgan event etf will package a traditional hedge fund strategy. Ed. Goes by the ticker jp it is related to potential offense like bankruptcies and m a. Those etf that dont get enough interest, the final stages liquidation. The Restaurant Leaders Fund close a last month just shy of its first birthday. It invested in the Restaurant Industry and failed to attract enough assets to be cost efficient for its provider. The goal is to avoid liquidation. A critical part of the lifecycle is how a new etf finds traction. That is where mark esposito, founder of Esposito Securities comes in. Thank you for being here. Thank you. Scarlet you provide seed capital to new etfs, kind of like a venture capitalist for etf. Talk about your role. Mark we are a brokerdealer. We have gotten calls from clients on etfs to bring to the market. Thats what we provide, you need products and services and where the big firms have left off. Scarlet do you take the place of a market maker . Mark indirectly. Sometimes we do that when there is not a lead market maker, and there have in more and more cases with no lead market maker in etf space b. Space. Scarlet it is an interesting time. Why is seed capital drying up when there is more than one new etf launching every day in the u. S. And more than three a day globally. Isk one is the cost to seed expensive. It takes a lot of capital on the balance sheet. I think competitors have made a conscious choice to break out of the space and leave, and therefore that has played into our hands well, we can grow the etf space with new and existing issuers, and thats what we love to do, help clients grow. Scarlet you have independent insurance but also you have vanguard and seed tree, do they struggle for seed capital . Mark i dont think it is an issue for them with their size. They can do it themselves. I think when issue is decide to sell seed, that is ideal, but when they can, they will come to a sell side broker or the open market defined seed capital. Scarlet lets talk about profits. What are your criteria . Do you have red flags where you say no thank you . Mark really it is based on relationship and we are working with. We havee some firms chosen not to work with. It is really on a casebycase, we have an Investment Committee that looks at that, Senior Management of the firm. Putting our capital is expensive and timeconsuming. We look at that quite closely. We have a 40 point grid that we look at with each new issue in order to see it. Scarlet that is due diligence. What sort of things are investors seeking right now . Mark a lot of thematic place. Q, and Artificial Intelligence fund has done well and is already over 70 million. Scarlet but it underperformed last month. Mark i think it will catch back up on the performance side. I think youre seeing high demand for that and they are first to market. Scarlet two think media buzz plays a role . There is a lot of excitement over the ibm watson platform making a pick. Ibm had the launch, earnings of 10 , i think that helps a lot. Thematically, thats what you need to grow with etfs, that buzz. Of like at is kind vanity license plate, it is good for building buzz. Mark i think Brand Recognition is huge. That is the discussion we have had with issuers before lunch. As well, a tax reform etf, and that has traction just by the very simple. We find that a lot. You cannot underestimate the ticker symbol. Scarlet do the ticker symbols come first and then the idea . Or do they generate ideas . Mark sometimes. It could go the other way, too, where you have an idea and you have to back into a ticker that is available. A lot of takers are taken. Scarlet i was thinking about solar etfs that launched the same day, and one did much better in part because the ticker was so smart. Mark i think it is an important part of the branding process. I think issuers understand that more and more every day. Scarlet there are 750 as it managers and use it in the u. S. , but only 100 issuers. To rethink do we think more will get into the etf game . Are a strong believer in the space. I think you will see the active managers jump on the etf train in the form of an etf wrapper. Scarlet will they need the seed capital . Mark they will, but the bigger firms will find themselves because of their size. We are working with big, but also small and mediumsized asset managers. Scarlet good stuff. Ceo esposito, founder and of Esposito Securities. Coming up, we go inside the etf wood. It is up 30 this year. And we drill down into all of bluebirds etf content bloomberg etf content, you will want to check us out. Scarlet welcome to etfiq. For every etf that offers exposure to an asset class or style, its not long before others promise the same. Socially responsible investing is generating a lot of interest. Hear what this is the ceo of impact shares, the first and only nonprofit etf platform. Before we speak with him, eric is back to give us the drill down. Sg is a popular area, at least in terms of Media Attention. Keep where io i look at mediumhigh media hype to assets. Some get no Media Attention but a lot of assets, the opposite extreme is Something Like esg, tons of media but no assets. It looks like a good run of asets here, but lets overlay chart of low volatility etf assets, thats just one category. You can see how door dwarfed it is. Esg is struggling for a couple of reasons. We look at products that have done well, the etf that have taken and money, you have to dig and what they do. They are not that clear. Works,wo are doing good these to go along and index and then carved out companies that have a big carbon footprint. Diversity, gender committees that have a lot of presence of women in executive positions. Of potential, but the assets are yet to follow. Scarlet weve heard that there is a lot of demand or interest in esg. Joining us is the ceo of impact shares. You filed to etfs along with why. Aacp and how do they come about . Nail i think eric hit the on the head when he talked about the lack of asset growth. A lot of strategies that Retail Investors have access to fall into one of two buckets, exclusionary or the screen up typical screen a certain companies, or the asset manager is the arbiter of what a good Corporate Citizen is. I think thats where the strategies fall down. If you look at the naacp and ywca, these organizations have been fighting for the rights of constituents for hundreds of years. They bring a great deal of credibility to the space and have very specific social outcomes they have in mind from a Company Perspective when determining what metrics to track and how to gauge corporate responsibility. Is what were doing, we are bridging capital to caused by partnering with leading nonprofits and allowing the investment public to coinvests alongside these leading nonprofits. Eric one thing i felt was interesting about your firm is that you are a nonprofit. Beside vanguard, which is argue is somewhat of a nonprofit, that is very rare. It is a forprofit business. Tell me why you decided to start a nonprofit in this industry . Ethan it is really about credibility. Impact sharesw almost as if utility, we are bridging capital to cause. Whenever you introduce the element of profit margin and, lets face it, wall street has already been painted with a broad brush as being greedy. Whenever you introduce that element, you lose a lot of confidence from the perspective from ourfits, and perspective, we thought it was the right thing to do and it resonates with the nonprofits were working with. Scarlet its almost like aligning your interests in many ways. Thats go under the hood of some of these etf. Omn. How is it going to be different . She, itf you look at by effectively underwritten calpers, who gave them significant seed capital. They used three perfectly valid social screens. Great organization, im not sure theyre the best arbiter of what a good Corporate Citizen should look like when it comes to woman empowerment. For us, it was harnessing the expertise of the ywca and a genderive felt just diversity firm out of the netherlands. Creating a strategy that focuses more on appropriate social outcomes relative to Company Policy and products and services, versus, you know, having what i would say is having thin expectations from social outcomes and were they marginal employees. Its important we are aligning our interests with the ywca, the leading nonprofit in the space. Eric you talk about ywca and you have the naacp. I you planning to work with other nonprofits . Ethan yes. As i said, we are a utility to be used by nonprofits, and we would like to have every social issue represented a leading nonprofits accessible in a separately investable etf, so public can create bespoke socially responsible investment portfolios that are reflective of your individualized values. We are working on affordable housing, Affordable Health care, arts, and lots of other Health Related issues. There is more to come. Scarlet are you working with the American Heart Association on an etf . Ethan weve had some conversations. Scarlet well wait to see have it shakes out. What is the ticker going to be . Heard markst esposito talking about the importance of the ticker. Is lots of, there potential. Scarlet good stuff. Ethan powell joining us remotely. Thank you. Etf industry has something for everyone, and this week there is an etf for that, we highlight a paper etf that keeps on shopping. Global timber for street etf is known simply as and 70s30 this year percent since launch in 2008. It is driven by the band for timber. Supply disruptions from wallflowers wildfires are factor. It has 26 holdings. Two thirds are linked to force products and paper, including warehouses and paper. Ofth america makes up half the etf, followed by brazil and japan. Would has about half of its holdings in small caps, which could result in volatility. Will have wider training trading spreads than typical etf. Scarlet the ticker is memorable, would wood. Eric there is also cut. Scarlet be sure to catch us new yorkesday at 12 30 time. This is bloomberg. From new york city, i am Jonathan Ferro with 30 minutes dedicated to six income. This is bloomberg real yield. Jonathan no real change of the fed, why the old boss sounds like the new bus. Cuts. Ospect of tax and a wall of demand meets a flow of supply. 46 billion in orders. We begin with a big issue, why the new boss sounds like the old one. The labor market and economy are not significantly overheated. There is no sense of an overheating economy or a tight labor market. Wage increases are modest. Wagest we unseat signaling tightness. It has been below the 2 objective the last 25 years. Are there more fundamental things that work . I think were watching carefully to see. We think it is important to gradually move our policy rate to a neutral level. The economy is strong, unemployment is low, growth is strong, it appears to have picked up. It is time to be normalizing Interest Rates. Jonathan joining me is cohead of Global Portfolio management at Goldman Sachs asset management. London, 16to us from Income Portfolio manager at j. P. Morgan asset management. It is great to have you guys with us. I want to begin with you, what will change at the fed given the two individuals sound precisely the same . Not a lot, but i think over time there are subtle differences. First on the similar side, i think theyre both consensus builders. I dont think you will see anything extreme out of powell, but they are subtle differences. Morer one, powell is focused on markets and will loosen the markets. I think if you continue to see an equity market that continues to run the way it is run, i think he will do it as a signal of overheating. I think on the margin come he may be hawkish in that regard. The second is regulation. Chair yellen was focused on conservative approach toward the backing the Banking System and the regulation in the Obama Administration was constraining for a lot of banks. I think powell will be more practical and that will potentially lead to more lending. Diana, those things that might put on the table, is that enough to stop us out of what we are currently saying . Seeing . Dont think it will be a significant destabilizing for markets. Ultimately we have an environment where groups are well anchored, theres a lot more certainty. For longterm investors, it is a good situation. We know the fed will gradually hike rates and powell is sending the same message.