ETF Edge - The Next-Gen Investor

Episode Date: November 29, 2021

CNBC's Bob Pisani spoke with Anthony Denier, CEO of Webull, Andrew McOrmond, Managing Director at Wallachbeth Capital and Harry Whitton, Head of ETF Sales Trading at Old Mission Capital. They discussed the fallout from the market sell-off, will the emergence of a new Covid-19 variant add even more fuel to an already pro-growth, anti-cyclical trade in November? Plus, the popular trading app Webull - a rival to Robinhood - weighs in on sentiment as more young investors get into the ETF game. 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 in all things, exchange traded funds, you are in the right place. Every week, we're bringing you interviews, market analysis, and we're breaking down what it all means for investors. I'm your host, Bob Pisani. Today on the show, we'll discuss the fallout from the market sell-off. Will the emergence of a new COVID-19 variant add even more fuel?

to an already pro-growth anticyclical trade in November. Plus, we'll talk to the CEO of popular stock trading app. Weble, a rival to Robin Hood, about sentiment as more young investors get into the ETF game. Here's my conversation with Anthony DeNear, CEO of Weble. Andrew McCormon is the managing director at Wallach Beth Capital, and Harry Witton is the head of ETF sales trading at Old Mission Capital. Anthony Weble is an electronic platform, has a lot of the demographic characteristics of Robin Hood. Average age 30 years old, 7 million accounts.

Before I get to ETFs, tell us how your investor base traded on Friday, since that's the topic de jour. Were they buying or selling? What were they buying or selling? Yeah, we saw a bit of both, but I was really surprised to see the strong buying demand, because this retail investor right now is extremely bullish on this market, I think, for all the right reasons. So they saw this more as an opportunity to actually buy some discounted names. and not knowing which names actually get into can be difficult when the market's moving so aggressively. So we saw a lot of buying in broad index ETFs, right?

SPY being our most popular, a lot of heavy buying there. And our momentum traders were also utilizing the inverse ETFs, which was pretty surprising, trying to get that momentum on the downside just with using a long account. Yeah. Now, Harry, you run a big ETF market-making desk. I often talk to you about trading trends. did you see on Friday and what are you seeing today in terms of who's trading what? Hey, Bob. Thanks for having me on. Yeah, it was a super busy day. You know, everybody thought we were going to be sitting here doing some online shopping, waiting until one o'clock.

But we traded more on Friday than any normal day last week. And we saw a lot of selling of high yield, a lot of activity in the international space, emerging market space, which old mission specializes in. And just as Anthony said, it was just a lot of buying later in the day going into the close, which was early this on Friday at 1 o'clock. It's remarkable how much has reversed, Andrew, from Friday. And now you, Andrew, run a big institutional trading desk, a lot of its ETS. What were you telling clients Friday, and what are you hearing from them today? Yeah, it's funny the two different generations, right? We have our tactical, old-school, reduced risk ETF shops and of course Friday those triggers start to happen. They start to go off. They start to

get close. As Harry said, we had some high yield sellers as well. And they're kind of precautionary, right? Now they might wait a couple days and jump back in. But with this younger generation, I got to tell you, getting into my 20-something plus years of their business, I've never seen a group more resilient. Of course, they don't know a loser yet. And that's a factor. But they're very resilient, very strong. They're buying on dips, just like stronger hedge funds where it's very unlike your retail audience. You just don't see that panic. Of course, this has been the trend, right? The one or two-day sell-off, and then it pops back up.

Yeah. Now, Anthony, you've told me ETFs are still a fairly small portion of the assets of your clients. But there seems to be two groups here. Some own plain vanilla ETFs, you know, like the S&P 500 or the NASDAQ 100. They also like Kathy Wood, no surprise there. But there's also a more active group of traders at Webel that have a pension for using leverage and inverse ETFs, particularly the ones that leverage returns on the NASDAQ 100, they seem to really like that, and even the VIX as well. Why does that group so interested in leveraging, for example, the NASDAQ 100?

Well, if your viewers aren't aware of WeBull and how we kind of differentiate our platform, we do have very similar demographics like you noted in the beginning to Robin Hood, in terms of average age, average account size. However, the one differentiated, factor that we may have left out is we have very active traders, right? And our traders are very quick to take positions. They go in and out of positions very, very fast. So when we see our active traders, which is a big portion of our users on the platform, they tend to be not able to get access to some of those traditional leverage tools, right? I mean, I'm talking about margin in a retail account, right? You need to have $2,000 or more just to qualify for Reg T. A lot of

our users don't even have $2,000 or more. We're talking about millions of them. Also, they may be too young to have the proper investment experience to get access to the options market. So that's another sort of speculative or highly leveraged security that they don't get access to. So they have flocked to these leverage ETFs.

And you mentioned T-T-T-T-T-Q. I mean, that by far is our most popular leverage ETF that we see our heavily speculative, active traders getting into day in and day out. And that's, of course, the TQQQ is the pro-share's ultra-pro QQ. That gives you leverage, of course, and when you own the triple Q's. You know, Andrew, I can't help but notice that like Robin Hood, these are small accounts. As Anthony said, $4,000 on average.

But what's the future here? Isn't the assumption they're going to grow? And as long as the market continues, they'll continue to deposit assets. These are the same people that exhausted the shorts in GameStop and AMC. They gave up. I'll go short something else, right? So they have a lot of power and resiliency, and they're growing. And the ultimate sign is you have a billion-dollar, very successful companies and new companies.

For example, direction, you know, multi-millions of dollars, A-U-M, they are changing their marketing to really focus on these people. And again, they're products, right? Imagine going, I'm going to the Pittsburgh Pension Dinner next week. Imagine going that and saying, I want to tell about this fallen knife ETF from direction. And I'm also doing with the psychedelic ETF from Defiance, right? They would be like, are you crazy? But we're talking a lot of money going into these products. I also want to know, and I'm very proud of, direction and pro shares, for education.

If you look on their websites, the fourth button is education. And I hope that we bowl are doing the same thing, just explaining to everyone, even for this audience to know the effect of long-term holding these assets. they're doing that. But if you're long-term holding a triple ETF and it goes the wrong way, you know, that can have some unpleasant results. Yeah. So, Anthony, what about that education aspect? I mean, remember, we're all look like geniuses in an up market. What happens when all of a sudden the market drops and, you know, it doesn't work just buying endless call options, for example, that stops working? How, how, what are you doing to prepare and educate your investors or your, the people who put their assets on your site?

Education is one of the most focused and talked about things with platforms like a Weble that serves a younger and a newer investor, right? So, you know, the traditional way of educating is maybe having a table of contents with a glossary, and it kind of reads maybe like an encyclopedia on a typical brokerage website. And, you know, we have those types of things, but we found that that doesn't work, right? Just because you build the library does not mean that students are going to share. show up and start reading all the books in your shelves. What we have been doing, and this word gets used very negatively in the press,

is we've been gamifying the education, right? We've been taking those nuggets of facts. What is a leverage ETF, right? What is an inverse ETF? What are the risks associated and put them into easily digestible kind of bullet points and snippets, short videos or animations, or even have an interactive social media questionnaire, right? If you think, you know, what's more risky, you know, a short duration call on a Thursday afternoon or a, you know, triple weighted ETF? You know what I'm just having like polls like that to get our customers involved to actually look it up, look up the differences of the risk between the two.

So this is a huge undertaking, not just for Weble. I'm speaking actually for the whole ton of mobile first retail industry where we've actually been having roundtable discussions together figuring out the best ways to. educate our clients and, you know, some of our peers, Robin Hood's doing a really good job on social media, I think, of getting that education out there first. Fidelity's starting to do it as well and using this idea of gamification to get educational content into and consumed and understood by this new demographic, right? We consume, as a society, we consume information much differently now than we did just five years ago. And I think the education factor that a brokerage platform gives out to their customers also has to involve with that new way of consuming that information.

I've often compared you to Robin Hood, but I wonder if that's a little bit unfair. I mean, you've often tried to sort of say, all right, we are sort of like Robin, but we're not. How do you differentiate yourself? I mean, you've said before that your customer base consumes more research, for example, so is it more fair to compare you to, I don't know, think or swim customers or something like that? How are you different? So if you were to compare our order flow versus, say, another brokerage order flow, we more mimic a think or swim type of customer, right? A more advanced that's utilizing charts, utilizing back testing, utilizing different analytics and indicators to make an entry point and exit point decision where, you know, that's not so much the case on some of the simpler platforms that are out there. And the fact that we are a mobile first solution brings our demographic into the same world as a Robin Hood.

So we often get kind of grouped up with Robin Hood. They're just a different form or a different name of Robin Hood when, in fact, our customer's profile, although on a media spreadsheet may look the same in age and affluency and demographic. But when it comes to actually the educational aspect of our investors, because they're much more intellectual and experiencing what they're doing, to the point where we often say internally that Robin Hood is our customer's first account, and Weebel is their second, because they graduate from a simple sort of make it easy to trade, don't get too deep in it, to I want to get deep in it,

I really want to nerd out on this, and I want to learn more and learn how to do it better. So, Andrew, do you buy into this narrative that suddenly we have a smarter, more intelligent investor base that is really interested in more knowledge? Absolutely, because they're talking about options. Like you said, if they're talking about options, they're more advanced. If they're talking about lever, they're more advanced. I love that they want to learn that. The ETS will not grow at these platforms substantially, I think, until you have a losing time frame.

Like, for example, a Peloton, right, had that violent move down. When that kind of happens, and now this, hopefully, this thing with COVID, this latest, the Omnicron isn't a big deal. If it is, and we go back to work from home stocks, I think some of this audience could then be like, okay, how do I not get involved in the single stock risk? And then there's WFH work from home from like a direction. Or there's the moon where now instead of just picking the one, I mean, you've seen them flock to Kathy Wood. So now the new issuers are putting these out. But as long as they're doing this work on this website, I would think that they're going to stick the single

stock. So they're putting that work in to not achieve beta. They're putting the work in to achieve alpha. And they've known alpha for two years, right? So I love that they're getting educated. I I've not seen it. I've grown up with many of my customers. I've not seen such an intelligent investor base. And let's be honest, when they get the 30 years old, when they get the 35, they start making real money. They're already going to be seasoned.

It's going to be a big lift for the market when this starts happening, when they get a little older and have even more money to invest. Yeah, you know, Harry, listening to Anthony and Andrew, you can't help but think that for these young traders, it's almost like they're taking some risks. Maybe it's their play money. money. But as they get older, the narratives here seems to be the investments are going to change, the assets are going to grow. You'll see more and more investors put their money into plain vanilla ETFs, for example. Do you buy into this kind of narrative? Yeah, totally. You think they're

probably their primary account is for 401k, and this is their money. It's part of their savings. They're using it as their play money. I don't think you should overlook the fact that fractional shares have really changed the business. It used to be, you know, you had to go out, you had to do a minimum, you had to buy X amount of shares at a brokerage firm. Now you can go in, you can put $50 in to buy, you know, a share of Tesla or a part share of Tesla. I think it's really important. And it also gives you a way to diversify the account. And I think, as Andy said, as these accounts get more mature, you're going to see you start diversifying into more of the pure bread and butter ETFs with the alpha generating areas on top of it.

You know, it makes total sense to me, Harry, I mean, in terms of what they own here. Kathy Wood. They love Kathy Wood. That makes sense. Kathy Wood's a hero amongst some of this group. No surprises there. I think Tesla is the number one stock held by people under 30 or something like that. She is a leader in Tesla. So, you know, they tend to follow it. So Harry doesn't make nothing I'm seeing here is shocking to me particularly. No, no. It all makes sense. You know, you have to say, look at what happened during COVID. When people from home, you saw a massive uptick in people doing online investing.

ETS were part of it, individual stocks, as Andy said, all of the game stop-type stocks, Avis, Hertz, all of that stuff that's going on in those marketplaces. It's just a future. The future is these types of platforms. Yeah. You know, Anthony, I wonder if you could just tell us a little bit about whether most of your clients have accounts elsewhere. Maybe you can clear that up for us. Are there other long-term assets and accounts sitting elsewhere, like ETFs, for example,

or other kinds of accounts that are just not on your platform? Yeah, so with the demographic of user, and I'm talking about traders in the late 20s, early 30s, that are most prolific on our type of mobile first brokerage solution like a Weebel, like a Robin Hood, it's very common for them to have multiple brokerage accounts and multiple relationships with different sort of tools. Because again, these are all mobile app based, right? It'd be different if we were back in the brick and mortar days where it was a bit more common to have one specific asset manager down across the board where they're doing your retirements. They're also doing your active trading. They may even be doing your banking.

Those days are completely gone with this new Generation Z or millennial type of customer, right? They look for different platforms that offer better things for their individual needs, whether it's improving their credit score, whether it's free checking, free trading with access to options and crypto at the same time. And every platform does one thing a little bit better than everyone else. Now, everyone tries to create that one super app, right? But one size never truly fits all. And it's really easy for today's user to have multiple relationships and to manage those relationships easily, minimums are gone, right? Minimums used to be a thing, or if you didn't trade enough per quarter, right, your account would be put in hold or put on lockdown. Those things no longer exist. There's no more minimums. There's no more expectations for you to have a certain amount of deposits per year or a certain amount of transactions per year. So it really opens up the playing field. And we're seeing a lot of our customers may actually be holding a lot of ETS, especially in these RoboAdvisor platforms like a betterment, right, or a stash or an egg corn.

where they actually are very ETF heavy in their portfolio, but on their active investing platforms like a Weble, they're more stock-specific, right? They're taking those opportunities to create that alpha in their portfolio to get some incremental cash. Yeah, it's not only, there's no minimums, there's no commissions either, right?

You're not charging commissions, are you? You do payment for order flow, right? We do payment for order flow. We do allow fractional trading. We allow options trading, complex strategies, calendar spreads, condors, no contracts, no contract fees, no commissions, no minimums, no monthlies. It's a no cost platform to our customer, and we do make money on payment floor to

monetize. I think it's worth noting, too, is that this generation has a different appetite for risk from the bottom up. If you even look at the employment, we've recently launched a private equity business, and what we're finding out is that there's so much more liquidity and things happening in the private equity space because the younger generation of employees, those reaching their 30s and 20s. exchanged equity in the company for a lieu of a salary.

And there is a ton of risk. And, oh, I'm working for a startup. I'm going to take 50% of my salary in equity and watch the single public in 10 years. That's happening way more than it did with the 40s and 50s in the baby moors that are happening now. So they're just used to risk. And they're also used to being very educated about it.

I think it's great what Weebo is doing with all the education, the options. Yeah. There's so many more tools available now for the education. Yeah. Andrew Anthony was talking about investors, their investors being on multiple platforms. So it seems like a lot of these young people have private equity exposure through their own jobs, for example, in new companies.

And that's a growing trend as well, right? And you're seeing that. Yeah, that's what we're seeing because all of a sudden, like all these companies, I mean, you'll hear about it. You guys have talked about it. Oh, can I get into Palantara early in DoorDash and all these things? And this is what's why the SPAC's coming up, right? The popularity is everyone wants to get in.

Now, they want to be like their grandfather is Goldman. He was the best account, so he got in pre-IBOs. That is not what goes on anymore. And the reason why there is liquidity is because you may have a 20-something that is a C-level executive at this company. And he has so much that he wants to get out. I've talked to these companies and they're like, yeah, sure, we will let the CFO let go of $10 million of this company. He's been in it since he was 22 years old and they get to cash out. That's a new phenomenon.

Obviously, it's not related to ETFs. But it just shows you that, of course, there will. willing to write a call, sell a put, that's nothing compared to they put the entire risk of their career on one company. So they like to diversify, they do these other companies, they get involved early, they're not scared. Yeah, okay, gentlemen, I'm going to have to lead it there. 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 our podcast. Today we'll be continuing the conversation with Anthony DeNear. He's the CEO of Weebel. Anthony, thanks for

continuing to stay with us. I'm wondering if you could characterize how trading levels have been amongst your users. It was a sort of a pleasant trope throughout the summer that, well, we saw this explosion and trading occur in the end of last year, in the beginning of this year, some of it around the Reddit and meme stops. But as soon as everybody goes back to work and people spend more time doing other things, the trading activity is going to drop off. How How have you seen, or how would you characterize trading activity in the last few months compared to earlier in the year? Well, the Q3 in the summer was definitely a slower time. And, you know, you can attribute that to a lot of things, right?

Good weather. COVID kind of being less than everyone's mindset. Kids sports coming back, right? So if you have kids, you're kind of busy running around and spending some time with your family that maybe was well, much missed and much needed. That's been the opposite case with September, with September, October, and so far in November. Trading activity on our platform has been a exponential number from Q3, meaning we're seeing two to two and a half times more trading activity

from our customers, and that goes for account openings, that goes to new account funding, and that goes to actual transactions. Bull market has a lot to do with that. We start a little bit of slow down, the sideways trade through the summer. You know, October was a very, very strong month for us across all metrics of the market. And we're seeing the retail customer have a very bullish appetite on this overall stock market.

And I think Friday's sell-off and, you know, today's bounce back and us seeing at Weibo a lot of long accounts buying on that dip on Friday, just an example of that bullishness that we're seeing in retail right now. And how would you compare? Let's say to the first quarter, I know you're saying it was more active than the third quarter. How about the first quarter in terms of openings and trade volumes? First quarter was a bit unique because we had GameStop. And that basically put the idea of actively participating in the U.S. markets into the mindset of a lot of now customers that had no intention of ever trading a stock or an option in their life.

You know, the momentum, the social media momentum that GameStop created opened up a whole new dynamic of customer to actually open up a brokerage account and be active in the markets. Traditional, you know, traditional thinkers were saying that, you know, they'll go away. That was a flash in the pan. But we're seeing our account numbers even better in Q4 than they were in Q1, right? And that's, you know, a lot of that comes to, you know, brand awareness. It comes to the market's continued strength through the year, and it comes to the availability and the ease that today's retail investor can get access to a quality brokerage account

with super to no-cost, super low to no cost. You've been, on a separate subject, you've been very big on saying that your customers, your account holders have been very big on looking at educational videos and figuring out trying to understand what's going on. You've often said your clients are more like, think or swim and they're more analytical and research driven than the average Robinhood person. And when I asked you, is there any evidence that they're getting more educated?

You pointed out that the largest single holding here amongst ETFs was V-O-O, which the S&P-500 Vanguard fund over the largest ETF out there, which is SPY, which is ISHAres. And you think the difference is because SPY, SPY charges nine bases. points and VO only charges three basis points. That's exactly right. That's why you think that's happened. You think they've figured that out pretty quickly, that why, if they're longer-term holders,

why own something that you have to pay nine basis points? And you can own the same product at three basis points. Yeah, the old tagline, dumb retail, I think, is a false narrative that's been created to explain how retail investors react to market events or how they trade their personal accounts. we've seen the opposite. This new generation of investor, and I say new generation,

I mean, millennial and Gen Z in particular, the amount of information and the way they consume it is really impressive in the terms that they are really educating themselves. Now, there's going to be some trips and some slip-ups along the way. But for the most part, I use that example of seeing our customers that are long ETF positions switch from seeing SPY being the most held, which is a very broad-based and very, very well-known, maybe the most well-known ETF out there,

and moving to positions in VOO, which is very much less well-known than SPY, and the reason for that, it's a third of the cost in management fees. And we're seeing our retail customers actually doing the work, doing the research, that if they're going to hold a position that's going to be long, they're actually looking at the management fees involved. And I think that's something that no one would expect from a retail investor, you know, even three or four years ago.

Now that the tools are there and easily to get access, they're utilizing them and they're educating themselves and becoming better investors. I wonder if you could just tell us a little bit about your ownership. You're owned by Fumi Technology. That's a Chinese holding company. But more interestingly, your founder, Wang An Kwan, was a former employee at Alibaba group. Tell us a little bit about how the company got founded. Well, so our founder was an employee of Alibaba along along. side, you know, other companies as well, large banks. And he was very, very in tune with moving

money through mobile apps, right? And the future of money and finance is going to be based on a mobile platform. And at the time, this is, you know, back in, you know, 2014, 2015, there were online, there were apps available for your brokerage account, but they were slaves and kind of weak derivatives from what was available on the website. Everything was a, you know, www.etrade.com, for example. And the eTrade app was a place to maybe see your NAV, intraday, and maybe even place to trade, but that's about it, where we believe that the future is actually in mobile and to create a mobile first solution.

So Webo has actually started as a market data application for customers to download free and get access to really deep analysis and charting capabilities and information. you know, write on their mobile device without having to wait till they get home or open up a laptop and do it so everyone can see. You can do it on the privacy and ease of your own phone and get all the same information, if not better, in some cases, than you would on a traditional broker's website. Now, you know, fast forward a couple years, and then, you know, Zero Commission was the new reality of the world. So we decided to launch our trading applications with Zero Commission, putting us in that Robin Hood sort of world. But at no point was Weibel created to be a...

arrival to Robin Hood. It just kind of flowed that way because our demographic is so similar with our customer being a mobile first customer, which puts them in the same kind of age. And is the Webold trading platform available outside the United States? Is it available in China or Europe? So it's available for anyone to download to use the market data. There's no brokerage wall or paywall to get access to the information of the tools. So that's a big separating point from us from any brokerage competitor. Right now, we do have brokerage license in the U.S., which is our number one focus in terms of customer growth, but we also have brokerage licenses elsewhere in Hong Kong pending in Singapore, and we're applying for other jurisdictions around the world.

All right, so you're still growing, and do stay in touch with us and let us know about your progress. Always interested to find out what the younger investors are doing. Anthony Denier, CEO of Weble. Thanks very much for joining us, and thank you, everyone, for joining us on the ETF Edge podcast. investco QQQ believes new innovations create new opportunities here's to greater possibilities together learn more at investco.com slash QQ investco distributors ink