Animal Spirits Podcast - Talk Your Book: The People's Index

Episode Date: August 11, 2025

On this episode of Animal Spirits: Talk Your Book, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ben Carlson⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ are joined by Matt Bartolini, Managing Director at State Street Investment Management to discuss: investing in the Dow Jones Industrial Average, a history of the Dow, how it compares to the other indexes, and more! Find complete show notes on our blogs... Ben Carlson’s ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠A Wealth of Common Sense⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Michael Batnick’s ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Irrelevant Investor⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Feel free to shoot us an email at ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠[e-mail]⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ with any feedback, questions, recommendations, or ideas for future topics of conversation. Check out the latest in financial blogger fashion at The Compound shop: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://idontshop.com⁠⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits Talk Your Book is brought to you by State Street Investment Investment, management. Go to statestreet.com slash investment-management to learn more about their ETF for the People's Index, the Dow, ticker DIA, at statestreet.com slash investment dash management for more information. 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. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ridholt's wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions.

Clients of Ridholt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Michael, the Dow has been around since 1896, 1897. Is that correct? I think it's 1896. So one of the weird things about the Dow is that it's a price-weighted index. And we talked to Matt Bartolini from State Street today all about this. And I never thought to realize, like, why did they do it like this? And one of the reasons that they did it like this, Matt mentioned,

and I kind of chat GPTed it to make sure it made sense, is they didn't have the computing power to make these crazy indexes back in the day. And the staying power of this said it's, I don't know, fast approaching 130 it's 130 years or so being around they did a price index back then because it was the easiest way they could calculate it i never thought about that did you i don't know maybe maybe i don't know who could so the dao is not just what you hear on the news actually it's actually investable so state rate has a tao etf d ia and it has what nearly 40 billion dollars in assets in it i think people prefer it as the diamonds okay do they the

diamond? I don't know. Did you just make that up? Nope. I think they do. All right. So, Ben, there was 12 stocks in the original Dow in 1896. Can you name any of them? Are any of them still alive? You can name one of them. G? Yes. Boom. Credit to you. Great job. American cotton oil company, American sugar refining company, American tobacco company, Chicago gas company, distilling and cattle feeding company, general electric, lack lead gas company, national lead company, North American company, Tennessee Coal, Iron and Railroad Company, U.S. leather company, and U.S. rubber company. See, that's why things were so boring back then. Listen to all those boring companies. Yeah, I mean, I would have more than four times earnings for those things. You kidding me?

What do they have like a 12% dividend yield? All right, so we talked to Matt Bartolini from State Street, all about the Dow and got into a bunch of other stuff what's going on in the markets and what they're seeing. So here's our conversation with Matt. Matt, welcome back to Animal Spirits. Yeah, thanks for having me back. All right. Today we are talking about the People's Index, the oldest index, what 1896? I think give or take, yeah.

That's when I was sort of first reported. We're talking about the Dow Jones Industrial Average. If you turn on TV, Kramer, whatever, newspaper, it is always the first thing. What did the Dow do today? It's kind of funny. I feel like the S&P 500 has taken the crown in many respects. But for Main Street, when they think about the stock market, they think about, or the question like how they say, how did the Dow do? True? Yeah, 100% true. My parents were like, oh, I heard the Dow was down 400 points today. What's happening? Yeah, nobody, civilians do not quote the S&P. It's always Dow. So we think,

think of it, I think, as an index, and it is. But it is an unusual index. It still gives you broad diversification. It is the U.S. stock market, but it is different than the S&P. So what is the Dow? How is it weighted? And how is it different than the market cap weighted index? Yeah. So it's 30 stocks selected by a committee grouped by S&P in the Wall Street Journal. and that's sort of how it's been throughout time. It has 30 stocks. It covers a broad range of sectors and industries. The selection criteria are for, you know,

basically companies that have a strong reputation, sustained growth, really resonate with investors as well, but also make the plurality of their revenue within the U.S. So think of it as like U.S. large cap, blue chip, well-known firms that are spread across, different sectors of the U.S. economy, and the weighting mechanism is price weighted. So a stock with the highest price will have the highest weighting. And there's controls in that

and sort of the index design where the highest price stock cannot be 10 times greater than the lowest price. Okay, so there are some sort of caps on that. That makes sense. And what is the, how different does the sector weightings look than the S&P? I assume the biggest one would be it's not nearly as tech heavy. But with 30 names, it's obviously still a concentrated index? Yeah, it is, it is different than the S&P because the S&P is going to be market cap weighted. And when you have a high amount of concentration, you can start to have a high amount of concentration in sectors. And so if we look at it in the Dow Jones, the highest weighted sector is the financials with 26%. And if we look at the S&P 500, financials they make

up around 13%. Within the S&P 500, 33% is in tech. So it is a different level of sector classifications and sector allocations with something like the Dow Jones Industrial average. It's kind of remarkable how the composition of the index really makes no sense. Like, why would you weight stocks by their price? It's an arbitrary measure of value, right? For example, McDonald's stock is $300, okay, and Walmart stock is $98. and that's it. That's not value. That's literally price. And yet, if you zoom out, so I'm looking at

the max change since inception of the earliest inception of both of these ETFs, not the index of the ETFs, goes back to 1998. There's very little difference. Now, over shorter periods of time, particularly in the last like three to five years, there's a decent amount of difference between tech stocks. But it's just wild that like this index of 30 stocks that is weighted by, again, the price tends to track the market cap pretty closely. Yeah, I mean, I would agree. Like, price weighting is probably something that you would create in the 1800s, right?

But it's still, it was probably just easier back then. They didn't have computers and stuff to calculate all this stuff. It was probably the simplest method they could come up with, right? It works. It does work. Yeah. It was you put it in a table, and I think it was the Atlantic Observer,

and then you average out the price, and there you go, you get your index for the day over day, over day. But there is some dynamicism to it because there is a divisor to control for those outwe, liars where a stock, perhaps they have a stock split or there's never corporate action event or a stock gets included at a different price than, you know, what is the top one now or the

bottom one? So there is some dynamicism to it too because of that divisor to make it a little bit more sophisticated. But I also say like, you know, equal weighting. I know I talked about that in the last podcast of you guys. Like equal weighting sort of more generally accepted, but that's not really that novel either. It's just looking at the number of stocks, you know, fairly equal weighting them across the board. I would say the reason why the returns are similar, you're able to get a good barometer of the broad-based U.S. equity market economy is not so much on the weighting mechanism, but on the selection criteria. So if we go back to some of the core principles of what's being included, it is a company that has sustained growth, an excellent reputation, the share price

is well controlled, and that the fact that the committee is looking for broad-based sector representation across the U.S. economy. If you were to have a selection criteria that looked at unprofitable firms, firms that made no money, and you price weighted those, or if you mark market cap weighted those, the returns on those would be exactly the same because it ultimately comes down to what are the companies within the benchmark. The waiting will have an impact on, again, like you said, Michael, on those short time periods where all of a sudden tech rips.

But over a long time horizon, being diversified across all segments of the broader economy, can be helpful in sort of maintaining that market exposure. The long-term nature of these makes it. So, yeah, the Dow and the S&P aren't nearly as is off of each other, as you want to think. But in the short run, it can diverge quite a bit. Like in 2023 and 2024, the Dow lag. But in 2022, when the market was down, it outperformed by a pretty wide margin. Is that just, I'm trying to think of like what factor style box they would fit in.

Is that just because these are more high-quality kind of variable? value dividend type of names? Is that the best way to describe it from a factor perspective? Yeah. So if we're going to look at it through a factor lens and their factor betas to value, to value quality and momentum, historically, the Dow Jones Industrial Average is going to be of higher value. So in this case, low value, but have more value attribute. So it's a value oriented approach. It will be more slightly higher quality than the SP 500, which is sort of hard to do these days, just given how much. much cash, those mag seven stocks kickoff, and lower volatility. And I think it just comes back to, and this is not a technical term, but the blue chippiness of these type of companies where they have a very durable business, a wide moat. They bet around for a significant period of time and have been able to weather different

economic storms. And so in a period like 2022, these companies in their blue chip nature can perhaps ride out some of the adverse consequences of the result from the Federal Reserve of tightening monetary policy so significantly. There are 30 stocks in this index, and these are the top 10. Goldman, Microsoft, Caterpillar, Home Depot Visa, Sherwin Williams, American Express, Amgen, McDonald's, and J.P. Morgan. When people think about constructing a portfolio, and they ask the question, am I diversified? How many stocks do I need to be to be diversified? Well, as we keep mentioning, 30 stocks gets you, I don't know, pretty much all the way there, right?

30 stocks versus 500? Not a whole lot of a difference. Talk to us about because you mentioned that these are blue chip names, you think stability, you think durability, Coca-Cola has been in the index, I'm guessing for a long time now. I would imagine that turnover in the Dow is significantly different than the S&P. Is there more, is there fewer turnover, fewer names coming in and out than the other index? Well, that's the interesting thing is that there actually is no set rebalancing schedule. So with the S&P 500, it rebalances, reconstitutes basically of the third Friday of the last month of the quarter, right? So it's like September 18th and, you know, next one we'll have, yeah, September 18th to do the Q3 one.

With the Dow Jones Index, there is no set rebalancing schedule. The committee will make decisions on whether a stock needs to be removed, other because of price concerns. Perhaps the price goes well above an excess of what they would consider to be stable for inclusion, or there's a corporate action, or a company no longer has those attributes of an excellent reputation, sustained growth, and something that resonates with the investor. So the turnover profile will be very different. And so for that extent, this actually is very much a buy and hold type of index,

where it's not constantly churning out the portfolio and rebalancing. I think that also speaks to some of the price weighting mechanism where it's, you know, it's a little bit of like set it and forget it. Do these companies, are these companies hesitant to do stock splits? Like, do they care if they're high weighting in the Dow? If Goldman decided to do a two-of-one stock split for whatever reason, I mean, it doesn't really matter anymore because you can buy fractional shares, but companies still do stock splits, obviously.

Is it rare for a Dow stock to do that? I cannot remember which company it was and I don't want to use the wrong name but there are companies that you look at and they do a stock split and ultimately stock splits don't make too much sense from a financial perspective

and there it is to get into the Dow there's a lot of fanfare being included the Dow Jones even if you look at some of the top brands you know go to Amazon do that I think yeah so I think it was Amazon I didn't want to say it was Amazon yeah they had like a thousand dollar price that's right yeah

And so that all of a sudden becomes really exclusive club, 30 stocks. It's not a lot that you can get into. And you can bandy about that to your end investors that you're one of the large companies, blue chips in the Dow. And if you look at some of the global brands, Forbes puts out that list, I think the Dow Jones Index has 10 out of the top 50. I mean, you could walk down, you know, I think some of those names that you rattled off earlier, Michael, I think I even used them in my day today so far. It's only, you know,

not even lunchtime. You know what's probably coming out, which is sort of neither here nor there, but I'm guessing United Health doesn't fit the criteria of a blue chip name, which is sort of whatever besides a point. But anyway, so this is not just an index that people talk about. This is also very much an index that people invest in. So you, you all have an ETF that traxis. I would say the ETF that tractsis. The ticker is DIA. And it's got $38 billion in here. And I mean, that's a huge number. I know with ETFs, it's weird, but like, do you have any sense of who's allocating here? I'm sure the answer is everyone, anyone? This has got to be a baby boomer ETF, correct? Is that stereotyping?

I would probably put it to a demographic lens. I would probably say, It is very much a sizable retail community using it. Now, that retail community probably skews to the older generation. So I think to that respects, you're accurate. But this ETF is actually a microcosm of all the different user bases of ETFs. Because DIA has a decent amount of options of liquidity. And there's a relevant futures contract that offsets it. So you actually see this traded a lot.

some of the structured product vehicles, as well as in some of the more Delta 1 systems. So you have your wealth advisory, you have retail, you have institutions. So it's actually a pretty decent ecosystem of user base here. But I think when we look at the 13Fs, there's a lot of unreported shares, which when we look at that, that says to me it is a decent amount of retail participation because retail investors do not need to divulge or disclose their ownership of ETFs. Well, think about it this way. If you want exposure to the U.S. stock market, but you don't want to have 35% of your portfolio

or whatever the number is in the top seven names, there's not been able to get exposure. Yeah. And I think every day, you're also getting a readout of the scorecard from the local news. They always report out on what the Dow is doing. It has the sort of cultural resonance of like, yeah, I own the Dow Jones Index. I have a piece of my portfolio in there. These are 30 green chip stocks, you know, brand names that everyone knows. Coca-Cola to, you know, J.P. Morgan, to Goldman Sachs to Apple, Amazon.

And that's the other thing is, you know, a lot of people maybe look at this. It's like, oh, that's my grandfather's index. That's an older index. It's not really a hard time keeping up with the times, you know. But if we look at it, it has four out of the seven, Mac 7. You know, it has Apple, it has Amazon. It has Apple and Microsoft. You mentioned the blue chippiness.

which I think I mentioned that you mentioned already. So apologies. But the American exceptionalism has been a theme in 2025. Is it the end or not? What sort of what does the revenue exposure look like for the Dow versus the S&P? Yeah. And when we break it out by the revenue derived by country, right now it skews about 65 to 66% for. derived in the U.S. for Dow Jones,

so about two-thirds of the revenue of Dow Jones companies is generated within the confines of the U.S. If we look at the S&P 500, that number is around 57%. So on balance, they're roughly the same. There's some marginal difference. The one thing that I would say is for the Dow Jones, again, there are rules. I think a lot of folks are sort of like, oh, it's a price-weighted index, but there's actually more rules to it.

One of the rules is that a company has to be headquartered in the U.S. And that also the majority, this is plurality. It's a very hard word for someone like me to say plurality. But I'll say a majority of revenues should be derived from the U.S. So there are some constraints there that actually make this more U.S. natured than, say, the S.P.500, which has some of those constraints on U.S. domicile. Not comparing or contrasting that one is better than the other. But if I look at these companies, there are,

blue chips that operate in the U.S. that drive a lot of the revenue from the U.S. So it is a very more U.S.-centric portfolio, all else equal. So you mentioned that there's a rule that like the between the top and bottom holding there has to be a certain relationship. Is there a limit on the size of the biggest stock in the index? Can you not get over 10% or something like that? Oh, in terms of the overall weighting. Yeah.

Is there a ceiling on how big a stock can get in the index? Not in the index methodology. there isn't. I think because of that 10x multiplier, it really depends upon what you're putting in there on the bottom because all of a sudden that can really change the math quickly. If, say, a company hits on all the other criteria in terms of the sustained growth, excellent reputation, and they have like a $5 share price, that all of a sudden becomes extremely hard to have something like Amazon or Goldman in there, which have much higher share prices. So you mentioned the 10x multiplier. Sorry, you mentioned the 10x multiplier twice, but

But could you expand on that because I see Goldman at 723 and Verizon at 42, and I won't do the math at the top of my head less than I embarrass myself, but that's more than 10. Yeah. So in the rules, says the index committee monitors whether the highest price stock in the index has a price more than 10 times, that of the lowest. So it's something they're monitoring. It's not a hard and fast rule that all of a sudden that kicks it off. And a lot of that comes in through the index inclusion of it because it sort of has a governor,

if you will, on including the highest of high priced stocks. Again, going back to our Amazon example where they did the stock split. This sort of in the weeds are not really relevant for anything other than my own curiosity. But if you add up the 30 stocks, just the price, that doesn't get you to the price of the index, right? No, they have a very dynamic divisor that will. Like each individual name does or the index itself? The broader index, when you divide it back,

instead of just in a market cap weighted fashion, right, if you would take the market cap of Apple and divide it by the full market capitalization of the index, you get Apple's weight. And here, they're taking the price of Apple and dividing it by this divisor to then give you the associated weight that would give a normalized price weighted basis. So it could be tracked over time. And that's the dynamic nature of the divisor. So it's actually what is sort of billed as maybe basic,

price weighted. There's actually a lot of sophistication that goes into it. Well, I always say that the S&P 500 is the biggest, the world's largest momentum strategy. And I know it's not momentum in like the quant sense of the term, but it's you let your winners ride. And I guess being priced weighted, the Dow kind of does that too, right?

Yeah, to some extent. I mean, without the sort of attention towards the value of that price, meaning the market capitalization. So yeah, the higher price stocks, they're going to be higher weighted, but they might not be the best performing either, right? Because if, uh, one stock goes

from 100 to 50, you know, that's a, you know, 50% decline in value. If the $500 stock drivers play at 50 points, you know, that's not going to be as much. That makes sense. So Matt, when you talk to either advisors or retail or institutional investors, whoever the end user is, how do they tell you that they're using this as, uh, within their overall asset allocation? Yeah. So it sort of stretches the gamut on this. You know, when we have conversations across different retail platforms, we'll have a conversation about education and investing education and about, you know, if you have that, you know, first thousand dollars that you want to put to work, you know, how could you do it in a very

diversified fashion in companies that you would uniquely know, right? You can walk down the street. You could probably see 10 out of the 30 stocks just on Main Street and USA. So something like DIA and the Dow Jones Index, that's something that's a very early investor can invest in and have their capital potentially grow over time, given the long-term buy a whole nature of it. So I think it has an entry point to investing because you are diversified. You do have that balance across different economic sectors.

And it's also pretty easy to understand. It's 30 well-known stocks, price-weighted. It's nothing too sophisticated. Obviously, you get into the weeds, you start to peel back the onion a bit, and you get to some hard math. So there's that entry point. But also, we think about it going to have broader context for saying. large wealth platforms that are building those asset allocation models,

you'll obviously have this idea of core and satellite. Now, something like the S&P 500, very, very broad-based, 500 stocks, you're going to mix it up with international and developed, you can have all this sort of robust asset allocation. The Dow Jones is probably not going to be your core, your one-and-done core investment, but I think it's something that could be added to a portfolio to give you a different approach to U.S. equities

and where you do have some overlap, but you're going to have more stability from a company profile. You are going to have lesser volatility historically, not significantly less, but you can raise up some of the quality profile that blue chippiness, as we were talking about earlier,

to your portfolio and have it as a bolt on to something that is more broad-based that has maybe a thousand stocks or 500 stocks. So we see it playing out that way. I've heard real estate investors before, say they like investing in real estate as opposed to stocks because it's tangible. It's something that they know and can see. And I guess that makes sense why more retail investors would be invested in this because it's something they hear on the news. It's something they're comfortable

with. In terms of an entry point, that's a good point you made that. This is something people have heard people talk on the news about. It shows up in every ticker you see. And the companies, when you see the list, you know them all. So I guess from a comfort standpoint, that actually makes sense for why people would be comfortable investing in something like this. Yeah. I mean, it's like one of the oldest investing adages, you know, Peter Lynch was know what you own, right? And a lot of these companies are very, very well known. And I think that really resonates with a lot of investors, but more importantly, those that are really new to building wealth and accumulating capital over time. If we had to put all of our money in just one Dow component,

I'm just kidding. So, Matt, I was talking with Ben earlier this morning about the year that is 2025. And I don't know how to quantify this because we tried a few different ways and it didn't go well. But the market is up 9% year-to-date, give or take, talking about the SP here, so forgive me. But we are more than halfway through the year. And it seems like a miracle, given all the tumult, the headlines, the anxiety. the investor sentiment, maybe that's a good way to measure it. How do you think about 2025 year-to-date? I think it is a market of many subplots that have just been woven together and ended up

landing the plane, so to speak. So all of the macro noise was very short-term in nature in terms of trade policy, like the actual most onerous ones. And ultimately, it just comes back to the fundamentals. And we're up 9%. I think largely that's probably where earnings per share growth on a full year basis is going to net out. So essentially, the market's up what earnings is essentially saying they should be from a earnings growth perspective. It's like that old adage of, you know, in the short term, the market's a voting machine,

but the long term, the market's a weighing machine. And I think that's kind of playing out a little bit in this year, where absent of those periods where we get fundamental data, the market only has macro to rely on for direction. And if you're only relying on macro, it's just chaotic. It's frenetic. There's just too many headlines to keep track up. But when the fundamental all of a sudden gets the hand of the steering wheel, it gets a little bit calmer because the fundamental news on balance

it's actually been pretty positive in terms of earning for share growth, company beats. So I'd say it's the dichotomy between macro noise and fundamental stability. And it's really wrecks havoc on a day-over-day basis when one, has more control over the other. That's a good point because we try to build all these macro narratives and then the way to really see if they're happening or not is through the earnings, right? Are people still spending? Are companies still investing? And earnings just keep moving higher. Expectations are higher now, too. They haven't, so obviously the corporations have moved past any of the weird

trade headlines as well. And you're right, it hasn't come to fruition in terms of what they said it was going to do, but that earnings continues to be the key, right? Yeah, I think the logical cause and effect between macro headlines and then company earnings has sort of broken down because the macro headlines to some extent are unreliable, not saying that they're fake or anything like that, but unreliable in saying this is just a talking point. This might actually not become policy. It actually might change in the next five or six days. There's actually probably seven different path dependencies as a result of this trade proclamation. If you're trying to build up that, binomial tree, there'd probably be a thousand different tree levels to it, where maybe 10 years ago, there's more predictability about how foreign policy would be implemented. I mean, a great example, I was about to go into a meeting on April 9th, and I had all this entire framework prepared to talk about the current market, and then there was a pause on the tariffs, and basically I had to redo a 50-minute talk in like five minutes.

So, like, try to think about that from like a company perspective. Interesting times we live in. All right. I'm going to end it here with this question. A lot of noise, a lot of anxiety around the path of returns this year. How have investors behaved inside of the ETF wrapper? And you all at State Street and credit to the rebranding looks beautiful have over a trillion dollars in ETFs.

So if anybody can answer this question, it's you. Yeah, so I think they've responded in focusing on resiliency. So building more resilient portfolios to pressing macro risks in a more uncertain market environment. And I think I can probably sum it up in sort of three ways they've been doing more resiliency. The first is in terms of we look at equity allocations, U.S. equity relative to non-U.S. equity. right last year in 2024 86% of all flows for equities went into the u.s that is a massive amount of concentration and when you're concentrating like that into one area you're going to inherit the boom bus profile of that area

pretty significantly and when you have a redrawing of the geopolitical paradigm where perhaps you know u.s. asset exceptionalism may not be met may not be continuing in the same way it did over the last 15 years for the next 15 years going more overseas where the valuations are more conducive and perhaps the fiscal impulse to ease and offer stimulus to offset any drags from trade could perhaps boost markets in those regions. So we've seen more flows into the non-U.S. equities than they had in 2024. So roughly, I think it's like 48% of our flows over the last three months have gone into non-U.S. Equity ETFs in the equity space. That's the first one. The second one is more usage

of fixed income ETFs. So fixed income ETFs have taken in $206 billion through the first seven months of the year, that is the fastest fixed income ETFs have ever gotten to $200 billion in any other year on record. And they're likely to probably have close to $400 billion of inflows on a full year basis, which would be a massive record. So diversifying that equity book, you know, shorter term bonds. That's really interesting in the context of a bull market. Yeah. I mean, they're under allocated. A lot of people are under allocated in the fixed income space because in 2022, when you thought the market was going down, bonds were not that ballast to offset some of the equity volatility.

And actually, we're seeing a lot more active fixed income in its own right. They're on their record pace, too, because active fixed income management in this type of market environment with tight credit spreads and significant interest rate volatility can actually prove to being very valuable. And then the third one is non-traditional market exposure. So commodities, inflation-linked bonds, multi-asset portfolios that can differentiate with return profile through different periods of economic weather, those ones have actually seen allocations to as well.

So building on more resiliency, not being so concentrated that they were in 2024, and sort of trying to plan for a new economic sort of global paradigm, where past trends have now given a way to sort of future uncertainty. Great stuff. Matt, appreciate the time today. Always good talking to you. Yeah, thank you guys. Okay, thank you to State Street. It used to be State Street Global Advisors. Now it's State Street Investment Management. Go to State Street.com to learn more. Email us, Animal Spirits at the Compound News.com.

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