140: EXCLUSIVE NYSE Updates On The ETF Boom w/ Bilal Little

0:01Abercrombie Kids knows how to make outfitting easy. Mix and match sets are their ultimate outfit hack for fall. Their sweatshirts and sweatpants are super cozy, and they always have the cutest colors and patterns. Shop fall's easiest outfit at Abercrombie Kids in the app, online, and in stores.

0:28You're about to make a trade. Which you do listen to? Is it get optioning those options? or let's do a little research. Learn more at finra.org slash trade smart. Hey everyone, and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify brought to you by public.com. By the end of this episode, you're going to understand why$53 billion is flooding into ETFs every single week, what's actually inside these funds that millions of investors are buying and how you can use them to build real, lasting wealth without overcomplicating your portfolio. My name is Austin Hankwitz, and I'm joined by my co-host, Robert Croak.

1:11Robert is a seasoned entrepreneur with lifetime revenues of over 300 million, and I'm a multimillionaire in my late 20s with a background in finance and economics. As the show name might suggest, every episode, we talk about rich habits as they relate to business, finance, and mindset. So Robert, what are we going to be talking about in today's episode? Today, we're sitting down with Bilal Little, the Director of Exchange Traded Funds at the New York Stock Exchange and the host of ETF Central Podcast. With nearly two decades in financial services, Bilal has helped raise more than$15 billion for leading asset managers through his work at BlackRock, Harbor Capital, and now the New York Stock Exchange, where he helps firms navigate the ETF and digital asset landscape.

1:57He's been featured in outlets like Black Enterprise and Wealth Management Magazine. Bilal, thanks for coming back. Thanks for joining us. Tell everyone a little bit about you and remind what you do so they can get engaged in this episode. Robert, Austin, thank you so much for having me back. I got to tell you, I enjoy spending time with you guys. Just my background, look, I've spent 20 years in sales and distribution, raising capital for asset managers. My role was somewhat unique in the sense that I would actually go to financial advisors and I would consult them how to build durable, diversified, strong investment portfolios.

2:33Now, I did represent the likes of BlackRock, Neuberger, Berman, and Harbor Capital. And what we would do is we'd spend a lot of time with the advisor to help them understand, one, risk dynamics in the portfolio, but at the same time, helping them manage through various market cycles, which is the most critical component of managing assets. So that's where I spent the bulk of my time before last year, coming up to the New York Stock Exchange to lead as a relationship manager to the different asset managers that are going to list ETFs in the market. So I spend a lot of time seeing what's actually happening, what's trending, what's being launched, what's being filed, what's being pulled from the market.

3:06So it's great insight into what's developing. And I'm so excited about this episode because the ETF market is booming and we really just want to clear the air and let all of our listeners understand that ETF is not some big, scary thing. It's really simple and it's absolutely a must for everyone to own these exchange traded funds in their portfolio. So I'm really, really glad you're back. Yeah, you know, if I can just give you kind of some insight as far as what we're seeing in here, and I think that would be helpful to the audience. Just to start the year through September, we've had 776 launches.

3:41That's far outpaced what happened last year, which was 747. We still had three, you know, three months to go or so and will likely surpass a thousand. In addition to that, this is on pace to be the second year of over a trillion dollars in asset flow. Two sort of thematics pop up from that. One, the ETF wrapper is the wrapper of choice when it comes to precision. But then two, where's the capital? The capital is getting behind these opportunities to get the exposure that people want. But more importantly, it's not just the S &P 500 and broad sectors. We're seeing flows go to various, I would say, thematics, but at the same time commodities.

4:16You see a lot going into international. You're seeing broad diversification with emerging markets as well. And that doesn't even touch on fixed income. Fixed income has seen a tremendous amount of flow. And we've actually seen a shift from just passive index-based investments really leading into some of the active stuff. 80 % of the launches have been active ETFs. And that's where the flow is going as well. Well, give us some more perspective on that because that kind of leads into my first question, which is like, why are ETFs such a powerful tool for retail investors like myself, Robert, and everyone else listening, right?

4:48So why do you think we've seen a trillion dollars of assets move so aggressively into these 700 plus new ETFs? And correct me if I'm wrong here too, is a fun stat since we're sharing stats. I'm pretty sure, I'm not certain, but I'm pretty sure that there's more ETFs now listed on the stock market than actual single stocks. So you can choose, there's more ETFs out there to choose from than actual companies trading on the stock market. So I think that's just a wild stat to begin with. But give us some of your perspective as to what you're seeing as to why these ETFs, you mentioned precision, you mentioned active management, like unpack that a little bit.

5:23Yeah. So one, you're right. So there are over 4 ,600 ETFs listed in the marketplace today in the United States alone. When you just think about that, that's more than both the NYSE and the other exchange as well, as far as publicly traded stocks go. So that's just enormous. The second thing to your point is an ETF is just an innovation to the mutual fund. Think about the benefits that were associated with the mutual fund as far as broad market exposure, portfolio management capabilities, a unified fee sort of somewhat structure, and then somewhat of an ability to have good diversification, right?

5:59And that was fine since 1930 going up to the early 2000s. But what happened is you saw basically some innovation to that wrapper. And the innovation came with the ETF where it was able to take the benefits of the mutual fund, but also the benefits of a stock. And here are some of the key differential points that most investors should know. One, when it comes to fees and cost. This is important because we get transparency when it comes to an ETF. It's a single fee that you see. Mutual funds sometimes have layered fees. One, there might be an upfront cost or a back-end cost. These are called loads or sales charges.

6:34On the other side of things, you also have what can be considered a 12B1 fee, which is a marketing fee inside, right? So you've probably seen or some of your guests have talked about that as well. So one, when it comes to transparency of fees, that's the most important. What am I paying? What am I getting? The second part of transparency is I know exactly what I'm holding. When it comes to a mutual fund, they don't have to disclose that. I think it's like a 90-day plus lag. Like when it comes to ETFs, you're getting real-time disclosures almost at the end of the month on most sort of cases. That transparency of knowing exactly what you hold is critical, right, from a risk management perspective, but at the same time from a confidence and conviction perspective.

7:12And then tax efficiency. This is probably the most important aspect of it because we're all talking about compounding, right? That's what it's about. The name of the game is compounding. Wealthy people always care about taxes. So now the ETF actually gives that same level of sort of professional management and tax management to any investor. So they have a different sort of tax structure, what it's called a create and redeem structure. You don't need to know that. People don't need to get too far in the weeds. It's just the mechanism in which some of the securities are traded inside when, you know, dollars are coming in or dollars are going out.

7:42But that efficiency and innovation is why it's improved on the mutual fund structure, let alone the last. And I'll just kind of leave with this point is liquidity. We got to talk about liquidity. When a mutual fund is traded, that's actually bought either directly from the mutual fund company or the platform that it's available on. ETFs can be bought just about anywhere over the counter or over the market, right? When it comes to Robin Hood or Webull or Schwab or whatever platform is important to you to access. But then liquidity when it comes to the underlying securities. So if I want to trade intraday at 12 o 'clock because the market's going crazy and I just want to get out of the market, you can do so with an ETF.

8:21You cannot do that with a mutual fund. So these sort of simple, if you stand the two products up side by side and you looked at these benefit, I'll call it a benefit analysis, that structure is so important for the investor to move forward. So sorry to take long on that, but I just thought I had to unpack that just because it is so critical and that's where the money is going. No, I love it. And I'm glad you went in the weeds on that because we covered this. Austin and I did last night in our private community live because so many people ask, why do you guys talk about VOO versus SPY? They're the same thing.

8:52And I'm like, they are the same thing from an investment perspective. But if I can pay 0.03 % in fees with VOO versus 0.0935, three times the fees, it's the same thing when comparing these mutual funds to these ETFs is I want to keep as much money for myself as possible. And it's so important to break this down for people because I do think it's confusing. And I don't think there's a world where mutual funds even make sense anymore for the retail investor. They just don't. So, Bala, just so I'm understanding this correctly, right? What ETFs did, why you're claiming they're so popular now with these trillions of dollars of assets.

9:29You had a trillion dollars this year, 700 plus listings so far this year. The reason why they're so popular is because they took all the good bits and pieces from a mutual fund. And then they made it accessible to everybody, right? So lower fees, more transparency, everything you just mentioned, right? They made it more accessible, like all those fun things. That is why ETFs have been booming lately. And then, of course, we'll get into a couple more reasons why, specifically on thematic ETFs. I saw an interesting stat from State Street's 2024 SPDR ETF impact survey. Most investors who don't own ETFs admit they don't really understand how they work.

10:06With 71 % confused about tax efficiency, 69 % unsure how the pricing works, and 57 % unclear on how ETFs differ from mutual funds. These same investors are pouring money into these thematic funds. Do you think people really understand what they own when they're buying these thematic ETFs? Or are they just following the trends and hoping for the best? It seems like the investor is very curious and very interested in participating in what some of the headlines are. And the headlines are dominant. Think about it. It's AI. It's robotics. It is machine learning. It is crypto. And that's the sexy story of the day.

10:48But the biggest issue, and I'm glad you guys actually stand for something around education, is sort of bringing the platform that simplifies the messaging. That's the most critical part of this because there are so many products that are out there. So being able to tap into information that is viable to understand what's taking place is important. So let's unpack this, right? First, the thematics are important because they are changing society. And the ETF provides the entry point to participate in that investment opportunity for all the other reasons we just listed. The other part of this conversation, though, is all ETFs are not created equal.

11:20So we need to provide a framework for what exposure do I want? And am I getting proper diversification, which is going to lead to another part of a conversation? But just think about it for a second. If you are able to ask yourself some very basic questions, one, what is inside the ETF? What is the strategy? And then is it aligned with our investment goals? Then and only then, I think you can look and say, I want this piece of the pie. And the precision that I talked about earlier is what the thematic should be. So let me say it in a different way. The exposure that I'm seeking can be had in an ETF if it's accreted to my portfolio from a diversification perspective and a risk perspective.

11:58So I wanted to just hit that because everyone's chasing the most sexy stories right now. Trust me, I'm seeing it from every angle. It's either yield, it's AI, right? NVIDIA, Apple, Amazon, Google, whatever it is. But also they're too front loaded. They don't have enough diversification. No one is buying, let me just perfect example. No one's buying precious metals. Absolutely no one. But the flow is still there. Every single day you see on TV, gold is at 4 ,200. Gold is at this price. Gold is at this price. But you're not seeing the dollars match the flow. Our traditional equities are still picking up the lion's share of the flow.

12:30So what we're trying to deliver in this conversation is saying like, look, thematics are fantastic, but understand what's inside the vehicle, if that makes sense. Yeah, I think it makes a lot of sense, right? because unfortunately, to your point in the beginning, right, we see these headlines of AI, this robotics, this quantum, that space exploration, this precious metals that yield income, whatever, right? We see these people on the internet highlighting the sexiest part of the markets. And then not to mention any names of ETF providers, but you've got those ETF providers out there that are doing 3x leverage longs on Ethereum or 3x leverage shorts on a stock or whatever.

13:07And they're really just trying to market to those people that are trying to have exposure, some extreme exposure to some of these sectors in the markets. And I think the most important takeaway from this section of the episode is that it's okay to be diversified using thematic ETFs, but you have to understand what you're investing in. And we talked about this recently inside the Rich Habits Network on a live stream, actually, that Robert was alluding to last night. We talked about this where someone asked, like, hey, what do you think about this specific ETF? and I think it was like some yield generating Ethereum long leverage something or other.

13:39And I'm like, okay, cool. So like, let's just make sure we're on the same page. Gambling is fun if you know you're gambling, right? If you actively go to Vegas and you like to roll the dice and play the blackjacks, people enjoy gambling. I enjoy some gambling, right? Gambling is fun if you know you're doing it and you're actively participating in it. Gambling is not fun when you are surprised that you were gambling in the first place. and some of these thematic ETFs kind of can, I don't wanna say they're malicious by any stretch of the imagination, but they can be confusing on the surface of their underlying strategies that can really take people off guard by, oh my gosh, wait, why is it down 30 % in a month?

14:18I have no idea what happened here. I'm so confused. I thought I was doing this, but something else happened to me. I'm not having fun anymore. And now they're jaded to investing in stocks in general or the markets in general because they just got tied into the wrong thing. And I think the big thing to remember with thematics is that they're okay to have. You just have to understand specifically the underlying strategy and what you're exposing your portfolio to in a way that's aligned with your risk tolerance. If it's a small portion, if it's a larger portion, whatever that is for you. I'm glad you bring that up and not to get us too far off track, but I think you bring up a component of the conversation that is diversification.

14:55Understanding what you hold is foundational to risk management, like it just is. and I think if we help people understand that, okay, if I start with the S &P 500 and I sort of peel pieces of a layer back and I search like we talked about on the last call and we went and said, you know what, let's be opportunistic and go into small caps or at least explore small caps. Now I don't have the overlap. That uncorrelated asset class is the key part of understanding diversification and exactly what you're talking about as far as clarity and being comfortable with what you're holding. Yeah, I agree totally.

15:33I talk to people all the time and try to educate them. And I'm always shocked at how many people I do calls with and we'll be talking about their 401k or their retirement account or something, and they don't even know what they're invested in. They don't know. They'll be like, I think I have some mutual funds, maybe target date funds, but I'm not sure. And this is just why we love what we do every day, because we can educate hundreds of thousands of people over the course of a year to get them to understand they have to pay attention to their money and know what they're doing so it can be balanced towards their risk tolerance, but also so they have an understanding of the whys of their portfolio, because otherwise you're just leaving it into the hands of a stranger and no one should be doing that.

16:19I'm not saying everyone needs to be looking at their portfolio every day, but active management to understand what you're doing and rebalancing is very important to be able to make sure you maintain diversification and not so much overlap that you're missing parts of the market that could be really good secular growth trends for what you're trying to accomplish. Now, before we ask Bilal our next question, got to give a major shout out to Fundrise. If you're looking to invest in real estate without all the hassle of being a landlord, you need to check out this episode's sponsor, Fundrise. On Fundrise, you can invest in a diversified portfolio of real estate projects, starting with just$10.

16:57However, if you're like Robert or myself, you might quickly find yourself investing much more, much, much more than just $10. With Fundrise, you'll get the potential returns of real estate without the headaches of property management or maintenance. Fundrise has a proven track record of success with an average annual return of 8.7 % since its inception in 2012. So if you're looking for a way to diversify your portfolio in 2025 and beyond, be sure to learn more about Fundrise Flagship Fund. With over a billion dollars in assets under management, the fund invests in build-for-rent housing, industrial fulfillment centers, as well as multifamily communities all across the Sunbelt.

17:39Invest in real estate on Fundrise and start growing your wealth. Use the link in our show notes below to open an account on Fundrise and begin investing in real estate today. All right, Robert, back to our interview with Bilal. So you mentioned diversification. I think what's so funny right now is a lot of people are going to the interwebs and they're behind their keyboard saying the S &P 500 isn't diversified. Seven names make up 30, 35, 40 % of it, right? We've seen the MAG 7 and they're just sort of engulfing, right, the S &P because of their market caps and the S &P's, you know, market cap weighted there.

18:12How do you define diversification? You alluded to it a little bit, right? Having something in your portfolio that zigs when everything else zags. How are you, even as an investor yourself, diversifying your money? Yeah. So a great question. The most important aspect of diversification is uncorrelated asset classes. Bar none, no question. And here's what I mean by that. If most people are going to start their foundational portfolio with the S &P 500, it. Buying IVV and VOO does nothing to Robert's point earlier, right? Holding IVV, knowing that 30 plus percent is getting me my mag seven mega tech exposure.

18:47I then need to do research on other aspects of the market that could be opportunistic. International exposure, fantastic. Given a weaker dollar, better sort of multinational exposure from global companies, they've done extremely well to start the year. And that would have been a strong starting point for most people to begin the year. We talked about small caps on our last call, thinking about small caps and the cycle when actually rates come down, they tend to get a pop. They've had a nice run. I'm sure you guys have talked about it since that conversation. Think about short duration fixed income.

19:18No one talks about this because everyone's so excited about equities. Short duration fixed income. Not only do you get principal protection, you get paid to kind of wait and figure out where you want to actually allocate for longer term parts of the portfolio. And then I mentioned this. you know, there's multiple ways to play commodities. And I'm just using this as broad exposure, for example. Rather, we want to just look at gold and oil as our traditional staples. But then we start looking at the other aspects of agriculture because people are paying more to eat. I mean, it's showing up as far as inflation.

19:50It's showing up in the way that they dine. When you start looking at this whole AI revolution, well, we need energy, we need infrastructure. You think about palladium, you think about lithium, you think about some of the energy components of the conversation, you can really lean into, I just listed four different sectors or categories, which actually complement the S &P 500, right? I literally just built a durable portfolio. Now, how we allocate and percentage wise, that's, you know, individual risk concerns, but that's a starting point. These are all uncorrelated asset classes where you don't have the same overlap, but more importantly, you get the exposures that you want.

20:24So something's going down, something else should be going up. I couldn't agree more. I think it's so fun, right? Because we always tell people that they should have this core satellite portfolio strategy. 65 to 85 % of a portfolio of persons, just total invested assets, should be invested in the index funds and ETFs we talk about. Where the other, call it 15 to 35%, depending on your risk tolerance, could be diversified into cryptocurrency, precious metals, internationals, different types of market cap sizes, like everything you just mentioned. and we could not be a bigger believer in how important it is to be diversified and how important it is to understand that when you are diversified, it's so funny, Robert, we were just talking about this the other day.

21:07We saw the sort of flash crash that happened when Trump was talking about the China stuff and the tariffs and on Sunday said, oh, it's all good, everything's fine, right? We saw, what was it, like a two and a half or three and a half percent drawdown on its peak in a single day. And then I look at my portfolio, I've got a bunch of different types of diversification in it And I hope everyone else does in their own portfolio as well, because that's what we talk about here. But I look at it, I'm like, dang, yeah, I'm in the red today, but not as deep as the NASDAQ or the S &P because, oh, look, Kroger's up 3 % today.

21:37That's kind of weirder. Oh, look, Palladium's in the green today. I wonder why that happened there, right? So it's just like being able to know that when the markets do this, parts of your portfolio do that instead is so important. Yeah. I mean, like, like I said, you just explained it somewhat better than me in the sense of exposures are everything, but feeling psychological safety is even more important when it comes to investing and being able to say like, look, you know, it's a math problem. You know, if you lose 10%, you have to make 11 % to get back to even. Right. And if I have the ability to say, I want to capture 50 % of the downsides, I only lose 5%.

22:13Well, you're starting at, you're starting at a better starting point right now when it comes to trying to return. recoup your possible loss. And here's the most important part. And I just want to hit this for people. You don't need to be a genius to understand it all. You just need to be confident to understand how do I go and find the information for it to make sense for me to explore if it's appropriate for my portfolio. Being able to ask those questions, what's in it? What is it investing in? Is it transparent? What's the fees? And then how did it behave? If you can do those things, you'll be pretty fine.

22:44And you can do that with crypto. You can do it with the ETF with that. You can do it literally across the entire portfolio with ETFs. I think that's one of the most important parts about the Rich Habits Network that we've built this ecosystem around the Rich Habits podcast. And Austin says this all the time, and I really love it, is he says, if any of you are surprised by what's happening in the markets, we're not doing a good enough job. And I really like that because it prevents people from investing or having these knee-jerk reactions with emotions because so many people, especially earlier on in their wealth-building journeys, they derive everything from emotion and headlines.

23:25And unfortunately, they don't understand most of the headlines or manipulation in the first place. And that's why diversification is so important. So that leads me to my next question that's really exciting, and that is the future of ETFs. We've seen the landscape. It's growing really quickly. Active ETFs grew by 55 % in 2024, and JP Morgan expects the U.S. ETF market to double to$20 trillion and the global ETF market to hit$30 trillion by 2030. So looking ahead for three to five years, what trends and innovations do you see that you're most excited about in the ETF world? First of all, great question.