ETF Edge - Good time to do something boring? 8/17/26

Episode Date: August 17, 2026

With everything going on – good and bad - it seems like the markets are “fine”. How long does “fine” usually last for? That’s why now might be a “fine” time to review your positioning and make sure some hedges are in place…. so you’ll be “fine” is something suddenly does happen.     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. Invesco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange-traded funds, you're in the right place. Every week, we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors. I'm Pippa Steven, Zin for Dom Chu. There's an old saying about buying insurance before you need it.

Now might be a good time to check your investment policies. Here's my conversation with Sam Husko, founder of SGH wealth management, along with Victor Hagani, founder and CIO of Elm Wealth. First question that I'll pose to both of you. In broad strokes, you know, what is your current assessment of the markets? And Sam, I'll start with you here. What is your take? I mean, I think the markets are strong.

I think people are overlooking things. You know, July, we saw 10 of the 11th. 11 sectors beat their earnings estimates. And, you know, financial analysts, they're good at predicting future earnings and growth. They're just not good at predicting recessions. And so don't throw them out just because of that. That's like saying just because the weatherman can't predict a tornado that I should be wearing a sweater in the middle of the summer. They're still good at predicting temperature alone.

And another thing is the bedrock, you know, semiconductors came down, memory chips came down. They're starting to rebound rally. But within that, semis, they have revenue projections of 64% growth over the next year. And, you know, in 1998, that was a negative 8% prediction at that time. So when we're trying to compare it to, is this a 90s tech bubble, we're not seeing the canary in the coal mine right now. And so I would say things are stronger than people expect. And I say this market is kind of like the Fast and Furious franchise. Okay. Every time you see a movie, you're like, there's no way they could come out with another one, and then they do.

And I think that's what's happening with folks is they're just, they're counting it out like there couldn't be any more than it is today. But I would just say the only thing that gets in the way of this growth outside of a recession that nobody can predict is that Death Star exhaust port of the Fed. Okay. And I don't believe they're going to ruin things. I think that, you know, with Trump's affiliation, with the father of Warsh, I think there might be a little kissing of the ring going on. And so I don't feel that happening. But at this point, I think people need to get on board, and we should have this good bedrock for the next six to 18 months. All right, Sam, so you're sounding pretty optimistic.

And I guess, Victor, I'll pose the same question to you. 30,000 feet up. How do you view the markets right now? So, you know, I think the best way to talk about it is via this ETF that we have, which is a dynamic asset allocation, ETF. It has a baseline of 75% equities and 25% fixed income. And right now we're a little bit underweight equities and aggregate and overweight fixed income. And we've got a pretty decent underweight of U.S. equities and slight overweight of

non-U.S. equities. We see long-term expected returns of U.S. equities as being pretty low relative to safe assets, not quite as extreme as it was in 2000 and 2001, but the expected return of U.S. equities for the long run really is pretty close to what you're going to get from treasuries. And that's not just our view, but it's pretty much a consensus view among the capital market assumptions that different investment houses put out. So that's where we are right now. And we're not that far away from being significantly underweight equities. Right now, we see the risk level. And we make our asset allocation decision based on expected return and risk. When expected returns relative to safe assets are higher, we have more equities and vice versa.

And when it comes to risk, when we're in a low risk environment, we want more equities. And when we're in a high risk environment, we want to cut. We're still in a low risk environment. Momentum is positive. Implied volatility. Market moves are pretty constrained right now and peaceful. But if we switch to that higher risk environment, we're going to be reducing exposures pretty dramatically when that happens.

And, you know, that can happen. We're not that far away from that happening in terms of markets acting up. So, yeah, I'd say that, you know, we're a lot more cautious. You know, we're only slightly underweight, which has been nice as the market's been going up. But I think that the big thing that we're worried about and we'll just see how it plays out is that there's been a tremendous shift in corporate activity. For the last several years, we've had a trillion dollars of stock buybacks by companies. that's slowing down dramatically. We've had a very light IPO calendar until recently. We've had companies hardly doing secondary issues. And we look out over the next year and we see, you know,

maybe a one and a half trillion dollar shift in corporate activity from buying back their shares and reducing the share count to between IPOs and secondaries being a pretty big net issuance of of equities. And, you know, I think that that will have an impact when it happens. You know, nobody is trying to, nobody is willing to get ahead of this and sell until they have to. And that's the same with us. You know, we're just a little bit underweight and waiting to see if things change. So there's a lot of people out there who think about the market as continuing to do whatever it's done. Those are extrapolators and return chasers. And that's been a really good way to invest for a long time, but it can be dangerous when things change.

And Victor, when you talk about being underway, do you see a difference here between U.S. and the rest of the world? We do. We see the long-term expected return of non-U.S. equities as being a lot more attractive than what's offered by U.S. equities. And this is the result of 30 years of massive U.S. outperformance of the rest of the world. You know, going back like 30 years when John John Bogle and Warren Buffett would say, just buy U.S. equities. You don't need to own anything else. U.S. equities will give you exposure to the rest of the world, et cetera.

And when they said that, when they were first saying that, the P.E. of U.S. equities was roughly the same, if not even a little bit lower than for non-U.S. equities. Well, now the P.E. of U.S. equities is twice the P.E. of the non-U.S. market and aggregate. And that's come about from this tremendous outperformance of U.S. equities versus non-U.S. equities. So we're much more sanguine about non-U.S. equities in the long term than we are about U.S. equities. But, you know, if there's a correction, they'll move together. You know, they don't, you know, it's sort of, I think they go apart over longer horizons. You know, but when there's a, when there's a big market downtrade or whatever, they'll move together. But we think that over the next, you know, longer period of time that non-U.S. equities should

provide higher returns than U.S. equities, given this much, much better valuation of non-U.S. equities today. When talking about the market this year, it's hard to, you know, not mention the AI trade, because, of course, that's what's been driving so much interest and, you know, stock performance. But you say that it can branch out. So how are the ways you're playing beyond just, you know, the hyperscalers? Yeah, yeah. I mean, so that's where I would say there is a baton being passed.

I mean, I recognize, yeah, there's not as much share buybacks like Victor was mentioning here. But what we have seen is hyper-scalers are planning to spend $750 billion on CAPX. That's like 38% of their revenues. So I'm not going to bore you with a shovels and pick gold analogy, but what I will bore you with is a Kentucky Derby analogy. Don't bet on the horse, bet on the racetrack. Okay. So wherever that money is going to be flowing is going to be making easier returns.

And what they're investing in is in the long run. I mean, they still have a chance to even pass the baton back to them if they ever get any ROI on all this investment as well, too. And so our most recent trade for factor-based investors was to get into equal weight. Equal weight's a place to have a cup of coffee, not a long-term investment. But really where you see that and where we are still confident, even though, you know, emerging markets, I believe emerging markets, PE ratios are at 10, which is enticing. I mean, that's similar to what Victor's saying in that international while is the U.S. is maybe at 20.

But it is concentrated in tech as well, too. And so where we see the equal weight is in the QQQ overlap, it only has about 18% overlapped in the queues, whereas the S&P 500 is like 52%. And also, too, it's beating the markets this year. Equal weight is up about 16% when the markets are up 13 and a half. So, you know, it's outperforming in the moment. It has a little bit better risk dynamics to it and gets this flow of where the hyperscalers are sending money.

But there's no one product that's going to be a silver bullet. You know, you have to have a strategy. A product is not a process. And where we decide as factor-based investors to couple that is with momentum. So, you know, momentum's getting into the future winners. Equal weight is trying to get out of yesterday's winners. So they're kind of on two opposite side. of the coin. But where momentum, I think, gets a bad rap or is mischaracterized is it only has about

10%, or at least the one we're in, has 10% in Mag 7, whereas the S&P 500 is about 33%. So it is still very aggressive, it's risky, but it's not in the over concentration and in the things that underperformed this year, too. But the big thing is, this is not, coupling these two together is not grandma's diversification. This is uncorrelation. You know, there's things that that make it understandable for people, but we're really trying to be uncorrelated. And equal weight and momentum have a negative 5-2 un-correlations. So, yeah, when you're in a normal market like this, you can figure out ways to get an extra 1 or 2% of alpha, but really where the big trades happen is when emotions kick in.

So if it's grossly overvalued or when fear sets in after a market downturn, and the nice thing about coupling these together is one of them is going to outperform. One of them is going to give us a trade to be able to take advantage. of wherever the big mispricings is when people get super uncomfortable and emotional. And so we're trying to get ahead of that and have something ready for the second and third trade into the future and not just trying to chase the shiny object of today as well too. Well, taking emotion out of it is always difficult to invest left to the experts. And, you know, Victor, for you because you run a fund or fund of funds rather that really seeks

to reduce risk and you touched on this. But tell us more about that. How exactly are you going about that? and what products are you looking at? Sure. So what we do, we call it dynamic index investing. Actually, we have the trademark for that. Maybe we were some of the early people doing it

when we started 15 years ago. And our ETF, the ELM ETF, is, as you said, a fund of funds. We only invest in very broad market cap-weighted indexes, very low cost. So the average expense ratio of the vehicles, that are in our ETF is about six basis points. And then we have the management fee and so on that brings the total cost of the thing up to 24.

And we dynamically change the allocation over time, as I mentioned earlier, based on value and risk or value and momentum. And it's a very transparent process. We're rebalancing the portfolio on a weekly basis. It's very tax efficient as all ETFs are, so it's nice to be able to be a little bit dynamic and not be generating capital gains to investors.

And, you know, I think that where the approach is the most valuable is in dealing with market downturns in historical simulations, this kind of approach has done really well in 2007-8-9, in 2000, 2001, too, you know, that it has a scope to really reduce equity exposure when risk is up when expected returns are low. And, you know, we think that's really valuable. It allows people to hold maybe a higher allocation over time knowing that somebody is watching what's going on. You know, that it's not just, well, what allocation should I choose that I never have to change? You'll probably be a little bit more conservative with that than what allocation would you choose knowing that the allocation will be increased or reduced depending on market conditions.

So, yeah, I think people have been attracted to it for that. And that's how we run it. And Victor, staying with you because at times like these in the markets, the argument of passive funds versus active funds tends to come back to the fore. But you say there is no such thing as passive asset allocation. So what do you mean by that? That's right. I think that there's kind of this conflation.

that's happened between being a passive stock investor, investing in the market cap-weighted portfolio of stocks, that's indexing, versus then taking it into asset allocation and somehow saying, I'm going to be a passive asset allocator and hold the market portfolio of stocks and bonds. And first of all, you know, it's not even clear what that mix would be, depending on how you count the bond market, if you were going to be just saying, well, I'm just going to hold an amount of equities and bonds in proportion to market cap, you know, you'd probably have like 20% in equities and 80% in fixed income, you know, because the fixed income markets are so big, depending on how you count them. But the real thing is that if we go back to the foundational

theory of portfolio theory, of modern portfolio theory, the idea was invest in the market portfolio of risky assets, but decide how much risky versus safe assets you want to have. That was the capital asset pricing line that tell, you know, so the question is, where do you want to be on that line? And that has to do with what's the expected return and risk of stocks and what's your degree of risk aversion. And so, you know, as we say, there's really no, there's no concept that's passive asset allocation. Passive stock investing makes sense. Investing in the market portfolio of stocks according to their market cap weight. But that doesn't go over to asset allocation. And yet, today, the most prevalent way that people do asset allocation is as a static choice. It's like,

I'm going to be 60, 40, stock bonds. I'll be 80, 20, and then stick to that and rebalance. And we think that some of the criticisms of indexing really should be criticisms of passive asset allocation and not of passive stock selection. So, and I hope I could go on, but I'll stop there. And hopefully that was clear for the listeners. No, that's very helpful. And I see you say I'm nodding. But I know you've also said that you think some ETF providers are becoming too good at selling

at investors exactly what they want. So, you know, what's your take on that? Yeah, Victor, speaking my language. I love an institutional person that talks that way. There's not as many of them as we need. But where I see some of the bad players, you know, specifically, so we can be confident in stocks, but if you don't have the right asset allocation, you shouldn't be taking advantage of it. But where I see maybe retail making a mistake is in all these reaching for yield products that are getting created in ETF. So you got private credit bonds, high yield bonds, these option strategies that have distribution rates. You know, reaching for yield in a moment like this is like buying gas station sushi.

It tastes good in the moment, but trust me, it's going to come back and get you and it's not going to be pretty. Because it's more of a decision where whatever you should have in safety, again, it shouldn't be some 20%, 40%, it should be covering your bases or at least allowing you to stomach a full market downturn cycle. And if it doesn't do that, it's not doing its job. So really, if you're even thinking about private credit, high yield, everything that I'm mentioning, just get into the stock. At least you'll have the upside potential of the market. And if it keeps going up over the next two years, you'll have a buffer. But that's what we're seeing in ETF flows. ETF flows are going into that.

The other thing, which this is maybe controversial, but a lot of people, 35% of the flows are going into short-term bonds as well, too. I understand why, because rates are fairly similar between long-term and short-term and short-term. short term. But, you know, people have been complaining for 23 years that bonds haven't performed well in a market downturn. Well, guess what? You need duration to get price appreciation in a downturn. So if we're all in short term bonds and the markets go down. And again, like I said before, nobody can predict a recession. Well, then you're not going to get that price appreciation at that time. So we're squarely in target date maturity bond funds. We like to be in control of that duration completely in kind of like the intermediate to long term zone. And

Yeah, if rates go up a couple of percent over the next two years, we might shave back our yield that we had. We're conscious of that. But we want to be control freaks. You know, I'm a control freak with the portfolio. You'll be happy to hear, Pippa. I do have some spontaneity scheduled next week, Tuesday. But no, we want to have that in so that if there is a recession, which we can't predict, and the Fed brings rates down to zero, then if we have something that actually has some duration,

it's going to make some money. Same concept is what I talked about. before it's going to give us a trade to place and maybe take opportunity in those big moments as well too but that's that's kind of the soup to jour it's this like reaching for yield moment where i think people don't realize what they're actually doing so okay so two sides of that story and then i guess just a question for you both you know once we get through this year what do you think will be the biggest opportunities and challenges for next year that aren't even on investors radar yet and sam i'll i'll start that one with you yeah i mean honestly i think uh phone

is a hard thing to fight, right? Don't get into what your least responsible friend is investing in today. You've got to question all that type of stuff. So, I mean, again, our predictions is usually if you're a technician, markets at about that three-year mark once they pass that. They usually get to five to seven. So I think a lot of people aren't expecting this to go further. We are.

And so within that, if people feel like they miss the boat a little bit, that's where you can get into some overly risky investments and kind of not be in the perfect place that you'd want to be if and when a market downturn occurred. So, but yeah, we would say that a lot of the trends continue. I think we think, you know, that the equal weight and dispersion of everything else will continue to be the trade. And I'd say the question mark is, when are these hyperscalers going to get a return on

their investment? Because if they do, then it could be even further from here as well, too. So we're pretty optimistic. But again, it has to be coupled with that asset allocation feature. It's not just chasing the shiny object. You have to, again, repeat myself in setting up the second and third trade. This is, you know, what people I think might miss out on today is that this is a wonderful opportunity to just put some hedges in place.

I mean, if an equal weight is beating the markets, if your long-term bonds are still getting a five and a five and a half percent return, I mean, which people would have begged to have four or five years ago, you know, this is a wonderful moment to get some risk off the table, but still in some equity ways to be ready for that as opposed to chasing the, you know, Cal She trades or whatever the over under is on all these betting stocks that we're seeing as well, too. All right. And Victor, I'll pose the same question to you. Yeah, I guess, you know, I think next year could be really different, you know, different, really different supply demand dynamics. I think that it could be a time when people that have been

extrapolating and really been bullish about the future because the recent past has been so good. You know, I think that given six months or so, some of that could really come undone. And, you know, it's just remarkable to think how short a period of time it has taken for people to just be totally bored with Bitcoin and Dogecoin and all of these things. The prices haven't really gone down that much. But, you know, it's just no longer something that people are thinking about anymore. So the market narrative moves on. And I think, you know, three months is too short a time to see much change.

But I think in six to 12 months, you know, we could see some real difference in how, and what people are focused on. And this extrapolation supported market, I think could start to falter. So I think it could be a pretty big, I think 2007 could be a year of quite different dynamics, mostly with caused by, I won't even say catalyst, but mostly caused by this massive change in the supply, the buybacks versus net issuance of equities that's happening now and into next year.

You know, huge IPOs with, you know, sort of lockups that go away over a year. I mean, just the amount of stuff that needs to get sold is going to be tremendous. and that can't all get recycled into the market because some of that has to be held back to pay taxes as well. So I think that there might be something of a market reckoning, you know, sometime next year maybe, you know, I don't see it coming soon, but I think it'll turn up next year. And it won't necessarily be tied to some news item like Liberation Day tariffs or something like that. you know, it just might be from this slow grind of billions of dollars getting sold each day

rather than billions of dollars being bought each day by corporations themselves. That does it for ETF Edge, the podcast. Thanks for listening. Join us again next week or head to etfedge.c.com. Over the last few decades, technology has transformed our world in amazing ways. Through it all, InvescoQQQETF has connected investors, to the forefront of innovation. Access the future today with Investco QQQ. Let's rethink possibility.

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