Animal Spirits Podcast - Talk Your Book: Jeremy Schwartz of WisdomTree

Episode Date: May 20, 2019

On today's Talk Your Book we had Jeremy Schwartz of WisdomTree on the show to discuss the firm's dividend strategies, the rise of tax-deferred accounts, currency hedging, improving the 60/40 portfolio, investing overseas, and much more. 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 Wisdom Tree. Welcome to Animal Spirits, the podcast that takes a completely different look at markets and investing. Hosted by Michael Battenick and Ben Carlson, two guys who study the markets as a passion and invest for all the right reasons. Michael Battenick and Ben Carlson work for Ritt Holt's 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 Ritthold's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritthold's wealth management may maintain positions in the securities discussed in this podcast. So on today's Talk Your Book, we sat down with our friend Jeremy Schwartz

of Wisdom Tree to talk about a whole bunch of different strategies. And like what, Ben? Well, I'll tell you, Michael. We've talked to Jeremy for a while. We've known him for a while and leaned on him for research for some of our stuff. And so we talked to him. about dividend, some of their dividend funds, currency hedging, taxable accounts versus non-taxable accounts, their new 60-90 fund, and some of the tools that they have. So this was a- I have to, I have to correct you. It's a 90-60. What did I say? 60-90? You did. Ah, okay, you're right. 90-60. So we'll explain some of that in the interview with Jeremy. But one of the things we started out with was our friend, Mb Faber, has written pieces in the past

and talked about on this podcast how dividend stocks are the worst. He has. And he said he summarized it with three bullet points. The third and I think probably most important one is that he said, maybe not most important, but this is one that I want to highlight. He said, if you have to focus on dividends, you must include a valuation screen or process to avoid high yielding but expensive junkie stocks. And that's exactly what one of the wisdom tree products that we're going to talk about gets into,

DGRW. you, they use a quality filter looking at return on equity and return on assets to take away these super high yielding crappy stocks. And so these are kind of the strategies that Wisdom Tree was more or less founded on. Jeremy's got a really cool backstory because he actually was a research assistant to Professor Jeremy Siegel at the University of Pennsylvania and helped him with some of the research on an updated version of stocks for the long run and ended up following Siegel over to Wisdom Tree and is now the head of research there.

I think we spoke about Jeremy Siegel on the show, but I am firmly in Team Siegel camp. What about you? In other words, let me preface that. Jeremy Siegel has a reputation as being a permable, which is just not true. And I think maybe one of the reasons why he has his reputation is because he talks a lot about short-term stuff on TV, on financial media, which is sort of maybe strikes people as bizarre, considering his book is called Stocks for the Long Run. So he often gets lumped into like all this permable thing. You know what? Being a permable usually pays off. And he's not a permable because in the Wall Street Journal, I believe, in early 2000 or late 1999, he wrote about how crazy expensive stocks were.

Yeah, see, he kind of called the tech bubble. And yeah, I think if you're going to be one of these people that leans one way or the other, the Jeremy Siegel approach is much better than the alternative. And for some reason, I feel like people just, a lot of people, especially in the industry, just don't like the idea of thinking and acting for the long run, even though that's the best case scenario for most investors. And so in our talk about dividends and why they could potentially be a plus or minus, Jeremy brought up a great stat that we're going to link to in the show notes from a research paper, and it shows the enormous growth in tax deferred assets.

And why does this matter? Well, the idea is because asset location matters when you're going to pick these types of strategies. So maybe dividend strategies aren't the greatest for people who hold them in taxable accounts because taxes could eat up a lot of your return. but there's such a high percentage of money that is now in tax deferred accounts that you just have to be intelligent about where you stick these funds in your portfolio management process. So Jeremy said, and we're going to get to them in a minute, but Jeremy said the taxes are what

they are. And we spoke about this in the past, but I really do, and sorry from my voice, I lost my voice, I really do understand the bird in the hand psychology that comes with dividends. Like, even though it might not be optimal in terms of, you know, growth of a dollar over 60-year period in a taxable account, it feels pretty darn good. Like, I look forward to getting my dividends, even though I know it might not be rational. And I think there's something to be said about the fact that those are, like Jeremy says on the interview, those are actual cash flows that are coming to you. And so it's a lot harder for a company to fake those because they're actually paying them out. Not even the Federal Reserve itself can manipulate dividends. Right.

And I think that's one of the reasons that people are so skeptical. of buybacks, even though they're fairly similar to dividends, is because you're not actually receiving those cash flows. So, again, we cover a lot of ground here. We're going to go into our interview with Jeremy, and then after the interview, wait around and we'll kind of give a little outro and talk about some more thoughts on it. So here's Jeremy. We're sitting here with Jeremy Schwartz, Global Head of Research at Wisdom Tree.

Jeremy, thank you for being here. Michael Ben, great to be here. So our friend Meb Faber has ridden plenty of times, and we'll link to this on the show notes, of course, about how tax inefficient dividends are. So I'd be curious to hear from you about the other side of this argument, given that Wisdomtree relies so heavily on dividend strategies. So I think some of it, I have sympathy to what Meb's saying. Taxes are taxes and you can't avoid taxes. The interesting trend on just demographics and how that's driving demand, There's a big amount of, you know, obviously everybody knows the population's aging.

And there's a study that shows, over the last 50 years, you went back 50 years ago, 86% of all stock was held in taxable accounts. The number, when I saw at the end of 2015, was that number has dropped 60 percentage points down to 24%. Now, you could question, you know, how they get to that number. But. Meaning of all assets, 24% are now held in retirement accounts versus... Only 24 is still taxable. So it's the reverse. And more and more is being non-tax. So that just speaks to the where people holding securities are always going to be demand for tax favored, tax deferred accounts. And people

still need income. So you think about that behavioral managing of how are you allocating your wealth and how do you live off principle? Do you sell? So I'm totally, I don't know if guilty is the right word, but I see this in my own behavior. Like, I know that dividends are tax inefficient. I'm not using the income. But damn it, I like when I see the dividends. Like, I don't know if it's psychic income or it just makes me feel good. No, it manages behavior. And you think about how do you value any asset, right? So from a very first principle perspective, how do you value an RAA, how do you value a basketball

team, how do you value stock? It's the present value of cash flows. And for stocks, cash flows are dividends. Like, where do dividends come from? They come from earnings and cash flows at the firm. But why do you focus on that as a value metric? I mean, it is a very first principle basis for us that it's the cash flows of a, of a stock and, you know, where do dividends come from is the earnings of the firms?

To answer the question directly, would you say that Meb is missing something, or do you just agree with him? Listen, I think the taxes are the taxes. And so now there are people who are holding more in the tax insensitive accounts. And so that is one just offsetting point to that. And, you know, there's a lot of different reasons why people as a value factor look at dividends. It's in some ways a combination of factors. When you think about one of the other characteristics of dividends compared to other value factors is that it tends to be the lower volatility of the value factors. And you say, what are the factors that are really resonating? It's dividends and minvol. So you're saying the dividends are less value, are the dividend? paying stocksless volatile? There's definitely an overlap between high dividend stocks and lower volatility stocks. When we did a lot of our testing originally on alternative ways of weighting the market from cap waiting to divin weighting, earnings weighting, book value, sales, any of the other factors, they all tend to show outperformance over the market. Dividendants tend to do it with the best risk-adjusted characteristics, so lowering volatility as well as increasing expectant terms where earnings had some of the highest absolute numbers, higher volatility. So you got that

nice combination of lower volatility and that income stream that people want and need. Let me ask you a question about risk-adjustive returns. I know why they matter generally, but within factors, do they really matter which factor has the best risk-adjusted returns? Because they're all going to be fairly similar. To our point that it's sort of managing behavior and managing to stay invested with the factor. So I don't think of volatility as an alpha generator, but as potentially keeping you along for the ride better, I think it can help you in that perspective. You kind of already answered the question, but do you see dividends as just sort of a value factor or is that kind of semantics? Does it really matter? So when I was working

with Professor Siegel on his book, The Future for Investors, he was coming with the perspective, how do I solve for bubbles? Because he had been a vanguard by the market, by beta kind of guy until 9-9 and 2000 when he started writing about the tech stocks and saying, how do I solve for this? People think Siegel's a permable. That's just not true. He calls it as he sees it. And he tries to say when valuations are getting stretched. I mean, even earlier this year, he was thinking the markets had front-loaded all the gains. I mean, he does try to call it as he sees it, but in that 9-9-2000, he was really bearish the tech part of the market, which came dramatically overvalued. And he was trying to give people advice on how do I solve for bubbles for the book.

We really only showed two factors. One was a divin-yield sort of the market. One was a P. ratio sort of the market. And you could have tested all the other combinations, but it was a first principles kind of concept of not trying to create the best combination of different factors. But I think you do have to think about the risk levels that come with those different factors. Do you think it's appropriate or inappropriate or fair or unfair to compare dividend yields versus bond yields or earnings yields versus bond yields or stock yields versus bond yields in general? As a spread, when you think about what is the equity risk premium to owning the market, it's the risk-free rate versus the yields you get on the stock.

So that equity risk premium of the 10-year tips yield being the ultimate measure of bond yields, right? So if you think about Siegel's, again, stocks for a long run, the average real return to bonds was three and a half percent. That is now sub one percent. And so we say in terms of history, what's more expensive stocks or bonds? Well, bonds are much more expensive compared to history. It's sort of amazing to think about a real return of three and a half percent for bonds. For the last 200 years. And that's been coming down. That's been trending down. Now, you've had a 30-year period where bonds were negative real return. You haven't had a 17-year period where stocks were negative real return, but you had a 30-year period where bonds were

negative. And so that's come down. And then you say, well, why should stock prices be more highly priced? Why should the earnings yield be down? Well, the bond yields are down more. It's that equity risk premium is higher than average. Now, when you're building your dividend portfolios, how much do you take into account the rise in buybacks? And does that change your analysis at all or the way you think about things? Or are you still thinking, well, it's cash flows and this is the only way to look at it? It's interesting. So when Woodson Tree started back in 2006, we created divin weighted portfolios and then separately these earnings weighted portfolios. I always often describe the earnings weighted as what a dividend plus buyback index would look like because when you

think about if you're earning cash, what would you do? You'd pay a dividend, you do a buyback or you reinvest in some other growth type of projects. And the dividend plus buyback index would look like our earnings indexes. Now we did particularly a few years ago launch a dividend plus buyback quality shareholder yield active fund. And so we went into that space of doing divins plus buybacks directly to try to get these higher total shareholder yields. Now, but when we created the dividend portfolios by themselves as a standalone, it was just the underlying cash dividend distributions from those firms. So how does the early stuff compare to something like DGRW, which is the wisdom for U.S. Quality Dividend growth portfolio? So DGRW was sort of our second family of dividends.

And when I looked at it, going back to that Siegel book, he did a lot of high dividend sort to the market. It was really just a yield sort of the market, waiting by dividends. but a yield sort. And I would get a lot of questions from people. What about the growth side of the equation or dividend growth-oriented strategies? There are a lot of these studies on dividend growth stocks being very long-term good stocks. And the question was really well. Apple, for example.

Apple was just started paying in 2012. And the way most people define growth in sort of a $40 billion ETF that defines growth, look back 10 years, you got to raise for 10 years in a row. And the issue is Apple won't do that until 2023. So it's, we said it came to be forward looking. and not just backwards looking. And so we looked at what factors are tied to dividend growth in theory and then in reality. So in theory, you know, you study the CFA textbooks, return on equity times earnings retention

is your sustainable dividend growth rate. And so there was a theory reason to look at that. And then you look at who talks about quality and buys companies for growing dividends. Well, Buffett always says I buy high return equity but little debt type of companies. And so we packaged it to add into a screen, combining return equity, return on assets, with a forward-looking earnings growth screen. And so from the divin universe, it's really unique. When you think about the Russell Growth Index, they look at price to book as a value factor

and earnings growth estimates as a growth factor. We use those three factors from screening, earnings growth expectations, these Buffett screens, back to dividend weighting, though, to identify these future dividend growers, but keep the valuation reasonable with dividend waiting. And there's a very unique multi-factor dividend strategy that ends up being core in terms of core exposures of the market. So when you say core, you mean that this is not a, this is a core holding in somebody's portfolio. Yeah. When you look at Morningstar sort of general ranking, it's dead center in large cap blend. It's not a value. It's not a growth because it has this growth in quality

selection, but dividend weighting. So you get back to like a reasonably priced part of the market, whereas all of our original dividend funds would map very clearly in the value bucket by excluding the non-dividend pairs, which tends to be growth in the Amazon's and Netflix type of companies. You're mapping dead center in the core bucket by combining quality and growth, but dividend weighting. So in terms of weighting the portfolio, the top two holdings are familiar names like Apple and Microsoft, but also in the top 10 are companies like Verizon, Wells Fargo, Pepsi, and Altria.

How do they make it into the top 10? Well, we're screening by that return equity, return asset earnings growth. So it's showing up on one of those, the combined ranking of those things, the top 300 are selected, and it's weighted by total dividends. So it's still giving the bigger dividend payers, bigger weight. So we say bigger dividend payers. You mean actual dollars paid. So not a yield, but actual dollars paid out. Think about modified market cap. Market cap times the yield. And so it's a total dollar dividend stream weighting. So Jeremy, you talk about the fact that this US dividend growth fund has kind of benefited, I think, from being multi-factor, which when you look

at the performance of other value funds, it would seem like it would. Now, in your international quality dividend growth ETFs, you have a bunch of different options. And the options kind of rely on currency hedging or not currency hedging or dynamic currency hedging. So you have three products. IHDG is the hedged one where you hedge out the currency. IQDG is the unhedged. And then the dynamic currency hedge one is DHD. Do you kind of see this currency hedging international stocks as another factor like you would value momentum or something like this? Is that how you guys view it? Yeah, I mean, I think for sure, the way we've been talking to people a lot is currency,

I believe, unhedge is uncompensated risk. There's no reason that the euro is always going to go up. And so people say they don't want to make a currency call, yet they default to be betting on the euro forever, which is, I think, a lot of ways backwards, that you want to take risk your compensated take. Now, from a pure branding perspective, it seems more exotic because hedged is in the name, and it just seems like that's the exotic call. And so we were first to say, hey, no, you don't have to do that.

You could just buy the stocks by themselves. And that's the fully hedge solution. Now, over time, people say, well, can you actually make the calling? Are there currency factors that are rewarded? And that's where we started building this multi-factor currency model of things that you work in stock factors, value, momentum, carry, which is the cost to hedge, how much you're paid to hedge has worked in the currency factor research. And it's added anywhere from 100 to 150 points per year.

your whatever benchmark you choose, from half-hedged is the most natural benchmark to unhedge and fully-haged benchmarks. And so we started adding that on top of broad-based EFA strategies, small caps, qualities you mentioned. But I think from a pure branding perspective, even that just seems too complex and exotic. And so just showing our conviction as we started launching new multifactor active funds, and more recently we launched an international multi-factor that has this currency factor baked in as just one of the multiple factors, just like you were talking to any active manager, you expect them to make the decision on a stock and then the currency, most of them just default to betting on zero forever. We're actually going to have a process to determine do we want to bet

on zero. And how often do the signals trigger? So in the developed world, we're looking at monthly signals in emerging markets because things are much more dynamic. And you have to use sort of faster moving signals. And there it's more momentum triggers than value and carry because they're always cheap and they're always expensive to hedge. And so then you just want to risk reduce, you know, the currency movements, as you see recently, right? Sharp moves and the currencies can happen quickly. And so we're resetting in the EM strategy every two weeks, but in the developed world, really, every month. How does academic thinking fit into real life? Like in the CFA curriculum, we're taught about purchasing power parity. Does that actually work? Does it hold in real life?

So that's one of our three factors is the purchasing power parity with wide bands. So you can say, And the value is the slowest moving of the signals. So momentum sort of moves along. That's sort of a medium horizon. That's sort of your catch-all factor for anything that happens. If momentum continues to trend down, you're going to be hedged. Now, there are some currencies that look cheap and look expensive forever. So the Swiss franc, everybody says it's expensive forever.

And so that would say it's overvalued and you want to be hedged on the Swiss franc. But then it's the other factors that they move. And that's sort of why you blend the factors together and not rely on one single factor. But so we, in our dynamically hedge, we use that three-factor average of value momentum and carry and try to blend them all together. So this sounds pretty confused. And it gets pretty confusing quickly. So who is using, like who is the ideal client for this type of a product?

Is it, is it an advisor using it on a client's behalf? Are these institutional investors? Who's using it and how? Well, that's partly why I wanted to take the branding and make it just part of the process instead of putting that front and center dynamically hedge international quality dividend growth. I mean, it's like the longest name of a fund. It's definitely, you know, one, it was probably looking back, not a good naming and a branding exercise, but making it simpler with international multi-factor where people want you to be thoughtful, like just like you're talking to an active manager, a lot of people still use active managers to make these calls. And this is just getting more, we're going to, you've got to trust that the people looking at it have a process to do it. I'd say it's advisor driven, like not so different than people like yourselves, RIAs and institutional investors who are looking at how do they want their national exposure? in doing that. So we've had plenty of discussions about this between you and myself and Michael and

Josh, I think even maybe over beers before, which sounds enormously dorky for us to be talking about currency hedging over beers. But how did, I'm a big nerd. How did Wisdom Tree get into the currency hedging business? And what was it that led you guys down this path when you went into international stocks? I mean, when we came out in 06, it had not been thought of. Everybody was doing cap weighted and we were just trying to differentiate. What's interesting, as a business, because we were the first firm, it was still early back in 06, we were the first firm to do EFA small caps with the dividend process. So international small cap value and international generally.

Right out of the gate, that became our biggest fund. And two thirds of our assets were exposed to the euro as it was going up from like 130, 140, 160. And I said, guys, what happens if this turns around? Does that mean you want less international? Actually, some of the research says if the euro goes down, these stuff. companies might become more competitive, and actually you probably want more international, but you just don't want to bet on the euro. And so that, it was that observation, as the, as two

thirds of our assets were exposed to the euro saying, really, why do we want this? And so we launched the first option in 09 that was just an EFAS solution, that the market wasn't ready for it. And three or four months later, we launched the yen version where we took the yen off. And that was moving 10 to 15 percent a year. And at the time, the yen was so, so strong. We said, well, what if this reverses? At the time, the headlines were yen is up, stocks are down. And we said, well, what if the headline's reading, yen is down, stocks are up? This might actually come to be. And then you just don't want to bet on the yen. So it was moving 10 to 15% a year. And so that showed people it could work. And then a single currency they could make a,

they can make a decision on. And then the euro came out. And we did a single, a simpler version for the euro. And then it started taking off in broader format. But I still think it's like inning one of that concept where that most, there's probably two trillion dollars of mutual finance that's betting on the euro forever. Are you guys going to take the Bitcoin out of the blockchain? You know? Not yet. That's a whole other topic.

Let me ask you a question, getting back to this factor stuff. How do you think about different factors in different geographies and different regions or let's say that you thought that quality dividend growth was a good idea and you went to work on it and it worked really well in United States, but it didn't work well in Brazil, it didn't work well in Russia or Eastern Europe or anything like that. Would that say that this is not a robust factor? Or, like, how do you just think about that process in general just testing these different ideas? We really do try to make things scalable and do things in families.

And so you do see you're doing a robust set of research across this different process. So you'll definitely see how to launch things in families, right? So we launch the quality of and growth. We have eight or nine executions from U.S., large, small, international, Europe, emerging markets. The multi-factors that we started doing in the U.S., developed world, emerging markets, Europe, Japan. Now, in particular, as we get to these multiple factors, you start saying, you know, Japan is a market that's notorious momentum hasn't worked. So if you say how skewed towards momentum do you want to be, that's one where you might not rely as heavily on momentum in Japan if you think it's not a factor that's worked. Or you say, well, maybe there's going to be a dynamic where it'll start to work.

And so that's one of those active processes, you know, that we've been building around on how do you create these multifactor strategies that go after those. markets. And for your, we've been talking today about a lot of your dividend growth funds, does it matter? So the fact that foreign markets and emerging markets have much higher dividend yields right now than the U.S. A lot of that probably has to do with performance and buybacks and all these other things. But does it matter? Is it the absolute level that matters or more the relative value that matters? So could, because dividend yields are higher, does that, does that, does that not work like that? It's an interesting point. I mean, I do, the U.S. an outlier in doing so much buybacks. So if you look at the combined today, buybacks are

higher than the net buybacks are actually even higher than the divin yields in the S&P 500. So you're getting close to 5% dividend plus net buyback yields on the S&B 500, whereas mostly internationally, they just mostly pay high dividends, right? So they're not doing as much buybacks in a broad, eFER emerging market set. It might surprise you, well, 98% of developed world pays a dividend. It's a very high percentage of the Europe that developed world market. What's response for the discrepancy? Is it, is it a tax policy? Partly it's, it's, we started letting executives in compensation. There was a stock executive compensated that had us doing more stock options. And because you get compensated in stock options, you don't want to pay a

dividend. Your stock price goes down by the amount of the dividend. And so internationally, stock options are used a lot less. And they do a lot less buyback. And there was other tax-related reasons why they just used options less. But I think it's very connected to that. And so there is definitely a higher correlation, let's say, in the emerging markets, high dividends and deep value, sort of 9 PE's, 6% dividend yields, they're very highly correlated. In the U.S., you could say some of the, for a little while, the more high dividend, lower volatility stocks had higher multiples.

It was sort of an interesting combination. But it's really more in the international markets. They do just more dividends and less buybacks. do you think that we have I mean I would say that you probably think that we've we've snatched all the low hanging fruit in terms of factors is there going to be like a huge

discovery in 20 years are we going to look back and say I can't believe we didn't we didn't discover that or are you skeptical that's going to happen I think people are it's going to there's going to be always more art in how do you combine these things together how do you get portfolio construction is going to matter

right so I think where the the battle is going is and selfishly, there was pure beta on one hand active on the other, and a lot of the original factor investing in smart beta, even as Wisdomt reconstructed, it was low tracking error tilts and small tilts on the market. You know, I'd say our sort of large cap core, which was our earnings weighted process originally, it's like a 25% active share, 2% tracking error, 1% value added. It's going to, the fight's going to get more in that active space where you go 85% active share

really different than the market. And so that's like the art of portfolio construction and where I think, you're going to get The sort of raging battle is right now is more after that high active share type portfolios because if you're going to pay for something to add value, you want to see it actually meaningfully differentiating and being meaningful value added. That's the new battleground. So I think before we let you go, we would be remiss if we didn't mention the new ETF that you guys have, NTSX, which was more or less created on financial Twitter, which

I think is just an amazing story. Maybe you can explain to the audience what that 90-60 fund is and how? how that relates to the 6040 and what the sort of elevator pitch is on that and how it works. So the main idea is, and generated from a lot of people who do this actively with fixed income managing a fixed income portfolio, they layer equity swaps on top. So they're trying to get more efficient use of capital. So for every $100 that goes into a fund, you get more than $100 of exposure. So you can call that leverage. And the idea is in this fund that for every $100 that comes in, we get $90 of stock exposure and $60 of bond.

futures. So you have $150 of exposure for every $100 that comes in. Now, it's not like these daily reset leverage funds. It's a fund that has quarterly resets on the futures and the equities are long-term holds. It's sort of like an S&P 500 like exposure, sort of beta, the idea of bringing beta to this capital-efficient use of capital. And so why would you do this? Well, in some ways, it's creating more room for alternatives and getting adding diversifiers to your portfolio. So when you think about if somebody were to try to add an alt, a liquid alt fund, well, where are you going to take money away from? Are you going to take it away from bond funds, where, which are low volatility, to add this quote unquote diversifier, which has been really struggling over the last

10 years because it's been a straight up equity market. But maybe you need more diversifiers. But where are you going to fund it from these opaque, complex things? You're going to take it from your bond funds? Well, that's your safe money. And so the idea is you could put two thirds of your money in this 90-60, two-thirds times 90 is 60. Two-thirds times 60 is 40. So you get 60-40 exposure and you have a third of your capital that you can do something else. So, you know, that's one idea of how to do it. The other was, let's say you just have a 60-40 and you sell all of the 60% of equities and by this, you're just sort of adding more bond futures. You're adding more duration. You know, it's the idea that this compared to just straight equities,

if an equal swap of this 90-60 versus equities gets you more diversified than just equities would get you. And so you could think of that combination of the equities and the bond futures together just as another way to do it, getting this more diversified portfolio. And what was the response internally? Maybe you can answer this. Maybe you can. When they said, where did this idea come from? Well, I mean, the truth is that there's a lot of people who've been doing this for years, right? It's the active guys, we've been looking at the active guys who have been doing it. There's been active fixed income managers doing equities swaps with actively managing the bonds. And so it was out there.

We had been watching that space for a while. We hadn't thought of an execution that would go after that efficiently. And this was one of those ideas that had a groundswell of public support and started in Barron's, and then it continued online. And it was a conversation we thought resonated. It's always attracted to invest in a company that has their employees eat their own cooking and the employees eat their own cooking. do you invest in Wisdomtree funds?

Yeah, and I wish it's easier to publicly show your actual holdings is we have our own little challenges around that. But our own 401K was when the first 401K is to use ETFs, our ETFs are in our 401K. My personal 401K is 100% Wisdom Tree ETFs. Very little of my funds are outside of Wisdom Tree ETS. It would be a unique little niche exposure. But, yeah, I believe very much in what we do.

I'm a large show of Wisdom Tree and a large shareholder of our ETF. So you're triple dipping. triple dipping. Was that actually hard to add the ETF exposure to the 401Ks? Because it seems to me that's like the one stronghold that mutual funds have over ETFs still is the defined contribution plans. Over 10 years ago, we tried to build our own platform to get people to use our ETFs on their platforms and getting record keepers or getting people to switch record keepers to use our platform was a big investment that was for waste. We didn't have a lot of success there. But getting the record keepers to add that functionality, there are some major record keepers that you can put

ETFs on. And so now it's just a matter of getting the advisors who work with 401K plans to start doing it more. But you can do it. It's not easy to get to change status quo bias, but it's definitely possible. Jeremy, thank you so much for coming on. We really appreciate it. We will link to charts and links in the show notes. And thank you for listening. Thank you for having me, Michael. Thank you, Jeremy Schwartz. Thank you, Wisdomtree, for coming on today. an excellent discussion. We have a ton of research from Jeremy and his colleagues that they sent us for all the strategies that we discussed because we did kind of hit on a lot of stuff here.

So we're going to put links in the show notes to that. There's also a really cool tool that they have on their website that we kind of just found out about, I think probably last year. It's called this Wisdom Tree Fund comparison tool. And they have a ton of data on here in terms of comparing different funds, ETFs to indexes and using a lot of different categories And again, we've leaned on Jeremy before for research, and this is a really interesting tool. So if you want to compare the S&P 500 to EFA, to EM, to small caps, to whatever, and you don't know how, go to this tool, and to Ben's point, you just press a few buttons, and it shows you the dividend yield, the shareholder yield, a lot of information that was probably not available to everyday investors just a few years ago. Yes, the fact that this stuff is free is pretty great. And a lot of people probably don't even know about this stuff.

So again, thanks to Jeremy for coming on. Thanks to Wisdomtree for sharing all the research. And we'll talk to you next time.