On Thursday, December 12, Bloomberg hosted the ETF in Depths event to explore the next wave of innovation in ETFs. Much like the coming Exchange conference, the event underscored the importance of community and was packed with experts and thought leaders. Accordingly, they explored the ETF market outlook, the crypto/gold debate, fixed income, and more.
Paul Salerno, Bloomberg’s global head of sales and account management, opened the event, stating, “One thing we do very well here at Bloomberg is connect participants of the marketplace.”
The event was hosted by Bloomberg Intelligence Senior ETF Analyst Eric Balchunas.
A Year to Remember
Balchunas started off looking at 2024 — an exceptional year for ETFs — which achieved $1 trillion in flows. “That’s $4 billion a day,” he said. In total, 666 ETFs launched in 2024. Roughly one-third of new launches also used derivatives. Bond ETFs broke their flow records. Additionally, cryptocurrency ETFs came to market. Already, U.S. spot ETFs hold more bitcoin than Satoshi.
In terms of individual tickers, the Vanguard S&P 500 ETF (VOO) set records, with over $100 billion in flows on the year. The iShares Bitcoin Trust ETF (IBIT) got to $50 billion in 227 days. “I don’t think that record will ever be broken,” Balchunas said.
Looking Forward to the State of ETFs in 2025
Though Balchunas said we might not see another year quite like this, he remains optimistic about ETF growth in 2025: “Our prediction is ETFs will reach $35 trillion by 2035.” Global ETF assets grew 32% in 2024.
According to Balchunas, $25 trillion in the U.S. ETF market seems very possible: “A big catalyst this year is whether the SEC approves ETF share classes for mutual funds.”
Referencing the movie “There Will Be Blood,” Balchunas said that if investors are able to switch from mutual funds to ETFs without a tax penalty, “there will be flows.” He believes ETFs could very much drink the milkshake of mutual funds.
Talking about active’s rise, he noted there’s a sweet spot in expense ratios where products that are cheap or shiny can get flows. Those that aren’t can’t. Investors don’t want to be charged for beta anymore. “Its like a bag of potato chips. Just charge me for the chips; not the air,” he quipped.
Balchunas is also bullish on themes, which pair well with active management.
Taking the Granny Shot
Katie Greifeld interviewed Tom Lee of Fundstrat about the Fundstrat Granny Shots US Large Cap ETF (GRNY). Asked about Granny Shots, he explained it is the physics-appropriate way to shoot free throws in basketball, which went out of vogue when people started shooting overhand instead, which inspired the investing idea. “Granny Shots is a non-cool way to find outperforming stocks,” Lee said.
GRNY is Fundstrat’s first ETF. Asked why he launched now, Lee said, “We’ve had this research portfolio of Granny Shots for six years.” He explained that the cards just came together this year. Launching in early November, Granny Shots already has over $600 million. Lee said that a weekly newsletter is explaining what their moves are, and the audience is appreciating what they are owning and the rationale behind the investment.
GRNY is a concentrated product, with fewer than 40 holdings. Asked about the strategy, Lee said, “It is a research-driven stock list. It’s been battle-tested. Believe it or not, Granny Shots is a low-beta fund relative to Nasdaq.”
Asked if active management will finally start outperforming passive, he said, “I actually think active managers will outperform.” Skilled stock pickers could do very well next year, according to Lee.
Bloomberg Trillions Podcast Records Live at ETFs in Depth
The Trillions podcast featured Eric Balchunas, Joel Weber, Grayscale’s David LaValle, State Street’s George Milling-Stanley, and ProShare’s Simeon Hyman, CFA.
Weber opened, saying, “Today we’re moderating a knife fight,” referencing Anchorman. He noted goldbugs and crypto people actually have a lot in common.
Milling-Stanley said there are many ways outside of ETFs to access gold, which isn’t the case for bitcoin: “Its interesting to see in the past few months we’ve started to see sizeable inflows coming into gold ETFs.”
Speaking to what bitcoin is if not a store of value, Hyman said, “Maybe it’s not a risk asset, maybe it’s a diversifier.” He also noted that bitcoin and gold are not correlated.
“I think it is very early in the life of this asset,” LaValle said, pointing to the many possibilities that exist in crypto investing.
The panel was split on whether or not bitcoin is a commodity or security, with Milling-Stanley sharing that he tended to “lean toward the Gensler view,” that bitcoin is a security, given commodities have uses. He noted the IMF had a strong reaction to El Salvador’s attempt to embrace bitcoin.
As LaValle tried to counter, Balchunas said, “I forgot to bring the popcorn.”
Sparks Fly in Gold vs. Bitcoin Debate
Hyman shared that gold, like bitcoin, doesn’t have a whole lot of industrial use. “Gold is the future of bitcoin. They are so similar.”
Milling-Stanley noted that bitcoin correlates more with the market than gold, and made the case for the yellow metal’s protection from currency deflation: “Protection plus performance is very powerful, and I don’t think bitcoin can match that right now.”
LaValle said, “I think protection plus performance is exactly what bitcoin can offer right now.” He pointed to the two-year return profile of bitcoin versus gold.
Milling-Stanley, referring to 2022 and bitcoin’s performance that year, noted, “It’s like somebody said about the Chicago Cubs: Any team can have a bad century.”
Finding Common Ground in Bitcoin vs. Gold
The panel agreed that the ETF wrapper has democraticized both products.
Talking about whether an investment might be useful in an apocalypse, Hyman reminded everyone, “I don’t drive a tractor, but I might want to invest in John Deere.”
Milling-Stanley, speaking to why he values the blockchain over cryptocurrencies, noted that the blockchain had never been hacked, unlike crypto wallets or exchanges. Asked by Balchunas what the portfolio allocation toward gold should be, Milling-Stanley noted 2%-20% is the recommendation. He believes bitcoin can coexist in that allocation.
“So gold is a hedge for your bitcoin?” Balchunas joked.
According to LaValle, 5% is a good allocation for bitcoin, given its volatility.
ETFs Redefine Fixed Income, According to Bloomberg Event
After the break, the Bloomberg event continued with a panel consisting of James Seyffart, JP Morgan Asset Management’s Julie Abbott, Pimco’s Tanuj Dora, Citadel Securities’ Katie Stiner, and State Street Global Advisors’ Bruce Saltzman. Fixed income ETFs are seeing flows and experiencing growth on the heels of 2022’s rough year. Asset classes like munis and CLOs are more accessible to investors thanks to the ETF wrapper.
“ETFs, because of their creation/redemption mechanism, are pushing people to create more liquidity,” Stiner said.
Abbott added, “ETFs and portfolio trading go well together.” Because ETFs are constantly trading, trading bonds as a basket has become more accessible for investors.
“Bond portfolio trades account for 10% of the market,” Stiner added, noting that some days have gone as high as 20%.
Dora shared that there is an operational-efficiency argument for ETFs: “The use cases keep developing.”
“The ETF sits at the center of all of it. The ETF allows all of these firms the opportunity to hedge their risk, manage their risk,” Saltzman said.
Stiner offered, “Native liquidity is the entire game in all ETFs, not just fixed income.”
ETFs are taking a massive share of fixed income. “High yield ETFs are nearly 30% of what we see in the high yield market,” Saltzman pointed out.
Bloomberg Shares Solutions
The next panel covered solutions from Bloomberg. It featured Irma Briebiesca, Miguel Alvarez, Nick Grendon, Aryeh Hauptman, and Jonathan Greenberg, CFA.
ETF flows have hit records in 2024. Accordingly, investors have opportunities galore. “It really comes down to three big things: flows, factors, and themes,” said Greenberg. Many investors used the Bloomberg Terminal to look at various regimes during the election season.
Discussing the overall state of the market, Alvarez noted, “The entire market is up, but fixed income has been ramping up quite nicely.” Standing out and differentiating your product is important for market leaders, as standing out can be challenging in this environment.
Grendon touted Bloomberg indexes, including leveraged and crypto ETFs. Discussing fixed income, he said, “Loans have outperformed the Agg by about 25% over the past three years.”
Bloomberg Sees ETFs as Tools for Innovation
Dave Gedeon, BlackRock’s Jay Jacobs, GraniteShares’ Will Rhind, and Tidal’s Mike Venuto led the next panel at the Bloomberg event, focusing on ETFs as tools for innovation.
Asked about how ETFs became the home for “spicy ideas,” Venuto shared that both regulation changes and COVID had a huge impact. Regulation changes allowed for new ideas to come to market, and COVID had people sheltering in place with little to do but gamify their investments.
“The ETF wrapper is a game-changing technology,” Rhind said. So many different ideas can be put in that wrapper, creating a number of unique products that express different ideas. These ideas appeal to someone, Rhind posited: “There’s no such thing as ‘the investor,’ just like there’s no such thing as ‘the consumer.’ There are multiple types of investors.”
Venuto argued that core vanilla investments are still around, and in fact enable the “hot sauce” ideas.
Weapons of Mass Destruction
ETFs have historically caused some consternation among classic investors, once being called “weapons of mass destruction” by FPA capital mangers, according to a 2017 Bloomberg headline. Asked how to assuage fears about leveraged products or crypto spot products, Jacobs said, “I think people become increasingly comfortable with ETFs as they make up a bigger portion of asset management overall.” He thinks skepticism is fading in favor of a more educational lens as people seek to learn more.
“They are a tool; not a weapon of mass destruction,” Venuto added.
Discussing how bitcoin and ether are just at the tip of the iceberg despite their recent success, Jacobs noted, “We can’t just think about innovation as what’s the next product.” He said innovation can come on multiple levels beyond new products but in how these products are deployed or how assets are managed to begin with.
Rhind added, “A lot of the innovation conversation is about how do we give customers what they want?”
Developing ETF Products in an Evolving Market
The final panel before the keynote featured Bloomberg reporter Vildana Hajric, Northern Trust’s David Abner, Avantis’ Philip McInnis, and State Street Global Advisor’s Anna Paglia. The panel focused on ETF development amid today’s evolving landscape.
“Every year there is change in this industry,” Abner said. “What’s changing now is we’re hitting an inflection point people thought we’d hit five years ago, 10 years ago, 15 years ago.” The pace of ETF adoption is getting faster than ever, he added.
Talking about how her job and the jobs of all ETF developers has changed over the years, Paglia said, “Your job changes because investors need change. Change is a constant.”
Discussing what clients are asking for, McInnis said, “Right now we’re hearing lots of people concerned about the concentration in the market.” He noted that opportunities do abound still, particularly in small-cap spaces. “When you have the success you’ve seen in the S&P 500 in the past five years, there’s a misconception that investing is easy.”
“The phrase is ‘numbers go up,” said Paglia.
Financial Services Is About Being of Service
McInnis shared that it’s important for investors to remember the goal of their allocations. As situations change, that information can be useful for determining how to adjust to the change.
Discussing what issuers and financial professionals need to think about, Abner said, “You should get a fair and easy way to understand way to invest your money. That’s what investors want, and it’s our job to give them that.”
“Products are table stakes,” Paglia said. “If you don’t have products, you don’t have a seat at the table.” She argued though that simply building products isn’t the point. It’s about sitting down with investors and giving them the tools they need to achieve their investment objectives.
“Money moves slowly. Industries move slowly. Twenty-five years ago, I was the one person at Bear Stearns who knew about ETFs,” Abner said. “It is inevitable that ETFs will end up in 401(k)s.”
Paglia agreed. “We are so focused on the wrapper. Let’s divorce the wrapper from the content,” she said, noting that what’s in a mutual fund and ETF isn’t different at all. “Its a technology issue, not a content issue.”
Abner predicted, “I think we’re about to enter the decade of fixed income.” He argued that the more asset managers and issuers can offer, the better, noting that ETFs have been in a 25-year bull run and that there’s still room for more products. “They’ve been asking if we’re over-saturated for years.”
Roubini Delivers ETFs-in-Depth Keynote
Nouriel Roubini, chief economist and portfolio manager with Atlas America Fund and the chairman/CEO of Roubini Macro Associates, delivered the keynote address at the Bloomberg ETFs in Depth event.
His fund, the Atlas America Fund (USAF) is designed as a counter to the economic risks in the coming administration. “We’re moving now to a regime shift. That regime shift is what I call ‘secular stagnation,” Roubini said. The risk of a fragmented global economy, climate change, and fiat currency collapse is real. “In this world, inflation is going to be higher.” With the era of sub-2% inflation coming to an end, there will be repercussions to bonds.”
Speaking to why inflation will happen, he added, “On the supply side, there are a number of negative aggregate supply shocks.” Roubini noted that countries are starting to think about reshoring instead of offshoring, and that mass aging will also impact inflation. Old people don’t produce the way younger populations do, which changes the dynamic of demand and supply. Additionally, there is a backlash against migration and immigrants, so the labor force is further reduced.
Additionally, Roubini sees geopolitical challenges as sparking inflation, as the current market leaders are challenged. Throw climate crisis in and supplies of food will be stretched, causing inflation. Cyber warfare disrupts production as well, and requires a high investment in security. He also pointed to a backlash against democracy world-wide: “Rightly or wrongly, the U.S. government has weaponized the U.S. dollar.” This could have long-term impacts on the dollar’s value.
Demand Side Also Faces Challenges
Demand has its own issues. Debt and deficits run amok, according to Roubini: “In a world of geopolitical fragmentation, everyone will spend more on defense and security.” Climate change will also be expensive. Plus, there could be more global pandemics, which could cause tremendous deficits. “Lots of people are going to lose jobs, potentially permanently,” Roubini said, and this will mean that a stronger social safety net will be required.
Many see the incoming deregulation policy of the Trump administration as potentially a growth tailwind, but Roubini cautioned that some of the policies could actually reduce growth and will certainly increase spending.
The 60/40 model assumes low inflation, according to Roubini. When risk is on, equity thrives, and when risk is off, bonds support the portfolio. But 2022 showed us that higher inflation could damage both sides of the classic portfolio.
USAF Protects Against These Challenges
USAF focuses on defensive allocations that can thrive amid inflation: REITs, gold, TIPs, and inflation protection assets. This fund protects against many of the economic risks of the coming administration. “Gold historically does well when you have inflation, when you have debased currency, when you have geopolitical risk,” said Roubini.
Agricultural products are another opportunity, according to Roubini. Accordingly, he pointed to recent spikes in food prices.
Real estate, meanwhile, does well in moderate inflation environments. He sees parts of North America as becoming less livable, which could create significant migration and drive up real estate prices. USAF overweights REITs that could benefit from climate change and underweights the areas that face increased risk.
Find More Learnings at Exchange
Looking to hear from more experts and thought leaders? The Exchange Conference kicks off in Las Vegas March 23 through 26. Register today and continue to arm yourself with ideas and connections that will help you achieve success in 2025.
For more news, information, and analysis, visit VettaFi | ETF Trends.