Getting Ready for the “European Kill Switch”

0:17Downtown Josh Brown:Today's show is sponsored by Public, the investing platform for those who take it seriously. On Public, you can build a multi-asset portfolio of stocks, bonds, options, crypto, and now generated assets. which allow you to turn any idea into an investable index with AI. It all starts with your prompt from renewable energy companies with high free cash flow to semiconductor suppliers, growing revenue over 20 % year over year. You can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index, lets you back test, and then you can invest in a few clicks.

0:58Downtown Josh Brown:generated assets are like ETFs with infinite possibilities, customizable based on your thesis, not someone else's. Go to public.com slash compound and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash compound paid for by public investing, full disclosure and podcast description. All right, we are here live from the compound. Guys, the first time guest with me today, super excited to get into this conversation. From the October lows, the MSCI IFA index is up about 20%. The S &P is up closer to 14 over the same stretch. But year to date, IFA, we call it IFA on the street, is up about 8 % versus 4 % for the S &P.

1:49Downtown Josh Brown:Merging markets are up as well. A lot of the MAG7 names peaked months ago, though, and they've either stalled or pulled back. And it's taken a lot of the oxygen out of the U.S. stock versus international stock story. At the same time, the U.S. dollar index is also down. I don't think it's a one month rotation. I think it's bigger than that. Most investors are explaining it away with the standard playbook. They'll say, well, the stocks were cheaper or the dollar is weak or it's mean reversion because U.S. stocks have dominated. But Matt Tuttle thinks that misses the real story. Matt is the CEO and chief investment officer of Tuttle Capital Management.

2:30Downtown Josh Brown:Matt has built a reputation for pioneering high profile ETFs and was instrumental in the launch of single stock ETFs in the U.S. He's also a frequent guest in the financial media. This is his first time here on The Compound. Matthew, welcome. Thanks for joining us.

2:45Matthew Tuttle:Hey, thank you very much for having me.

2:47Downtown Josh Brown:So you wrote this thing where we're talking about Europe specifically, and you talked about the market missing the bigger story with this international stock outperformance. And part of what you were saying was the Europeans are working on a kill switch. And I wanted to start there and then we can get a little bit broader. But for people that didn't read your piece, what is the European kill switch and why should investors pay attention to it?

3:17Matthew Tuttle:Yeah. And, you know, as you said in the beginning, people are missing the boat, but they're also missing the boat just jumping into international. You've got to be thematic. You've got to understand kind of the dynamics going on. So we did right after Trump got elected, we did EUAD, European Aerospace and Defense, figuring that, you know, the European countries were going to have to spend, you know, in their own companies for their own defense. We see digital sovereignty is a lot similar to that. You know, we've seen that if you're relying on somebody else for your own defense, that's a problem.

3:59Matthew Tuttle:If you're relying on somebody else for energy, that's a problem. digital sovereignty to us is the same thing. So you've got, you know, this arms race going on between the U.S. and China on AI, and everyone's kind of forgetting Europe. And Europe is sitting there saying, you know, hey, we don't want to be reliant just on the U.S. We want to start bringing in our own companies. So that's what we're talking about.

4:27Downtown Josh Brown:Okay. So the Europeans in Internet 1.0, they spent most of that time allowing US dominant technology companies to come in, companies like Microsoft, et cetera. We sold our PCs there. We sold software there. We handled the build out of their websites like we were the dominant player. Then the cloud computing era gets underway, let's say 2015, 2016, it's mostly the European cloud computing is US cloud computing. It's mostly the same companies. And as we innovated, they decided they were going to spend their energy and attention regulating. This time, they don't want to play the same game and they want to actually have native.

5:15Downtown Josh Brown:I mean, how realistic is it for the Europeans to ever be able to kill switch our stuff, turn our stuff off, and light their stuff up. They're not there. But you're saying that's where things are headed. And you're saying the proof of that is, look what's happening with the European defense stocks. All of a sudden, they want to make missiles. Yeah.

5:37Matthew Tuttle:And that's exactly it. I mean, there's not a European MAG-7. There's not a European NVIDIA. They still are going to need us. But what I think you've got is a couple of things. You've got a political situation where our leaders and their leaders are not necessarily agreeing. A situation where we've got a president who's maybe not doing things the way other presidents did and is unpredictable. And they want as much, and you're seeing it where France came out and said, hey, we want to get off Teams or we want to get off Zoom. So they're only going to be able to do it to an extent. But when you look at and you're talking about, hey, people are investing internationally, to us, you've still got to be thematic there.

6:30Matthew Tuttle:Where are the areas going to be? And if you look, and I'm an ETF guy, but I think a lot of these international ETFs leave a lot to be desired because what you're getting is a lot of financials and, you know, not that much tech. I would rather say, you know, I want to be concentrated in areas. Digital sovereignty is one. Okay.

6:53Downtown Josh Brown:So when you buy a developed market international stock ETF, you're not, you're not going to be able to capture this theme unless it's like sort of a re-rating in the multiple, which is sort of what we've had so far, like a rising tide lifting all of those stocks. But like, if you really want to play into this idea of the Europeans getting serious about their own defense, their own platforms, their own digital, what do you do? Like, let's say somebody agrees with what you're saying, then what?

7:27Matthew Tuttle:Yeah, I mean, so for digital sovereignty, there is no ETF yet. Okay. Let's see, maybe -

7:34Downtown Josh Brown:What are you so busy doing all this time?

7:37Matthew Tuttle:I mean, we're filing for a whole bunch of stuff. I don't know if that halo thing was your idea, but we just filed for that on Friday.

7:45Downtown Josh Brown:Yeah, no, I'm going to sue you guys for that. We could talk about that. We could talk about that later. But so like what is the person who says, you know what, I agree. It really does seem like this is what you said. international and emerging market equities have been outperforming United States. Most investors explaining it away with lazy narratives. Then you said the main event is this, the world building optionality away from US policy and platform dependence. And once you see it, you can't unsee it. So some of the biggest winning stocks that I've seen internationally are like what's Rheinmetall is a German munitions maker.

8:24Downtown Josh Brown:Like I am seeing that start to really go like all of those stocks are doubling, tripling. So I would love to figure out what's the trade on this. I don't want to say more belligerent Europe, but like this Europe that's starting to feel itself. It's tough.

8:42Matthew Tuttle:Yeah. Well, there are some ADRs for the European digital sovereignty. There's Capgemini. I mean, everyone knows ASML and SAP. Right. Deutsche Telekom, Ericsson, Infion. You know, Nebius is one that I think a lot of people know. So there are some stocks. There's not a lot on the ADR side, but, you know, there's probably about 10, 12 names that you could go into on the ADR side until someone decides to do an ETF for it. Okay.

9:14Downtown Josh Brown:A lot of people over this weekend, when they looked at the, I don't want to call it an invasion, the bombing of Iran and the decapitation of the power structure there, and who knows where this will go. But a lot of people looked at that and they connected the dots to what we did in Venezuela. And the reason why that's potentially meaningful, not just for investors, but also for investors, is that Venezuela and Iran were the primary suppliers of oil to China. And again, we have no idea whether or not Iran will be selling oil today, tomorrow, who they're selling it to. So but just people looking at that and saying, wait a minute, is this whole thing like a checkmate to China cutting off its client states that were supplying it with oil?

10:07Downtown Josh Brown:And so now this sort of does become like a macro challenge or puzzle to figure out beyond just the political ramifications. Can you talk a little bit about that idea and where China plays into the whole digital sovereignty thing in addition to the energy dependence issues?

10:24Matthew Tuttle:Yeah. And the thing that Trump makes interesting with the markets is a lot of stuff is art of the deal. So, you know, we don't know why did he invade Venezuela? Why did he pull Maduro out of Venezuela? Why, you know, why is he bombing Iran? We hear the story, but you figure there's a lot more to it. You know, China, as far as AI, physical AI, is going to be a huge player. You know, you've got the Babas, the Baidus. You know, those are typical ways to play a K-Web, an ETF. You know, no one yet has done a Chinese-specific humanoid robot. What they're doing on robots is interesting. They're also ahead of us in a lot of areas.

11:15Matthew Tuttle:So I do think China is someplace that you cannot ignore when you're investing globally. But again, I think you focus, you don't just buy a China ETF. You want to focus on the AI stuff. You want to focus on the robotics stuff.

11:32Downtown Josh Brown:A China tech ETF will get you much further down that road.

11:37Matthew Tuttle:Yeah, I can't wait for it to get you much further down that road than like an FXI would.

11:43Downtown Josh Brown:I agree with you. I agree with you. It'll help you express that major theme. You've said that a US-China trade fight is increasingly a third country game. The market is slowly waking up to something that central banks and policymakers have been talking about more explicitly. When trade barriers rise, trade doesn't disappear. It reroutes. That means relative winners and losers shift across European Union, EM Asia, LATAM, and selected connectors. So if you're investing internationally in this day and age, what is the big takeaway, do you think, for investors?

12:23Matthew Tuttle:Yeah, so I think it is thematic and sticking with today and tomorrow's top themes. So, you know, AI is a game changer in so many different ways. But now it's beyond just, hey, buy NVIDIA, you know, buy some, you know, infrastructure, buy some cooling. There's so much more going on like the European digital sovereignty, like a Chinese robots. You're going to see opportunities in emerging markets on the digital side as well. Not nearly as many, but, you know, you want to look at and you want to look at those dislocations, you know, the winners, the losers, the halo idea. There's so much now going on beyond what was going on last year where it's just like, hey, buy AI and forget about it.

13:19Downtown Josh Brown:Do you think the international stock outperformance can continue throughout the course of 2026?

13:25Matthew Tuttle:I think it can. I mean, but at the end of the day, you don't ignore the U.S. I mean, we said it at the beginning. The real winners are still here. None of this happens without NVIDIA. You know, you look at all the kind of key, and we do a lot of thematic research. You look at all today and tomorrow's top themes and figure out who the winners are. It's still one or more MAG-7 names. So, you know, it's a rotation. You certainly want to be over there. but you don't want to ignore the US.

13:58Downtown Josh Brown:A lot of investors have just forgotten that these markets exist. I think on the financial advisor side, we've probably done a better job than average, continuing to build global diversification into our portfolios. But even on the advisor side, there's a lot of advisors just like after 10 years, just got sick of explaining themselves to their clients, sick of saying they're sorry every year that the S &P was lapping the IFA and the EEM. But I still think like advisors are better than average, certainly versus retail. But now retail is starting to rediscover that these other markets exist and that they can outperform.

14:40Downtown Josh Brown:And I think that that's the big shift that's happening now. And my guess is this kind of thing is probably not a six-month phenomenon. I think once this starts, people just start to learn the companies, learn the tickers of the ETFs. And it could have three years, five years in it. And it's exciting to me because it's boring to watch the S &P just beat everything every year. And that didn't happen last year. And I don't know that it'll happen this year.

15:10Matthew Tuttle:Yeah, I mean, I would agree with you. But the thing I would say is, again, you've got to be thematic. I wouldn't just say, all right, I'm going to buy an emerging market ETF. I'm going to buy an ETF, check the box. I've got that exposure. There's so much going on, like aerospace and defense, what we saw that doing last year. If you're just buying a European ETF or an ETH ETF, your exposure to that theme is minimal, if any. So I still think you've got to be thematic over there. But yeah, I mean, I agree. I don't think this is just a one hit wonder.

15:50Downtown Josh Brown:You laid out two different themes. One is Europe's next build out. And we talked about that defense, digital sovereignty, European aerospace. Those stocks have already gone up a lot and maybe they'll keep going. But that's that theme has been proven. The second theme, it seems a little bit squishier or more difficult for an investor to put their finger on the opportunity. but you're talking about the Euro stack. So you say Euro stack is the blueprint, even if the first versions are clunky. If defense is Europe's hard power rebuild, Euro stack style thinking is the soft power rebuild, a push toward a European controlled tech stack across compute cloud security and apps.

16:39Downtown Josh Brown:It's not European SaaS. That's not where you think this is going. You listed four areas where the winners will be compliance required procurement lanes, regulated data environments, defense and civilian crossover, meaning security comm satellites, and then integration slash implementation. Do the products yet exist for a one-click investor to be able to do that? Would you try to build a basket like this utilizing AI going on the public platform, for example? They've built an AI that allows you to express a theme and they will populate it with stocks. Like what would you do if you were trying to gain exposure to that Eurostack theme, that concept?

17:26Matthew Tuttle:Yeah, and you're right. It's not as clean as aerospace and defense. You've got specific defense companies in Europe. up, they're getting money, earnings go up, stock price goes up. But like I said before, they're, you know, 10 to 12 ADRs that you could invest in, you know, enough liquidity for an individual investor to invest in them. And yeah, you can use AI to help you do that. I mean, you know, it's an amazing tool, you know, use it and you could create a nice little basket of these names. you know hopefully sometime soon there will be a one-click etf because i do think you also want to include the locals and you know they're not all there as far as i've been able to see in adrs

18:16Downtown Josh Brown:i'm going to reel off some of these names because i think for our viewers and listeners they're probably unaware of most of them and maybe you could react to some of these or tell us how these made your list so on the europe uh defense and aerospace base story. You've got Airbus, which is obvious, BAE Systems, Rheinmetall, if I'm pronouncing that right, Leonardo, Saab, Thales, and Dassault Aviation. Why don't you tell us about those, and then we'll look at the digital sovereignty names after.

18:53Matthew Tuttle:Yeah, and those are all very clean, like the Lockheed Martins, the Raytheons of Europe. That's where the money's going. One of the things that we try very hard to do when we're constructing ETFs is we want pure play. So I get a lot of pushback on EUAD because, oh, it's so concentrated. It's like, look, I could put 40 names that get 10 % of the revenue from defense spending if you want to feel more diversified, but I'm not going to do that. I want to create a product that I want. And those are the key names where the money is going, you know, that are building the products that the European countries are looking to build for their own defense.

19:44Right.

19:44Downtown Josh Brown:So that fund, EUAD, European Aerospace and Defense, how long before the dominoes started to fall where people started to realize what you guys had realized was going to be like investable? How long did that take from the launch?

20:01Matthew Tuttle:I mean, too long. We launched it right after Trump got elected because to me, this was the obvious Trump trade. and I was pounding the table for it. And really it was up 70%. And then all of a sudden everyone's like, oh my God, I want to buy this. Dude, you should have been listening to me 70 % ago.