finance
Bloomberg Radio host Barry Ritholtz speaks to the people and ideas that shape markets, investing and business.
Seth Bernstein, CEO of Alliance Bernstein, revealed the firm's decision to relocate its headquarters from New York to Nashville. This strategic move aims to reduce costs and access a wider talent pool, with an estimated annual savings of $85 million.
Seth Bernstein discussed the significant turnaround at Alliance Bernstein since he took over as CEO in 2017. He highlighted a strategic focus on distribution, particularly in private credit and the insurance business, which has helped the firm grow its assets under management significantly.
Seth Bernstein stated that Alliance Bernstein will not launch another mutual fund in the U.S., indicating a strong focus on Exchange Traded Funds (ETFs) and separately managed accounts (SMAs) as the preferred vehicles for clients.
Alliance Bernstein significantly expanded its private credit platform by acquiring CarVal Investors, bringing the combined assets in this area to nearly $100 billion. Seth Bernstein noted his personal background in lending informed this strategic growth area.
Seth Bernstein emphasized the deep fiduciary culture at Alliance Bernstein, stressing the importance of putting clients first in both private wealth and investment teams. He contrasted this with the broader industry, noting the slow adoption of a true fiduciary standard.
Seth Bernstein discussed the growing role of private credit, driven by bank constraints, and its increasing accessibility to individuals through wealth management and retirement accounts. He believes private credit will become a significant part of institutional portfolios over the next decade.
Tyler Gardner, who previously taught economics, transitioned into finance and eventually became a "finfluencer" with over 6 million followers. He realized a significant gap in the market for clear, accurate financial education delivered through social media platforms.
Tyler Gardner found that many clients seeking wealth management services were primarily interested in having their assets managed rather than being educated on financial strategies. This surprised him, as he had envisioned a career focused on educating individuals about finance.
Tyler Gardner was motivated to enter the social media space after observing a viral TikTok video about Roth IRAs that contained significant misinformation. He noticed a pattern of engaging but inaccurate content creators on social media, contrasted with accurate creators who struggled to connect with audiences.
Tyler Gardner describes the initial phase of creating social media content as a "cringe phase" where early efforts are often met with ridicule. He emphasizes that overcoming this period of self-doubt and external mockery is crucial for anyone aspiring to be a content creator.
Tyler Gardner argues that the greatest risk for a professional is not in trying something new and potentially failing, but in remaining in a safe, W-2 job for decades with capped upside. He encourages individuals to pursue their entrepreneurial aspirations, emphasizing that returning to a stable job is often feasible if the new venture doesn't succeed.
Tyler Gardner believes that people do not inherently dislike work but rather dislike being told what to do and working with people they don't respect. He highlights that gaining agency, authorship, and autonomy over one's work dramatically increases motivation and job satisfaction.
A new weekly podcast from Bloomberg, titled 'Bloomberg Money,' has been launched. The show aims to help listeners make sense of markets and the economy and how they impact personal finance, investing, and retirement. It will feature conversations with economists, strategists, and wealth managers.
Former Vanguard CEO Bill McNabb attributed his career trajectory to luck and strong mentors, rather than innate brilliance. He shared that his initial attraction to Vanguard was based on gut feeling and shared values, despite then-CEO Jack Bogle's frank assessment of the firm's limited growth prospects at the time.
Bill McNabb highlighted the importance of 'the power of we versus I' and leading by example, principles he learned from coaching and reinforced at Vanguard under leaders like Jack Brennan. He explained that collective drive for success is crucial in business, just as it is for a rowing team.
Bill McNabb explained that the surge in indexing was driven by both psychological factors, like distrust following market scandals, and undeniable mathematical advantages. He noted that over any rolling 10-year period, index funds mathematically outperform 90% of active equities after taxes, a compelling argument for long-term investors.
During the 2008 financial crisis, Vanguard maintained a no-layoff policy for its employees, a move Bill McNabb believes was crucial for reassuring clients and maintaining service levels. He explained that while competitors were cutting staff due to falling revenues, Vanguard doubled down on service and problem-solving, which ultimately strengthened client relationships.
Following the 2008 financial crisis, Vanguard, under Bill McNabb's leadership, strategically focused on expanding its role in the advisor channel and significantly investing in Exchange Traded Funds (ETFs). This period also saw Vanguard refine its core mission to 'take a stand for investors, treat them fairly, and give them the best chance for investment success,' a principle that guided the development of products like target-date funds.
Bill McNabb outlined a board's core responsibilities as focusing on talent, strategy, and risk, rather than trying to manage day-to-day operations. He emphasized the importance of culture and talent assessment, noting that agility is paramount in today's rapidly changing business landscape, a lesson learned from Vanguard's strategic shifts during the 2008 crisis.
Bill McNabb expressed enthusiasm for his work with fintech startups, viewing it as a 'passion play' to improve the investment landscape. He is involved with firms like Venrock, Altruist, and Vanilla, believing that these companies have the potential to significantly benefit investors through technological innovation and improved services.
Bill McNabb believes the future of financial advice will involve a spectrum, with a significant portion leaning towards human-centric advisors, augmented by technology. He argues that while automation is useful, the 'human touch' is essential for preventing investors from making detrimental decisions, especially during market volatility.
Rob Arnott, founder of Research Affiliates, argues that traditional market cap-weighted indexes like the S&P 500, which have dominated investor inflows since the financial crisis, are becoming increasingly risky due to market concentration in a few large stocks. He criticizes the strategy of buying companies after they have already significantly increased in value and trading at high multiples, only to sell them at a loss when their market cap falls.
Rob Arnott explains that indexing, often perceived as passive, has an 'active side' involving about 5% of trading activity. This active component, driven by index rebalancing, can lead to hidden costs and inefficiencies, such as buying stocks at their peak just before they are added to an index and selling them at a low point when they are removed.
Rob Arnott highlights the costly 'flip-flop' phenomenon in index inclusions and deletions, where stocks added to indexes often underperform after their peak, and stocks deleted and later re-added also show significant underperformance prior to re-entry. This cycle results in substantial losses for index funds that must buy high and sell low.
Rob Arnott proposes fundamentally weighted indexes, which base stock weights on economic footprints like sales, profits, net worth, and dividends, as an alternative to market cap weighting. He argues this approach reduces the overweighting of frothy growth stocks and increases the weighting of unloved value stocks, leading to a stark value tilt.
Rob Arnott states that RAFI (Research Affiliates Fundamental Index) strategies have historically outperformed cap-weighted value indexes by 2-2.5% annually. Despite growth indexes showing higher headline returns, Arnott argues that the underlying fundamentals of value and growth portfolios have grown in parallel, with growth outperformance driven by increasing valuations rather than fundamental growth.
Rob Arnott acknowledges equal weighting as a legitimate portfolio strategy that offers a rebalancing alpha and avoids market cap biases. However, he notes it has a strong small-cap and value tilt and can lead to portfolios with higher multiples if not carefully constructed, unlike fundamental weighting which is directly tied to economic footprint.
Rob Arnott explains that while fundamental index strategies have a value tilt, their rebalancing mechanism helps manage the volatility often associated with value investing. He notes that even during periods where value underperforms significantly, fundamental indexes demonstrate resilience, outperforming cap-weighted value indexes in about three out of every four years.
David Booth, founder of Dimensional Fund Advisors, discusses the origins of his firm, which grew out of academic research on market efficiency and the limitations of active stock picking. He explains how the insights of Eugene Fama and others led to the development of passive investing strategies, initially serving institutional clients before expanding.
David Booth, founder of Dimensional Fund Advisors, emphasizes that uncertainty is not to be feared but embraced, as it creates opportunities in both life and investing. He advises investors to 'stay calm' during market volatility, noting that human ingenuity and the market's ability to price in bad news often lead to recovery faster than anticipated.
David Booth recounts how Dimensional Fund Advisors' initial focus on small-cap stocks was inspired by academic research and market observation. He explains that by identifying that institutional investors were underweight in smaller companies, DFA aimed to provide access to this segment, defining 'small' by the smallest quintile of companies on the New York Stock Exchange.
David Booth criticizes modern financial media for creating distracting noise that hinders investors. He argues that success in investing often comes from 'tuning out more' rather than doing more, as market prices already reflect available information, making attempts to predict or react to news futile for most investors.
David Booth discusses his significant philanthropic contributions, including substantial gifts to the University of Chicago Booth School of Business and the University of Kansas. He also touches upon his role in preserving art, particularly through endowing a conservation lab at the Museum of Modern Art (MoMA).
David Bonson, author of "Profit from the Profit," argues that investing should focus on a company's underlying profits and the tangible reward of dividends, rather than speculating on stock price movements. He likens owning stock to owning a 'lemonade stand' and emphasizes that value is created by businesses meeting human needs, not just by market index fluctuations.
David Bonson differentiates between economic investing, which derives value from a company's performance, and speculation, which relies on predicting price movements or market psychology. He notes that the proliferation of instruments like prediction markets and single-day option ETFs has amplified speculative behavior.
David Bonson explains the distinction between endogenous returns, which stem from a company's internal performance and profit growth, and exogenous returns, which are driven by external factors like market sentiment or other investors' psychology. He advocates for an endogenous approach, focusing on business fundamentals over predicting market trends.
David Bonson highlights that despite the S&P 500's significant gains over the past seven years, dividend growth investing has shown resilience, even outperforming the market in certain periods, such as 2022. He suggests that with the S&P trading at a high multiple, future returns may be constrained, making dividend growth a more probable strategy.
David Bonson contends that Berkshire Hathaway, despite not paying dividends, actually exemplifies his dividend growth philosophy by holding numerous companies that do pay dividends. He argues that while some companies might retain earnings successfully for growth, many more 'set money on fire' through poor capital allocation compared to disciplined dividend payers.
David Bonson suggests that the commitment to paying and increasing dividends imposes a valuable discipline on management, acting as a safeguard against reckless mergers and acquisitions. He cites examples like Exxon and Chevron, which maintained dividends through crises, contrasting them with companies like Viacom that engaged in capital-destructive media deals.
David Bonson explains that dividend growth investors can benefit from market volatility, unlike those who simply endure it. By automatically reinvesting dividends, these investors purchase more shares when prices are low, creating an 'automated compounding machine' that amplifies wealth creation over time.
Ankur Crawford, a portfolio manager at Alger, shared her unconventional career path from aspiring astronaut and semiconductor engineer to her current role. Her journey, shaped by global experiences and a fascination with how things work, led her to pivot from a technical field to finance, driven by a desire for broader impact and personal fulfillment.
Portfolio Manager Ankur Crawford highlighted how her diverse global upbringing provides a unique perspective on evaluating management teams. She explained that cultural differences can influence a CEO's communication style, such as humility or directness, which investors should understand rather than misinterpret as a sign of weakness or a problem with the business.
Ankur Crawford emphasized the critical advantage her engineering and semiconductor background provides in her investment analysis. Having hands-on experience with fabrication tools and understanding the intricacies of chip manufacturing allows her to grasp the underlying technology, assess its future trajectory, and build conviction, especially in the volatile AI sector.
Ankur Crawford recounted her unusual hiring experience at Alger, where CEO Dan Chung hired her immediately after an initial meeting. Despite her lack of investing experience, Chung was drawn to her non-traditional background and her willingness to engage in robust debate, valuing her ability to offer different perspectives over conforming to the norm.
Ankur Crawford identified the transition from analyst to portfolio manager as the most challenging part of her career at Alger. This shift required her to move from detailed, hands-on analysis to a broader, more strategic role, utilizing a Socratic method to guide her team, which was a significant departure from her previous analytical responsibilities.
Ankur Crawford explained that Alger's approach to growth investing is centered on identifying 'change' within companies, rather than just 'growth' itself. This change, whether in unit volume or life cycle, is seen as the primary driver that begets growth. She highlighted two key pillars: high unit volume growth and life cycle change, the latter often involving companies that are misunderstood or undervalued due to strategic shifts.
Ankur Crawford believes artificial intelligence is driving an unprecedented era of innovation, particularly as software begins to write software. This reduces the time and cost of development, leading to exponential innovation. She sees this having profound impacts on semiconductors, hyperscalers, and the broader S&P 500, potentially shifting value from software services to hardware and networking.
Ankur Crawford expressed optimism about AI's potential to revolutionize healthcare, making it more accessible and affordable globally. She believes AI can accelerate drug discovery, enable personalized medicine, and significantly bend the cost of care, potentially leading to a form of universal healthcare within the next decade.
Ankur Crawford believes that talk of an AI bubble is overblown, though she acknowledges the trade has become more complex. She argues that the enduring value of AI lies in its potential to create significant benefits for humanity, citing advancements in healthcare and education. Despite short-term challenges and debates, she is confident that AI's ability to create value will be rewarded.
Ankur Crawford discussed the insatiable demand for compute power in the AI space, noting that despite massive investments, there's still a shortage. She suggested that current supply chain limitations, such as shortages of chips, power, and skilled labor, are naturally capping market growth, preventing oversupply. She believes this is a blessing, allowing for sustained growth rather than a short-term boom.
Ankur Crawford shared her belief that the most painful moments in her investment career have been her greatest learning experiences. She eschews the idea of a 'back machine' to prevent past mistakes, arguing that these difficult experiences have fundamentally shaped her, providing invaluable lessons that prevent repetition and contribute to her growth and resilience.
Filippo Gori, Co-Head of Global Banking at JP Morgan, shares insights into the firm's expansion from a smaller institution to a global powerhouse. He details the integration of various mergers and the strategic importance of technology and client relationships in this growth. Gori also highlights the firm's commitment to investing through economic cycles to improve customer service and community support.
Filippo Gori explains that by the end of the decade, 50% of global GDP will be in the Asia Pacific region, with China, India, and Japan as the largest economies. He notes that while globalization is not finished, supply chain shifts take years, making Asia's manufacturing importance fundamental. Gori also touches on the distinct business cultures across Asian countries, from Japan's emphasis on unspoken communication to Australia's directness.
Filippo Gori highlights the Middle East's transformation into a significant financial center, with substantial investments in infrastructure and economic reforms in Saudi Arabia and the UAE. He also points to Africa as a region of immense potential, driven by demographics, urbanization, and critical minerals, and notes the growing influence of Russia and China there, emphasizing the need for Western engagement.
Filippo Gori discusses the profound impact of Artificial Intelligence on banking, emphasizing its potential for efficiency and expanded client coverage, aiming to reach 100,000 clients by 2030. While AI can accelerate processes, Gori stresses that human judgment remains irreplaceable, particularly in client interactions, asserting that clients ultimately want to be dealt with by a person.
Filippo Gori attributes the resilience of deal-making, including IPOs and M&A, to a perception of stable financing costs and boards' readiness to make strategic decisions. He notes that the rise of private capital since the GFC has created a need for more diverse solutions, prompting JP Morgan to launch its own private credit initiative. Gori also observes a long-term trend of decreasing public companies since the 1980s, emphasizing the value of public markets.
Filippo Gori acknowledges Europe's anemic GDP growth over the past 25 years but stresses that the EU's founding principle was peace, not economic union. He advocates for less bureaucracy and more growth, urging against losing sight of the founders' vision. Gori also notes the American perspective that views Europe as challenging for business due to social nets and employment laws, while recognizing Europe's 3,000-year history versus the US's 250 years.
Filippo Gori emphasizes that the most overlooked topic in investment banking is the focus on people and how to prepare them for the future. He highlights that JP Morgan's long-standing success is attributed to its people and culture, fostering an environment where employees feel the firm is part of their family. Gori advises new graduates to prioritize building human relationships and investing time in understanding the business environment rather than just the products.
Jack Raines, author of 'Young Money,' emphasizes the importance of 'stage specificity' in life, suggesting that certain experiences, like extensive travel, are best enjoyed within specific age windows. He advises young adults to be intentional about how they spend their time and money, arguing against extreme adherence to FIRE principles that might sacrifice present enjoyment for future security.
After a unfulfilling remote corporate finance role at UPS during the pandemic, Jack Raines, author of 'Young Money,' pivoted. Unable to secure traditional media jobs, he launched a Substack newsletter blending investing and travel, which eventually led to a book deal. Raines views writing as a cathartic exercise for distilling thoughts.
Jack Raines recounts his experience trading SPAC warrants during the pandemic, turning $6,000 into $150,000 and later $400,000. However, a speculative bet on a buy-now-pay-later company called Catapult led to a loss of $150,000 in a single day after missing earnings, highlighting the risks of overly concentrated trades.
Jack Raines, an associate at Slow Ventures, describes venture capital as involving significant sales and relationship-building, often quantified by 'touch points.' He highlights Slow Ventures' contrarian approach, avoiding hype cycles like AI and focusing on long-term value. The firm also manages a Creator Fund, investing in YouTubers and podcasters as 'holding companies' for their various ventures.
Jack Raines advocates for 'fun' as a crucial metric for evaluating life choices, defining it as finding joy even in difficult or demanding activities. He argues against rigid adherence to 'passion' careers, suggesting instead to pursue interests that are financially sustainable, using that stability to fund more enjoyable pursuits. Raines also critiques the extreme pursuit of financial independence (FIRE), citing potential social costs and missed opportunities for present enjoyment.
Mike Kelly shared his early fascination with investing, stemming from a childhood desire to buy Apple stock. Despite his parents' initial inability to facilitate the purchase, he learned to invest independently, eventually leading him to cold-call hedge fund legend Lee Cooperman from a payphone while at Stanford Business School, offering to work for free. This bold move led to his first hedge fund internship at Omega Advisors.
Mike Kelly described his time at Tiger Management as an honor, comparing the firm to the New York Yankees of the hedge fund world. He highlighted Julian Robertson's influence, noting that early on, both Robertson and Lee Cooperman had value-oriented approaches. Kelly emphasized the importance of continuously re-underwriting investments daily and adopting a 'variant perception' – having a view different from the market to outperform.
Mike Kelly discussed his transition to FrontPoint Partners, where he helped institutionalize the hedge fund business. He explained the thesis was to create an institutional-quality asset management firm with diversified strategies to cater to institutional clients who were increasingly embracing alternatives. Kelly, initially hired to select investment teams, eventually became co-CEO, reflecting on the shift from wanting to be a star investor to building asset management companies.
Mike Kelly detailed the transformation of Franklin Square (now Future Standard) from a product and distribution firm to a ninety billion dollar multi-strategy alternative platform. He explained this evolution involved forming partnerships with external managers like KKR and GoldenTree, hiring internal talent such as Andrew Beckman for private credit, and making strategic acquisitions. Kelly emphasized the shift from a diversified asset manager to a true 'platform' with interwoven strategies and collaboration.
Mike Kelly believes the next major frontier in asset management is bringing alternative strategies to individual investors, a segment largely left out compared to institutions and family offices. He noted that while Franklin Square initially focused on income strategies for independent broker-dealers during a search-for-yield environment, the adoption curve for these alternatives by the mass affluent has been longer than anticipated. Kelly asserts that despite recent industry growth, adoption is still in its early stages.
Mike Kelly addressed concerns about a potential private credit bubble, arguing that growth has kept pace with the economy and market share has shifted from banks to direct lenders. He acknowledged pockets of crowdedness and loosening covenants, particularly in large-cap lending and software exposure, which led to some redemptions. However, he maintained that private credit remains valuable for generating income and that illiquidity, while a trade-off, is a feature that allows for enhanced returns, emphasizing the need for investors to have a long-term horizon (4-5 years or more).
Som Seif, CEO of Purpose Unlimited, initially aspired to be an architect but pivoted to industrial and systems engineering. He found himself drawn to finance, particularly investment banking, and joined RBC's investment banking division in 1998, leveraging his engineering background to navigate the tech bubble.
Som Seif described his early years in investment banking at RBC as an intense learning experience, characterized by long work weeks. Despite the financial rewards, he realized that accumulating wealth was not his primary motivator, leading him to seek a career path that offered more tangible outcomes and personal fulfillment.
Som Seif founded Claymore in 2005, identifying an opportunity in the nascent Canadian ETF market. He was inspired by research into non-market cap weighted indexes, believing that traditional market cap indexing, which favors buying high and selling low, was fundamentally flawed.
Som Seif discussed the significant growth of Claymore, the ETF firm he co-founded, highlighting its resilience during the 2008 financial crisis, where it was one of the few firms to achieve positive net sales. This strong performance ultimately led to its acquisition by BlackRock in 2011.
After selling Claymore to BlackRock, Som Seif took time to reflect before founding Purpose. He emphasizes that his motivation for entrepreneurship stems from a genuine passion for building enduring businesses that offer significant customer value and aim to transform industries, rather than a desire to be a 'serial entrepreneur'.
Som Seif explained that Purpose Investments aims to modernize investment management by creating outcome-oriented products, moving beyond traditional benchmarks. He highlighted the need for a shift from accumulation-focused strategies to addressing the critical 'de-cumulation' phase of investing, a gap he believes the industry has largely ignored.
Som Seif expressed significant excitement about the potential of Artificial Intelligence, viewing it as a fundamental technological shift that will enable businesses to redesign their operations. He believes AI will drive innovation and intelligence throughout organizations, moving beyond simple feature enhancements to a complete replatforming of how work is done.
Dr. Jordan Grummitt, a physician specializing in money, mortality, and purpose, argues that the common search for a singular 'why' as one's purpose is dangerous and anxiety-inducing. Instead, he defines purpose as the present and future actions that 'light us up,' distinguishing it from 'meaning,' which relates to one's past.
Dr. Grummitt describes a paradox where studies show purpose increases happiness and longevity, yet many people experience 'purpose anxiety' from the pressure to find it. He posits this arises from confusing 'big P purpose' (audacious goals) with 'little p purpose' (present actions).
Contrary to popular belief, Dr. Grummitt states that purpose is not found but built or created through an active process. He advises identifying 'purpose anchors'—what excites you—and then taking action to build a life around them, citing his own experience of deciding to traditionally publish a book.
Dr. Grummitt uses Elon Musk as an example of someone potentially running on an 'achievement treadmill,' driven by past trauma rather than a sense of meaning. He suggests Musk's pursuit of extreme goals like traveling to Mars or becoming a trillionaire might stem from an inability to process childhood difficulties, leading to unhappiness despite immense success.
Dr. Grummitt contrasts 'big P purpose' (goal-oriented, often unattainable, leading to anxiety) with 'little p purpose' (enjoying the process of daily activities). He argues that focusing on the process of a career, relationships, or solving complex problems, rather than solely on achieving status or massive goals, leads to greater satisfaction and less fear of failure or loss.
Dr. Grummitt proposes 'generational growth' as a more impactful legacy than 'big P purpose' achievements. He illustrates this through his family's lineage, where his maternal grandfather's love of math led to his mother and then himself pursuing related fields, creating a positive, lasting impact far beyond material wealth or grand accomplishments.
Drawing on his experience in hospice care, Dr. Grummitt shares that people on their deathbeds rarely regret not accumulating more wealth but rather not pursuing things they longed to do due to lack of energy, courage, or time. He emphasizes that this regret over inaction can be a powerful motivator to identify 'purpose anchors' and live a more purposeful life now.
Dr. Grummitt highlights that regret often stems from 'in-action regrets'—things not done—rather than 'action regrets.' He shares the story of a patient who attempted to climb Mount Everest and, despite not reaching the summit, found immense value in the courage to try, suggesting that the effort itself is what prevents future regret.
Lori Heinel, Global Chief Investment Officer at State Street, discusses her extensive career in finance, starting with an analyst program at First Boston after studying religion and economics at Princeton. She highlights lessons learned from the 1987 market crash and the evolution of her career through various roles at institutions like Credit Suisse, Parker Hunter, Mellon Financial, and SEI Investments, before arriving at State Street.
Lori Heinel believes that indexing, particularly in fixed income, has significant growth potential, despite claims that indexing is saturated. She points to the retail investor's increasing adoption of ETFs and the potential for growth in areas like emerging debt and high-yield bonds as key drivers.
Lori Heinel, Global CIO at State Street, explained that the firm has been utilizing AI and machine learning for over a decade, focusing on operational efficiencies and augmenting investment processes. While acknowledging the significant spending on AI, she noted that the firm is also experimenting with concepts like a 'research copilot' to enhance portfolio managers' capabilities.
Lori Heinel expressed skepticism about the investment case for cryptocurrencies like Bitcoin, despite acknowledging their significant price appreciation. She noted her initial disbelief in Bitcoin's creation and her regret for not investing early on, but still struggles to understand its fundamental value proposition compared to assets like gold.
Lori Heinel, Global CIO at State Street, emphasizes the importance of a diversified investment portfolio, advising against trying to perfectly time market inflection points. She suggests that while large-cap US growth stocks have dominated, other areas like small-cap, emerging markets, and Europe may offer opportunities.
Lori Heinel recounts her unexpected role in the 'Fearless Girl' campaign, initially placing the statue opposite Wall Street's charging bull. She describes being called in at the last minute to be present during the statue's placement and subsequently finding herself explaining the campaign's message of advocacy for those who cannot speak for themselves on numerous news programs.
Sal Gilberti of Techrium Trading explains that the wheat ETF (WAT) was created to offer investors exposure to wheat futures without the direct risks and complexities of managing futures contracts. The ETF is designed to track wheat prices through futures, providing a way for individuals to invest in commodities through their standard stock accounts.
Sal Gilberti emphasizes that wheat is a more political commodity than oil and is a fundamental staple crop globally, integral to human life. He notes that while India is the largest grower, its export volume is low, making global export availability the key factor influencing wheat prices, as dramatically seen during the Ukraine conflict.
Sal Gilberti explains contango as the 'cost of carry,' where futures prices typically increase with longer maturities to account for storage and holding costs. Backwardation, conversely, occurs during disruptions when nearby prices are higher than futures prices due to immediate supply shortages, indicating a market anomaly rather than a natural state.
Sal Gilberti identifies weather and geopolitics as the primary drivers of wheat price volatility. He explains that while sanctions typically do not apply to food, geopolitical events like the Ukraine war can create a 'war premium' affecting shipping and thus prices, but prolonged droughts in major producing regions are the most significant factor, potentially leading to sharp price increases.
Sal Gilberti suggests that investors should consider strategic allocations to commodity ETFs like WAT, especially when wheat prices are historically low, typically around a dollar a bushel more than corn. He posits that such investments can act as a hedge against food inflation and geopolitical turmoil, offering potential upside as supply disruptions historically lead to price spikes.
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