ETF Edge - One of the biggest active ETF managers on market turmoil solutions 4/21/25

Episode Date: April 21, 2025

Amid the volatility, actively managed ETF assets have reached $1 trillion, or about 10% of the industry total. Is now finally the time “active” will prove its worth over “passive”? We’ll dive into the new strategies managers are employing on a daily basis.    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 Invesco QQQ, proud provider of access to innovation for the last 25 years. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange, traded funds, you are in the right place. Every week we're bringing you interviews, market analysis, and breaking down what it all means for investors. I am your host, Bob Bizani. Amid the ongoing market turmoil, actively managed ETF assets have reached $1 trillion. That's about 10%.

of all the ETF assets is now the time active management will prove its worth here is my conversation with Tim Coyne he's the head of ETFs for Tiro Price US and Todd Sone is the head of ETFs for Stratigas Tim Tiro Price is known for its active management ETFs can active management really make a difference with all this market turbulence yeah absolutely and we have seen significant growth in active management including active ETS which I think has been a significant driver It's really combining the key attributes of actively managed portfolios with the benefits of ETFs and delivering in a lower cost, more tax-efficient structure for investors. But I think also if you look at just the markets in general have changed.

And I think having that professionally managed portfolio is really beneficial to clients. And we're seeing just greater volatility, uncertainty across both the equity and fixed-state. market as well. Yeah, Todd, market turbulence has been good for active flows. You've been writing about this for a while. 30% of ETF volume so far this year has been active. Yeah, I think when you get into a different environment rather than one that's persistently rising, this is where active comes in the hand. You have a manager who can differentiate the portfolio from the top 10 stocks in the Smb 500, which we're coming off the boy in terms of influence, or you can have a manager who's out there looking for income or managing risk through options, right?

This active comes in many spades now. And I think this is the type of environment where it can actually shine, as painful as it might be, for a lot of passive holders out there because we are in some form of bare market. This is where the active manager really can come in a hand and offer their solution they are doing, right? differentiation and equity or managing risk through derivatives. Yeah. Now, we always throw this caveat in when we talk about active. The old-school idea of active, like real active stock picking, which what you're doing actually some of these, active is very broad. It includes people like Avantus, which are sort of indexing plus.

They're active, but it's really S&P 500 with an overlay of value screen, maybe a small-capped screen on top of that. Old-school stock picking is still relatively small percentage of it, although here you're doing it in yours, obviously. to a certain extent. So I just want to make that differentiate. Everybody's all of a sudden the world's decided to buy into stock picking. That's not exactly the case. It's still a pretty small amount of the flows. There will be environments where a star manager has their moment depending specifically on

what is going on in the cycle. But they're also going to be managers such as at TRO who are much more consistent in their methodology, and maybe they don't blow the doors off coming off below, but you're going to have much more persistent and consistent returns along with lower volatility. volatility I think that's really important. I think so let's talk about that so you big inflows into your capital appreciation ETF this fund is still big believer in a big cap tech stocks you've got holdings like Microsoft Amazon Nvidia and Apple that's about 25% of the funds holdings but you've also got

smaller names I think Beckton Dickinson's in there and Roper what's the idea behind this fund this is real old-school picking what are you doing here? Yeah this fund is designed for a long-term growth And the objective of the fund is out to outperform the S&P 500 with lower volatility and greater tax efficiency through the ETF. It's also a more concentrated portfolio, typically holding around 100 names. And this is really driven by Tiro Price. And to Todd's point, I think there is differences in active management. And TROPrice as a firm, you know, we have over 1,300 investment professionals globally.

350 plus are research analysts. So we perform rigorous bottom-up fundamental research. So what are you trying to do with capital appreciation? Because I mean, look, the 25% is Microsoft, Amazon, and Vidian Apple, but then as I mentioned, I see Bechtin Dickinson's 4%, and Roper's 3%. What are you trying to do? Here's the biggest holdings here. We like to do this just to show you what's going on.

But is there a general philosophy here? Yeah, as I mentioned, the philosophy is to outperform the S&P 500. with a more concentrated portfolio, so high-conviction stocks that are driven by the investment research team. And this fund is managed by David Drew, who is also two-time Morning Star Manager of the Year. Six times he's been nominated for that. So he and his team are very skilled and very experienced,

and this is the portfolio. He also has a complete franchise across mutual funds and now ETF. So this is a new way for our clients to, get exposure to this strategy via the ETF. You came into the ETF space a few years ago, right? You're relatively late because you're so traditionally into that active space. Yeah, me personally a long time ago,

but as a firm, yeah, you've been around right, yeah. As a firm, we launched our first active products in 2020. Yeah. Our first ETS. And you've got a second big cap ETF. I just want to bring up here, equity research, that's TSPA. It's got an even bigger weighting in tech.

About a third of it is the top sick names. Six names, Apple, Microsoft, and Vida, Amazon, Alphabet, and Metter. How does this differ from capital appreciation this one? Yeah, this is more of a large-cap growth product that it does have lower tracking to the index. So there are components of characteristics of both passive and active here. This fund is actually managed by our North American directors of research. So again, strong fundamental research that is going into the stock selection. So we may be overweight certain securities in the index that we have a favorable rating on or underweight or avoid certain securities in the S&P 500 that we're not we don't feel great about the fundamentals of those companies.

Yeah. So again, I see 30%, 33%, top six names here. One thing is clear, Todd. A more diversified portfolio generally has done better than just, owning, you know, the Mag 7 is underperform, the more diversified portfolio is doing a little bit better. I mean, TCAF, TCAF, or the first one we discussed, is actually doing reasonably well this year. I think we finally reached the point in the cycle where overweighing the Mag 7, all of them, right, hit its limit, and it made sense to finally diversify away from those names.

Not necessarily go to zero, but water it down a little bit, or maybe go overweight one name and underweight the rest of the names. And you're seeing that internationally too. International stocks, especially European, are outperforming. So diversification is finally coming back after not mattering for quite some time. And the beauty of ETS is, whether it's Tiro or any other issue out there, they likely have a solution that can get you there and at least manage the volatility as going on. Yeah. One of the things, the viewers love dividends. I mean, it's astonishing.

We've been talking about this for two years, how sticky people are with their money market accounts. And they just love the $6 trillion, $7 trillion in money market. and they're getting 4% and they're very happy. So there's a lot of interest in any kind of dividend payments. People want to own stocks, but they want dividends. You have a dividend growth ETF. As names, they track just a record of dividend increases. It's that simple, right?

I see Apple on it, I see Visa on it, J.P. Morgan, I see Chubb, I see GE. It's an interesting amalgam, all tied together. There's your big names here, Apple, but you see Visa to J.P. Morgan, Chub, GE. And we see big inflows into this, some of these recently as well. Yeah, the dividend growth, ETF that we offered, was one of the first products that we launched back in 2020. And we have seen significant growth, as you mentioned. I think as a macro theme, income and dividend payment continues to see strong inflows across the ETF industry. For this fund, as you mentioned, there's kind of two things.

Number one is the dividend payment and income, but also longer term capital appreciation. So you do see that element. So there's two elements to this. And we have to point this out. You know, there's 50 different dividend ETFs that are out there. We have to explain this because people get confused. They're not all the same. So having an active strategy then is kind of a differentiating point because most of the dividend

etiatives are passive and they're saying, all right, we're going to be the 10 or the 100 largest names growing their dividend or the 100 largest dividend yielders, right? So having an active strategy, you're getting the dividend, and then you're also getting kind of a quality characteristic involved too because the managers should know the stocks. Yeah, so here's the difference. You can buy an ETF that just has the highest dividend payers on a percentage basis, which generally is not a good idea. We've said this for many years because that could be in danger of cutting the dividends, for example, oil stocks. Then you have ones that have a consistent history of paying. dividend increases, which is sort of what you're doing here, but you also have an overlay of

capital appreciation, too, on top of that, right? Right. So there's sort of two elements here to this. Yeah, there's two components. And I would go back to, I think, the differentiator for TRO price, and there's, you know, I would say only a few firms that have the research capability that we have globally. And that bottom-up fundamental research actually drives investment decisions across our lineup of portfolio. And the ETS side is well to offer. And what is the yield right now, I'm sorry to put you on the spot. I actually don't know, but it's probably 1.8, 1.9, probably close to 2%.

Yeah, I'd have to double check. Yeah, it's tough to have a big bond fund that actually has a significant yield, unless you go into stuff that is, you know, you're practically in high yield space, you know, where you're dealing with companies that are just historically paying a high yield in general. Can you explain why you don't want to do that? Because people mess with all the time. Just send me the top 10, you know, that have the highest dividend yield on a percentage basis. Why that's dangerous?

So there's a credit problem. I don't say we have a credit problem right now, but you've seen spreads widen, corporate spreads of widened, CDS spreads have widened, some of the funds that are credit-sensitive, like CLOs and high-yield and whatnot, have started to see outflows,

and there were some discounts recently during the market stress. So you don't necessarily want to go super high-yield when the credit backdrop in corporate America deteriorate. So now we're getting to that tricky part of the cycle where the stuff that really worked and was great is not exactly doing the same thing anymore.

Not to hold your head, but the real problem here is, among those that are the highest dividend yields, there's a danger that the dividend could be cut. So, for example, for years ago, when oil stocks were all in the highest dividend payers, there was a real worry out there that they were going to cut the yield here if the cash flow gets into trouble.

All of a sudden, the oil business sort of drops dramatically. We had to have Exxon come on. Could Chevron come on and say, oh, no, we are not cutting our dividend everybody calmed down this was several years ago but they were on the highest dividend so that's that's the risk right there yeah and again i think that's where active management comes into play where you're able to more nimbly navigate markets especially as you see increased volatility even dispersion of of stock return within sectors or across industries so yeah i couldn't agree more

And I think that's the benefit. And if you look at passive products, you know, there is more static holdings there, right? So if you do see that change in momentum or the overall stock environment, then that actually, you know, they can't do anything about that until there's rebalance time. I want to move on about actively managed bond ETFs because a lot of interest here. You have an actively managed bond ETF. This holds a very wide variety of

the bond world is very big folks. It's not just treasuries. I know people love their money market funds, but those are treasuries for most part. But this fund will hold treasuries. It'll hold corporate bonds. It'll hold mortgage-backed securities. Very significant part of most of these diversified bond funds.

Can you give a sort of broad thinking on what the idea is with bond holdings right now? Yeah, the ticker is T-A-G-G and that is a core holding and we're seeing a lot of different clients from different segments who are kind of replacing and using TAG as a more thoughtful way to gain their exposure to the core bond market so this fund is really designed to provide greater total return than the Bloomberg US investment grade bond market

index. It's also priced at eight basis points, so it's, you know, very competitively priced. Yeah, active bond funds are typically, what, 20 basis points? 25? It's super, you're basically getting active, a professionally managed fund for merely free. Well, you're getting it for index prices. You're getting an active fund for almost an index price, essentially. I do think it's interesting. We've reached this point, two inflection points of peak, concentration risk on the equity side and peak credit calmness on the fixed income side. And so now this is where active managers on both ledgers, right, fixed income and equity can really shine and say, all right, we know where to move fixing on the fixed income curve,

on the credit quality curve, because things are rapidly changing by the day in this environment. Things that have worked are no longer working and it's really completely changing. I think that's where the ETF solution comes in hand and having the active approach is really going to work now. You know, the active bond fund managers have been calming on recently and saying this is when we're really good here. Now, we're used to active equity people coming on when markets volatile saying, well, we're finally going to justify our fees here. We're going to outperform. And as you know, it's very hard to actually do that. The long-term track record is very tough for active.

But active bond fund managers have been claiming they can do a little bit better than active equity. Is there any – you follow this stuff? Is there any evidence that active bonds might do a little better than active equity in a volatile market? And why would that be? Depending on the report card you read, I think there is some evidence of it. Depending on where the focus of that fund is, right? It's long duration or go anywhere. I think the go anywhere funds can definitely do better because they can go out into different esoteric areas.

But it probably depends on the report card, to be honest. But in this environment, long duration doesn't work. And so if you've been in long duration, you've been having problems. if you're passive. And so if it's an active manager, they know they haven't wanted to be out too far in the curve. And they've been sitting in that high quality corporate type stuff. Maybe now they can start to edge out in the curve if things are really going to deteriorate in the economy.

Let me ask you to put on your ETF hat here. Looking out for this year, any thoughts on where we go? We sort of hit on active in a generic way. Any thoughts on other developments that you might see that might impact the markets or the ETAF business? Yeah, I think we're actually actually. really early days in terms of active management and the uptake. And if you look at some industry projections of where active ETFs go from here, as you mentioned, we just crossed a trillion dollars in AUM.

There's projections out there that this would be a four trillion plus market by 2030. So I think you're going to see a continuous launching of more active products. And just statistically speaking over the last three years, Active ETFs have made up about 65% of all U.S. ETS listed in the U.S. And I don't see that slowing down. I actually think that's going to continue. Any new products out there?

I mean, Bitcoin was a huge success last year. It's sort of leveled off at this particular year. Gold's had some inflows. I don't know, what else out there? It's intriguing for TRO prices. I mean, as we're looking across our existing products, we have 19 products in market, over 13 billion in AUM, and that's quickly growing.

We also have very aggressive plans to expand our product suite and offering both across fixed income and equity products, including some additions to international equity, et cetera. So I think you're gonna see continued innovation more broadly, as you mentioned digital assets. You could see more innovation coming around that front as well. Well, certainly more volatility is good for active at this point.

As a long-term investor, I'm perfectly happy with lower volatility myself, but it's good for you. guys. So congratulations. And thank you for coming. Thank you, Bob. Thank you, Bob. Thank you, Bob. Now it's time to round out the conversation with some analysis and perspective to help you better understand ETFs. This is the Markets 102 portion of the podcast. Todd

Sohn's, Travegas, head of ETFs, continues with us now. And you just had a great conversation with Tim about active management, but it has been quite a tumultuous three and a half months. Amidst all this market turmoil, what is, what are people doing? Where are the flows going and where are they coming out of? It's a split right now since we're two months off the high. You've either gone into very low cost S&P 500 funds. I think that's pretty normal as odds it seems, right? Because it's just persistent drip in the passive investment vehicles for the long run.

And then I would say the more tactical money is going to a cash like ETFs, BIL, SGOV, the really short term stuff that doesn't have any duration risk. And also, essentially a short term, like a money market fund essentially. Yeah, basically the liquid money market funds that are out there. BIL is very, very short term. Exactly. There's no duration or risk. You're just getting income. You're hiding out. Or gold. For whatever reason, gold is just going parabolic here, which I'm a little worried about. I don't think it's the most timely item out there. But that's also seen monumental inflows over the last three to six months as people, I think folks finally woke up and realized, oh, this is working. Right? And they're worried about the broader U.S. economy for whatever reason that might be. And where's the money coming out of? And where's the money coming out of? economically sensitive areas. So small caps, credit type ETF, such as COOs, bank loans, high yield, and then financials and industrial type sector ETFs. So anything that has an economic, sensitive tilt to it is where the outflowers are coming out of. Yeah, it's really a shame because

there was a brief moment there where we were all hopeful that finally we get a little more diversification. You know, that small cap might finally have a moment, that value might have a moment after 15 years of relative underperformance, and it just faded away again. Unfortunately, you get these sugar highs for these certain areas that we want to work that have not worked in ages, and then there's a catalyst, such as tariffs or whatever it might be, that kind of blows up that trade. So I think there's interesting extremes for small caps that everyone's bailing on them. Maybe they come back after this reset here, but there's still high hurdles to go for that space. We often use the term risk on and risk off. It's a very

generic term for whether people are betting lots of money and one of the aspects of risk off is people engaging in sort of lottery-like behavior and making outlandish bets on things. Bitcoin, which had one of the great premieres of all time for an ETF space in 2024 is pretty modest in 2025. Yeah. I don't know. It's hard to read the tea leaves here, but the flows aren't nearly as strong as they were last year. No, there's been outflows from Bitcoin along with the, you know.

kind of the risk off, risk on type stuff. The Bitcoin performance has held in remarkably, I say relatively well compared to equities and some other corners in the market, which I think is curious. I'm not sure what that means. Maybe it's a dollar or an economy type thing, but you have seen reduced appetite for the ETF spectrum

in terms of Bitcoin and the other criteria. It's been great watching it because you and I have said for a long time, we talked about this for a year. Now, I've had issues with Bitcoin general as a store of value, but there's no doubt that Bitcoin ETFs, if you want them, that's the way to go. So I was a big backer of Bitcoin ETFs from the very beginning under the theory that it's just a safer way to own things, just like it was a safer way to own gold. Yeah, it's far more efficient, easy, convenient for an advisor to buy it. And in a sense,

Bitcoin with it sort of working here, sort of, going sideways, is making its case to be put in into outside allocation portfolios, right? One and two percent is the argument that I've heard. Yeah. But that's how they drag you in, like start at one and two percent. And the art, it's pretzal logic, the argument as well, if you lose one percent, it doesn't matter if it all goes away, but if you double it, now you have two percent. It's a prezol logic.

Like what, what's the fundamental argument here? Supposedly diversification and non-correlation. That I think was questionable for a while and now maybe this is the first hints of it. So I'm curiously how that develops. What else? Throughout the year, so the sector plays are all. over the place. You know, oil is not, energy is not working as well either with oil down. No demand for energy. No demand recently for financials.

Earnings estimates have really come down for the oil companies. It is the only sector that has seen inflows over the last two months is utilities, which is about as defensive as you can get. That's a pretty small group. I don't know anyone who owns a utility S&P 500. I literally don't know any. I do know people who own utility stocks, but I don't. The hot utilities were all the AI nuclear plays. Yeah. and they've unwound and now you're seeing more traditional utility plays being bought. Well, they were popular as an AI play, just a power play for a while. Yeah. And then they might have been popular if rates go down as an alternative yield invested.

Yeah, you're not. It's very hard to, you know, at any one moment to figure, given all this volatility, what we want to own. Isn't the long term, it's just, this is like going back to the Bogle days, but you have to understand what your long-term risk profile is and believe that all, This tariff uncertainty will eventually get resolved. You have to believe that. Otherwise, you're going to go crazy. And it depends on your time frame. If you're long term, that's why you're seeing money

going to these S&P 500 funds and low-cost ones. And if you're tapical, that's why you're seeing money go to cash and gold. Yeah, yeah. Well, there's certainly a group that believes in that. And so far, 4% yield on money market funds is not a stupid investment. That's still a very big shadow.

Yeah, for sure. Thanks, Todd. Appreciate it. That does it for ETF Edge. The podcast that was Todd Sown from Stigas. Thanks for listening. Join us again next week or remember the show is at etfa.c.cnbc.com. How does InvestcoQQQQ rethink possibility? By rethinking access to innovation and the NASDAQ 100.

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