Kristen Meyers: And good morning. Happy Tuesday. Welcome to ETF Rundown, the weekly show where we cover all things related to exchange traded funds. I'm your host Kristen Meyers. Now coming up in today's episode, we have our chart of the week as always to start us off today we're going to be looking at managed futures compared to the broader market, and then we'll be chatting with Bilal Little, global ETF strategist at Direction. Then after a break we're going to be taking a look at our ETF spotlight. This week's spotlight is ANTW, that's the anthropic AI lab ecosystem ETF, of course, as anthropic filed yesterday for its IPO on the NASDAQ, and then we'll be talking with the queen of alt. Shayna Sissle is with us today. She's the founder and CEO at Ban and Capital Management. And as always we'll be wrapping up our show with our watch list, the three ETFs we are watching this week. But first, let's start as always with our chart of the week. And this week we're looking at an alternative, alternative, excuse me, investment strategy that's outperforming the broader stock market. So take a look at this chart. It is comparing KMLM, that's the KFA Mount Lucas managed futures ETF, with SPY, that's the SPY. S&P 500 ETF trust. Now on your screen you can see that KMLM is in the green while Spy is in the blue. Now both have delivered double digit gains this year, but KMLM has notched nearly 18% returns for the year so far compared to about 12% for Spy. And you can see that while stocks struggled in the period of mid-February to mid-April, KMLM was climbing. And even as the two traded places over the summer, managed futures regained the lead again at the end of August. Now, unlike traditional stock funds, managed futures can take positions that benefit from both rising and falling prices across commodities, currencies, and bonds. So with alternative strategies outperforming this year, the question is whether investors should be thinking differently about what diversification looks like, and of course we'll be exploring that with Shayna Sissle later on in the show, but I want to turn now to Bilal Little, global ETF strategist at Direction. But before we start our conversation. I have to let everyone know that we have a birthday boy sitting with us at the desk. Happy birthday. He wants to kill me right now. He doesn't want anyone to know that he's getting a year older, but you look great.
Bilal Little: Thank you. Thank you. It's a good time.
Kristen Meyers: You look great. OK, so let's start with what we have going on in the markets right now, particularly this week, very busy week for earnings season actually. Busiest week stat wise, roughly a third of the S&P 500 is going to be reporting. AI is in focus. We've got Microsoft. We have Amazon. We have Alphabet, Google, for those that don't like calling it Alphabet at home, they're all reporting. I want to know what you think the biggest risk here is it going to be disappointing earnings, or is it, of course, that age-old question on is the spend on AI actually yielding. Any sort of return or just frankly how expensive the AI build out has been first
Bilal Little: I think it's going to be the latter. Let me say in this market right now I think patience is a position. And this is a conviction week, right? Everything's come and due for the most part I call it like it's the most important earnings week going into the back half of the year because you're gonna get that sentiment from some of these AI names. You're gonna identify whose spend is actually paying off and then where that return on spend is. Uh, the other part though I think it's important to mention is investors coming into this period right now and the Fed is gonna be on pause because we're going into an election month or next, you know, two weeks or so. And the Fed still has to identify what they're going to do around rates given the price that oil is still above $100 a barrel.
Kristen Meyers: So talk to me about the Fed. We have the FedWatch tool. I checked it last night. I didn't check it admittedly two minutes ago, but 90% chance that the Fed is going to be holding rates steady. So the Fed is holding rates steady. Essentially we already knew that. Now you have said that this meeting is really about December. It is not about this month at all. So I'm curious to know because obviously for Fed watchers everything is always so language focused. What language, what are you going to be looking for in this week's meetings that might signal what's coming in December, whether it's going to be another pause or perhaps a hike?
Bilal Little: Look, the question is, is inflation still too high, right? So that's a hawkish hold, if you will, because their sentiment is going to be the same that look, we'll still hike in December. More importantly though, if I'm sitting here trying to digest what's going to happen with the Fed, I already have priced. And that the fact that they're not gonna move right now but they will be moving in December, but what will the bond market say with their language and if bond rates continue to go up, that means that the market has already determined that inflation is still too high, but I do want to go back to a point that you mentioned about um earnings because I don't wanna just gloss over that. Meta paid a price for not converting a lot of that spend already and now you actually have multiple companies that actually have negative free cash flow on the quarter. So now you got 2. Now I'm just saying going into the back half of this week we're gonna figure out if the other MAG 7 names are going to either produce and or it's going to be a longer haul before we get a return on that investment. And what you also see is a rotation of equities underneath that entire picture. So you're not just seeing the tech names moving as tech has sold off. You had the Dow actually outperform over the last 3. Weeks or so and then you actually have equally weighted S&P and Q is actually outperforming the weighted indexes so that's why the picture is shifting but again the picture is still on the Fed.
Kristen Meyers: More about what you've been saying that this is really a market where you have to find your pockets, you have to find your segments and your small sections because everyone is still making money even within tech, but you have, it's really depending on. Where inside of tech you are currently sitting in your portfolio. OK, I want to ask another question about the rates issue here and particularly with inflation because globally we also have a lot of major central banks worldwide that are also going to be making decisions this week. We've got like from New Zealand, Canada, Japan.
Bilal Little: Europe, yeah.
Kristen Meyers: so do you think that we're going to be seeing a coordinated tightening cycle globally, or do you think that we're actually going to start seeing some divergence here across the central banks around the world? And what do you think that does to an investor, right, because we are obviously all of these economies. are of course interconnected and of course once you start talking about things like ETFs and investments, international has been doing so well. What are you seeing there?
Bilal Little: Yes, I think you nailed it up front, right? A coordinated effort and look, Kevin Warsh has already talked about this being the case and if that is the case, that means the cost of capital is tighter. And it's not going to be as free flowing as it was, and that's a good thing, I think if inflation is still too high for the average consumer that they can't access goods and services, so I would actually stick with that being the major picture because if 5 major central banks are showing this coordinated synchronized effort at the same time you have volatility in different areas of the market. So I would not be chasing this market again. Patience is your friend.
Kristen Meyers: So Bilal, you are like the perfect person to talk this about. No, because we, we wanna start talking a little bit more about what's happening inside of the ETF industry for all of our viewers. So I was reading a really interesting article. Listen to this data point. So data shows that CEO, so this is Chicago Board Options. The exchange located obviously in Chicago has snapped up about half of all of the listings for new ETF launches. We also now have the new Texas Stock Exchange looking to muscle in on the New York Stock Exchange and the NASDAQ's territory. Now CEO's appeal seems to be a lot of the derivative based products. I'm curious to know because you were at the stock exchange for such a long time dealing with a lot of issuers and obviously dealing with these upcoming external pressures. When you hear that, does that just, do you shrug that news off, or do you think that some of these exchanges are actually going to make meaningful pressure, put meaningful pressure on the duopoly that we have right now between the NASDAQ and between the New York Stock Exchange?
Bilal Little: Yes, no, look, I read that article and that conversation is being Uh, has been being had for the last 2 years or so since obviously the announcement. I think right now two things are happening. One, competition is good. Two, the ETF industry is evolving. 2 years ago, 3 years ago, we didn't have this growth of derivative based income and or defined outcome based, uh, dependency that we have right now on the ETF wrapper. So the fact that CEO is known for options, but many people don't know that the NYSC is like the 2nd largest option desk in the world as well, so. It's not that they can't do some of those things that support those products. It's, I think there's been a little bit of a hallmark alignment to CEO in this particular case. Also there is underneath that catalyst one particular manager that launched two like 200 products, right? So the numbers are a little smoke and mirrors. So that's 12, not taking anything away from CEO credible manager, we list products there as well. We have a partnership there, but what I'm saying is the ETF industry grew up in the index-based world. So now that we have different components inside of the wrapper, different exchanges are offering different solutions, but it's all about liquidity where your product trades and how we actually get closest to, uh, the NBBO, right? And it's about how the market makers are gonna support your product as well. So it's all these different factors that these exchanges have to appeal to a client.
Kristen Meyers: Does this matter for investors or just issuers?
Bilal Little: Look, honestly, I don't think. Still at the end investor level, but if you're going to be trading some of these products, it will matter because how like what's the spread, right? And how tight do your products trade and that's where it comes into play. So one, if you're an ETF issuer and you're gonna be listing products, of course it matters, right? Because what do you get from the exchanges? The second thing, if you're an individual investor and you're trading these products, how tight do those spreads like align with what your conditions are.
Kristen Meyers: Very, very inside baseball, but I thought it was absolutely fascinating, especially because I love the Texas Stock Exchange story, um, and what they're trying. I think I've heard, I mean, some of the ETFs are called like Y'all Street, which I find hilarious, but that's all regional based, right?
Bilal Little: Yeah, very regional based.
Kristen Meyers: OK, let's talk. My favorite time of the show, little by little. What's your three calls for this week?
Bilal Little: Well, you gotta give me my. Set up. Here's why the 3 calls are important this week. One, this is a Herculean week as far as data goes. We're getting into the back half of the year, but I'll give you my 3 calls. One, broad equities, equally weighted S&P, equally weighted Qs. They both outperformed over the last 2 weeks of the broad market cap weighted indices. Second call, volatility harvesting. I think because of what's happening in tech, the divergence that you're talking about is gonna create the opportunity right now for um. Option premium where investors can get paid to hold some equities. The third call, and I talked about this, hedging tech and hedging energy where oil still is if we get some resolution towards the back half of the year at the same time, the divergence in the volatility in equities, that's your call.
Kristen Meyers: OK, so say more about that last one though. How do you think what's the best way to hedge tech right now?
Bilal Little: Look, I think if the semis continue to face pressure around data centers and building, I think you can hold something like SOS right that's going to allow you to. Inverse that particular trade if you're gonna hedge energy you can do the exact same again I don't want to make individual calls on products, but I think that's what I would be thinking about given how pricey they are and where the opportunity might be going away. So if investors say, you know what, I want to go and participate in utilities or consumer staples or more defensive rate sectors, then that's where the capital will go and you actually see that in some of the ETF flow.
Kristen Meyers: Interesting part about the defensive name. Though not all of them are as defensive as you think or as as investors I should say think because of the AI trade having such an impact on things like infrastructure, on things like healthcare. So even those defensive names broadly are starting to also become tech names as well are being heavily impacted by AI. All right, that'll do it. The little Gold Bach strategist at Direction, thank you so much as always for joining us and of course happy birthday.
