fu. am scarlet this is bloomberg etf iq. where we look into the risks and rewards of exchange traded funds. a barrier for bitcoin, the fcc holds off again on approving a bitcoin etf after the cryptocurrency climbs. in the line of fire, chinese internet companies become market proxies even though the tariffs do not touch them. we drill down into kweb. back in play, india's economy shows signs of recovery as results from the general election roll in. is it time to bet on the indian consumer?

whether you embrace or reject etf's, there is no getting around their influence. we pay attention, because they often serves as indicators and shifts in sentiment. eric: what i have seen in the past week is surprising. trade war tensions, you are hearing these multinational u.s. companies could be affected by the trade tensions of china, but the flows tell a different story, partially. look at the flows in the past week, a lot of large-cap tech, semiconductors are all seeing major inflows. you have some low volume products in here, and some small caps, more domestic. i find the large-cap in the tech interesting. the outflows is where the story gets acute. if you look at which etfs are seeing outflows, it is emerging markets and china. there are four china etf's on the outflow list this week. you rarely seen that many on one.

let us look at chinese etf's to see how this is stacking up. we have seen about 12 outflows. if you look at the whole month, you are looking at one billion out. you can see how unusual that is. the consensus is that this is bad for the u.s. but etf traders are betting that it will be better for the u.s. and worse for china. at least that is what the flows are showing. scarlet: the story does not end today or this week. let us bring in nate, the president of -- advisor and caroline. we said that this does not end today or this week. you were on a year ago in the topic was trade wars. we have the white house targeting multiple chinese technology firms and disruptions to the global supply chain and a fourth of tariffs coming. how does this affect your view? nate: i was sitting here a year ago, and if you think about all of the president trump tweets

that we have seen, all of the headlines and bluster, and what has happened? the s&p 500 is up 7% or 8%. i think that for longer-term investors, i said it last year -- you have to really ignore the headlines and take them with a grain of salt. there are a lot of other drivers. i believe that the fed is a bigger driver, and that does not mean do not stay educated. i think, if you are making allocation decisions based on trump tweets or headlines, i think you are doing it wrong. scarlet: nate is not trading on the trade headlines, but plenty of people are. especially if you look at tech. they are on the front lines. they are leading the selloff and rebounds. how did the flows compare when it comes to tech versus industrials, which are also vulnerable. carolina: trade headlines are dominating pockets of trading,

tech stocks and funds that are carrying the stocks are in the crosshairs. we are seeing some pain with industrials. that sector has an outside exposure to china for more specific metrics. the s&p industrials index is the third worst performing trailing technology, and etf investors are trading on that and moving money to follow that narrative. the biggest fund in the space has seen big outflows up to $1 billion. eric: speaking of sectors, you said that you like schh etf. you said it was a two-for. nate: rates were bludgeoned in 2018 due to concerns about the fed increasing rates. since that time, they become more dovish, so you had investors looking for yield. if you look at u.s. rates, they are more oriented.

you have some more protection and higher-yielding. i think rates are an interesting play. scarlet: what about bitcoin? there is news about the fcc punting on whether to approve a bitcoin etf. there was a hope that this might be different. why? carolina: some people are not surprised with the delay, and other investors are disappointed that they are waiting to get the sec green light. what is different is that we have seen big names and players support this. fidelity and e*trade are thinking about bringing bitcoin trading to their platforms which shows the support of some of these retail oriented giants. the sec continues to express concerns, concerns with underlying liquidity, volatility, and custody concerns. i am not sure they will go away. nate: i think they are stringing along the bitcoin faithful with

false hope. let us say that they ultimately approve the etf. you have actual investors that you are advising, would you put them in a bitcoin yield? nate: when we talk to younger clients we have a core gold allocation, and they will ask about that and say, what about crypto? if you talk to primarily millennials and ask them which they prefer, bitcoin or gold, it is a landslide. 90% prefer bitcoin. right now we have something called the grayscale of that coin trust. this has $1.5 billionin assets and trades at 30%. an etf would resolve that problem, and it is a bit incongruent that we have that product where investors could get hurt if they do not understand the premium we do not have the bitcoin etf.

ultimately, it has to make sense, the demand is there. for certain investors, i think it can make sense. scarlet: the sec did not make a decision on that, but it did make a decision on a nontransparent wrapper. there seem to be demand for this product. carolina: we saw an issuer filing for regulatory approval to use the model. others are using the methodology. the buzz is that we will continue to see issuers going to the party. i guess that is only the perspective from the issuer side. eric: one thing missing from the story is the demand from the investor. i get why asset managers wanted. you cannot get assets into transparent etf's. you are advising clients and you are not a big fan of active mutual funds. would you move money into a parent etf? nate: i would never say never.

the move has been towards transparency. to me, this is taking a few steps back. if you look under the hood you have things like blind trust. we have a transparent etf vehicle that we have seen active managers utilize effectively in some of the larger mutual fund companies that have flagship strategies and launch those in a wrapper, i think it would have success. i think the presidium model will solve asset managers' problems but not investors. scarlet: it has appeal in one direction. thank you so much. coming up, jeff cowrites the finger investors news the other. -- cowrites the vanguard investors newsletter. why he says investors need to be vigilant when it comes to the king of passive investing. one etf that caught our

attention is the rare-earth strategic metals etf. trading volumes surged this week after the chinese president's visit to a rare earth facility. fueled speculation that beijing would weaponize the materials in retaliation for the u.s. targeting tech firms. you can find this chart and other charts on the bloomberg. this is "etf iq." ♪

scarlet: i am scarlet fu, this is "etf iq." it is time for the etf lifecycle where we take you through the three main stages. we begin with the filing. blackrock submitting paperwork. this is in response to the cbca, the largest canada etf after undercutting the original canada etf.

step two is the launch, life and liberty and taxes partners with the freedom 100 etf. frdm will wait using a methodology. for some the final stage is liquidation. g street is closing xina, one of the most comprehensive asia etf because it included small and microcap stocks. after 2.5 years on the market, assets never topped $5 million. that is tracked the tensions between active and passive investing. vanguard is the king, choosing among its funds requires an active mindset. enter jeff, the research investor. you are also director of research for in visor investments. it is great to see you. beyond an active mindset you find value in vanguard. you serve as a watchdog on vanguard.

your newsletter essentially serves as a newsletter. why is there a -- for newsletter -- your newsletter essentially serves as a watchdog on vanguard. are people complaining? jeff: not really. maybe some of the service issues with that we have seen, but we feel like vanguard, they have done a lot of good for the industry. i think eric estimated that the effect saved estimators $1 trillion. we can applaud those successes, and vanguard often gets a free pass, but we think that it behooves us to call up places where they can do better. if we can improve, and others need to improve on them. scarlet: it is better to be a partner than an investor. this has to do with the employee profit sharing program which is beating the s&p 500. aren't employees investing in index funds as well? jeff: i am sure some of the employees are. we are looking at the distribution of the partnership plan. a lot of people do not know that vanguard has a profit sharing program.

it started in 1984 as a way to reward all of the shareholders and employees at vanguard. it is largely based off of the difference in cost between their fund and the industry average. vanguard has talked about being a mutual mutual fund company, providing services at cost with no profit motive. this past year they finally shipped that out and said we have a different structure than other companies and that may align our incentives better. we were comparing it to how is it to be a partner and an investor? the distribution has increased 72 fold compare that to an investment of the 500 index, about 33 fold. scarlet: we cannot talk about vanguard without fees. you say vanguard can do better. for every $3 trillion in assets, hedge funds take in about $54 billion.

active mutual funds, $22 billion. etf's, $7 billion. vanguard, less than $4 billion. why target vanguard as saying they can do better? jeff: vanguard is doing well, and this speaks more to the industry at large. we looked at it and said let us talk about a couple of index funds, and the totals stock market index. how much does it cost to run those two funds and compare it to the past? if you look at 1993, the average expense ratio of shareholders paid 14 basis points. today, it was five basis points. moving in the right direction, we can applaud that. turn them into dollars and not percent. that is around $70 million in 1993, today, $1.3 trillion across those funds turns into an expense of $600 million. if vanguard is running funds at

cost, they can do those at $17 million in 1993. the numbers are still pretty large even at vanguard. scarlet: it is pretty mammoth so the numbers will be large. it may be the king passive, but they do have active mutual funds as well and they do well. about half of the active funds are outperforming in an industry where only one third do typically. it is surprising because vanguard does not tout active funds and investors do not talk to them about them. jeff: it has almost $1 trillion in active and they will be one of the largest players. they do not talk about some of those successes. we thought about taking the active funds and matching them

against the in-house index funds. we found that about 55 or 57% of those active funds outperformed over the past 10 years and you do not hear that story. vanguard should be celebrating that more because of this drive to be the index, and you do not hear that. scarlet: vanguard eclipses so many other issuers, do you think that there will be a government response or anything to hold back its growth. jeff: can vanguard be too big question. it is hard to see how the government steps in, because consumers are choosing them and investors are choosing them. the index based, it is hard to say that they are being anticompetitive. we see that the wars all of the time. one of the unintended consequences is that the index can bring in shares, and schwab, and they have big voting blocks

and we have to think about that. scarlet: jeff, the independent advisor for the monthly newsletter. coming up, indian equities rose as elections were held. next, we drill down into an etf tied to the indian consumer. all of this is just the tip of the iceberg. for a drill down into all of bloomberg's etf content, check out bloomberg.com/market/etfs. this is etf iq. ♪

scarlet: i am scarlet fu, this is "etf iq." for every etf that targets a country or sector, it is not long before others follow suit.

since then, it has expanded its suite of funds. the firm's cio joins us now. before we talk to him, eric will give us a drill down into the china internet fund. eric: kweb, this is six years old at this point. time flies. when this first came out it was novel, and it seems like a normal fund. people go to it to play trade in china. it is big at $1.5 billion. this thing really broke on the scene in 2017. it had that shiny object moment when it was up 60% in the year, and now it is up 100%. that is why it has gotten some attention. the expense ratio is high, but no one cares when you are beating your index by 15 percentage point. stocks when this first came out were new for a lot of people, but now they are very well known.

tencent, alibaba, a lot of u.s. listed companies that are based in china. speaking of which, let's combine this to the other china tech etf's. there are many china tech etf's, here are the two biggest. kweb is the monster. the biggest difference is the a to h to n ratio. kweb does not have any a shares. kweb is heavy on the u.s. shares. this will be more 50-50 and this is going to be 10% a shares. for this trade war, most people will go to kweb because of that supreme liquidity. it trades about $50 million a day. scarlet: those numbers get your still with -- those get your attention. still with me is the cio. chinese internet firms are not impacted, yet we have seen big

outflows. traders are blaming mindless passive selling. is that what you see? >> you have had a lot of money coming to china in q1, very strong returns as the specter dissipated. now we are seeing profit-taking, partially driven by concerns. some of it is u.s. names, but if you look at northbound stock connect flows, they have been negative over the last month and that is despite those shares being added at the end of this month. eric: when this first came out, people were going, china internet, what is going on here? i saw you do a powerpoint when you talked about the internet usage of china versus the u.s. can you go over the long play? brendan: retail sales in china will eclipse the u.s. china does twice as much online versus the u.s. kweb holds the companies that are the transmission engine or domestic consumption online. scarlet: you guys have a variety to play including the one belt, one road initiative. it only has 40% allocation to china.

why do you need an etf to invest in the scheme? brendan: because china is exporting its infrastructure know-how to emerging-market and frontier countries. the regional infrastructure play and china knows infrastructure better than anyone else. eric: you have a whole menu of china etf's that are intriguing. kgrn, which is china environment. some people would consider that an oxymoron. talk about the story here. brendan: i was in beijing last week and i went jogging two of the mornings. i was asthmatic as a kid, so the pollution is more seasonal in the winter. ultimately, it holds the clean tech companies that are part of the environmental solution. scarlet: full disclosure, crane shares is majority owned by cicc, a state owned firm. how do you provide a balanced view when people are mindful of the ownership? brendan: what we are providing is a balanced perspective that a

lot of the sensationalistic headlines are not getting into the data. we are providing a balanced perspective levering the research team. institutional investors, number one in research seven years in a row. scarlet: can you be bearish on anything? brendan: we are long and we believe in the trajectory of where china is going and we want to be part of that. scarlet: thank you. let us talk about the big economy in asia, which is india. the election is over and the winner may be the indian consumer. of course, there is an etf for that. the columbia india consumer etf trades under the ticker inco. india is the second most populous country after china and the fastest-growing major economy. inco aims to capitalize on the scale and trajectory for tracking a market cap weighted index of 30 companies based there. autos, food, leisure, household

products, and cosmetics make up inco's top industries. that means companies ranging from motors to nestle india. for years, the indian consumer has been a standout bet with the consumer goods index listed only one down year since 2006. this year, some of the biggest companies faltered, dragging down inco's performance with it. recently it started to make a comeback. still, there is lots of original exposure, because the holding only has a 2% overlap with the emerging market index. which is how most people are invested in india. this is a sizable fund north of $100 million in assets, and comes with a high expense ratio. 76 basis points. inco gets a green light in the traffic light system. you have got to brace yourself for the volatility, did you see how it came back.

eric: if you want a roller coaster ride, check out india small caps. scarlet: that does it for us. be sure to catch us every wednesday at 1:00 p.m. this is bloomberg. ♪

alix: saving the farm. the government unveils an aid package for struggling farmers. critics say it will not help soybean crops already at decade lows. market worries that china will ban exports on rare earth as the trade war keeps up. saudi aramco takes a 25% stake in sempra. i'm alix steel. welcome to bloomberg "commodities edge," 30 minutes focused on thep