[00:03:08] Eric Balchunas: Some people like that. They’re also be very cheap, lower cost. A mutual fund tends to have share classes, right? So if you’re like, you don’t have a lot of money and you can only afford the A share class, which the minimum is a thousand dollars versus the iShare class where the minimum is like a million dollars, the iShare class will have a fee of say, 50 basis points, but the A will be one 100 basis points or 1%.

[00:03:30] Eric Balchunas: ETFs are the institutional clash for everybody. They just destroy that whole share class system and they give you a price that’s equivalent to what the big guys used to be able to get. And everybody loves that, right? And so, they are used by a variety of investors for different purposes. They’re also more tax efficient.

[00:03:47] Eric Balchunas: They don’t really kick out capital gains distributions hardly ever. People like that too. So look, they just took a couple evolutionary steps beyond the mutual fund. And in being a good technology, people have tried to stuffed every everything into. [00:04:00] A lot of the money is in basic vanilla, you know, S&P 500 Index ETF, or the total market, or the Total International.

[00:04:09] Eric Balchunas: If you take that, we’ll call that boring bulk vanilla beta. That’s going to be the majority of the assets. Then there’s aling of the ETFs that tracks things like commodities. Even like gold, they store gold in a vault, so that makes it easy to get exposure to gold. Then it moves to like their ETFs to track oil futures.

[00:04:28] Eric Balchunas: Then there’s ones that are leverage. Then there’s ones that are like active like arc. So instead of tracking an index, a manager picks the stocks, but the active part of ETFs is pretty small. Like the stock picker lane of ETFs is probably 2% of the assets. That said, there’s a big lane that’s 20% called smart beta, and all that does is it takes regular beta, which tracks like an index or a market and it tweaks it.

[00:04:52] Eric Balchunas: So, let’s just say you like the S&P 500, but you don’t want energy stocks. Right. So that’d be like the fossil fuel free S&P [00:05:00] 500, we would call that smart beta or ESG. Or another one could say I like the S&P 500, but actually want to like rebalance quarterly and rebalance into stocks that are cheaper and have lower PE or give out more dividends.

[00:05:11] Eric Balchunas: So there’s dividend ETFs, value ETFs, growth ETFs. I do consider those active, that they’re, they follow an index, but they do deviate from the benchmark that is called smart beta. That’s 20%. I would say active is a big part of ETFs if you conclude that. But if you just look at stock picking managers, it’s more like two.

[00:05:31] Rebecca Hotsko: Yeah. I’m glad you brought up that active verse passive aspect, because I think some investors might think that all ETFs are just these passive instruments and they’re not. There is this whole section that you just mentioned that are very active now, and that’s an approach that I’ve started to implement more in my portfolio.

[00:05:47] Rebecca Hotsko: I love factor investing and ETFs provide a great way to get factor exposure without having to do it yourself in a systematic way of buying hundreds of securities 

[00:05:59] Eric Balchunas: Factor is a term. [00:06:00] People are like, wait, what’s going on here? You know, factors are like things that exist in the market that tend to work over time because humans act weird.

[00:06:08] Eric Balchunas: So like value is like buying cheap stocks. That tends to work because everybody gets crazy and goes to the shiny objects and that leaves stocks. Some stocks undervalue. So a value investor would just hold those and wait for the herd to come. When the, when everybody’s like over the shiny stuff and back to like basics, which is exactly what’s happening now.

[00:06:27] Eric Balchunas: That’s why value’s having a good run. And then momentum. They just basically try to do whatever the crowd is doing. They just try to latch on to whatever is going on like a chameleon. And so now momentum is actually in value. Stocks and energy stocks, these factors are proven to work. You do have to hang in them a long time to really reap the benefit of the premium.

[00:06:46] Eric Balchunas: But to your point, you can get that exposure now for under 20 basis points. And that used to be something you could only get in a high, high cost hedge fund that you even had to be a credit investor to get. So ETFs have done a wonderful job [00:07:00] democratizing all this stuff. And to your point that I used to call smart beta or factory ETFs, sort of like active AI because they take something that used to be done by an active manager that charged 1%.

[00:07:11] Eric Balchunas: And they’ve turned and they’ve, it’s almost like they’ve taken Peter Lynch’s brain and put it into R two D two. That’s the best metaphor I could come up with. And what I mean by that is they take the system that a manager has, whether it’s tracking value stocks, and they all have different systems. Some like used to use price to books, some like price to earnings.

[00:07:28] Eric Balchunas: There’s a variety of price to sales. So they take their system when they convert it into a rules based. So the index does exactly what the human would do, but it does it robotically. And what’s good about that is a it you can charge less money because you don’t need a whole staff of people. So it’s usually like a third of the cost.

[00:07:44] Eric Balchunas: And it’s also a disciplined, like sometimes, like right now, it’s probably tough to buy tech stocks. But if tech stocks look relatively cheap to the system, it’s going to go by them, and you could get rewarded for that. Humans have a tough time making very disciplined, tough decisions, and so smart Beit ETFs [00:08:00] remove the emotion from those tough decisions.

[00:08:02] Eric Balchunas: That’s a benefit. And then the third one is they, they don’t distribute capital gains, even if they are high turnover strategies. That’s why smart beta, in my opinion, is, has a bright future. It’s 1.2 trillion inside the ETF. And I would consider that new active or a, a strong new form of active. But it’s, like I said, it’s got major benefits over the old ways.

[00:08:24] Rebecca Hotsko: Yeah, it’s really interesting to see how it’s growing in this space and that retail investors can get exposure to these strategies that once just weren’t available, even as of recently. And so I’m just wondering, for our listeners who want to look into some of these funds, there are some that are better than others.

[00:08:42] Rebecca Hotsko: So what should they be looking for in these strategies? Let’s go with an active one. What are the things that they should be comparing between different ETFs? 

[00:08:51] Eric Balchunas: We have a multitude of tools that we have designed to help the consumer and the way we build these tools is very simple. I think one of the most important things you can [00:09:00] look at is, so if it’s an active ETF, I think you just look at the holdings, first of all.

[00:09:05] Eric Balchunas: Like do you recognize the names? If it’s Apple, Microsoft, JP Morgan, Berkshire, and it’s like, looks like the S&P. Well, you know, do you really need active in that case, you know mu well by the. You look at somebody like Cathie Wood, you’re going to see stocks that are not anywhere near the S&P. I think she has 1% overlap with the S&P.

[00:09:23] Eric Balchunas: That might be interesting. Just right there. Okay. I don’t recognize these stocks. Maybe that is a good place to be active because it’s not as covered as those big names. And the other thing I would do is just look at the number of holdings. So the S&P 500 holds 500. If your fund holds less than 50 like arc, you can expect a bumpy ride, but you can expect some real nice surges on the upside, but it’s going to move.

[00:09:46] Eric Balchunas: It’s honestly, number of holdings is probably one of the most underrated things to look at because it’s almost like going to determine, it’s like a skis when you go skiing. It has like a green dot, a blue square or a black diamond. If [00:10:00] it’s under 40 holdings, it’s expect the black diamonds, right? And if it’s got like a hundred to 200, maybe it’s blue.

[00:10:06] Eric Balchunas: 3, 4, 500, it’s going to move like the S&P. That is a crucial number to know. That way you’re not surprised, right? That’s what the whole point of those. So we have systems that help the consumer quickly understand the aggressiveness of the active or smart beta strategy or thematic ETF. What I’m describing would work for any of the above.

[00:10:24] Eric Balchunas: So I would look at that, whether you want to pick a manager, you know, there aren’t that many famous managers anymore. Wasn’t like the old days where there’s like many managers were well known and the one moved to this fund. So you go follow the manager. Yeah, besides Cathie Wood, there’s just, there’s not really that many well known.

[00:10:38] Eric Balchunas: I will say that on the equity side, her funds dominate, but like, for example, the blockchain ETF, B L O K, that’s actively managed. I don’t even know if people know that, but who the manager is. It doesn’t even matter. And on the flip side, like on the fixed income, a lot of people like active there especially in the short duration.

[00:10:57] Eric Balchunas: So PIMCO is used a lot and JP Morgan and [00:11:00] would you know, the managers probably not. So again, I would look at those things. Again, I would track compare their track record, you know, throw their returns in against, maybe if it’s equities, throw it against the S&P. That’s not always the perfect benchmark, but it gives you a reference point.

[00:11:14] Eric Balchunas: And on the bond side, maybe throw it up against the if you can get it, the Bloomberg Universal Bond Index I think it’s better than the aggregate bond index, but it just, those are some things I would do. And then you want to look at the fee. If it’s, if it’s Cathie Wood and it’s really volatile and it’s like hot sauce, the fee is probably less of a concern, because you’ll use it in a smaller dose .

[00:11:31] Eric Balchunas: And the returns could be so outsized that will overwhelm the fee. But if it’s holding a bunch of S&P ish type stocks, I think you’d, you’d demand a lower fee. In other words, if the fund is largely beta, they should price it accordingly because beta’s free at this point. That’s what we’re seeing in this industry, and this is an important point.

[00:11:50] Eric Balchunas: The portfolios of people have changed right now. Most people, it used to be you just switch managers. Five star manager then sold this one. This guy’s hot. Then that was like the [00:12:00] eighties and 90. Vanguard came around index funds, and they made everything so cheap. The core of the portfolio is now cheap index funds for most people.

[00:12:10] Eric Balchunas: We’ll call that be. But they, it’s boring. People mess around with like 15% and what they want there is volatile. They actually want something wild and crazy. That’s why Cathie Wood fit so perfect into today’s market, even though she’s down so much, not really seeing a run on the funds, because people are like, I own all the serious stocks, serious investor stocks with my cheap ETF that tracks the S&P 500 of the total market.

[00:12:31] Eric Balchunas: I don’t need active for that. What I want active to do is go out and find some really interesting stuff. So Cathie has spoken to that need. Perfect. And then thematic ETFs, I think speak to that need. You know, people like to invest in stuff like a cannabis ETF or blockchain. Like I said, I think crypto has spoken to that need people like crypto because it can compliment that.

[00:12:51] Eric Balchunas: Otherwise boring core. I have found that over the years, what’s happening now is active. Is getting more active so it doesn’t compete against Vanguard because [00:13:00] it knows that beta is free and it, it’s tough now. So if you’re an active manager and you charge 80 basis points and you’re, and your portfolio looks like the S&P, you are seeing outflows because people just like, I can just let me just buy all of those stocks basically for, for like, I don’t know, honestly, 15 times cheap.

[00:13:19] Eric Balchunas: That’s a pretty strong value proposition. That’s why the core of the portfolio is shifting from the closet indexing active to just a regular index. So active is being pushed to get more innovative and even wild and crazy. So look for new ETFs to get even more crazy. You know, get single stock ETFs coming out, which is literally an oxymoron.

[00:13:38] Eric Balchunas: I mean, jumbo shrimp, single stock ETF doesn’t make any sense. But here, this is where we’re at. So I tell people, the tent’s going to get wider and crazier, especially on the exotic side because all these people with ideas on Wall Street, they’re not going to try to compete against Vanguard. They’re, they’re going to lose that battle.

[00:13:54] Eric Balchunas: But they can, they can compete in the hot sauce lane and they’ll get, and you can charge more there. So there people are [00:14:00] less fee sensitive. But those are the things I would look for. And again, what I just described is really a bigger takeaway. How is this fitting in the portfolio? If it is a compliment to your cheap Vanguard Index fund, well then I think you probably should go crazy.

[00:14:12] Eric Balchunas: I think you want volatile. I Why? What’s the point of doubling up on Apple? Microsoft, JP Morgan, you already own those In, in S P Y or IV or whatever. That would be my general advice on it. And when you go to trade it, just look at the spread, the difference between the bid and the ask. See how much volume, you know, you probably want to stick to stuff that trades every day, although it’s, it’s even, you can even put a limit order in if you want.

[00:14:35] Eric Balchunas: But the trading side, there’s a couple little snags, but mostly I think you can put in a, a market order for most of the sort of more popular ETFs. 

[00:14:43] Rebecca Hotsko: You mentioned a lot of great things there, and I kind of follow that same approach with my portfolio. About 80% is that boring basic index funds, but then the rest of the 20 or 10% even I just want to have fun with, and I’m okay with the volatility.

[00:14:59] Rebecca Hotsko: And those [00:15:00] were where those smart beta strategies are. Those really active funds are really interesting to get involved in. And that to me is almost more fun than picking stocks because. It’s still diversified and it has the volatility, but also the return prospects. That’s something that we talk about on our show, and I just think it’s a good way that investors can get exposure to a more active strategy without picking single stocks.

[00:15:25] Eric Balchunas: Yeah, and this is why we are bullish on Hot Sauce, even though it seems counterintuitive to think that hot sauce is actually a byproduct of Vanguard. BOGO would’ve hated that he did. He didn’t like these high flying stuff. He would’ve said, you don’t need it. Just do boring all the way. But I think most people are not as rigid as him and like to have a little fun.

[00:15:45] Rebecca Hotsko: They also don’t want to have fomo. These, this hot sauce generally is like a call option on the future, just in case Cathy, what is right and there’s robo taxis all over and robots running around. I don’t want to miss out on that. So let me, let me stick with. Also because you [00:16:00] have the boring stuff covered, herd volatility on the downside or her, you know, a large draw down isn’t going to bother you as much because it’s a lower portion of the portfolio.

[00:16:09] Rebecca Hotsko: And that’s a beautiful thing because in order to do a high volatile or factor strategy, as I said, you have to hang in there. Does it make sense to buy it when it’s up and then sell it when down, which is the problem investors have had for ages. That’s part of why I wrote that, that book on Bogle is, I think Vanguard and Bogle actually solved way more.

[00:16:26] Rebecca Hotsko: Than just introducing low cost funds. They’ve actually helped solve behavior for highly active strategies because you having such a cheap core gives you so much freedom and sort of currency to spend a little more to hang in there a little more. And it’s a nice byproduct. And if that itch of the hot sauce, if that, if that keeps you from touching the 80%, that’s the boring be.

[00:16:49] Rebecca Hotsko: It’s worth everything, even if that part of your portfolio is flat or down over time, as long as it kept you from, because the 80% has to grow like a tree because compounding is [00:17:00] so underrated. Compounding is where it’s at, and you can only compound if you just don’t touch it. And compounding happens over 10, 20, 30 years.

[00:17:08] Rebecca Hotsko: I get that watching a tree grow is the best metaphor I can come with. You can’t mess with the tree. You have to just let it grow. So if you’re going to distract yourself, and that’s the service that these hot sau cy and funds or investments give you, I think there’s a value in that. Even if some of the more serious analysts would say all that stuff’s pointless.

[00:17:26] Rebecca Hotsko: But I don’t know. It, it’s, there’s definitely a debate around it right now, but I’m, I get. 

[00:17:31] Rebecca Hotsko: Yeah, I kind of want to get into the debate of the criticisms of passive investing with you in a bit, but I want to touch on the single stock ETFs, because you mentioned that there, and I wanted to get your thoughts on that because our listeners might not know what this is and this is a relatively new product. So I’m wondering if you can explain what these single stock ETFs are and what are your thoughts on them?

[00:17:57] Eric Balchunas: A single stock ETF is just [00:18:00] convenience. I mean, if you’re the kind of person, most professional investors can short Tesla, they can find a borrow on the market from a broker and then just sell it, and now they’re short Tesla and they go buy it back when they have to give it back.

[00:18:12] Eric Balchunas: Right. A lot of people either can’t do that, don’t know how to do it, don’t care to do it, but they do maybe have times where they want to hedge out Tesla or Elon, maybe Elon Tweets something crazy, or the CC’S cracking down. You could buy an inverse Tesla for a month just to make yourself sleep at night because the Tesla part of your portfolio might be threatened.

[00:18:30] Eric Balchunas: You could also just anticipate negative earnings and you want to buy it before the earnings. Those would be some of the use cases for it, but all it does single stock ETFs and leverage ETFs. What they use is swaps and what swaps are. My friend Dave Natig said it best. It’s just the bar bet with a big institution.

[00:18:49] Eric Balchunas: So like remember the big short, were Christian Bale goes to Goldman and says, Hey, can you design a contract where if the mortgage market blows up, I win and I’ll pay you a little premium [00:19:00] every month to keep this bet going. That’s a swap. So all the Tesla inverse people do is they go to a couple different banks.

[00:19:08] Eric Balchunas: And they say, okay, we’re going to have a daily bet. If Tesla goes up, you win. If Tesla goes down, I win. And then they just change the money based on that. Again, ETFs have democratized what used to be institutional type stuff, including swaps, and so that’s really what’s going on here. And so now you can just click a button and have what essentially wasn’t institutional trade put.

[00:19:30] Eric Balchunas: Now that’s, that’s like a Pandora’s box. It can be very useful, but you can trade yourself into the poor house basically, if you don’t be careful. So again, if I was advising anybody, if you do mess with single stock ETFs, I would limit it to the hot sauce part of your portfolio. But they’re, they do serve a purpose, but we found that the ones that have come out, most of them have just been ignored.

[00:19:51] Eric Balchunas: The ones that have seemed to gut action are Tesla. And I think that speaks to people want to trade volatile and controversial stocks tied to big [00:20:00] personalities. So there’s a one in the pipeline for Game Stop and AMC and Coinbase, perhaps those might be hits, but the ones for like Microsoft and like Pfizer, like, I don’t know. Nobody really cares. 

[00:20:11] Rebecca Hotsko: Yeah, it does seem like the, like you mentioned, the big volatile names would be the more popular ones. I am wondering if you can speak a little bit about the risks and the time horizon of these, because I think some investors might be surprised by, it’s not a one for one if the, if Tesla goes down 20% and you are right, your return isn’t 40% on a two times leveraged inverse ETF. Can you speak a little bit about that? 

[00:20:40] Eric Balchunas: What you’re speaking to is what we call volatility drag. In the Christian bail example, he went and had a personalized contract, so that is a contract that could just last a couple months, right? Because there’s people coming in and out of the fund every day, and it’s a liquid instrument.

[00:20:55] Eric Balchunas: They have to do the bet daily, so that way when you come in, at least the bet starts that day. [00:21:00] They can’t, they otherwise you’d have to have any, they, they tried these leverage ETFs back in the day that were like monthly, so that you could come in at the beginning of the month and it would be a monthly leverage bed.

[00:21:09] Eric Balchunas: Nobody really cared. So yes, you only get the inverse perfect or near perfect once a day. As time goes on because it gets reset every day. Some of that resetting, if it’s volatile, starts resetting and it gets, again, there’s a drag in that and you can go over the math on that. A lot of leverage ETFs have their site, but just imagine resetting leverage on something that’s going up and, and down, up, and then down.

[00:21:34] Eric Balchunas: For example, looks like Tesla’s down 11% since the inverse Tesla came out, but the inverse Tesla’s only up 4%. So you would, you think you’d be up 11%, but you’re not. So I would use these on a short term basis. Same thing with leverage ETFs and inverse ETFs. The more leverage, the more the volatility drag.

[00:21:51] Eric Balchunas: That said, I gotta be honest, if something moves up or down in a, in a path that’s pretty consistent. The daily leverage gets reset [00:22:00] and it starts to compound. So there’s been cases like when Tech had that nice run for like three or four years, about five years ago, the three X Tech ETF returned five times the tech index.

[00:22:10] Eric Balchunas: So you actually can get, we call that the compounding effect, but I would say that’s like a full moon. It’s rare. Love it when you get it. So I can’t say it’s all volatility drag all the time, but volatility is the enemy of long holding periods of these. So if you, if you have a bet that Tesla’s going to go down and it’s going to go down in a completely straight line over the next, like three years, honestly, inverse might make sense, but if you acknowledge that it, it could go down, but it’ll be volatile on the way down.

[00:22:40] Eric Balchunas: I, I would never hold that then. So that’s why I would, generally speaking, just don’t hold these a long time. But I just wanted to point that out. If it’s a straight line up or down it, it can actually compound. 

[00:22:52] Rebecca Hotsko: So then you kind of mentioned, don’t hold it long term, but is there like an optimal holding period?

[00:22:58] Rebecca Hotsko: Say if like Tesla’s [00:23:00] earnings are coming out in whatever a month later, is there kind of that sweet spot where a month, a couple months would be optimal? 

[00:23:09] Eric Balchunas: Yeah, I mean, I’m looking at one month, right? So Tesla’s down 23%. Tsl Q is up 25%. So you got a touch of compounding effect because it’s obviously up more than Tesla’s down .

[00:23:19] Eric Balchunas: So, yeah, I would say a month probably. I, I wouldn’t hold up more than that and I would monitor it. This is not like Vanguard, you have to monitor this, but even weekly, you know, but if you’re going to bet on Tesla earnings, I guess, you know, it’s all about timing. You want to get in before other bets are placed that push the price down before the earnings, so to speak, right?

[00:23:36] Eric Balchunas: So you have to balance all that. But maybe give a couple days on either side, but again, I wouldn’t go more than a couple weeks or a month . 

[00:23:43] Rebecca Hotsko: And I just want to say, I’m not recommending this, I’m just trying to learn and get to your thoughts on these, they’re interesting products. And so I am wondering what would be the benefit of using this compared to just an option strategy? Is it the fact that some people just can’t [00:24:00] maybe get margin accounts? 

[00:24:02] Eric Balchunas: Yeah, exactly right. It’s also just, and I, in my first book called the Institutional ETF Toolbox, right, I go over a lot of this stuff . I have a section called Advantages, and I go through low cost and yada yada, tax efficiency, some of this stuff, whatever.

[00:24:16] Eric Balchunas: The last advantage I have in there is convenience. And I say this is probably the biggest advantage, and this is convenience works. In any business, if you make something convenient, look at Amazon. If you make something convenient, people will use it. And so it’s really just somebody doing the legwork for you to put a trade on.

[00:24:34] Eric Balchunas: And so I sometimes call these package. There’s some ETFs that go along this and short that or they will go and like currency has ETFs or long short ETFs or ETFs that have an options overlay that, or they even sell options so you get a little premium, which gives you like yield. These are package trades, which you could do on your own.

[00:24:55] Eric Balchunas: I mean, there’s no doubt you could actually use any ETF on your own. I mean, the, the S&P [00:25:00] 500 ETF, literally, they all show you their holdings every day. You could copy them, but it’s a pain in the butt. Most people just like to click a button and have it put on. People will respond to convenience, and so I would say that’s the overriding reason that people may use it and would do it over doing the legwork themselves.

[00:25:17] Rebecca Hotsko: Now I kind of want to get into some of the criticisms behind passive investing. Retail investors are sometimes viewed as cans or dumb money. In the case of passive investing, and you’ve written an article on this, I’m just wondering why you think passive investing is sometimes viewed in this 

[00:25:36] Rebecca Hotsko: negative light.

[00:25:37] Eric Balchunas: It’s a lot of sour grapes. I used to say if you, there’s articles called Some Worry, some Worry ETFs haven’t been tested. Some worry passive is, is going to blow up the market. If you pull the string on the sum. It’s an active manager, typically, or an academic who’s looking to get their name out there. And the paper might have been funded by an active company.

[00:25:56] Eric Balchunas: So there’s a lot of sour grapes. You definitely get clicks and reads [00:26:00] if, you know, if you say like, I remember one active manager called ETF’s, weapons of mass destruction. And so that the Bloomberg reporter put that in the headline and it was like one of the top five most red things on the terminal that day.

[00:26:11] Eric Balchunas: I countered with the piece and barely anybody read it. You just get a lot of clicks from that. So expect, and this is the same concept as bears in the market BearS&People who are calling out Armageddon are going to get way more press than people who are like, everything’s fine. I’m not selling. It’s just the way it is.

[00:26:26] Eric Balchunas: People like to read bad news and stuff like that, so that’s a big part of it. I think most of the concerns you can not worry about. Just take my word for it. I don’t think ETFs ruining fundamentals, that’s one of the big things. We’re passive because when a stock has bad earnings, the stock goes down. I mean, we’ve seen stocks get crushed and surge up based on news.

[00:26:45] Eric Balchunas: I like to use the sniff test as long as that keeps happening. Passive, my sniff test. You know, is it possible that the bid coming in from passive puts a floor on something that’s going down? Like for example, if Tesla’s earnings, Tesla’s going down, but it’s a big component of [00:27:00] pacif funds, seeing inflows, does that mean it would’ve gone down a little more if passive didn’t exist?

[00:27:04] Eric Balchunas: Maybe. But you have to understand, over the last 10 years, all that’s happened is it’s been about a net zero effect of active mutual funds to passive ETFs and mutual funds. They own the same stocks. It’s just been a transfer of vehicle. So people are going to, they still own Apple, Microsoft, JP Morgan. They own it cheaper.

[00:27:24] Eric Balchunas: And the outflows from active mutual funds have pretty much matched the inflows into passive. So it’s kind of been a net zero effect on the market. Some people would say, yeah, but the passive buys indiscriminately doesn’t consider fundamentals. Okay. A little bit. So yeah, I would agree. There’s, there’s definitely maybe a passive force that creates a little more momentum towards bigger stocks.

[00:27:43] Eric Balchunas: But we’ve seen this year, bigger stocks can fall too. As long as there’s volatility, stocks move in different directions, they move off of. I’m fine with it if, if, you know, we study stocks that have high, high passive ownership way beyond the apples of the world, and we even, those seem to move independently of the flows.[00:28:00] 

[00:28:00] Eric Balchunas: And then also what people don’t realize is if you take the whole stock market, which I think now is like $45 trillion, passive owns a I don’t know, 18% of that. So it’s, it’s still a minority owner. It’s growing. It’s one of the fastest growing owners, but it. And then your final point about weekends.

[00:28:16] Eric Balchunas: This one’s easy to defeat because look at any year the market’s gone down. 2008, 2018, 2020, although it went back up. And this year, each and every year, passive takes in money. ETS taken money, active loses money. I, I don’t know what to tell you. Like, it’s also funny because the people who complained about passive, I think are the same ones who will complain that retail’s done.

[00:28:39] Eric Balchunas: Well, okay, retail’s finally wised up and they don’t sell. They just keep buying and now they’re complaining about that. I don’t know. I, I see through all this. The only legit complaint and concern about passive that I give a lot of credence to is this one, which is that Vanguard and BlackRock are dominate the passive market so much that the more money moves to them, the more they’re going to own [00:29:00] of individual stock.

[00:29:00] Eric Balchunas: So for example, any stock, take any stock, apple, Microsoft. Vanguard owns about 8.5% of that stock, and BlackRock’s right behind ’em at like 7.3. Then there’s a big drop. Those two companies taken the majority of the flows in America over the next couple years, they’re probably going to own over 10%. That is a lot of power on the voting side.

[00:29:21] Eric Balchunas: That’s a legit concern. It’s a concentration of power. Americans do not like that. I think what’s going to happen, they’re going to have to pass off the voting to the individual investors somehow, or poll them, decentralize it, or they’re going to get regulated. That would be the one. But it doesn’t matter, even if Vanguard gets regulated, and this is why I, I call the book the Bogle Effect, not just the story of Vanguard because the effect, it, it’s the ship has sailed.

[00:29:43] Eric Balchunas: You can get cheap beta now at Fidelity, Goldman, jpm, Morgan Schwab, it doesn’t matter, even if Vanguard stopped, the Bogle effect is out there and it’s going to continue to ripple out. It’s almost not even meaningful, but the voting power certainly is becoming a political [00:30:00] football inside the bubble. I don’t think real, real investors don’t care too much, but if you, they can understand it.

[00:30:06] Eric Balchunas: Should one company have that much voting power, most people probably say, no. That’s, that’s probably a little dangerous. 

[00:30:12] Rebecca Hotsko: I never thought about that before. When you hold an ETF, all of those votes then go to Vanguard or BlackRock and they have the say for all of your shares. Then 

[00:30:23] Eric Balchunas: essentially, Yeah. So what’s happening here is Vanguard and BlackRock have a corporate governance group.

[00:30:29] Eric Balchunas: I don’t know how many people are in it, maybe let’s list the 25. And they look at all the proxy votes that happen over the course of a year, and they vote, and they vote. Seven, 8% of of the shares are theirs. They have the number, Vanguard has the number one vote in 70% of the companies in the S&P 500, and they’re in within the top three of, of 99%.

[00:30:49] Eric Balchunas: So they’re a bfd, right? And so when they vote, it matters. Same with BlackRock. But I will say if you look, they have these reports. You can look ’em up called the Vanguard Stewardship Report. [00:31:00] They’ll show you how they voted. They’ll even articulate what, how, how they’re thinking. But the problem is, and this is where Larry Fink, if BlackRock got into trouble, he came out a couple years ago and said, climate change is a real issue, ESGs real issue.

[00:31:12] Eric Balchunas: I’m going to use all my power to push this. And the right freaked out. They’re like, what? And then he scaled back. Now because other southern pension plants have threatened to pull money away from BlackRock because they’re now seemingly like a left wing agenda going on in their voting. So then he scales back, he says, oh, I never said I hated oil companies.

[00:31:32] Eric Balchunas: And now the left is kicking his butt. BlackRock has it worse because they, they spoke out and now the both sides are just kick ’em in the face all day long. Vanguard a little less so because they’re quiet. But still, I remember the FT wrote one article about how Vanguard is the biggest polluting asset manager, and it had the ship logo and there’s the smoke stacks.

[00:31:52] Eric Balchunas: It was like smoke coming out, like the ship, the Vanguard ship was like a carbon emitting like awful thing ruining the world. And I’m like, well, here’s the problem. [00:32:00] These are index funds. They have to own oil companies. So there’s a lot of misinformation out there, and people have agendas, and no matter what your agenda is, you can use it to kick BlackRock and Vanguard in the face with it, and it’ll never be good enough for you, and there’ll always be a problem.

[00:32:15] Eric Balchunas: I personally, in my book and in my notes, I advise them to just democratize it, like give people a chance to vote their own shares or answer a poll, and the poll will give a feel for where their minds are on important issues. That would go a long way to just silencing all the problems. That’s so 

[00:32:33] Rebecca Hotsko: interesting.

[00:32:34] Rebecca Hotsko: Another thing that I really want to get your thoughts on is the passive indexing bubble. So this is something that I’ve frequently heard over the years is indexing has become more popular and index funds are growing in terms of assets under management. One of the foundations of the so-called index fund bubble is the idea that index funds affect price discovery, so they affect the market’s ability to efficiently incorporate [00:33:00] information into prices.

[00:33:01] Rebecca Hotsko: I just wanted to dig into this argument with you today and get your thoughts on the idea that they might be affecting this price 

[00:33:09] Eric Balchunas: discovery. Like I said, an example I used in the book and one we studied was GE in 2019. I think it. It came out with the earnings that just was awful. They were in debt and had no revenue.

[00:33:21] Eric Balchunas: Something like that. Like clearly like bad fundamentals, stock goes down like 38% over the next year. Now we also show, we, we show that chart with the line going down with a bar chart of all the flows going into Pacif funds that own ge, so that it’s almost like the line is going down despite the pacif.

[00:33:39] Eric Balchunas: So the tail cannot wag the dog. The dog is wagging the tail or whatever. But again, I will say to. Would GE have gone down 40% if it weren’t for those flows? Probably. But maybe that’s a good thing. I mean, I always try to tell people like, do you really want stocks to go down like 80%? I would say you should appreciate the passive buyers because they’re in here with [00:34:00] a bid.

[00:34:00] Eric Balchunas: At least somebody has a bid this year because active mutual funds have seen 750 billion of outflows. Passive is about 400 billion of inflows. So there’s still a net outflow from like fund holders, but at least passive is coming in there and, and propping up the market a little. It could be worse. Plus that’s their right.

[00:34:17] Eric Balchunas: I mean, I, I have no problem with it. And again, what probably will be a side effect of this is that, you know, how Game Stop was able to be hijacked. I think as passive grows and more and owns more shares of companies, it’s possible stocks could be more volatile because there’s less actual active people using.

[00:34:38] Eric Balchunas: And that could be a, a byproduct that is real. So it’s not like there would be price discovery. They’re just be, might be price volatility because the shares that are owned by passive never move. So that leaves less shares, which means it could be more volatile because they’re just less people in the market trading it.

[00:34:52] Eric Balchunas: Right? So that’s probably something we’ll see is a little more price. Volatility on those sucks, but I would say that could actually be [00:35:00] perfect because people are looking for volatile things to add to their passive. So what I think is you’ll see managers give you their 20 best doc. Or they’ll try to navigate this increasing volatility and some will win, some will lose, and that’s how active Will will thrive.

[00:35:14] Eric Balchunas: But I again, even if passive were to be a hundred percent of all funds and ETFs, right, that they would still only own 40% of the stock market like households, individual people, households own 40% of the stock market institutions own like, I don’t know, seven, eight, 10% or something like that. Foreign investors own another 10 businesses own like.

[00:35:34] Eric Balchunas: The stock market has way more owners than just funds. Funds only own 40%. So even if it went a hundred percent, it’s still only 40%. So they definitely have an impact. I wouldn’t I, I don’t try to undermine this. I’m of the opinion that a lot of people over the last 15 years, what they said about passive, they really meant about the Fed.

[00:35:51] Eric Balchunas: The Fed has a power of the market. That’s probably really unnatural. And the Fed took away any sense of fear for the past 15 years because you just knew the [00:36:00] Fed would bail you out. You didn’t really sell or get nervous, and so I think the Fed killed a little bit of price discovery and volatility and bad news became good news, and good news became bad news.

[00:36:10] Eric Balchunas: Now we’re in the reverse where they’re trying to raise rates and now bad news is good news and vice versa. Once again, just on the, on the flip, So I, I think sometimes what people, what annoys them about the market in what you’re talking about is really a fed thing more than a passive thing. But I’m not going to say passive doesn’t have any effect.

[00:36:26] Eric Balchunas: It certainly does, but I ask people in my book how Big Passive could get, even if the households all went passive, and people are like, you know, 80% of the market could be passive and you still have people trading in and creating price discovery. 

[00:36:39] Rebecca Hotsko: That’s really interesting to hear you talk about that. I recently read a paper on this.

[00:36:44] Rebecca Hotsko: I was just trying to understand it better and something clicked with me in the book and I wanted to get your thoughts on it. It said that sometimes people confuse assets under management with trading, and so trading sets prices, assets under management don’t. And so [00:37:00] some people think that as passive ETFs are growing in the space that is affecting price.

[00:37:06] Rebecca Hotsko: But Vanguard did a paper on. It was a 2018 paper titled Setting the Record Straight, the Truths About Indexing. And they demonstrated that the vast majority of equity ETF trading, 94% on average is done in the secondary market, meaning ETF unit holders are buying and selling from each other without touching the underlying securities.

[00:37:28] Rebecca Hotsko: And so to me, that would suggest that it’s only when you’re touching the underlying securities through the authorized participant, which would actually affect the price discovery. Is that a correct way to think about that? 

[00:37:42] Eric Balchunas: Yes, but remember, ETFs have 6 trillion passive index. Mutual funds have like another 5 trillion, so passive is ETFs, but also index mutual funds.

[00:37:51] Eric Balchunas: But let’s take the 6 trillion in ETFs. You’re right. Of those 6 trillion in ETFs trade, $35 trillion a year. Of that 35 trillion, [00:38:00] I’d probably say only five to 7% of it is creation redemption activity, where they are messing with the. But the price of the et. But here’s the thing though. Let’s say if you’re a market maker and people are all demanding arc, right?

[00:38:13] Eric Balchunas: And ARC starts to, the price of ARC starts to go above what the value of the stocks are. We’ll call that a premium. The market maker is going to arbitrage that, and they’re going to need to go buy the stocks and then sell arc, and that will close that. If demand for ETFs will ultimately at some point push demand for the stocks in the correct way.

[00:38:32] Eric Balchunas: Cause if you demand arc, you’re kind of demanding her stocks, right? But if there’s enough natural sellers and buyers, that’s fine. You guys do your thing. And that’s, that’s, that’s good. I want to tell a quick anecdote here that I think will be of value to your listeners. Cause I’ve taught all these classes on ETFs and this story helps people lock into the concept of an ETF really well.

[00:38:50] Eric Balchunas: The guy who invented the ETF, Nate most worked at the American Stock Exchange in 1980. His job before that was at the Pacific Commodities Exchange, and there he saw [00:39:00] something called the commodities warehouses. In a commodity warehouse, if you have a bunch of soybean oil, you put it in a locker, right? And the warehouse gives you a receipt for the oil.

[00:39:10] Eric Balchunas: You can go trade the receipts. That way you’re not moving soybean around. It’s a pain of the butt, right? And let’s say you get a bunch of receipts, you then can go redeem all that soybean, which is secured in the locker. And that is exactly the model he used, except instead of soybean oil, it’s the S&P 500 stocks, or it’s a bunch of bonds, or it’s the AR stocks.

[00:39:30] Eric Balchunas: And instead of a warehouse, it’s called a custodian. That’s why the name of the first ETF is spider S&P 500 depository receipts. So an ETF is just a receipt, but it does link to the actual holdings. And as a market maker, if you see such a demand for receipts, you’re going to have to go to the locker. And buy those and, and to redeem some stocks.

[00:39:52] Eric Balchunas: So you sell in the open market and pocket the difference. And that concept also of the receipt being traded in for the actual underlying, [00:40:00] there’s no money exchanging hands. And that’s why ETFs are tax efficient. That commodity warehouse receipt model being applied to other asset classes was genius and it created all kinds of wonderful side effects.

[00:40:10] Eric Balchunas: But the reason it’s cool is because who cares if people want to trade the receipt back and. That’s probably pretty good. And so in times of crisis, especially on the bond side, I, I would argue ETFs have created liquidity where there might not be a lot because H Y G and JK and tlt, they trade a ton when the market is, is volatile.

[00:40:30] Eric Balchunas: But that takes some stress off the bonds. But certainly ETFs don’t avoid a downturn, but they will reflect it. But in every downturn, they trade a lot, and I think that’s good. If ETFs stopped trading in volatile times, that would worry. 

[00:40:45] Rebecca Hotsko: I feel like a lot of people don’t understand how ETFs work, how the creation of them and the trading of hands, so that was super helpful.

[00:40:53] Rebecca Hotsko: That analogy there. There is a couple other criticisms that I want to go over that [00:41:00] we’ve heard about ETFs from some famous people, Cathie Wood wrote on Twitter. Passive funds prevent many investors from enjoying the 400 fold appreciation in Tesla. She called it a misallocation of capital. There’s been that, I guess term thrown around about passive indexing.

[00:41:18] Rebecca Hotsko: I’m just wondering if you think that there’s any merit to calling it a misallocation of 

[00:41:23] Eric Balchunas: capital. I’m friendly with Cathie. I think she gets beat up a lot, I think in on social media and I don’t think that’s right. I think she’s been very clear what she does and I can’t say we support her, but we understand her and I, as I said before, she just fits this, fits the times and she fits the modern portfolio, but I’ve told.

[00:41:41] Eric Balchunas: You should actually join up with passive and you should, and you should just be like, of course passive’s good. That’s a great way to save for retirement. But passive may be late to some of the things that I see. And so why would you should use me to compliment passive. But Cathy, to her credit, is all in.

[00:41:56] Eric Balchunas: She literally thinks that, and that’s why she’s special and that’s [00:42:00] why she’s been so adamant about investing in these stocks, even as they get really like beat up and they’re, you know, down to 60, 70%. So her all in belief is just coming out. That said tactically, I think it would be better for her to, to say passive.

[00:42:14] Eric Balchunas: We are a great compliment to passive, because I sometimes, would you really want to put your kids’ college education in arc? No. I mean, no normal person would say that. I think she should acknowledge that and, and look at herself as a beautiful compliment to a boring vanguard fund. But so I disagree with her.

[00:42:30] Eric Balchunas: And this year especially shows that some of the boring mall stocks and energy stocks that were supposed to die are leading, and you would not have owned those if you only had arc. So passive just covers all your bases and it makes you not to think about this or worry about it too. So that would be my, my response to that.

[00:42:47] Eric Balchunas: But if you’re a high growth manager and you’re literally trying to live seven, eight years in the future, I can see why you would think that. I just don’t agree with it. 

[00:42:54] Rebecca Hotsko: That makes sense. It’s definitely a compliment and you can tell her passion when she says those [00:43:00] things, but it is a criticism that I’ve heard.

[00:43:02] Rebecca Hotsko: And then I guess on that similar point, I’ve heard a lot of criticisms with the market weighted cap. I mean, there’s also criticisms with price weighted indexes, but on market cap weighted, I’ve heard some people say how this year is the year for active investing. because we saw even over the past year how tech stocks that dominated the space for much of the past 10 years down significantly.

[00:43:27] Rebecca Hotsko: And now it’s the energy stocks that make up the smallest portion of the S&P 500. Are doing the best, but you don’t really reap many benefits from holding them in a market cap weighted 

[00:43:37] Eric Balchunas: index. Yeah, but at least you get them. I mean, they are there. What is energy? 3% maybe you said? Yeah, it’s like very 

[00:43:44] Rebecca Hotsko: small.

[00:43:45] Rebecca Hotsko: I 

[00:43:45] Eric Balchunas: don’t even know. Yeah, and tech is 25%. Well, again, what is passive investing in general? You’re just writing the coattails of active, which is why you have to acknowledge that too. You’re like a freeloader, active, determined tech stocks to be of value for 12 years. They bid the stocks up. That meant the market [00:44:00] cap got higher and so passive weighted it higher.

[00:44:02] Eric Balchunas: Now active because the Fed completely did a 180 has deemed energy, stocks and value to be of. Passive indexes will slowly follow suit there. I think you should look at passive as taking active’s best ideas and all of their brain power and trading, except without their fees. Sure. But what you’re describing is hindsight 2020 where, oh, okay.

[00:44:25] Eric Balchunas: So you were supposed to go into energy like Exactly. A year ago. Who knew that? And at the time it was a scary thing to do because a lot of people were saying, energy sucks were dead forever, because clean energy was going to take over and oil was gone. So to go into that trade, you would have to defy a major narrative.

[00:44:39] Eric Balchunas: And I mean, who knew? And so now it seems obvious. Now the question is, do you go into energy now? So like at any given time, it’s hard to know. You can’t know what’s going to happen in the future. And this resignation that you don’t know, I think is part of why passive is so popular. I think people through personal experience and through seeing professionals with like PhDs and a lot of [00:45:00] experience actually fail and underperform that they’re just like, screw it.

[00:45:05] Eric Balchunas: I’m just clocking out. I I don’t need to do this anymore. And where the cheap index fund, I think gives them the perfect tool to just check out. And so I would agree with you, they’re right. S&P was light on energy. That’s only because active investors love tech stocks for 15 years, and so they got a higher.

[00:45:23] Rebecca Hotsko: That’s so true, and I think it’s to our, your point earlier where you have your boring portfolio, where you don’t touch, that is maybe the majority of your portfolio, but then you can have a smaller portion where you’re making more active bets and everything is obvious in h. Site, but I mean, you have that little portion that you could overweight some energy right now or go more tactical with things.

[00:45:46] Rebecca Hotsko: But the total stock market will always be that. I like how you said it’s kind of freeloading because it is, you’re not paying barely anything to reap the benefits of market returns. 

[00:45:57] Eric Balchunas: I think people just forget that [00:46:00] active is driving the car, right? So if active likes energy stocks energy’s going to go up and that’s going to make the market cap of energy stocks go up relative to.

[00:46:08] Eric Balchunas: So tech will start to decrease the weight in the S&P and energy will go up. So if we continue to have an energy rally and oil just becomes, remains hot and the price of oil goes up and maintains a high price for a long time, energy could be 10% of the portfolio, it’s passives really just going to follow the lead of, of active and be a chameleon of sorts.

[00:46:28] Rebecca Hotsko: And then I think I just want to end things today by hearing you speak on any major trends you’re seeing in the ETF space that you think would be interesting for our listeners to 

[00:46:37] Eric Balchunas: know about. I guess I would say one of the things that is interesting this year is just how resilient ETF flows have been and launches despite the markets having pretty much their worst run ever.

[00:46:49] Eric Balchunas: Right. In the first half, especially we are watching this. We’re watching this because if you could take in money in this kind of environment, That’s really a good sign that, that you, this is easy at taking money into bull market, right? If you’re take it [00:47:00] into bear market, that’s when the next leaders are made.

[00:47:02] Eric Balchunas: Right? And so good, looks good for ETFs, looks good for Vanguard. The other thing that we are always watching is ESG. I know we touch on this, but we’re sort of bearish ESG ETFs that look to take over your core. We just think that trying to dislodge the S&P 500 with something that’s like, I don’t. More expensive and makes little active vets based on like ESG metrics is ultimately too tough.

[00:47:24] Eric Balchunas: You can’t do it, it’s just tough to dislodge a three basis point. Index fund. On the flip, we are bullish on ESG that like is volatile, like tan is just solar stocks. So we think maybe ESG as a future as a compliment. There’s one other company that just invest in companies changing the world for the better and there’s like 30 of ’em.

[00:47:42] Eric Balchunas: So that way it’s very easy. It can compliment your, your vanguard. You can stay hang in there a long. That’s another issue we’ve been watching. So we’ve been early in being outspoken on our skepticism of ESG and I think this year with oil up, ESG funds generally are lagging and it’s shown people that ESG, after you [00:48:00] distill all the pleasant sounding, save the world language is just another act of strategy.

[00:48:04] Eric Balchunas: Yeah, I’m glad you 

[00:48:05] Rebecca Hotsko: touched on that one, because that’s been a hot topic for a while. But now that we’re in an energy crisis, we went back to our old ways and now energy is the most important thing. I am curious quickly on that first point you made about the inflows and outflows. Do you, can you paint a little color on that?

[00:48:22] Rebecca Hotsko: So are they almost as, are ETF inflows and outflows doing as well as they were prior to the crisis or 

[00:48:28] Eric Balchunas: better? Yes. Last year ETF took in 750 billion. That crushed the record. This year they’re at 480 billion, but they’re on pace and I’m, they’re almost, I can almost say it’s definite, they will have their second best year ever this year with probably about 560, 70 billion.

[00:48:48] Eric Balchunas: Not as much as last year, but remember last year was big year in the market. What was the market up like 20%. So to be the second best year ever. And that stock market have like one of its top five worst years ever. And the bond market to [00:49:00] have its worst year ever is astonish. So you have to weigh in the markets.

[00:49:05] Eric Balchunas: And so I, I wrote a note saying, I, I think this might be ETF’s and most impressive here because again, to pull off 500, 600 billion in inflows when it’s like rain, sleet, and snowing outside is incredible. Again, we have said, or one of our big mantras or thesises on the team is bull markets are good for ets, but bear markets.

[00:49:26] Eric Balchunas: And it’s in these bear markets where they also increase their market share because all there is is flows. There is no more asset appreciation assets. ETFs typically eat up 1% market share on mutual funds a year. Now they’re eating up over 2% on an annualized basis, so their, their rate of market share increase has doubled.

[00:49:44] Eric Balchunas: Same as Vanguard. These bear markets, even though the absolute flows might be less for Vanguard ETFS&Passive, those three things relative have doubled their market share growth. Over if this lasts over the next five years, we we’re going to see a major [00:50:00] fundamental shift in the asset management world.

[00:50:01] Eric Balchunas: And I think ultimately the result of it will be a lot of consolidation. I think like the airlines, there’ll be like three or four big giant carriers that service all your beta core needs. Like 80% of your portfolio will be served by BlackRock Vanguard, or like a consortium of like 10 companies that merge over the next 10.

[00:50:16] Eric Balchunas: And then there’ll be niche providers like Hawaiian Air, right, or the Disney Airline or whatever, that just do special things. And that’s where the 15 20% of ETS will live. But that’s where you’re going to see a lot of that launches. And so that’s how I think this is all going to evolve. The bear market will speed up all of this.

[00:50:35] Eric Balchunas: If the market turns around and becomes a bull market, it will slow it down a little bit because obviously there’s less urgency to merge or do something if you’re an asset manager. And you are seeing assets go up or at least offset the outflows, which has been happening for the past 10 years. So a lot of this active passive shift has been completely hidden because the market’s gone up and like covered everything up.

[00:50:54] Eric Balchunas: So it’s almost been like a house that looks the same in the front, but the termites have eaten out the inside bear market, [00:51:00] the house going to fall. So I think we’re going to see a lot of big, even legacy brand name asset managers team. Try to go, maybe bigger assets, you could lower the fees a little bit and they’ll, and there’ll be just massive consolidation.

[00:51:14] Eric Balchunas: I know that’s not a huge interest to maybe, you know, a millennial investor, but it’s certainly a byproduct that we’re watching and that our, our clients care about for sure. 

[00:51:22] Rebecca Hotsko: Yeah, it’s just a shift in the times and it’s really cool to be involved and be interested in this space during this time because it does impact retail investors in the number of products, the quality of products that we eventually will have access to.

[00:51:37] Rebecca Hotsko: So thank you so much, Eric, for coming back on today. I learned so much from today’s conversation. That was so great. 

[00:51:45] Eric Balchunas: It was my pleasure. Thank you for having me, and I appreciate the the second appearance. I feel honored. 

[00:51:50] Rebecca Hotsko: All right. I hope you enjoy today’s episode. Make sure to subscribe to the show on your favorite podcast app so that you never miss a new episode.

[00:51:59] Rebecca Hotsko: And if you’ve [00:52:00] been enjoying the podcast, I’d really appreciate it if you left us a rating or review. This really helps support us and it’s the best way to help new people discover the show. And if you haven’t already, be sure to check out our website, theinvestorspodcast.com. There’s a ton of useful educational resources on there, as well as our TIP Finance tool, which is a great tool to help you manage your own stock portfolio.

[00:52:25] Rebecca Hotsko: And with that, I will see you again next time. 

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