Well, what I would say within the AI ecosystem, Alfred, there are bubbles to use a word that probably don't like that much, right? I do think that the memory specific pocket is a moment in time. You know, one hates to call a top when something is like this, but I personally am wary about the memory stocks because in the medium or long term, they don't have quite the competitive moat. I believe that Nvidia does. I think we're in what we call a crypto winter and I don't think it's coming back. Like I just don't think a lot of those projects and softwares will be at all interesting or alive in 5 or 10 years from now. So the concept of blockchain and stable coins are definitely there and Bitcoin is there, but a lot of other parts of the ecosystem are just to me going away. It's such a big company, SpaceX, that we're glad as ETF sponsors to have it in the public markets. As you said, the amount of money here is absolutely staggering, right? It's just staggering. You're talking about cumulatively hundreds of billions of dollars. It's just the waves of liquidity that are going to be sloshing through the economy I think will be positive short term for economic growth and I think they will be absorbed.
Welcome to the Master Investor podcast with me Wilfred Frost where we celebrate and learn from the success of the greatest investors, business leaders and politicians in the world giving you our listeners the edge. The Master Investor podcast is sponsored by LSEG, Interactive Brokers, the World Gold Council, and BMY Investments. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice, or a personal recommendation. More on that in the show notes. My guest today is Jan Van Eck, the president CEO and owner of Van Eck and its associated companies, leading the asset management firm and ETF giant that was originally founded by his father in 1951. He has grown it to the Goliath that it is today, especially in the ETF industry with $225 billion of AUM. And he is a regular podcast participant. Always sharing his opinions loud and clear which we very much welcome here. Jan, welcome to the Master Investor podcast.
Wilfred, it's great to be here for the first time with you.
And I wanted to just jump straight into the kind of ETF that I think it's fair to say has really driven a lot of your performance in recent years, but is right at the center of everything in markets right now, and that is the SMH. Of course focusing on the semis which has had unbelievable performance of late. I think I'm right in saying it's now $65 billion in AUM. Is that right?
Something like that. Yeah.
And obviously is now the go-to place for people that want exposure to the area. Year to date it's up 58%. Over 12 months it's up 135%. Almost more impressive than that, since inception, it's up 29% per annum.
Unbelievable. And that's really hard to do on a compounding basis. You should retire right now.
Yeah, exactly. Tap out now, but I'm sure you won't. And that's why you're showing up for this podcast.
But in the last year or so, how much of that is price performance versus inflows to get it to 65 billion? Oh, price a lot is price performance. I mean, I can't imagine that more than 10 or 20% in the last 12 months has been inflows. That's interesting. I would have thought there was at least a significant more of inflows than that. And what do you think has been driving it? I mean, maybe it's a simple question, but is it the AI theme pure and simple?
Yeah, I mean listen, I think the Van Eck investment philosophy is to try to take a big picture macro view. I call it 10-year macro. And what I mean by that is in 10 years looking back in 2036, we were going to look back and say what are the very biggest themes affecting the world and therefore financial markets. And that hopefully filters out a lot of noise. But I think what we're left with is at least three things: AI, the rise of India, and the overbaring by the US, your country the UK, and Japan leading the way I would say. So from the AI perspective, it's pretty simple. We have demand for compute up here for this wonderfully efficient new technology and supply here. And so everything is at the semiconductor is at the heart of that obviously. I drill down a little bit further towards Nvidia. So one of the reasons our ETF has outperformed other semi-ETFs is that it only focuses on the top 25 stocks and it allows the largest holding to rise to 20%. So it's really been riding the Nvidia train if you will. And Nvidia itself is a whole separate podcast right of the incredible performance. So are we comfortable I asked myself with semiconductors today and Nvidia and I am. One never knows if a company can lose its competitive moat, but I think Nvidia will definitely be one of the leaders 10 years from now. Partially because it's the mainframe of AI if you will, not just a single chip manufacturer GPU manufacturer like it used to be which was not only cyclical but also highly competitive. And so you know I think Nvidia with its software and its cost advantages that it has not only in the scale of production but also because it produces more efficient chips per dollar of electricity or pound. Then I think I think and with forward earnings only, you know, kind of in the low 20s. So all of those things, even though Nvidia hasn't been the hottest stock in SMH, our semiconductor ETF over the last nine months, I think it's a very solid piece of your portfolio. Sorry for the long answer.
No, no, I love it. And I mean, Nvidia, I was looking at your most recent disclosure on this. I think it's at 17% of it at the moment. TSMC's next at 9% and want to sort of dive into those in a second and totally acknowledge your leading point there that you get that significant exposure to Nvidia and others. But it is interesting in the last certainly this year but as I think you just said nine months that it's not been driven by the likes of Nvidia. We always talk about whether an industry is going to be winner takes all or winner takes most and for a large part of the last few years I think it's fair to say that a lot of the semis were kind of left behind by the AI theme until recently.
Absolutely. I mean the methodology of REF and and you know some of it was thought and some of it was luck Wilfred. But when you only pick the top 25 names what's ended up happening at least in this era of investing I'll call it the last 15 or 20 years is that large caps have really led the way. So by only having 25, there were probably well over a hundred semiconductor companies, by filtering out the bottom ones that were in more competitive spaces, you eliminated that drag if you will. Now that's not always true for all periods of time in investing, but over this period of time, it's really leveraged into these bigger winners. In the short term though, year to date up 58%, clearly it's broadened out enormously. The memory stocks have been on a tear. Can that be sustained?
Well, I doubt the performance I mean, we've just had historic performance in the month of May. So, I doubt that's going to continue. But I don't think see, again, this is where I get to this kind of super macro view. If demand is up here and supply is here, then we're not in an irrationally priced market because the capital markets are telling entrepreneurs, come here. We need your capital right. We are valuing your capital because we need to build out AI compute centers. And that's just not surprising. I think the reason that our way of looking at the markets with this 10-year view works is because humans have this bias towards looking backwards. And when big trends happen, whether it's the rise of a country or the rise of a major technology, we just can't look backwards the last prior quarters of company earnings or a prior use of technology to really understand the scale of the buildout. Now, that's not always true. There are a lot of fake fads and technologies, right, that don't play out, but this is one that clearly is grabbing all global markets by the throat and shaking them up.
In terms of just one final short-term question on this, you look at the Kospi, the Korean index, another all-time high today. It's tripled in the last 18 months which is just extraordinary for a national index and it's been driven really by Samsung and SK Hynix. The index itself was up 12% one day last week. Does that make you worry about the opposite, about what we saw say in late 2021 before we saw a big pullback in 2022 when you had sort of meme stocks going through the roof? I know all of these memory stocks, those two in particular have seen extraordinary EPS upgrades. So it's very different from a meme stock type frenzy. But are there some similarities that flash read to you?
Well, what I would say within the AI ecosystem, Alfred, there are bubbles to use a word that probably don't like that much, right? So going back to the end of last year, the question was what was the financial sustainability of the OpenAI ecosystem. OpenAI as Chad it's one of the leading model companies, was Claude going to leapfrog it, and so the companies in the OpenAI ecosystem I call it, that's obviously only a very loose description, Oracle and CoreWeave that had leveraged into building compute for them were both down 50%. So even within the sort of broader trend you will find pockets. That was a company specific pocket. To your question, I do think that the memory specific pocket is a moment in time. You know, one hates to call a top when something is like this, but I personally am wary about the memory stocks because in the medium or long term they don't have quite the competitive moat I believe that Nvidia does. And so I think entrants will come into that memory. There's no doubt there's a shortage right now and that's giving them pricing power. Most of the reason that their profits are exploding is not because they're selling a lot more, they have limitations, it's because they've increased their prices. And you know that means that other companies that use that memory are going to be looking to economize on the use of it. So I'm with you, it feels bubbleicious and so it's not something that we're reducing our exposure in the memory space for our actively managed funds.
Nvidia's 17% I think of the SMH, the next biggest TSMC, then followed by a lot of those big US names Intel Broadcom AMD Micron Texas Qualcomm, they're all six or 7%. Does TSMC have a similarly defensible moat as Nvidia? Slightly different but similarly defensible.
I mean yeah it seems not only do they have the manufacturing capability but they also have the capital to build these very expensive manufacturing chip manufacturing facilities. I would guess that one of the advantages that Nvidia has and TSMC is because they are working with broad swaths of the ecosystem, basically everybody, they are seeing where the technology is going in terms of customer needs and so I think most people would say that TSMC will be there in 10 years, they'll be a survivor.
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You mentioned already that the likes of Oracle or CoreWeave pulled back significantly from a late October last year high but down to the sort of March Iran war low, Oracle having which is pretty significant given its size. And I heard you on another podcast saying therefore you don't need to worry about the AI bubble overall because it kind of already burst. How do you get conviction to reload on the right names in those moments, particularly given that such a big portion of what we're talking about isn't listed yet. So you're kind of playing by proxy throughout that process.
Yeah, this is going to sound very much like we're an ETF sponsor, but a diversified approach is definitely the way to go from a company perspective. Timing wise, when you're in the middle of a trend like this you'd rather buy during a pullback rather than leap in right now. And we talked several minutes ago about the flows into SMH and I think a lot of the assets of the fund are people that have bought many years ago and are just letting the appreciation work. And I think that's healthy in a way right, that there's not a lot of quick money chasing it. Now there is money chasing this, the memory stocks and they will chase the hot spots in the ecosystem to your point before. But I think overall we're still overweight semiconductors in our broad portfolio models but we're itching to take a little profits here.
Let's talk more broadly now about Van Eck, about the business. Had to dive in on the SMH initially but I hadn't realized this I must admit before prepping that while the firm was founded in the 1950s it only really got into the ETF game in the early 2000s. 2006 right, you're 20 years into the ETFs. That I hadn't realized that is now obviously the biggest portion of your business.
Right, yeah, oh by far, I mean it's over 95% of assets even though we do have an active business and it's sort of specialized in gold mining resources and emerging markets but it's important to us. I sit with our active portfolio managers.
It's interesting because we had Jeremy Grantham on recently and refer listeners back to that episode and he was one of the very first proponents of ETFs and he talked very warmly about the impact Jack Bogle of Vanguard had had on the industry and the wonderful mission that he had to reward his employees if they managed to lower the costs for customers and that that was a kind of new thing when Vanguard were driving that 50 or so years ago. Is that a core theme for you as you've driven this ETF business? Is it ultimately if you deliver for the customer and lower costs that it will ultimately long-term pay for you.
Uh it's a scale game for sure. You know, I think that especially in the privates area and hedge funds, active management can be a diseconomies of scale game. What I mean by that is if you just have too much money, you know, you can't run an early stage venture fund or a small cap fund, right? They have to they are what people call capacity constrained. You just can't manage too much money on it. ETFs are the opposite. They're a scale game. So the more AUM, the more you can service a broader swath of clients. And then you know we don't compete with Vanguard in the core of people's portfolios but for the specialty areas where we do compete we tried to have our fees be very competitive. The last thing I would say and that's the reason I do podcasts like this is that in the private area the active side of the business where a money manager can align with investors or clients is to co-invest. We have so many niche ETFs that we don't want to own all at the same time. So the way we try to align with our customers is by using our research and sharing our research what we like and what we don't like at any moment in time. So that's why we do these quarterly outlooks. Sometimes we're bullish about a lot of things and sometimes we're not.
And in terms of, you know, you mentioned the word active already and I guess this therefore might be stating the obvious a little bit with Van Eck ETFs, but a lot of people think of ETFs as passive. And you either do passive ETF investing or you give your money to a money manager who does your classic active portfolio construction stock by stock. How quickly can you pull together a new ETF, for example, a new theme or adjust around the ETFs that you already have and do you define yourselves as active ETFs definitively?
