FidelityConnects: ETF opportunities for the third quarter

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<b>Subtitles are AI Generated</b>

 

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Hello and welcome to Fidelity

 

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Connects. I'm Pamela Ritchie.

 

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ETF flows are on track for

 

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another record year and

 

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the numbers are getting hard to

 

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ignore and they are eye-watering.

 

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With more than $100 billion already

 

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flowing into Canadian ETFs

 

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this year, investors are making

 

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increasingly active choices about

 

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where and how they want exposure.

 

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Our next guest says the biggest

 

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shift may be that passive

 

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investing isn't actually as

 

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passive as it used to be.

 

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As investors weigh whether the next

 

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generation of trillion-dollar IPOs

 

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belong in their portfolios.

 

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Are ETF flows signaling confidence

 

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or complacency?

 

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And as market leadership broadens,

 

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where are investors finding value?

 

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Joining us here today for our

 

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monthly look at the top ETF trends

 

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and strategies shaping the start of

 

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the third quarter is ETF strategist,

 

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Prince Vince Kalchivic.

 

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How are you? Nice to see you again.

 

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It's a pleasure, thanks for having

 

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me.

 

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Glad to have you here in these

 

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summer months.

 

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Let's invite everyone to send their

 

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questions in for you.

 

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First of all, doesn't everyone want

 

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exposure to these great big IPOs?

 

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That's a great question, and the

 

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answer is yes and no.

 

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Yes and no, OK.

 

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Is it partly that people don't

 

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know they have exposure?

 

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Sometimes they don't know and

 

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sometimes they wanted to have

 

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exposure and if you're having if you

 

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hold an S&P 500 type product you

 

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find out that you're not gonna hold

 

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it but if you own an other index

 

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provider you will be owning it and

 

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again there's no wrong answer

 

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on wanting to hold or not it's just

 

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again that question like what is

 

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the exposure that you wanted

 

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So let's talk a little bit about

 

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this. We'll talk about how we're

 

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seeing the flows coming in.

 

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I'll get to that in just a minute.

 

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But I do think it's, you

 

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told us many times that one of

 

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the big questions that you still get

 

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is passive.

 

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You know, what is, I have to explain

 

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what active is.

 

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Why can't I just have passive?

 

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It seems good to me, it's worked for

 

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20 years.

 

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What's the difference or the nuance

 

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in that discussion now?

 

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Well, I think the nuance is,

 

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okay, so back in the day,

 

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or still, unicorns are like private

 

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companies that went public, they

 

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were called unicorns if they were a

 

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billion dollars.

 

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And those weren't really material in

 

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any which way. They seemed quaint.

 

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They seemed quite. Yeah.

 

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But when you're throwing trillion

 

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here and a trillion there and a

 

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hundred billion here.

 

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And to be included in the S&P 500,

 

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there's kind of this cutoff of let's

 

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call it 30 billion dollars, right?

 

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So even if you IPO at 30, you'd

 

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probably have a 0.01 weight.

 

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In the S&P 500.

 

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So not really that material

 

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in the overall portfolio.

 

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And if you do a strat sample, which

 

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I'm going to nerd out, you don't

 

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have to hold all 500 companies.

 

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You can grab maybe 200 and it kind

 

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of represents the movement with

 

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maybe a tracking error.

 

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So you don t even need to own it.

 

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But if you have this IPO and

 

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it becomes the fifth largest in

 

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the fifth largest market

 

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cap in company in the United States.

 

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That's a material

 

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effect in your portfolio.

 

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Like that is an active decision not

 

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to hold a 3-4%

 

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weight in a portfolio.

 

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And it's just been popped in there

 

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in a lot of cases.

 

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Well, and again,

 

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there's talk about accelerating.

 

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So yeah, theoretically, I think it

 

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was yesterday, or not theoretically,

 

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yesterday it was included into the

 

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NASDAQ, so it is

 

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now part of that index,

 

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and which is fine, because that's a

 

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tech-weighted index, and is it

 

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representative of what it's trying

 

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to accomplish? Absolutely.

 

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But then...

 

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Every indice has these rules.

 

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I sometimes say arbitrary

 

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rules, but if you think of it, it's

 

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the NASDAQ 100 and the S&P 500.

 

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Well, why is it 500?

 

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Why is it 100?

 

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So there's all these rules, and the

 

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SP 500 has this

 

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quality tilt to it, right?

 

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Because that's why it's so hard to

 

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be. It is technically a quality ETF.

 

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They want you to have some earnings.

 

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They want 12 months of earnings,

 

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right?

 

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So even though it hits the size

 

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metric, it hits other metrics, so on

 

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and so forth, it's just not

 

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generating any earnings.

 

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And if you think of the other IPOs

 

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that are coming through, or any

 

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AI-related or pure AI plate,

 

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9 out of 10 times it's probably not

 

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generating any earnings, so this

 

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is the first one.

 

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If two or more are coming,

 

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they're, again, projected to be

 

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a trillion dollars, because that's

 

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the new, it's that's new.

 

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That's the New Billion. Yeah, the

 

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New billion.

 

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You're gonna have like three

 

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companies that are material

 

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in the client's portfolio.

 

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And the questions that I'm getting

 

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as I travel the country, or

 

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questions that are asking is, do you

 

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want it or don't you want?

 

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Do you want access and that much

 

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access to companies that are

 

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not currently earning?

 

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Currently earning, and it's

 

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artificial intelligence, like I

 

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can't get away from artificial

 

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intelligence. Sure, well it's

everything.

 

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It's just taking over the

 

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whole market narrative.

 

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Like the single market narrative

 

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almost around

 

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the globe is artificial intelligence

 

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and you know the

 

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Magnificence I make up one third and

 

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you know top 10 companies make up 40

 

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and there's numbers that say

 

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artificial intelligence in AI

 

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related companies make up 50%

 

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of the S&P 500 even before these

 

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IPOs. So Here

 

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you are, you buy 500 names,

 

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they represent 11 gig sectors,

 

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so 11 industries, and you think

 

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you're diversified, but it's tied

 

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to one narrative, it's just that

 

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one theme.

 

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And SpaceX is very interesting.

 

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So it's very, so I want to, let's

 

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keep going with that, but what

 

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you're describing is essentially

 

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a passive investor owning an

 

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index.

 

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And that's again, worked well

 

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by and large for a really long time.

 

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However, they now have different

 

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types of companies coming out.

 

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The S&P not yet because.

 

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The 500.

 

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Because the 500. In another version

 

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of an SAP.

 

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Right. Okay.

 

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So what do you want investors to

 

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know right now about active

 

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versus that?

 

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There's more to say on that front,

 

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but what do get with active that you

 

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don't get there?

 

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Well firstly, let's just take a step

 

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back and the indices are

 

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making an active decision, right?

 

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So they have a methodology

 

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themselves.

 

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So one, the index is making

 

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an act of decision to include or

 

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exclude or in whatever processes

 

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they want to go through and now the

 

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advisor needs to make an active

 

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decision.

 

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Do I want to buy the product that

 

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will have these AI related names

 

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or not have these ai related

 

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names?

 

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Or how it just lasts.

 

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Or have less.

 

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So you're having these, which

 

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is an interesting question, I'll

 

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follow through on this one.

 

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So now you have two decisions

 

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on this and then the question is,

 

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what are you trying to accomplish?

 

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So an indices, just

 

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by its nature, is a momentum-based

 

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strategy. You do well, it's

 

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a trend following, right?

 

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So if the stock goes up, it

 

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increases market share.

 

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So if you do like this

 

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AI narrative and you do want

 

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exposure to it, but you don't want,

 

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I'm going to say arbitrary rules,

 

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but these, they're not based off of

 

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fundamentals.

 

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They're just, here are these

 

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companies that are going up and

 

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momentum also works in reverse.

 

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So if something goes the other way

 

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and there's a mean reversion or

 

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rotation that we're kind of seeing

 

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already from the large

 

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cap to mid cap and smaller cap

 

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names, you're gonna follow that

 

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down. So if you want to,

 

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if the advisor wants to make the act

 

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of the district that they like

 

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artificial intelligence, why

 

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wouldn't you want an active manager

 

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that is based out of San

 

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Francisco potentially?

 

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That has his pulse, you know, we

 

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might have someone there. Do you know

 

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someone by? I might know someone.

 

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Oh really?

 

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MS? Yeah, yeah, yeah.

 

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Oh, okay. And he's really good at

 

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what he does.

 

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And he's really good at what he

 

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does. Marshmell!

 

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Yes. Okay, yeah.

 

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Carry on.

 

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So yeah, if that is something you

 

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want, you want somebody, if you

 

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like the theme that's happening,

 

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because the S&P 500 almost looks

 

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like a thematic ETF at this point.

 

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It does, doesn't it?

 

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So 50% is tied towards artificial

 

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intelligence. So if that's

 

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something that you want that

 

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momentum, that strategy, you want

 

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exposure to it, why don't you have

 

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something that's a bit more, has

 

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the thumb on the pulse, if something

 

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goes wrong, they can rotate, they

 

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can go from, and we've seen it, we

 

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went from hyperscalers, now we're

 

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semiconductors, memory.

 

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And, you know, the

 

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AI story is slowly

 

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evolving, right?

 

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Money's staying in, though.

 

07:54.173 --> 07:55.274

Money's staying in, but rotation,

 

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it's just rotating.

 

07:56.876 --> 07:58.010

So if you think of the Magnificent

 

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7, when I got on,

 

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I said last year,

 

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only two have outperformed the S&P

 

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500 last year.

 

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And if you look at these

 

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seven companies that, they're called

 

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hyperscalers now, I forget what

 

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they're call, Lag 7 now, I think.

 

08:12.792 --> 08:14.727

Oh, you're

 

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in a day.

 

08:14.894 --> 08:15.895

It's been tough, you know, they've

 

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just stayed at their heights.

 

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They haven't actually fallen, but

 

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they're called wags.

 

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They've just been, they've just

 

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lagged. So they're flat from October

 

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of last year to this, they really

 

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haven't went anywhere.

 

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And people have asked like, do you

 

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think their growth companies and

 

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their earnings are growing, but

 

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their stocks really aren't growing.

 

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But you're seeing people rotate from

 

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there into

 

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Semiconductor's memories.

 

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So if you want somebody accurately

 

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trying to

 

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navigate through this AI

 

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narrative with an excellent track

 

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record, that's absolutely something

 

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you can do.

 

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Probably what you want to do.

 

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And if you aren't getting nervous,

 

08:47.727 --> 08:49.562

the opposite is if you don't want it

 

08:49.562 --> 08:50.530

and you're happy that it's not

 

08:50.530 --> 08:52.532

included and the conversations I'm

 

08:52.532 --> 08:54.000

having are the valuationists or

 

08:54.000 --> 08:55.334

they're spending so much money, they

 

08:55.334 --> 08:57.069

do want an insurance policy of

 

08:57.069 --> 08:59.005

sorts. So that's like where a

 

08:59.005 --> 09:00.573

factor can nicely complement like

 

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value and momentum and things along

 

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those lines.

 

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So again, flows is

 

09:04.477 --> 09:05.845

just a fantastic story, and we're

 

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going to get there. But I just,

 

09:07.179 --> 09:08.614

while we're on this particular

 

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topic,

 

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ETFs that are offered within the

 

09:11.851 --> 09:13.920

suite of the all-in-ones are

 

09:13.920 --> 09:15.888

sort of incredible at plowing

 

09:15.888 --> 09:17.723

through all kinds of

 

09:17.723 --> 09:19.292

moments within the markets like

 

09:19.292 --> 09:20.760

this, getting some exposure.

 

09:20.760 --> 09:22.562

So if someone said to you, great,

 

09:22.562 --> 09:23.863

it'd be nice to have some balance,

 

09:23.863 --> 09:25.865

like to have an ETF, maybe an all-

 

09:25.865 --> 09:28.134

in-one that does provide some

 

09:28.134 --> 09:29.735

balance. But I don't want to have so

 

09:29.735 --> 09:31.037

much balance that I've got no

 

09:31.037 --> 09:32.505

exposure to this.

 

09:32.505 --> 09:33.673

What would you say the O.L.M.

 

09:33.673 --> 09:35.808

Ones give to you in that situation?

 

09:35.808 --> 09:37.310

I know some are equity, some are

 

09:37.310 --> 09:39.312

bonds, but as a broad statement.

 

09:39.312 --> 09:41.013

As a broad, in terms of the

 

09:41.013 --> 09:42.815

all-in-one, it's

 

09:42.815 --> 09:44.350

taking a step back and bringing it

 

09:44.383 --> 09:45.818

back to what an index does.

 

09:45.818 --> 09:48.220

So an indices just gets

 

09:48.220 --> 09:49.956

500 names based off of these rules

 

09:49.956 --> 09:51.390

and they market cap with it.

 

09:51.424 --> 09:52.992

Whereas our all- in-ones and our

 

09:52.992 --> 09:54.894

factor-based approach specifically,

 

09:54.894 --> 09:57.697

we have used time-tested

 

09:57.697 --> 09:59.865

processes or methodology for

 

09:59.865 --> 10:01.801

trying to select stocks that

 

10:01.801 --> 10:03.002

potentially can generate out

 

10:03.002 --> 10:03.936

performance going forward.

 

10:03.936 --> 10:05.871

So, in each

 

10:05.871 --> 10:07.773

one of these dials...

 

10:07.773 --> 10:09.008

Generates outperformance at a

 

10:09.008 --> 10:10.676

different time, right?

 

10:10.676 --> 10:13.079

So value early,

 

10:13.079 --> 10:15.314

momentum mid, quality late,

 

10:15.314 --> 10:16.716

and finally low volatility at the

 

10:16.716 --> 10:17.817

end of the business cycle.

 

10:17.817 --> 10:19.585

And we go through business cycles

 

10:19.585 --> 10:21.954

very quickly. Now it feels like

 

10:21.954 --> 10:24.223

we're late, mid, late.

 

10:24.223 --> 10:26.192

And by just pairing them and

 

10:26.192 --> 10:28.361

reconstructing, what effectively

 

10:28.361 --> 10:29.695

the U.S.

 

10:29.695 --> 10:31.497

Sleeve does by pairing those, it

 

10:31.497 --> 10:32.965

reconstructs an index using

 

10:32.965 --> 10:34.400

fundamentals.

 

10:34.400 --> 10:35.501

If you could.

 

10:35.501 --> 10:37.470

Buy a stock that trades at

 

10:37.470 --> 10:38.204

a low P. It's refreshing.

 

10:38.204 --> 10:39.038

It's refreshing, eh?

 

10:39.038 --> 10:41.440

Fundamentally.

Fundamentals using fundamentals

 

10:41.440 --> 10:43.743

to kind of pick stocks in

 

10:43.743 --> 10:44.844

the long run typically generates

 

10:44.844 --> 10:46.712

self-performance, right?

 

10:46.712 --> 10:48.681

So, the amount of money

 

10:48.681 --> 10:50.483

flowing into the industry that you

 

10:50.483 --> 10:52.518

are spearheading here at

 

10:52.518 --> 10:54.387

Fidelity is astonishing.

 

10:54.387 --> 10:55.921

And every time you come in, we're

 

10:55.921 --> 10:57.189

like, wow, you broke through it.

 

10:57.189 --> 10:58.190

It's almost boring.

 

10:59.525 --> 11:00.960

Tell me something we don't know.

 

11:00.960 --> 11:02.294

No, but actually, where are we

 

11:02.294 --> 11:03.996

today? Like, what is coming in the

 

11:03.996 --> 11:06.298

door?

The door. I'm honestly tired of

saying record break. Yeah, I've got

 

11:06.298 --> 11:07.466

to stop.

 

11:07.466 --> 11:08.501

Ah, sister.

 

11:08.501 --> 11:09.902

It's just record breaking.

 

11:09.902 --> 11:11.904

So every time I come on it,

 

11:11.904 --> 11:12.805

it feels like I'm saying record

 

11:12.805 --> 11:15.107

breaking. So I think it was Q3.

 

11:15.107 --> 11:16.342

So it was October of last year where

 

11:16.342 --> 11:17.810

we were at $75 billion.

 

11:17.810 --> 11:18.377

And I said we just went in the middle

of the month.

 

11:18.377 --> 11:19.478

Which is when the MEG-7 stopped

 

11:19.478 --> 11:19.845

growing.

 

11:19.845 --> 11:21.514

Yeah, and we were like the mags

 

11:21.514 --> 11:23.683

haven't stopped growing and we

 

11:23.683 --> 11:25.751

brought in close to $75 billion

 

11:25.751 --> 11:27.853

October of last year, so 2025,

 

11:27.853 --> 11:29.522

and I said hopefully fingers crossed

 

11:29.522 --> 11:31.490

we will break the record because

 

11:31.490 --> 11:33.526

2024 we brought $74

 

11:33.526 --> 11:35.528

billion for the entire year and

 

11:35.528 --> 11:36.829

then $50 billion just came into the

 

11:36.829 --> 11:38.931

door. So last year we brought in 125

 

11:38.931 --> 11:39.231

billion.

 

11:39.231 --> 11:39.932

At the end of the year.

 

11:39.932 --> 11:41.667

At the end of the year, 125.

 

11:41.667 --> 11:44.070

Year to date, we're at 104.

 

11:44.070 --> 11:44.870

So halfway through the year. It's

 

11:44.870 --> 11:45.871

only July.

 

11:46.439 --> 11:47.640

So this is the end-of-June numbers?

 

11:47.640 --> 11:49.542

End of June. So only half, the first

 

11:49.542 --> 11:51.744

half of the year, we've almost done

 

11:51.744 --> 11:53.412

everything we've done in the prior

 

11:53.412 --> 11:55.147

year. So just record amounts of

 

11:55.147 --> 11:55.347

flows are going.

 

11:55.347 --> 11:56.215

Why? What are you doing?

 

11:56.215 --> 11:57.216

What's so great about this?

 

11:59.618 --> 12:01.454

Um, it's us and a lot of

 

12:01.454 --> 12:02.922

people in the industry it is it is

 

12:02.922 --> 12:04.123

This is the Canadian industry.

 

12:04.123 --> 12:06.192

This is the Canadian history and

 

12:06.192 --> 12:08.027

the ETF is just being chosen as

 

12:08.027 --> 12:09.562

the go-to vehicle for investment

 

12:09.562 --> 12:10.830

decisions

 

12:10.830 --> 12:12.364

So this is generational and not,

 

12:12.364 --> 12:12.865

we've talked about this.

 

12:12.865 --> 12:14.867

There is some generational in that

 

12:14.867 --> 12:16.869

and there's

 

12:16.869 --> 12:18.471

people are going more towards models

 

12:18.471 --> 12:19.772

and ETFs are just a lot more

 

12:19.772 --> 12:22.108

efficient in trading in models.

 

12:22.108 --> 12:23.509

ETFs are also known for being low

 

12:23.509 --> 12:25.711

cost, passive.

 

12:25.711 --> 12:27.513

Our factor base suite comes in at

 

12:27.513 --> 12:29.482

let's call it like the

 

12:29.482 --> 12:30.950

all-in-one for example is about 40

 

12:30.950 --> 12:32.451

basis points, right?

 

12:32.451 --> 12:33.953

So you get a broad base globally

 

12:33.953 --> 12:35.588

diversified portfolio for 40 basis

 

12:35.588 --> 12:38.290

point and if you at some legacy

 

12:38.290 --> 12:40.993

mutual funds, they're above.

 

12:40.993 --> 12:42.828

1%, so 100 base points.

 

12:42.828 --> 12:44.196

So you're kind of comparing

 

12:44.196 --> 12:46.232

products, and you're going,

 

12:46.232 --> 12:48.801

well, why am I paying an extra X

 

12:48.801 --> 12:50.402

when I'm underperforming?

 

12:50.402 --> 12:51.570

If you look at the other ones,

 

12:52.671 --> 12:54.240

FVAL just celebrated its five-year

 

12:54.240 --> 12:56.041

anniversary, so our fidelity

 

12:56.041 --> 12:58.577

balanced, it tickers FVAl,

 

12:58.577 --> 12:59.779

but it does come in a mutual fund

 

12:59.779 --> 13:01.280

wrapper because we are product

 

13:01.280 --> 13:03.382

agnostic, and it's

 

13:03.382 --> 13:04.750

100% peers beaten.

 

13:04.750 --> 13:06.051

So it's low cost, it's generated-

 

13:06.051 --> 13:07.119

100% of peers.

 

13:07.119 --> 13:09.188

100% Peers beaten since

 

13:09.188 --> 13:10.189

inception.

 

13:11.056 --> 13:12.892

Okay. No, that's incredible.

 

13:12.892 --> 13:14.727

So that takes us to

 

13:14.727 --> 13:15.928

the story of factors.

 

13:17.463 --> 13:19.265

Momentum, again, has done incredible

 

13:19.265 --> 13:20.866

things. It still is.

 

13:20.866 --> 13:22.168

But as you say, it works in both

 

13:22.168 --> 13:23.736

directions. And we are sitting at a

 

13:23.736 --> 13:25.871

very interesting apex where you've

 

13:25.871 --> 13:28.207

got $1 trillion

 

13:28.207 --> 13:29.475

IPO off there.

 

13:29.475 --> 13:30.810

I mean, the float is different.

 

13:30.810 --> 13:32.378

But in any case, this is what the

 

13:32.378 --> 13:33.546

company's valued at.

 

13:33.546 --> 13:36.182

And there are more to come.

 

13:36.182 --> 13:37.883

So again, I guess we go back to a

 

13:37.883 --> 13:40.052

bit of a passive or

 

13:40.052 --> 13:41.487

go into the ETFs that Fidelity

 

13:41.487 --> 13:42.922

offers at this moment.

 

13:42.922 --> 13:44.290

Like, what's this moment different

 

13:44.290 --> 13:46.125

to, you know, even three months ago,

 

13:46.125 --> 13:47.059

right?

 

13:47.059 --> 13:47.860

That's it.

 

13:47.860 --> 13:50.596

Well, a day ago.

 

13:50.596 --> 13:52.698

Yeah. A day ago, that's right.

 

13:52.698 --> 13:54.934

So, and you said if

 

13:54.934 --> 13:57.036

you take snippets of time,

 

13:57.036 --> 13:57.837

which factor worked?

 

13:57.837 --> 13:59.371

And this is why I said it feels like

 

13:59.371 --> 14:00.539

we're going through business cycles

 

14:00.539 --> 14:01.540

so rapidly.

 

14:01.540 --> 14:02.875

It does. It really does. If you look

 

14:02.875 --> 14:04.710

at the one year, and this is our US

 

14:04.710 --> 14:06.378

factors, if you look the one-year

 

14:06.378 --> 14:07.379

performance,

 

14:08.581 --> 14:10.449

value actually outperforms momentum.

 

14:10.449 --> 14:11.517

Yes. Right?

 

14:11.517 --> 14:13.185

And if you go back and look

 

14:13.185 --> 14:14.453

year-to-date, momentum is

 

14:14.453 --> 14:15.354

outperformed.

 

14:15.354 --> 14:17.389

But if you look over the last month,

 

14:17.389 --> 14:18.390

and I would say the last few days

 

14:18.390 --> 14:19.825

have been extremely volatile, low

 

14:19.825 --> 14:21.660

volatility has been the

 

14:21.660 --> 14:22.194

best performing factor.

 

14:22.194 --> 14:23.362

You're catching whatever you need to

 

14:23.362 --> 14:25.264

catch.

So we're kind of capturing all these

 

14:25.264 --> 14:26.699

things. So as the market pulls back,

 

14:26.699 --> 14:28.467

we're getting other factors kind of

 

14:28.467 --> 14:30.636

like helping lift and momentum is

 

14:30.636 --> 14:32.071

chasing the winners.

 

14:32.071 --> 14:33.639

And the funny thing, here we are

 

14:33.639 --> 14:35.307

talking about technology, but on the

 

14:35.307 --> 14:37.243

recent rebalance of our U.S.

 

14:37.243 --> 14:38.611

Momentum factor, we actually

 

14:38.611 --> 14:40.145

underweighted technology.

 

14:40.145 --> 14:41.881

Did you? So it's moving so fast.

 

14:41.881 --> 14:44.049

So, we went lag

 

14:44.049 --> 14:44.850

seven.

 

14:44.884 --> 14:45.918

Lag seven, yeah.

 

14:45.918 --> 14:47.887

This is the rotation we're hearing.

 

14:47.887 --> 14:49.622

Yeah, from memory to...

 

14:49.622 --> 14:51.624

Really lags out, I feel like that's

 

14:51.624 --> 14:52.892

going to hurt someone's feelings.

 

14:52.892 --> 14:54.093

But okay, in any way, yeah.

 

14:54.093 --> 14:56.362

But there's definitely opportunities

 

14:56.362 --> 14:58.931

and utilities and

 

14:58.931 --> 15:00.299

energy.

 

15:00.299 --> 15:02.401

So the

 

15:02.401 --> 15:03.669

difference between momentum and

 

15:03.669 --> 15:04.837

growth, typically people assume

 

15:04.837 --> 15:06.805

growth is technology based

 

15:06.805 --> 15:08.173

or momentum is technology based, it

 

15:08.173 --> 15:10.075

kind of gets lumped together.

 

15:10.075 --> 15:10.276

But the thing.

 

15:10.276 --> 15:11.610

And can't possibly have earnings,

 

15:11.610 --> 15:12.611

which of course is not true.

 

15:12.611 --> 15:13.612

Which is not true,

 

15:14.747 --> 15:16.115

and momentum takes on

 

15:16.115 --> 15:17.549

characteristics of whatever is

 

15:17.549 --> 15:18.851

working at the time, right?

 

15:18.884 --> 15:20.452

So it is, if the lag seven aren't

 

15:20.452 --> 15:21.820

working, it's trying to find an

 

15:21.820 --> 15:23.122

opportunity elsewhere. That's how we

 

15:23.122 --> 15:24.990

designed ours, because it

 

15:24.990 --> 15:26.191

is kind of sector constrained, that

 

15:26.191 --> 15:28.127

it has to find momentum in each

 

15:28.127 --> 15:31.597

sector. And that's

 

15:31.597 --> 15:32.364

the beautiful thing of all.

 

15:32.364 --> 15:33.732

Yeah, because it diversifies you

 

15:33.732 --> 15:34.566

across the sectors, yeah.

 

15:34.566 --> 15:36.568

Exactly and having each

 

15:36.568 --> 15:38.170

factor work at a different time is

 

15:38.170 --> 15:39.571

really helping it.

 

15:39.571 --> 15:41.106

We always have that saying factors

 

15:41.106 --> 15:43.242

work over time not all the time

 

15:43.242 --> 15:44.977

Yeah, that bears repeating over

 

15:44.977 --> 15:45.978

time, not all the time.

 

15:45.978 --> 15:47.046

It's really good.

 

15:47.046 --> 15:48.314

So value, take us to value.

 

15:48.314 --> 15:49.782

This has everything to do with

 

15:49.782 --> 15:52.151

fundamentals and taking a look at

 

15:52.184 --> 15:54.119

where the company can go from here,

 

15:54.119 --> 15:55.454

because it's sometimes been thrown

 

15:55.454 --> 15:57.222

out with the, maybe with the bath

 

15:57.222 --> 15:59.692

water. Some of that is an AI story,

 

15:59.692 --> 16:01.060

actually, because there are some

 

16:01.060 --> 16:03.295

AI-disrupted companies

 

16:03.295 --> 16:05.230

that not everyone wants to

 

16:05.230 --> 16:06.799

get back into, but some people are

 

16:06.799 --> 16:07.800

thinking about getting back into

 

16:07.800 --> 16:09.601

that got overly blown out in

 

16:09.601 --> 16:10.169

February.

 

16:10.169 --> 16:11.704

Yeah, yeah. So absolutely.

 

16:11.704 --> 16:13.605

And it relates to the

 

16:13.605 --> 16:16.241

question with momentum.

 

16:16.241 --> 16:18.344

So indices are momentum focused

 

16:18.344 --> 16:20.813

and they slowly look at price.

 

16:20.813 --> 16:22.648

And the conversations that we're

 

16:22.648 --> 16:24.650

having right now is again,

 

16:24.650 --> 16:27.086

the S&P 500 it's

 

16:27.086 --> 16:28.187

extremely concentrated in a single

 

16:28.187 --> 16:30.289

name. It has a run too far.

 

16:30.289 --> 16:31.757

And we've heard all these numbers

 

16:31.757 --> 16:33.726

before. So like the top 10

 

16:33.726 --> 16:35.694

make up a 40% of the S& P

 

16:35.694 --> 16:37.830

500. And then we start drilling down

 

16:37.830 --> 16:39.164

on that.

 

16:39.164 --> 16:40.799

The price to earnings or price to

 

16:40.799 --> 16:42.501

forward earnings are the top 10.

 

16:42.501 --> 16:45.471

They were trading as high as 30

 

16:45.504 --> 16:46.538

times forward.

 

16:46.538 --> 16:49.174

They've come down to like 26, 27.

 

16:49.174 --> 16:51.677

Historically, they've been 10 times,

 

16:51.677 --> 16:53.912

20 times forward earnings.

 

16:53.912 --> 16:56.348

If you back those off,

 

16:56.348 --> 16:57.716

the other 490 are a bit more

 

16:57.716 --> 16:59.585

reasonably priced at

 

16:59.585 --> 17:00.753

a historical average of about like

 

17:00.753 --> 17:02.321

18 times forward earnings.

 

17:02.321 --> 17:04.690

But the issue is not only

 

17:04.723 --> 17:06.592

the beaten

 

17:06.592 --> 17:08.460

up stocks but If you look at the top

 

17:08.494 --> 17:09.862

10, they've actually went cash flow

 

17:09.862 --> 17:10.729

negative.

 

17:10.729 --> 17:11.030

Mm-hmm.

 

17:11.030 --> 17:12.931

So if one has been

 

17:12.931 --> 17:14.233

cashflow negative, two of the Magnus

 

17:14.233 --> 17:15.200

and seven are expected to go

 

17:15.200 --> 17:17.870

cashflow-negative because they're

 

17:17.870 --> 17:21.006

just spending a tremendous amount of

 

17:21.006 --> 17:23.475

money of their

 

17:23.475 --> 17:25.144

cashflow to build these data

 

17:25.144 --> 17:26.412

centers. And I think last time I was

 

17:26.412 --> 17:28.380

on, I read an article about

 

17:28.414 --> 17:30.249

using modular data

 

17:30.249 --> 17:31.483

centers to heat swimming pools.

 

17:31.483 --> 17:33.585

Right? So here they're building this

 

17:33.585 --> 17:35.521

technology that in four or five

 

17:35.521 --> 17:36.455

years, they don't know if they're

 

17:36.455 --> 17:38.290

going to be around. So, there

 

17:38.290 --> 17:39.291

We should have built more swimming

 

17:39.291 --> 17:39.591

pools.

 

17:39.591 --> 17:40.659

You can build more swimming pools.

 

17:41.860 --> 17:43.128

I've even read articles where

 

17:43.128 --> 17:44.129

they're attaching them to houses.

 

17:47.232 --> 17:48.500

And they've jumped up.

 

17:48.500 --> 17:49.701

Historically, it's been about 25

 

17:49.701 --> 17:52.304

times. They've jumped to 60 times

 

17:52.304 --> 17:53.939

for price-free cash flow.

 

17:55.441 --> 17:57.409

And if you look at the reverse side

 

17:57.409 --> 17:59.445

in our US

 

17:59.445 --> 18:01.013

value ETF, it is trading at like 15

 

18:01.013 --> 18:02.881

times for free cash

 

18:02.881 --> 18:04.783

flow, so to your point...

 

18:04.783 --> 18:06.218

Well, I was just going to say 15

 

18:06.218 --> 18:08.087

times and value at the

 

18:08.087 --> 18:09.221

moment, looking at what's going on

 

18:09.221 --> 18:10.622

in the last couple of days and now

 

18:10.622 --> 18:13.258

layer on some geopolitical today,

 

18:13.258 --> 18:15.894

sounds really safe and attractive.

 

18:15.894 --> 18:17.763

Not only the geopolitical but the

 

18:17.763 --> 18:18.997

interest rate environment and that

 

18:18.997 --> 18:20.299

they're not spending as much cash

 

18:20.299 --> 18:21.366

flow because these are those boring

 

18:21.366 --> 18:22.668

companies that to your point

 

18:22.668 --> 18:23.969

stand to be efficient, actually.

 

18:23.969 --> 18:26.004

They're efficient, the

 

18:26.004 --> 18:27.139

cash flows that they're generating

 

18:27.139 --> 18:28.140

right now,

 

18:29.241 --> 18:31.043

they're investing in investments

 

18:31.043 --> 18:32.945

that should generate earnings,

 

18:32.945 --> 18:34.546

right? So they're trading at a low

 

18:34.546 --> 18:36.148

P.E., they have high free cash

 

18:36.148 --> 18:37.149

flows. If everyone's trying to get

 

18:37.149 --> 18:38.484

out of one trade at the exact same

 

18:38.484 --> 18:40.419

time, they are not going to be as

 

18:40.419 --> 18:41.753

hurt or there won't be that multiple

 

18:41.753 --> 18:42.788

compression that happens.

 

18:42.788 --> 18:44.223

So it's interesting, is there

 

18:44.223 --> 18:45.691

anything, so within the factors,

 

18:45.691 --> 18:46.792

you're catching different moments of

 

18:46.792 --> 18:49.161

the market at different points.

 

18:49.161 --> 18:50.395

It does not appear, there's been

 

18:50.395 --> 18:52.197

much discussion about rotation even

 

18:52.197 --> 18:54.133

within tech, but rotation within

 

18:54.133 --> 18:56.068

the market, but not

 

18:56.068 --> 18:59.171

really leaking investors,

 

18:59.171 --> 19:01.273

which is a very good sign.

 

19:01.273 --> 19:03.108

I mean, the underlying economy seems

 

19:03.108 --> 19:04.910

to be allowing for this money

 

19:04.910 --> 19:06.311

to circulate and rotate.

 

19:07.679 --> 19:10.415

Again, this comes back to...

 

19:10.415 --> 19:12.384

The ETFs that are all-in-ones

 

19:12.384 --> 19:13.385

do very well with that.

 

19:13.385 --> 19:14.486

Well, exactly.

 

19:14.486 --> 19:16.321

So if you, again, if you look at

 

19:16.321 --> 19:18.223

the, let's

 

19:18.223 --> 19:20.392

say the Russell 3000, or like the

 

19:20.392 --> 19:22.361

entire stock market,

 

19:22.394 --> 19:24.863

the mid-cap

 

19:24.863 --> 19:26.431

have actually outperformed the large

 

19:26.431 --> 19:27.266

cap by 7%.

 

19:27.266 --> 19:28.600

And small cap has outperform large

 

19:28.634 --> 19:30.702

cap. So the top,

 

19:30.702 --> 19:32.104

if you're looking at a highly

 

19:32.104 --> 19:33.005

concentrated.

 

19:33.005 --> 19:34.806

I'm only holding the top 500, you're

 

19:34.806 --> 19:35.941

really missing out.

 

19:35.941 --> 19:37.176

Whereas our factor-based approach,

 

19:37.176 --> 19:39.211

we look at large mid-cap, and if the

 

19:39.211 --> 19:40.779

mid- cap has better fundamentals

 

19:40.779 --> 19:42.748

than a large cap, we'll reweight it

 

19:42.748 --> 19:44.116

based off its fundamentals in our

 

19:44.116 --> 19:45.017

process, right?

 

19:45.017 --> 19:47.085

So we are, again,

 

19:47.085 --> 19:48.987

using a fundamental approach to

 

19:48.987 --> 19:51.023

design our indices,

 

19:51.023 --> 19:52.991

or like our indices or to try

 

19:52.991 --> 19:54.526

generating out performance.

 

19:54.526 --> 19:56.028

So the other thing, we didn't really

 

19:56.028 --> 19:58.197

get into it with the flow story,

 

19:58.197 --> 20:00.332

but to piggyback

 

20:00.332 --> 20:01.600

on what you said.

 

20:01.633 --> 20:03.969

70% of flows went to equities,

 

20:05.137 --> 20:06.972

I think 20% went to fixed income.

 

20:06.972 --> 20:08.807

So in all of my conversations, very

 

20:08.807 --> 20:10.108

rarely are we talking about fixed

 

20:10.108 --> 20:11.810

income as a balance.

 

20:11.810 --> 20:12.945

The beginning of the year was very

 

20:12.945 --> 20:14.846

much talking about Canada

 

20:14.846 --> 20:17.382

and how we are a

 

20:17.382 --> 20:18.884

resource rich country and if we can

 

20:18.884 --> 20:20.619

be a trusted partner.

 

20:20.619 --> 20:22.888

And what happened yesterday, I'm

 

20:22.888 --> 20:24.523

going to be talking a lot more about

 

20:24.523 --> 20:26.124

Canada going forward, especially if

 

20:26.124 --> 20:27.059

the strait doesn't reopen, the

 

20:27.059 --> 20:28.360

ceasefire is over, the talks

 

20:28.360 --> 20:29.695

breakdown, we're going to be looking

 

20:29.695 --> 20:30.662

at that.

 

20:30.662 --> 20:32.431

And what we're investing in to get

 

20:32.431 --> 20:32.998

us through that.

 

20:32.998 --> 20:34.900

Yeah, and if we

 

20:34.900 --> 20:36.101

do build a pipeline, because we

 

20:36.101 --> 20:36.868

might be building a pipeline. It's

 

20:36.868 --> 20:37.803

really exciting. Yeah, it's

 

20:37.803 --> 20:38.470

exciting.

 

20:38.470 --> 20:39.538

We're excited.

 

20:39.538 --> 20:40.973

So, yeah, if we can build that

 

20:40.973 --> 20:43.242

pipeline, get our resources out,

 

20:43.242 --> 20:45.110

like Canada does have opportunity.

 

20:45.110 --> 20:46.712

And then international, always that

 

20:46.712 --> 20:48.413

story. There's re-industrialization

 

20:48.413 --> 20:49.548

happening in Europe.

 

20:49.548 --> 20:51.883

And then the United States, again,

 

20:51.883 --> 20:54.253

with the United states, AI good,

 

20:54.253 --> 20:55.854

AI bad, AI-good.

 

20:55.854 --> 20:57.155

There's definitely March Mel that

 

20:57.155 --> 20:58.924

can be at the vanguard of that.

 

20:58.924 --> 21:00.292

And he can go global too.

 

21:00.292 --> 21:01.493

And he could go global, too,

 

21:01.493 --> 21:02.728

exactly.

 

21:02.728 --> 21:04.496

Because artificial intelligence is a

 

21:04.496 --> 21:06.465

global story at this point,

 

21:06.465 --> 21:07.766

even if you consider emerging

 

21:07.766 --> 21:08.934

markets. So.

 

21:08.934 --> 21:10.869

Two index providers have a

 

21:10.869 --> 21:12.304

difference of opinion on if South

 

21:12.304 --> 21:14.439

Korea and Taiwan are emerging or

 

21:14.439 --> 21:15.641

if they're developed.

 

21:15.641 --> 21:16.642

So based off of which emerging

 

21:16.642 --> 21:18.744

markets, you might have

 

21:18.744 --> 21:20.279

or not have those two countries.

 

21:20.279 --> 21:22.047

And again, a lot of that story is

 

21:22.047 --> 21:23.015

tied towards AI right now.

 

21:23.015 --> 21:25.083

So it is truly a global

 

21:25.083 --> 21:26.351

story.

 

21:26.351 --> 21:27.286

Let me ask you a little bit of

 

21:27.286 --> 21:29.187

value, and as you were talking about

 

21:29.187 --> 21:31.290

how well it's done in the last

 

21:31.290 --> 21:32.658

several moments over the course of

 

21:32.658 --> 21:34.192

the last little while, how much of

 

21:34.192 --> 21:35.994

what is value these days, I want to

 

21:35.994 --> 21:37.763

pull into the sectors even though it

 

21:37.763 --> 21:39.131

is designed to go across the

 

21:39.131 --> 21:41.233

sectors, is things like what Canada

 

21:41.233 --> 21:42.601

has in terms of basically

 

21:42.601 --> 21:44.636

commodities? Like how much value is

 

21:44.636 --> 21:46.805

commodities or have they flown too

 

21:46.805 --> 21:48.240

much? When you look at the TSX last

 

21:48.240 --> 21:49.074

year, you sort of think, well, what

 

21:49.074 --> 21:50.142

are you going to add to that?

 

21:50.142 --> 21:51.443

Like that's astonishing.

 

21:51.443 --> 21:52.678

And we are adding to that.

 

21:52.678 --> 21:54.513

So So it leads

 

21:54.513 --> 21:55.747

me to think that actually the

 

21:55.747 --> 21:58.350

commodity story is not at all value.

 

21:58.383 --> 22:00.285

Where does it get picked up in the

 

22:00.285 --> 22:00.585

factors?

 

22:00.585 --> 22:02.521

So because we are at

 

22:02.554 --> 22:04.323

sector constraint, we originally

 

22:04.323 --> 22:06.124

start being off-sector constrained.

 

22:06.124 --> 22:08.093

So we, if anyone looks

 

22:08.093 --> 22:09.628

at our U.S. Value, they will see

 

22:09.628 --> 22:10.729

Nvidia as a holding.

 

22:10.729 --> 22:12.564

Because when you compare Nvidia,

 

22:12.564 --> 22:14.666

and against every

 

22:14.666 --> 22:15.967

other tech company, so it's trading

 

22:15.967 --> 22:17.903

at 20 to 30 PE, which

 

22:17.903 --> 22:19.271

looks rich, right?

 

22:19.271 --> 22:20.572

But if you look at the tech sector,

 

22:20.572 --> 22:22.007

it's training at 60 or 70 based off

 

22:22.007 --> 22:24.676

of the day. So on a lower PE,

 

22:24.676 --> 22:25.911

and it's one of our screening

 

22:25.911 --> 22:27.646

criteria, it is lower.

 

22:27.646 --> 22:28.680

And if we look at...

 

22:28.680 --> 22:30.115

So is it value?

 

22:30.115 --> 22:32.184

So in our methodology, because we

 

22:32.184 --> 22:33.852

have to find value in every

 

22:33.852 --> 22:35.387

individual sector, right?

 

22:35.387 --> 22:37.422

So it is in our portfolio, but to

 

22:37.422 --> 22:39.224

answer your question, we do a tilt,

 

22:39.224 --> 22:41.093

right, so we

 

22:41.093 --> 22:43.528

take all the 11 gig sectors and

 

22:43.528 --> 22:45.664

we will take away from in a

 

22:45.664 --> 22:47.632

value portfolio, the sixth

 

22:47.632 --> 22:48.767

richest, the ones that are trading

 

22:48.767 --> 22:50.335

at the highest price to earnings,

 

22:50.335 --> 22:51.436

which is the typical academic

 

22:51.436 --> 22:53.305

definition of value,

 

22:53.305 --> 22:55.841

take away those to give to the lower

 

22:55.874 --> 22:57.075

PE. So.

 

22:57.075 --> 22:58.777

We will take from the tech sector,

 

22:58.777 --> 23:00.212

we will take from comm services, we

 

23:00.212 --> 23:02.280

will take that to give to

 

23:02.314 --> 23:03.949

industrials, to utilities and things

 

23:03.949 --> 23:04.316

along those lines.

 

23:04.316 --> 23:05.150

It keeps the diversification.

 

23:05.150 --> 23:05.484

And it keeps the

 

23:05.484 --> 23:06.685

And it keeps it diversified, but

 

23:06.685 --> 23:09.020

when we're trying to find value,

 

23:09.020 --> 23:10.822

we are not saying, okay, this

 

23:10.822 --> 23:12.691

sector, utilities,

 

23:12.691 --> 23:14.893

is trading at a 10PE, so 50%

 

23:14.893 --> 23:16.261

of the portfolio, it exposes

 

23:16.261 --> 23:17.763

yourself to regulatory risk.

 

23:17.763 --> 23:19.264

A lot of our competitors, not a lot,

 

23:19.264 --> 23:20.465

some of our other competitors are

 

23:20.465 --> 23:22.267

unconstrained and they do have these

 

23:22.267 --> 23:23.668

big sector bets.

 

23:23.668 --> 23:25.804

And then if there's a regulatory

 

23:25.804 --> 23:27.205

change, you've exposed yourself to

 

23:27.205 --> 23:29.007

that. Whereas we are trying to

 

23:29.007 --> 23:31.276

finding value across every sector,

 

23:31.276 --> 23:32.077

regardless.

 

23:32.077 --> 23:33.211

Ed.

 

23:33.211 --> 23:35.580

The funny thing is during certain

 

23:35.580 --> 23:36.581

situations,

 

23:37.516 --> 23:38.717

during COVID, we actually

 

23:38.717 --> 23:40.986

underweighted financials in Canada,

 

23:40.986 --> 23:42.921

which is typically known as a

 

23:42.921 --> 23:44.356

value. If you want value, go to

 

23:44.356 --> 23:45.490

financials. And we underweight it.

 

23:45.524 --> 23:46.792

We underweight utilities.

 

23:46.792 --> 23:48.460

So you'll see these changes.

 

23:48.460 --> 23:49.961

So momentum. Most people think that

 

23:49.961 --> 23:51.997

technology is a momentum

 

23:51.997 --> 23:52.831

story.

 

23:52.831 --> 23:54.299

And parts of it are.

 

23:54.299 --> 23:55.600

And we decide to rotate out of that

 

23:55.600 --> 23:57.602

sector. So we are tactical

 

23:57.602 --> 23:58.603

in our

 

24:00.238 --> 24:01.139

Rebalancing and rebalancing.

 

24:01.139 --> 24:02.441

And our rebalancing and where we're

 

24:02.441 --> 24:04.476

trying to find value, quality,

 

24:04.476 --> 24:05.410

momentum.

 

24:05.410 --> 24:07.312

A question coming in, so

 

24:07.312 --> 24:09.080

is it worthwhile still to have

 

24:09.080 --> 24:11.483

Bitcoin in the all-in-one funds?

 

24:11.483 --> 24:13.385

Yeah, you probably get that question

 

24:13.385 --> 24:14.653

actually a lot.

 

24:14.653 --> 24:15.587

What's the answer?

 

24:15.587 --> 24:17.556

Well, it was a

 

24:17.556 --> 24:18.890

contributor to performance and it is

 

24:18.890 --> 24:19.691

hedging.

 

24:19.691 --> 24:20.559

So it's one of those.

 

24:20.559 --> 24:21.893

It's hedging, right. It is hedgy.

 

24:21.893 --> 24:23.462

So when the market zigs, it's

 

24:23.462 --> 24:25.030

sagging. So at this time in our

 

24:25.030 --> 24:26.731

analysis, it is doing what we

 

24:26.731 --> 24:28.500

intended it to do, right?

 

24:28.500 --> 24:30.535

So it it's diversifying the entire

 

24:30.535 --> 24:31.503

portfolio.

 

24:31.503 --> 24:32.737

So is it adding alpha nodes?

 

24:32.737 --> 24:34.639

It's been flat, just like the

 

24:34.639 --> 24:35.841

lag seven.

 

24:35.841 --> 24:36.842

So on a go- Are you really?

 

24:36.842 --> 24:37.776

Are you really calling it the Black

 

24:37.776 --> 24:39.277

Seven? That seems to just roll off

 

24:39.277 --> 24:40.612

the tongue. I'm like, oh, I'll just

 

24:40.612 --> 24:41.613

do it, too.

 

24:42.447 --> 24:44.082

So yeah, at this time, it's doing

 

24:44.082 --> 24:45.217

what it intended to do.

 

24:45.217 --> 24:47.285

But again, we review our portfolios

 

24:47.285 --> 24:49.120

constantly and we'll make decisions

 

24:49.120 --> 24:51.790

as the executive committee decides.

 

24:51.790 --> 24:52.691

That's absolutely fascinating.

 

24:52.691 --> 24:54.826

Tell us a little bit about the

 

24:54.826 --> 24:56.962

industry in Canada, which is just

 

24:56.962 --> 24:57.863

rolling it in.

 

24:57.863 --> 24:59.664

It's bringing it in incredibly well.

 

24:59.664 --> 25:01.533

Does it lead to a different type

 

25:01.533 --> 25:02.434

of competition?

 

25:02.434 --> 25:03.602

I mean, of course there's

competition,

 

25:03.602 --> 25:05.403

Fidelity's right up there at the top

 

25:05.403 --> 25:07.405

doing amazing things and bringing

 

25:07.405 --> 25:08.940

a lot of those funds in the industry

 

25:08.940 --> 25:10.809

right in through the door.

 

25:10.809 --> 25:12.210

But I'm just wondering how does it

 

25:12.210 --> 25:13.512

shift things? Do people look at the

 

25:13.512 --> 25:15.747

U S for some of these amazing

 

25:15.747 --> 25:16.848

opportunities as well?

 

25:16.848 --> 25:18.283

How do you keep them in Canada?

 

25:18.283 --> 25:19.251

The government thinks about that

 

25:19.251 --> 25:20.452

kind of thing too.

 

25:20.452 --> 25:21.987

Just tell us a little bit about your

 

25:21.987 --> 25:23.388

observations of what's shifting a

 

25:23.388 --> 25:25.223

bit in the ETF

 

25:25.223 --> 25:25.757

industry.

 

25:25.757 --> 25:27.692

Yeah, so great question.

 

25:27.692 --> 25:28.827

So there's a lot of changes that are

 

25:28.827 --> 25:30.795

happening in the industry.

 

25:30.795 --> 25:31.763

So every time I'm on it, I keep

 

25:31.763 --> 25:32.631

saying like, oh, we're going to

 

25:32.631 --> 25:33.465

break the top time. We're going be

 

25:33.465 --> 25:35.300

nine. So we became the fourth

 

25:35.300 --> 25:37.702

largest ETF manufacturer in Canada.

 

25:37.702 --> 25:39.004

So it's going to take a while.

 

25:39.004 --> 25:40.572

I think the third largest, like two

 

25:40.572 --> 25:41.673

or three times larger than us.

 

25:41.673 --> 25:43.475

So it will take a wild to take

 

25:43.475 --> 25:45.810

third. But if you look at

 

25:45.844 --> 25:47.946

the large manufacturers

 

25:47.946 --> 25:49.247

above us, they're typically known

 

25:49.247 --> 25:50.415

for passive.

 

25:50.415 --> 25:53.385

And we've been around for now.

 

25:53.385 --> 25:55.320

Several years and we have

 

25:55.320 --> 25:56.888

track records of five plus years and

 

25:56.888 --> 25:58.490

we're showing up a lot more more on

 

25:58.490 --> 26:00.258

reckless. So the conversations of

 

26:00.258 --> 26:02.160

active passive factor are coming up

 

26:02.193 --> 26:03.061

a lot more.

 

26:03.061 --> 26:05.163

Again when I started here

 

26:05.163 --> 26:07.165

we were less than five billion

 

26:07.165 --> 26:09.434

now we're approaching 60 billion and

 

26:09.434 --> 26:12.304

we're having yeah and

 

26:12.304 --> 26:14.372

uh we're

 

26:14.372 --> 26:16.441

we have no passive right we're

 

26:16.441 --> 26:18.276

factor active so we're having a

 

26:18.276 --> 26:20.312

lot more conversations of dispelling

 

26:20.312 --> 26:22.581

that myth or the demystifying

 

26:22.581 --> 26:24.749

like all ETFs are cheap all ETF's

 

26:24.749 --> 26:26.751

are passive all ETF tracking index

 

26:26.751 --> 26:26.918

so

 

26:26.918 --> 26:29.054

And they really aren't now, like in

 

26:29.054 --> 26:30.255

a brand new way.

 

26:30.255 --> 26:30.655

They are not.

 

26:30.655 --> 26:32.524

Yeah, yeah, and they are not, so

 

26:32.524 --> 26:33.925

they've never been.

 

26:33.925 --> 26:35.560

No, they've never been, but the

 

26:35.560 --> 26:35.994

degree! But the degree.

 

26:35.994 --> 26:36.861

But the degrees.

 

26:36.861 --> 26:38.997

So it's just like the story

 

26:38.997 --> 26:41.232

of fidelity of,

 

26:41.232 --> 26:42.133

yeah, we're not passive.

 

26:42.133 --> 26:43.902

We are an alpha shop, right?

 

26:43.902 --> 26:45.103

We are trying to generate that

 

26:45.103 --> 26:45.971

outperformance.

 

26:46.004 --> 26:47.539

And I think that narrative is going

 

26:47.539 --> 26:50.008

to change a lot with what's

 

26:50.008 --> 26:51.343

happening in the United States.

 

26:51.343 --> 26:53.578

So the two largest asset

 

26:53.578 --> 26:55.213

managers in the world are U.S.

 

26:55.213 --> 26:57.048

Based. And the United States, 90

 

26:57.048 --> 26:58.416

percent of the assets are passive

 

26:58.416 --> 26:59.551

because of the rules that they've

 

26:59.584 --> 27:00.051

had.

 

27:00.051 --> 27:00.385

Okay.

 

27:00.385 --> 27:02.220

And they had to disclose all of

 

27:02.253 --> 27:04.089

their full holdings constantly,

 

27:04.089 --> 27:06.124

and a

 

27:06.124 --> 27:07.692

lot of active managers didn't want

 

27:07.692 --> 27:08.727

to get away with their secret sauce,

 

27:08.727 --> 27:09.728

so they weren't going to show their

 

27:09.728 --> 27:10.595

daily trading.

 

27:10.595 --> 27:12.564

So it explains why 90%

 

27:12.564 --> 27:13.865

of the assets are passed.

 

27:13.865 --> 27:15.800

But 2019, they passed a law

 

27:15.800 --> 27:18.370

saying there's

 

27:18.370 --> 27:20.105

semi-transparent disclosure, so you

 

27:20.105 --> 27:21.606

don't have to disclose it.

 

27:21.606 --> 27:23.742

And recently, you could launch ETF

 

27:23.742 --> 27:26.077

series, which is very advantageous

 

27:26.077 --> 27:27.112

to U.S. Manufacturers.

 

27:27.112 --> 27:29.414

So, based off of those...

 

27:29.414 --> 27:30.849

Tailwinds in the United States, I

 

27:30.849 --> 27:32.050

think they're gonna be marketing

 

27:32.050 --> 27:33.952

their ETFs or active

 

27:33.952 --> 27:35.620

ETFs and active ETF series a lot

 

27:35.654 --> 27:37.522

more, which is gonna spread the word

 

27:37.522 --> 27:38.790

of what we've been trying to

 

27:38.790 --> 27:39.991

communicate here at Fidelity that

 

27:39.991 --> 27:41.292

ETFs aren't passive.

 

27:41.292 --> 27:42.627

There are ways of generating alpha

 

27:42.627 --> 27:44.496

in a portfolio and

 

27:44.496 --> 27:45.463

diversifying risk.

 

27:45.463 --> 27:47.532

Like if you want the S&P 500,

 

27:47.532 --> 27:49.401

which is an AI

 

27:49.434 --> 27:50.902

thematic at this point, or do you

 

27:50.902 --> 27:52.203

want to take some of that risk off

 

27:52.203 --> 27:53.938

and here are these processes that

 

27:53.938 --> 27:55.206

you can in your portfolio to offer

 

27:55.206 --> 27:56.274

true diversification.

 

27:56.274 --> 27:58.209

So that active

 

27:58.209 --> 28:00.412

approach, as you say, could get

 

28:00.412 --> 28:02.480

some legs in the US for

 

28:02.480 --> 28:03.648

all those reasons.

 

28:03.648 --> 28:04.949

How do you make sure, and what are

 

28:04.949 --> 28:06.951

the benefits of the money staying

 

28:06.951 --> 28:08.219

in a Canadian vehicle?

 

28:08.219 --> 28:10.288

I mean, you can just go and buy

 

28:10.288 --> 28:12.424

a US ETF that

 

28:12.424 --> 28:14.392

will have US assets, but you can

 

28:14.392 --> 28:16.161

do the Canadian version, which also

 

28:16.194 --> 28:18.530

holds many of the same things.

 

28:18.530 --> 28:20.432

Is there a new moment

 

28:20.432 --> 28:22.233

to voice why to

 

28:22.233 --> 28:22.901

keep it here?

 

28:22.934 --> 28:24.202

Yeah, absolutely.

 

28:24.202 --> 28:26.071

So there's these subtle nuances

 

28:26.071 --> 28:27.205

that people overlook.

 

28:27.205 --> 28:28.873

So when they look at an S&P type

 

28:28.873 --> 28:30.108

product here in Canada, they look at

 

28:30.108 --> 28:31.409

the S&T type product in the United

 

28:31.409 --> 28:32.510

States is typically cheaper and they

 

28:32.510 --> 28:33.945

just look for price.

 

28:33.945 --> 28:35.814

But the exchange rate is something

 

28:35.814 --> 28:36.915

to consider. So whatever you're

 

28:36.915 --> 28:38.883

saving at retail level,

 

28:38.883 --> 28:40.385

you might lose in terms of the

 

28:40.385 --> 28:41.886

exchange. But even if you can get

 

28:41.886 --> 28:43.755

institutional pricing,

 

28:43.755 --> 28:45.557

there's the state taxes that might

 

28:45.557 --> 28:46.725

jump up.

 

28:46.725 --> 28:46.991

So

 

28:46.991 --> 28:48.493

Which is a big topic, we won't rip

 

28:48.493 --> 28:49.360

it open now.

 

28:49.394 --> 28:51.563

It is a larger topic,

 

28:51.563 --> 28:53.331

but broadly speaking, if you're over

 

28:53.331 --> 28:54.532

a certain threshold, it might delay

 

28:54.532 --> 28:56.367

probate. If it's over at other

 

28:56.367 --> 28:58.403

certain level, you might have to

 

28:58.403 --> 29:00.205

pay assets to the IRS, because if

 

29:00.205 --> 29:01.573

you hold U.S.

 

29:01.573 --> 29:03.641

Domiciled assets, then you

 

29:03.641 --> 29:05.543

might to speak with the IRS

 

29:05.543 --> 29:07.345

with regards to resolving estates

 

29:07.345 --> 29:08.513

and things along those lines.

 

29:08.513 --> 29:10.648

So it adds a layer of

 

29:10.648 --> 29:12.283

complexity on taxation and estate

 

29:12.283 --> 29:13.284

planning, things along of those

 

29:13.284 --> 29:13.785

lines.

 

29:13.785 --> 29:15.587

Right. Really, really interesting.

 

29:15.587 --> 29:17.689

So what's up for next month?

 

29:17.689 --> 29:19.190

How many trillion are you going to

 

29:19.190 --> 29:20.458

bring in? What's the numbers?

 

29:20.458 --> 29:21.226

100 billion?

 

29:21.226 --> 29:22.794

Well, at this rate, that'd be in the

 

29:22.794 --> 29:24.129

spot.

Well, at this rate, the industry

might stick

 

29:24.129 --> 29:25.463

over a trillion dollars.

 

29:25.463 --> 29:26.931

So hopefully next time I'm on, I can

 

29:26.931 --> 29:28.299

just say we are a trillion.

 

29:28.299 --> 29:29.400

So trillion dollar IPO, trillion

 

29:29.434 --> 29:30.401

dollars of assets.

 

29:31.035 --> 29:31.936

Get to work, Vince.

 

29:31.936 --> 29:32.837

That's amazing.

 

29:32.837 --> 29:34.005

Fantastic. Congrats. Great to see

 

29:34.005 --> 29:34.839

you again. Have a great summer.

 

29:34.839 --> 29:35.807

Thank you. Great seeing you.

 

29:37.008 --> 29:39.077

Thanks for watching or listening to

 

29:39.110 --> 29:41.312

the Fidelity Connects podcast.

 

29:41.312 --> 29:43.148

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29:43.181 --> 29:44.749

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30:12.911 --> 30:13.978

disclaimer.

 

30:13.978 --> 30:15.580

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30:15.613 --> 30:17.015

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30:17.048 --> 30:18.783

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30:18.783 --> 30:19.984

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30:20.018 --> 30:21.853

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30:22.854 --> 30:24.355

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30:28.693 --> 30:30.728

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30:34.432 --> 30:35.934

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30:35.934 --> 30:37.368

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30:37.368 --> 30:38.837

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30:38.837 --> 30:39.737

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30:39.737 --> 30:41.139

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30:41.139 --> 30:42.407

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30:42.407 --> 30:43.474

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30:43.474 --> 30:44.976

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30:44.976 --> 30:46.344

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30:46.344 --> 30:47.512

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30:47.512 --> 30:49.047

Thanks again. We'll see you next

 

30:49.047 --> 30:50.014

time.