ETF TV News #88 Gary Black Discusses Listing the Future Fund Active ETF Focused on Secular Megatrends

Presented by Syntax Advisers.

Margareta Hricova Welcome to ETF TV – your insight into the world of exchange traded funds, issuers and investment. I am Margareta Hricova, and joining me today is Deborah Fuhr and Gary Black, managing partner at the Future Fund LLC. Welcome, Gary and Debbie.

Gary Black Thank you.

Deborah Fuhr Thank you.

Margareta Hricova Gary, tell us the backstory that drove you and David Kalis to partner, for a second time, to launch The Future Fund LLC and SEC registered investment advisor?

Gary Black David and I worked together at Calamos Investments. I was the global CIO and David was the CIO for the growth equities product. And we share a common investment philosophy. We believe that high conviction portfolios work best, so maybe 40 names or fewer. We’re using proprietary, fundamental research. We’re both very disciplined about what goes into the portfolio and when you should sell a position out of the portfolio. So I think it was the commonality of the way we think about investing. We’ve worked at it for many years and between the two of us, we have about 50 years of experience.

Margareta Hricova And why did you decide to launch an ETF and not a mutual fund?

Gary Black There’s tax benefits with ETFs that you don’t see with mutual funds. When you buy a mutual fund or you buy into it as an investor, you inherit the mutual funds tax positions, so even though you may not be getting those benefits of appreciation, you have to pay them, but where with an ETF, the tax basis is when you put in money into the ETF, that becomes your entry point and then when you sell it, that becomes your exit point. So the tax benefits are huge.

The second big benefit is just transparency. Investors can see every single night what’s in the ETF, they get an email that says, here are the changes we’ve made during the day. And frankly I’m surprised the rest of the industry hasn’t embraced it, but I think a lot of times other firms are afraid of the front-running. If investors could see what names you have in the portfolio, they might try to get in front of you. I just think it’s the way of the future. I think going out 10 years, the vast majority of the industry is going to be ETFs and not mutual funds anymore.

Deborah Fuhr Last week you listed the Future Fund Active ETF, which is a high conviction portfolio, as you said, of 40 to 50 names. And you describe it as investing in companies that you believe are positioned to capitalize on secular megatrends. Can you describe what those megatrends are?

Gary Black Sure. So what Dave and I are trying to do is identify 10 themes and they act as tailwinds for the portfolio. A lot of them you’ll recognize, but we try to come up with those that will last for more than just a few months. But you think about 24/7, information entertainment; that’s a big megatrend. E-commerce is a big megatrend. Mobility is a big megatrend. Big data and making sure that data is secure is a megatrend. Pharmaceuticals to help you live longer, that’s a megatrend.

We have a megatrend called lifestyle betterment, so people want to be fit, they want to eat healthy. Now they just want to enjoy life, they want to travel more, so that’s a megatrend. Climate sustainability is a megatrend. Social networking, that’s another big megatrend. And you’re seeing that advertisers are replacing spending on television and radio and newspapers and they’re putting a lot more under digital media.

Deborah Fuhr That’s great. And are you able to provide a couple examples of stocks that you might be holding in the portfolio?

Gary Black Under our megatrend, social networking, we have a position called Snap. Snap has about 300 million users globally. They’re growing their, what we call ARPU, Average Revenue Per Unit, at about 30% a year. The number of users are growing at about 20% a year. So that’s got about 50% internal growth, for lack of a better word. On our climate sustainability, we own Tesla. Tesla, as you probably know, is the leader in EVs (electric vehicles). Right now the EV adoption, globally, is about 3%. That will probably go to about 25% by 2025 and to 50% by 2030.

Margareta Hricova What type of investors do you expect to use your ETF and how will they use it?

Gary Black It used to be that ETFs were used more to get beta, so people would invest in an ETF that they wanted to own for small cap growth for certain sectors. And then what you’ve seen is what they call more thematic ETFs, which are also beta, you know, it might be living longer, it might be robotics, it might be social media, and what we’re trying to do is basically put 30 or 40 names together in a portfolio that feels diversified from a risk standpoint, but it’s high conviction. So the type of investor it’s attracted to is are retail investors at least to start, but we think some institutions will start gravitating to ETFs as well at some point.

Deborah Fuhr Do you expect to launch further ETFs in the next year or so?

Gary Black I think once when we get to next year, we might think about a long/short ETF, because when we’re studying industries, we could see winners and we could see losers. So if look at something like climate sustainability, which is a big megatrend, Tesla is the big winner, GM and Ford would be potential losers if they can’t change their franchise to be more electric vehicle instead of gas powered. So we can use that research to find good short ideas as well. Same thing with social media so you see Snap is gaining market share in advertising or somebody losing share, we wouldn’t want to short those. So I think that’s a good product for you to think about.

Deborah Fuhr Those are all great points. Thank you for joining us.

Gary Black Thank you.

Margareta Hricova So Debbie, can you tell us about some of the other news in the ETF industry?

Deborah Fuhr Last week, we had 25 new listings from 18 issuers and there are 34 cross-listingsthirty four across listings. This year has been really busy. We’ve seen 943 new listings. There’s been 1168 cross-listings. So clearly a lot of activity. I have to admit, I’m looking forward to seeing where we end up at the end of August in terms of net inflows and also the assets. So stay tuned and see you next week.

Margareta Hricova Thanks so much, Debbie. Thank you to our sponsors, Syntax Advisers, to Gary and to you for watching. To watch prior episodes and to see news from the ETF industry visit ETFTV.NET.

ETF TV News does not provide investment advice nor recommend products.

Published on September 1, 2021