You know, when we were talking in advance of this podcast, we asked you about a contrarian view, and I don't know, do you still hold it?
It was oil, I think, or oil.
That's right. Depending on the day, it changes.
Yeah, that's why I asked.
Can energy work? Well, interestingly, we had this event in the Middle East. Oil pops, gives it all back within 48 hours, I think. And when I look at flows, there's been this mass exodus from energy ETFs and healthcare ETFs too. But if you're a chartist, if you're looking for big ranges, because ultimately big trends develop from stocks and industries and ETFs that have these big, big ranges, because it's just that the market's accumulating these shares, eventually breaks out and you get momentum and trend. Energy is home to all those big, big ranges.
But the waiting game of it is just immensely frustrating. So I still think it's a contrarian idea, but the opportunity cost involved is, I think, too high. Healthcare would also fit that bill.
For what it's worth, because healthcare has been so bad in terms of its performance that it's actually kind of interesting, like how much worse can it get.
A lot of outflows from healthcare ETFs. You have this administration that scared a lot of folks in the healthcare industry, so that's really negative. And usually, when things are really negative, that's when a turn, a change develops.
Welcome to Trends with Benefits. My guest today, Todd Sohn, managing director at Strategas Securities. What are we going to talk about, Todd? We're going to talk about everything, it seems like. ETFs, markets, and a pretty broad landscape, right?
There's a lot to handle in this world today. Plenty going on.
Yeah. No, I think in your role, and maybe just talk about that briefly. You tend to cover a lot, it seems. You also have a background as a CMT or a technical analyst, right? And can you just talk a little bit about what you do and then...
I've been with Strategas for 12 years now, and my foundation, as you mentioned, is as a technical market analyst. And technical analysts try to find big trends, right? We're on the Trends with Benefits show here, and we try to find the big trends because that's where wealth is generated. And I look at a lot of charts all day. I'm looking at charts around the world of different asset classes: equities, fixed income, commodities, currencies.
And along the way, as I've been here, I've become pretty infatuated with ETFs. I think ETFs are an amazing vehicle, as you guys know at Vaneck, for low-cost, long-term investing, but also as a lens into what's happening around the markets, because there's 4,200 of them today. You can get an ETF with basically almost any exposure you want. And so I try to marry what's happening in the markets along with ETFs, right? What ETFs are working, what ETFs are leading, where's the flows, where are the volumes, what are product launches looking like? Because I think product launches are a really interesting view about how folks are thinking, because everyone wants the new product, the new hot product out there. So that's my kind of role, and we have institutional clients here, and so I get to travel around, talk to them, talk to advisers about what's on their mind, how we can help, and ultimately try to be a resource for them in building their practice long term.
Yeah. So this is going to be fantastic. I think we're going to cover a lot of different areas, and that's exactly what I want to do. I want to talk about some of the trends, particularly in the ETF space. And yeah, as you pointed out, in addition to what you pointed out too, I think ETFs are just a great way of implementing what you're looking at, right? You're doing all this analysis on different indices or markets, and these are these great tools now that can help you actually get exposure to it. There is no shortage of how to play any segment of the market, right? And I think what's interesting is this kind of splicing and dicing that's going on of all the different indices that are out there. For example, like the S&P 500, you can buy the S&P 500 now. You can buy the top seven stocks, top 20 stocks.
I think eventually you're going to be able to get the 200 to 500 size stocks. So there's all this little precision movement going on in ETFs right now, which is super interesting to me.
You can get single stock ETFs.
You can get single stocks with leverage. Why not?
If you're so inclined. Yeah. You mentioned filings. Curious. I mean, what's standing out to you? What are you noticing?
Well, let's see. So, well, single stocks, for example, that's number one. And I think what's interesting about the single stock movement is, okay, so that category is three years old, putting leverage on single stocks. And the 1.0 version was to start with big cap stocks, Microsoft, Nvidia, Tesla, like the big heavyweights that everybody knows. More recently, the underlying size is now going down into the three to five billion market cap area, because that's where the volatility is. That's where you're going to get either massive growth for some of these stocks, or they might go belly up. Who knows?
But so if you just plotted market cap versus inception date, there's this linear move lower in terms of that exposure. So that's one thing. And then the other is crypto, right? The crypto world is exploding.
I guess there's some regulatory influences that have helped there. But so now you're moving beyond vanilla Bitcoin to all the flavors out there and bringing in derivatives and rotational strategies and structured outcome. That's the other big way because it's rare, as you know, to get a new asset class into the ETF, right? Gold 20 years ago, stocks 30 years ago, now we got crypto in the world today.
It's interesting to me how far we've come or how we've evolved over time in the ETF space. You know, after the financial crisis, anything with derivatives, synthetic exposure was kind of shunned. And then I guess after 6c11 and some recent regulatory changes, it became okay to start getting exposure via derivatives, via swaps and other tools like that. And so now you have this plethora of swap-based products, and say in the single stock ETFs and all these derivative option income or option buffer strategies.
That's the massive wave. And I think part of that is if you've been invested for the last 15 years or 30 years, you're probably sitting on a lot of capital gains. Maybe you don't want to sell your exposure. So now you can use some of those derivative strategies to manage risk around there. Or if you're worried about upside for the market, then you do a covered call strategy. So I think those are just these complementary solutions to the core of a portfolio. Maybe some of them are a little too wacky. I can definitely argue that they're definitely complex, and you've got to pay attention to the tax implications, but you're opening these floodgates to strategies that were not available to the common investor however many years ago. So I think that's really neat, but reading the ingredients is super important now. It's the same thing at the grocery store, like you're in the aisle, you're looking at two different snacks. What's in one snack? What's in the other snack? Which one's the healthier one for your portfolio? I think that's the way, right? I think that's the way to think about it. So there's going to be more and more of these option strategies to help manage risk around the core of your portfolio, to help protect on the downside, generate income, whatever the need is out there.
Yeah. And I mean, it's gotten more complicated, I think, in some ways. At first it was like, know what your index is and understand the index rules. And now beyond that, it's okay, derivatives, and how do I understand the risks there if I'm not in that space myself, like swap counterparty limits and things of that sort.
Yeah, the education is super important, and I'm not sure we're there yet. Like you mentioned, the swap counterparty, what happens on some of these either their income funds or levered funds where the underlying gets too volatile and they can't get the swap exposure. Now they've got to go in the options market, right? We've had some cases of this so far, and it's super important. I don't know how many common investors are looking up what the actual holdings are, the mechanics of that fund are.
Yeah. And even if they do, what if they understand it? That too. Yeah. You say swap counterparty, right? I got to imagine a room... I just lost some people here. Yeah. Room of 100 people, how many are saying, 'Oh yeah, I know exactly what that is.' Yeah.
And I know we just mentioned a bunch of things, but is there one in particular that you're getting most questions from advisers on?
Let's see. From my recent travels, they're very interested, not necessarily in any specific funds, but more so who is buying the levered funds out there, and whether it's levered single stocks or levered indices. And from my knowledge, from what I understand, I'd be curious if you have any different view of that. It could be retail, right, the Reddit type of crowd, but I also understand that overseas investors, Asian investors, also are very keen on adding leverage to their portfolios, and they're building out offices there, and they have the lines to connect their overnight hours with our daytime hours.
And if you look at the 13F filings on some of those funds, some of these ETFs, you can see there's different institutions that are based in Asia on there, which I think is really interesting.
So I think that's really just a constant question in a lot of the meetings I do. Who is buying these funds? Not that they're going to buy them, but they just want to know because there's a lot of attention around it, right? The retail crowd, buy the dip, all that stuff. Who's involved there? And I think that's the answer to some extent.
Yeah, I would agree with that. I definitely... Well, we don't offer leverage products ourselves, but in a prior life, I worked at a firm that offered these geared strategies. And at least in the US, we dealt with a lot of RIAs and more active RIAs that had their own models. I guess it's before the proliferation of model ETF users, but they had their own models and they'd use it just to kind of speed up exposure when things change, when their technicals hit. And it was interesting. I'm not necessarily pro or against leverage ETFs. I'm just more pro know what you're doing.
Yeah, I agree with that. Like you can go into a casino when you're 21, no one's stopping you. Just have an idea of what the risk is. Yeah.
So if you have a really high conviction on a stock and you think it's going to move higher or move lower, okay, there's a vehicle to express that. But like a casino, like a car, you've got to understand how it works.
What's been the biggest surprise to you in terms of success?
I think what's really interesting right now is there's a little bit of a revival for thematic funds.
Okay. So thematic 1.0, I guess.
Back to 2020 was very much innovation and disruption driven to some extent. Yes, you had infrastructure funds that have been around for a while. It was often really, really well. That bubble popped for a lot of stocks and ETFs that were out there over the course of 2021 to 2022. Now you're seeing thematic funds rebound, but I think it's more dispersed. So like there's nuclear, right?
Nuclear, uranium, yes, we have AI that's all covered. That's pretty connected.
Yeah, they are connected to an extent, right?
Yeah. The AI derivatives of Nvidia and Microsoft, which is going to be nuclear data centers, power type of generation, right? So I think you're seeing that come back. And so thematic funds, yeah, the flows are starting to come back, the number of products, the assets are coming back, but it's not just tech specific, because I always felt thematic was very tech specific in the original kind of categories of the original fund set of that.
Yeah, so I think that's super interesting that you're actually having a reason to buy more thematic funds, and the S&P is very concentrated. So these thematic funds can kind of act as a counterbalance to a very top-heavy S&P 500 right now.
Yeah, totally. And I mean, it's also super interesting that you're going into some of these other areas, maybe perhaps because of say AI. We noted a big pivot in nuclear stocks, for instance, last year when, you know, I don't know when, just ChatGPT really blew up and everybody understood the power needs for it, and nuclear came back on the screen, if you will. But anyway, I guess it's forcing you to diversify away from that tech exposure, and that's what I think a lot of thematics became, that's just heavy tech.
Oh, totally. It was all tech. And even away from innovation, disruption, non-profitable tech, if you bought a standard AI fund, you were probably getting more of the same stocks that you own in a large cap blend fund.
Like, okay, that's worked out great. But at some point, you need to say, I own a lot of these top names. And so the thematics, whether it's nuclear or any sort of rotational strategies, they can help diversify that too. I think it's super important, especially if you're an adviser and you own the S&P or maybe you own large cap growth along with that. Okay, that's more the same type of exposure. So this is where thematics now can come back in and just dial back the dosage on large cap growth stocks that you own and a different style of growth or themes that are becoming more and more relevant by the day.
Yeah. Do you think thematics are always kind of a growth story?
It's a good question. Are they always a growth story? I guess so. Ultimately, you're buying themes because you think they will develop over time. Maybe the only one that is not necessarily growth, but I don't know if it's value either, is infrastructure.
Right. There's always a need for infrastructure, especially here in the US as bridges and roads get older and whatnot. Maybe that's just more a sustainable theme rather than a growthy theme like nuclear could be.
Yeah. Well, that's kind of where I run into a gray area. It's like, when does it become a theme and when is it just an industry?
These are things I need to think about more. When is it just an industry like semiconductors?
There's clearly a thousand semiconductors around me right now. Right. My phone, my computer, my keyboard, wherever it is.
That's not a theme to me though. I think that's industry.
Right. And those are just going to be forever part of our life.
There are themes driving it. But yeah.
There are themes driving semiconductors, but that feels more industry to me off the top of my head.
Yeah. So you mentioned thematics kind of coming back around. I mean, the themes are always around in some form or fashion. ETFs have really just helped thematics, you know, be more accessible. But what about these, you know, we talked a little bit about it, these defined outcome, derivative income, or option outcome kind of strategies. We get asked about that a lot.
I'm sure. Gosh, how do I feel about those? They're interesting. Okay. I think it's very demographic specific. I don't love them for people under 40 because, yeah, you might be scared of a decline, but you're limiting your gain. Yeah.
If I'm 70 years old, 80 years old, and I am healthy and I still like having stock exposure, but I don't want to run into a freight train of a decline, right, as I'm about to take my foot off the gas and go to Florida or something like that, then okay, they make sense. But it's another example of you really need to understand how they work because you have to buy them day and date, right? Day and date, and then know you're limited to the upside. And okay, which one did you buy? Did you buy 10%? Did you buy 20% protection on what underlying asset? So I think they're really unique, but I don't want people to think that they're this kind of silver bullet for growing wealth. Like, they serve a purpose.
Yeah, I think that's a great point. You have to know what your purpose is, and for the right constituent, you know, like you mentioned retirees, I think... Okay.
Yeah. I think it's very demographic because my other concern is that there are so many of them now. I like calling them the minions. You ever see those, the movie, the Despicable Me movies, the little yellow guys?
There's 400 tickers, I think.
And they're very hard to remember.
I can remember all sorts of tickers, any lineup out there from any issuer, except for these buffer funds because one's for January, one's for February, one has 10%, one has 30%. I struggle to remember them. I get what they're doing, but knowing which one to buy is just incredibly difficult. So if you're an issuer, and some of the issuers have great resources on their websites to say, 'All right, if I bought it today, what's my upside? What's my downside?' But I'm not sure what the ceiling will be for these things. That's what I'm trying to figure out because there's like, what, 60, 70 billion in assets right now, I think. Where's the ceiling on that? And do you hit a point of saturation and maybe closures?
I don't think there's been very many closures in that spectrum yet.
I think it's just been crazy demand for them. I think from that retirement set, I think where it could make some sense, but it's a debate we have internally too, you know, because we get asked about this for various reasons.
Yeah. I think the crypto ones are interesting to me. I just struggle to say I'd want to cap my Bitcoin exposure because ultimately I'm going for the 500%, not the 50% in Bitcoin. But if I'm an early Bitcoin investor and I'm sitting on 15 years of gains, okay, then that makes sense to me to maybe protect my nest egg there. Yeah, but that part, the Bitcoin growth part of it, is tricky.
And in one of your research pieces, I think that you put out there, or recent video, I don't know if you said it or maybe I just took away from it, that you thought perhaps some of these outcome, these option strategies are perhaps crowding out thematics in terms of flows.
Do you think that's the case?
It definitely felt like that, that maybe they were. If I, instead of buying thematics, and now this is before I feel like you had a little bit of a turn up now more recently in thematic funds, a little revival going on, but if you were looking to allocate 10%, let's say you had 100 extra bucks in a portfolio and you're just like, I'm not buying tech right now, I don't want to buy thematics, let me just buy these buffered or synthetic income, covered call strategies instead because I'll get the income out of stocks. And I think this is probably around like 2022 also. You think about 2022, 2023, everything's in decline, no one really wanted thematic risk, so they were just buying stuff that would protect. And so I wonder if that also halted thematic growth for a bit because there was this new kid on the block, buffered funds, other derivative strategies to get income, and they took the attention away. So that's the other struggle with ETFs because the core is always going to take in plain vanilla, low cost, that takes in the bulk of assets, bulk of flows. So now you have this scrum for the remaining 10 to 25% of a portfolio, and depending on the demographic, who's getting that. So I do think that was a hurdle for thematic funds. Now I think they're getting through that.
Yeah. Yeah. I guess depending on the demographic and even I guess just the environment, more volatile environment, I can see regular people going into that for a period of time.
Yeah. Yeah. So that's the other challenge. Okay, if you go into a decline in the market, you're probably selling thematic exposure and going into a buffered strategy or some other risk-managed strategy because I don't think you're going to sell your S&P 500. Maybe you take off a little bit and put it into other stuff, but I'm going to guess thematics would probably be the first one to go in a portfolio if I'm in some sort of rough environment, recessionary environment too. Think about it that way.
Right. Yeah, I could see that. Speaking of which, then, and just kind of broadly, you look at broad asset classes and different markets from a US market perspective as we sit in the summer of 2025. What do the charts tell you?
We're in good shape. We're in good shape. So at the start of the year, we come off back-to-back 25% returns on the S&P. Great, great two-year stretch. And our framework, if we had to set up, say, three legs, it's trend, trend of the market, right, which was up back in January, momentum, decent momentum, just how fast in that direction of trend are you going, and then sentiment, because ultimately when you get all market investors acting the same, everyone talking about the same stocks, human nature comes into play and it usually reverses course. It just can take some time, but that's what happens. Our sentiment work, whether it was via flows and surveys and the options market, was super aggressive, very, very aggressive. There was no doubt about it. You progress through the year, the tariff thing comes into play. That was kind of the match to get that super aggressive sentiment to wipe out.
So now fast forward to today, and we're back to new highs, but the sentiment data is completely indifferent. Now, I think there's a lot of restraint and skepticism that what happened in April, that that was it, right? I think a lot of folks are very skeptical of that. The survey data we look at, and even in client meetings, are just more noise than anything. And I've looked at flows since the low in April, and you have outflows from small caps and cyclical sectors, but then you have inflows into bond funds. On average, equity ETFs are doing about $1.5 billion a day since the April low versus they were doing about $3 billion per day at the start of the year. So that's been cut in half too. And there's nuance to that, right? It can depend on what folks are doing with taxes and rebalancing and whatnot, but I think we're in a much better position for stocks now than six months ago. Super important.
Is that weakness in sentiment a positive factor or is that kind of contrarian?
