Markets At An Inflection Point + Invesco’s Brian Hartigan
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On the Tape.

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They are also the people behind the alternative investment industry's largest and most exciting in-person events. To find out more about iConnections events and members-only platform, visit iConnections.io. A warm welcome to the Risk Reversal Podcast. Guy Adami along with Dan Nathan. We're going to talk about this jobs report that just came out. But in a little while, we're going to have a great conversation with Brian Hartigan. He's the global head of ETFs and index investments at

at Invesco. Fascinating conversation and one you should stick around for. But first, we got to talk about what's going on in the markets. It's been a fascinating week here, Dan. Yeah, lots of downward volatility, but not just in the stock market. We've seen almost every major asset class moving around. I mean, obviously, the dollar is top of mind that, you know, the Dixie, the U.S. dollar index from 1

108.5 to like 103.5 in a week and a half or so. I haven't seen that sort of move in a very long time. And you know, when you see that either way to the upside or the downside in a currency like the dollar, you better pay attention because there's other knock-on effects there. Obviously, yields have been banging around a little bit, but

But to your point, Guy, this jobs report, it was hotly anticipated. Some of the data that we had leading up to it was suggesting that it was going to be somewhat weak. It was somewhat weak. The futures this morning, I think they're up like 40 basis points now shortly after the opening.

they're down about 25. And you think about these last couple Fridays, they've been volatile to the downside. I don't wanna get back to that thing. Remember like years ago, it was like no one wanted to be long into the weekend, so you'd see like really bad Fridays. And then if nothing happened over the weekend, maybe you'd see a bounce on Monday. But some of the things that I guess are causing this trepidation for investors,

they're not going away anytime soon. We started the week with this Tuesday deadline for tariffs on Mexico and Canada. You know, the markets did not love the prospect of a sustained trade war. And then we get what autos pushed out. And it's just like one of these things, man, this back and forth, this volley, it's going to be like seizing up to the economy. Is that fair to say? Because everything we heard, let's say from retail CEOs, we had a lot of them reporting this week is like the uncertainty will weigh on consumers if it hasn't already.

Yeah, it's fat. You know, I was listening to a bunch of different networks this week. And, you know, the mantra seems to be the market hates uncertainty. And my response in my head is always, well, when is there ever certainty about anything? But I think this heightened state of uncertainty that we find ourselves in, in terms of the rhetoric and the

backing off and ratcheting up over the last couple of weeks. I mean, that's what got the market on edge. And, you know, where the market likes uncertainty and not doesn't matter. What I will tell you, though, is we are in a heightened state of volatility now as measured with the VIX. And the fact that now we've been up above 20 for probably four or five trading sessions, that's probably the first time we've seen that in quite some time. And I think you have to be prepared for the foreseeable future of

to be trading or investing in this type of environment, which suggests the swings are going to be substantial and seemingly coming out of nowhere. But your point about currencies is extraordinarily well taken. And I'll say this, you know, what's going on in the euro is unprecedented. The move that we've seen, we haven't seen a move of that magnitude in quite some time. But

behind the curtain and below the surface. What's happening in dollar yen is something that everybody should be paying attention to. If you recall, last July, I think it was on a Thursday, we had a CPI number. Dollar yen was trading about 161 at the time. After the number was released, dollar yen traded down to 157 and it spent the next month or so cascading.

cascading lower, yen strengthening, dollar weakening. That culminated on August 5th when we saw the volatility index here in the United States jump above 60 and obviously saw a huge downdraft in the broader market on the back of what they call this

carry trade unwind. Well, dollar yen got back on its horse. We traded back in the mid 150s or so, but over the last couple of weeks, Dan, you've seen this weakness in the dollar against the yen that nobody's paying attention to. And I think the market better start

because it's eerily reminiscent of what we saw last summer. - Yeah, I guess for me more importantly is what's going on with the Euro and why the Euro has rallied so dramatically. And a lot of that comes back to geopolitics, really the situation with the Trump administration backing away from certain, you know, NATO and certain policies as it relates to Ukraine has caused the Europeans, the Western Europeans to suggest that they're gonna have to step up here and they're gonna have to spend a lot. And that was what happened with Germany

This week, the knock on effects of that are OK. You know, if we are going to go at it alone on this sort of isolationist sort of view, then we're going to have the Europeans emboldened. We're going to have the Canadians emboldened. We're going to have the Mexicans emboldened, especially if we're putting some of the most aggressive tariffs on our supposed targets.

allies so when you think about where all of this kind of comes together is okay well if we're gonna have a tariff war we're gonna have a trade war and this comes back to what a lot of these retail ceos had to say then this is going to be a difficult situation for a us consumer that is already starting to weaken we don't have to go through the data we spent the week talking about it here i think this morning's jobs report or the unemployment rate ticking up a little bit to 4.1

is kind of enough to suggest that if we do have headwinds as it relates to the global economy, then this is something that we could find ourselves, you know, like

like on our way to a recession, you saw that Atlanta Fed GDP now a huge swing north of two and a half percent growth down to like a negative two and a half. We know that's not going to be where it shakes out. But if we start to see, you know, GDP readings, you know, below two percent, I think a lot of folks are going to look at the middle part of this year. They're going to start pricing in more rate cuts, which you don't think is going to be bullish for stocks. OK,

I don't think so at all. I mean, I think this administration, I think a lot of market participants believe that lower rates are some sort of magic bullet for not only the economy, for the market as well. By the way, I'm not one of those people. I think you should let rates...

do what they want to do and just normalize through the normal course of action and market activity. But I probably stand somewhat alone on that. With that said, you know, if they were to lower rates in this environment, you have to ask yourself again, what do they see that nobody else seems to see? And what are they being sort of scared by? Which is, I think, the far reaching and most important question. And there is a slowdown going on without question. But you know what? It's probably a normal slowdown in the scope of what we've seen over the last five or six years. I mean,

People seem to think recession is a four-letter word. And I understand it's not the best outcome and the one outcome that people are looking for. But the reality is you have to let the business cycle work. And for too long, we've been reticent to have that happen.

With that said, I think it's important to bring up the unemployment rate ticking up. I do think the unemployment rate will continue to sort of move higher. And I think people will be surprised by how quickly it starts to move to the upside. Once it moves, once it starts, you sort of hit this escape velocity that we haven't seen in a while. And I think that's another cause for concern. In terms of the retailers real quick,

We're hearing the same type of stories without question. The consumer is a little bit, you know, the consumer is still spending, but, you know, they're seeing some weakness around the edges. You know, quite frankly, I think there's more weakness than they're letting on. And you're seeing it manifest itself in these different names. It's the have and the have-nots in the retail space. It's the good operators and the bad operators.

And the operators that are offering value for their customers, like a Walmart, like a Costco, continue to win in this environment. Yeah. So I have two comments here. You know, one that I agree with from Treasury Secretary Scott Besson and one that I do not. And the first one, let's just talk about as it relates to consumers, as it relates to what the retailers had to say about consumer confidence and consumer spending as it relates to a protracted trade war.

So here was a comment earlier in the week, and this really kind of gets me, Guy, and I think this is going to piss you off a little bit too. Buying cheap products is not the essence of the American dream. This is what Scott Besson had to say as it relates to sweeping tariffs on Canada and Mexico. And I listen to that, and I say to myself, here's a guy who, regardless of being a self-made billionaire, okay, and again, I'm not one of those people who just –

I'm super happy for everyone's success here. But now he's gone from being a hedge fund manager who's basically figured out ways to kind of get leverage and focus on this currency against this currency and make a boatload of money for his LPs and himself and the like here, but not really have his finger on the pulse of, let's say, the U.S. consumer. So

So buying cheap products is not the essence of the American dream. Well, 100% it is, right? Because essentially 50 some years ago, we made, you could call it unholy, this agreement with really cheap manufacturing all over the world so we can get cheap goods here, right? And so the idea that you're going to reverse that very quickly with some sort of onshoring and the like, that will only put pressure on a U.S. consumer. And here's a situation, you know, you talk about this all the time.

as widening income inequality gap. Can you imagine in the near term the sort of, I guess, pressure that would be put on consumers? When I say in the near term, I'm talking about for a couple of years reorienting the supply chains and the pricing of a lot of those consumer products and stuff. So I think it is part of the American dream. And I don't know how you turn that on its head in a very short period of time. Whether it's part of the American dream or not, I mean, I haven't really thought about it

that much. I sort of understand what he's trying to say. You know, we've gotten ourselves hooked on these cheap products from overseas. And you said it, we made these relationships, we forged these relationships during the Nixon administration. And it seemed like the right move at the right time. But

you know, what did it basically do? I think 50 years later, we're learning that, you know what, maybe it hurt us more than it helped us. And to a certain extent, I think that's what he's trying to say. But your point is well taken. Trying to get to the other side of that is not going to be a straight line. And it's going to take a lot longer than people are willing to put up with. We are this...

So society that wants immediacy and I think a prolonged period of pain is not going to sort of resonate with a lot of people, whether or not it's the right thing to do or not the right thing to do. But I think that's the battleship or the aircraft carrier that they're trying to turn right now, and it doesn't turn on a dime. So.

With all that said, what is it going to have an impact on? I think rates will continue to be a story without question. As you said, 10-year yields have come down from 4.8. We're probably, as we're sitting here right now, trading either side of 4.2%. So the move lower in rates can be seen as a positive, but I think rates are going lower, Dan, because things are slowing down in a pretty meaningful way. And I think we're going to continue to see that for the foreseeable future. Yeah, and one of the things that's really interesting

made that pretty evident over the last year or so. We've talked about this trade down of a U.S. consumer, right, to a Walmart, the average, you know, income of a Walmart shopper over $100,000. And, you know, that was one of the things when you talk about that sort of, you know, that unholy alliance between, you know,

manufacturing in really cheap places like China and then a U.S. consumer that flocks to a superstore like Walmart, right? Like the whole idea of getting those sorts of low prices is because you're basically able to have cheap manufacturing and then the logistics and the setup that they have right there. But, you know, the other comment, and this was Scott Besson on CNBC this morning, guys,

And I agree with this, and I think you'll agree with this, but again, there's no easy fix for it. He said, "The market and the economy have just become hooked, and we've become addicted to the government spending. There's going to be a detox period." And then he said about the market, "There's no put. The Trump call on the upside is if we have good policies, then the markets will go up."

I kind of agree with the first part. I don't agree with the second part because we just went over this. The good policy might be the thing that hurts the economy and hurts the markets. And we have no way of telling whether that's a one quarter thing or a multi-quarter thing or a multi-year sort of thing.

Well, it's definitely not a one quarter thing. And I don't think it's a multi quarter thing. I think this is something would have to take place over the course of a couple of years. And again, it's whether or not we're ready for that, or whether or not we're basically will buy into that collectively to allow it to happen. And my sense is, you know, people get

very impatient, very quickly. They give you a little bit of rope and then when things start affecting them, that's that old saying, recession is when your neighbor loses his or her job. A depression is when you lose yours. And I think everybody's sort of

standing and waiting right now. But it's amazing to see how quickly people are souring on these things. A month into this administration, you still have people saying, I thought he promised us lower prices. I'm still paying higher prices. And that just goes to show how impatient people are. So it's going to take some work, I think, for them to sort of push through what they want to push through. And I don't think the people here in the United States are ready for it.

With that said as well, you have to start looking at things that are happening around the edges. And as much as people talk about the strength and the resilience of the consumer, we're talking about household debt in the United States now north of $18 trillion, credit card debt north of $1.2 trillion with an average rate, by the way, of about 22.5%.

And below the surfaces, and this is something we talked about on Market Call earlier this week, delinquencies across a swath of different things have been on the rise in a way that we haven't seen in a while. And by the way, on the rise in a non-recessionary environment, which historically doesn't happen.

Yeah, and that's a great segue here because one of the things that stuck out, forget the like mega cap tech weakness or the meme stock weakness that we saw this week on Thursday. It was really a crazy day as you looked at technology because you saw mega cap tech at least

you know, the Mag 7 or Faithful 8, whatever you want to call them. They were down a lot. Marvell, which was this, you know, custom chip maker competing with NVIDIA, was down nearly 20% on the guidance that they gave. And I think that weighed on, you know, the semis definitely, but also on some of the other techs.

But it was like kind of the meme stocks that got absolutely killed. Applovin was down 18%. Palantir was down 11%. Even Netflix joined the party, was down nearly 10%. I could go on and on. Reddit was down 11%. So there really seemed to be wholesale selling

of things that had huge gains over the last call it year or two, maybe that got divorced from fundamentals. So I, that's the kind of meme stock category. You know, we could put that in Tesla has barely seen an uptick in about a month. It's down more than 40% from those post-election highs, but here's one group wrapping up everything that you just said about, you know,

basically the economy, the weakened economy, the consumer and the like. Look at banks, okay? In just two weeks, the BKX has gone from basically, you know, this multi-multi-year high to down 13% round-tripping the entire move since the election. But then it's not just the BKX guy. Have you looked at like BX, which is Blackstone?

This stock is down nearly 30%. So some of these guys who play, obviously, private equity, private credit, these were like some of the darlings of the financial space over the last few years, have really, I don't know if quietly is the word, but they have come back in a hard, hard way. And I guess what is that saying about the deal environment? What is it saying about with rates here? You know what I mean? Like cost of capital and the whole sort of thing. But then the

money center banks seem to be pricing in a little bit of a weakening consumer like you're just talking about. And then on the flip side, Goldman and Morgan Stanley act really poorly. Morgan's filled in the whole gap since the election. Why? Well, has the IPO counter come back? Have we seen some meaningful M&A? And that obviously weighs into some of the private equity guys. But the banks and financials broadly, I think, are saying something else about this market and the economy.

Yeah, well, I think there was so much enthusiasm around the banks into the election and then subsequently in the wake of the election. This is going to be an administration that's pro-business, less regulation, more deal-making.

lower rates, favorable yield curve. I mean, everything seemingly lined up for banks. And that still may be true, by the way. But the question I think the market is coming to grips with now is, did these run-ups in the banks, and some of these banks ran considerably, was that...

baking a lot in. It was a baking more in that was probably necessary given the slowdown that's probably going to sort of override everything. You know, the banks are not impervious to a slowdown here in the United States. And I think that's what

some of these bank sell-offs are coming to grips with. Bank of America is a great example. We saw close to a 10% move in one day. And Bank of America, which by the way, has had a pretty significant rally from the lows of October in 2023, probably doubled in price

But we recently traded up the levels we saw in the fall of 2022. And Bank of America has clearly their own issues. But across the swath of banks, they're all sort of subject to the same thing. Some banks are better than others. But if we're going to slow down here in the United States, I mean, they don't win to that, regardless of where the yield curve is and regardless of how much regulation is taken off the table.

All right. Another group you have to talk about from this week that to me is kind of flashing a little bit of that kind of global growth scare. That would be energy. Crude oil over the last few weeks has gone from 80, I think as low as like 65 and a half this week, which is a multi-year.

year low. A lot of the major components of the XLE, you know, the ETF that tracks the energy sector, large integrated is not acting particularly well either. And, you know, this is all happened guy with the backdrop of this weakening dollar. Right. So that relationship between, let's say,

the dollar and crude oil has seemed to kind of take a pause a little bit. So when you look at this, is it more geopolitical or is it more a suggestion of just kind of global growth? This is also a week that we saw, you know, China, a lot of talk about stimulus. We didn't see stimulus. They kind of targeted this 5% GDP, which I think is basically in line. But these are some of the weakest levels in over a decade that we've seen in China.

Yeah, well, I mean, in terms of geopolitics, I don't think things have changed all that much. I mean, ratchet it up, ratchet it down. But, you know, I think the crude oil market and to a certain extent, the commodities market has sort of figured out how to deal with geopolitics. I think the move lower in crude oil is on the back of a growth scare. And if you listen to Tim Seymour and Fast Money and a lot of other people, you know, one of the big concerns out there is

we might be in the midst of a bit of a growth scare. And obviously, you know, you could say what's happening here in the United States. There's been a reacceleration in Europe, but there's obviously issues in China, which is still the second largest economy in the world. So I think it's sort of firmly in the camp of growth scare. Now, at a certain point,

move lower in crude oil is going to start to be detrimental to some of the producers here in the United States. And quite frankly, in terms of the stocks, we're probably seeing it. So there's this point of diminishing marginal returns that if crude were to get below, then it's going to start to have some adverse effects. So there is a sweet spot for crude. I think we're

We're probably flirting with it right now at these levels. Right. We got to talk about semis here. Broadcom, as we're speaking right after the opening, is up about 6% or so in the aftermarket last night when we were on Fast Money. That stock was trading up, I don't know, was it 13%, 14% or something like that? So, you know, the guidance that they gave is better than expected, especially after the worries that we had with competitor Forex.

uh marvell they're talking about this is broadcom adding four hyperscaler customers now just to be clear this is microsoft google amazon meta you know some combination of those they didn't kind of name names those four companies throw in openai xai they're basically 50 of nvidia's revenue right so if a company like broadcom is contracting with nvidia's big customers to make

custom chips, right? That'll ultimately be a negative for Broadcom. So when Marvell was down and, you know, nearly 20% on Thursday, you know, the idea was like, all right, maybe this trade's not broadening it. Maybe there's less demand for chips as it relates to, you know, generative AI spending and the like here. So Broadcom is kind of bucking that trend guy and the guidance that they gave, but going back to December,

Do you remember that they gave a TAM for the custom AI, generative AI chip market by the end of 2027? You ready for this? You remember, between $30 billion and $90 billion. You could drive a truck through that. The stock went up 40% in two days. We're talking about hundreds of billions of dollars in market cap. Well, it gave it all back over the last three months.

Filled in that gap. And today here we are, you know, the stock's rallying a little bit, but if you pull up a chart, it's like a blip on the chart over the last three months or so. So again, do you see a stock like this where sentiment got overly bullish three months ago, then maybe it got overly bearish given what they just printed and what the guidance they gave? Are these good setups? Because we've seen this again and again,

Palantir gapped up like this, went 25% in a straight line after they reported, I want to say like a month or so ago, retraced the entire move. We've seen so many stocks that went up in a straight line in January that have retraced those moves. Are those setting up as good technical trades?

I don't think so. I mean, I'll say this in terms of Broadcom. You just sort of outlined it pretty well. But, you know, the move from basically 175 to 250 in a straight line was unprecedented. And I think at its peak, I don't have it in front of me, but it's probably like a 1.2 or 1.3 trillion dollar company growth.

Good for them, number one. But you also said we retraced the entire move back down. Now, if you want to trade, play the trading game, the fact that we traded down to that prior level and seemingly held, I mean, it gives you something to trade against. But I think your broader point is there's some weakness around the edges in this space that I don't think enough people are paying attention to it. And we talked about it a number of times.

if you look at the semis in aggregate they topped out in july of last year and they've been trading sideways to lower ever since think about nvidia for example which is everybody's love child 153 stock a month and a half or two months ago we just traded down to 110 or so and we're flirting with 113. so technically these stocks are under pressure but i think more importantly

Fundamentally, these stocks have issues just on valuation alone. And I think that's what the market is trying to figure out right here. Yeah, just I guess we could wrap this all up by saying that, you know, we've seen an unwind in sentiment, in my opinion, Guy, right? So the things that had been kind of

powering, at least from a secular standpoint in the tech side. So that's generative AI. And that's been a couple of years going. But you just mentioned this before. You know, once it looked like the Trump administration or Trump was going to win this election and, you know, folks started kind of reorienting towards, you know, a pro growth agenda. They were looking at the playbook from the first administration. That

when the banks took off, right? And then you started seeing better consumer sentiment. This is, you know, Tom Lee last week from Fundstrat when he was on the pod with us. It was really interesting. He was talking about consumer confidence. He was saying there's a huge bifurcation between the way you voted in this past election, which I do think is interesting. Now, to your point that you said earlier, if prices don't come down, because that was probably the most important thing that, you know, resonated with

you know, voters and ones that swung over to the, you know, current administration, if prices don't come down, I mean, this is going to be something where sentiment starts getting much weaker. You could find yourself in a situation where, what do they call that spiral? You know what I mean? When, when consumers pull back that sort of thing. And that's kind of what we heard from Best Buy a little bit on the higher end. So again, you know, it seems like a,

difficult spot for the economy right now and there's obviously a lot of moving parts as you think about it from the macro standpoint and the geopolitical standpoint i think we'd all appreciate just a kind of calming down of a lot of the messaging on the day-to-day basis because i think a lot of us are getting uh getting a little whiplash guy i think you know the realization is that there are no quick fixes for the inflation problem and as much as

you'll hear, you know, we'll solve this on day one. The reality is you can't solve these things on day one. It takes time. And I think, again, you know, our population, you got a grace period, but that grace period, I think historically is getting smaller and smaller. And I think we're right up against it now. And I don't see prices coming down anytime soon. I think people are starting to get upset about things. It's not a political issue.

commentary. It's just the reality of the situation. I mean, the same things that people were upset about in the prior administration, they're upset about now. And again, maybe their concerns were, you know, they were assuaged their concerns for a period of time, but those concerns are right back in the front burner. And if in fact the job market begins to deteriorate, that just adds another layer to this entire thing. So again, the bottom line is with a VIX north of 24,

Just buckle in for continued volatility. You know, we're at critical levels of support in a number of different individual names and the broader indexes. But, you know, we're sort of on we're teetering here right now for the first time in a while in terms of the market. Yeah. So we're looking at a lot of green right now, just in the last 20 minutes since the market opened. I suspect that some of the stuff that got hit hard yesterday that's bouncing today, if it cannot hold, this is going to be an ugly afternoon into March.

Monday and just from where I stand, taking some of the kind of froth out of this market and some of the overly enthusiastic sentiment is a good thing. But Guy, before we get to our conversation with Brian Hartigan, I just have to say this. Like if I think you and I spent a lot of time with him talking about the QQQ and the history of it, it just turned 40 years old. And then the RSP, the equal weight S&P. What's really interesting about this conversation is that there's probably not another instrument in the entire market in my nearly 30 years

as an investor, as a trader, that have traded more than the QQQ. And not just directionally, but also from a hedging standpoint, Brian gets into all that. We also talk about the usefulness of an RSP, the equal weight S&P, and that's become more and more important to many investors as we've seen this massive concentration in those biggest names of the QQQ. So we had a great conversation with Brian. Stick around for that. Guy and I, you and I will be back next week on The Market Call and the First Versus Podcast.

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All right, welcome back to the Risk Reversal Podcast. We have a special guest today, Brian Hartigan. He is the Global Head of ETFs and Index Investments at Invesco. Brian, welcome to the pod. Thanks for having me today. So we met a few weeks ago on the set of Fast Money. You joined us. It was the 40th anniversary of the QQQ. We actually spoke about it, Guy, in the break when it was launched. It was the QQQQ.

q it was the quad q isn't that what we used to call it on the trading desk a little bit so this is one that has been near and dear to my heart uh i've been trading this thing i want to say since the late 90s fairly actively traded options on it used it to hedge uh speculate a whole host of different things so we want to get into the kind of the construction we're going to get into the concentration and the like but the rsp the equal weight

S&P has been something that has been near and dear to Guy's heart. Now, first things first, Brian, you know, Guy is an alum of Georgetown. He is like Hoya number one. He had three kids that went there. My wife went to Georgetown. I have two girls there right now. And every time I'm on campus, I go to a football game. I go to a lacrosse game. I go to the Cap One Center to see the basketball team. And there is just Invesco all over the place. What's

What's up with that? The CEO of Invesco, is he a lawyer or something? Look, that's us getting the word out and expanding the brand. So Georgetown, there's a number of affiliations in the Midwest, University of Illinois. I'm a longstanding suffering DePaul fan. So many, many defeats to Georgetown and the like. But yeah, the sponsorship, you'll see quite a bit of presence of the Q's coming into March Madness, which we have in a couple of weeks. And we're really excited about our presence there in market.

believe it was the Ray Meyer era where DePaul was sort of the top of the shit pile. And obviously things have gone south since then. But let's talk about, you know, getting the message out. There's a myriad of different ways. And I'm sure the investor base is

And the trading base, for that matter, has changed considerably, I would imagine, since COVID. So maybe you can speak to that. Yeah, I mean, you teed it up. The Qs are the second largest and most liquid ETF, second most liquid and traded ETF within the market. And that's come over the 25 years of not only the presence, the building of the unique ETF,

constituents within the fund, but also the performance, right? It's one of the best performing large cap ETFs that you can find in the market. So it delivers on that story and on the results for investors, but it's grown to well over 300 billion. We've taken different iterations of QQQ and it's a 25 year old structure. We've modernized

the structure with QQQM, which allows reinvest and securities lending and takes advantage of new market structure. So performance is one, liquidity is one, and it's really one of the early poster children for ETFs as an efficient vehicle to market access, right? Yeah. So we get questions all the time from retail, obviously on Fast Money, but through our podcast about what are some of the vehicles that we use to invest, but also trade. And you know,

This one's really interesting to me because of the building concentration, let's say, over the last 10 years. If you look at the top 10 names, they make up 50% or so of the weight of this index. Now, what I find interesting about the construction is everybody wants to be exposed to

to those top 10 names. There's a reason why they've gained so much in market cap. They are the best performing companies, which is reflected hopefully in the stock market. But then you also get the other 90, which there's probably some great themes that the top 10 are being rewarded for that maybe the other 90 are going to get in the future at some point. So talk to us a little bit

about the construction, because to me, I always say to investors who are looking to get exposure, you know what I mean, across the major themes, but also, you know, tech that this is a great way to play it. You don't have the idiosyncratic risk of going all in in an Apple or Nvidia or something like that. But then you get a lot of exposure outside those top ten. So talk to us a little bit about the construction and the concentration.

Yeah. So at its surface, some might say, look, this is an index fund and you're buying what's in the index. But the unique aspect of it is that the index started off the NASDAQ exchange. Right. And what does the NASDAQ exchange and companies that list there represent innovation, technology and advancement of technology?

of the greater economy. And those are the folks, those are the companies that tend to seek to list on the NASDAQ. Palantir was a great example that made the change into NASDAQ and migrated into the NASDAQ 100. So it is market cap weighted. So with

with a ceiling on limiting some of that concentration. And we've implemented some of those parameters by rebalancing the index when that concentration starts to hit too high. So there's a control factor to the index and the methodology within the

fund. But to your point, you're going to get higher exposure to the top names, but you want those next names graduating up into the top 10, 15, and 20. So as opposed to just holding and concentrating a three, four, eight stock position, you're getting that graduation naturally as the market evolves within the index. When you think about an index like the NASDAQ 100, let's talk a little bit about the evolution of the product.

the evolution of the product of the QQQ and some of the use cases, like how you've seen that evolve over the years. Because I think when it was introduced, or at least when I started trading it, a lot of folks were trading the futures, you know, and again on the CME and the like. And this product, once it started getting a level of liquidity, I think that it

It became like an active trader's sort of tool, but then it also evolved. And I remember in the 2000s is like if you had a portfolio that was heavily weighted towards tech, this became a great hedging tool also. So I'm just curious if you can give us a sense of like how the use cases of the product has evolved over the last, let's call it 30 years.

- Yeah, and I can use this for Q, RSP, and some of the others that it becomes part of the liquidity ecosystem, right? So why would you want access to an index or an index future? It's either immediate, it's equitization,

It's quick exposure and it's super efficient in terms of its cost and its liquidity. Potentially over time, there's basis risk, there's tracking error from the contract itself to the fund. And as Q's grew,

larger and larger as it grew from a liquidity basis being tighter and tighter, it serves as a competitor to the futures market. So we tend to see quite a bit of trading within it, but assets have been terribly sticky, wonderfully sticky, I should say. And we do have quite a bit of long-term holders

within the fund. And I think it's moved from that trader's vehicle to, wow, this is a large cap, innovative access to some of the world's greatest companies. And people are seeing through the liquidity aspects and

and buying it for a true hold of the underlying. - Yeah, and we just mentioned, you know, when you buy an ETF like this, you get that broad base exposure, obviously heavily weighted towards those top 10. But you also have a situation which I find interesting. So you don't have the idiosyncratic risk of one of those names, but you also, from a vol standpoint,

The vol is kind of dampened by the fact that you have a hundred stocks in there, right? So when I think about expressing directional views, I can look at the QQQ, but I can also trade options on it, right? And because the vol is like I just said, generally lower than any of those components.

give us a sense of, of, uh, you know, options traded in and around it. I know you have some products that kind of incorporate that because that's something that a lot of our listeners might not be aware of how you've kind of merged these two products. Yeah. And if I can maybe placate both of you, uh,

in terms of agreement of QQQ and RSP being those two sides of the market, actually when you combine them, your point on mitigating risk and dampening downside, you see a negative correlation in terms of the excess return.

Quite simply, they behave differently, right? So putting them together, you're able to capture those upside moves from concentration and you can defend when that moves away from you because of the RSP dappening effect. So together, quite an effective market access tool. But within that, right, for each investor that's

either looking to dial up concentration or mitigate some of that concentration through equal weight. We did implement option income strategies. So what we call our income advantage. So RSPA, QQQA, you get exposure to the underlying index and then we'll write calls and create some downside protection within that. So you get a lower beta profile, you're generating income

from the index, which otherwise you're not getting for those particular investors. And then that serves as a bit of a downside protection for you through the income. You know what's interesting about that? And so it's a lot easier to buy that product than actually have to do the overwriting because

I get the options market and I really love using options, but the idea of like, you know, continually doing those overrides to get that out of income, you know, and it's also like, what are you going to do? Collar the QQQ. You can actually use your product to get that downside protection while also creating a little income.

That's absolutely right. You've seen actually option utilization increase due to the spike of some of these products. So buffered or hedged, those types of in-name utilizing options and the options market has benefited from it. But like anything with product proliferation creates confusion, right? How do I, which month do I pick? How much downside do I want? Do I want to give up all the upside? So this effectively takes it down the middle in terms of an active approach.

will give you the balance of what's best within the market. And because of the liquidity increase, we actually roll these daily so that you don't have the path dependency, which might come from a third Friday type strike where you've got a lot of volume moving into the close. So it creates a smoother ride than picking one single strike

and managing month to month. You know, in terms of the construction, and I'm fascinated by this, I don't know this. My guess is like Arm Holdings was maybe one of the most recent IPOs that was added. Palantir's obviously on that list. I guess my question to you is,

How does it work when a company goes public? Do you have a team of people that make the decision we're going to include this company? And to that extent, once there's an inclusion of a, for example, Palantir, does that mean by definition the exclusion of another company in the space or in that sector? So important to know it's 100% rules based. We have passive equals index and then you have active much more discretion. And then we play it down the middle where

As I mentioned, QQA and RSPA, combination of both, right? The embedded equity exposure is passive, but then your option writing has an active bet to it. So for any index or the NASDAQ, it'll have a rule set where when they do, if they hit minimum market cap, minimum trading, and they're within the universe of the index, the index then gets struck either annually or quarterly reweighted.

And then our approach is to ensure we have the liquidity and we can track the paper index via the live real life market impact approach to to investing in the ETF. So, again, while many say, hey, aren't you just buying the index? As you know,

Markets are incredibly living, breathing and volatile environments that you have to navigate through and nothing's guaranteed. So we've done a great job in terms of tracking error, which is ultimately what we compare ourselves to in terms of how well did we deliver on the returns.

So great explanation, because I think a lot of folks who kind of trade these things or invest in them, they probably don't have a clear sense for how that process works. You know, a lot of times you'll get that headline, you know, such and such added to the NASDAQ 100, this one out. And you're thinking, is that a discretionary sort of view? But the rules based makes sense.

A lot of sense. Let's spend some time on the RSP. This is the Equal Weight S&P. And this is a great day to kind of really speak to this. So we are Thursday into the close. The S&P is down about 2% on the day. The NASDAQ 100 is down 3% on the day. The RSP, the Equal Weight, is down 1.4%.

about unchanged on the year, believe it or not. It's down 40 basis points, while the S&P 500 is down about 3%, and the NASDAQ 100 is down nearly 5%. So in periods of downward volatility, how do you see interest in the RSP? Because again, if you think about it, we have many of those top 10 holdings in the QQQ are down double-digit percentage. Now, they've massively outperformed over the last two and a half years,

So does retail have the same interest in these products, let's say as institutions and why might they? Because we quote the RSP all the time. I think on one of our podcasts today, we're talking about it because it really helps make certain cases about the names that are driving performance in the market.

Yeah, I think it tends to start a bit more retail driven, although we have institutional fundings on new launches that are very institutional minded. So it depends on kind of a launch, but then the evolution grows through trading activity, adoption through wealth, and ultimately as it becomes more liquid like RSP has,

It takes on a larger institutional profile. And we've seen investors, U.S., international, take fairly large allocations into RRSP. And it is simply, as you stated, while we do have that market concentration, which RRSP is the inverse of, right? Equal weight is RRSP.

very simply not market cap weighted. Traditionally, it had been a bit more of a play on the size factor. So when we talk factors, right, you get less large cap because you're not market cap weighted and you benefit from small and mid-cap markets. But because of the concentration and how large some of the largest names have gotten,

you've seen RSP become kind of that mitigator to the, to the concentration risk. So what's, what's appealing to investors. They, they want to know what they're using, what's in it and how it's going to behave. And of course, no guarantees on anything, but you know, you're going to have a much lower weight to the top 10 start stocks driving the market simply by the name, right? If we'll wait 500 stocks, 20 basis points, if my math is right. So, yeah,

That gets you to broad diversification, fairly large underweights, right? And

While it is a passive fund, when you look at your active exposure to the market, RSP is very active compared to its weightings, right? To the QQQ as well as the S&P 500. So very different. Their asset class is seemingly rising up. I mean, Bitcoin's probably the last one that's gotten to the low. I think it's approximately $1.7 trillion more. I don't know exactly, but I think I'm pretty close. With that said,

What's the determination around asset classes and then how they subsequently could get basically part of the Invesco family, if that makes sense?

Sure. So in terms of how do we evaluate product or launches to the market? Great question. So, you know, we're within the original launch of the Bitcoin suite of families. So BTCO is our ETF. That was an opportunity that one, we have an alternative. We have an alternative product line. So DBA and DBC that you mentioned before, we view BTC.

Bitcoin is an extension of the alternative suite. We have an extremely large factor suite and we've built on our QQQ suite. So as I mentioned, QQQA is the option income, right? How do you build out some of the investor preference and can you engage and articulate an opportunity in multiple different ways? So long queues, QQA with option income. We have QBIG, which is a overpayment.

overly more concentrated version of the Q's and we have XLG, which is the concentrated S&P 500. So it's part of your approach and the engagement. I call it the feedback loop from your clientele in terms of how are they trying to broaden out some of their solutions. And for us,

We're a global provider, have multiple different capabilities across passive factors, alternatives, and active. So we try to make sure that those launches are effective. We're capturing market demand and that we can ultimately compete and deliver on the investment objectives.

Well, Brian, as a team, Guy and I were particularly bearish heading into 2022. So we got that one right. And, you know, when you think about some of the biggest names in the index, for instance, you know, it was Tesla, it was Nvidia, Meta, and Netflix, they lost like 70%.

of their value from the peak in 21 to their lows in 22. But what was interesting about that, and again, we were in the mindset that that presented opportunity when the market finally bottomed and we would go on CNBC and Melissa Lee, our host of Fast Money would say, "All right, we know you guys are bearish,

lot. Okay. And then we'd also have people, retail investors or listeners of our podcast or friends say, Hey, listen, this doesn't feel particularly good, but how do I get exposure? You know what I mean? I'm never going to be able to pick the bottom. And we used to say like clockwork,

just average the cues because there was this mindset that, you know, some strategists are like, okay, well, if the heaviest weighted tech stocks were the ones that led in the bull market, they're not likely to lead out. And we were like, that's impossible given the construction of the market and where the innovation was. Right. So our whole test was like, let's just dollar cost average, whatever your timeframe is. Is it weekly? Is it monthly? Is it

quarterly because that's the way when you look back, that's going to be the outperformance in the next bull market. Right. And so I'm just curious because a lot of folks said, OK, you guys were bearish. Maybe you stayed a little too bearish for too long. But that was good advice because their averages were much lower. So how do you see

folks kind of using these instruments to kind of execute long-term views. We trade them, you know what I'm saying? But a lot of people are probably using it as a much cheaper way to get access to these markets than let's say mutual funds or other funds that are underperforming that you pay much higher fees than something like your ETFs.

Yeah, there's a tactical approach. As you said, are we getting a little cheaper? Is this an entry point? The market hates uncertainty, but it's never going to get any level of certainty. And you see these last few days trying to dissect what is day-to-day, if not hour-to-hour news that is going...

is going to impact the long-term economy, right? So how do you position for that? Certainly we see these blips and you guys talk about it every single day, right? So being long and long-term has been effective within the equities market. So how do you use these corrections as an opportunity either to do what you were thinking of doing if that was reducing your concentration, right?

If you're looking to make a call in the market that you think this is going to persist, that might be a factor rotation. So this year, if you look at short term, low volatility has been an area of performance, right? It's outperformed momentum, which was a big leader last year. So we do see tactical rotations and some of these

these market corrections as that catalyst to say, all right, well, now is a good, you know, three months, six months or 12 month window to tactically allocate. The ETF market has grown substantially within fixed income as well. So while we don't see massive,

flows moving into a risk-off and all fixed income environment, there are folks making duration bets within the fixed income lineup that's grown. And you have all those utilities to make that call right now being another difficult call, right? And do you want to be long duration and get a little bit of income or do you want to play it down the middle in the intermediate space? So all of it being kind of valuation driven and catalyst about what my future is

outlook looks like. Brian Hartigan is the global head of ETFs at Invesco. We appreciate your time. This was a fascinating conversation and I'm sure we're going to have you back soon. Thanks, Brian. That's good. Thanks, guys.