00:00And Rich, I want to start right there with the semiconductor ETFs. Eric talked about how they
00:04kind of dominated the list of inflows. It feels like they're sucking up all the oxygen in the
00:09market in terms of volume, certainly in terms of innovation as well. It's the flavor of the month,
00:14but how can you tell when it's overplayed? Because at the end of the day, there aren't
00:17that many companies as opposed to maybe perhaps other sectors. Well, first of all, it's great to
00:23be back. So thank you for having me. Yeah, I think this is just a case of issuers really following
00:29the demand and going where the money is going. And so, you know, semiconductors, it's interesting.
00:35I feel like people use that as an umbrella term, but really what investors are looking for is the
00:40physical bottleneck, which in this case is high bandwidth memory. So a NVIDIA chip could process
00:46all day long, but without that high bandwidth memory, what's going to feed it the data?
00:51And so what I think investors are saying is, why do I need to buy that broad semiconductor ETF? Why
00:57do I
00:57need to go broad tech? Let me find a fund that has really narrowed the supply chain as much as
01:05possible. And that's the results of what we're seeing when Eric was talking about, you know,
01:09the massive inflows into these products. So certainly SMH is always going to be the trader's
01:14go-to tool for semis. But more and more, we're seeing these finely sliced and diced funds getting
01:20onto Eric's leaderboard. And I think as long as the trend continues, that's what we're going to see.
01:26So you follow the market and you have some notes in here about just like how difficult it is to
01:32have hit products because there's so many products. Soxel, as you saw, is a leveraged ETF, huge hit.
01:37It's inspired a bunch of others, right? There's like 2X, 3X, everything now, a bunch of AI ETFs coming
01:43out. What do you make of that? You talk about if you have two or three anchor funds, there's going
01:50to
01:50be a lot of zombies at the end of the day because of all these launches. So what do you
01:55see happening?
01:56Are we just going to see like waves of closures? I think this is a case of issuers needing to
02:02be
02:02more realistic about what their economics are going to look like at the end of the day. So on paper,
02:07having one or two, three anchor funds to subsidize your entire lineup is great. But number one,
02:13those need to be long term sticky assets because if that theme or that trend reverses, there go
02:19your economies of scale. And if you are marketing 30, 40 basis points for your thematic, for your
02:27leveraged fund, you know, that's great. But the real cost there to issuers, well, that's billions of
02:33dollars that I have to raise. And I remember you coined the term spray and pray. From where I sit,
02:40I think institutional gatekeepers like the wire houses, they might be looking at it as spray,
02:45pray and prune. And what I don't think issuers realize is that is one of the many things that
02:50the wires pay attention to when they're thinking about the funds that they're going to invite
02:54onto their platforms or into their models. So not only do you as an issuer have to raise billions
03:00of dollars, you have to be able to keep that fund open for long enough to even be eligible to
03:05be
03:05reviewed by the wires. But if you have a history of throwing a bunch of spaghetti at the wall,
03:10and then just pruning away, that's going to give these gatekeepers pause as they consider, well,
03:15is this a holding that we'll be able to keep in our models for a while?
03:19So you mentioned in your notes that automation technology has made it easy for issuers to file
03:25new ETFs. What part of the ETF lifecycle does not lend itself to automation and technology? I mean,
03:32it's easy to file. Is it just as easy to launch then as a result? Or and is it just
03:36as easy to,
03:37like you said, get onto different platforms of the wire houses through automation?
03:41I would say that filing velocity is not reflective of product management reality. So as you said,
03:48with automation, you can file tens, hundreds of filings at a time. It can even automate the
03:54regulatory process and give you back capacity to launch more funds at once. But what AI hasn't been
03:59able to do is really make a dent in the fixed costs related to keeping a fund open, like exchange
04:06listing fees, marketing, market making, and even capital that might be required for custom in-kind
04:13redemptions. And so while technology has been great on the front end, what it really hasn't done
04:18is make the back end easier. And that especially relates to distribution. So while the barriers to
04:25entry, if you think about the ability to launch, have really, really gone down, it's on the back
04:30end with distribution, where it still feels very much like hand-to-hand combat trying to get in one
04:35of those models. And so distribution still very much a human endeavor.
04:40Okay, let's talk about novel ETFs. You have them in your notes here. There's a big SEC wants public
04:46comment. A lot of this is aimed at a bunch of stuff, right? So let's start. There's leverage ETFs.
04:50That's part of what's novel. We did a study. Some of these products make a lot more money
04:57for people than they lose. I mean, $60 billion in net gains for them as a whole group. So I
05:02think
05:03the people using them might hear all this and be like, I'm fine. I don't need your help.
05:07I know you're trying to help me, but I'm doing just fine. Then we're going to look at prediction
05:11market ETFs. Now that seems crazy, but there's maybe some purpose to have binary bets on like
05:17economic data, or will the Fed raise rates, or who's going to win president. Some of this stuff
05:22could have real value. What are you looking for here? Do you have a more libertarian approach?
05:29Just let it all out and have all the risks disclosed? Or do you think they should actually
05:33stop and even start reining in ETFs? To me, this is the SEC just taking a moment to pause and
05:40acknowledge how far we've come as an industry and just ask some important questions. So when the
05:46rule 6c11 was implemented, that was six and a half years ago. And our ETF industry was mostly broad,
05:54passive beta. We know how far we've come. You've talked about it every week on the show.
06:00And so what I think the SEC is doing is just acknowledging and asking some questions. So
06:05number one, what is the definition of a novel ETF? And does it fall within the confines of rule 6c11?
06:12And so I don't think the SEC is really looking to completely redo or make significant changes to
06:196c11. What I think they're hoping to do, and I think this would be good for the industry,
06:23is to really clearly define what that means. And there are ramifications to that. For example,
06:30the standard 75-day window for a fund filing to become effective so that it can be launched,
06:35what we're seeing is for the SEC staff, 75 days simply is not enough to begin with. Then on top
06:42of that, we see some issuers being really cute, where right before day 75 or right at effectiveness,
06:49they're filing that 497, that 485B. And they're making huge material changes, really disclosing not
06:57just to the regulators, but to the market for the first time, what they're intending to do with this
07:02fund. And so I think this could allow the SEC, for example, if they were to do non-public reviews,
07:10this could allow the SEC to do that robust robust checking that I think as an industry is good for
07:16everyone, particularly the end investor. But it would also allow issuers to focus on product
07:21management and risk management.
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