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00:00Welcome Bloomberg ETF IQ. I'm sitting right. And I'm Kelly lines in for Matt Miller U VIX together very often. I am happy that I get to meet but at least I back. At least Eric's back. This is true. And of course we have a lot to cover. So let's get to the biggest stories right now in the more than seven trillion dollar ETF industry. Fresh off all week stocks are in the green on this Monday. We'll tell you what the ETF flows signal about investor positioning. And Elon Musk. He calls the scam when Tesla got kicked out of the S & P 500 ESG index. We're going to take a look at what metrics are used to determine ESG ETF and consumer discretionary stocks are the biggest laggards since the S & P 500 peaked in January. We'll look at one ETF that tracks online retail. And Kelly as always. He's back in the building. Eric Balchunas from Bloomberg Intelligence is with us now to walk us through some of the flows. What are you see in. Yeah. Look we've had a lot of bad news in the flows over the past couple weeks but I have good news this week ETF store back to their 20 21 ways of taking in you know 3 4 billion a day. That's a good sign. It means investors putting money to work in the market. Look at the flows over the past week 22 billion again. That's a lot for a week. And you've got S & P 500 high dividend more S & P the Qs right. That's a that's good. You do have some bond ETF down here especially in the treasuries which is probably defensive. Let's look at the one month flows descending and you can see forty nine recently. Fifty billion dollars over the past month. That's very good at. In here you're going to have a lot of bond ETF like a. That's Muniz short term treasuries. And then you've done here you've got TLT that's long term treasuries. So Bond ETF took in 32 billion of this number. That's a good sign because they only taken in 17 billion up until early May. But there's a whole different scene over and bond mutual funds. So we're not really out of the woods yet. It's kind of a tale of two investor types over there. You have traders and allocators and advisors usually a little younger. Bond mutual funds are usually held by older sort of boomer investors and they're getting out of dodge. They are not waiting around or making any bets. Look at that 13 straight weeks of outflows that that is a bloodbath. And that's one hundred and fifty seven billion dollars year to date which would be the worst year for a bond mutual fund outflows since 2007. We started tracking this. So look. Katy Kelly it's good news over the ETF land but still bad news for mutual funds. And that's all going to play out in the general market. All right Eric thank you so much. Let's bring in Todd Rosenbluth to this conversation. He is head of research at Verify. It's a fintech connecting ETF focus advisors and asset managers. Todd great to have you on set with us. I want to start right where Eric ended the fact that you've seen one hundred fifty seven billion dollars in outflows from bond mutual funds. But if you look at Bond ETF they've taken in more than 50 billion dollars. Erik has his generational theory. But I'm curious to get your take on that. Is that fundamental or something structural going on. This is the first year we've had in a long time that the average bond fund whether it's an ETF or a mutual fund is down. And so if you're losing money you want to pay as little as possible. And so that's something that we can verify. I've been watching as we're seeing advisors come and do searches for bonds. Yes. Particularly the lowest cost bond ETF. I think it's again a continuation of a shift away from mutual funds if you've lost money. You want to pay as little as possible and then you want to go with the ETF structure which is what we're obviously here to talk about on the show. OK. Well all we're talking about ETF structure in addition to bond funds. Where else are you seeing flows moving into ETF for people who are looking at these markets and maybe thinking they want to play a little bit of defense here. So from a defensive standpoint we've seen strong interest when we looked at are the advisors that work with us and verify about dividend strategies. Eric talked about some of those high dividend yielding strategies. We've seen the more defensive consumer staples and utilities ETF that are holding up better in the broader marketplace. And these buffer ETF seeks to find outcome products. You want to reduce the risk profile. We've also seen a shift in some of that factor exposure where people are moving away from some of the factors that worked in the past and value ETF have been very popular year over year. When we looked at our verified database well talking about factors let's talk about momentum and. That is the ISE shares momentum. ETF has a big rebalance coming up. And this is the most popular momentum ETF. It has almost 10 billion dollars in assets. What is that going to mean for markets when we do see that shift. At the end of the month. So this is an ETF that rebalances every six months a momentum strategy. Six months ago technology financial services those were the sectors that were in favor. Those happen to be the two largest sectors right now. Energy and consumer staples have been performing considerably better as of late. There's almost no consumer staples exposure right now in MTM that's likely to go up. The energy exposure is roughly 7 percent which is above what you'd get in the S & P 500 but we're likely to see that be double digits. And I think we're going to see a lot of. Movement in and out. When the MTM rebalances at the end of the month. Just quickly I do want to ask you mentioned that it's a six month rebalance. I mean that seems like an eternity in markets. And when it comes to momentum I mean this is the most popular momentum ETF but is it always kind of behind the eight ball here. Well it has to go slowly where the puck is going and skate to it. So there's other ETF that are momentum oriented that rebalance every three months. PDP which is an Invesco ETF which rebalanced and more recently has 17 to 20 percent weighting in energy stocks. So that's a double weighting. Obviously it's it's gone where energy is going. You do have to look inside the portfolio make sure you understand what you're getting when you're when you're sorting through these momentum RTX that sound like they're the same but actually are quite different. You I would say the MTM is a good example of knowing the rebalancing frequency because some people say well don't rebalance that with let the winners run a little bit and then other people like you shouldn't be bound sooner. You really should be comfortable with that. It's an underrated data field in my opinion. But anyway let's move on to the elephant in the room Todd and that is that S & P kicked out Tesla from their ESG index. This caused all kinds of drama on Twitter and in the media. And you know I get it like normal people look at Tesla and they're like wow they're making all these vs they're going to really fight climate change. How are they not in the ESG index and ETF and then other companies like MSCI it's in there. So I ran a poll. Not sure if we can pull it up where I asked the general population is Tesla ESG or not. I think 80 or 90 percent said it is ESG. And again I think that's because their confusion of what a company makes vs. ESG metrics. So could you just take some time to give your take on this and dive into this and and maybe you don't agree with me that this is a problem for ESG. So I think it's important to differentiate what is E the environmental part of it and the S and the G. Part of it. So the index behind EFI V and S and P E those are the two each. Yes. That track the S & P 500 ESG index. Tesla got removed. I think you're going to talk about it later on in the show and the rationale for it but mostly for the s reasons. There's concerns about rate or lawsuits about racial discrimination workforce lawsuits that are happening and discrimination. This is not just one pillar of a company. So you have to make sure you're looking at the index and not just just S & P. S & P has multiple ESG index based ETF. There's an ISE ETF X V V that still holds Tesla within it. There are MSCI based ISE ETF that whole Tesla that don't hold it. But I think it's also worth noting is Elon Musk made noise about it being an unfortunate and you guys use various words. I think scam was a scam was not where he used scam. I think I think you toned it down a little bit from what was published on on on Twitter. Twitter by the way got added into this ETF. This is something that that we wrote about recently on on Verifies ETF trends platform. Today Twitter got added. So Ilan must can both have his cake and eat it too. He can be unhappy from a Tesla perspective and be happy if he ends up buying Twitter. If that deal goes through. If that deal goes through. So yes it's important. It's important to make sure you know what's inside the ESG ETF. Not only is she ETF are the same and you've got to go beyond the label beyond the name of the index and ESG in the name. Does this all just speak to though that a lot of these ESG metrics or decisions are just arbitrary and more about perception than anything else. So I don't know. I wouldn't use the word arbitrary. I guess I'm repeating it so I am to some extent using it. There's different ways to calculate value. There's different ways to calculate growth. There's I think you're going to talk about dividend strategies. There's different ones that are there. It's important to just understand what you're getting and what the criteria is behind it. And this index that we're talking about in particular is a relative weighted basis relative to the industries relative to the sectors. So it has to own some consumer discretionary companies. Some automobile companies. In the case of S & P they've chosen General Motors to be part of that index and not Tesla. All right. Todd Rosenbluth head of research at Verify. Thank you so much for joining us now. Coming up Tesla doesn't make the list which we were just discussing after being removed from the S & P 500 e f g e g. If I can get my words out ETF Elon Musk calls it a scam. As we said. But does Tesla really belong there. We'll discuss that next. This is ETF. I call on Bloomberg. Welcome back to Bloomberg ETF IQ. I'm Katie Gray Thumbs. Time now for the ETF Three for I walk you through the trends and the stories that caught my eye in the ETF industry. I want to start with bonds. I'm looking at TLT here. This is in the ISE is 20 year treasuries ETF. And as you can see by this blue line short interest on this ETF has just collapsed in recent month. It's down to about 13 percent of shares outstanding. That number was as high as 40 percent earlier in the year even though you've seen TLT drop over 20 percent in 2022. Those bond bears definitely starting to vanish. Let's also talk about the dark horse ETF the dark cow if you will. We are looking at the U.S. Pacer cash cows. One hundred ETF ticker cows with a Z. It tracks companies with high projected free cash flows. As you can see by that white line it's up about 2 percent so far this year. Feel like it's SPI. That's down about 16 and a half percent. So a real breakout ETF this year. But clearly I do want to end on ESG because we've talked about it a few times over the weeks. ESG performance has really been lagging. And what stuck out to me is that you're starting to see slow start to follow ESG ETF. They lost about one point six billion dollars last week after as you can see just months and months of very consistent inflows. I would say yeah only the second week of outflows we've seen in the last year. And of course it's not just about who was going in and out of ESG funds it's also about what stocks are going in and out of the funds themselves. We already talked about Tesla on this program but we're going to do it a little more now and talk more about the issue with Shaheen contractor Bloomberg Intelligence. So Shaheen obviously the removal of Tesla from the S & P ESG index made a lot of noise last week but that's just one fund that removed that stock. Are we expecting to see Tesla get removed from any others for similar reasons as the S & P cited Su Keenan. Good question. I know DAX is this highly debatable ESG EMC stock and the way we look at it is that even though the S & P removed it many ESG funds actually still hold it. And if you ask us our view our view is that death slide really belongs in this in any fund that focuses on the E or an impact team. It really doesn't belong in a broad based ESG fund where you're considering just an opportunity from not only the E but also the S and the T. And that's where Tesla if I may say Ford should or is challenged. And Shaheen I mean Tesla obviously a very interesting case study in that you also have to focus on the S and the G but many would agree that it fits the E requirements of ESG. But are there any other stocks and companies that sort of fall into this debate about them only fulfilling one or two of the requirements of the label. I feel like Amazon is in a similar category of debate. It's you know some people feel very strongly about it. BSG some don't. But I think death is almost like this this litmus test for U.S. investors. Is it. Is it not. Nobody has any consensus. What does this mean for Tesla. Shaheen So if you actually look at the number of funds that Podesta most of them shock the MSCI ESG indices. And what that really means is that it sort of fuels the debate. If I'm up from an impact it's minimalistic because most of the passive ETF still hold it. But what it really does is it throws into question more so than before what is and what isn't. DSC Shery Ahn contractor Bloomberg Intelligence. Great to get some time with you. Thanks so much. Still ahead we're going to speak to Matt Bertolini of State Street Global Advisors to drill down into a high dividend ETF. That's next. This is ETF IQ on Bloomberg. This is Bloomberg ETF IQ. I'm CAC Lines along with Katie Grifo and still with us. Eric Balchunas is joining us now to talk about today's drill down. We're going to focus on one ETF. What is it S P Y D which is the spider S & P 500 High Dividend ETF which is pretty simple. It goes after the 80 highest yielding stocks in the S & P 500. This simple concept is a pretty popular one. It's got eight point one billion dollars. That's very big and it's only seven basis points. That is very cheap for a sort of smart beta type strategy. Let's look at this sector breakdown because this this deserves some attention here. Dividend is in many names of ETF. But there's really two general categories. There's dividend growers which are companies that increase their dividend each year like Apple Microsoft. And that tells me a little more like the S & P high dividend. They just go after the highest yielding companies. So you get sectors like electric reads oil and gas banks pipelines. If you add it up utilities and energy are 35 percent of this ETF. Those sectors are only 8 percent of the S & P. So you're way overweight sectors which is normally the rap on these high dividend ETF. And while some advisors don't use them but this year those sectors are leading everything right. So if you look at the performance of this DSP why D is not crushing it it's up 4 percent. But look at the growers and look at SPI. So that is having on a lot of outperformance too you can see in the lines here. So Katie Kelly even though high dividend normally gets ignored this year it's really having a moment. All right Eric great breakdown. Thank you so much. And also joining us now to talk about this ETF is Matt Malina head of Spider Americas Research at State Street Global Advisors which has more than four trillion dollars in assets under management. That is a pretty big number. It's also a pretty big number when we look at the flows into dividend ETF. So far this year. Is that something you expect to see continue. I think it is. So so far through to actually today is about seven billion dollars and the dividend focused ETF which I think would make it the second most all time for a month. And it's not that surprising. Dividends are sort of a close cousin to value. ETF value as a performance factor has done quite well this year. I think we expected to to continue to do well for some of the macro reasons around interest rate connectivity and correlations but also because we look at fundamental reasons from our earnings perspective. Value stocks are basically returning similar amounts of earnings growth as are growth stocks and it's coming at cheaper multiple. And with dividend funds you you're able to get this return of shareholder value with that dividend payment. I think that's what investors are looking for right now particularly in a market that continues to be quite uneven quite an even is one word for it. And looking across State Street sign up. I mean it did catch my eye that if you look at what is the best performing ETF in terms of flows it's actually Jihye Lee. I mean taking in well over 5 billion worth of flows this year even though it's up only point eight percent. I mean when you look at that and then you look at your second best perform in terms of flows it's a short term bond ETF. I mean does that just sort of tell you that people are very stressed out right now. Yeah definitely does. And this are only up point eight percent is sort of run in relative terms really good because bonds and stocks are both down double digits. And so there's a natural pull towards areas of the market that can be a bit more defensive and mitigate these really bouts of episodic volatility that we continue to find ourselves in with these sort of multi-dimensional amounts of macro risks that continue to converge on what each other and really cause that sort of incursion in portfolio assets. So having Gilardi and have having VIX be some of our top performers from a flow perspective is actually what you would expect when you have 70 percent of global stocks in a bear market. Yeah. And the Fed is gone and that's a big change. Normally the Fed is there to save us all. Speaking of that another bad sign that I see in the flows that my colleague ethanol CEOs pointed out was if you look at all the sector ETF rate all the categories all of them have seen outflows over the past rolling month. That is highly unusual. It's only happens every now and then like an eclipse. Last time it happened was March 20 20. Before that it was December 2018. It just seems like it's like people searching for something and they're like just nothing working. And now they're just like I don't even know where to put my money. I'm just leaving. So when sectors see outflows altogether that's not good. Would you expect this. It turn around. So firstly it's not it's not good. It's a general risk reduction. The flow so far this month 12 billion that's the most amount of outflows ever for sector ETF. Now what's interesting is one hundred billion dollars has come in in the last 12 months. So some of this is just natural dyes risking in terms of continuing on a go forward basis unlikely. So I think the market will eventually start to find some form of a bottom in the overall sector. Investors or sectors are a really strong form of alpha generation. And when we take a longer term view their use case in portfolios continues to remain intact. But yes right now we have some near-term bear sentiment that's being expressed within not only just to signify amount of sector. Close but then inflows in those defensive segments like JL deals like BRL and it really shows sort of the investor buying behavior you know direct gain in going places to sort of ride out the turmoil including dividend ETF as well which comes back to our original point. But talk to what Matt what Erik was speaking about Matt about kind of the difference between dividend growers versus just high dividend in general. Yeah. So dividend growers. So we have a fund. SD Y that's going to add a little bit more quality into the dividend yield because it screens for companies that you know raise their dividend for over 20 consecutive years. It shows a lot of balance sheet rigour and capital flexibility. So you're going to have more of a quality bias where dividend growers with dividend yields you're going to get more of it sort of a pure value style play. You're going to own more of those pure value sectors that pay a lot of a dividend from a yield perspective like utilities like your energy names. Sorry. There is a difference. They're both still close cousins in value by overalls. SD Why is gonna give you more value. That's right. Spidey is going to give me more value. SD Why is going to give you a bit more quality. Of course you always make a little bit difficult. Is having very similar name in ticker. Well before we let you go we don't have much time left. I do want to get your thoughts quickly on SFP. Why the original there. It's the world's biggest ETF. It's seen about 30 billion dollars in outflows. We're not even at June and that's close to the biggest year of outflow on record. What does that tell you. Why is that happening. Well I mean a lot of it last year we had record setting flows this year. We now have a bear market in 70 percent of global stocks the S & P 500 that we hold out really for major indices. It has entered the bear market. So again a significant bout of re risking or D risking from overall investors. SPI is a very very widely used tool by a lot of different investors. Having it and outflows is not that unfathomable right now. Also there's a little bit of seasonality to it. Q1 tends to be some of the weakest terms of flows. Fourth quarter second half spike tends to perform quite well. All right. Now we got to leave it there. Great to have you though. That is Matt Delaney of State Street Global Advisors. And before we go here's a special look at another ETF. This one's focus on the hard hit retail sector. Take a listen to Amplify online retail ETF goes by the ticker I buy. It has around 90 holdings tracks companies that generate at least 70 percent of their revenue from online sales and counts about 250 million dollars in assets. You've got traditional names like Land's End as well as online stalwarts like Amazon PayPal and Do You Pay. Three quarters of ISE Holdings are based in the US where e-commerce sales totaled some eight hundred seventy billion dollars last year. But a store sales rebound and consumers these high inflation the growth is starting to slow in the fund. Small and mid-cap names are equal weighted with the big caps with some restraints. ISE. ISE total return surged during the pandemic lockdowns when online shopping dominated. It's since come back to earth and now trails the S & P 500. Though I did accumulate decent volume during that time it comes with an expense ratio of sixty five basis points and gets a green light in the Bloomberg intelligence traffic light system with one warning for the alternative leading. All right. Eric Cady it has been a pleasure joining you today. Fortunately I don't think I am next week because Matt Miller is going to be back but it's not going to be on Monday is it. You know I hear there's a three day weekend. That's huge. So we're gonna be back on Wednesday June 1st next week. Same time though 1:00 p.m.. All right. Looking forward to that. And I'm sure Matt will be really excited looking up that. Let get more though. So I'll be here. Fair enough. Just days away. That does it for Bloomberg ETF IQ. I'm Kailey Leinz along with Katie Greifeld and Eric Balchunas. Thank you for joining us. This is Bloomberg.

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ETF IQ Full Show (05/23/2022)

"Bloomberg ETF IQ" focuses on the opportunities, risks and current trends tied to the trillions of dollars in the global exchange traded funds industry. Bloomberg's Kailey Leinz, Katie Greifeld and Eric Balchunas speak to Todd Rosenbluth, head of research at VettaFi, and Matthew Bartolini, head of SPDR Americas research for State Street Global Advisors. This week they discuss sector outflows, the structuring of ESG ETFs and momentum rebalancing. (Source: Bloomberg)

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