233. Ask Me Anything with Jay Jacobs - How Active ETFs, Thematic Investing, and Market Dynamics Are Reshaping Portfolios in 2025
Web title: How Active ETFs, Thematic Investing, and Market Megatrends Are Reshaping Portfolios in 2025
Full episode description:
ETFs are at the center of how investors are navigating today’s rapidly changing markets. From active ETFs to thematic strategies around megaforces like artificial intelligence and infrastructure, innovation in exchange-traded funds is reshaping how portfolios are built.
In this special Ask Me Anything edition of The Bid, host Oscar Pulido sits down with Jay Jacobs, U.S. Head of Equity ETFs at BlackRock, to answer questions submitted by listeners. Together, they explore the evolving ETF landscape and how investors can better position themselves in a volatile world.
Key insights include:
The be, beat, modify equity framework for building portfolios: how core ETFs provide efficiency, active and thematic ETFs can aim to outperform, and outcome-oriented strategies offer risk management.
Why factor investing (quality, value, momentum) demands a more tactical, systematic approach in 2025.
The growing role of active ETFs as investors seek new sources of alpha in an era of lower expected returns.
Why diversifying beyond U.S. equities and addressing concentration risk from mega-cap tech is increasingly important.
How megaforces like AI adoption, geopolitics, and infrastructure demand are reshaping equity markets and long-term investing themes.
The role of gold and Bitcoin as portfolio diversifiers and monetary alternatives beyond traditional stocks and bonds.
Jay also highlights the link between AI and infrastructure — noting that advances in artificial intelligence require massive investments in electricity, real estate, and supply chains. For investors, the message is clear: today’s portfolios must capture both enduring themes and defensive strategies.
Active ETFs, Thematic investing, Capital markets, Megaforces, AI investing, Infrastructure investing, Diversification, Stock market trends.
Written Disclosure:
This content is for informational purposes only and is not an offer or solicitation. Reliance upon information in this material is at the sole discretion of the listener. Reference to any company or investment strategy mentioned is for illustrative purposes only and not investment advice. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures
TRANSCRIPT:
Oscar Pulido: Welcome to The Bid where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Polito. On today's episode, we're introducing a new format called Ask Me Anything Where I Ask an expert guest questions that you, the listener, send in for our expert.
Our first expert guest is Jay Jacobs, US Head of Equity ETFs at BlackRock. Jay will answer the big questions on your mind from how and when to use active ETFs to what are some of the big themes driving ETF markets today?
Jay, thank you so much for joining us on The Bid.
Jay Jacobs: It's a pleasure to be here, Oscar.
Oscar Pulido: So, Jay, we're going to do a little bit of a different format than what we've done with you in the past. Um, what we've had is a number of folks who have written in with some questions and we think you are uniquely positioned to answer them.
So, let's start with a question around the equity markets. And the question is that there's a new headline, or at least it feels like there's a new headline emerging. Every day that is setting off some volatility in the markets. I guess I'm thinking about things like tariffs and will the fed cut rates or not? Does this change the way you look at investing in equity markets?
Jay Jacobs: Well, I think it's helpful to have kind of an organizing view of looking at the equity markets and how to build a portfolio because there's so many tools at people's disposal, so many with different ways to look at the equity markets. We've really started to look at the world in three different buckets.
The first bucket being be the market. This is really looking at tools that can provide low cost diversified, tax efficient exposure to the big buckets of the market. Think about US international emerging markets. This is really represented by something like core ETFs that can provide that very efficient exposure to these big building blocks for many investors.
Starting with these big ‘be the market’ building blocks is a really useful way to build a portfolio. Beyond that, what we're seeing is a lot of investors are looking to ‘beat the market’, so what are the tools that you can use to try to enhance returns beyond just general index returns? There's a few of those. One is alpha seeking equity investments. These are where active portfolio managers are making intentional bets to try to beat a specific benchmark or category. The second category is looking at thematic ETFs, which is really a forward-looking approach, trying to capture things like artificial intelligence or geopolitics, these structural trends that can create opportunities for investors. And then the third category within that beat bucket, is factor investing, which is really trying to take intentional tilts towards academically. Proven rewarded factors, whether it's quality, momentum, value, et cetera. So that's the beat category.
And then finally there's a third bucket that we're calling ‘modify’, which for many investors as they look to achieve a specific outcome, maybe that's generating more income from their portfolio. Maybe that's trying to manage the risk of their portfolio and protect against the downside where buffer strategies that modify the returns of the market could be very valuable. So again, there's, there's a lot going on in the equity markets. There's a lot of different ways to access them, but thinking about it as be the market, beat the market or modify the market might be a helpful framework for investors to think about how they approach this space.
Oscar Pulido: Jay, when you were talking about the equity framework you outlined, ‘be the market, beat the market, and then modify’ and within beat the market. I think one of the things you mentioned were factors, things like momentum and quality and value. These are sort of persistent drivers of return over the long term. How are investors thinking about factor exposures in 2025?
Jay Jacobs: Well, a lot of investors like to choose which factors their portfolio has exposure to based off of what economic environment they're in. For example, if we're an environment where you have rising rates and more concerns over the economy, something like quality stocks might do better.
But what we're seeing in this environment is there's a lot of economic uncertainty and it's creating a need to be much more tactical about those factor exposures. Whether you're choosing to be in quality, momentum, or value. Those decisions are happening faster and investors really need to be able to be more dynamic in how they're changing their exposures to factors.
One of the ways that BlackRock has been innovating in this space is bringing a systematic strategy to rotate factor exposures. So this is leveraging a lot of data and systematic insights from our BlackRock systematic investing team to determine which factors are the most relevant in this market today, and doing that rotation for investors.
Oscar Pulido: And then in the third bucket, you mentioned modify, and you mentioned things like buffered strategies and more outcome-oriented strategies. But just elaborate a little bit more on what, what exactly that means.
Jay Jacobs: So, for a lot of investors, they're really trying to solve for specific financial goal. Think about you're trying to save for retirement and generate a certain amount of income from your portfolio, or you know, you want to get into the markets, but you're worried about, you know, is there going to be a selloff in the next few months?
How do I get into the markets in kind of a risk managed way? And this is where this modified bucket or these outcome-oriented strategies can be very valuable. They are designed to optimize around a specific outcome, maybe generating high income or protecting against the downside. For example, if you look at, you know, the landscape today, there's about $7 trillion held in money market funds, and a lot of that is due to investors just.
Being a little worried about stepping off the sidelines and getting into the markets that are, you know, at or near all-time highs. But if you can do that in a way where you enter into a strategy that's going to have a measure of downside protection, say protecting against, you know, the first, several percent sell off in the S&P 500.
That's one way that investors can get comfortable to put that money back into the markets without worrying so much about, did I just get the worst possible timing to enter? So, this modified bucket has become really valuable to investors who are thinking about investing, but doing so in a way where there's guardrails around how they're investing.
Oscar Pulido: And so, Jay, as you lay out that equity framework, maybe let's switch to talking about geographies. The, the question here is, in your view, should investors be diversifying outside of the US?
Jay Jacobs: Well, it's a great question as it relates to that be the market category, because you can be the market in a lot of different ways. A lot of investors can make very intentional decisions about how much exposure they should have to the United States to international developed stocks. Emerging market stocks now for many investors, just allocating to the United States over the last 10 years or so, has done quite well for them for a lot of investors, there can be a lot of value in planting seeds in different parts of the market. Not just being allocated to one country or one region, but really spreading across the entire world. We're seeing that this year with how international stocks have done quite well and provided a measure of diversification to portfolios because it's behaving differently from the United States.
Oscar Pulido: Jay, one of the characteristics of US equity markets in recent years has been the dominance of the Mag Seven in terms of the performance that they've contributed to markets, the concentration they represent in the index. This year, they've continued to perform well. Maybe it hasn't been as pronounced as some prior years, but how should investors think about that continued concentration in US markets?
Jay Jacobs: Well, it's a really important characteristic of the US markets. It's just simply, you see how top heavy some of these mega cap, predominantly, tech names are in the major indexes, how much they've grown, how much performance they've driven in the indexes over the last several years.
So, it's really about investors having a more intentional choice of how much exposure do you want to those mega cap tech names. Some investors might say, I want to be top heavy. These are the biggest, baddest, most innovative companies in the world. Other investors might look at it and say, I'm uncomfortable with that level of concentration.
I really want to balance out kind of the longer tail of names in the S&P500 or the NASDAQ 100 to get that kind of broader exposure in the market. So, it's really up to investors to make that decision, but it's important to recognize that concentration is a feature of the market in 2025 and something that portfolio managers need to make a decision around.
Oscar Pulido: In the past when you've joined us on The Bid, and again, this is a little bit of a different format, but in the past you've come on to talk about thematic investing. We've talked about things like AI, we've talked about infrastructure. What role do you see themes playing in the markets today?
Jay Jacobs: Themes are playing a tremendously important role in the markets today. Partially, just explaining what's happening this year. We've seen so much intrigue and frankly, some volatility around artificial intelligence. Is it the biggest thing from the internet? Is it overvalued? There's a lot of tension in the marketer discerning what's going on with artificial intelligence.
There's also a lot of, intrigue in the market around supply chains and geopolitics and how that's affecting market returns. And so, looking at the world through just a traditional portfolio lens, like looking at it through sectors or looking at it through value or growth, doesn't necessarily do a great job of explaining the themes that are driving the market. So, increasingly we are seeing investors take a thematic view to understand what are the big drivers in the market today, frankly, what are some of the risks in the market today? And how do I build a portfolio that incorporates this lens going forward?
Oscar Pulido: And Jay, you're here with us today, but you spend a fair amount of time out and about talking with investors, and so we're curious, what trends are you noticing in these conversations and in these meetings with investors? What, what are the topics that are coming up in those discussions?
Jay Jacobs: I would say one of the biggest topics right now is around active ETFs and the role that active managers can play in delivering returns to portfolios. And we talked about the be, beat, modify framework. One of the concepts that's becoming more important is thinking about how can you beat the market Now, the reason why is if you look backwards over the last 10 years or so, just investing in broad US equities through an index fund has performed quite well going forward.
Many people's capital markets assumptions are a little bit. Less bullish on what you know, the returns might be over the next 10 years. And so the concept of adding a layer of alpha on top of index returns, whether it's from stock selection, whether it's from systematic investing insights, really being able to add a layer of alpha can be very valuable in a, in an environment where index returns might not be as high as they were over, over the last 10 years.
Oscar Pulido: And when we talk about active investing, and you just mentioned the term active, ETF, which is a relatively new term in recent years for people to sort of wrap their head around, but most people are used to hearing the term mutual fund. So, what are the similarities and differences between an active ETF and maybe a more traditional mutual fund?
Jay Jacobs: Well, in a lot of ways they could be quite similar. You could have a portfolio manager that runs an actively managed mutual fund and an actively managed ETF. And really it's kind of a structural difference between those different types of investments. A mutual fund maybe has is going to only demonstrate its holdings on a quarterly basis. It could be more useful in retirement structures. Or in corners of the market where investors don't necessarily, you know, want to show daily holdings. On the ETF side of things, this is a vehicle that's trading every single day. And there's certain tools available in the ETF that allow portfolio managers to deliver more tax efficiency within that vehicle.
So we are seeing a lot of new strategies in the active side come out in the ETF structure, to meet investors where there's a lot of demand, but there continues to be a lot of interest in, in both structures.
Oscar Pulido: And, coming back to thematic investing and, and themes more generally. I mean, again, AI and infrastructure seem to be the two that rise to the top of the list, but when you're looking at markets right now, what themes do you your eye on?
Jay Jacobs: Well, you said a few. I think you can't look at the markets and not think about artificial intelligence. I think what's really important within the artificial intelligence space is starting to look at the adoption pattern of AI.
These large language models are very impressive and are very useful. Are we going to see more corporations adopt artificial intelligence, governments, individuals, et cetera? And, you know, within the next year or two years or three years, really start to impact the earnings of companies that are delivering artificial intelligence models.
We're also looking very closely at geopolitics. Specifically one of the areas we're looking at is infrastructure. There's so much emphasis on manufacturing in the United States and, and building out the output in critical sectors, whether it's manufacturing semiconductors or automobiles.
And that really can't happen unless you have the infrastructure to support it. That means the electricity, that means the roads, that means the waterways to facilitate all of that manufacturing. And so, there's a big focus from our view on is infrastructure, keeping up with the demands of a reshoring economy.
Oscar Pulido: And it seems clearer as time has gone on that there is a very tight relationship between the AI theme and the infrastructure theme. It seems like you need the infrastructure in order for AI to develop. Maybe that wasn't as clear to people a few years ago, but that's becoming a little clearer now.
Jay Jacobs: I think that's exactly right. I mean, artificial intelligence requires a lot of electricity. Um, it requires physical infrastructure. It needs physical real estate for a lot of these data centers to exist. So, you can't have leadership and artificial intelligence without making commensurate investments in energy and real estate, et cetera.
Oscar Pulido: And so, Jay, we've talked a lot about maybe more traditional asset classes. We've been focusing on equity markets in particular, but what are some other asset classes that are also good diversifiers in a portfolio that you're getting asked about by investors?
Jay Jacobs: So, I would say two of the most common areas this year where we're seeing a lot of interest from investors is looking at. Gold exposure and also looking at Bitcoin exposure. Now, in a lot of ways these are somewhat related concepts. They are looking at global monetary alternatives or assets that kind of exist outside of the traditional fiat currency system. Gold being one that's been around for thousands of years and really exist as this.
Potential store of value and this asset, this commodity that can behave very differently from stocks and bonds. I think people generally know gold and understand kind of the utility, but a newer, more nascent asset that shares some similarities is Bitcoin. Bitcoin is something that has scarcity. There's only going to be so much Bitcoin that's ever mined in the world. It behaves very differently from stocks and bonds. It has a low correlation. The drivers of Bitcoin tend to be things that are not necessarily positive drivers for stocks and bonds. Think about Bitcoin becomes more valuable if there's more economic uncertainty, worries about inflation, worries about geopolitical risk, and so it can really serve both Bitcoin or gold can really serve a role in a portfolio as a diversifier. Assets that behave differently from traditional assets like stocks and bonds. Within small doses of a portfolio can really help round out the shape of it.
We should also acknowledge that Bitcoin is a relatively nascent asset. So unlike gold, which has thousands of years of history, Bitcoin's only been around for a dozen plus but also it's a volatile asset because investors are still relatively new to this asset and are understanding what it is and how it might behave in a portfolio.
So, I think it's valuable to look at the portfolio through kind of a broadening lens. There's more assets than just equities. We've talked about different ways to access equities, but there's things beyond equities that can also potentially play a role in a portfolio.
Oscar Pulido: Well, Jay, we appreciate you letting us tap into your brain and what you're hearing from investors and what you're reading about and seeing. Again, this is a little bit of a new format as we field questions, from our audience, thanks for helping us out with this format and thanks for doing it here on The Bid.
Jay Jacobs: Happy to be your Guinea pig. Oscar.
Oscar Pulido: Thanks for listening to this episode of The Bid. We'll let you know when our next Ask Me Anything Episode will be and how you can send us your questions. But until then, subscribe to The Bid wherever you get your podcasts.
Spoken Disclosures:
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener. Reference to the names of each company mentioned is merely for explaining the investment strategy and should not be construed as investment advice or recommendation. For full disclosures, visit blackrock.com/corporate/compliance/bid-disclosures
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