ETF Edge - Momentum, Bitcoin & AI… the June trio? 6/2/25

Episode Date: June 2, 2025

As we kick off another month of trading, we look at three of the biggest ETF themes and whether they can continue amid general market uncertainty and summer doldrums.  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, proud provider of access to innovation for the last 25 years. Invesco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest and greatest in terms of insights on all things exchange-traded funds, you're in the right place. Every single week we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors. I am your host, Dominic Chu, and amid all the general market uncertainty, June 10,000, kicks off with three big themes poised to go in somewhat different directions. We've got things like momentum in terms of a factor, artificial intelligence, and then cryptocurrency,

specifically Bitcoin. Here's my conversation with Jay Jacobs, the U.S. head of equity ETFs at BlackRock alongside Nate Jeraci, the president of the ETF store. So first off, gentlemen, thank you very much for being with us on the ETF edge. I want to start things off with a talk about some of the momentum. that we've been seeing amid the general market uncertainty. Despite today's kind of cooling off last week, we saw the I Shares momentum ETF, the ticker M-TUM, hit an intraday all-time record high going all the way back to inception in 2013.

Jay, you're probably in a very expert position to tell us a little bit about what's going on here since it is an I-Share's products. So maybe take us through the rationale for why we are seeing this move high-eastern. specifically in the momentum factor and then why it is maybe that investors are keying more on some of these factor ETFs? Well, I think in the simplest terms, we're in a momentum-driven market right now. If you look across the various different academic factors, momentum has been performing the best this year.

M-TUM is outperforming the S&P 500 by about 10% and is strongly up this year in a relatively flat market otherwise. So momentum at the single stock level is working. There are companies across the economy, across various different sectors that are exhibiting robust momentum, and MTF has been able to capture that robustness. So I think even despite some of the uncertainty in the markets and despite some of the wavering in markets in April, still those strong momentum names have really carried through in their performance throughout the year, and that's really helped drive performance for the product.

You know, Jay, it maybe goes without saying for some of the kind of big fans of CNBC, the experts out there who watch the markets on a daily basis about where some of the momentum really, is, but maybe just for the record from your standpoint, as you look at this M-TUM and other momentum-based factor ETFs, where is the momentum specifically in the market right now? Well, right now, if you look at it through a sector lens, some of the most momentum is being felt in the financial sector, where we have a significant overweight versus the S&P 500, and also in the consumer staples space. So, you know, you can try to T-Leave a little bit around Maybe there's some concern about economic growth and a little bit more defensiveness with consumer

staples, maybe persistent inflation and expanding margins as a positive in the financial services sector. But again, this is happening at the stock selection level. Where we are looking for MTF to allocate is the stocks that are exhibiting the most momentum. So it's names within those sectors that the ETF is picking to drive performance. All right. Now, Nate, as you kind of look big picture at just how some of these factor ETF specifically momentum type names factor in, are there at least signs right now that investors, generally speaking,

are gravitating more towards momentum as a serious factor for their allocations, only because momentum in some way, shape, or form has been a massive upside tailwind for some of these types of companies and types of sectors going all the way back arguably to the great financial crisis and the recovery from there? Well, it's interesting because if you look at the I shares momentum ETF, that is fairly substantially outperform the S&P 500 since its inception in 2013. And that's obviously impressive alone when you consider what the S&P 500 has done over that timeframe. But to what Jay was saying, if you look here more recently, a decent chunk of that outperformance has come really since the broader market recovery that began in early

April. And I think very simply, it's obviously been a much more risk on environment since then. And momentum stocks tend to do well in that type of environment. And I thought Jay said it well. If you look under the hood of M-TUN and see what's performing well, it's financials, it's technology. Both of those sectors have really surged since the tariff tantrum earlier this year. So I just think investors right now are comfortable piling into the stocks that have worked recently. All right. So it's a kind of a trend-driven philosophy here, one where the trend is your friend, and perhaps until it's not. Nate, do you see this kind of momentum continuing

for the momentum factor ETFs? I just think there are a lot of variables in the market right now. Clearly the tariffs at trade are front and center, but you have stocks historically elevated from a valuation standpoint. There's still some concerns over what the Fed will do, what's the direction of interest rates and inflation.

I think all of that plays into a little bit of a wait and see attitude from investors overall, But like I said, I think when things are working, investors are comfortable continuing to do what has been working. And that's what we're seeing at a momentum. All right. Well, what has been working over the course of the last two or three years, maybe even longer, if you want to kind of go back that far, is artificial intelligence. So one of the biggest themes so far this year has, of course, been AI.

But it seems to almost be omnipresent in companies quarterly reports this earning season, right? Everybody's talking about them. Is this maybe diluting the trade, the message? And Nate, I'll start with you here. This is one where AI, I'm curious about whether or not there is staying power for this AI trade. The thing about artificial intelligence is it really pervades the entire country in every sector and every company. This isn't unique to one specific company or sector. AI encompasses everything. And so from an investment standpoint, certainly there are some companies that are going to be winners and losers. But I think of it more, longer term how this is going to change the economy and how that will ultimately impact investing. So it's just an interesting area to watch, but from an ETF perspective, I like to take a much

broader approach versus getting into AI-specific ETFs. Well, that's interesting because Jay, I know that one of the things that BlackRock has gone and done and some other providers is really kind of home in, right, on certain key parts of the technology trade, and AI is one of them, I can only imagine demand, Jay, for AI-related ETFs has to be pretty robust. You're taking an approach, or at least BlackRock is, in really, really kind of just really going after a specific part of the tech trade when it comes to the specificity of AI. Why is that the better approach for some investors out there, Jay? Well, I think there's a mismatch between the opportunity of artificial intelligence and the tools

available for people to capture that opportunity. I mean, if you go back a few years ago, chat GPT comes out, it's November 2020. People realize this is a revolutionary, almost call it the iPhone moment of artificial intelligence, but then a lot of investors were playing it just by allocating to the tech sector. And it's just not a very precise tool

for capturing the types of companies that are leading in artificial intelligence. Yes, you have some tech names that are leading in AI. There's no doubt about it. But that's a lot of diluted exposure across names that have nothing to do with AI. Or worse, there's companies,

in the tech sector that are actually probably going to be disrupted by artificial intelligence and lose in the emergence of this theme. So we felt it made a lot of sense to bring out dedicated artificial intelligence ETF strategies for people to get more precise in their AI exposure. BAI has brought in a billion and a half dollars in assets this year. And what's unique about it is it's an AI ETF, but it's managed by an actively managed portfolio manager. Tony Kim, who has run our Tech Opportunities Fund for a long time, has a dedicated strategy with BAI in terms of finding his favorite names across the AI value chain. So it's a fund that's become very popular amongst investors that want granular exposure to artificial intelligence.

And Jay, if I could just follow up there with regard to a kind of more hyper-specific ETF and actively managed ETF strategies, are there certain cautionary tales or possible pitfalls that may befall certain traders and investors who decide to use these types of instruments, It's like a BAA or something similar. Well, if you go to the genesis of ETFs, they started as tracking indexes. And the objective of these funds was to closely track the indexes as much as possible. The definition and the opportunity of ETFs has really evolved over the last several years to include a wide variety of strategies, asset classes, et cetera. And one of the fastest growing areas is actively managed ETFs.

The goal is not to track a benchmark or to track an index. It is for a manager to outperform an index. And so in this case, the active manager, Tony Kim, is trying to provide alpha by picking stocks in artificial intelligence. He has a very long track record of managing technology exposures. We think he has some great insights into the artificial intelligence space. But if you're looking at an active ETF broadly, there is opportunity to outperform an index. There could be opportunity to underperform the index that comes down to the skill of that manager. All right.

from these active ETFs that track specific parts of the market to ones that follow indices or in this case a cryptocurrency overall, you know where I'm going, right? Bitcoin. After a huge two weeks of new highs and a major industry conference,

Bitcoin ETFs are now seeing some of the biggest day of outflows since February. But this also comes after a six-week streak of inflows. Maybe, Nate, I'm going to start, start with you on this one first. Just how much are cryptocurrencies still going to be, maybe to bring this full circle, a momentum trade, if you will? Well, first I think we have to offer a few stats on the iShare's Bitcoin ETF in particular because the numbers that's put up are absolutely remarkable. Ibit just took in its second highest monthly inflow total ever in May, about $6 billion.

And to your point, it's taken a new money almost every single day. for about the past six weeks. It's also now in the top five of all ETFs in terms of inflows this year, approaching $12 billion in new money. And I just think this is all highly impressive for an ETF that's only been on the market for about 17 months.

I mean, we're talking about a nearly $70 billion ETF overall, but taking a step back and just thinking about spot Bitcoin ETFs in general, I think there are several factors at play here. I think number one, financial advisors and institutional investors, they're just becoming much more comfortable with the idea of owning Bitcoin in a diversified portfolio. And if you think about this, it's a process where anytime investors have access to a new asset class or a new strategy, like how ETFs open up

access to Bitcoin, advisors and institutional investors, they don't typically just jump right in without looking. There's an education process. There's a due diligence process, and that can take some time. And I think what's happening now is we're simply hitting a point where investors are becoming more comfortable, right? They've had time to learn and conduct that due diligence. And then I think the other key factor here is just simply the performance of Bitcoin and how it's somewhat decoupled from the broader markets recently. Because if you can own an asset that has a lower correlation to other assets in a portfolio and it performs, well, that's a pretty good combination. And Bitcoin has shown that here more recently. And so I just think there's no question that it's getting the attention of advisors and institutional investors who may have been a bit skeptical previously of owning Bitcoin.

All right. So, Jay, this is a good point that's being made by Nate right now. There is a comfort and intelligence factor, also perhaps an allocative factor to this whole Bitcoin trade now that it's an ETF format. Is it a situation in your mind where you are seeing evidence, Jay, that there are advised? or retail investors who are now in that kind of allocation comfort phase where they can say, hey, X percent of my portfolio is going to go towards cryptocurrencies and specifically for something like Bitcoin. Absolutely. I think the world's changing every day when it comes to that. I thought about this in three stages. You know, first, you bring the product out. It's about access. You know, the second

is you educate people about what it's providing access to, Bitcoin, what is it, how could it work in a portfolio. But the third stage is about it. implementation, people really taking that leap to allocate to it in a portfolio. Everyone's on different stages of the journey. We've certainly opened access with the launch of Ibit last year. Many people are learning about it from an educational perspective. But implementation is where we're starting to see some really good tailwinds. You know, BlackRock's own models have allocated to Ibit in some of the alternative models as a diversifier in a portfolio that behaves very differently from traditional assets.

We've seen other institutional clients start to make allocations in their portfolios. We've seen some advisors making allocations. So this step two and step three around educational implementation, we're still very deep in those stages and continuing to see, you know, more progress, especially as the Bitcoin story resonates in this environment, more people are really looking for global monetary alternatives amidst more uncertainty. So, Jay, speaking of those global monetary alternatives, is there, in your mind, maybe a hypothetical or even an estimated timeline for when,

these types of investors, retail or otherwise, institutions or otherwise, and or just investment advisors overall, start to get more comfortable with things that are not Bitcoin, but smaller ones. I'm thinking about Ethereum, Ether is one of them, maybe Solana, some of the other ones that people know but aren't as big as Bitcoin. Do you feel as though that comfort ramp is going to be there for some of those smaller currencies and coins as well in the crypto screen? You know, it's difficult to say, difficult to speculate on that. You know, Bitcoin, we're, you know, Dane said it. We're 17 months in, and I think various different people are in various different stages

of that journey of understanding or implementing this asset. I think what's changed in the last month that's notable are the flows into our Ethereum ETF, ETH, which has seen about a billion dollars a year-to-date with the majority of that coming just in the last three or four weeks or so. It's an evolving landscape. You know, we're seeing there's certainly been some strong performance of late with Ethereum after, you know, difficult beginning of the year. We've seen some progress, particularly on the policy side,

that could be more accommodative of things like stablecoins and other digital assets. And we've seen a big upgrade to Ethereum, which has brought kind of a new narrative into this space as well. So from our lens and the clients that we're speaking to, Bitcoin is still the vast majority of the conversations and the interest amongst professional investors, but we're starting to see Ethereum really pick up as well. All right. Nate, to kind of close things off with you, on the crypto side of things specifically with regard to exchange traded products. Do you think that there is going to be more robust demand for some of the exchange traded products

tied to things that are not Bitcoin within cryptocurrencies? I do. I think Jay hit the nail on the head in that. It's just we're so early and there's such an education process that has to take place. And let's just take Ethereum. I view Ether much more is a technology play versus something like Bitcoin, which many view is digital gold. And that takes some time for advisors and institutional investors to get comfortable with in trying to determine where that fits into a diversified portfolio. So I just think we're very early. I think as that education happens, I think investors will become much more comfortable allocating to something like Ether. And quite frankly, you know, we have a much more crypto-friendly SEC right now. My expectation is

that we're going to see a wave of crypto-related ETFs coming to market later in the year. And so investors are going to have a lot more options to weigh through in the crypto space. Now it's time to round out the conversation with some thoughtful analysis and insight and perspective to help you better understand ETFs with our Markets 102 portion of the podcast. Nate Geraci of the ETF store continues with us now. Nate, it was a big conversation with regard to some of the specific areas of the the market and ETFs that we are seeing some of the heat, if you will, some of the action. I wonder if you might take us through what you're seeing in terms of the picture, broadly

speaking, for the second half of the year and where you think the activity is most likely to be. Well, if we take a step back and just look at the first five months of the year, I show about $460 billion when into ETFs, and that's a record pace. We're on pace for well over a trillion dollars, we're on pace to eclipse the flows that we saw in 2024. And typically flows accelerate in the second half of the year, particularly in the fourth quarter. But, you know, I think the bottom line here is that ETFs have become the go-to vehicle of choice for investors. And what I think is really interesting, Dom, is that if you think about the market performance thus far this year, S&P 500 is basically flat. It was down nearly 20% from its high earlier this year at one point.

You move over to the bond side of the equation. Bonds have had a fairly lackluster year overall, but you look up and we have this record pace of ETF flows. And so the question is, what's going on? And I think it shows that regardless of the market environment, investors feel comfortable expressing their views using ETFs, whether that's an aggressive positioning or defensive positioning, whether they want to look to alternative assets such as gold and crypto, So whatever strategy investors want to implement, they're doing so through ETFs. And I just think that's reflective of the overall growth of the ETF marketplace and that there are now more active strategies available. There are more options-based strategies to find out the ETFs, crypto.

We could go on and on, but investors now have access to all of this in an ETF wrapper. And so as we look ahead now to the remainder of the year, these next seven months, I don't, you know, where exactly flow is going to go, we shall see. I think if we look historically, we know that investors continue piling into large gap U.S. They're piling into the S&P 500 ETS. They're piling into short-term treasury ETFs. I think we'll probably see more of the same. But regardless, I think we're going to continue to see these flows because of everything I just mentioned that however investors want a position, they can now very easily do so using ETFs. There is also a case that I've heard from some of the experts I speak to, that there are just so many ETFs out there right now that it can become

onerous or even, you know, very difficult for some investors, even some investment advisors, professionals, right, to kind of sort through all the tools that are out there and available. Is there a fear from kind of the macro perspective that the ETF world has gotten so large and unruly and so hyper-specific that it becomes difficult to try to find the right tools for the job for certain types of investors out there? That is such a great point. And it's something that I talk about all the time that I love the innovation that we see in the ETF space,

but that innovation is a double-edged sword. Because with that innovation, to your point, it means that investors have a much higher level of due diligence. They have to wade through all of these products that are out there. And so yeah, I think it is very difficult for investors and advisors and institutional investors. And that's not even,

counting the fact that we're likely going to see a wave of active ETFs at the market if the SEC approves the the ETF share class structure. If that happens, Dom, we could see hundreds if not thousands of new ETFs hitting the market and most of those are going to be active. And so if you're an advisor trying to differentiate between all of those different active strategies is very difficult. You just have it just again raises the bar of due diligence. There's that much more homework that you have to do. So Again, I love the innovation.

I think it's good for investors to have choice, but it makes their job more difficult. As you look at the landscape developing now for specifically the investment advisors out there who are kind of allocating to some of these fund-type products, as you point out, it's much more so about ETFs now that it has been. I'm a former mutual fund guy. Back when I was doing it, it was kind of allocating every week or two weeks or month to these mutual fund type companies. if you are in a situation where ETFs are now the preferred vehicle for that kind of allocation, what exactly can advisors or some of the retail investors out there do to actually kind of maybe weed through and cull out some of the tools that are best for their portfolios in terms of ETF products?

I think it depends on what type of investor you are. If you're a retail investor, you have a decision to make. Do you want to do all of that work on your own? Or do you want to hire a professional? Do you want to hire an advisor? If you're an advisor, you have a similar decision than that, do you want to do all of that on your own? Or do you perhaps want to outsource some of that decision-making?

And you say, all ETF model portfolios, which most of the larger asset managers offer. That's a one-stop solution. You have to decide how much of that due diligence burden you want to take on. I think you have to start there. And then from there, if you want to take it, take on that due due diligence burden.

Then it's just going to be a matter of which tools do you want to use. I mean, there's a plethora of different service providers out there who offer all types of analysis on ETS. I can go through them all, but there's a boatload out there. So you need to find which service provider you're comfortable working with. That can help you look under the hood of these ETS and understand all of the different risk and performance metrics, understand what these ETS hold, how they've reacted to historically all of the key data points on those ETS.

And then if you get that for, obviously you have to be comfortable constructing a portfolio. You have to be comfortable with the asset allocation. So there's a lot there. I think you just have to decide how much of that you want to take on versus how much you want to outsource. All right. So it seems like the selection and screening process is going to have to be a lot more robust going forward for many of these investors and advisors out there. Nate Geraci at the ETS store. Thank you so much for joining us.

We appreciate it. Thank you. It's been a pleasure. All right. Well, that does it for the ETF Edge podcast. Thanks for listening and join us again next week or just head over to etfedge.c.com. How does InvescoQQQ rethink possibility? By rethinking access to innovation and the NASDAQ 100. Let's rethink possibility. Investco Distributors, Inc.