Welcome to Bloomberg ETF IQ. The biggest stories right now in the ETF industry. U.S. stocks are sitting at record highs even as we await a proposal to reopen the Strait of Hormuz. We'll discuss with Brittany Christensen as a new type of certain ETFs frustrates smaller insurers. Plus, an exclusive interview with Fed President Mary Daly.
As always, he gets us started by looking at what we have. Very bullish out there. March showers bring April flowers. That's my new rhyme here because in March, which is historically bad under Trump residency, you have COVID, tariffs, and then Iran. Not really, as most of these things are, the flows came roaring back in. But here you have the three amigos. This is for retail, and this is models. All of the types of players are buying into the market. I think they feel like the wrong thing is largely behind them and we are into this great April. With look at the outflows here, a little bit of a risk being taken off in tech. Obviously all over the place, but they've look at the people. I just wanted to point this out, the hard the best month ever for equity ETFs. Obviously if you move directly, lows get bigger and bigger in the industry. But April, if the second-biggest month. At this month year is December. Not quite sentiment-based, so you can argue it was arguably the best month ever for equity ETFs and the all-time highs we are seeing like that.
Fantastic setup for conversation right here. Former director of the New York Stock Exchange oversaw the listing platform. A lot to get to here. Thanks for joining us here today. I want to start with this idea that you really helped launch the ETF. You kind of see them from their inception, help them figure out the concept and get things going for them. What we are seeing right now is that active ETF counts exceed passive ETFs for the first time ever. Talk about that turning point and what that says about where we are in the ETF industry.
It's no secret that there has been a move in the number of funds coming to market in the last couple of years. I think over 2,000 ETFs, non-traditional findings about clothes, and there's a lot of flows in the traditional past, but there's a huge opportunity in what we call non-traditional space. Issuers now see the opportunity. I'm an investment manager and I don't necessarily have an army of sailors, but I have a great idea, a great strategy. It's an opportunity for those crypto-native firms, hedge funds just to kind of dip their toes in. They have great strategy but they don't know how to trade the ETF, how to manage the ETF. That is why there is so much demand on my side, of what we call the white label. We can help you take this great idea and package it into an ETF. Now you use our economies of scale, our expertise and everything that we already have set up, especially given the history of the commodity and space. So we are seeing a lot of issuers or asset managers who are playing in the non-traditional space. You saw that, 85% active. Active means a lot of different things. Is it really that exciting to list the plain vanilla index fund? Probably not so much but with the rise of the retail investors we've seen a lot of opportunity there.
Are you the one fielding the incoming calls getting pitched as new ETF ideas?
We get a lot of outreach. Some things maybe shouldn't be an ETF. I'm not in the business of saying that, but not everything should be packaged as an ETF.
For anybody sitting out there who is like 'I got a good idea for an ETF,' what do you instantly throw out? How much of a platform do you need or asset line ahead of time? How important is the idea? As if you're talking to somebody out there who is considering this.
You have to have something that you are solving for. And also hopefully a way in which you know how to talk about it and sell it and pitch it. Investors are way more comfortable with complex strategies. We used to say if it is too complex, no one is going to buy it. Obviously that's not really true but it is a fine line. Are you solving a problem, is there a demand, and do you have a target audience?
I think that they relate your point about complexity. Why do you think it is that complexity is winning out over simplicity?
I don't know if it's winning out in terms of assets. People are seeing opportunity. The large established managers, they are going to gobble up all those assets in the plain-vanilla but there is so much opportunity in that tail and it seems to me like retail investors especially and people are more comfortable in the ETF wrapper. The ETF wrapper has become something people are really comfortable with. Now they are even comfortable with something that three years ago they would never imagine in an ETF.
I could take a stab at that. The buffers to me are very complex, but the outcome cures anxiety. Some of these are like pharmaceuticals in my opinion they are actually solving psychological issues. They are curing anxiety and for young people they are giving you an adrenaline rush in crypto. Is that what you're looking for? Does this do something psychologically to the client because I agree, the ETF is now so trusted that they will not even open that much. They will be like OK, I like the outcome, I don't need to know exactly how it works.
I agree with that too to an extent. You could either solve the anxiety issue, which I like how you put that, or maybe you are adding building blocks to your portfolio which historically used to go to an advisor for that but now we've seen -- I think I saw 8 million people are going to be buying their first ETF in 2026. Don't quote me on that, but something like that. Now there is an opportunity for maybe a more traditional ETF as well if you have the right brain and you've hit the right stride. I was shocked in terms of some of the fanatics that are in vogue now which if you'd asked me two years ago I would say why would you list a fanatic ETF? But listen, they are doing well.
I've got to ask you a question. Katie Greifeld noticed there's a lot of folks who work at the New York Stock Exchange or other traditional who have left and gone deeper into the ETF industry. Is there kind of a brain drain going on?
I think the industry has grown so rapidly and there are so many people looking for talent. So when you sit at the stock exchange, you really get to speak to everyone and you see so many things. In many different variations, you see the whole ecosystem. And I think people see that as something that is really beneficial that maybe they can bring to their firms. I think the exchanges over the last 10 years have had tremendous success. They worked really hard on cryptocurrency and the generic listing standards and the ones from the fall for the crypto, but things are starting to move. It has become a little bit easier to list ETFs from an exchange perspective, but I think it's just people are looking for talent and that is a really easy way to find it.
That says a lot. Thank you so much for joining us today. Coming up, we are going to discuss Nasdaq International ETF. It is a good one. But first, this week we spoke with prominent ETF voices in the CEOs of Janus Henderson and State Street. Here's a sampling of what we did here.
Outside the U.S. there is still a liquidity need that people have. In Europe, and Asia, in the Middle East, and Latin America, people are really starting for an easy to trade platform. People that know that we are the third-largest provider in the world. What you have to look at of the last decade is what has happened to ETFs. ETFs have exploded. It's the vehicle of choice.
This is Bloomberg ETF IQ. It's time for today's drill down where we focus on one singular ETF.
Today we have PATN. It's the Pacer Nasdaq International Leaders ETF. Essentially it is the Nasdaq 100 for ex-U.S. stocks. It looks through the ex-U.S. universe, not just number of patents, but patent value, research, so it's trying to get you really get R&D tech companies that are on the innovation front. 65 basis points, it's got 84 million. Came out about a year and a half ago. With look at the cross-section of what it holds. You can see, but about where we are going. It's a lot of Asia in here. A lot of Japan, Korea, Taiwan. A little more heavy Asia than Europe. And let's look at the performance here. Based on the -- compared to the Q's at once. QQQ here. Honestly, PATN is crushing them. Obviously international had a good run, that helps, but it clearly is beating international. Something is going on that is very good for now and this should help get some looks.
Thanks so much. Joining us now to talk about PATN is Sean O'Hara, President of Pacer ETFs. This is really Nasdaq but without too much of the United States because the U.S. only makes up less than 10% of this fund. It feels like it is very Asia-heavy.
We have a great relationship with all the index providers. We work with the S&P, Nasdaq and so forth, but we don't work with them in the traditional sense. We try to customize a lot of things. They will come to us from time to time with ideas. I said why isn't there a Nasdaq 100 for international? They said nobody ever asks that, and I said why don't we build one? And then they came back to us and said look, what makes the Nasdaq the Nasdaq is innovation. They work with this company called IPR that measures the patent value, the relevant patent value. As innovation comes from. We built this ETF together with Nasdaq where we reviewed their screen to identify 100 companies out of the Nasdaq Global International Index that have the highest patent value. International investing has been hot. I would say that for most people, you need to be aware that if 50% a lot of currency and a little bit of multiple expansion to be honest with you. The challenge with investing in international is that you have to buy the stocks, and there is something somebody said to me once that there is two vibrant economies, in the East and West, and there is this giant museum in the middle and that is Europe. If you invest in an index you have heavyweights to slow-growing sectors, you have massive overweight to financials and this solves that problem. We are investing in companies that are innovative, so you are going to see a shifting of the sectors. No financial exposure, lots of tech, lots of pharma, lots of consumer brands. For me, as somebody who has been watching this battle go on forever, how much do we have in international investing? Every time we do it we say, gosh, I wish I didn't do that. This is a completely different approach that is focused on identifying companies that have that characteristic that Nasdaq says is so important, which is innovation.
This has been a whole thing. Is there innovation overseas? It reminds me of that phrase I heard at a conference. America innovates, China imitates, and Europe regulates. That is part of why it has been tough to capture innovation in Europe especially. You can see Japan, South Korea, Taiwan, Asia is heavy here. Would you say to somebody who has seen this before, where international has a good year and the U.S. takes back over? Why bother?
Because it is different. I am not weighting the ETF by these countries I'm trying to target companies we believe over time will have better growth in the broad index. Some of them might be in Europe and there are names in Europe, but the names we are going to own internationally are names that are going to rely on that patent value. So, the U.S. is being driven by the AI, tech boom here, and has been forever. We look at the names here, there is many of them participating in that trade. You have some memory names in here on the software side. You have Toyota, which is a carmaker out of Japan. What is different about this -- I'm not going to say it is different this time because those are bad words to say, but it is different is its approach. It is not just saying I'm going to invest internationally because I was told I need to do that, I'm going to invest internationally here with an intention to be more -- to identify companies outside the U.S. that are more like the innovative companies inside the U.S.
How do you manage the currency risk?
We don't hedge the currency at all. As part of the diversification thing. If you are a U.S. investor you should have diversification for your currency and the easiest way to do that is to get international stocks. Sometimes it works in your favor. Sometimes it works the other way and it becomes a headwind, but by and large what we think we own here are stocks that in general over time we think will grow faster than a pure international index that has a 24% weight to financials and all of these heavy industry sectors.
I do notice some European companies in here. Nestle, as well as Siemens.
They are few and far between. If not for Asia this probably wouldn't work, but I wanted to pivot real quick. Pacer. You guys are almost like the cow company now. I'm looking at your top ETFs. These are cash flow ETFs. You basically made these on one metric, huge hits. What is the case for them now? That kind of cooled off. What would you say to somebody who is like, are they going to work going forward?
The last couple of years momentum and low-quality have worked. The 30% of the stocks in those small-cap indexes that have the lowest free cash flow yield, which means they don't make any money, are up tremendously. That is an anomaly. These cycles happen from time to time. We have lots of data on this. That shift is starting to change. What is causing that shift is this fear we all have that the hyperscalers going to spend all of this money and not perform as well, so there has been a shift to quality. CAF is coming back to over 30% the last 12 months. If we are going to have a rotation to quality again and we are not going to rely on momentum and low-quality then I think there is a case to be made for all of those things that have been our major brand over the years.
Pacer is based on a horse, right?
Are you going to change it to a cow?
No, but my partners in the horse business.
You might as well run with it. No pun intended.
We like the key -- the free cash flow so we have flirted with lots of different versions. Cash flow for growth is free cash flow margin. If we are going to have a shift back to reality then having something like cows, and you can see the green shoots of that shift changing in terms of performance, it is probably a good time to start moving in that direction.
I love the linkage with hyperscalers to build out those AI infrastructure data centers. Thank you so much for joining us. Sean O'Hara of Pacer ETFs. You can read about this drill down when you subscribe to Katie's weekly ETF IQ newsletter. It is available at Bloomberg.com. Still ahead, the television show. We look at the risks of one precious metals ETF through the traffic light system next. This is ETF IQ.
I'm Norah Mulinda. Let's take a look at your midday movers. Hitting session lows as traders look for updates on a potential peace deal. U.S. is waiting on Iran to respond to its proposal to end a nearly 10-week war, with tensions still elevated across the region. Meanwhile, oil is pulling back with Brent and WTI slipping below $100 a barrel. As traders price in the possibility of an end to the conflict. In corporate moves, Citigroup's reversing losses as investors sort through long-term targets. The rebound may reflect buying and some expectations were already tempered. Bloomberg Intelligence noting some conservatism baked into Citi's capital outlook. Some analysts call it underwhelming. Finally, Datadog is soaring, on pace for its biggest event since 2019 after the company's first-quarter results beat expectations and raised its full-year forecast. Those are your midday movers. I'm Norah Mulinda.
It is time now for our metals spotlight and today we focus on an ETF through our intelligence traffic light system. Eric, who designed the system is here with us. What do we have?
We are looking at GLTR. This holds the four big precious metals physically. Gold is 57%. Platinum and palladium are 3% each. The reason why people like these metals is that there is no roll costs. These you can store physically. It doesn't get any dings for that.
So it should be a green light?
No, here is why. When you hold a precious metal like gold or silver you get taxed as if you own a commemorative plate, like it is a collectible. It is a weird taxation. It is not that big of a deal, but you need to tag that. You will see the price of this sometimes veer away from the NAV, but it is not totally a bad thing here. The ETF uses the gold prices in London at noon. The NAV is at noon, and that means the price can trade more if gold or silver is coming up. I would not hold it against the ETF, but those are two things to look out for. The reason I focus on this ETF is, this is $3 billion, but it is only 1% of all commodities. This is why I don't think crypto basket ETFs are going to be big. People are going to buy Bitcoin like they buy gold, and then maybe some people will basket the rest. This is a good example of why packaging it all in one shot may not work when you get to things with cash flows.
This has four holdings and the two biggest holdings, gold and silver, make up the lion's share, more than 90%. You don't really need palladium and platinum.
Silver is niche and the other ones are really niche. But traders like that stuff. What the traders want is unbundled, because you lose volatility by packaging it. The same thing will play out with crypto. The baskets will underwhelm.
They are coming out with every Bitcoin ETF under the sun.
Not to mention crypto-picking ETFs from T. Rowe Price in a couple of weeks. I don't know if the baskets will be as popular as people think.
Thank you for that. You can check out the traffic light system on your terminal. Coming up, our exclusive interview with San Francisco Fed President Mary Daly. Coming up next with Michael McKee. This is ETF IQ on Bloomberg.
Many ETF investors watching the Fed during a transitional period. Let's go live to our San Francisco bureau where our very own Michael McKee is standing by with an exclusive interview with the San Francisco Fed President, Mary Daly.
Good morning from San Francisco and thank you to our viewers and listeners around the world and thank you to Mary Daly for joining us. I have to start out by saying after we had the Fed decision, Bloomberg had on a Wall Street analyst who said the important thing is to find out what Mary Daly thinks because she was on the dovish side and yet she is not an extreme dove. I want to get your feelings on it. The story was the dissenters on the bias for the forward guidance. Would you agree with their position?
I do not see a lot of confusion in the public. I talk to businesses and consumers, I do not see a lot of confusion. They know the Fed is committed to price stability. The labor market has stabilized from the adjustments we made last year. It is about the right policy decision was what everyone agreed to, hold the rates steady, collect information. You see in market pricing today, equal probabilities of a cut versus a hike and the most likely probability is we hold steady. That is well-positioned. For me the real signal about the meeting is everyone agreed to the decision and the communication that the Chair made at his press conference is higher for longer relative to last year and the household, businesses and markets already priced that in.
Susan Collins told us yesterday that the phrase about additional moves is associated in people's minds with a cut because it has been followed so many times. Do you still feel that is the path for monetary policy?
It is sometimes sad for Fed officials to realize this but there are people who look at our statement. Most people look at how we position ourselves. Most people are not worrying about that phrase. The phrasing of the statement is less important than the actions of the FOMC and the actions of the FOMC have been to focus on price stability when we think inflation is rising and focus on being patient enough to see if the concerns we have will even materialize. It comes back to, how long does the conflict last? If it is prolonged we might see more spillovers of oil and commodity prices into other goods. If it ends soon, oil could come back to around $75. That is where our businesses are telling us, we are looking through the shock right now because we do not think it will last forever. It will not be forever that we can look through. Consumers are doing the same.
