ETF Edge - Schwab’s First Crypto ETF Launch – and Breaking Down Buffered ETFs 8/8/22

Episode Date: August 8, 2022

CNBC’s Bob Pisani spoke with Bruce Bond, CEO of Innovator Capital Management, and David Botset, Head of Equity Product Management and Innovation at Schwab Asset Management. As the crypto craze heats up, they discussed the latest launches, including Schwab’s first-ever crypto ETF. Bitcoin may be rallying today, but it’s had a tough slog over the past year – tumbling 50% year-to-date. Plus, they delved into a new Tesla-focused buffer ETF to learn more about how it can provide downside protection for such a volatile stock – and why the SEC might have reservations about such complex products. In the Markets ‘102’ portion of the podcast, Bob continues the conversation with Bruce Bond from Innovator Capital Management. Hosted by Simplecast, an AdsWizz company. See https://pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge Podcast is sponsored by InvescoQQQQ, supporting the innovators changing the world. 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're in the right place every week. We're bringing you interviews, market analysis, break it down what it all means for investors. I'm your host, Bob Pisani. Today on the show, the crypto craze heats up. We'll discuss the latest launches, including Schwab's first ever crypto-ETF.

Bitcoin may be rallying today, but it's still down 50% so far this year. Plus, we'll delve into a new Tesla-focused buffer ETF to learn more about how it can provide downside protection for such a volatile stock and why the SEC might have some concerns about these complex products. Here's my conversation with Bruce Bond, CEO of Innovator Capital Management, along with David Boxett, head of Equity Product Management and Innovation at Schwab Asset Management. Bitcoin's down about 50% this year, a Bitcoin ETF. Who knows when that's going to happen? Several new crypto ETS have launched, including yours. Why now with Bitcoin down 50% this year? You know, Bob, with the way Schwab asset management approaches our product development,

we're not trying to time the market. So not providing an indication or our thoughts on if we're at a bottom or another place with Bitcoin and cryptocurrencies and digital assets. It's more about responding to customers asking for exposure in this space and delivering a product that will stand the test of time and provide that access to them. So that's really what drove us here, and it just was happenstance that we got to a timing of a launch

where crypto's where it's at today. Yeah, you know, there must be something in the air. Horizon Connectics launched a blockchain development ETF last week, an actively managed fund that best in companies that benefit from digital assets. But I look at the main holdings here for the Crypto-Thematic ETF, I see a lot of names that we know well in the crypto space. These are not Bitcoin, but companies, micro strategy, Marathon Digital.

I see Riot blockchain. I see Coinbase, Silvergate Capital, Robin Hood, even interactive brokers. How is this particular thematic ETF different from other crypto-thematic ETFs that are out there? I think we really look at our differentiation in two ways. One is on cost and one is on the index design. on the cost we've launched the lowest cost crypto-related product in the marketplace at 30 basis points. The other is about the exposure and the index design. And you're right in that the top names and the index and ultimately fund holdings are much the same across those products.

But as you get beyond the top 10, our approach of combining the human insight with AI and models to assess companies, exposure to the crypto, theme we think is differentiated. So you see a name like NCR Corp, which owns the largest network of Bitcoin ATMs, or Stonex, which is a company that provides institutional investors, trading of crypto as well as custody services. Those are names that are really differentiated in the space. We have other examples in Japan and Europe that are in the fund, and we think that over time, that's a big differentiator for investors. Yeah, I think the problem here is it's still tough to get pure plays in any of this. With any of these situations here, remember with pot ETFs, for example, a few years ago,

there was impossible to get the kind of exposure people actually wanted. And when you wanted to do gaming years ago, you couldn't just say buy Nvidia because Nvidia had other products. And you're still limited by the amount of real pure plays that you have out there, aren't you? Isn't that? That's still an issue for you. It is. And I think, Bob, as we look, whether it be crypto, any other theme, or frankly, take it to another approach.

When you think about sectors, you think about today's sector products and sector exposures. Well, generally speaking, you say, I want a technology exposure, but you think how broad that exposure is in technology. I think what we are doing with our approach in defining a thematic beta is a way to systematically assess a company. sometimes it's a great a large exposure sometimes it's smaller that will change over time we think especially those smaller companies as it has the potential to increase within their business they may see a larger benefit over time you know last week i thought about you because i know we're going to have you on i saw black rock announced that it was teaming up with coinbase uh to offer bitcoin's institutional clients now right now this seems to be only just bitcoin no other cryptocurrencies but

I'm wondering, that seemed fairly important to me. Are we seeing any broader acceptance of crypto? I mean, BlackRock wouldn't do this on a willy-nilly. I mean, what about Schwab clients? Are they asking for more crypto opportunities? And how do you handle something like that? It's still a very speculative investment. It is a very speculative investment.

But we are seeing certain segments of Schwab investors that are seeking to provide, or seeking access to this asset category in their portfolios. So we're looking at ways in which we can do that. This is the first step in that. Will there be other ways? Potentially, but I think as part of that, we're also analyzing and thinking about what the regulatory environment looks like in the future. You know, you mentioned what happened with Coinbase in BlackRock.

I do think that's a recognition that this market is maturing. You know, Bitcoin has been around for over a decade. And as it continues to mature and as other cryptocurrencies and digital assets continue to mature, I think we're going to see them be a larger part of our economic environment in the U.S. and globally. Like I said, I don't think Blackcrock would do something. They're cautious. They're like Charles Schwab. They can't just go chasing fads if they think they're going to blow up on them.

They have their own. Just like Schwab. They have reputational risk here, too. I want to turn to you. You've got a very interesting new product out as well. I've known you for many years, but this is a really interesting one. You launched the innovator-haged Tesla strategy, which seeks to track the upside. performance at Tesla to a cap. Now, explain how this works. It's not easy for investors to get the

head around. I do have a full screen, but just explain how it works. Very simply, really the idea is a lot of people want to purchase Tesla. They want to be involved with Tesla, but they're worried about the volatility of Tesla, also the valuation of Tesla. You know, if Tesla was valued like Ford, people would lose 90% of their value right away. So we're saying for those people that want to get in, they want a long-term investment. This is how it works. You buy TSLH, hedge Tesla. You get basically 10% on the upside, and you have a 10% floor. Now, what a floor is, that's a max loss of 10%. So if Tesla go down 20%, you lose 10%. If it goes down 50%, you lose 10%. And each quarter, that resets. So at the end of September, it will reset on the calendar quarter, each calendar quarter, and you get another, whatever the

upside is. We don't know exactly what it would be. Right now, it's 9.23% when we just launched it. Each quarter will be in that range, and then you have a downside of max loss of 10%. For example, let me tell you how somebody could use it. I had a big appreciated position in Tesla, up 800 some odd percent over the last several years. I decided to take my position, roll it out into this. And now I only have really, I have a max loss of 10% in this. Now, I'm not going to get as much upside, but we don't believe that Tesla is going to have that kind of upside it has in the past. It's a huge – think of it. It's not a trillion anymore, but it was one of five or six companies that a trillion dollars.

They only sell one and a half percent of all the cars in the world. Does that really make sense? And what we're saying is we're not so sure it does. We think a lot of people are concerned about it. There's a great way for you to stay with them. Two points here. First, this is essentially a collar trade. seems to me.

Yeah, similar. There's an upside. Now, you're saying it was 9%, but the way I put it up there was 10%. So in a quarterly basis, if Tesla's up 12%, you're only going to get 10%. Exactly.

Of the 12%. You're only going to get up to the cap and then you give the rest up. Right. And there's a downside protection here. So I think it's important to know, you don't actually own Tesla shares. You own Tesla options and treasuries, right?

And that's how you get this. That's exactly right. That's how we give that position to people so that they can, you know, they can get exposure to Tesla, but without all the risk of Tesla. Yeah. So the other thing, people have a hard time getting their head around.

It's just reset. Sure. Leverage and Inverse for years, we keep telling people these things reset every day and people can't understand and get their head around what a reset means. This is a quarterly reset. Yeah. So timing kind of makes a difference here, doesn't it? It does.

It does. I would encourage people to go to our website and see where it's at, because since we launched it, Tesla has moved up some. So you may only have about 5% left on the. upside from here. But if you get in around the end of September, when it reset, you know when you're getting in, right? You can't just say, I'm going to buy Tesla's going to be in the middle of, you know, the quarter. You can, but it's important for you to know what your outcome. You can find out your outcome any day. If you go to innovators, etifts.com, go to the website,

look up Tesla. It'll tell you, well, you have this much upside left and you have this much downside. And so you can see every day what your exposure is and what your opportunity. So this started, what was July 26th. Yeah. Right? And it resets at the end of September. Is that right? It's a shorter period this first time because we're trying to get on the calendar quarter. So it was just two months, really, this first time. Right. But my point, I'm sorry to keep repeating this, but I know people were going to get confused about this. It's really important to know when you're going in and buying it. Yes. Because if it's already, if Tesla's, if you're in the middle of the quarter and Tesla's already up 5%. Yeah. You've capped really another 5% gained essentially. Well, so what has happened is

Tesla is above the cap already, but the fund itself is only up about four and a half percent. So you have another 5 percent. So let's say if Tesla doesn't move from where it is, the fund will, as the options expire, will go up to the cap. Yeah. All right. Let me, I want to point out that Bruce has got some much broader products that are out there other than the Tesla.

And I know we're dwelling on that. But last year, you launched a broader buffer product, the innovator defined Welch shield. This is B-A-L-T, Bolt is a symbol, and it tracks the return of the S&P 500 to a cap. Very similar. Here's a full screen explaining it, but Bruce, again, just walk people through what you're getting. Yeah, so on Bolt, so Bolt, what it is, it's meant to allow people to get into the S&P 500 with very little downside, but exposure to the upside. So the way to think about it is you have a, it's quarterly again. So each quarter it resets.

And Bob, to your point about the reset, remember, you don't have to be a lot. to do anything at the reset, the fund automatically resets and gives you a new cap and a new buffer in this instance. So, Bolt is based on the S&P 500. It has a 20% buffer to the downside quarterly. So if the S&P goes down 21% during a quarter, you would lose 1%. Now, you get 2.5% of the upside quarterly. So it is very rare. Like if you look at first quarter this year, it didn't even go down. It was down like 15% or second quarter actually. So you didn't even get into the 20% this year, how volatile the market was. Now, why would you buy this?

It's a pretty long-term put, pretty far out put there. Well, it's just a quarterly. It's quarterly, but it's a 20% decline. It's a buffer. And so why would you buy this? Why would you use this? Well, the reason there's been so much interest is people that don't want to buy bonds, they know rates are going up.

They're pretty sure they're going to lose money. they would rather link their low-risk money to the equity market with a 20% buffer against losses. So you aren't going to lose in that first 20% and take this 2.5% or whatever the cap is on a quarterly basis. Remember, it would be 10% over the year. If the SB is up 5%, you're only going to get 2. You only get 2.5. Okay. So there's a little bit of a call here, just a boss.

the market. Exactly. And a pretty big put way below. Yeah, well, we have to, we have a put spread at the bottom. We buy a put and sell a put. And then we have to actually sell a call at the top. That's what gets to your cap to build the position. Right.

It's a zero-cost. You own all options. It's all options. And it's a zero-cost position for people. So a lot of people are saying, hey, I'm going to take maybe half my or a quarter of my fixed income position and link that to the fixed income market. go for the 2.5% on the upside, link to the S&P 500, rather than just stay in the fixed income market. You know, I know these buffered ETFs have gotten some assets, but they are difficult to understand.

And the regulators have voiced alarm over these kinds of complex ETFs. Folks, I've talked about this on the air. We've had Gary Gensler, the SEC chairman on. He warned earlier these, he calls them complex products. They could pose risks, even to sophisticated investors. and can potentially create system-wide risk by operating in unanticipated ways when markets experience volatility or stress conditions. This is Gary Gensler. What do you say? Gensler is targeting, initially made comments on single-stock ETS, but this falls under what he calls these complex products that are difficult to explain. And they are growing.

There's new ruling that came out. Yeah, there's new ruling that they came out. They asked questions for feedback. But remember, you know, there were all kinds of ETFs, not even options-based or not even daily that were kind of encompassed in this thing. I mean, he called a lot of ETFs, you know, complex. And really, the important thing to remember, you know, when I started selling ETFs back at Power Shares way back in 2002-Tel-Tes, nobody knew even what an ETF was. ETS were considered complex. And just because it's new, does not mean it's complex. Sometimes it takes time to understand what it is

in order to understand how it works, because I would just tell you that the buffers bring tremendous value, risk control value for thousands of investors now and advisors. And it's a great tool in the marketplace. And I think Fenra is starting to realize that, and the SEC is starting to realize that. And so just because it's new does not mean it's complex. But you do need to do your, and it's a new,

And in investing, I say buyer beware. Make sure you understand what you're investing in. I know you're talking specifically about crypto here, but there's something that Gensworth made the same point about crypto. He's had concerns about it. He's obviously pushing back against a Bitcoin ETF, and that's causing a lot of consternation in the Bitcoin community. But does Bruce have a point here just because it's new doesn't necessarily mean it's complex? I'm just wondering how you deal with this issue, because. obviously you want to continue to do financial innovation, provide products that the clients want,

your clients want, at the same time. What happens if this blows up and then all of a sudden we all have to stand around trying to explain why it blew up and gee, was that a good idea to begin with? How do you find that balance? Yeah, I think it is a tenuous balance at times. And Bruce and I have both been in the ETF market for a long, long time, longer than I would like to say. And it has been all about, I would say, two things. One is education. And that's education both for investors and our regulators. That's so, so important.

One, for investors, making sure they are understanding the products that we are putting in market before they are going out and making that a part of their portfolios. The second on regulators is having that open dialogue, when they've got questions to learn, we can be a source for them to learn. The other part that goes into it for Schwab asset management is how do we test it internally ourselves? You know, we want to do a lot of due diligence, a lot of research, a lot of back testing to say, all right, in different market environments, before we bring a product, how is this going to perform? Where are the risks?

What can we do to mitigate those risks to put in place a product that is really sound structurally for design for investors' portfolio? And you know, you look at micro strategy or you look at Coinbase. I mean, these things have had absolutely wild price swings. We always bring up Bitcoin. It's like, well, that's not such a great store of value. Things down two thirds in, you know, a year. And yet some of these underlying stocks that are associated with this, they've done the same thing.

Some of the Kathy Woodstocks not associated with crypto have done absolutely wild things in the last year where we sit around and say, well, okay. hey, you know, you knew it was speculative. You knew not money of them were making any money or no money or losing money. And then we had a rising interest rate environment. Duh. We know what happens historically. Yep. I took care of it. With this, David. So, you know, when I bring this up, I'm very neutral on the price of Bitcoin. But I do point out that we've had the same wild swings in some of the pure play products, equity products that underlie these things. Well, you know, and speaking of complex too, you know, remember, they can buy all these. these individual stocks out there that they don't understand a lot about being able to have that

in a portfolio that's at least diversified for them, I think is a benefit to a lot of investors. Yeah. You were going to say something, David? That's exactly right. I was going to say that's exactly right. You know, so many investors will look and try to take that position through one or two stocks. And that just actually adds to the risks. When you can do that through a diversified basket or as Bruce has done in providing some caps on upside and downside, that can be. be a little bit more controlled and measure way to get that exposure for investors that they're looking for. You know, you two guys have been in the ETF business a long time. I'm wondering if you have any observations of what we're seeing this year. Bruce and I were talking earlier, David,

and the thing that's remarkable to me is in a year where there was really serious ups and downs in the market, overall, there are still inflows into equity ETFs. They tend to be still the plain vanilla broad ETFs, the S&P 500 type funds that still continue to get slow but steady inflows. Schwab was fairly late to the

ETF game and yet you've been remarkably successful in gathering assets in a lot of it in simple plain vanilla formats. I'm wondering, you know, David, to start with you, do you see any overall trends in ETF that sort of stick out to

you this year? Yeah, I think there's a couple things that stand out to me. Bob, you mentioned it, broad-based equity exposure. It's happening in fixed income as well. And let me just pause on both of those for a moment. When you look at equity in that downside, I think what we saw was a lot of investors taking the opportunity after a significant equity bowl market to reposition their portfolios. A lot of those investors likely coming from active strategies and moving into passive strategies where they had big gains that they didn't want to take that tax bite to move into lower cost options and they were able to do that during that downturn with equities.

Similarly, in fixed income, we've seen huge fixed income flows this year. And I think, again, it's repositioning of portfolios. As we saw that inflation trade take up and really to grab into attention of investors, we saw a lot of flows into tips as it seems like we may be, and you can, debate on whether it's a harder or soft landing, you're starting to see some of that repositioning and fixed income occurring as well, looking at how do I want to really position my portfolio from a credit standpoint or an interest rate standpoint and getting very specific. And that's driving a lot of the fixed income ETF flows because you can get a little bit more granular

positioning than many mutual funds have historically provided. I was really surprised, apropos of what David was saying, about inflows into bond funds in July. You think might have And so, you know, rates are going up eventually. Yes, the Fed wants that to happen. And yet we're seeing inflows into bonds. Huge amount of flows. You know, I think the reason it continues to grow, I know you're a big fan of Bogle. Yeah.

And, you know, the passive approach tends to continue to outperform the active approach. Even in this downturn, you know, they say, well, wait until the downturn, we're going to outperform. And, you know, time and time again, we just don't see that. And I think you couple that with, I mean, we are huge believers. in the ETF structure, the chassis, to deliver, you know, most of the performance to investors, as well as defer your gains through time. Those two things coming together are going to continue to drive flows in that direction. And I think, you know, until we see the ETFs, I mean, the mutual funds really spin down quite a bit, you're going to continue to see that flow.

Yeah, I have to agree with that. One of the reason I'm such a backer of the ETF structure, other than the obvious thing of tax efficiency, and originally it was for indexing. largely is just how innovative it's become. So you can pick up on whatever the new trend is. You pot ETFs and crypto eventually. And now you see more specialized product like single stock ETFs and buffered ETS. And I may have differences of opinion with people about how good these are for the general investors or how safe they are. But the main thing is to keep promoting financial innovation and products that enable financial innovation. And we may argue about how much guardrails you ought to put around them for the investor, but there's no doubt that

ETFs are one of the great financial products of the last 50 years, one of the great innovations. I think too, Bob, that, you know, the important thing is on complex products in this issue is very important not to shut down small firms who want to bring innovative products and to tell them and move them to the sideline. It's important to support them and realize they're new. We need to understand them. Are they doing something safe for investors and then and let them go forward. Otherwise, you know, is innovation that's so great? We'll start to lose that in time because people won't be able to bring new ideas

because of the rules that are put around it. David, I'll give you the last word. What else is out there in Schwab's toolbox? What else, what are you hearing from investors? Is there something out there on the horizon that you think, you know, the Schwab investors are looking for? What do you see? Yeah, I think it's getting to the heart of what Bruce and our both.

talking about here is how do I continue to personalize my portfolio with unique exposures like the Schwab crypto thematic or a buffered ETF and how do I continue to reduce the cost of my portfolios to help me build wealth in my portfolio because that's the one sure thing that that can benefit of portfolios reducing costs I was hoping he's going to say new pot ETFs or something like that yeah but yeah I know I wasn't expecting you to say that I don't think he'll be doing that out there to see that See, they'll get a reaction out of them. Now it's time to round out the conversation with some analysis and perspective to help you better understand ETS. This is the market's 102 portion of the podcast.

Today will be continuing the conversation with Bruce Bond from Innovator Capital Management. And Bruce, we were talking about your buffer funds that are out there, which you started four years ago today. Today, today, yep. So congratulations. Now, your main product, which is bulk, B-A-L-T, the Defined Walsh Shield, is a buffer product. for the S&P 500. And you've attracted $8 billion in assets by all accounts. That's a successful ETF.

But again, the problem I've had is just explaining this whole concept. But the basic idea is you're buffered against the first 20% of losses over a three-month period. So, Balt is a newer product that we've got, Bob, that is more kind of a bond replacement, bond alternative. But if you look at just the buffers, okay, that we're talking about, these are S&P. 500 buffers and they're one year long, Balt is a core each quarter, these are one year long. So there's three different ones. You have a 9% buffer, a 15% buffer and a 30% buffer. Now what does that mean?

That means you can buy the S&P 500 right around the beginning of the month and you're going to have a 9% buffer against losses and you're also going to have a cap right now the most recent cap was 23%. Most people are like okay I got 9% bar from the down to the down. Which what a buffer is, it means if the S&P ends in one year, anywhere in that 9%, you're not going to lose any money, right? You're going to get your return back to zero. But you have 23% of the upside. So just think about where we are today.

Markets sold off. It's kind of up, kind of down. Nobody really knows where it's going to be in a year, right? I mean, is inflation going to dig in or what's going to happen? Now you can buy that. If the market goes down 9%, you're going to outperform the market. by the amount of the buffer if it's down more than nine. And if it goes up, 23, you're going to get one for one on the upside all the way to 23%. So there's a lot of people that are saying, wow,

I like that tradeoff. In a trendless to down market, this sounds very attractive. In a generally up market may be less so. Do you anticipate the inflows have been pretty good, but it's partly because people don't know what's going on, right? Yeah. I mean, what it is is for investors. that are worried about the market. They don't know. Is the market going to crash? Is it going to go up? This allows you to put guardrails on your investment. It says, yeah, you're not going to get above 23%. You're going to give that up. But for giving that up, we're going to be able to give you a 9% buffer, but you've got to hold it over the year. And most investors, now, a young investor, Bob, maybe not. But if you have real money, you're retiring, you want to, you know, most people

in retirement, they don't want to have to make their money twice. They want to make their money once. They want to preserve that money. And so something like this is great for them. Even the 15 buffer, which gives you 17% of the upside, but you get a 15% buffer on the downside. A lot of people are opting for that. But then you have a 30% buffer. They give you significant buffer on the downside.

I guess the problem with a downside, with even a 15% buffer on a quarterly basis, is if you have several consecutive quarters where you're down, you know, 10, 12%, this isn't going to save you. For example, if you're down 10% one quarter, 10% the next quarter. Yeah, well, now remember, these are annual.

These are annual. This is an annual product. So it's 15% over a year on the S&P 500. So you have to hold it the whole year. If it's down over 15%, let's say if it's down 20%, but BALT resets quarterly. Walt resorts quarterly, which is different than the main buffer suite that we have. Balt is more of a bond type risk profile.

And then we have these other products that are really, where a lot of the assets are going on the S&P 500. People are saying, like you said, most of the money is going into the same old S&P 500 funds. A lot of those people are saying, you know what, I don't want the risk of the S&P 500. There's too much risk for me. I'm going to buy a buffer, and I'm going to know I have a buffer of 9% on the downside, but I can get 23% of the upside. And that's what they're doing. People that... And this is a reset on a yearly basis. This is a yearly reset. So on January 1st is a reset. January? Well, we have one. It comes each month. So like if you wanted to buy it at the first and next month, you buy it then, and then one year later, it resets automatically for you.

It gives you a new upside and a new downside. And this allows people to get into the S&P 500, the NASDAQ, the EFA, emerging markets, with much less downside risk to them. But having, and you know what the great thing is, what's the problem with investing? The problem for advisors with their clients primarily is setting expectations. it's hard to know what the market's going to do. So here you've got a defined expectation. So now you can look out there and say, look, if it's way up, we're not going to make it all. I mean, we wish we could, but we're not.

But if it's down, guess what? We have this amount of buffer in there to provide a level of protection if the market is down. Right. And to provide this, I want to remind everyone, you're not actually owning S&P. You're owning options, right? You're owning options. So you're on a put. You're buying and selling a put at the same time?

It's like, yeah, we're buying. then you're selling an option. It's called a put spread. You know, so we buy a put at zero and we sell one at 9% for example. So you're protected in that range. You know, and then, but that's not enough money to buy the S&P 500 exposure on the upside. So we have to sell a call off to get enough money to buy that participation. And that's where the cap comes in.

So it's really, to be honest with you, it's four options that we end up buying that we put in the package. And, you know, I mean, I've done, you know, 1,500 equity securities in an EATF before. This is a very simple portfolio to buy and execute. Is there any concerns, as Gensler, as Gary Gensler, the head of this SEC has said, that somehow these products can be so complex that they can create problems in the market if they attract sufficient amounts of assets. Is this a realistic concern? You know, we have ours only on the most liquidation.

securities in the world. You know, the S&P 500 options on the spy options are super, super deep. I mean, it is the most liquid pool available. So I really don't see it. I mean, I think that maybe he's concerned about some of these single name exposures. Tesla, you know, we have the hedge Tesla. You know, people can get into Tesla without as much risk. And but Tesla has a huge pool of option liquidity as well. So we are very careful about where we go. I guess, you know, I remember when those volatility products blew up a couple years ago, several of them, and we had to come on. For days, I had to explain what happened. And, you know, I think the problem, I said this before, is leverage an inverse ETFs or 2% of the volume, and they can be 98% of the problems and

explaining to people what goes on. And I think that's the concern that those of us who, like you, been around since the very beginning when these were original, very sort of pure products, largely index products, now see them getting more and more, you can say innovative, but also providing more complex products. Yeah, they're getting pretty sophisticated some of them. Right, and they are. And, you know, when Innovator, when we were getting started again, you know, we were looking to get into the ETF business, but we weren't going to just go in and do everything. We were saying, what could we do would really bring value. You know, we don't want to just do the same thing. What are we going to do?

Just, you know, a cannabis ETF or a crypto ETF or a meme ETF. You know, we don't want to just play on these sidelines of these, you know, niche little products that might be big one day and gone the next. We learn to bring something, you know, at the heart of investing for investors. And we believe that the buffer ETFs are real tools. Are they, do you need to know how to use them to invest? Absolutely. You need to understand them. But we think they're worth understanding. And we think in time, they'll be like a municipal bond or, you know, a treasury or whatever. You know, a treasure when you buy it at the beginning, you know what it is. But if you buy a treasury in the middle, well, you got to figure out the yield. You got to know what you're buying. It's the same type of thing. You know, and I think I mentioned

to you before, nude does not necessarily mean complex. In time, people will look back on the buffers. believe and be like, no. The other great thing about this product is just the simplicity of it in that it's a complex product, but it's simple for you to buy. Yeah. So if you were to do, go out and do this yourself and try to replicate it yourself, you'd be buying, as you said, four options and good luck keeping track of all that. Well, and you know, you couldn't do it as inexpensively because it's done at the institutional level. Yeah, and what is the fee? The 79 basis points. Okay. Okay. You cannot, this type of exposure was typically only available through private banks for their high net worth individuals and most people couldn't get in on these types of opportunities.

Now you have access to these types of investments. It's a fascinating subject and this is sort of the year of complex products. We'll see how they evolve and see what Gary Gensler has to say about them. Bruce Bond, always a pleasure to see you. I've known you for many, many years. I knew when you were power chairs. Many, many years ago. It was 15, 20 years ago.

And it's great to see you staying in the business. Thank you very much. Bruce Bond and folks is the CEO of it. innovator capital management. And thank you for joining us on the EPF Edge podcast. InvescoQQQ believes new innovations create new opportunities. Become an agent of innovation. InvescoQQQQ, Invesco Distributors, Inc.