Animal Spirits Podcast - Talk Your Book: Sectors & The Business Cycle

Episode Date: August 28, 2020

On today's Talk Your Book we sat down with State Street's Matt Bartolini to discuss investing in different sectors of the stock market and what these sectors can tell us about where we are in the business cycle.   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

Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ridholt's Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions, are subject to change based on market and other conditions and factors, and do not reflect the opinion of Ridholt's wealth management, state street global markets, and or state street corporations and its affiliates. This podcast is for informational purposes only and should not be relied upon for investment

decisions. Clients of Ridholds wealth management may maintain positions in the securities discussed in this podcast. We are sitting here with Matt Bartolini, head of Spider America Research. Matt, thanks for coming on. Yeah, thanks for having me on. Ben and I were just talking about this on the podcast. Has there ever been a sector that has outperformed during a bull market and then the bear market and then the subsequent recovery?

what we're seeing with tech, obviously. Based on the research that we have, I don't think we've seen anything like that. I think it goes to show the type of sort of market cycle we've witnessed already in 2020, where we've had three different type of cycles. Heading into 2020, we're in a slowdown. Then we had a recession that lasted ultimately two months

for we've used in our research around the LEI year-over-year change. And now since April, end of April, we're in our recovery. So I don't think we've seen anything like this. And tech has just been a juggernaut in terms of the performance they've seen. It speaks to how society is now changing where you need more technology to function.

Is there anything else that surprised you in either the downturn or the upturn in terms of sectors outside of tech where something either didn't hold up as well during the quick bear market or has held up better or worse during the recovery? In terms of surprising, one is utilities because historically in a recessionary environment,

utilities have held up well. They're sort of bond profits. is definitely more defensive. But if we look on a year-to-date basis, because I think a lot of people remember 2020 is this big recession, but on a year-to-date basis, utilities are negative, and the broader market is positive. So I think that's a bit surprising because it flies against the conventional wisdom that in a recessionary environment you want to buy utility, staples, and healthcare.

Now, if staples and healthcare, they did well during the onset of the turmoil, but have sort of trailed recently as we turned a much more cyclical recovery. I mean, the bounce back that we've witnessed is unlike any other. I mean, homebuilders, home builders are up like 115% since the market bottom. And the last time we had a massive crisis, home builders were the proverbial red-headed stepchild that no one wanted to talk about. All right, so we'll drill down into the factors. But before we get there, in one of the papers that you guys put out, and we'll look to all this in the show notes, you guys wrote, sectors have historically exhibited wider discretion than styles.

I thought that was really interesting. I never really thought about it that way. What do you think are the implications of this for investors, being that individual styles within sectors have a wider dispersion? When you say styles, do you mean factors? Yeah, so we actually classify as a couple different ways. So one is just your traditional styles by looking at value and growth throughout the cap spectrum. And then other way is by looking at it more factor-driven, pure styles, very heavily concentrated. And another one is your traditional value, growth, momentum, low volatility. In any case, sectors far outpaced,

that sector's average dispersion since 2000 on a rolling three-month basis around 16%. Styles pure factor or not around 7 to 10%. So far outweigh sort of your style type of rotations. So what does it mean for investors that in an elevated dispersion environment or an elevated dispersion asset class, there's more abundancy or probability for alpha generation by being on the right side of a trade? whether you're sort of a momentum-seeking investor, you're focusing on the winners. Winners relative to the market as well as relative to the laggards is much higher within sectors

and that creates more probability to generate alpha, which is obviously probably beneficial for investors. Hang on. Let me push back if you don't mind. Doesn't that also create just as much opportunity for negative performance if you're not in the big winners? It does. It definitely does, provided you are on the right side of the trade, though, you can actually generate positive performance. And I think if we stack this up versus the type of strategies that we do see in the marketplace, momentum-based strategies that are targeting persistent winners, those have tended to generate strong returns as a result of targeting that elevated dispersion levels.

Because sort of the efficacy of sector strategies goes down to sort of two variables, elevated dispersion and low breadth. So you're implementing this across only 11 sectors. So your actual choice of being wrong based upon your skill is lower. Because if you're doing this versus, say, single stocks, that dispersion is much higher, but you have, say, now 500 stocks to implement those D-Points. These are things I wish I knew back in 2012 before I started shorting Amazon. Yeah, I mean, you definitely have the ability to be on the wrong side.

There's obviously two sides of every trade, but if you're on the wrong side of a trade for a while, you're probably out of the market quite quickly, and that dispersion becomes your foe instead of your friend. When trying to think through these historical relationships between sectors, did it matter when they had that shakeup a couple years ago when they moved Facebook to the communication sector and now Amazon's consumer discretionary? And those labels matter at all when thinking about how to implement something like this looking like a historical backtest or something? It had an impact because it's such a large change.

Consumer discretionary communication services and technology were all altered. And your historical view of how, say, communication services stocks may have behaved in the TMT bubble or in the GFC, you needed to recalibrate that. So you actually had to look at what a backfill of that index when that exposure may have looked like to get any sort of sense of market direction for our current times. Economic sensitivities will always be changing. You have different growth profiles.

So that change in 2018 was quite systemic in terms of what it means to be a sector investor in this market. I think it was necessary just given how horizontal our economy has become and we're less vertically integrated. And you have Google, which was technology, but honestly, it facilitates communications between its end users through search engines, through other sort of online social platforms.

For example, when thinking about sector classification, Visa and MasterCard are in technology. American Express is in financials. Who decides these things? It's all based on the GICS construction. So GICS construction is a joint effort between S&P and MSEI, they decipher what stock should be in which sector based on the operational and revenue profiles of those firms, and then they group them accordingly based on

their economic footprint. So, I mean, for American Express, for financials, they do have a bit more of a sort of a technology platform, I guess, as a Visa or MasterCard. No, it's the opposite. Visa MasterCard of Technology. No, they have the corporate consumer platform on American Express. What I would say is that Visa and MasterCard are in the technology sector ETF. Right.

Okay. So we're saying the same thing. Saying the same thing. It comes down to the classification from S&P and MSCI and how they want to sort delineate these firms. I think there can be some gray areas going back to, again, like we're a much more horizontal economy. There's going to be some nuances to it.

I think the classification scheme has evolved over time, and particularly there's been two major changes in the last five years. 2016, you saw real estate come out of financials, which was a massive change because those two are really different in terms of their economic sensitivities. Then, of course, the big one in 2018, where a lot of different things were reshuffled to really adhere to how we consume media. I mean, a lot of the communication services stocks are streaming companies now. I mean, look how with CBS and News Corp, they have streaming services that should be in the same sector as Netflix. Now, having said all those changes, is the market acting on a sector base?

like you would expect in something like this, where we have this recovery. Basically, is the market showing that we're in a bull market now? On the historical analysis we did in the paper showed in a recovery time frame, consumer discretionary materials and real estate would do well. Consumer discretionary since April 30th is up around 29%. Materials is up 19% both above market. So that sort of fits with the traditional recovery type of time frame. Real estate, however, is not done well.

So I think the reason why real estate hasn't done well is a result of how different this recovery has been, where probably firms in the real estate sector that operate hotel reeds or mall reits, they're likely not to be in favor, just given how much of a change in our society there's been. So I think what we've seen since that sort of, again, using the LEI, the leading economic indicators year every year, you'd say that, yeah, it's a bit playing out like it's playbook, but it doesn't account for the fact that tech is the best performance sector in tech in the historical view was not one of the better performance sectors in recovery. So when we were doing this historical research, we always want to say this works on average. This is sort of an on average view to showcase tendencies

based on economic behavior. So to some degree, yeah, it's playing out a bit like as we viewed historically. But there's going to be these idiosyncratic moves like we've seen with tech. We've seen within some communication services as well where there's these sort of shifts in the market where leadership goes to something that hadn't worked in past recoveries. Do you think that you could look at sectors at a given time and identify what's going on in the business cycle? Yeah, definitely. In extreme cases, it shows up more so. So when the market was significantly selling off, you definitely saw consumer staples and healthcare do better than the broader market as well as other sectors. And that was just because their products and services

were being sought after in terms of groceries and health medicines, et cetera. So I think extreme cases, you can definitely take what those sector movements are saying and try to replicate it back to the business cycle. But we were in a slowdown starting September of 2018. And healthcare was one of the largest underperformers of the market as a result of what was going on in the political sphere with the opioid crisis. And then, as a Q1 to Q3 of 2019, it vastly underperforming when a lot of progressive Democrats entered the race. And there was really a lot of sort of concern on the health care side around Medicare for all that was due to the broader sector.

So you can have these sort of idiosyncratic market regime shifts based on non-business cycle events that basically upend any historical analysis. So looking at it on an average basis, the show tendencies helps. But in those extreme cases, you definitely can sort of take some information back and say, okay, we're probably. probably entering a recessionary environment or recovery, et cetera. Are there actually any sectors that have shown historically to perform well in, say, election years or after changing up the guard, something like that? I haven't identified it yet. I mean, I think I always sort of look at that election historical viewpoint of like what works

well in a Republican regime or a Democrat regime. Always have the massive grain of salt. We don't have enough data to actually identify all of that. Also, every election is completely different. this election, I think, is going to be the poster child for different. So I think it's just hard to say because different policies with different shifts. And I think the interesting thing is following the 2016 election, everyone would probably think that energy would do well based on some of the regulations that would be paired back. But energy all of a sudden went on a sort of worse run in the last five years as a result of what we've seen from a global supply perspective, but also geopolitics.

Maybe I should have asked my question like this. If somebody, a genie said to you, I'll tell you what the economic cycle is going to be for the next 12 to 18 months. Do you think that using sectors, you could generate alpha? Or I should say, how confident are you that you could generate alpha if you were given that information out of time? I'd say confident enough based on the historical tendencies, but acknowledging that you can have those idiosyncratic market shifts just completely upend it. I mean, the joke that is a horrible joke because it's about finance, but the paper, the results, if we ran this as a model, we obviously would perform well because we would have picked the best performing sectors based on the market environment, but there would have been periods where we were just wrong because the market shifted. So I can say like reasonably confident that if historical tendencies exist, this could work, but you cannot predict any sort of election cycle impact to the health care or the opioid crisis, all of a sudden. upending the conventional wisdom and a slowdown that, you know, healthcare firms can do well.

You're right. That was not a knee slapper. No, it's not. It doesn't go over well in the office. It doesn't go over well on the podcast either. I like this stat that you had that you said over the past 15 years, more stocks have underperformed their respective sector averages by more than 10% than have outperformed by more than 10%, which makes sense given that the sectors are obviously going to be more concentrated than the overall market. But isn't the concentration of the sector's almost a good analogy to the overall market now that we have this concentration at the top and that the outperformance of anyone's sector is probably going to be driven by a handful of stocks in most cases. Am I wrong on that one? No. So, I mean, like the broader market, you do have concentration, particularly in a market cap weighted paradigm. You are going to have a handful of stocks accumulate a massive amount of that performance. I think part of it goes to the, when looking at the underperformance and overperformance, we're looking at something in excess of 10%. And when we're having these conversations and using those statistics, we're really talking about

investors that get the sector call right, but the stock call wrong, sort of day traders, retail investors that maybe want to play home builders and they go out and they just buy a handful homebuilding stocks and then they bought the ones that are down 33% when the broader markets up 100. We're really using those statistics to sort of showcase this sort of thematic idea of sector investing to play market events, and that if you're looking to participate in some sort of societal sea change, whether it be mobile payments or cloud storage, you have a likely better chance of not burning yourself up by implementing within a sector viewpoint because you're diversified, particularly when you get more narrow like that, I know your question about market

gap weighted, but more specifically when you're narrow to be equally weighted to just reduce that stock-specific risk and try to pick up the theme. But within broader sectors, you definitely can have concentration risk. We see it within tech and communication services, but that is what has propelled the market overall in this year and prior ones. And I think that's actually a big win for investors, too, the fact that in the past, you would be searching through these for just one or two individual names. And now you can buy a bucket of them or a basket of them and not have to worry about picking the winner and letting the cream rise to the top, basically. And you just pick the sector and, like you said, more thematic. I think that's a huge win for investors

versus what they would have to do in the past. Yeah, and I think goes back to the earlier question, too, about being on the wrong side of a sector. Being on the wrong side of a sector, the average underperformance of the worst performing sector on a calendar year basis of the last 20 years was down 19%, which is hard to stomach. But this year, the worst performance stock in this to be 500 is down 73%.

So in sort of order of magnitude, sectors, well, you definitely can be on the wrong side of a trade. The magnitude, ideally, historically, should be less. So the GICS sector classification only goes back to 1989, which covers just three recessions, I guess, 91.com, GFC. So what you did was you reconstructed it and you went back further. And one of the things that you found was during a recession, non-cyclical sectors like Consumer Staples,

utilities and healthcare performed well, skipping ahead. They outperformed the broader market on average of more than 10% during six of seven recession periods. So to me, that makes sense specifically with consumer staples like Procter and Gamble and companies like that and utilities. That makes sense. Health care, however, is in my opinion, or maybe you could tell me, maybe a different beast. What percent of the health care market these days are biotech or sort of robotics, almost like technology companies, versus say Pfizer, Bristol-Meyer or some of the old stodging companies? Within health care is still pharmaceuticals some of the majors, like the Bristol Myers, the J&Js.

But that's the interesting thing. When you get a little bit deeper at the sector level, it'd be hard-pressed to say biotech is something that would work well in a recession. It's more risk-on type of cyclical. However, we actually did see biotech do quite well in this environment. Again, it's completely non-normal. It was a likely result of them trying to get us out of this. But they do have a sort of non-cyclical business profile

because they're typically advanced medicines. They have a longer shelf. life, that are maybe pre-revenue. So there are some different tendencies when we get down to the individual industry level, but the sector composition of healthcare are still these companies that are major healthcare conglomerates, that have stable cash flows, that have healthier balance sheets, the more sort of generics that are not these high-flying biotech stocks. And again, your marker cap weighted in the healthcare space, you're not going to have

a sizable amount of your exposure into some of these high-flying biotech names that basically have two or three patents at the third stage, but you get able to produce any revenue. How do you think about sector selection? Because that's obviously a tough part, too. You talk about the dispersion. There's obviously going to be dispersion among the best performing sector and the worst. Are you thinking it all the way through a macro lens? Are you ever thinking about more bottom up in terms of what the individual components are? Because those are obviously changing too. How do you think about sector selection if people are going to try to pull this off? We always sort of frame your sector selection process in terms of investment thesis around four viewpoints, one being this really technically driven. So momentum-based sector rotation strategies or volatility-based.

We've seen low-volatility sector strategies be implemented using similar characteristics you would find in traditional factor portfolios. You just rank them based on volatility or some sort of beta-sensitivity. You also then have thematic that are obviously more. geared towards some of the retail set. We're just trying to harness and sort of trend. The other two are more bottom up. So looking at the bottom up fundamentals, building up return on equity, price to book, being a value-oriented investor. So if you're saying, I only want to buy the cheapest sectors. You look at a valuation screen. And right now would spit out financials, energy, and I believe real estate, I think is the third one at this point. Could

be wrong on the third one. But basically, financials energy screen is the most cheap right now based on a couple of different metrics. And probably have been for a number of years. That's the problem with value for the last couple of years. And then you can do top down, looking at the business cycle, looking at different macroeconomic variables. What is your outlook for interest rates? If you're expecting higher interest rates,

you would like we want to gravitate towards something like banks. Or if your outlook for oil or inflation is higher, you'd want to gravitate more towards energy producers as well as metal and mining companies. So we look at those sort of four lenses, technical, thematic, bottom up, and top down. We used to be able to make general statements about things like higher interest rates, for example, or maybe specifically a steepening yield curve, was good for bank stocks. Does that work anymore? And let me just follow up this question with another question that's related to this. This is from something that State Street wrote.

Materials of energy are commonly expected to perform well in slowdowns as the positive output gap in the space tends to leave prices of oil and basic materials higher and contribute to profitability. However, as these markets have become more integrated with the global market, the boom of commodity prices during U.S. economic slow nodes has occurred less frequently since the 1980s. So again, just to bring this back full circle, don't things change? Can we just make statements from the 60s that carry over to today? No, you can't because the market changes constantly and our economic cycle is completely different. I think the research that we had done spans 60s, 70s all the way up to today. looking at, to your point earlier, if we went just back to 89, we wouldn't see enough market cycles to make any sort of conclusions. Going back to the 60s, we can start to see all things. If there's any persistency, that's helpful. With respect to energy and materials, their business cycle tendencies shifted. I think most people would expect that in a recovery environment, you'd have more consumer demand, more business demand. Materials and energy firms should

uniquely benefit as a result of that more demand. But those are two segments that are definitely driven by forces outside of the U.S., particularly with oil with OPEC and OPEC plus, generating 40% of all oil output. And then metal and mining companies, so many different state-run metal and mining companies within developing nations, that has had an impact on the prices. It is outside of any economic forces in the U.S. And I think largely when we look at those two segments, they're not driven by the U.S. economic cycle, but by the underlying commodity inputs in terms of oil, precious metals,

industrial metals, inflation, etc. I think with banks, though, the relationship still holds. A yield curve is a fair proxy for net interest margins. And I say fair because the yield curve from 2016 to 2019 significantly flattened, but net interest margins on banks went from three to three and a half. They were able to increase the net interest margins and was largely a result of the Fed fund rate going around 2%. Banks not really changing the way they charge on their deposits and they can sort of capture a little bit of margin. So I think the yield curve still plays. We see that too.

At the pure bank level, the beta sensitivity of bank stocks to the yield curve is like around 35, 40. Is that lower or higher than you would have thought? It's right around the historical range, honestly. In terms of all the other variables that go into the market, beta sensitivity to the yield curve around 30 to 45 is fair. But when you compare it to the broader market, it's much less. market has much less reliance on the yield curve. And then even broader financials, that beta

sensitivity is less because insurance firms, their sensitivity to the O curve is much different. A diversified financial service that has multiple different revenue streams is going to be not as impacted as, say, regional bank is to the O curve. To your question, it's helpful for certain segments of the financial industry. The more granular you get until they say regional bank, where that bank's only operation is to borrow short and lend long, it's going to have a much positive impact. I would hesitate against anyone saying, well, financials, they react very strongly to the yoker because that's not really true. It's specific banks that do it. Now, in the past, it would have been hard to understand how investors are using a lot of these

thematic ideas because you would have been based on individual companies. Now you can look at, your firm like yours can look at the fund flows into some of these. How are investors doing in some of these smaller, more niche products, AI and robotics, these types of things, or maybe even stuff that's biotech related to COVID. Is it a lot of performance chasing there? Are you seeing a lot of investors that are getting ahead of this and seeing a huge flow into some of these products as they're about to take off, basically? I wouldn't say it's a bit of performance chasing.

If it was a different period where we weren't having such a shift in our society, it would probably more be performance chasing and less a realization of future opportunities. because we've classified all these thematic ETFs and we actually had to do it by hand because systematically it would be getting corner solutions because how do you classify cloud computing versus mobile payments? It becomes very difficult. We've seen $14 billion into the thematic ETF industry overall, so not just State Street, but the entire U.S. list of the ETF industry, the thematic ETFs. And year-to-date, 66% of those thematic ETFs are upperforming the SEP 500.

So you could say, well, that is performance chasing because they're buying these hot dots, but the hot dots are being created as a result of the need to work from home more, the need for more intelligent infrastructure and different energy sources. So there's an economic rationale behind some of the performance. Some of the stocks are obviously trading at elevated multiples. So you have to be somewhat concerned about that in terms of those future expectations being realized. But I wouldn't say it's all performance chasing. There is an economic rationale of where perhaps growth may come from. as a result of different behaviors. You have all the flow data for sector funds. Does that tell you anything about what might potentially happen over the next, I don't know, 30 days or so? Like, is there any signal in that noise whatsoever? Does it mean anything?

No, not really. The predictive nature of it is really hard to gather. You have different motivations behind some of these investor flows. So, for instance, in March and April, energy had massive inflows. Well, that must be bullish, but no, it's not because we look at short interest, short interest spiked because everyone wanted to be short energy. And the easiest way to do it is to go buy an energy ETF because the borrow rate is relatively inexpensive, particularly if it's liquid. So the flow data is somewhat hard to understand. And we look at it through three different lenses.

So we'll look at actual flow data. We'll look at what the options market is saying in us in terms of options positioning, because a lot of the sectors have a pretty robust options market. and it'll also look at the short market because they could be telling you three different things and you try to build this mosaic theory. So there's no repeatable process to derive from ETF fund flows in terms of like, oh, everyone went into tech this year. That's a strong signal for tech. Paring it back, people wanted to detect because it's been performing so well and has a strong

momentum. So it's more about confirmation bias than positioning than trying to sort of create a repeatable process. You nailed it because people love to tell stories about flows. Can it be true that something is maybe backwards looking, but also not simultaneously forward-looking? Like, sector flows might tell you what is performed best and tells you literally nothing about performance going forward? Yeah, it has a little predictive value. It could tell you that people are really interested in tech historically and that could sort of continue, but then you're going to use other intuition to make that assessment.

I mean, I write probably like a 12-page report every month about fun flows, so they're fun to talk about. It definitely paints a picture of how investors are positioning, but in terms of only buying the sectors of the most inflows, you might be buying a sector that had a lot of inflows because a lot of big hedge funds and Delta One desks were looking to Arbout some sort of trade. Looking at your flows, have you noticed an increase or spike in turnover because we've seen all this speculation come in. Are people using ETFs and trading them more quickly than they had in the past? So yeah, we definitely saw trading volumes increase, particularly across the sector ranges. But we saw trading volume increase broadly within the ETF industry during the height of

volatility. And really, I know for our business, State Street, we have seen, I want to say it's some of the neighborhood of like an 84% correlation of our trading volumes and the changes in the VIX index, which is not unforeseen. I mean, you'd expect that heightened volatility, people start to react a little bit more fervently. But yeah, trading volumes have increased, particularly in the sectors like technology that become more heavily utilized. We've seen trading volumes increase on a specific smaller funds as they grow and people want to step into them, like the thematic range. And then it goes to the point around just looking at fund flows. Not all ETF trades on the secondary hit the fund flow market.

So you want to look at trading volume too to see if there's a persistent elevation rise of trading volumes. We've spoken about sector dispersion, stock dispersion. How come there aren't more equal weight sector ETFs? Is it because the bigger stocks have been carrying the load? Is there no investor appetite? Do you think that could ever change? What's going on with equal-weight sector ETFs, in your opinion?

The more traditional sense is market-cap-weighted, because you're trying to either replicate what the S&P 500 is doing by breaking up into specific sectors. The traditional market is market-cap-weighted. So you try to marry that viewpoint, not have sizable weighting differences. But I think there are benefits in terms of when you get more narrow into the industry exposures to be equal-weighted,

because if you were, say, market cap weighting aerospace and defense stocks, all of a sudden you have like a 20% allocation to Boeing, which probably was problematic over the last two years. But you had a view that we would probably have higher aerospace and defense spending, whether it's going to space or actually fighting more wars on land. But all of a sudden, your investment thesis was blown up as a result of one specific stock. So I think on a broad sense, being market cap weight is more traditional. I think investors are more accustomed to using that.

to play traditional market exposures on the macroeconomic policies, on momentum trends, valuation. I think it's to get more narrow to, say, harness a specific trend or investment opportunity. In the equal-weighted, we have seen more uptick in those markets just because of what I explained all around. You're able to capture a trend, but not have a single stock completely blow up your investment thesis. All right. So we've got the traditional sectors, materials, financials, energy, healthcare, things like that. But what about the next frontier, things like AI and robotics and self-driving cars and

blockchain and whatever else is out there? Like, what do investors do next? So with respect to the thematic investing, it really comes to identifying some of these next generational opportunities. And we have seen a significant amount of inflows in the industry where I think it was like $3 billion in June, July, and in August we'll probably net out around. the same. So concerted interests, and it's into broad innovation spaces. It is into future ways to communicate, cloud computing. We saw an uptick in clean energy, which I think is going to be a very

hotly debated topic as we get into November. Depending on the outcome, clean energy stocks could significantly have a rally based on different policies. And back to some of we were talking earlier about the performance chasing, like I said, 66% of these thematic funds have outperform the S&P 500. And they've outperformed by an average of 7%. Some of these are up over 50, 60, 70%. Some of them over 100% since the market bottom. So there's some tangible opportunities there, but it does require a lot of due diligence

because, first of all, how do you understand what is the thematic ETF versus not? You need to make sure that you have a selection process of the stocks is sufficient enough. The weighting methodology, you're not geared towards one stock or another. And then, is this the right theme for you for your investment profile? Where does it fit in a portfolio?

out. Something focused on autonomous vehicles is likely not to replace your entire S&P 500 exposure, but it probably could augment it. It depends on your waiting. And these things are just going to continue to ramp up in the future, right? We're going to have so many more choices for these thematic ETFs in the years ahead, I would imagine. Yeah, I mean, that's something we've seen before in the ETF space. When all of a sudden, a new trend emerges where you see significant launches and product proliferation, which is, I think, for us, why we develop the classification scheme for it, which we're really transparent with. Any client that wants to see how we classify ETFs under thematics and

then the subcategories, we'll send to them because it's just about transparency and it helps that out. Well, Matt, this is great. Thank you so much for coming on. We really appreciate your time. Yeah, thank you.