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Top Investment Chief: 5 stocks WIN the LATE-STAGE AI CRASH — Transcript

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0:00Before we get to the show, YouTube is
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0:10publishing good content, and working
0:11hard just for you. Now, let's get to the
0:14episode. Okay, Drew, big picture here.
0:17How would you describe where we are
0:19today in the market?
0:21>> Okay, late cycle. Let's start with that.
0:24So, what does that mean? Nothing is easy
0:28and nothing's cheap. So, this is I'm
0:31coming in hot here, but at the end of
0:35the day, we are in a bull market. It's
0:37not a new one. It's an older one. And
0:40old ones get a little bit cranky at
0:42times. Kind of like dads after Halloween
0:45that haven't slept a whole lot with
0:47hyped up, sugared up kids. But when
0:50you're in these older bull markets,
0:51nothing's cheap. So, when we start
0:53thinking like, oh, the market might be
0:55getting cheaper at this point, it's not.
0:57So when I look at the market, when I
0:58think about where we are, when I think
1:00about a real late cycle environment, it
1:02means expectations are really high. And
1:06now it's funny because I sound like a
1:09bear, but you're going to probably hear
1:10me say this a few times on throughout
1:13our chat today, Phil. It's going to be
1:16if you want to be a good bull, you got
1:18to understand the bear. And I think the
1:19starting point for any bear is this is
1:21not early cycle, it's late cycle, and
1:24nothing's cheap.
1:26>> Okay? So I would counter that because a
1:29lot of the most bullish investors out
1:32there are saying, "Hey, third inning of
1:34the AI cycle right now or of the
1:36infrastructure buildout." What makes you
1:38so sure that we are late cycle as
1:40opposed to third inning of a nine- ining
1:44game? So late cycle marketwise, this is
1:48what I think is fun. We could be and I
1:50think we are to be fair and this is why
1:52I'm bullish and I'm really constructive
1:54on the buildout here in the
1:55fundamentals. I don't think it's late
1:58cycle for where fundamentals are. But
2:01markets don't work backwards. That's the
2:04one thing I I I learned after about 10
2:06years at city and getting beat up by a
2:09whole bunch of big institutional
2:10investors. I don't care what happened
2:12yesterday. I don't even care what might
2:15happen tomorrow. We're starting to price
2:17things not even on this quarter, maybe
2:20not even next year because people can
2:22really see how big this buildout is. I
2:24think people are really comfortable on
2:25on 2027 numbers at this point. Markets
2:29discount future cash flows and I think
2:32people are looking beyond 26 and 27
2:35right now. So it's how much growth are
2:38we going to get? The further the market
2:40looks out, the further along the bull
2:43market is and more late cycle it feels,
2:46even though fundamentals might feel
2:48earlier.
2:49>> Okay. So, I I have a question about
2:51something you just said. Stocks are not
2:54getting cheaper is what you said.
2:56>> Yeah.
2:57>> However, if you look on a PE chart,
2:59which actually you you sent one over, um
3:02it does look like they're getting
3:04cheaper. Like valuations have
3:05compressed, let's say, since the start
3:07of this year.
3:08What do you mean when you say stocks are
3:10not getting cheaper?
3:11>> Yeah. [clears throat] So factually,
3:12you're dead right. And I see it, too.
3:14Market's up, PE are down. E is up more
3:17than P.
3:19Great. That's good. That's not That's
3:20not a bad thing. But
3:24interest rates are higher. That means
3:26growth has to deliver more. Stock prices
3:29are up a lot from where they are. And
3:31price, let's be real, price is the only
3:34thing we really know. How much I'm going
3:36to pay for this stock today that I want
3:37to buy. It's the only thing I know.
3:39Everything else can get adjusted and
3:41changed and it's dynamic and moves.
3:44Prices are higher. So, expectations are
3:46higher. And then when you really think
3:48about where the value comes from a
3:51stock, it's not in the quarter. It's not
3:54in the year. It's not in the first year.
3:58Not in the second, third, or fourth
3:59year. Most value of a stock comes from
4:02more than five or 10 years out. So when
4:05you start to look at what price means
4:08and how much I expect to earn on stocks.
4:11Sorry about the mic fellas.
4:14It's the value doesn't come from today.
4:17It comes from the future. So this is why
4:20you know it's funny for somebody my age.
4:22I probably do more DCFs, discounted cash
4:25flows than anyone's ever talked about.
4:27When I try to figure out how much growth
4:29is priced in, how much growth do I need
4:33from today to justify the price and I
4:36look at the market from that lens? That
4:38growth expectation is still near 10-year
4:40highs. It has come down a little bit
4:43this year and earnings, the starting
4:45point for earnings keeps going higher,
4:47but that level is still much higher. And
4:50if you were to really kind of tease this
4:51out where growth expectations are, the
4:54market's not trading at 20 times
4:57forward, it's probably reacting and
4:59feels more like it's trading at 24 times
5:01earnings. So it's yeah, PE comes down
5:04naturally, but growth expectations are
5:06still high. That's why you see
5:07volatility even when companies beat
5:09earnings right now. So do you think it's
5:12fair to say then even if asset prices
5:14are I'd say not stratospheric because
5:18valuations have come down there is a
5:21something of a bubble in expectations.
5:23Is that the right way to think about it?
5:24>> Not bubble. They're high. They might be
5:27at 10ear highs. They're not at alltime
5:29highs. And look like if you did this on
5:31the NASDAQ during the tech bubble it
5:33would be you know you got a compound
5:35earnings probably 10 15 20% into
5:37infinity. That's a little bit nuts. But
5:39we're talking about a growth expectation
5:40now that's about 5 or 6%. And when you
5:43think about high growth companies, it's
5:45attainable. So back to back to like my I
5:50I almost want to say just my training
5:52and how I think about stuff. Again, to
5:55be a good bull, you have to know the
5:57bear. Growth expectations are high, but
6:01I think they're attainable. And the
6:03revisions and the expectations for
6:05growth going forward, they keep moving
6:07up and up. So that keeps me bullish even
6:10though I understand where the bears are
6:11coming from.
6:13>> This episode is sponsored by Bloomberg.
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6:41Now, let's get back to this episode.
6:44Okay, so just so I can understand this
6:47myself, you are bullish and constructive
6:50on where the market is even though we're
6:53late cycle and even though you are
6:56trying to make the bare case here,
6:58that's not your base case. Is that
7:00right? No, I it's I want to know what
7:03bears are saying and I it's funny
7:06because everyone likes kind of posting
7:07the scoreboard. Oh, this guy was
7:10bearish. This girl was bearish and they
7:12were wrong. Look how silly they are. You
7:15need that bear. You need the bear in the
7:18market because guess what? If I'm
7:20bullish and I already hold the stock, I
7:22don't make it go up. Holding a stock and
7:25liking a stock doesn't make it go up.
7:26What makes it go up is finding a new
7:28buyer of it.
7:30So, a really good argument that can
7:32convince someone that's on the sidelines
7:34or negative on a stock to change their
7:36opinion is what makes it go up.
7:40So, when I say you need bears in the
7:42market, well, who's going to be the next
7:43buyer? You got to find someone that
7:45doesn't own it already. That is a great
7:47distinction there. Um, Drew, you have
7:50this chart that shows how the AI
7:53investor sentiment survey [snorts] is
7:55pretty bearish right now. At the same
7:58time, we have stock allocations near
7:59all-time highs. What is going on here?
8:02>> Oh, man. This is We're just bringing up
8:05all the stuff that's super hard to
8:06measure. Number one, really hard to
8:08measure what's priced in. And number
8:10two, really hard to measure sentiment.
8:12So, people always do these surveys.
8:14Phil, how do you feel today? If you had
8:17eight hours of sleep, unlike me, you
8:20probably feel better. If you had a bad
8:23night and someone calls you up, well,
8:24how do you feel? or you lost money in
8:26the stock market yesterday, I probably
8:28feel bad. But how you might behave in
8:30your portfolio is completely different.
8:34Just because I'm cranky and didn't sleep
8:36and didn't have enough coffee doesn't
8:38necessarily mean I'm going to go sell
8:39all of my stocks in my portfolio. So,
8:42this is where I like to come in and talk
8:44about sentiment because I want to know
8:46what's priced in and I want to know how
8:49investors not feel about the market, but
8:52what they're doing. Where is sentiment?
8:55So the AII survey, they call people
8:59every week, how do you feel about
9:01stocks? Are you bullish, neutral, or
9:03bearish? That has a lot of volatility
9:05cuz we're humans. At the end of the day,
9:08stock prices are just an amalgamation of
9:10what all of us crazy, fun, unique humans
9:13are doing.
9:15But how they feel is different than the
9:19real what they're actually doing. And
9:23that same company that does a sentiment
9:25survey that everyone watches every week
9:27because it can make a headline up or
9:29down, lots of volatility. What's not
9:31changing is people are still holding
9:34stocks that is still near an all-time
9:36high. So when you break it down, the
9:39real is investors are still bullish. The
9:43feel as we got into the beginning of
9:45this volatility is h I don't feel good.
9:48So when you put it together, the real
9:50versus feel is disconnected. Do you
9:52think that's enough evidence then that
9:54we can just ignore sentiment surveys
9:57>> to a extent? Yeah. I think there's just
9:59a better way to do them. So, back to
10:02price. Price matters. Price tells you
10:06what people are really doing. And
10:08there's a lot of price data that you can
10:10get out there every day. And the the
10:13price data that we started digging into
10:15at Roundhill was the options data
10:18because when people are again not just
10:21individuals trading options but big
10:23institutions do it all the time. Again
10:25they're transacting at a price. They can
10:27see what they're doing. You know what
10:29they're really doing the real price that
10:31they're paying.
10:33Where do they expect volatility to be?
10:36You can look at the VIX. You can look at
10:38term structure, which is basically is
10:40the VIX higher for the next nine days or
10:42the next three months. You can look at
10:45how much they're paying for big moves
10:48way down and way up. That's skew. You
10:51can dig into how much they expect the
10:54VIX to move. V of all we take all these
10:57these price indicators from options and
10:59we put it together in our sentiment
11:00model and that's how we can figure out
11:03for real the real what people are doing
11:07when it comes to markets. So sentiment
11:10surveys they're interesting to me to
11:14look at but they're not interesting to
11:16me to actually measure sentiment.
11:19>> H I I think that's fair. I always take
11:22them pretty skeptically. I would say
11:24whether that's investor sentiment or
11:26even uh consumer surveys about how
11:29people feel about the economy, those
11:31always seem uh politically skewed and
11:34the sampling size and the sampling bias.
11:37There's always something going on with
11:38those uh consumer surveys. Drew, there's
11:41another chart I want to ask you about
11:42here. You have S&P 500 rolling 21-day
11:46pair-wise correlation over the last 5
11:48years. my read on this from let's say an
11:51amateur's perspective. It looks like
11:53it's right near 5-year lows. Uh help me
11:56understand what that actually means.
11:57Like why show this chart here?
11:59>> Yeah. So this is really interesting
12:01because
12:03my mentor
12:06for years and years kept beating me up
12:08on this one point. It's not a stock
12:11market, Drew. It's not a stock market.
12:13It's a market of stocks. And I like,
12:16okay, sure. let me just figure out how
12:17to do my job today. And then I I really
12:20look at it and why is it a market of
12:21stocks? Because we think of the stock
12:23market as risk. Oh, that's you have
12:26stock risk. You have equity risk in your
12:27portfolio. No, you have if you buy the
12:30S&P 500, you have 500ish stocks that all
12:33have their own individual risk. What
12:35correlation tells us,
12:38and this is pair-wise or like internal
12:40correlation, the chart looks at industry
12:42groups. People do this at a single stock
12:44level. You can do it a whole bunch of
12:45different ways, but all these different
12:47collections of stocks, are they moving
12:49similar to one another or are they
12:51moving different? And that matters a lot
12:55because that tells you how much
12:56diversification you actually have in
12:59your allocation.
13:00If I buy the S&P 500 to like today, now
13:05it is not as volatile as it feels
13:09because
13:10when AI drops like we felt lately,
13:13you're starting to see energy and some
13:14other things pop. So you have this this
13:18kind of divergence in how things move
13:19directionally. That's why correlation,
13:21how things relate directionally, how
13:23they move directionally verse one
13:24another is different. So that's why it
13:27might feel like we are in this like
13:29gross terrible bare market. Single stock
13:32volatility is way up, but the VIX is
13:34still low and the S&P isn't even in a
13:37correction at this point. You're kind of
13:39sitting there going, "Well, why hasn't
13:40that happened?" Well, because things are
13:43all are all moving independently of each
13:45other more so than usual. And I don't
13:47think that's actually inefficient.
13:50>> H what does that mean? you. It's funny
13:53talking to M like let's think about
13:55people I think super high level and it's
13:57funny because I'm a strategist and
13:59people expect me like oh he's going to
14:01talk about the market all all the these
14:03big broad things. No, it's again back to
14:06it's a market of stocks. Instead of
14:08trading the S&P 500 when I see a risk
14:11pop up, I'm going to go trade the stocks
14:14that matter to that risk. So, if oil
14:17spikes and inflation's really sticky, do
14:21I trade AI stocks? No. Because it it
14:25really doesn't matter. It's early cycle
14:27and AI adoption that's not going to
14:29change the fundamentals. But should I
14:31sell my consumer staples that can't move
14:33price and all their input prices went
14:35up? The market does that. Should I trade
14:37oil stocks higher? Should I trade the
14:39refiners? Should I trade something else?
14:41Like, the market is being very I I call
14:44it microefficient. They're efficient at
14:46trading stocks based on changing risks.
14:50People are not just trading the market
14:51based on some risk they see.
14:53>> So is one way to think about this then
14:56let's say as a individual investor
14:58increasingly this is a stock picker
15:00market rather than hey buy and hold the
15:02index.
15:03>> I think this means find different types
15:07of risk. The why the the reason I I say
15:09it's not necessarily a stock picker
15:11market. And it's funny because a lot of
15:13people would say, "Oh, when when stocks
15:14move independently of one another and
15:16dispersion's high, that should be great
15:17for stock pickers." Well, not really
15:18because nothing gets dislocated long
15:20enough. So, if I'm a stock picker, I
15:23actually want correlation really high.
15:25This is this I'm I can't wait for
15:27someone to blow me up on this point, but
15:30I want my stock that isn't hurt by
15:33whatever event that makes you sell the
15:35index so I can buy it cheaper than it
15:37should be. Today we don't have as much
15:41of that. I think there's a lot of
15:42reasons. Retail people that are watching
15:46this probably talk more about single
15:48stocks and trade more single stocks than
15:50they ever have. Well, guess what? The
15:51hedge funds that I used to work with,
15:54they don't trade as much index. They're
15:56looking for baskets of stocks. And those
15:58baskets of stocks aren't a hundred names
16:01long anymore. Hey, give me 20 really
16:03good ideas around this risk. Okay, 15 10
16:06over there. Even look at the ETFs like
16:09even some of the ones that we've
16:10launched like DRAM that are absolutely
16:13growing rapidly because people are
16:16looking to make more specific trades
16:20around what they're seeing good or bad.
16:23That's microefficient. That's why
16:25correlation's low.
16:27>> It's funny you say people are looking
16:28for different risks to trade. That to me
16:31sounds like you're describing thematic
16:33investing. Is that the same thing?
16:34>> Yeah, thematics.
16:36thematic industries, even different
16:38parts of AI, different sectors. Again,
16:41anything more focused around a very
16:45specific fundamental narrative, story,
16:49risk, there's a million different names
16:51we can call it, but I do think the way
16:55the world's evolved for not just
16:57individual investors, but for
16:58institutions, it's about precision. Hm.
17:02And so I I will say uh Roundill, I I
17:06follow you guys very closely. I follow
17:07your work. You guys are excellent at
17:11picking very niche uh thematics, let's
17:15say, even uh like memory bottlenecks.
17:17You guys nailed that. And that's a
17:19really interesting theme that's going to
17:21last, I think, for a very long time. And
17:24therefore, the assets will probably
17:25continue to acrue for a very long time
17:27to a theme like that. Let me ask you
17:29about the Mag 7. They're only up about
17:326% this year, lagging the S&P 500. Round
17:36has a MAG7 ETF. It's MAGS, MAGS.
17:40How are you thinking about the MAG7 as a
17:42group, as a trade right now? Do you have
17:44favorites in this? What's going on?
17:47>> Lots to unpack. It's it's still
17:50>> anywhere you want.
17:51>> It's it's fun cuz it's seven of the most
17:54important stocks in the market still.
17:55And it's funny why that moniker has
17:57lasted so long. Even if they
17:59underperform, why do you care about
18:00them? Because they're they have major
18:03impact on the rest of the market. The
18:06capex they spend, the financing they
18:08back, the themes they represent, it all
18:13matters matters matters. So I think the
18:14relevance even when they underperform
18:16stays pretty high. So the nice thing
18:18about having mags is you can trade the
18:21group. What I've come to realize,
18:24anytime I personally feel terrible about
18:27one of those stocks is probably when I
18:29should have bought them. Think about
18:31Meta this year.
18:33Meta's dead. It's behind. It's lagging.
18:36They come out with Muse. It pops. Oh
18:38man, now I'm chasing Meta. Google left
18:41for dead. AI dinosaur. Search is getting
18:44killed. Oh wow. Cloud revenue is growing
18:47really fast. Microsoft software is
18:50disrupted. That quarter looked pretty
18:52good. [laughter]
18:53Amazon consumer business under pressure.
18:56Oh well, look at all the other growth
18:58and what it's doing with AWS
19:01where it might even be competing with
19:03the SpaceX. Like you start sitting there
19:04and you you sit back and you look at all
19:06these stocks and they're big and dynamic
19:09and innovative. They're the most
19:11differentiated
19:13they've ever been. It's so hard to pick
19:15within them. But you put me on the spot.
19:19If I had to pick in the Mag 7 right now,
19:23Microsoft technically, I'll give Thomas
19:25on my team does a ton of great work on
19:27this. Software's technical setup is a
19:30lot easier short term. And Microsoft is
19:33working off this point where sentiment
19:35was low, expectations, what was priced
19:37in for growth was relatively low. I
19:40think that's a much easier bar to clear.
19:42So, I like having Microsoft. And then I
19:45want to pair it with I want to couple it
19:47with something else in the Mag 7. Meta,
19:50Amazon, or Google. Give me one of those
19:53three hyperscalers and what they're
19:55doing. They don't pop and work at the
19:57same time as Microsoft. I like owning
19:59them together. So if you're not going to
20:01own the whole Mag 7, make sure you have
20:04a little bit of differentiation within
20:05the group.
20:07>> Okay. I um I own Google. I think that's
20:10the only Mag 7 I currently own. I like
20:13that stock a lot. Maybe I should get
20:15into Microsoft. I don't know. I I'm not
20:18as bullish on the software theme at
20:21large. I And maybe I'm just holding on
20:23to getting spooked out of the SAS
20:25apocalypse earlier this year. Since
20:27then, I kind of just don't want to deal
20:29with it. Is that something that factors
20:31into how you're you're talking about
20:33this?
20:33>> Yeah, because it's different type of
20:34risk. Isn't it funny? We're talking
20:36about AI
20:37and we're talking about risk to AI. So
20:40the hypers scalers
20:42Amazon and some of these other companies
20:44that are having to put a hell of a lot
20:46of money up front for capex have a
20:48different type of risk different type of
20:50opportunity.
20:52Microsoft on the other hand like yeah
20:54they are developing yeah are they doing
20:56like compute and so on yes
20:59the growth expectations are just
21:01different there and the risk of
21:04disruption near-term that probably got a
21:06little too aggressively priced in gives
21:08you a different type of risk if you own
21:10software like look we we actively manage
21:13one of our ETFs chat and that's where we
21:16look at AI and generative technology as
21:18a whole and look we're we're very very
21:22aggressively tilted to hardware and
21:24semis and a lot of the bottlenecks that
21:27really drove us to look at something
21:29like memory as a a standalone ETF.
21:32Those make a lot of sense and they have
21:34runway fundamentally, but we know the
21:37stocks have moved. What we've been
21:39legging into is a lot more software
21:41names over the past few months and
21:44you're starting to see like the AI
21:45narrative change that it's not one
21:48versus the other. All of these are
21:50probably going to have to work
21:51altogether at some point. You're going
21:54to need software companies that have
21:57relationships with and people that will
21:59use and adopt AI into their
22:02organizations as almost a point of sale
22:04for what the back end might be building.
22:06>> Yeah, those are really good points. Um,
22:09it's interesting. I I actually didn't uh
22:10have chat on my radar as a ETF. That's
22:14I'm going to have to look that one up.
22:15Um, I want to ask you about photonics
22:16and optics. Roundhill does have an ETF
22:19for this LY light. Tell me about this
22:23trade as a theme and then also I want to
22:25get into some of the specifics in this
22:27fund.
22:27>> Yeah. So, we just went out with our
22:31first ever, we call it focus five, our
22:33top five ideas based on our market
22:35outlook. And when we were looking at AI
22:38within this idea that we're late cycle
22:40in a more volatile phase in a volatile
22:42volatile older bull market, what trade
22:46in our portfolio did we like as our
22:48favorite AI on pullbacks trade and
22:51photonics stuck out? The reason is you
22:54still have this bottleneck. You can see
22:57that they have pricing power. You can
23:00see that they have visibility into
23:03earnings multiple years
23:06on the selloff where Neocloud's been at
23:10the heart of all this and financing.
23:12You've beaten up a lot of names that are
23:14very debt sensitive. Well, guess what?
23:16Photonix aren't. When you look at some
23:18of the biggest names in that group,
23:22they've actually reduced
23:24their debt risk over the past few years.
23:27But here's the butt. Quality looks
23:30better. It's gotten better, but they've
23:32traded down just like a Neocloud.
23:34So, when you kind of sit there and step
23:37back for a minute, maybe there is a
23:39little bit of inefficiency that these
23:40things are getting sold off a little bit
23:42aggressive. That's why they they've been
23:43our favorite AI on pullbacks trade. So,
23:46it's it's almost like people see the AI
23:49negative sentiment and they're just
23:50going to sell anything with any
23:52exposure. It's AI,
23:53>> especially things that they feel should
23:55be higher beta, which basically, well,
23:57higher risk. What's higher risk? Smaller
23:59companies. They throw the Photonix names
24:01in there, too.
24:02>> Got it. Okay. So, one of the names you
24:04have here, Coherent, CoR, it's up about
24:086% this year. Tell me about this stock.
24:11>> Look, DEvered.
24:13They have less debt. They have declining
24:16debt ratios, but this thing is the baby
24:19that's getting thrown out with the
24:20bathwater. And it's funny, another
24:24behemoth in the space, like in that
24:25photonic space that I really like is
24:27light. Li T. Hence why L Y T is our
24:31ticker for our fund.
24:33It looks really interesting to me, but
24:35we just have the news lately that makes
24:37it a where Marll has agreed to acquire
24:40them in an all stock deal. So, it's a
24:43little bit messy trying to trade light
24:45right now because of the corporate
24:47actions. But when you really think about
24:49what that deal means for another good
24:52highquality player in the space, that
24:55bottleneck has value. Enough value where
24:59Marll is looking to make an 80 billion
25:02plus dollar purchase of Lum of Light.
25:05>> You know, you're the second investor
25:07this week to tell me they really like
25:09Lumenum. So that's hopefully a good
25:12sign. Two smart people.
25:14>> Hope hopefully uh he was a bear that's
25:16now a bull [laughter] invental buyer.
25:18But we'll see. It's it's it's a messy
25:20story, but I think like longer term it's
25:22a bottleneck that matters. Moving data
25:24faster, more efficiently in data centers
25:27thematically is not going away and these
25:30companies are actually better operators
25:32than they used to be 5 years ago and
25:33they're not throwing on a ton more debt.
25:36I think it's an interesting quality AI
25:40trade that that's kind of been lumped in
25:42with some of the the more cyclical
25:44higher levered trades. I like it a lot.
25:46Um there's this idea of Halo stocks with
25:50Josh Brown, which Josh Brown came up
25:52with earlier this year. Heavy assets,
25:53low obsolescence. Round of course has an
25:57ETF around this LHA
26:00which is Halo rearranged. Tell me about
26:03this theme and why you like it. Yeah,
26:05Lowa, Lowa, Halo versus Lowa here. Um,
26:08checks out.
26:09>> So,
26:11I said correlations down. I love kind of
26:13tying together like our narrative. You
26:15can see like how how we're doing our
26:17work at Round Hill. We're we're not an
26:19ETF issuer. We're a bunch of market
26:21nerds that get in the weeds and that's
26:23how we find these things. And Lowa's
26:28risk. It's just a different type of
26:31risk. And that's why it it works so
26:34beautifully alongside the AI trade right
26:37now. So if you look at Lowa, it doesn't
26:39have a lot of overlap with like the S&P
26:41500 like next to nothing with NASDAQ
26:46and well nothing with MAGS. So it's it's
26:50interesting because it's different but
26:52it it's volatile. It has its moves. It
26:54has a lot of exposure to like energy
26:56names, materials, construction,
26:58cyclicality, cyclical risk. the old
27:02school down and dirty stuff that gets
27:05made in the real world, but it's not a
27:09whole bunch of low beta, low volatility
27:12quant stocks that have no growth. These
27:16things have growth, they have earnings
27:17volatility, they move, but you get it
27:21where there's not a lot of growth priced
27:23in, and they actually will grow and
27:25move. They just don't move at the same
27:28time as the AI trade,
27:29>> which I think we need more of those in
27:33like the collective our portfolios. We
27:35probably need more of those because
27:37everyone has so much tech and AI
27:39exposure. You're probably underweight.
27:41Stocks like the the boring stocks,
27:43frankly. Um, one of the stocks you
27:45named, Canadian Natural Resources, CNQ,
27:50this is up almost 60% this year.
27:52>> Yep.
27:53>> Pretty good pick. Do you still like it
27:55at these levels?
27:56>> Yes. Why is the the issue here? So, you
28:01can go by Exxon. Exon's up a whole bunch
28:04this year. Energy prices are up.
28:05Anything tied to energy would be CNQ is
28:09little bit of different kind of energy
28:11and a little bit of refining exposure.
28:15And it it it sells into like a different
28:18market more into like diesel and
28:21prochemicals not just kind of
28:23traditional stuff like that's the oil
28:25they sell is what gets refined into like
28:28physical things that you use in ashvalt
28:30and so on. So the story is a little bit
28:33different. So its volatility compared to
28:35a big integrated oil company is actually
28:37higher. So I have more leverage to choke
28:40choke points in energy refining to
28:44energy price moves. And even if the
28:45prices come down, if the refining
28:48spreads are still wide, you probably
28:50have a different profile here. So when I
28:52think about it, these might sound like
28:55boring stocks cuz they're not tech, but
28:58they have a lot of volatility and
29:00movement. They're a different kind of
29:03risk. I guess maybe boring because it's
29:05not tech risk and it's not fun and
29:07gadgets, but in a portfolio
29:10they move. You feel them, but they just
29:12move at a different time. That's the
29:14key.
29:14>> Well, boring also because no one writes
29:16about them. Like you don't see these
29:18names in the news if they're not AI
29:20stocks.
29:21>> That's that's the beauty of them and
29:23that's why the growth expectations are
29:25so low.
29:26>> The the less people are talking about a
29:28name, the more bullish it is generally
29:30speaking. Yeah, it can be because you
29:31got got a chance to find that new buyer,
29:34right? Back to tying something together.
29:36The sentiment here lower. You can find
29:38more people. This next stock, which you
29:41shared with me, Kirby Corporation, KEX.
29:44It's up 28% this year. Also a Halo
29:48stock. What is this name? I've never
29:50heard of this.
29:51>> Okay, this might actually be boring. Um,
29:53[laughter]
29:54they literally operate ships and move
30:00oil and refined products within the
30:02United States. They It's a barge
30:05company. They move stuff from point A to
30:07point B. They're kind of in this random
30:11I I would say like transportation but
30:13energy transportation sector that's not
30:14a pipeline.
30:16>> Sounds very economically resilient.
30:18>> It is. And yeah, there's some nuances
30:21that kind of protect their moat here,
30:23but also not too many people are just
30:25building ships, large big barges
30:27overnight, right? What's not boring
30:30about them? What's not boring about CNQ?
30:33What's not boring about the Mag 7 as a
30:36whole and AI stocks, they all actually
30:39have something in common. their
30:41revisions, the estimates, the earnings
30:44expectations by Wall Street have moved
30:47up for most of the year. So while it
30:50might be a boring business, it's a
30:52boring business people have
30:53underestimated. So back to almost the
30:57top discussion here, a latestage bull
31:01market, nothing is cheap, but how does
31:04the stock go up when people
31:05underestimate it? And this to us fits
31:09into that narrative. It's a different
31:11type of risk. It's still late cycle.
31:15We're okay with risk as long as there's
31:17a story that tells me why I should buy
31:19it when it's not cheap. And that's the
31:21revision pattern.
31:22>> So are most of the stocks that you guys
31:25put into these funds, let's say, you are
31:28looking for that revision factor. Is
31:30that one of the big variables that goes
31:32into all your themes that you're looking
31:35at? No, it's not because at some point
31:38the revision story in a different market
31:41cycle won't work. What we're trying to
31:43put into the funds that you see in our
31:45lineup are the stocks that are tied to
31:48the industry and the thematic that are
31:50pure. What is a memory stock? We know
31:54what those are. Let's get that defined
31:57group right. Again, get the bucket
31:59right. What we want investors to know is
32:01we care about the tools we make. We want
32:04them to be representative of what
32:06they're supposed to be. And then what
32:07we're trying to do, like my job, why I'm
32:09at Roundill is try to take this, I don't
32:12want to say mess, but I'm going to say
32:13mess of all these different themes and
32:15all these different types of risk and
32:16try to highlight what we think makes
32:18sense. So whether you like memory today
32:20or not, we would expect people to kind
32:24of trade the ETF if they want good
32:26exposure. If you want hard assets, we
32:28think Lowa gives you a good group of
32:30hard asset stocks. If you want
32:32neoclouds, we do that. If you want
32:34photonix, we do that. If you want the
32:36Mag 7, you know what you're going to get
32:38there. If you want multi-layer ceramic
32:41capacitors, something we've
32:44you and I, our brains would explode
32:46trying to figure this out. But if you
32:48want exposure to industry thematics that
32:51are focused and trade ideas to put in
32:53your portfolio, we want to make the
32:56right tool for it, whether it's right
32:57for the market environment or not. And I
33:00think one of the advantages of thematic
33:02investing in general, we've seen this
33:04sort of renaissance time for thematic
33:06investing, retail does not have to be
33:10stockpicking, which is I think very
33:12advantageous even for myself. I live and
33:14breathe markets all the time, but if I
33:16see a theme to buy, it's way lower of a
33:20barrier to entry for me than trying to
33:22do the work on a single name company.
33:24So, I think Roundhill and your
33:26competitors, you've all done a very good
33:28job at almost like democratizing
33:29thematic investing. That's really
33:31interesting because it used to be just
33:33hard to figure out as an individual
33:35investor.
33:37I I want to ask you about why you made
33:39the jump to Round because you did have a
33:42long and big career at City, obviously
33:45one of the biggest Wall Street banks we
33:47have, and now you were at a relative
33:50upstart compared to a Wall Street bank.
33:52Why did you make that jump? Because I
33:54think a lot of people would have not
33:55made that jump.
33:56>> Yeah. Uh I guess I like being
33:58uncomfortable. I I have dad back. That's
34:00why I'm fidgeting around in this chair
34:02the whole time. But the what you said
34:06about thematic investing in its
34:09resurgence. I saw that on the street. I
34:13spent a lot of time with our traders
34:15talking about baskets, trying to come up
34:17with new ways to slice and dice markets
34:19for big institutions. And
34:23they were thinking about the world
34:24differently. And these companies were
34:26evolving faster than
34:28large cap growth and large cap value
34:31styles were. Even the factors were
34:33starting to look old and dated. And
34:36people were looking at new ways to do
34:38investing. And guess what? If
34:41institutions do it, there's no reason
34:43retail can't and shouldn't. So, this
34:45resurgence of thematics and and look, I
34:48I see it in the ETF flow data, too.
34:51Thematics were almost like next to
34:53nothing of US equity flows a couple
34:55years ago. You're starting to see them
34:57be like a bigger portion of flows like
34:59in the last few years as it comes back.
35:02That's because the world and investing
35:03world is evolving faster than these old
35:06traditional constructs that people used
35:08to get in ETFs.
35:10Tech as a sector now is broken apart
35:13over three or four different sectors
35:15depending how you want to look at it.
35:17The styles
35:19well they get messed up when you look at
35:21how companies change faster than their
35:24data changes. Memory stocks are they
35:26growth stocks or they value stocks?
35:28Well, if you ask Russell and S&P they
35:30told you something different at the
35:31beginning of the year. So I I have a
35:34very strong belief that good thematics,
35:39good baskets, good focused tools to
35:42trade risks,
35:44it's not just an institutional thing. It
35:46can be for institutions, it could be for
35:49retail investors. And I think ETFs make
35:51a lot of sense.
35:52>> I agree with all of that. I mean, the
35:54ETF revolution has been extraordinary. I
35:57think most of my friends let's say who
36:00are let's say 28 to 35 independent
36:04investors they make six figures
36:08they are buying almost exclusively ETFs
36:12and I don't think any of them are
36:13picking single stocks which but they're
36:16also not really buying the S&P 500 which
36:18is another change cuz that used to be
36:20the retirement default but now you can
36:23get much more specific and it's almost
36:25like you can feel like a stock picker if
36:28you pick a memory ETF. You don't have to
36:31be that clever to do that because it's
36:32sort of silver spoon on a plate for you.
36:36But that access I think has changed a
36:38lot of individual investors outlook on
36:40how they invest in the market, how they
36:42plan for retirement, things like that.
36:44It changes institutions too and and
36:46advisors
36:48>> because people talk about core and
36:49explore or core and satellite and and I
36:52say this like honestly here would I love
36:56for your portfolio to be full of
36:58roundhill ETFs. Yeah, it'd be great for
37:01our bottom line. You should not do that.
37:03Buying the S&P 500, buying a core
37:07vehicle in the middle to have your
37:09exposure makes a ton of sense. We're
37:12trying to make the best tool for you to
37:13add around that. Like again, why we
37:17think memory was a good thematic
37:21industry ETF is because it gave you pure
37:24exposure to that. It's more volatile
37:26than buying a broader semiconductor ETF.
37:29That's actually good for you because if
37:32you want to feel it in your portfolio,
37:34it can be 2 to 5% of your portfolio
37:36where the old semiconductor
37:39or sector ETFs had to be 10 or 20% to
37:42feel it. We're we make products that are
37:46focused so you can buy less of us and
37:48feel the impact and have more bets on
37:51different types of risk in your
37:52portfolio. That's what I think is
37:55changing and I think institutions and
37:57individuals can see that and they can
37:59now get better tools.
38:00>> It's like you could sprinkle in super
38:02high beta concentrated bets almost
38:05around your whatever it is S&P 500 which
38:09I I think is frankly very useful. I do
38:12it all the time. Um Drew, where can we
38:14send people to find more of your work?
38:16>> Look f right now find us on LinkedIn.
38:19Um, we're putting out and I I love doing
38:23it because again I'm I'm one of those
38:24market nerds at Roundhill and the team,
38:27we work on this every day and it's all
38:30our own charts and data and you can see
38:32it. Every day we got a newsletter out,
38:34the market memo. Absolutely proud of
38:36what we've built. Um, I'm eight plus
38:39weeks on the job and we missed one day
38:41my first day. That was it.
38:43[clears throat]
38:43>> Very impressive. I read it. You guys do
38:45excellent work and uh I look forward to
38:47next time. I'm Drew. Thank you very much
38:48for your time.
38:48>> Nude Phil, guys, thank you.

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