taylor: i'm taylor riggs, in for scarlet fu. this is "etf iq," where we focus on the access, risks, and rewards offered by exchange traded funds. ♪ taylor: the sec cracking down on the names of thematic etf's, one of the fastest growing areas in the industry, covering everything from 5g networks to electric cars and video games. plus, hedge funds like bridgewater are increasing their usage of etf's. we speak to one manager who uses them heavily. and if you smoke them, you've got them. we drill down into an etf that

looks to strike the perfect combination of alcohol, tobacco, and cannabis companies. whether you embrace or fear etf's, there's no getting around their influence. to get us started on the themes of the week, let's bring in bloomberg intelligence etf analyst eric balchunas. you have a snapshot of the flows this week. what are we looking at? eric: thank you, taylor. we look at the one-week flows. we are just struck by the number one here, tlt. look at the amount that has gone into tlt, $2.1 billion. i won't really go into the rest this week. let's really hone in on this. that is a lot. tlt is interesting. one of the rare etf's where the flows can be bullish or bearish. so which are they? i think part of solving the puzzle is looking at long dated bond etf's in general to see if this is a one-off or part of a bigger move into these etf's. you can see long-term etf's have taken in $5.6 billion, an 18% jump. we have a dozen of them taking in cash. there is some breadth and depth

here to this. tlt, the biggest week on record. if the month ended today, it would be tied for the biggest month ever. a lot going in there. really, we need to look at this in context to other maturities. the short end of the curve, the intermediate, and long-term. let's see how those flows are mixed between last year and this year. it is very clear. a unique chart, but hear me out here. you can see in 2018, the percentage of fixed income etf's were going to alter short and short. ort and short. this year, completely different. this is all because of the fed. people going out further on the curve looking for yield. taylor, why tlt could be used as a crisis hedge, in this case, more of a bullish signal that rates will remain flat or go lower. taylor: i'm calling that your spiderweb chart, but i like it. thank you. i want to bring in the chief investment officer to soro investments, and bloomberg's

rachel evans as well. michael, let me kick it off with you. tlt could be a fed play, extending duration. are you using that in your strategy? are you buying the fed is dovish for longer? michael: we have used tlt and things like that in the past. we look at the world of etf's as really solving for specific problems. tlt is a duration play. it's about solving for deflation. it's not about just getting long-term treasuries. i think this particular flow is somebody levering up. i doubt that it is somebody taking down risk. eric: you said something interesting earlier, which is you thought the u.s. had returned enough, you were good for the year. you are going to emerging markets. you are picking emfm. the emerging markets plus frontier. why em and why that etf? michael: number one, the valuations support it. there is a ridiculous home country bias where most

americans are investing 70%, 80% of their equities into u.s. stocks. whereas they are twice the valuations of emerging markets. for us, we like to build a combination. so we use goldman's gem to get specific exposure, and i love this etf because it is very different. it is the emerging-market countries that are not the bricks. it is asian countries -- malaysia, indonesia, as well as the true frontier countries. it is 12% overlap to eem. that is something that is real active share. taylor: as we talk about emerging markets, is that a play on those growth profiles of those specific companies, or is it a regroup from china and the trickle effect into other frontier countries as you mentioned? michael: to hone in on the exposure, we start with a broad-based gem. we get our china from the emqq. i want the consumer, i want the internet. the rest of it is a play on the

growth there. taylor: rachel, an interesting story that you had this week about the sec and the actual names within that specific etf. there has been some controversy around it. walk us through that controversy this week. rachel: we have been looking at thematic funds the last year, we have seen huge growth in assets and the number of the funds out there. they usually come with a catchy name. they might be looking at robotics or electric cars. one thing we were curious about is how the sec had been viewing this, given that has a mandate to ensure that names represent with the etf does and does not mislead investors. we did a bit of digging into what the sec has been saying in response to these proposals and found that a third of thematic etf's that came out last year had their name changed from when they were originally filed and when they came out. stuff like 5g was disallowed, stuff like veterans was disallowed.

the sec is taking a closer look at some of these popular thematics to make sure the underlying does match up with the name of the fund. eric: to this point, we have a thematic capture score that looks at how pure the theme is being captured. you work with the issuer, the blockchain etf. this is one where the thematic capture is like -- not a lot of blockchain in those stocks. talk about what you think of this as an issuer. michael: as somebody who helps issuers, i think it is awesome that we have regulators that protect the public. they make us say what we will do. the best way to handle this with the regulators is to have a set of rules and explain how you'll get there. the initial rules are 80% this sector. if it is not really a sector but something new, you have to say 50% in these four or five things. if you set the rules, you'll have no problem with the naming. that is good for investors, good for issuers.

taylor: we talk about regulation, so we also bring in no fees. we went from low fees to no fees. something that you've been looking at, launching the first no-fee etf. how do you make money if you are doing no fees? rachel: it's an enormous challenge, something that issuers are having to grapple with as we get into this toward zero and below zero world. the issue is often with these the medi thematic products which can charge more. if you are going to cut fees to zero on your broad index products, you need thematic products offering differentiated exposure in order to make up the revenue shortfall. eric: there was some controversy with sfy, got to $40 million right off the bat. can you talk about that a little bit? rachel: there was a news article last week that looked at the tax implications of a trade basically by sofi, the issuer of these no-fee etf's, moving some of their investors out of products and into their own etf's. the problem comes when you have

any shift in etf, you potentially have taxable gains that come up from selling them. some customers were perhaps a little cut back by that, have been complaining to the press. eric: mike, you are the white label issuer of sfy. talk about this byoa, bring your own assets. you are moving investors into your own fund but it is not the same fund, there are capital gains. can you talk about this and what the growth potential is beyond for investors? michael: we have a company called title etf services where we help issuers not only launch an etf but build a road map to grow. sofi has been a partner there with the first two. we are launching next month to -- two more with them, one of which i'm excited about because it is in the thematic space. it is all filed, so i can say a little bit. it is about the gig economy. we had it going through those naming and rule conventions, like you guys described. another one that was like that,

somewhat of a bring your own assets, aware asset management. the asset management arm of blue cross blue shield in minnesota. they saw the etf structure as a better way to manage money for their insurance company. it's an insurance company managing money in an etf wrapper for insurance companies. what we are seeing now is what i call the book that eric wrote three or four years ago about the institutional investors coming. they are coming to us every day saying how can i use this etf wrapper to make things better for my existing clients? that is what we do all day. help them through that. taylor: some good calls on emerging markets and the frontiers as well. thank you. that was michael venuto, and bloomberg's rachel evans. coming up, i speak with the founder of bodhi tree asset management, as more and more hedge funds are using etf's. he tells us how he utilizes them. and one etf that caught our attention this week, the spider s&p oil and gas exploration and production etf. or xop.

the trump administration's sanctionso end waivers for iranian crude buyers made investors rush into the fund. earlier this week, it posted its second largest inflow of the year. as a reminder, you can catch all of our charts on the bloomberg at gtv. this is "etf iq." ♪

taylor: i'm taylor riggs. this is bloomberg "etf iq." let's get to the etf lifecycle, where we run through the three main stages of etf's. step one is the filing. principal for a suite of three multifactor etf's focusing on international, large-cap, and small to mid-cap, using a combination of value, quality, and growth characteristics to select their investment. step two is the launch. the ishares self driving ev tech

etf is the fourth on u.s. exchanges with a similar theme. the investment companies that produce technologies related to autonomous and/or electric vehicles. for some, the final stage is liquidation. a great ticker gone too soon. the generic drug etf, gnrx, launched in 2016, but its assets never surpassed $7 million. time now to get too passive -- to get to passive aggressive, where we track the shots fired between the battle of active and passive investors. while hedge funds compete with etf's, some are actually starting to use them more and more. one of them, bodhi tree asset management. joining us from miami is shalin madan, founder of the firm. great to have you. it is so interesting. hedge funds really are using etf's more and more. explain your strategy. why do you like using them? shalin: my background was one as

an allocator in the past, so i used to invest in hedge funds. what i found was as time went on, with the increasing sophistication of etf's, one could replicate what many hedge funds were doing within the etf space by unique combinations of etf's, and avoid the 2/20 fees attached to typical hedge fund investing. taylor: besides the typical fee, what else is it? we talk about firms like bridgewater who were using these. is it increased liquidity, a better way to short the market? what does the etf actually provide? shalin: a lot of things. all of the above, frankly. what about things i most like about etf's is the fact that, generally speaking, what the etf is supposed to do is pretty well laid out in the documentation. if you have a quantitative approach, like bodhi tree, we run a quantitative etf and futures fund. we try to understand what is driving the etf and trade that

etf the other passive or smart product that it does best in. taylor: when we talk about the overall driver of the economy, it has been a lot about the fed, central banks globally turning dovish. how have some of the more recent dovishness affected your change in strategy from 2018 to 2019? shalin: we had a pretty good 2018 and fourth quarter, generally speaking. our models moved into the fixed income space. we used tlt to gain that exposure, like others. early in the fourth quarter. we also had selective shorts in the cyclical space. according to our work, the economy probably peaked -- the global economy probably peaked sometime in 2018. that was a good trade for us. as you know, tlt had a pretty good month, pretty good quarter in the fourth quarter. what was very interesting was how 2018 versus 2019, of course, is the rapid move in risk on

investments in the first quarter. one way that we transitioned our portfolio out of a much more defensive posture into a more moderate and aggressive posture was buying credit-related etf's such as lqd, and the bank loan etf. taylor: we talk about shifting from defensive to neutral or perhaps even more aggressive, some of that is increasing some short positions. typically in a hedge fund, you talk about 80 long, 20 short position. but then the -- within the etf's, $58 billion in long, but $125 billion in short. which is a typical industry where we are looking at. are you utilizing that? how much more short positions are you adding on here? shalin: we are absolutely using etf's from a short perspective. we run a macro-driven approach to our investing. one of the things that is a little unique about the rally

this year, say versus 2016, or 2009, is that the macro economic backdrop has not necessarily improved to the extent the markets have improved. we find shorting etf's such as the msci world etf as a good way of providing all-weather, all-season returns to investors, while we maintain a long position in the etf's we like. taylor: shorting the all-weather, all-season. i really like that. thank you, shalin madan, founder of bodhi tree asset management. coming up, we dig into one of the funds looking to profit from people's vices. that is the advisors shares etf. this is bloomberg. ♪

taylor: i'm taylor riggs. welcome to bloomberg "etf iq." for every etf that offers exposure to an asset class, sector, country, or style, it is not long before others offer the same. the global cohead of passive asset management and global cohead of product at dws group. this week, we look at their little-known infrastructure bond etf that is beating some of the big guys. before we talk to her, i want to bring in eric balchunas. give us a drilldown. i am a muni girl, you pick the

perfect timing. eric: this is the municipal infrastructure revenue bond fund. it is $63 million, decent size for something so specific. it's cheap at 15 basis points. essentially, this is different from your average muni fund. this goes after the revenue of infrastructure projects as opposed to general obligation muni bonds which are backed by the taxing power of those municipalities. that is a benefit to some people. let's look at the holdings. you will see a lot of new york, texas. new jersey turnpike, a road i know well. you've got airports, port authority. this is again tied to revenue of these areas. let's also look at the comparison of rvnu versus munb. which is the big dog in the muni category. this will have a mix of revenue and general obligation. rvnu has a longer duration. that is part of the reason it has got a better performance and

a higher yield. it is way smaller and pretty cheap. 15 versus seven. this is a unique play, if you are worried about the taxation of these cities and states, this is one that could appeal to those investors. taylor: that was eric balchunas. still with me is fiona bassett from the dws group. you heard it their first -- you heard it there first from eric, the revenue bond, the turnpikes, toll authorities. not to get too nerdy, what do you like about revenue bonds? is it classic higher yields, or the dedicated revenue stream that you can depend on? fiona: we looked to the revenue bond market, felt there was an opportunity to bring a better muni etf to the market than existed. we have rvnu, the only etf dedicated to revenue bonds. which represents about 65% of the market. when we looked at revenue bonds, we felt there were two characteristics. because they typically tend to

have longer maturity, they hit a sweet spot from a duration perspective in terms of the risk premium to pick up. this was one component. the second component is because they financed and backed from infrastructure and other projects. but the credit profile is perhaps less exposed to some of the challenges in the g.o. space, particularly with the underfunded pension space. this has been borne out by the performance. revenue bonds have outperformed g.o. bonds. rvnu is one of the best-performing fixed income etf's in the market. taylor: i just had an interesting illinois pension conversation with fitch ratings, so i know what you mean talking about avoiding those g.o. problems and sticking with a revenue bond. eric: we are going to leave muni land and go to esg land. you guys made a big splash with ussg. you opened with $850 million, already the third biggest right off the bat. this is because of an institution that you lined up. talk about what happened here.

fiona: we are hugely committed to the esg space. obviously being a european player by domicile, europe has been one of the areas leading the esg trend. for us to have the opportunity to work with the largest finnish pension fund, focused on esg's themselves, a natural marriage and partnership. we are building out a suite of core products that are really offered best in class exposures to esg across the fixed income and equity spectrum. we worked with them to bring this to market. it was really great to see the largest equity etf launch in history is esg. taylor: talk to me about cn. we had a conversation earlier this hour about the bullish outlook on china and emerging markets. what do you like about this? fiona: what i love about cn, the structural story on china is very strong. we see the potential of 6% gdp growth, second-largest economy.

you cannot afford to ignore it. we think a lot of the stuff with fiscal stimulus and targeted approach leads to smarter and sustainable growth. cn gives you the opportunity to play this across china in a single product. taylor: perfect, i love that. thank you. that was fiona bassett from the dws group. the etf industry has something for everyone. in this week's there is an etf for that, we highlight an etf that banks on people maintaining their vices in good times and bad. ♪ >> the advisor share etf trades under the ticker act, providing concentrated exposure to select alcohol, cannabis, and tobacco companies. the fund is actively managed, which means the team behind act is tracking a balance of alcohol and tobacco names often through dividends, mixed in with the high growth potential of cannabis. all act holdings must get at least half of their revenue from

the three businesses. this is a u.s.-centric fund with more than two thirds of its 35 holdings based in the country. top names include thermo fisher scientific which offers cannabis testing, darden restaurants, turning point brands, british american tobacco, and boston beer. as such, investors get exposure to beverages, agriculture, retail and health care. in other words, the consumer staples, health care and consumer discretionary sectors. only legal activities are allowed in the fund. act has drawn in $50 million in assets since its inception in late 2017. its returns trail the s&p 500 but this year has outperformed the broader market. act has an expense ratio of 75 basis points. it gets a green light in the bloomberg intelligence traffic light system with a warning for being an actively managed fund. taylor: that does it for "etf iq." make sure to watch us every wednesday at 1:00 p.m. new york, 6:00 p.m. in london. this is bloomberg. ♪

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alix: president trump takes a hard line on iran and issues no waivers, testing key relationships with allies and puts the ball in saudi's court. occidental increases their bid for anadarko, entering a battle with chevron. investors place their bets. tesla and panasonic. elon musk is in a twitter battle with the battery supplier, saying they are responsible for the constrained reduction of the model three. ♪ alix: i'm alix steel. welcome to bloomberg "commodities edge," 30 minutes focused on the companies, physical assets, a t