Transcript:
Caroline Woods:
Joining us now is Sylvia Jablonski, chief investment officer at Defiance ETF. Sylvia, great to have you back.
Sylvia Jablonski:
Thanks for having me. Great to see you, Caroline.
Caroline Woods:
Great to see you as well. So September is off to a bit of a shaky start for tech stocks even before seeing these red arrows today though, Sylvia, you called the September setup for stocks more complicated. So tell us what you mean by that. And what the biggest risk investors might be underestimating heading into this month is.
Sylvia Jablonski:
Yeah I you know I guess was a great month for stocks right. You had the S&P up 3% Nasdaq was up 4%. But I think September begins with a little bit more of a complication to good word use there. I think part of that is because geopolitics have fired up again. You know, literally, literally, and you have fed Chair Warsh, who gave a Jackson Hole speech and he was far less dovish that I think the market had hoped for.
Sylvia Jablonski:
You know, he went as far as, just to say that the inflation level of 2% is we’re just not there, and that they were going to be looking at a series of pieces of information to determine whether or not, you know, rate hikes have to happen and things like this. So I think the market felt a little more uncertain, you know, and, and leaning hawkish with his speech.
Sylvia Jablonski:
And so now, you know wake up today and we have you know, we have bond yields at all time highs here. And that’s I think because of geopolitics because of these inflation fears and Fed chair war. So I do think we’ll have some volatility and uncertainty in the month of September. September is often a down month for stocks when it’s when the market’s up going into the year, it tends to be up, but it also tends to be a volatile month for stocks too.
Sylvia Jablonski:
So it’s kind of par for the course of what we’re expecting here.
Caroline Woods:
Can tech stocks keep climbing if inflation stays high or maybe goes higher? And if the fed decides to hike rates to try to combat that?
Sylvia Jablonski:
It depends. If you look at the trajectory of tech earnings, I would say that the answer is is yes. But the unknowns are, you know, how where you know, how much higher does inflation go or does it kind of stay still. And I’d move towards, you know, the Fed’s preferred trend of 2%. Or you know, does something change meaningfully there.
Sylvia Jablonski:
And how many hikes. I think if we get to 25 basis point hikes I don’t think that that’s going to move the market very much or impact earnings very much. But if it’s if it’s a path right where where we’re looking for rate hikes, every meeting that that changes the picture for a long term duration.
Caroline Woods:
And that’s so do you look at pullbacks like today too as buying opportunities. Would you be buying the dip. Just for perspective the Nasdaq is down about 1% today. As you said it was up 4% in August alone and is up 15% year to date. So 1% is pretty small you know, and in comparison to those things. But would you be buying the dip?
Sylvia Jablonski:
Well, you know, we’re at the very beginning of the eye trade. And for all of those investors that feel like they didn’t have a chance to get in dollar cost averaging, you know, if you have that longer holding period when you get these opportunities like today to to lag into some of those trades, it could be something that’s really worth looking at.
Sylvia Jablonski:
And I think that, you know, if you look at I specifically had where the puck is going and Nvidia was very much the clearing event for AI. Right. You know that the eye hyperscalers are continuing to spend. The proof is, you know, starting to show up in the pudding. They have revenue growth there. They’re, you know, doing great 100% year over year growth at some of these companies in the video in particular.
Sylvia Jablonski:
And if you look at, you know, that that next gen trait of I this is where the opportunity lies. So things like, you know, like a P around a photonics and a memory together, that’s been a huge topic in the markets this year. And I think that these are opportunities for investors to get into those types of trades.
Caroline Woods:
Let’s dig into that a little bit more, because you say it’s still early in the eye trade, but we’ve spent years talking about the the eye winners. So talk us to talk to us about what’s next. What’s the big the next big eye trade.
Sylvia Jablonski:
So I think the next eye trade, you know, so far the market has figured out that you have I and I could just mean as a major it could mean, you know, a semiconductor ETF or it could mean, Nvidia or one of the, you know, other other chip stocks or things like this. But now investors know that there’s there are bottlenecks and there are picks.
Sylvia Jablonski:
It shuffles. And so they’ve expanded, right? They’ve gone into AI and power. But now what we’ve learned from Jensen Wong in the last Nvidia clearing event is that, you know chips. So so I chips are like race car engines right. And they’re these incredible engines. But they need fuel to run. And that fuel is basically memory. And so memory is the fuel.
Sylvia Jablonski:
But without the highway they don’t go anywhere. And so you need photonics. You know copper is not able to move data from point A to point B efficiently. Any worse you need you know, kind of lasers and optics in the photonics. So I think that the real next trade, you know, half of it was Dram, but there’s another half that’s the photonics.
Sylvia Jablonski:
And so you want to look at the p ram, the photonics and the memory as the next leg of I.
Caroline Woods:
Okay. So talk to us a bit more about how to get exposure to photonics and then what memory plays you like here. Because we saw those really run and some have pulled back pretty substantially.
Sylvia Jablonski:
Yes, exactly. And going back to the conversation about, you know, if you’re looking to leg into this, do you buy on dips. And to your point, they have pulled back so you could look at single stocks. You could look at names like lumen Tam for example. You could look at micron. You could look at, you know, kind of try to pick individual winners.
Sylvia Jablonski:
But I think that it’s actually a whole ecosystem. And so you want all of the memory providers and, and you know, the high bandwidth memory providers and you want all of the photonics companies. And so, we have an ETF for that. It’s called pe ram the, the defiance for Photonics and Memory to have everything there in, in one basket.
Sylvia Jablonski:
So you could do it through the ETF or you could do it through those single themes and really get exposure to this. And then there are a lot of other ETFs out there too that are representing different parts of the I trade. You have, you know I on power, you have quantum computing. You have space connectivity, tele connectivity.
Sylvia Jablonski:
There are a lot of options for investors to get exposure here.
Caroline Woods:
How should we be thinking about some of the the old winners like Nvidia is this that they’re they’re passing the ball to these new winners or can they still run as well. And which names there look attractive.
Sylvia Jablonski:
Well so they can run as well. And I think that this just goes to the idea that AI is is not, you know, kind of finished in 2027 even though these stocks have have run up a ton. You know, they they have decades to go. It’s probably one of the biggest, transformative tech phases in our lifetimes, right.
Sylvia Jablonski:
The sports industrial revolution. And so I think that a lot of investors that we talked to tend to hold on. They probably already have an exposure and, AMD exposure and some of these names, whether it’s through a broad based index fund or, you know, just I it’s been a hot topic now for a few years. So they probably have looked into that.
Sylvia Jablonski:
And I think a lot of them will just hold those, in perpetuity. Right. But the question is, where can you get those stellar returns that you’ve seen so far? And I think that will go to the bottlenecks that will go to the memory and photonics, that will go to the capacitors, that will go to AI and friends.
Sylvia Jablonski:
This next leg of I.
Caroline Woods:
Is there an area where retail investors might be a little bit too excited about when it comes to tech?
Sylvia Jablonski:
I mean, I think that the excitement is justified. And again, just talking about the Nvidia earnings call, I think that was just a massive clearing of that. And if you see what these hyperscalers, AI hyperscalers are spending on, and you see that, you know, even the love of their financing that they’re talking about doing now to keep building out infrastructure just tells you that, you know, kind of the smartest guys in the room.
Sylvia Jablonski:
These these eye hyperscalers are spending on this. And it’s something to be excited about. Right. But, what I would say is that we can’t get we can’t just think that everything will return, you know, 100 to 200% per year. Sure. Some of these, you know, some of these names will mature and could have healthy returns as AI grows.
Sylvia Jablonski:
And again, you want to look to some of the, newer found niche plays. And I for, for those, you know, triple back or opportunities.
Caroline Woods:
How are you thinking about software. Because we haven’t talked about that yet. And if you, you know, take a look. Everything for the most part is lower today. Aside from actually Adobe is higher today. Apple’s higher today as well. But you know, if you take a look Salesforce was up 40% in August. ServiceNow was up about 30%. Workday was up more than 20%.
Caroline Woods:
You know, they had been really beaten down. But the narrative around software seems to be shifting a bit. Do you like software stocks here?
Sylvia Jablonski:
You know, we, we actually put out a fund called the GV, which is basically taking the the software names out of the, the Nasdaq. And you know, the reason why is just we just think that, you know, the IE beneficiaries are really the ones that are going to participate in the broadening out trade that, that we call it.
Sylvia Jablonski:
And the companies that are not, you know, purely AI native or haven’t really caught up are, in the near term at least, perhaps not going to experience that same level of growth. So, you know, that being said, for for a lot of these, you know, companies that you you hear them coming on media and talking about their outlooks and things like this, you know, once they become AI native and fully integrate that into their, ecosystem, perhaps they could be interesting trades.
Sylvia Jablonski:
But, we’ve actually heard investors looking for more of the AI pure play types of trades that Ziggy’s.
Caroline Woods:
Is there a software name that you think will be immune to that, the AI disruption that you would still bet on? Not in that you have various if they’re all taken out. Yeah.
Sylvia Jablonski:
Right. Right now. No not in that ETF. But I think that, I, I don’t think that any stock or company is, is really immune to, to AI, right. I mean, you can make an argument, of course, that, there are commodities and, and, you know, consumer staples and things like this, which are necessities and, and, you know, will be around.
Sylvia Jablonski:
But but I think even those areas and industries are going to change because of AI. So, I do think that everyone has to kind of adapt.
Caroline Woods:
At some point, though, there will be the clear winners and the clear losers. Obviously, software has been the clear loser this year. But you know, for every Google there was a Yahoo or an AOL. So at what point will we start to, you know, figure out the winners from the losers and you know, who will the winners actually be?
Sylvia Jablonski:
Yeah, and I can’t predict that. And I think that’s why, you know, I’m kind of in a good see in the ETF world. Because what we do is we pick a basket of of all of the, you know, top names within the themes of you have AI power. We’re looking at the large caps, mid-cap small caps, all of the companies that generate, you know, half of their revenue from AI powered infrastructure.
Sylvia Jablonski:
And we create a basket. So the names that fall out fall out of the basket, right. Or else perhaps they’re M&A targets and they, you know, but people who hold the funds participate. But whether it’s a defense fund or one of our competitor funds, I think that thematic ETFs give investors a really great tool to diversify their exposure to a theme, but also, you know, to diversify and mitigate risk when one name doesn’t perform versus the other.
Sylvia Jablonski:
But it’s a great point because I do think that that’s going to happen. And I do think that that’s why you’re seeing this massive increase in, thematic ETFs.
Caroline Woods:
So for those investors who likely have exposure to the S&P 500, meaning they have exposure to a lot of the big tech names still, but maybe they were skeptical of the rally and they didn’t necessarily get in. Is it too late to get into the AI trade, or is there still a lot of time here?
Sylvia Jablonski:
I think we’re in the infancy of AI. I think that there’s a lot of time, and I would argue that, you know, given that we’ve had this strong market and there’s just so much cash on the sidelines, you know, the returns that investors are able to get in the market are there. They exist. And if anything, I think that we’re going to start seeing that cash coming off of the sidelines and, and, and into the market into this.
Sylvia Jablonski:
So there’s always opportunity to hold for the long term and get into the great.
Caroline Woods:
So if a retail investor has $1,000 to put to work today, what part of tech should they put it in?
Sylvia Jablonski:
You know, there are so many good places to allocate the funds, and I wouldn’t want to give direct advice without understanding the person’s portfolio. But I would just say that one of the one of the hottest trades that we’re seeing is, is definitely a p ram of of tonics and memory. I think I parent infrastructure ETFs are another massive opportunity.
Sylvia Jablonski:
And you know I mean there’s so many right. There’s quantum computing. There’s space there, so many places that I think would be appropriate.
Caroline Woods:
Okay. I think this is a great time to pivot to our rapid fire round of this or that. Quick questions, quick answers. No hedging. You’ve played before. Are you ready Sylvia.
Sylvia Jablonski:
Yes.
Caroline Woods:
All right. Here we go. Hyperscalers or the companies supplying them.
Sylvia Jablonski:
Oh.
Sylvia Jablonski:
Let’s say the companies supplying them.
Caroline Woods:
Only I leader at a premium or the challenger at a discount.
Sylvia Jablonski:
Challenger at a discount.
Caroline Woods:
Micron or Broadcom?
Sylvia Jablonski:
Micron.
Caroline Woods:
Micron or Nvidia.
Sylvia Jablonski:
For now. Micron forever. Nvidia based on.
Caroline Woods:
Space stocks or quantum stocks.
Sylvia Jablonski:
Quantum of stocks.
Caroline Woods:
Space buy now or wait.
Sylvia Jablonski:
I know.
Caroline Woods:
SpaceX or Tesla. Space x Apple without cook opportunity or risk.
Sylvia Jablonski:
I think Apple is is always going to be fine opportunity.
Caroline Woods:
A stock Wall Street loves or a stock retail investors love retail investors.
Sylvia Jablonski:
They’re the smart money of Wall Street.
Caroline Woods:
Robinhood or Coinbase. Robinhood $1,000 today. Put it all into your highest conviction stock or spread it across five I name.
Sylvia Jablonski:
Five by names like.
Caroline Woods:
A tech stock you’d avoid here.
Sylvia Jablonski:
I don’t I don’t have one. I don’t have one right now. The most.
Caroline Woods:
Overlooked I.
Sylvia Jablonski:
Stock.
Caroline Woods:
Any software. Okay, finish this sentence. The most. The most overlooked I stock right now is.
Sylvia Jablonski:
Venice.
Sylvia Jablonski:
Any pick any Chinese robotics or capacitor company.
Caroline Woods:
And finally, the stock retail investors understand better than Wall Street right now is.
Sylvia Jablonski:
Heavily in video retail investors have always been good. Good to Nvidia.
Caroline Woods:
All right Sylvia Jablonski Chief investment Officer Defiance ETFs. Always a pleasure. Thank you so much for flying along and for your insights.
Sylvia Jablonski:
Thank you so much. Have a great day.
Caroline Woods:
If you enjoyed this street talk check out our full interview with Joe Tigay. He reveals what he buy on a September pullback like today.
