scarlet: i am scarlet fu, this is "etf iq." ♪ scarlet: freedom and markets, olle says there is a relationship which is why her etf excludes china and saudi arabia. getting no respect. the videogame industry makes more money, but it's etf attracts fewer assets. what is behind the gap? and tit for tat, trying to weaponize the supply of rare-earth metals as the trade war deepens.

of course, there is an etf tracking these critical minerals. whether you embrace or reject etf's, they are an early indicator for bigger shifts in market sentiment. let's get the latest on inflows from eric balchunas. one week later, things have changed completely. eric: thank you. i call it what a difference the fed makes. we look at one week flows, and it paints a really dreary picture. retail investors have mostly held strong and not taken the bait in terms of selling out, but the last couple of days, they have rushed into safe haven etf's. look at the amount of treasury etf's here in all durations. a out of the 10 top flows of the week were treasuries. and gold was and there, right? let's see how that compares to the past 50 weeks or so. q4 was crazy, we are getting to that point. a lot of it is treasuries again. a little gold here.

and this was only two days. if the fed had not stepped in and reassured markets, we could be up at q4 levels, but they did, and all is well at least for now. that is the scene in the u.s., the fed saved the day. internationally, not so good. we have tariff threats going on and we have china, mexico, and india all being threatened with tariffs. how is that affecting flows? here is emerging market etf's, seeing outflows to the tune of $2.5 billion. the white bar here is china etf's. another $2 billion out of those, that is $4.5 billion out of those. they are bearing the brunt of tariffs. india now seeing inflows, and mexico, kind of a wash. scarlet, the u.s. looks like it will be back in action at least on the fed. internationally, a whole different scene. scarlet: a whole different scene. --'s bring in person perth tolle and bloombergs rachel evans. eric just showed us the impact of the trade war and tariffs and what they are doing to flows.

we can see that china and em really getting the worst of it. what do you see? perth: as far as trade, the way that we evaluate our index is that trade is good for our country. if anything impedes trade, that is bad for the future economy of -- the market of that country. if we are to impose tariffs, bad for us, it does not affect them. but if they retaliate and impose back on us, that is bad for them. scarlet: what is interesting is there is a new etf inspired by the trade war's. it is t-war. that is the ticker. a little bit coincidental in terms of timing. rachel: pretty catchy. obviously when it comes to the etf and they are in development, it takes about nine months to go from idea to hitting the market, but given that the trade war has been percolating through the consciousness for over a year, it kind of makes sense that we

are starting to see that come to the market. good timing there. it is taking an interesting approach to actually how it tackles the trade war. often you see people recommending playing the trade war by betting against technology or china revenue. this one is trying to find winners by identifying those companies that have contracts with the government. they are trying to pick out companies that may receive some implicit or explicit state support that could help avoid -- void them through a trade war. that is not exactly what investors are looking to get. this is what the etf is trying to do. eric: the trade war in china hurting from that could be good timing for your etf which has no china. this is emerging markets based on freedom scores. can you talk about, this is a big gap. most of em has a lot of china. why is china excluded from your fund and how does the process work for the screening? perth: our fund is screened by freedom only on the country level. we isolate the freedom factor on the country level, and our

country selection and weight is based solely on freedom scores. fromt the freedom scores the fraser institute, the cato institute, and another organization. we have been partners with them for a while to develop this. they do not imply any kind of recommendation to any investment products, but we do work with them on this particular index. the three categories that we use our life, liberty, and property. things like terrorism, trafficking, torture is life. liberty is like rule of law. due process, freedom of speech, freedom of the media, freedom of religion, assembly, and so forth. and economic freedoms, property rights, taxation, free trade, business regulation, sound monetary policy, and so forth. scarlet: that sounds pretty comprehensive. a lot of people will question how you can judge freedom objectively. i saw the philippines has a 6%

weight in frdm, and a lot of people would not consider the philippines a free country or economy. perth: we get that a lot about the philippines. a lot of these emerging markets are still coming up out of being autocracies. some of them are still autocracies, so you will not get 100% freedom in any country. our methodology is just take the freer country based on the relative freedom to their peers. as long as the philippines is freer then china, saudi arabia, and brazil even now, they are included and have a higher weight because of the freedom levels only. and we do use objective quantitative freedom metrics. your fund, taiwan gets a heavyweight. rachel, you have done a lot of reporting on the taiwan interconnectivity to the u.s. and tech. can you talk about that? rachel: this is something the team picks up when we see something like apple earnings which are really going to move tech investors one way.

taiwan is interesting because it is a backdoor way to get the look at some of the semiconductor and other supplies of these big u.s. and other international tech companies. if you look at it like ewt, for example, roughly half of those holdings have exposure to apple, and apple is a customer of those firms. it is an interesting way to look at some of these sector specific or country specific bets. it actually gives you a different insight into a bigger trend. scarlet: you can say that taiwan is a backdoor bet on apple's supply chain, but taiwan has the direct bet on china as well. i noticed that because taiwan has the biggest ranking in your fund, could you make the argument that taiwan's companies and fortunes are directly tied to chinese economy? since the 1990's, taiwan companies have invested $88 billion. perth: it is true. a lot of these taiwanese

companies do have their manufacturing in china because that benefits their shareholders and the cost structure, exactly. so freer countries do have the ability to work with other countries, we do not penalize freer countries that trade with unfree countries. chile is also a very free country and they trade with china, and they have a high weight in our index. but we do not penalize them for the free trade. if those benefits for them go away for their shareholders, they could easily move that part of their business somewhere else. scarlet: and they are talking about doing a little bit of that as well? eric: yeah, and some of the other countries not and it, -- not in it, russia, brazil, and saudi arabia. perth: saudi arabia is being added right now to the msci emerging markets index, so that is another differentiator of why we are providing a different exposure than the other market cap-weighted indices out there. saudi arabia, because of their scores, they are excluded from the index. their life and liberty scores.

there economic freedom scores are not bad, but it is the life and liberty part of it. scarlet: perth tolle and rachel evans, thank you. coming up, we talk with the founder of the acquired fund. we discussed the risk and reward of a deep value investor after a 10 year bull market. one etf that caught our attention this week, the high yield corporate bond fund. this well-known junk yield bond had a hectic week. but after jay powell's comments about a potential rate cut, we saw a record for inflows. you can find all of our charts on the bloomberg at gtv . 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. step one, always a filing. the sec reviewing paperwork for the first trust carbon etf. the fund will invest in companies looking to reduce the carbon and greenhouse gas emissions. step two, the launch. the information alpha trade war etf begins trading this week. a joint effort, the fund will trade under the ticker t-war. it will be rules-based, scoring companies based on the ability to outperform rivals during a global trade war. and for some, the final stage is liquidation. columbia thread needle closing down four funds. india infrastructure and india small caps. this comes after each failed to attract new assets in the past year. let's get passive aggressive and track the tensions in the battle between active and passive investing. the 10 year bull market has been a boon for passive funds, but

the increased volatility makes -- may give stock pickers, especially those that need value, their moment to shine. we welcome our guest now, good to see you. >> thank you. scarlet: you wrote a couple of books on deep value investing and you turned the ideas into a fund and now you are getting into etf's. talk us through it. >> the approach has always been a deep value approach. we look for cash rich balance sheets, buying back stock, very traditional long sides of value, and we do the same thing on the short side for companies heavily indebted. statistical fraud, statistical earnings manipulation, issuing stock to stay alive, issuing debt to stay alive, and no momentum. the market may be getting tired of the story. scarlet: you mentioned cash a couple of times so let's focus in on your etf. every value investor has a

preferred metric. i am guessing that yours is cash flow. why pick this one? tobias: my preferred metric is the acquire euros multiple -- multiple, which i created. proprietary. and the focus of it is it is the frontrunner, and it is agnostic to capital structure, looks at strong operating income, and we did some other steps to make sure they are matching cash flows. scarlet: let's talk about the holdings inside your etf. now, it holds a law of insurance companies, 41%. walk us through it, is it by accident, do you see this changing up in the near term? tobias: no, we are largely agnostic. we are bottom up value investors. we do not look for any particular industry at the outset, we are not top down in that sense. we think the financials remain undervalued given the 10 year

recollection -- the recollection of the event 10 years ago is still very fresh. and i think that they are cheap. scarlet: they have been cheap for a long time. they could be a value trap for years. tobias: right, but they are buying back stock. which is often a good sign, and they are generating free cash flow. the market has not done anything for a while and not necessarily something that would concern us because we are looking for undervaluation. scarlet: you bring up a good point, but has been a pretty rough 10 years for value investors and value stocks. i have lost count of the number of times people say value will make a comeback because it kind of does, but nothing lasts. the question is can value make a sustained comeback when the fed is so committed to stepping in when needed and maintaining economic growth? tobias: you are right, it has been a nuclear winter for value investors over the last decade and particularly the last five years. but spreads between the most overvalued and undervalued stocks are at a historical width and that has typically lead to very good performance in value.

the only caution that i would put to that is that the undervalued stocks are a little bit rates relative to their long-run mean, but the overvalued stocks are multiple to where they have been in the past. you need to be a long-short to catch the spread. scarlet: eric called your fund hard-core because it is an enormous active share which can really pay off in times like 2008, 2009 when value etf's started to return at almost 100%. and you saw the pure value funds to a lot better. isn't pure value a tougher sale to advisors who face career risks? as long as the market is a straight line up, you are not going to see the payoff. tobias: we say that the fund's capital efficient in the sense that it does not require a great deal of capital to capture the returns. so you can construct a portfolio by having a vt or something else like that, and we will give you the very concentrated value performance with earning a small portion of capital. scarlet: how perspective are institutional measures to your

etf? eric has a theory. that they are not too big on etf's because it is like a menace to pull public full -- municipal public pool as opposed to something more exclusive. tobias: there has been resistance to it which has surprised me a little. if we structure it as a lp, more attractive, but it is one of those things that there is no reason to do it that way. it should be in a liquid fund. it should be a low fee. and they should be able to invest in it. scarlet: there are a lot of should's in that sentence. thank you for joining us, tobias carlisle. now coming up, rare earth metals chatter has not been rare over the last few weeks. we discuss how it has been caught in the u.s.-china trade war, back in the middle. and this is just the tip of the iceberg, for all of the etf content, you want to check out bloomberg.com/markets.etfs. this is "etf iq." ♪

♪ scarlet: i am scarlet fu. this is "etf iq." for every etf that offers exposure to a theme, it is not long before others promise a -- promised the same. videogames is big business but they cannot seem to get investors respect. will hershey, co-founder launching the video game etf in third the market, but before we talk to him, eric balchunas is going to give us the drill down into will's etf fund.

nerd, two things about this fund that stick out. it does not use videogames in the name, we will talk about why that may be key. digital entertainment is what they are going for. and look at the price, 25 basis cheap,for a theme etf is however, that is only guaranteed for a year. they have the option to go to 50 basis points. that is very cheap. let's look at the holdings. the holdings, a little bit more of a targeted fund with smaller companies. this is a streaming video service, this is a live event, this is a gaming operator, ,odern times -- live events e-sports, so it is beyond what a lot of people know what is the point of this. we are going to the smaller companies that are pure. and also, how much revenue is gotten from videogames.

this one scores the highest but not by a lot. here are the other two and you can see the costs, way lower here, although that is temporary. the median market cap, look at how small this is compared to those. again, that does mean you will have more volatility. scarlett, this thing is either going to work really well or struggle based on the targeted approach. we will have to wait and see. scarlet: targeted, indeed. still with me is will hershey. ticker, nerd,he but videogames is a huge industry, bigger than the movie and music industry combined. which kind of surprised me. it is being disrupted. explain to us where the growth will come from because although it is big, the growth is going to be jagged. will: i think gamestop is a really interesting example because you could look at it as the blockbuster of gaming. that is the past, not the future. the future is digital, online, and streaming. in terms of where we see the growth coming from, it is all

driven by underlying technology. other are now watching people play on platforms like twitch. mobile devices and laces like china, india. it has really democratized people's ability to play games. you do not have to go out and buy a $350 console, you can play on your phone and people can do so competitively. the last side of it is the e-sports concept, people going to stadiums to watch other people play. eric: digital entertainment instead of videogames, how deliberate was that in the name on your part? will: very deliberately so. this is bigger than just videogames. videogames are not just people sitting in their basements playing a game by themselves anymore. they are playing against one another online and they are taking over all entertainment. sports, media, streaming. it is incredible. scarlet: there is a lot of engagement here, and speaking of engagement, you engage with social media as well. on videogames. >> i did.

there is a mystery to me to why gamer, the one before you, had a 100% breakout performance but no one really bought it. i asked twitter why they think the videogame etf's have not gotten assets despite posting similar numbers. .oo frivolous, one unaware, another one. but talk about getting over the hump of advisors think think it is like a toy. will: they did not have the best ticker ever, that is part of it. [laughter] ultimately it resides in education and at the end of the day, the stats are going to back it up. that is what is going to get people interested. we have $100 million prize pool for fortnight with the finals being hosted at arthur ashe stadium in new york. 450 million people watching, and the stats do not live. -- do not lie. scarlet: let's go back to that expense ratio. 25 basis points is pretty attractive, but it is a temporary fee, a teaser rate for mortgages, right? will: i do not know if i would like to be considered a mortgage

in any way, but being transparent -- that is the case. we are planning to go out for 25 basis points for the first year, going to 50 at the end -- scarlet: is that guaranteed? will: as guaranteed it i can say on tv. and ultimately, we view the lower expense ratio for the first year really as an investment for the trade ability , liquidity, and long-term feasibility of the products. it is us making an investment in a better product at the end of the day. scarlet: love the ticker, nerd, and it is the digital entertainment and e-sports etf. will hershey of round hill investments, thank you. will: thank you. scarlet: kids play their videogames on the phone, and we older people prefer the television. but none of the technology can happen without rare earth metals and of course, there is an etf for that. trading under the ticker remx, the sector rare-earths strategic

metals tracks 20 companies involved with the production and refining of rare earth metals. stuff you probably have not heard up until high school science, that is until the recent u.s.-china trade war. many of these metals are in jet engines, smartphones, flatscreen televisions, and screen technology. the u.s. relies on the asian country for 80% of its rare earth need. china has disrupted the market for years which is largely holding back remx's performance. it follows to that china has the single biggest country waiting in the fund. australia and canada round out the top three. remx is twice as volatile as the s&p 500 because of its weighting and small and mid-cap needs. -- remx has seen a pickup and trading volume and assets to roughly $250 million. china may weaponize these metals in retaliation for u.s. tariffs. the fund has an expense ratio of 61 basis points and get a green

light from the bloomberg intelligence traffic light system. that does it for bloomberg "etf iq." be sure to catch us each wednesday at 1:00 p.m. eastern time. this is bloomberg. ♪

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