ETF Edge - Forget the Fed and focus on your own inflation protection 11/24/25

Episode Date: November 24, 2025

When it comes to preparing your portfolio for 2026, it might be better to concentrate on the bigger picture beyond near-term Fed mechanics.   Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQ. Let's rethink possibility. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange traded funds, boy, you've come to the right place. Every week, we bring you compelling interviews, thoughtful market analysis,

and we break down what that means for investors. I'm Contessa Brewer. And for Dominic Chu. Find out why the Fed's highly anticipated December decision might not be all that pivotal in the grand scheme of things. Here's my conversation with John Davy, C-I-O-At Astoria Portfolio-A-Portfolio along with Sophia Massey, of CEO of Lion's Cher. John, let's kick it off with you.

I have this song stuck in my head based on your view. It's the way, wait, wait, wait, you can go your own way. You're kind of like just off on your own saying, hey, we're not in a end-of-cycle bubble. We're in a completely new cycle. Tell me why. Well, the Fed cut rates four times last year. They cut rates twice already. They're going to go again, you know, whether it's December or January.

You know, historically, whenever the Fed cuts interest rates, usually that's a turn of a new cycle. Market leadership does tend to change quietly. If you look under the hood, Contessa, emerging markets are up 27% year-to-date. Developed international markets are up 27%. If you look at real assets, whether it's gold, up 50%, I mean, if you just look at sectors like banks, which benefit from higher rates, deeper curve, KBWB is up 19%.

You look at industrials, XI, up 16%. They've all beaten the S&P 500, which is up 12%. So between tax cuts, rate cuts, tariff cuts, you know, liquidity is coming back into the system. So I think, you know, stocks have a green light. I just would evolve the portfolio away from just large cap tech. all those sectors and asset classes I mentioned are cheaper than a market. And I think they can be a good offset to what's an expensive large-cap tech position, which dominates most portfolios.

It's not every day you get singing on ETF Edge. I would have a song for you, Sophia. But the truth is, I just want to hear what you think of as the bottom line here for the end of 2025 heading into 2026. Yeah, I mean, we've really had a record year for ETFs. And I don't see any sign of that slowing down, really across all metrics, record AUM, record numbers of new fund launches, new issuers. We've seen over 900 new ETFs launched this year. Is it a death now for mutual funds?

So that's really the question. And I do believe that the time of the mutual fund is coming to an end. When you look at the record inflows that have been seen by ETFs, that's $1.2 trillion this year so far. that's paired with a $1 trillion outflow from mutual funds. So it does seem like a lot of that growth is coming from outflows of mutual funds. Part of it, too, is that you have people looking for bigger returns in their ETFs, and now they're looking at levered ETFs. Is that smart, do you think, or is there a warning sign there?

I do think there is definitely caution to be had with levered funds. The democratization of these new trading strategies is fantastic, but that does come with caution that these investors need to have. These are very sophisticated trading products. And levered ETFs, they provide exposure to the daily returns of their benchmark, not year over year. So we've actually seen a lot of these levered single stock ETFs underperform their benchmark this year. Investors really need to understand what they're buying into.

Additionally, the way that these ETFs get their exposure is via swaps. And the interest rates that people are paying in order to access this leverage, it can actually be fairly high. So when you look at the swap rates, you're basically taking out a high interest loan roughly 10% in order to get this leverage exposure. So investors need to understand whether that's a trade that they really want to take on.

Tail end of last week, John, we saw the markets really moving on Fed News. Now, you're reminding people that inflation is eating your bond return returns. People who are cautious, who probably would not consider levered ETF, may have been really relying on bonds here. Yeah, I mean, I think, you know, there's a lot of demographic structural reasons why bond

ETFs continue to see a lot of inflows. People are looking for, you know, conservative income, not a lot of risk. But, you know, if the ag index is up 7% year to date, half it has been lost to CPI, you know, which is 3%. And then, you know, real world inflation, you go out in the real world and grocery shopping, car stuff. 12 north to 7%. So we've been arguing for the last four years that you need to protect your portfolio and own asset classes and sectors that benefit from higher inflation.

So things like, you know, gold is up, you know, 54% year to date. You know, Bitcoin, if you looked at a chart of like Bitcoin, gold, S&P, NASDAQ, I mean, the last four years since we've been living in this structurally high inflation world, both gold and Bitcoin have dramatically outperformed spies and cues. And that's after some pretty monster back-to-back years, the last two years for spies and Q. So it's not about your nominal returns. It's about your real returns. And then certainly on an after-tax risk-adjusted basis.

So, you know, we try and help shield portfolios from higher inflation. The other thing that we saw at the end of last week is, you know, Nvidia earnings came out, really stellar report, got a little bit of a stock pop, and then just fell. this Mag 7 story has been so long, so hard, just putting the pedal to the metal. John, are you now looking past Mag 7? You know, we are. I mean, I think if you're benchmark oriented like our firm is at Astoria, you have to have exposure, you know, to these, you know, large cap tech and growth stocks. But, you know, incrementally on the margin, you should be tilting away because, you know, as we argue at our firm, you know, we're living in the structure of the higher inflation world.

the Fed is cutting rates. Like, why do you want to take so much risk in just seven stocks or, you know, one stock, Navidia makes up, you know, 7, 8% of the S&P when you have a whole world of opportunity out there. And as I mentioned before, you know, emerging markets are up 27%. Developed international markets up 27%. These are beneficiaries of a weaker dollar with the basement trade, which is very well publicized out there.

You know, Contessa, if you take the MAG7 out of the S&P, the last three years, Europe has actually outperformed the S&P. So it's just time to evolve your portfolio. It's prudent as a risk manager, diversified portfolio manager, to just nibble and own asset classes and sectors that benefit from higher inflation. And as I keep saying, the Fed is cutting rates. Well, so, John, when you're looking at emerging markets and the rest of the world, how do you factor in what is unknowable?

We have seen so much geopolitical volatility. How do you know that putting your money in these other sectors? I mean, tariffs have played havoc with global trade. Yeah. So I do think the catalyst was the weaker dollar. And, you know, it correspondent to when, you know, you know, Trump was elected. And then you started seeing the rise in protectionism. You saw Germany doing big, you know, fiscal stimulus.

So, you know, investing is always about having a catalyst. And even though people have made a claim to rotate into developed or emerging markets, the catalyst was actually Trump being elected, Germany doing fiscal stimulus. And then all of a sudden, the dollar has weakened. You know, if you look at Eurodollar, it started the year at 103, 104, got down to 119. For me, as long as I've been investing, any time the dollar weakens, gold goes up, non-US appurts U.S. And that's really the playbook we think you should be following for this year and for next year.

Sophia, what do you think when you're looking at the market and these other trends that we're talking about, where do you think there are opportunities? I've always been a believer in classic capital asset pricing model. I do believe diversification is the solution for long-term investors. If you're someone who's saving for retirement, you need to remember that you're investing for a 20, 30-year time horizon. And when that's your objective, that's very different. If you're 20 or 30 years away from retirement and not all of us are. Exactly. So it really depends on the investor and you've got to remember that that suitability when you're choosing your investments.

Right. You know, I like to think about the new generation. I mean, I think there's a difference in perspective that's really valuable here. But one thing is that we, they now offer ways to invest where you're like, okay, well, here's how old you are. You expect to retire at, in 2035, just park it in this fund and be happy with that. Is that, do you think, a way to miss out on growth, John? Target day funds are okay. That's an option.

But, you know, we would argue that you can kind of reverse engineer yourself at a cheaper race. Some of those target day funds, they charge, you know, pretty expensive fees. You know, you can build a globally diversified portfolio across, you know, U.S., non-US across different, you know, sectors, regions, asset classes for, you know, as low as like 10 basis points. So, you know, to your point, if you do have this very long time horizon, you know, you should be tilting away from mag seven or in, you know, certainly let's say my case, let's say I don't have 30 years. Even more of a reason, why would you not tilt away?

Because, you know, starting valuations are very, very important, right? Your entry price is very important. And you're, you know, these stocks are not cheap, right? They've been in favor for the last five, 10 years. And, you know, like I said, the world is an opportunity. And now you actually have a catalyst for owning non-U.S. Or sectors like industrials, energy, materials, you know, gold, cryptocurrencies. Like, that's where our portfolio is a tilting. That's a really interesting point because if you look at all of the talk about whether AI is a bubble

and the ETFs that are trying to capture the growth and the interest and the opportunity in AI, When you're looking at someone who might be invested, so it'd be a 20 years out or 30 years out, does it matter whether we're in an AI bubble right now? And are there other, I mean, I'm thinking now about the fact that we've had our first hack orchestrated by AI, or the fact that climate risk continues to be a top concern for leaders around the world.

Are there ways to invest in sectors and industries that you can wait for 20 years to see? see those returns. Yeah, I think analysts have an idea of how much value AI will add to our economy. I don't think we really understand how that's going to play out between different companies yet. So I have this sense that right now we're pricing in this probability that, you know, one company may be the one that dominates AI and ends up being a big player in the future. If you look back at the dot-com bubble, how many hundreds of internet companies were out there? how are we supposed to know that Amazon was going to be one of the big winners out of that?

And I think we'll see something similar now, where as various companies are beginning to adopt AI, we'll eventually see some of them end up being the big winners, but we're not there yet in terms of knowing who that's going to be. And it's really a question of, are incumbents in various industries that are currently untouched by AI? Will they be able to innovate their internal systems to take advantage of AI? in a way that's not just using chat GPT in your internal systems, but rethinking from the foundation level how to incorporate AI models in the way they provide services.

John, if you're looking at the ETF industry right now, 2025 has been a year of record flows, of innovation. You could just choose almost any metric. What could be next for the industry in 2026? I think there's a ton of, you know, crypto filings out there. I think they'll make their way into, you know, the ETF ecosystem.

I think there's a high probability that a lot of cryptos are launched and then they may actually wind up closing for lack of demand or, you know, the crypto cycle closes. But, you know, I'd expect whatever the flavor of the month or the quarter is, you know, to continue to be launched. I mean, it's very easy to see, you know, hundreds of more levered stock ETFs launched. And then, you know, the minus one or the minus two's. So, you know, fortunately, the industry is getting, you know, more and more complicated. You know, you need to do more and more due diligence.

But, you know, we're going to have a lot more ETF launches for sure next year. And, Sophia, I know you're looking at rules around share class as a catalyst for the industry. Yeah, like I mentioned earlier, we've seen mutual fund outflows as a big driver of growth in ETFs. And I think now with the new share class updates where we can have ETFs as share classes of mutual funds, that's just going to act as another catalyst that's going to drive those flows from mutual funds into ETFs, especially as these big powerhouses in the mutual fund space shift their distribution to focus more on growing the ETF side of their business. That does it for ETF Edge, the podcast.

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