ETF Edge - The Fed's Impact & 2022 Outlook

Episode Date: December 6, 2021

CNBC's Bob Pisani spoke with Gerard O'Reilly, CO-CEO and Chief Investment Officer of Dimensional Fund Advisors and Nate Geraci, President of the ETF Store. They discussed where markets are headed in 2022 with the looming threat of a faster taper and protentional rate hikes coming down the pike. Plus, why more mutual funds are embracing the ETF model now than ever, and whether hot thematic trends like ESG, Crypto and the Metaverse are built to last. In the 'markets 102' portion of the podcast, Bob continues the conversation with Nate Geraci from The ETF Store. 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 InvescoQQQ, 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 exchanged, 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'm your host, Bob Pisani. Today on the show, we'll sit down with one of the world's largest value fund managers and get his take on where the markets are headed in 20. 2022 with the looming threat of a faster taper and potential rate hikes coming down the pike.

Plus, why more mutual funds are embracing the ETF model now more than ever, and whether hot thematic trends like ESG, crypto, and the metaverse are built to last. Here's my conversation with Gerard O'Reilly, co-CEO and chief investment officer of dimensional fund advisors, along with Nate Giroxie, president of the ETF store. Gerard, the reappointment of J-Powell has the markets operating under the assumption that future Fed policy will now tilt towards a more hawkish stance. What, in your opinion, does this mean for stocks in 2022? And what does raising rates mean for the markets right now? So thanks, Bob, and thanks for having me on the show.

It's good to see you. You know, when you look at what the Fed is doing today, they're really telegraphing what their plans are over the next few months. And so the market is incorporating that information into prices today. So what we tell our clients is, well, let's look to the long term to see how markets have incorporated this type of information in the past. And when you look back over the past 40 years, Bob, the average monthly return on the U.S. market has been about 1% a month. And when you look at it in months when the Fed has raised the target Fed funds rate or decreased the target Fed funds rate, it has been about 1% a month. And regardless of what the Fed has done, about two-thirds of the time, the market has gone up in months, whether it's raised or decreased the target Fed's funds rate.

So the Fed is telling the market what is planning to do. The market already has priced that in. So if the Fed does what the market expects, you can expect the long pool return on markets, in my view. And that's effectively what we're telling our clients. Focus on the long-term, look at the long-term data. Yeah, that's what you guys are all about. Now, Gerard, I want you to reiterate your investment philosophy. I always ask you to do this when you're on.

You're very closely aligned with index investing, but you layer over that a small cap and a value tilt. Can you explain that and what the ideology and the methodology is? Yes, indeed, Bob. We are closely aligned with index investing, but how I like to describe ourselves is that we're systematic, fundamental. And what does that mean? Well, it's not something new.

That's the good news. We've been doing this for 40 years. But what it means is it takes a lot of the benefits of index whether that's low cost, whether that's transparent, rules-based approach. And what it layers on top of that is a daily process, daily oversight, and that daily oversight allows us to take information from stock prices, from bond prices, to increase expected returns and manage risk, in my view, more robustly than an index approach does. So you can think about it as all the benefits of indexing,

but then take that active implementation and try to add value in excess of it. indexing. And you're right, Bob, we do tilt to small cap and value stocks as well as high profitability stocks. And what we're pursuing there are higher returns on behalf of our clients, because over the long pull, what we've seen is small cap value and high profitability stocks have outpaced the market by about two to three to four percentage points a year. So we're pursuing those higher returns on behalf of our investors. I want to come back to that higher profitability shortly, but let me just follow up, Gerard. Small cap and small have done well this year, but it's really the first outperformance in several years.

So we've got this uncertainty over the Omicron variant. What's the outlook for small cap and value in 2022? Are you basically just still stay the course? Do you think small cap and small cap value can outperform growth and big cap in 2022? We do indeed, Bob, because when you think about the Amacron variant and you think about news, New news when it comes to the marketplace, it moves stocks. After it says move stocks, people may still talk about it, but now it's old news. And so market prices are forward-looking their predictions of the future.

And again, what's known about the Omicron variant is known and already priced into stocks. So again, we look to the long pull. And over the long pull, even after years when small value has outperformed large growth, and we see this in the data, the following 12 months tend to be pretty good for small and value. You get a little bit higher than the long-pull average. And that long pull average, by the way, Bob has been, you know, about 4% or so per year for small value in excess of large growth, maybe even higher in some years. So again, we tell our clients invest for the long term and look to the long term to inform their expectations on any given year. So we think small and value stocks are well poised to outpace the market for 2022.

You know, Nate, despite what Gerard is saying, investors, at least CNBC viewers, seem pretty obsessed with growth and have been for the last, decade, really, since the Fed has been stimulating the economy. But investors are paying an awful lot of money for growth these days, for a future stream of earnings, at least for a dollar's worth. Is that going to change in 2022? Do you think, as Derrard thinks, small cap or value may outperform? Yeah, I don't think there's any question. The overall backdrop here is growth is richly valued at this point, and especially as you start to go down the quality spectrum, look at areas like unprofitable technology companies, they're clearly overvalued at this point, and we're seeing the ramifications of that here recently in the market. I want to echo what Gerard is saying,

and that certainly taking a long-term approach here is prudent, but there's a lot of confusion in the marketplace right now, and that the Omicron variant, that could have a meaningful impact on the economy if things are worse than expected, but at the same time, we have a Fed who is taking a more hawkish posture at this point in time, indicating that inflation may not be transitory. And perhaps they may look at tapering bond purchases sooner than expected and raising rates sooner than expected. In my opinion, those two things are at odds with each other, because if the variant is more of an issue than expected, clearly the Fed can't be overly aggressive. in that situation. Now, you could have a unique situation where perhaps the variant is more of an issue

and it does have some economic impact, but that ultimately leads to supply chain constraints. And you start seeing greater inflationary pressure, even while the economy isn't doing so well, that would be a very tricky spot for the Fed to be. And in, in my opinion, probably a worst-case scenario. So that's the problem, Nate. I mean, most viewers I talk to wrote into me, said they assumed Omicron would make the Fed more dovish, but it's turning out Omicron is making the Fed more hawkish because they're even more concerned about potential inflation because the supply chain disruptions might continue under Omicron. That's what's causing all this confusion out here.

That's why people can't figure out why is the 10-year yield so low if we're going to have problems down the road. It just creates a lot of confusion. At least the viewers are totally confused. right now, Nate? No, there's no question. Now, I will say we can look at what the Fed has done over the past decade plus. Clearly, they've been supportive of the financial markets. And when you think of the one instance, when they attempted to get more aggressive back

in the fourth quarter of 2018, the market clearly reacted negatively and the Fed quickly reversed course. And so I think investors have this feeling that the Fed is always going to be supportive of the market. And until we see something different, I think that's probably a pretty good bet. Yeah. You know, Gerard, you started out the year converting several equity mutual funds into ETFs. I want to talk about your new offerings here.

Now you're listing four fixed income ETFs and filing for 10 more equity ETFs. But this, again, is somewhat actively managed. Again, investing in bonds that you've got here. But you're trying to figure out how you can get higher expectations. expected returns, right? That's right. And we launched and listed four fixed income ETFs about three weeks ago, Bob, and they've done well so far in terms of meeting client demand, and we have over a half a billion across

the four fixed income ETFs in the first three weeks or so. I think Nate made a few very good points around what's expected and unexpected. And in particular, if what's expected happens, well, then you get the expected outcome, but unexpected things may happen as well. And I will go back to the inflation point that Nate was making there. And when you think about inflation and whether you can predict it or not predicted, certainly the market over the long pull is pricing in, if you look at break-even yields, you know, around high twos into low three percentage points.

But you can't predict the unexpected, but you can't plan for it. And so if market participants are worried about inflation or worried about higher interest rates or lower interest rates, you can certainly plan for it. And with inflation, it's outpace it or it's hedged. And there are your two choices. What we know over the long pull is stocks and bonds have outpaced inflation. And we know that there are plenty instruments out there like tips that can hedge it. So again, I think there is a lot of uncertainty, but there's lots of choices for investors to plan well for 2022. And the key, Gerard, it seems to me historically that stocks do well in periods of moderate inflation because corporations

generally have pricing power and they can raise prices. The problems where I've seen is sudden inflation, like in the early 1970s, beyond expectations where corporations lose pricing power, and then you see real underperformance inflation adjusted, right? I mean, that's why we sort of are worried about inflation getting out of control. We don't care about that. 2% or 3% inflation a year, because we know the market's going to do well long-term, equities will, but when you get sudden inflation, you lose control of pricing power. Is that a right way to look at it? Yeah, when you get sudden inflation, certain assets may go down and certain assets go up.

So, for example, if you have sudden unexpected inflation, generally what happens is that inflation-protected bonds do a lot better than real bonds, or nominal bonds, excuse me. And so, again, if you're worried about that, there's plenty of instruments out there, like an inflation-protected strategy, that can do very, very well when you have unexpectedly high inflation. And so that may impact stocks in a particular way, but as mentioned, there's plenty of strategies that do well in those environments. Right. Inflation-protected securities haven't worked very well for many years, but they may well work well in 2022. You know, Nate, I was talking earlier about dimensional funds and what they were doing earlier in the year. Gerard pointed out that you had a

amusing comment about dimensional funds earlier in the year as they converted some of their funds to ETFs. Let me just read this briefly here. DFA arriving late to ETFs is like Brad Pitt walking through the door of an Oscars after party at 1 a.m. Both are immediately the center of attention and it doesn't matter that the party is already in full spring with people dancing on the tables. This is a Nate, this is terrific and very very colorful. There's only a handful of firms that could have success in ETS, no matter what they got involved. I think DFA is one of them. I love that quote here.

But, you know, other than the nice little Valentine there, the DFA, Nate, it's not just them getting very involved. It's amazing the number of big firms, American Century, I'm thinking, even Tiro Price, that are becoming real powerhouses in the ETF business that weren't before. It's amazing. And on the note of DFA, here you have a firm that launched their first ETFs in November of last year, and already they're knocking on the door of becoming a top 10 ETF issuer. It's truly remarkable. I think clearly DFA has extremely strong brand recognition. They have a very loyal advisor following.

They have academically rigorous research underpinning their investment strategies. This isn't some fly-by-night operation. And I think perhaps most importantly, they've approached the market from a low cost standpoint. When you're going to enter the ETF Terer Dome, so to speak, you have to come willing to do battle. And part of being willing to do battle is coming in at a low price point. And they've done that. If you look across their ETF lineup, the average expense ratio is about 23 basis points. And they have core exposure as low as 11 basis points.

So I think they're a good proxy for what we're seeing across the entire ETF space here. point. We've had firms like American Century, Parker, Janice Henderson, T. Roe Price, New Veen, all ramping up their ETF businesses. And I think we're going to continue to see this, these traditional mutual fund companies that have strong legacy brands wanting to deliver exposure in the format that investors are wanting, and that's ETFs. Yeah. You know, Gerard, this is quite an aggressive little profile that you've got here with these 10 new ETS. One thing that kind of caught my eye, two of these equity ETFs you filed for caught my eye, the international high profitability

ETF and the emerging markets high profitability ETF. I'm wondering is high profitability and other factor that shows outperformance along with value in small cap. I know, of course, you know, the Famba French two-factor model that came out in the early 90s indicated that small cap tends to outperform over big cap over time. value tends to outperform over growth over time. Is there additional evidence now of a third factor, this profitability factor?

I don't know if you want to call it quality or whatever we have come to call it, is also another factor to consider it. And then how do you layer that all in these three factors into your investment portfolio? So you got it there, Bob. It is indeed another factor. It is an explanatory variable when it comes to explaining differences in returns across stocks. So you can think about size, value, profitability, and the fourth one, in fact, is investment, so asset growth. So how you can think about those types of strategies, Bob, is focusing on the stocks with the highest profitability in the marketplace.

And how you think about layering it in then is you overweight those stocks that have high profitability, but are also value and also a little bit smaller cap within that high profitability segment. And those, we believe, have the highest expected returns among the high profitability stocks. So thank you, Nate, for the kind words there. We have been, you know, I would say in the lowest morning star, decile, when it comes to our fees for a long period of time, and we were very cognizant when we enter the ETF market that for similar services, similar asset allocation,

we had to have similar management fee across mutual funds or ETFs. So hopefully we got that right. And we've had quite a bit of success in the first 12 months with the conversions and so on. And as Nate mentioned, we're knocking on that top 10 door with 10 more to come. And they're largely driven by the demand from the financial professionals. As Nate mentioned, the advisors that we work with and the network of advisors that were a part of, they've been really happy with what we've done in the first year since launching ETFs and want 10 more for 2022.

So we hope to be able to bring those to the market over the course of next year. And explain what high profitability means. Does it mean high profits is a percentage of total revenues, or does it mean you're growing your profits every year? And can you get high profitability with value? Or is that a contradiction in terms? You can get high profitability with value, and in fact, in our value strategies,

or in our core strategies, we overweight those stocks that have the lowest relative price and the highest profitability. Broadly speaking, how to think about it, Bob, is that you take revenue, subtract off some measure of costs, So maybe you get to operating profits or something similar, and then you can scale it by book value or assets. And when you do that, you get to a scaled version of profitability

that then you can compare across firms. So you can look at one firm's profitability relative to another firm's profitability, even if one firm tends to be a lot bigger than another firm because you're scaling it by assets or book value. So that's how you compute profitability. But it's not just profitability that month, it's that quarter, are you looking at future expectations of profitability of growing it more? I'm trying to figure out how, what's the, I know you're taking revenues, then you have a cost

of goods sold in there, and you're figuring out some line of profitability, but is there expectations for future growth taken into this? Yeah, the reason that profitability tells you something about expected returns, Bob, is that it predicts future profitability. And that's true if you take the profitability of the over the past 12 months, or if you take changes in profitability, so profitability growth over the past 12 months, both of those predict future profitability, or more precisely predict which firms will have high profitability relative to other firms in the future. And so we use it as a stand-in for expected profitability, our one component of the expected cash flows to shareholders that

a stock may generate on behalf of its investors. Okay, now Gerard, and what changes such is slightly. You have built out your own center for separately managed accounts to make customization, I guess you call it, more available to more investors at scale. Of course, separately managed accounts are just individual accounts that you can charge fees on, wrap fees or whatever. How does that work in practice? What are you actually doing here? So we've been doing SMAs or tax-managed SMAs for a long time, but recently with technology and all those types of innovations, we were able to lower a minimum from 20

to a half a million dollars. Effectively, in an SMA, what you can think about happening is that an individual owns the stocks directly in their own custodial account. And that means they can express their values, whatever those values may be, by excluding underweighting or overweighing certain stocks. They can also manage towards their tax situation. In an ETF for a mutual fund, it's a commingal strategy. Everybody's in it together. If it's your own account, you can manage specifically towards your tax. towards your tax circumstances. And so those are two big reasons why some investors like a separately managed account is tax management and then being able to express their values about what companies they want to invest in more precisely.

So we launched that a version of that that we've been doing for a long time back in September and it's going well so far. And I think that it could potentially be the future of investing to stand alongside mutual funds and ETFs as technology and enables the cost of delivering customized SMAs to individuals. It drives that down and has done over time. Yeah, it's kind of remarkable. What do you think of this, Nate? Can you do institutional level management on a personal investor level? I mean, I know Gerard is not trying to be a financial advisor or individuals here,

but he's trying to make this available to financial advisors. Can you build a totally customized stock portfolio on an individual? a level and still have it on an institutional size. It seems like you're trying to ask for a lot. Yeah, from my perspective, this will be another tool in the advisor's toolbox. And the fact is, going to commission-free trading and the fact that those costs have come down, fractional shares, those sorts of advancements have made what I refer to as direct indexing or custom indexing much more viable to the mass retail investor. And I do think there are certain situations where it makes a lot of sense.

If you have an individual who, let's say, works at a particular publicly traded company and they have a large allocation to that company's shares, they don't want to double down by holding those same shares in a broad index. Or perhaps you have a higher network investor where taxes are a big consideration. They have a lot of taxable investment money. Direct indexing can make sense because you can tax loss harvest at the individual level. I think if you had an investor with very strong ESG considerations, direct indexing can make a lot of sense.

So I think there are use cases where it will be very valuable to the end investor. But I see this, to Gerard's point, is sitting alongside the other vehicles that exist. I don't see this as overtaking, for instance, exchange traded funds. Yeah, and that makes a lot of sense. Now it's time to round out the conversation with some analysis and perspective to help you better understand ETFs with our Markets 102 portion of the podcast. Today we'll be continuing the conversation

with Nate Jarasi from the ETF store. Nate, thank you very much for staying with us. I wanted to just comment, get your comments on 2022 and what you see happening. Looking back on 2021, I'll tell you what is amazing to me. We spent the whole year talking about Bitcoin ETFs or ESG or thematic ETFs, like thematic tech ETFs, like cybersecurity.

Those three things really dominated the discussions, Bitcoin ETFs, ESG, and thematics. And yet when I look at the inflows, $800 billion, it's almost all plain vanilla S&P 500 index funds. We spent all our time talking about this other stuff. And really, what investors were doing, we're putting money into the same kind of stuff that Gerard O'Reilly likes to talk about.

It's amazing. I mean, investors have continued flocking towards the lowest cost, most plain vanilla core exposure. But this is a trend that we've seen over the past decade plus. Investors have been very resilient. Any market dip that might appear, they're buying on that dip, continuing to allocate to the core of the portfolio. I look at an issuer like Vanguard, who's had a monster year, a record year. And to your point, despite the headlines that we've seen, Bitcoin ETFs, ESG, thematics, investors have gone to those core building blocks. I think we'll continue to see that trend in 2022. There's nothing that would indicate that trend is going to change anytime soon. Yeah, and I have to say the Jack Bogle disciple in me is glad to see that because I think that's what people should be doing. But with that said, let me just talk to about those big three other topics. Bitcoin ETF never happened.

doesn't look like it's going to happen for a long time. Bitcoin futures did, but they're fading a little bit. Your prognosis for this never-ending quest for the Bitcoin ETF? I expect this to take a lot longer than originally expected to get the SEC comfortable around a spot Bitcoin ETF. They're just not comfortable around the underlying crypto exchanges, and their ability to properly surveil those exchanges and ensure there's not fraud and manipulation in those markets. Now, we did see Bitcoin futures ETFs launch, and they've had a decent amount of success. One of the fastest ETFs ever to a billion dollars in BITO, the pro-share's Bitcoin Strategy

ETF, but since that launch, there really hasn't been a flood of assets into those products. So my expectation is that until the SEC messages that they are comfortable with a regulatory framework in place in the spot market, we're not going to see a spot Bitcoin ETF anytime soon. Now, there was an interesting play last week by grayscale investments, who is attempting to convert the grayscale Bitcoin Trust into an ETF. During the normal public commenting period, they actually had their attorneys submit a letter to the SEC, essentially saying that the SEC is in violation of what's called the Administrative Procedure Act, APA. And what that is is the SEC must treat like situations alike. And Grayscale is mounting the argument that the SEC is not doing that in this case by allowing Bitcoin Futures ETFs to come to market, but not spot ETFs to come to market because both of those products

ultimately track the same pricing, the same underlying crypto exchanges. So Grayscale is making the argument that that's incongruent and that if the SEC is going to approve Bitcoin futures ETFs, they should approve spot ETS. They also make a very interesting argument that the SEC is saying there's not a huge, market of significant size, a Bitcoin market of significant size that's regulated, and ETF issuers have pointed to the CME Bitcoin futures market as an example of that. The SEC is shooting and balancing. That's not a market of significant size.

Interestingly, that, of course, is the market that the Bitcoin futures ETF's traffic and the CME Bitcoin futures market. So it's another inconsistency that issuers are fighting the SEC one. It's an interesting legal question whether it violates the Administrative Procedure Act. I'm not enough of an expert on securities law to know that. But the SEC has said that Bitcoin futures are a regulated market and Bitcoin is still not regulated to the extent they need to. That is a difference.

I don't know if that would be sufficient to say these are not like securities or like investments. I don't know. But it's an interesting, I've never heard that line of attack before. That's what I thought was interesting about what they did. It's absolutely unique. And to me, what it comes down to is if there's fraud and manipulation in the underlying spot market, would that impact the futures market? In my opinion is both of those markets are intertwined.

Somebody would argue that the futures market is leading price discovery. Somebody else would argue that the spot market's leading price discovery. In my opinion, it doesn't matter. Both of those markets are going to move in lockstep. And so if the SEC is comfortable with the pricing in the Bitcoin futures market, in my opinion, they should be comfortable with the price. They should be comfortable with the pricing in the spot market. Yeah. Let me move on to ESGs.

I'm wondering if this is peak ESG. I was a big fan of ESG. I like the concept of it. I've had problems defining what it is. But two points. There have been a number of articles recently that have pointed out that some of these ETFs, the largest holders of them are essentially institutions, many of them in Europe, like the Finnish pension fund,

that owns a significant stake in one of the biggest ESGs out there. I think you pointed out, too, that despite all this interest, there's still only a small part of the ETF market, I mean, perhaps two or three percent. So is ESG getting an outsized amount of attention, and does it deserve to have more or less attention? I think without question it's receiving outsized attention. I can't think of any other segment of the ETF market

that receives more attention. and has less assets as a percentage of the overall ETF industry. Right now, ESG ETFs comprise about 90 billion in assets, but you're talking about a $7 trillion U.S. ETF industry. I think the jury's still out on whether or not there's true grassroots demand here from end retail investors. I'll tell you from my perspective, operating an investment advisory firm and working within clients, we have a wide swath in terms of our client profile,

everywhere from very young investors to older investors, different political affiliations, different beliefs, different spots in terms of being on the spectrum towards retirement. And we don't have any demand for ESG strategies from those clients. It's just not something they're concerned about. And the perspective that they have is that the way that they can move the needle. And because I think we would all agree, we all want a better society. We all want more diversity and more equal pay and all those sorts of things. But the way that people believe they can move the needle is by not using a company's products or services if they disagree with those companies' practices or in terms supporting a company who they do believe in how they approach the world. They think that moves the needle more than simply not investing a small, minuscule percentage of their investment portfolio into a company or investing it into a company.

They just don't think it can move the needle from an investment standpoint. I think something else that's important to point out here is that ESG strategies as a whole, even though costs have certainly come down in the space, they are still more expensive than just core plain vanilla exposure. And so then you have to ask yourself, well, what are you getting for that extra cost? And a lot of the ESG ETFs on the market, they look very similar to the broad benchmarks. It's very difficult to differentiate between the two. High quality, you know, tech names you get in a lot of these companies. Let me just ask you about thematic ETFs, the third block we were talking about.

I like thematic ETFs. I like the concept of them because they're easy to understand. Nobody buys consumer discretionary stocks. You might buy retail, but you don't buy consumer discretionary. So blockchain ETFs make sense, cybersecurity, clean energy ETFs, thematics. I think the issue for me is, if Gerard was here, I'm sure he would echo this, is, are you really going to get any outperformance in the long term on any of this stuff? Or the stuff that's going to rise to the top is eventually going to be in your index fund anyhow.

So what should an investor do? If Jack Bogle was here, he'd say, you guys are making me laugh because you're chasing cybersecurity and you think that you can market time with cyber security investments, and you can't. The evidence is you cannot. So just putting on your fundamental investor hat, what's the role for cybersecurity, rather thematic ETFs? You want to scratch that itch because you got an idea you think cybersecurity, but don't lie to yourself, right? I'm just trying to figure out what's the right approach to this. It's a great question, and I have an answer that I think maybe even Jack Bogle would appreciate. And the way that I like to explain this is it's my belief

that most investors have some semblance of a gambler inside them. I have that. You probably have that. Certainly a lot of the clients that we speak to have that. And so the question is, how do you scratch that itch for that investor, but also keep them focused on the long term and invested in the boring parts of their portfolio? So the way that we approach this is we think thematics have a really unique role from an investor behavior standpoint in that let's say we allocate 3%.

to a thematic ETF. Let's say the Bitwise crypto innovators, ETF, BITQ, because a client has a significant interest in the crypto space. What we have found from an investor behavior standpoint is that small 3% allocation helps keep them invested in the other 97% low-cost, globally diversified, broadly diversified portfolio. And so I think that's how thematics should be used. I think if you're trying to load up your portfolio on thematics and trying to try to time the market, that obviously is a fool's errand. I think that's very difficult. But I think

thematics can help from a investor behavior standpoint, and there's nothing wrong with having a little bit of fun around the edges of a portfolio. If there's a particular area of the market that an investor has a significant interest in, I think it's fine to have a small allocation there. That's not going to be a long-term detriment. It does give them a little bit of upside if, in fact, that thematic strategy plays out in the right direction. But again, more importantly, I think from an investor behavior standpoint, it allows them to scratch that edge, we'll still remaining invested in the remaining boring, watching grass grow, watching paint dry portfolio. Yeah. All right, Nick, I'm going to have to leave it there. And I really appreciate you sticking

around for the ETF Edge podcast. You know, the Italian in me, every time your name comes up, the Italian in me wants to say Geraci, because that's the way the Italians would pronounce it. But as you always keep correcting me, it's Geraci. It's Jerezzi. It's a small percentage that ever get it right the first time. If I just start talking, I still say Jerezian. I'm so I'm sorry about that. No problem at all.

Nate Jerezzi, excuse me, is the CEO of, of course, the ETF store. Thanks very much for joining us. And thank you for listening to the EPPHag podcast. InvestcoQQQQ believes new innovations create new opportunities. Here's to greater possibilities together. Learn more at Invesco.com slash QQQ. Invesco Distributors, Inc.