scarlet: i am scarlet fu. this is "bloomberg etf iq" where we focus on the access, risks and rewards offered by exchange traded funds. ♪ scarlet: getting crowded. toke is the latest entrant to join the latest marijuana themed etf's. we talk about why it is early days for cannabis investing. a hedge fund manager makes

alternative investments accessible by charging zero management fees. preece's stock market goes from under performer to global leader. greece's stock market goes from under performer to global leader. of course, there is an etf for that. whether you embrace or reject etf, they are here to stay. the flows signal broader market trends. let's check in with eric balchunas. a snapshot of the flows and the theme is risky assets like the stocks. eric: thank you, scarlet. i'm feeling like a broken record. every week, i am saying people are excited about the fed being accommodative. it felt like about two months. another week of the same thing. $15 billion into etf's. we have spy, the cuse. you also have ibv and some vanguard funds. both major player types are buying in. i thought, this seems to have started in the beginning of june when the fed reassured markets. let's capture june and july. the complexion of the flows is

changing and this chart shows it is. june and july, etf's took in $85 billion. that is more than the rest of the year combined. that is a lot of money coming in. u.s. equity etf's are taking in three times more than they did at the beginning part of the year. more than fixed income. they are now the leaders, which is what we are used to seeing with etf flows in 2017. let's look at june and july versus other june and july's. just to give you an idea of how accelerated the flows are. it is the biggest june and july on record. this is what $2.2 billion a day in flows look like. the etf's generally take $1 billion. when they get excited, it is another $1 billion. with both hands on deck, that is why you are seeing this accelerated level of flows. they should break the record if they keep this up. scarlet: making up for some lost time. let's bring in meb faber.

in new york, we have annie matha with bloomberg news. let's start with you. you saw the flows. what part of the rush into stocks and risky assets over the last few months surprises you? meb: it does not really surprise me. it is a bull market. u.s. stocks are up 20%. the parking lot at bloomberg is an indication where there are only four people working in -- and everyone else is on vacation. it is not just u.s. stocks. all asset stocks are having a romper year. even gold perking up. commodities are starting to pick up. it looks a lot like the exact opposite of the end of last year when everything was going down. the good news about the dislocations and moves in the markets, it sets the stage for the next regime. we have been in when regime for

the past decade, which is u.s. stocks cream everything else. the flows make sense to me because everything has been going up. scarlet: we talked about everything going up. we keep talking about how we are at the late stage of the economic cycle. i keep hearing about it constantly. i wonder if what we are seeing is the last hurrah. every asset class is higher in contrast to last year. give us a rundown of what you are seeing. annie: you are seeing a rally in a lot of different asset classes. even some you might not expect to move in tandem upward like u.s. large-cap stock and gold. you are also seeing this in bitcoin. it marks a reversal from last year, when you are seeing a lot of these asset classes, a downward trend in prices in a lot of these asset classes. we have seen that reverse. we have this everything rally. scarlet: this everything rally is one of the reasons we have seen value stocks remain laggards. eric: a lot of people pronouncing the death of value. there was article last week -- was an article last week

about the value versus growth ratio being the lowest it has been since the year 2000, when this got a lot of attention. i want to get your take on this. is now a good time to going to value given everything is up? how deep should you go? can you give your take on that? meb: the nice thing about value, it is a pretty blunt tool. it should be a fairly simple decision. we wrote an article this year called "the largest valuation spread in 40 years." it is looking at the spread between u.s. stocks, which are trading at a lofty multiple. not a bubble like the date 1990's yet, but expensive. versus the rest of the world. reasonably priced, foreign emerging, downright cheap. the cheapest stuff trading in the low teens and single digits, we are talking greece, which you mentioned, russia, a lot of europe. some of these stock markets are trading at a massive valuation spread to the rest of the world.

we have been talking about this for years on bloomberg. quietly, a lot of these countries are having monstrous years. russia is up almost 30%. greece's stock market up 40%. you have this scenario where people are no longer talking about these countries. starting to see some momentum shifting. they could have some strong scarlet: let's transition to something few people would argue are value stocks. pot companies. give us an update on the pot etf rate. we are five or six in the u.s.? annie: five listed in the u.s. one more in the pipeline with global x trying to come in. the state that we are in right now is really -- there is a lot of excitement over pot etf's. it has been a big year. you have two new launches with yolo and thcx. the sec is asking for statements squaring away some of the legal

issues that might be hanging over these funds. that has been a development as well. eric: meb, let me talk to you about this. besides the great ticker toke, which is mount rushmore already, and the cheap 42 basis points or .420, one thing i noticed, the thematic capture score is a little lower. your media market cap is higher. are you purposely going into some of the bigger names by design? meb: there's also a little bit of cash. here is the thing. we have launched 12 funds. never launched a thematic fund. i would tell people the thematic funds do not offer any value over added benefit. why are we doing it? we think there are times when thematic funds make sense like the cannabis space today. you can have momentum.

or you can have a situation where it is a structural behavioral trade. you want exposure to the entire industry. you want exposure for the next decade, but you still have to be price-sensitive. you cannot say i'm an unabashed bull on cannabis. the way i approach it is, you need to buy a basket for the next 10 years. we wrote an article about this. a lot of people have picked it up. very similar to prohibition. we studied cannabis stocks in the 1930's -- beer stocks in the 1930's post-prohibition. almost double the returns of the stock market. it was lumpy. you cannot just say cannabis is great, you have to buy everything. we need to be thoughtful. you need to be mindful. cannabis stocks have struggled the past three months. a lot of these companies are pre-earnings. some of them are pre-revenue. you see some of the tilts because of that. we do not like to talk specific

names. having a basket approach eventually, this industry will mature. it will not just be u.s. and canada but global. scarlet: you need a discerning eye. meb faber along with our annie massa. coming up, we speak with julian klymochko. ceo of accelerate financial technologies. he is trying to democratize hedge funds through etf's. one etf that caught our attention, the ishares silver trust fund. its assets touched the highest since 2016. silver prices have been following gold's rally in recent weeks, fueled increasing geopolitical tensions and expectations the fed will cut rates. you can catch that and the other charts we feature on bloomberg on gtv . this is "etf iq." ♪

scarlet: i'm scarlet fu. this is "etf iq." it is time for the etf lifecycle. we walk you through the three main stages of the fund. step one is the filing. more annuity type etf's are coming your way. registrations for the best u.s. equity buffer august and the deep buffer etf. they now have over $1 billion in assets under management. step two is the launch. looking to ride the u.s. rate curve. listing is elixir. ticker stpu. while there are similar projects available on u.s. exchanges, this is the first product for europe that allows investors to bet on a 210 yield curve. the final stage is liquidation. a report titled "passive investing is worse than marxism." the firm followed up with launching a pair of etf's tracking recommendations. bernstein is quitting after they

failed to attract enough assets. let's get passive aggressive and track the tensions between active and passive investing. as passive products gain popularity, hedge funds and pe have become the last frontiers to be democratized by etf's. julian klymochko is trying to change that. he joins us from toronto. great to see you. my first question, can you copy hedge funds in an etf wrapper given the liquidity requirements of an etf? you have to be able to redeem shares whenever needed. whereas, a hedge fund is more flexible. julian: certainly. hedge funds have focused liquid securities. but we are market we believe is institutional-caliber hedge funds within the etf structure. we have been in the business of running hedge funds for about 10

years with another firm. we really are bringing that model with liquid securities in long short strategy utilizing alternative etf's. scarlet: let's talk about the structure. you call yourself the people's hedge fund manager. your funds get my attention because you do not charge a management fee. you only charge performance fees. instead of say two and 20, you've got zero and 15, zero and 50, and zero and 20. zero and 50 is high. explain your thinking here. julian: it is 50% above the index total return. our benchmark is the total return. it is only 50% of the alpha of above the equity index. scarlet: i see. i got it now. as a whole, hedge funds have seen the correlation with the s&p 500 increase.

it is about 92%. what do you make of the increased correlation? have they lost their way or are they being dictated by investors who are rewarding the ones who look the most like the s&p 500? julian: i think you are right. beta has been doing exceptionally well in the u.s. with the s&p 500 up 20%. investors are rewarding that. hedge fund managers want to be longer than they should, which could hurt them in a downturn. q4 of last year, stocks took a hit with the s&p 500 hitting a bear market. i think that if you are running a hedge fund, you should run it with low correlation. low beta with compared to the index. if you are an investor in a fund that is exhibiting high beta, high correlation to the index, perhaps they are not offering you a naturally hedged structure.

scarlet: the knock against etf's is that they have struggled in the u.s., even with jp morgan. as a group, they have gathered some $3 billion. what is the bigger obstacle to quicker adoption of investment etf's? julian: one thing is education. getting out the fact that stocks and bonds in this day and age do not truly offer a diversified portfolio. you are seeing record equity valuations in the u.s. almost $14 trillion globally in negative yielding bonds. in europe, 2% junk bonds with negative yields. i think investors really need a third asset aside from stocks and bonds. i think alternatives provide that. what we are bringing to the market is the endowment-style asset allocation. if you take yale, which runs $30 billion. 55% in alternatives. 14% in private equity.

only 4% or 5% in domestic equity. they have had strong long-term returns under the endowment model. i think that is only going to be copied more in the future, not just by other endowments and institutions, but increasingly advisors and smaller institutional investors. even retail investors. scarlet: i get what you're saying about uncorrelated. one of your funds attempts to copy private equity returns through publicly traded companies. one of our guests last year voiced skepticism on the strategy. he said it is hard to capture the real liquidity premium you get from a 10-year lock up. to do that synthetically is very difficult. that make sense to me. you mentioned that people like alternative investments because they are not correlated. but if you are mimicking p.e. returns through listing stocks, aren't you correlated with the broader equity market? julian: you have a point. our private equity strategy

would exhibit a high correlation to the broad equity index than a traditional hedge fund strategy. our hedge fund strategies exhibit lower beta. the private equity strategy -- i disagree with the notion that private equity returns are due to this illiquidity premium. they are more so due to four factors. by private equity, we're talking about leveraged bio. if you're looking at what drives returns, these four factors are size, quality, value, and leverage. we put together a multifactor model to mimic that within liquid public securities. scarlet: julian in toronto, thank you so much. coming up, the disclosure of a hack of capital one raises eyebrows about putting financial information up in the cloud. we dig into one of the main cloud computing etf's next. this is "etf iq." ♪

scarlet: i'm scarlet fu. this is "etf iq." for every etf that offers exposure to a theme, it is not long before others promise the same. jay jacobs knows this well. his global x funds has been out front in identifying emerging trends, whether it is robotics or fin tech. before we talk to him, eric balchunas is going to give us a drill down into the latest fund. eric: the reason this caught my attention is, it's got $508 million. it only came out three months ago.

it is the third best selling etf out of 135 launched this year. it is already cloud computing. it is hard for a product to do that. it comes down to the holdings. if you look at the holdings, it is going after software companies that are selling their software through the cloud. if you notice, a lot of these companies might not be big, giant tech companies. that is what makes it unique and different from skyy, the first trust etf. let's look at a tale of the tape between skyy and cloud to get an idea of this. the key metric is the median market cap. this one is going to be much lower. $7.2 billion. look at skyy. this is more pure. this one is up 10%. this one is flat. that performance is part of the reason. that shows you how you have to

look under the hood. they have wild differences. scarlet: very different components. still with me is jay jacobs. how did you get up to half a billion dollars in assets so quickly? jay: it was clear to us that investors like the cloud theme, but they felt like they needed more purity to the exposure. it's hard in thematic investing to zero in on those companies that are getting that triple exposure. especially in something like cloud where you have huge players like amazon and microsoft involved. we crafted an etf to downplay it's hard in thematic investing the exposure to the major hyper scalars and up-play the smaller mid-cap names. scarlet: that gives you probably more bang for your buck as things are going up. what about the recent cloud hack of capital one? for years, the credit card lender was beating the drum on how the cloud is better and safer. this certainly highlights the risk of being cloud forward. jay: putting data anywhere is a

risk. if it is locally on your desktop, there is a risk. if it is in the cloud, there is a risk. we see these themes being very closely related to each other. cloud computing and cybersecurity go hand-in-hand as partner themes. eric: i want to turn to one of your popular etf's. there is another one from inspire. these bible etf's are punching above their weight. they have almost $1 billion. they have ramped up in assets. can you talk about -- there are wild differences -- the difference between cas and bivl? jay: we are tracking an s&p 500 index. it starts with one of the most famous indexes in the world. it is screening out companies that donate to the conference of catholic bishops. on the index committee, they have bishops and consultants who are in tune with what the catholic religion is trying to convey through their

investments. it is very broad. it is not screening out tons of names. it is trying to give the s&p 500 flavor. scarlet: we mentioned earlier about the pot etf race. you coming in sixth to the pot party etf. what are you learning about watching everyone else's efforts? jay: i cannot talk too specifically about an etf in filing. as we saw with cloud and bots, it comes down to the exposure and giving good exposure and supporting it with research with sales from marketing to tell the story in an effective way. scarlet: jay jacobs, thank you so much. i feel like global x funds is an embodiment of there is an etf for that. let's check out one of the best performing etf's of the year overall. ♪ scarlet: the global x greece etf

is known by its ticker. it is one of the best-performing etf's this year, outpacing the broader u.s. market and broader markets. it took off in late may. as a first and only u.s.listed etf to directly target greece, the fund offers access to a broad basket of more than 30 market cap weighted greek names mainly in the banking, telecom, and transportation sectors. top holdings include hellenic telecommunications and euro bank. it held up well in the 2015 financial crisis with investors using it as a liquidity hub. when greece closed the stock market for five weeks. today, the fund has amassed $400 million in assets. it has an expense ratio of 59 basis points and gets a green light in the bloomberg intelligence traffic light system. global x ahead of the curve with their the medic etf's. matic etf's. i wonder what they are going to use for their pot etf. eric: i did a poll. that was instantly voted as the best all time. scarlet: ufo is good.

what was the other one? it became rokt. eric: tickers matter. scarlet: that does it for bloomberg "etf iq." cap chess each wednesday at 1 p.m. new york time, 6 p.m. in london, this is bloomberg. ♪ hey! i'm bill slowsky jr.,

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alix: welcome to a special edition of "commodities edge." we are going to take a deep dive into bps trading business. and into the refining and shale strategy. first, a look at their strategies. the net income hit almost $3 million. here's the key peas come a u.s.