Animal Spirits Podcast - Talk Your Book: How to Use Thematic ETFs

Episode Date: October 25, 2021

On this edition of Talk Your Book we spoke with Dave Mazza from Direxion about investing in WFH stocks, moonshots and the hydrogen economy. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits Talk Your Book is brought to you by Direction. Go to Direction.com to learn more about the hydrogen ETF, the Moonshot Innovators ETF and the work from home ETF, all of which we're going to be talking about on today's show with Dave Maza. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holtz wealth management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment

decisions. Clients of Rit Holt's wealth management may maintain positions in the securities discussed in this podcast. All right. On the show with Dave, we spoke about the Moonshot ETF that was doing amazingly well when we had him out last time to talk about it and has done a U-turn and has done very poorly since. And one of the reasons that we speculated about is this interest rate thing, right? And the idea of long duration growth stocks. And Dave was like, you know, eh, maybe that's

like a convenient narrative after the fact, who's to really say, when did this whole idea of long duration stocks even come from? So, funny enough, after we were done recording, our friend David Chowell tweeted a chart, U.S. valuation of long-duration stocks relative to the market is the most extreme it has ever been. Again, the valuation of long duration versus, I guess, you know, value stocks or cash flow producing stocks, whatever. And Mark Dow, quote tweeted and said, when people get a hold of intuitively compelling narrative and take it too far, the aftermath is usually ugly, extra ugly when the narrative is false. And I think what he was saying is that for the past, call it a few sessions to a week or two, a lot of these, I'm using air quotes,

long duration growth stocks, these stocks that are bleeding money that are growing their top lines quickly and growing their user base quickly but are a long ways away from showing investors a profit. They've done very well the past week or two. And guess what else has gone up over the past week or two? Interest rates. So if interest rates rising cause the sell off back then, which maybe it did. We have no way of knowing. How do you then also? explain the fact that these stocks are rebounding big time with interest rates rising. Ben, I will hand over the mic to you. A couple weeks ago, a guy named Ben Carlson writing out a wealth of common sense wrote about are rising interest rates bad for tech stocks? And I looked at two

examples. Oh, two. Okay. Two. Early 2000s, interest rates went from six and a half percent to three percent. Interest rates fell. Tech stocks fell 80 percent. From the summer of 2016 to the winner of 2018, interest rates more than doubled from 1.4 percent to 3.2 percent. That doesn't count, my opinion. Tax stocks rose 60%. What was that? 2016 to 2018. Rates doubled.

Tech stocks were up 60%. It is kind of the thing where the narrative takes play, because I looked at it this year, there is a correlation of negative point nine this year between the NASDAQ 100, the QQs, and the 10-year treasury rate. So this year alone, there is a negative correlation, which makes sense. Very high. Right, it is. But.

Wait, hold on. When you say a negative. 9 correlation, what are we using like rolling, rolling? 30 a day period. What are you using? This is using the correlation on on white charts. I don't know exactly what period they're using. So there has been a correlation, but this is the kind of thing where correlation, causation, whatever, I do believe like the narrative thing can take hold, but is that really something you want to bank on long term being a relationship that excuse your views? That's fair. So I think we could say that like I don't really buy that

narrative as a long term driver. However, I really do think that interest rates rising earlier in the year killed growth stocks. even though you can't fully say correlation causation, I do feel like enough people believed it. And maybe that's just after the fact narrative. That's possible. I guess there's really no way of knowing is the interesting thing. But anyway, point is, these stocks are rebounding. All right.

One more thing. We're also going to talk with Dave about work from home stocks. This was in a recent piece in the Wall Street Journal. And this Adam Azamette guy, who is a chief economist at Upwork, says that the ever-growing collection of cloud-based tools that make remote work possible from Zoom to Slack to Figba to GitHub as a general purpose technology are as important as electricity of the computer itself and could lead to changes in where people live, how work is done where innovation happens and how wealth is distributed in the U.S. I guess this is getting back to the point where this stuff is still underrated in a lot

of ways. We haven't thought through all the changes that this is going to bring about. And so direction created an ETF to take advantage of this. You mentioned that some of the stocks that you thought would be in that index are not in there. It's not Peloton like you would assume. It's not on the top 10. What did they, I mean, those are the 2020 winners while we were working from home, but Peloton is not necessarily a work from home stock, right? There's a difference between pandemic winners and work from home winners going forward. I think they're trying to get ahead of this.

But I do think there is something to the fact that this is going to be such a huge sea change in a lot of different aspects of our lives. So we're also going to get into some hydrogen stuff, which I had no idea that this wasn't even an investment theme. Dave schooled us on this. I didn't even know that hydrogen was a. element. You don't have a periodic table in your, in your office there.

Has anyone done that yet? Periodic table of asset classes. That's the thing. Is that a thing? Okay. I think Phil Huber did that. That sounds right. All right.

Anyway, so we're going to get into hydrogen, work from home, and also growth stocks and moonshots with Dave Mazza from direction. We're joined today by Dave Mazda. Dave is a head of product act direction. Dave, thanks for coming back on today. Hey, thanks for having me back. All right. I think a good place to start, since we're going to be talking about thematic ETFs, there's no one else I'd rather talk to you about this, given your perch or where you used

to work. So I think a good place to start is a little bit of background on sector ETFs, the shift to thematic and the type of adoption that we're seeing today. What's going on at the high level? Well, I think when you're getting at, or simply what I'll position is thematic ETFs are really sort of the 21st version of traditional sectors. And that's not an original thought, but let's take a big step back when the select sector funds were launched in the late 90s, really kind of gave the precision that we always talk about with ETFs to bear. And then single country funds are a good example of that. And then, of course, industries came out to taking a GIC sector, whether it's health care, financials, or energy and giving narrower exposures, but still based off of kind of traditional

means of classifying the world, a oil services company versus an exploration and production company in the energy sector, for example. Now, what I think is happening is now thematic ETFs are really making that more granular and taking a step further and throwing out traditional definitions of sectors and industries and really focused the collective innovation that could be occurring across traditional sectors because companies don't necessarily fit into one box very well. How do you weigh the difference between? trying to be a step ahead and look to the future versus trying to get a trend that's happening right now. Because if you catch a trend that's happening right now, the assets could be

enormous, especially if the performance keeps up. How do you try to balance that? From a commercial perspective, you would love to catch on to a theme that's absolutely exploding and has the potential for long-term transformation as well. The way I think about it, though, is really what's the shifts that's happening across the world, across how we live, how we work, et cetera, and begin to kind of say, what does the world in five or 10 years begin to look like? And then are there companies now whose earnings, revenue, and then kind of the potential for multiple expansion are reflective of that today. And you can do that now with more granular measurements which never existed in the past, meaning I can really identify particular

for companies either based on their revenue or scanning financial documents in a way that wasn't really feasible five, 10 years ago. So you have to thread the needle, but you can't lose sight of just trying to catch on to what's hot right now. To that point, how sensitive are flows, are investors to performance? Do they pile in and rush out or do they tend to let these things play out? Like some of the things that we're going to talk about are not weekly or quarterly themes. these are things that have potential staying power.

So what does that look like? There's been many studies, and I've looked at it myself, especially in the sector side, it's really hard to kind of over the long term correlate performance with flows because what ends up happening is sort of like any test of that nature, your assumption is people would follow flows. But guess what? There's also a lot of contrarian activity that happens where people were piling into value sectors like financials and energy to play the potential comeback.

that we've seen in 2021. Now, on the thematic side, though, there does appear to be loosely in certain cases, this idea that many people are going to follow the performance because for the most part, many thematic ETS are really have been in that growth side of the equation. And of course, up until 2021, many of those areas had unbelievable performance and money was following that.

The other thing I would note is we often think about sector strategies with sector rotation and using whether it's a quantitative model or fundamental opinion, we're not necessarily seeing that yet with thematics. I think they're more being used as satellite exposures that investors aren't necessarily rotating in and out of, but that may come with maturity. You're not going to see a company launch a department store thematic ETF. Probably not, although I think we are starting to now, especially we think about the launch of different infrastructure ETFs or areas of that nature. Again, infrastructure has been around as an industry for a long time. It's the new way of classifying it, I think, makes it so that

just the newer funds don't just load up on utilities or industrial stocks, for example. But it would be very hard to see someone really launch thematic funds that are trying to capture the world from 10 to 20 years ago. That's not really what their objective is to begin with. If we look out, I think, 10, 20, 30 years into the future, I feel like future generations are going to look back and say, wait, before the pandemic, everyone went to an office before? How is that possible? I think that's the kind of thing people are going to look back on. So I have a very important question to ask on your work from home, ETF. So you got the ticker WFH. How quickly did you have to file for that ticker to beat everyone to get that? We were fortunate in that particular

case of that product is that's an area that we were exploring before the pandemic. So the trend of remote work. Really the way I think about is, what are the technological tools that now have become ubiquitous, like Zoom or other means of communicating that the pandemic only accelerated. Once we were able to secure the ticker, in that particular example, we were off to the races. But we did have the benefit of some kind of loose research that say, hey, this is going to be a trend that plays out. But to your point, it obviously took something as difficult and sort of tragic in many ways as the pandemic to fuel that fire of an appreciation that modern workforces don't have

to be chained to a desk. from 9 to 5 to be as effective as possible. I saw a data point today that Manhattan real estate people, I don't know who was surveyed, were expecting 60% of employees to return to the office in September. And the number was actually something like 36%. That's the highs it's been since the start of the pandemic, but still only 36% of people. So what are some of the companies that are positioned to take advantage of this? And the reason why I said that way is because a lot of the biggest winners that I think of

from 2020 are notably absent. So like when I think about the work from home stocks, I thought about Peloton, I thought about Zoom, I thought about Teledoc. I don't see this in the top 10. So what exactly is this index trying to get exposure to? I think this is really important when we think about especially thematics, what is the name of the fund and what actually is in the portfolio. So in this particular case, we weren't going out to try to build a COVID winners basket that would have had your teletocs, would have had your peloton's in there.

Nothing wrong with those particular companies. They're not, in my opinion, involved with remote work in any way, shape, or form. Maybe it's more convenient to ride your peloton or to do your teladoc appointments if you are working from home. But their revenue sources are not directly tied toward the trend of greater remote work, greater hybrid work. So in this particular case, we wanted to create that basket, but make it concentrated with 10 stocks from four particular areas that are at the forefront of remote work. And so that's cloud technology and cyber. I think about that as your proverbial sort of air cover for working from home. We need the ability to tap into those particular areas.

But then from an employee perspective, what are we actually doing while we're using remote communications? So there's a name like Zoom would be in the portfolio. But then also online project and document management. So you're going to have your collaboration type companies in the portfolio as well. So you could have went out and created a fund that just had the best 2020, but we wanted to say, hey, what actually is a long-term trend here? And what are the areas that are going to benefit? And then, of course, what are the names that are most impacted by that?

If we tried to invert this and do the Charlie Munger, turn this into a long, short portfolio, what would be the companies that you're avoiding here? I mean, would you just be shorting commercial real estate? What's the anti-work from home basket look like? Yeah, it's funny. And to the point earlier, there's security data that shows that, especially in New York City, the number of workers have really barely budged. Now, from being around the city and actually looking at kind of subway data, that has begun to improve. But the interesting side here is, I don't know if there's a proper kind of short in that perspective. Certainly commercial real estate would come to mind, but then others would say, well, actually, there's going to remain demand for space and companies are going to want to spread their employees out more when they go into the office. We're beginning. to see some of that come back. Now, I don't think certain areas or certain companies are going to need nearly as much space from that perspective. So I am in the camp that the idea behind commercial real estate commercial reeds will likely net net have to suffer relative to

trends for remote work, but maybe not in such a devastating way that some were predicting. All right, Dave, we're going to move on to hydrogen. This is an area that I could not know less about. So I'm excited to talk to you. So the mission of this portfolio or of this product is to invest in 30 companies in the hydrogen industry that are leading the way towards net zero emissions by providing more accessible, efficient, and sustainable solutions. Can you please help me understand what exactly that means? Because I don't follow this space at all. It's interesting. So hydrogen, it's the most abundant element in the earth. But the idea behind hydrogen is, I think, multifold. And one from a really important perspective is that we are seeing the world get greener

and look for new sources to help with that with decarbonization. Of course, solar comes to mind, but solar is sort of 10, 15 years ahead of where hydrogen might be. So if someone is interested in investing in a theme that has a longer term to play out, hydrogen would have to come to mind because there's really a ton of potential there that needs to be commercialized, meaning that we have the ability for hydrogen production and generation. We have fuel cells and batteries. So, for example, if you're going to have a truck that's going to go across the country, so think about shipping containers or freighting in the U.S. or China,

if you're going to put an actual electronic battery in the back of that truck, it's going to take up, you're going to have no ability for cargo, especially if you're not going to have to recharge that every half an hour. Hydrogen is a very, very efficient source of energy, so you could have a much smaller fuel cell in there and have the ability to load that truck up with much more goods than you can have in the future. This is all sort of happening now. And I think what's interesting about hydrogen is that we're seeing countries in Asia and in Europe really begin to invest in it. And there's a big belief if we ever get this infrastructure package passed, and especially some of the other

elements that have been discussed, hydrogen would really be a beneficiary of that because it has such real great potential to be used in many different ways. So does this like the picks and shovel sort of idea of this green movement, basically? Yeah, exactly. So you're going to get, particularly in the way that this particular ETF is constructed, it's very concentrated. In this case, 30 stocks. There's really not that many true hydrogen pure play companies that could probably hold them in both of my hands. We really didn't want it to be 50 names or 100. names that really do nothing here, but we wanted both companies that are creating fuel cells and batteries like Plug Power, Ballard, Bloom, and many of these had really strong performance

in 2020 and it's gone a bit, but also companies that do provide the membranes and things of that nature that go into the parts because they are specific, of course, for hydrogen versus an electronic vehicle or something of that. So it's a bit combined. You get your picks and the shovels, but you're also getting companies that are building those fuel cells and batteries. Excuse my naivete. Is there going to be like hydrogen powered cars? Is this like after electric vehicles? There already are hydrogen powered cars in states like Texas and California.

They're being used in production. Who makes them? You have Toyota, you have Honda involved with this. We do not have those. One of the things we wanted to make sure is they're not in this tricker portfolio. Again, I want to have the actual parts and source that Honda is buying. That's what's in this portfolio. So that's a bit distinct there.

But yeah, this movement is happening. It's just, it's under the radar because there's so much focus on just purely on EV right now. So I would imagine that the companies in this portfolio are much, much, much smaller on the market cap scale. Yeah. There's really only one or two names in here that have a market cap that would be considered larger mega. Much of them are really nascent companies, very small in market cap, really emerging because this is an emerging technology.

It's unclear when it's going to play out. Now, there's a lot of belief, particularly in countries like Japan and South Korea. And increasingly in the U.S., this is a really valuable source of energy, and we need to harness it in ways that hasn't been focused on previously. I assume this strategy is more global in nature than other countries that are doing better than us than this? For sure. Because hydrogen kind of sits at this intersection of versatile energy source, we know that there are countries in the U.K. they're investing in hydrogen buses, for example. There's a lot happening in Japan and South Korea right now that are, again, with a path toward where the U.S. could be from that perspective.

Indiana Jones and his dad flew on the hydrogen blimp. That's right. Crusade. He was ahead of the game. I'm looking at fuel cell. This stock, Ben and I were just talking about technical analysis. Ben, this is called the breakout. The stock gets up 20% today, but longer term, I mean, this stock got absolutely annihilated. It went from like, 30 down to, geez, almost five bucks. So the point is, these are early days in these companies' lifetimes and these companies' trajectory. So if you are going to invest in something like this, position size that accordingly, that this is going to be certainly more volatile than like an S&P 500 index fund, for example.

100%. So I firmly believe any thematics, I can make an argument. Replace all of your S&P 500 or all of your U.S. holdings with every direction of thematic ETF. One, that's not credible. And two, it doesn't make sense from a portfolio construction standpoint. Now, I'm not providing anyone with specific advice there. Maybe someone bought plug-powered, when I was at, it slows it before it dropped. But all of these are, again, what I really like about hydrogen, too, is let's say I'm interested in a satellite exposure to complement what maybe I'm already doing from a long-term perspective or building my own

thematic portfolio. I can now really like pick and choose my spots, which I think is really, cool for an investor who won, certainly you're going to hope that the stocks do well, but maybe you really believe in this, that hydrogen is a very, very credible and versatile energy source. So I want to be involved with it. You can now do that. But yeah, the idea that it's not going to be volatile or the idea that you might time the trade perfectly, it's probably not going to work for most people. Do you find that more advisors starting to use these thematic ETFs for their clients where maybe in the past they wouldn't have gone on an limb so much? Are there advisors who have strong opinions on some of these themes that they want to get into?

That's, I think, an area where, frankly, we're seeing a lot of growth from who's using the product. So many times we think about advisors maybe using an ETF first. In this case, if you look, again, no precision here, I think, as most folks know about who owns a particular ETF, a lot of these are heavily owned by retail. But now wealth management firms, advisors are saying, hey, for my clients, If they're asking for this, maybe it makes sense for me to integrate it into the portfolio. And they want to have areas like cloud computing and like greener technologies in the portfolio, again, to complement what they might already be doing and take advantage of the fact that this is where disruption is happening.

So the last time we had you on, Dave, we were talking about the Moonshots Index. And when we had you on, we were on the right side of a great run. And now we're on the wrong side. And things seem to be settling in a little bit. do you think it's an oversimplification to talk about the ebbs and flows of these companies performance? Can we boil it down to interest rates or is that oversimplifying what's going on here? Again, the thinking is that these are long duration companies, meaning that their cash flows, their earnings are probably years out into the future and that as interest rates come up,

it just discounted cash flows make them worthless. And then also at higher rates, money costs more then therefore these businesses are going to be challenged that way. Is that just nonsense baloney after the fact? Or is there something really real there? I think the market is obsessed now with applying duration to equities. And to your point, that's exactly how it would play out mathematically. But all of a sudden, now we're trying to calculate durations of stocks, particularly stocks that don't pay dividends. So one, I guess I think it's kind of crazy. Although, clearly, if enough people believe it. Although, it's not on. But to me, it's a narrative that's easy to explain the fact that many of these stocks saw

unbelievable multiple expansion. Many of them were retail favorites. And if we think that there's an opportunity to rotate out of them and take advantage of areas that were beaten down, like your financials and energy, I think that's more of what we're seeing here. But again, whether it's a Moonshot Index or other funds, certainly I think Moon attracted a lot of interest from investors when it after it launched because it had, to your point, unbelievable performance over its first month, first two months, three months. But investors shouldn't necessarily buy it just for that month of performance. These are companies that are very, very early stage. They are spending, and we overweight companies that are spending more plowing money into

research and development. That's what we're favoring in this particular case, and that they have a culture of innovation. So it may take many years for them to play out. Some of the them may not actually play out as expected. And when you have an environment where volatility has increased, I think more of what we saw as investors were just simply selling and rotating away from stocks that did the best and looking for a different kind of safety trade. I think the other thing we're seeing is the retail crowd seems to like bouncing back and forth between kind of three areas. It's either your kind of fang large cap tech when that's doing well, it's some of these more innovative type companies that are smaller in cap and then crypto. And that to me has been

more of what I think we've seen in 2021 than anything else. There was a chart going around last week, I believe from GMO showing that they were saying this is certainly a bubble this time around because there's so many growth stocks now that just don't have any earnings. I would imagine if you're searching for companies that are plowing so much back into research and development, that that's a lot of these companies. Is that just a huge difference between now and the tech bubble is that these companies, sure, they don't have a lot of earnings, but there's a reason for it. Like, they're choosing to not have earnings?

It's super easy to pull up a chart of your favorite valuation multiple. I like price to sales. People like price earnings. You look at Ibida, free cash flow, what have you. And you guys know this better than anyone. Nearly all of them, we're going to tell you the market is richly valued. And in fact, many of them are going to tell you that it's more overvalued than the tech bubble.

I don't really think that that's an apt comparison, though. And again, that's jump in and say, well, are you saying this time is different? No. The point is, we love to compare. Humans by nature have to compare what's happening to some sort of history. What we're seeing again is tech is dominating the market in the same ways. The proportion of technology is higher than it was then. But these are very, very different companies.

We're not talking about just some dot com in the name. Whether or not these companies play out and actually fulfill the goal of the longer term disruption from gene editing, nanotechnology, things that are in some ways very far afield that are in this portfolio, That's to be determined, but I don't think it's really apt to just look at their valuations and say, oh, we're in a bubble because that's not what these companies would ever trade on. So, Dave, I'm looking at the subsectors. You've got genetic engineering, the biggest sector, cybersecurity, autonomous vehicles, enterprise collaboration and digital communities and internet infrastructure, alternative finance. I'm kind of curious about all these. What is enterprise collaboration?

What is digital communities? Is that like if Discord was a publicly traded company? What does that mean? Collaboration are just companies that are providing technologies or services for collaboration, again, at the enterprise level at the corporate level. Zoom would be an example of that, but Zoom is too large for this portfolio. Then when you think about digital communities, to your point, that's not that different from a Discord.

It's companies that are involved with social media or things of that nature that are creating collaboration or connectivity with people, whether they're doing that at home or at work. Could we ever think of buy now, pay later companies as a Moonshot, or is that not really the type of company that they are? And then what about also like, do you expect to see maybe some crypto-native companies in this portfolio one day? I'll answer your second question first. There is a handful of companies that are involved with crypto. They're in Moonshot. Bit mining comes to mind.

Oh, Ben, somebody came on our spaces the other day and asked if we were buying that company. I didn't even know it existed. There's some interest out there. But yeah, so that's an example. What I like about this portfolio, and some folks would say, well, maybe that's a turn off, is that there's a lot of names in here that I'm not familiar with. I know I could go keep loading up on Apple, keep loading up on Amazon. If you look at most UTS, whether their market cap weighted, factor weighted, would have you,

those are the top 10 holdings. And there's nothing wrong with that. In fact, people have done quite well, and the majority of people's portfolios probably should just be instead of them forget at S&P 500 or Russell, pick your favorite large cap index. However, if I'm then going to complement that with all these other ETFs that are just re-weighted large-cap growth, I'm not sure I really need that or want that in my portfolio. No, it's interesting, Dave. Over the past few months, there has been a big breakdown, and I love it that not everything's

moving together, there's been a big breakdown in correlations between the fang names and the moonshots. Yes. I think there's a real distinction. it was really that one trade. And again, if you were going to point back, maybe it was just simply rates and discount. In the discount, right, mechanism with that.

But this year, that's not really been the case, pick your favorite chart crime of the 10-year over growth and value. I don't know if that one's chart crime, but trying to apply it to Moonshot is total chart crime or even other kind of thematic funds in my perspective. There is a reality, at least starting in the 1980s, that particularly to look at the term premium, not to get too geeky, between the two and the 10 year, that's how you're going to predict all growth and value is going to trade.

But trying to take that a step further and just say that that's what's driving the fact of all these thematic ETFs that are now underperforming, I think, is a stretch. So Kathy Woods, ARC innovation ETF has also gotten dinged pretty good lately. It's still in a drawdown. How do you explain some of the similarities and differences between Moon and Arc? Dave, before you had said, let me just say one thing to that. But it looks like ARKK is correlated. I mean, it's basically not correlated.

It is. It looks exactly like Goldman Sachs' unprofitable tech index, like almost one for one. So how does Moon differ from what they're doing? Both of those are relevant. What Moon has got really, really bad, and this is important, is a pure focus on early stage companies. And that sounds like a buzzword, but it's just microcap, small cap, midcap, from a capitalization perspective.

And it's an index-based approach. That fund uses an active-based approach. Certainly, many could argue, has been highly successful, certainly this year a bit more challenging. And we only have 50 stocks in the portfolio. So, again, it's highly constant. That portfolio is like almost mega-cap at this point. Well, exactly.

And you could argue that there are some great names. Why, Dave, do you want to sell companies that become a mid-cap or a large-cap? Because I want to find the next moonshot. I want to sell high and hopefully buy low in this particular approach. And this forces you to do that. It kind of systematizes the ability to identify what we would think of a proverbial moonshot. Now you could say, well, Tesla's been moonshoting forever. Sure.

But finding that, I think that's one example. I'd be hard pressed to probably find a portfolio just of. There's one Tesla. Of Tesla, exactly. So your point about systematizes this, is there like an annual reconstitution or rebalance? How does that work? Correct. Yeah.

So it's an annual reconstitution where we run the. full process to identify what companies, again, are spending the most on research and development relative to their sales, but compared to their peer group. So meaning all of this is relative to pure group. So is a company in the biotech space, for example, spending more on R&D versus sales? If we didn't look at it that way, this portfolio would be all biotechs essentially, because that's where their money goes based on their business model. But we also look at whether a company has a culture of innovation. Now, this is where a moonshot hater would point and say, well, you care about a company's culture?

Well, yeah, I do because I want to know if companies are talking to talk, but are they walking to walk? So if I was coming on here and just saying, yeah, all I look at is do companies use words in their financial documents that are associated with innovation? Yeah, I think we could poke some holes in that, but combining it with, okay, well, is a company talking about disruption in the gene editing space, for example, CRISPR's in this portfolio. They're actually spending money to do that. So to me, that combination is what gives the process its power. So Dave, we spoke about, what do we cover today? Let's review. We spoke about work from home. We spoke about hydrogen, moonshots, all from direction. And you don't know this because I never told you

this. When I first found direction, this is, I guess, in 2009 or 10, I was trading the triple levered bearish banks right as they were bottoming. Didn't work out so well, but I covered. So no big deal. I didn't cover. I just sold. I thought the company's called direction. And I learned that because I was reading. I never heard of it called direction. But you know that Target is called Targeet for real. It's true. Yeah, that's the real. Yeah. But yes, I was unaware of that myself. The X, it's not pronounced like a French, but I get or something. But it is direction. The X can throw people off. But yeah, I think what we are focused. on is, again, providing both taxable traders, leverage and inverse ETFs. That's a whole

different audience, a whole different ballgame, truly a conversation for another day, but then also giving whether you think of yourself as an intermediate term trader, six months, 12 months, or a long-term investor opportunities for disruption and a few of the areas that we talked about today. I love what you guys are doing. Thank you so much for coming on today. We really appreciate it. Thank you. Thank you, Dave. Thank you, direction with an X. Email us. at Animal Spiritspod at Gmail.com and we'll see you next time.