It's a bull market and nobody drinks anymore. | TCAF 255

ETF Launch Frenzy [0:00]

• The year 2026 is being called "ETF of Palooza" due to an unprecedented number of new ETF launches.
• Over 900 new ETFs have been launched year-to-date, with projections to surpass last year's 1,100.
• The cost of launching and maintaining ETFs has decreased significantly, contributing to this boom.

  "It is the biggest launch year by ticker. It's got to be up there. 900 funds year to date. 900 new ETFs?"

The "Napster" of ETFs [1:15]

• The ease of launching ETFs is compared to the "Napster" era, where anyone could create and distribute content.
• Issuers are creating ETFs for niche interests and specific investor needs.
• The low cost of maintaining underperforming funds also contributes to the high number of launches.

  "ETFs have turned into Napster or just like, hey, come to my shed where I have a recording studio and we'll lay down the tracks and do it for you."

Sports Franchise Valuations [3:40]

• Discussion shifts to the valuation of sports franchises, specifically the Lakers, reportedly valued at $12.5 billion.
• The market cap and enterprise value of Madison Square Garden Sports (MSGS) are analyzed in relation to the Lakers' valuation.
• The potential for MSGS stock to be significantly higher is discussed, considering the building and the Rangers are also involved.

  "If the Lakers are worth $12.4 billion, what should this stock be trading at? Way higher."

ETF Industry Trends and New Issuers [13:30]

• The launch of new ETF issuers, such as Corgi, backed by Y Combinator, is highlighted.
• Corgi aims to lower fees on levered and thematic ETFs, copying popular funds at half the cost.
• This strategy is likened to the "Hollywood box office approach," where a few hits can cover the cost of many flops.

  "They are going to launch everything under the sun, and they are just going to try and scale it up."

Thematic ETF Landscape [17:00]

• Thematic ETFs are a significant part of the new launches, with issuers creating funds for popular themes like memory and photonics.
• Roundhill's Photonics ETF is discussed, noting its rapid rise in volume despite the niche nature of the theme.
• The potential for thematic ETFs to become 10 basis point products by the end of the decade is suggested.

  "The ones that are coming along, I'm not saying they're all good, but there are some really great ideas coming out."

ETF Market Competition and Brands [22:00]

• The ETF market is described as a "knife fight" due to the intense competition.
• Brand loyalty is becoming crucial for ETF issuers, with companies like VanEck and Pacer leveraging their established reputations and sales forces.
• Financial advisors' reliance on recognizable brands for client trust is discussed.

  "If you can build a great product at a cheaper price, they will come to you."

Emerging ETF Categories [32:00]

• New ETF categories are emerging, including buffer ETFs and option income ETFs, which have seen significant acquisitions by Goldman Sachs.
• These products cater to investors seeking yield and downside protection, particularly those with aging demographics.
• The growth of these categories is seen as a strategic move by Goldman Sachs to lean into wealth management.

  "They acquired a buffered ETF shop, Innovator, which for the, for the uninitiated, it protects you on the downside over the course of the next 12 months."

Ecosystem ETFs and Market Fatigue [40:00]

• ETFs tracking specific "ecosystems," such as SpaceX or AI, are being launched, aiming to capture companies linked to these themes.
• Concerns are raised about potential overlap and whether retail investors will maintain interest in these niche products.
• The historical trend of investor fatigue with specific investment themes is noted, drawing parallels to past tech booms.

  "I think this is a great idea. It's interesting. The largest one... I looked at the holdings. The largest in the open AI ETF is SoftBank."

Leveraged ETF Market Dynamics [46:00]

• The demand for leveraged ETFs remains strong, despite regulatory actions in some markets like Korea to curb their proliferation.
• The AUM in levered long products reached a new high watermark, indicating continued investor appetite for amplified returns.
• The potential for a return to high levels of exposure in the levered space is discussed.

  "The demand for leverage, as much as July was a reprieve or a spite, whatever you want to call it, is coming right back."

Retail Cash and Market Health [52:00]

• A significant amount of retail money remains in money market funds, totaling $3 trillion, a doubling since before the pandemic.
• This cash is expected to remain put unless interest rates fall significantly or a major market correction occurs.
• The current stock market health is described as "very healthy," with energy leading the way.

  "So, for people listening, this is $3 trillion in total retail money market funds. And for retail."

Sector Performance and Evolution [57:00]

• Energy is leading the market due to its anti-beta to the S&P 500, acting as a hedge when bonds are not.
• Healthcare, despite past outflows, is starting to show signs of a comeback, with contrarian investors taking notice.
• The diversity within sectors like healthcare and industrials is leading to a rise in sub-sector and thematic ETFs.

  "Healthcare has been the bane of my existence. For the last year and a half, two years, the case has been the same thing for healthcare."

Consumer Spending and Sector Weightings [1:05:00]

• The weight of consumer discretionary and staples in the S&P 500 is decreasing, primarily due to the faster growth of tech companies like Google and NVIDIA.
• The traditional sector classifications are becoming less applicable in the current market.
• The concept of "ecosystem" ETFs is questioned regarding their long-term appeal compared to broader tech ETFs.

  "The consumer is such an important part of our economy. And yet, both discretionary and staples weight in the S&P is evaporating."

Small Caps and Crypto ETF Outflows [1:10:00]

• There is a sense of reluctance among investors to fully re-engage with small-cap stocks after a period of disinterest.
• Money is leaving crypto ETFs, with investors seemingly shifting their focus to AI stocks.
• The proliferation of highly speculative crypto ETF products, like 2X Dogecoin, is noted.

  "Money's leaving crypto ETFs. Interestingly. It's leaving."

International ETFs and Commodity Products [1:15:00]

• International ETFs are not generating much interest from retail investors, with exceptions like Korea and Japan showing some strength.
• Commodity ETFs have historically struggled due to futures roll issues and tax complexities, though actively managed versions are seeing success.
• Gold's success as a commodity ETF is attributed to its storability, unlike other commodities like copper or oil.

  "Why did nobody figure this out? So you have this. I tried to."

The Rise of Compute ETFs [1:20:00]

• "Compute" is emerging as a new asset class, with multiple ETFs expected to launch tracking its price.
• The recent roundtable discussion involving CEOs of major tech companies and financial institutions highlighted the significance of compute.
• The challenge for these ETFs will be distribution and differentiation in a potentially crowded market.

  "There's a shortage of it. How do I do compute?"

Outlook for Thematic Funds and Market Dynamics [1:27:00]

• The outlook suggests that many thematic funds may struggle due to market saturation and a lack of sufficient assets.
• The bull market for stocks is expected to continue, but investor fatigue with certain themes is a possibility.
• Unlike IPOs, failed ETFs generally do not cause significant financial harm to investors as long as they accurately track their underlying assets.

  "I would not be surprised if we start reading about how some of these thematic funds are kind of falling on their face."