Episode #429: Kevin Kelly – How To Invest in Genetic Editing, Residential Real Estate, & The Hotel Industry
Guest: Kevin Kelly is the founder & CEO of Kelly ETFs, where he’s responsible for ETF product design, structuring, managing retail and institutional investment research, and capital markets. Kevin is the Founder and CEO of Kelly Intelligence, an investment management and intelligence firm that seeks to bring cutting-edge products, with forward-looking exposure. He also serves as the CEO of Kelly Benchmark Indexes the index provider, and sponsor, of the SRVR and INDS ETFs which have over $2 billion.
Date Recorded: 7/11/2022 | Run-Time: 1:10:18
Summary: In today’s episode, we start with Kevin’s entrance into the ETF space years ago with a Covered Call ETF, ticker QYLD. Then he shares what he’s been up to lately with Kelly ETFs. We talk about some thematic offerings around genetic editing, residential real estate, and hotels, and the bull case for each.
As we wind down, Kevin shares his thoughts on the future of the ETF space and what other products he’s thinking about offering in the future, and if you’re wondering about how China invading Taiwan may effect your portfolio, you won’t want to miss what Kevin has to say.
Comments or suggestions? Interested in sponsoring an episode? Email us Feedback@TheMebFaberShow.com
Links from the Episode:
- 1:35 – Intro
- 2:19 – Welcome to our guest, Kevin Kelly
- 4:03 – Kevin’s entry into the ETF space
- 13:25 – Kevin’s decision to launch his own ETFs
- 15:25 – XDNA ETF – focused on CRISPR
- 17:20 – Where we are in the development cycle of CRISPR
- 19:55 – Identifying companies to invest in for CRISPR
- 25:20 – Big milestones in the CRISPR technology to look for
- 28:50 – RESI ETF – focused on residential real estate
- 39:50 – Why have zero management fees for the fund
- 41:54 – HOTL ETF – focused on the hotel space
- 48:40 – How investors use these ETFs
- 52:22 – Kevin’s thoughts on the future of the ETF space
- 55:24 – Preview of some new ideas Kevin’s thinking about
- 1:03:58 – Most memorable investment
Transcript of Episode 429:
Welcome Message: Welcome to the “Meb Faber Show,” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.
Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.
Meb: What’s up, everybody? Today we welcome my friend, Kevin Kelly, the founder and CEO of both Kelly ETFs and Kelly Intelligence. In today’s episode, we start with Kevin’s entrance into the ETF space years ago with a covered call ETF ticker QYLD. Then he shares what he’s been up to lately with launching Kelly ETFs.
We talked about some thematic offerings around genetic editing and real estate funds focused on residential and hotels, and the bull case for each. As we wind down, Kevin shares his thoughts on the future of the ETF space, what other ETFs he’s thinking about launching. And if you’re wondering about how China potentially invading Taiwan may affect your portfolio, you don’t want to miss what Kevin has to say. Please enjoy this episode with Kevin Kelly.
Meb: Kevin, welcome to the show.
Kevin: Thanks for having me.
Meb: Where do we find you?
Kevin: You find me in beautiful Colorado. I’m located in a suburb of Denver called Castle Rock.
Meb: Kevin, listeners have agreed to sponsor a meet up in Denver next time I’m out there at Bud’s Burgers or somewhere nearby. There’s a lot of great breweries, so, we’re going to hold you to it next time I’m in town.
Kevin: Good, I will bring the doughnuts.
Meb: You have a very special spot in my family’s life. And with that lead, you’re not going to be able to guess what it is. But I have a now five-year-old but at the time was a 4, 3, 2-year-old. And arguably his favorite bath toy was some ETFs schwag from one of your ETFs. Do you know which one it is and what it would have been?
Kevin: I’m going to guess it’s got to be one of the two where we had a truck, and then we had a cloud. So it’s got to be one of the two and given it’s …
Meb: No, it’s the cloud. It’s the cloud. And I had tasked one of my co-workers at one of these conferences, and I said, you know, “We want, A, some good examples swag for us to use, but also pick up some cool stuff.” And that cloud has been in my house very prominent spot for years. So, listeners, we’ll post a picture on the show links.
Anyway, Kevin, so you’ve been doing a lot of cool stuff. You and I have been brainstorming over the years. And in many ways, kind of what you’re up to mirrors a lot of what we’re doing. I like talking to you because it’s a breath of fresh air versus a lot of the incumbents in our world. So, we’re going to spend most of time today on some ideas and things you are building. But give us a little, Kevin, origin story background. What led you to start your own ETFs and set up shop in Colorado?
Kevin: Yeah. So if you go back to about 2012, there was the taper tantrum. And what was happening is stock sold off and bonds sold off. And so, one of the strategies that worked at the time was one that we were doing privately, and it was cover calls. And so, cover calls just absolutely crushed it and you didn’t see the democratization of option investing like you do today.
So, I worked with NASDAQ to come out with the NASDAQ 100 cover call ETF, QYLD. So, right now, I mean, it’s the number one covered call ETF in terms of AUM. And so we…
Meb: Was that at Global X? Where was that?
Kevin: Yeah. So I started the firm Recon Capital Partners. And so Recon, we eventually sold to a firm that’s now part of Global X but Global X got a hold of it because they bought my firm.
Meb: That specific fund I see advertised more. I think I even saw a commercial on TV, but it’s certainly in the barrens, if not weekly, once a month.
Kevin: Yeah. Always. And the interesting aspects about that, and you know, one of the reasons I’m, like, passionate and love ETFs, and options, and alternatives, and what was happening is with the index is there was an issue. And so, I actually fixed the index to end up getting a bunch of some of our other friends to buy the ETF because I said, “Hey, listen, the index was broken, it relied on this special opening quotation print that hurt investors over the years.
And so like Corey, even at Newfound, I was explaining it to him and I said, “Hey, I fixed it with NASDAQ, with CBOE, and now, we don’t have that. And it saves investors about 7% a year. And that’s when he really started to see it take off, because as we were operating the product, we were like, “Okay, we don’t like what’s happening every, you know, quarter essentially.” And so we fixed the product. And then you saw that AUM kind of go up from there.
And that’s why it’s been such a great product is because there are differences between indexes and ETFs, and you want to make it real-world applicable. And that’s one of the things that I specialize in. And that’s a perfect example of you need to know what’s under the hood and why performance is what it is.
Meb: Right. All right, so, your company got acquired, you didn’t say, “Look, I’m retiring. I’m taking a sabbatical. What was next?
Kevin: Yeah. So, you know, it was nice, you know, being part of QYLD and the ride. And one of the things that I was passionate about was really what was going on in the real estate space. So, I decided to come up with an index provider and sponsor to launch these ETFs that really helped sectorize the real estate market. And two of the biggest best sectors that I saw out there was data centres, and cell phone towers, and then industrial because Amazon is building industrial, and e-commerce is growing. And we’re using more internet every day.
So, I launched the products SRVR, and IMDs actually, with another ETF issuer back in 2018. So it took about a year to kind of get the indexes up and going, and kind of the nuts and bolts, and getting all the agreements, and then launched those two ETFs as a sponsor, an index provider, with another issuer. And, you know, it’s served well.
Meb: You and I had this conversation, and you probably have better memory than I do because I don’t remember where we had this conversation. But I remember having this exact conversation. I think it was before he launched. You were talking about maybe some of the ideas on the sectors in real estate, which exists now. And like you mentioned, you helped bring them out. But I was kind of saying, I said, “I don’t understand. This REIT space is huge, but they’re all these broad-based market cap REITs. And that didn’t make sense to me.
I said, “I don’t understand why, you know, because it’s like, the sub-sectors of the broad U.S. market, but REITs, you know, there’s industrial data centres, retail, healthcare, timber, lodging, residential mortgage, self-storage, like on and on and on. And a lot of those behave nothing like each other. And so, you were kind of early on that. But I remember you being like, “Yes, I know.” I said, “Meb, are you going to buy some of these?” I said, “No, I’m not because it’s not something we do.” But I’m like, a lot of demand, I think will be there, and sure enough, you’re right. There was.
Kevin: I think it’s because back at Recon before I sold the business, I was running a long, short read portfolio. So we would go long the best names in each sector, in short, the worst. And so, I knew firsthand, like, how they were just so different from each other. And if you think about it, what’s the biggest difference between them? Lease term, right? So we’re in a huge inflationary environment right now. And the lease term at hotels is one night. The lease term at, you know, residential is one year. The lease term at industrial is five years. The lease term in data center cellphone towers is 10 years. So you have their duration assets, right?
And especially when you think about an inflationary environment, you want to go into the duration where it has the least amount of duration, not the longest, like some retail and some office. And so, you know, that’s why they perform really differently, not also the idiosyncratic risk behind it, like the economic drivers but lease term is so important to real estate that, like, when I was out there telling people… I would go to trust companies and I’m like, “You own the largest most broad-based real estate fund. It’s got 234 names in it, and you are underperforming. Own 8% that, 2%, one of ours, and you’ll outperform. You’ll look like a genius. And you’re underweight the best sectors within that anyways.”
And then the light bulb started to click for them, and then that’s when we really started to get a lot of traction, because people were like, “Oh, yeah, I just saw a cell phone tower when I was driving home, you know, on my way, and there’s millions of them.” And so, they realized they were underweight, and that’s how we were able to let people know this is what powers your daily lives.
Meb: When you were talking about the long, short fund, and best and worst, like, what was the criteria? Was it technical, fundamental evaluation, your secret algorithm? What was it?
Kevin: Yeah. So, because we rebalanced monthly, what we always looked at is sort of the momentum behind it, the short-term momentum to see what was driving it. And then what was driving a lot of our investment decisions is what’s called NAV, Net Asset Value. So, REITs, all they are is a portfolio of properties, plus or minus a couple of percent on management’s experience equals the share price. It’s the properties that drive the value.
So, we were looking at buying names that were trading at a discount to Net Asset Value, or with short names that were trading above Net Asset Value. And then we had our favorite names, right? So if we thought they popped a little too much, we’d sell a little bit, scale back, wait till they came in, and bought more. So, it was really hands-on, and especially in a small space like the REITs, where you have about 250 names, you can do that.
Meb: Yeah. So, you had successful launches started producing a bunch of cumulus strata nimbus swag for conferences, and then you start to have some ideas on creating your own brand. Is that next? Where are we in the timeline at this point?
Kevin: Yeah. So, once we hit about 2021, and I got really excited about certain strategies that had to be out there. So what I focus on is, if you look at everything that I have out there, its core concentrated portfolios, like 20 to 30 names, typically, sometimes there’s 40 names, you’ll see, but I’m giving you targeted exposure, right? Like, you’re not getting broad-based. So, what I decided to do is I wanted to come out with these great strategies that I believed in that I’m going to put my own capital to work, that I want to own over the next 5, 10, 15 years. And so I started my own series, Trust, I started my own registered investment advisor, and then I started through all the paperwork in 2021 to launch the funds that I have out there.
And I also have funds in registration and I have other ideas that I’m looking to get out there. So, come 2021, it was time to manifest my own destiny. I wanted to control the relationships, the entire vertical, and be at the board meetings and really, you know, kind of make it known, you know, that we are 100% behind these products.
Meb: Yeah, well, I think I said this before, but, like, you know, you’re kind of… What you’re up to mirrors a lot of what we’ve kind of been through too and having that final say, you know, you get to dictate, and I like what I hear, you know, the ability for it to be concentrated, to me, that’s the whole point if you’re moving away from the market cap weight, and you’re going to charge more than zero, the Deathstar Vanguard does, and in unique and different portfolios. Last thing we need is more of the same. So Kelly ETFs, Kelly Intelligence, all these great names, let’s hear it. Let’s get started on some of your ideas. When did these puppies start rolling out?
Kevin: So, we launched the first three ETFs in middle of January. So I think January 13th is when we launched them, which was an interesting time to launch products, right? Because you started to see dislocations happen in the marketplace, especially because one of ours is really focused on healthcare technologies, healthcare 2.0. And we saw an immediate drop sell-off with biotechnology. But if anything that kind of highlighted the thesis around owning that type of strategy, and then our two other strategies, one was kind of… And so that one is CRISPR and gene editing technology called xDNA. The other one is called H-O-T-L. So it’s the Hotel and Lodging sector.
And so it’s a really great way to play the pandemic to endemic, right, and travel is crazy. But we had a really under-building for several years because of the pandemic. And then the last one is RESI, R-E-S-I. And that’s single-family rentals and apartments. And what’s interesting is that those two strategies, you know, are really differentiated than anything else out there, but they also are so differentiated that the market doesn’t know, you know, how do I play it in inflation, recession, deflation, what’s going on here? So, you know, it was an interesting time to launch them, but they all are idiosyncratic to what else is out there.
Meb: I was a biotech guy in a former life. So, let’s start with that one because you got a good ticker. And it’s an interesting target strategy. So let’s hear it. For those who don’t know what CRISPR is or gene editing in general, give us the overview.
Kevin: Yes. So the real quick and dirty on what CRISPR gene editing is, is a pair of biological scissors that edits a DNA, takes out the bad DNA, inserts the good DNA. And so, that’s all it is. So CRISPR gene editing is to modify DNA for, you can do it for humans to cure diseases and treat cancer. You can do it with plants, right? So we’re looking at that. That’s a big thing that’s been going on. And so, CRISPR is new.
So, let’s take a step back. I think you and I have known each other, we’re coming on 10 years, probably 2013. It’s the 10-year anniversary. Little did I know when I met you that at the 10-year anniversary of when the seminal research about CRISPR Cas9 came out. And, you know, the two researchers have won the Nobel Prize in Chemistry for it. Walter Isaacson wrote a best-selling book called “Code Breaker” about Jennifer Doudna, in this. and it came out in 2018. And what’s interesting is, it was his follow-up to Steve Jobs’s biography. so most people know him for that.
But it’s consistently on the bestseller list because CRISPR has been changing so much. And so it’s been about 10 years since the seminal research has come out. And so we’ve got this great 10 years of history, and the next 10 years is going to be…it’s that S curve of growth. You know, when you start and then you go and then curve, we’re at the beginning of an S curve of growth because of the previous 10 years of research and development that’s happened within the CRISPR Cas9 space. But real quick, I’ll explain what CRISPR stands for. CRISPR stands for Clustered Regularly Interspaced Short Palindromic Repeats. So, for those of you that want to know what CRISPR actually stands for, that’s it.
Meb: I don’t think I would have passed that test. That acronym, I don’t think I actually knew it stood for. All right, so this technology’s got promise, where do we stand in sort of the development cycle?
Kevin: We’re in the infancy. We just have started to launch the successful what’s called in vivo applications in body and that happened last year. And that’s really what sparked this because I saw that commercialization is coming because we successfully applied CRISPR gene editing within the body, and it was effective. So, that was done by Regeneron and Intellia. And so that’s what changed the game when they had the first successful inhuman application of CRISPR and gene editing technology.
Meb: How does the index provider go about putting together a portfolio for a pretty small sub-sector, for the listeners that don’t know how that works? Are you waking up on January 1st every year and saying, “You know what? This is Kevin’s throwing darts against the biotech listing wall.” How do you actually build the composition of this portfolio of 24 names?
Kevin: Yeah, so what’s really important is that, in order to have this technology, there are several different sub-sectors that happen within the CRISPR gene editing space. You have the technology companies that are leading the way that are editing the actual living organism cells, then you have the research and development partners at 15%, the technologies at 70%. And then you have another 15% at genome sequencing.
And so, it’s the companies that focus on, you know, CRISPR sequencing, CRISPR research and development, and clinicalisation, as well as the technology companies themselves. And so 70% to the tech, 15 to research and development, 15 to sequencing. And so, you can’t have one without the other. So, let me just give you a quick example, Meb. We only had mapped up until this past March 92% of the genome.
And so, what happened is that we have all these gaps that were happening. And now, we actually think we just mapped the final genome aspect, and that actually led to us… I actually have the stats here. It led us to actually identify 99 new genes that we can likely code proteins essentially to human life. So now, we can figure out other diseases to do that. So that shows you that we’ve come so far, but we still have a long way to go.
Meb: And so, how does it work on the portfolio? Is it like a classification? Is it something that the committee sits down and picks the names? Like, explain to the listeners, like, how the … gets made on a portfolio like this.
Kevin: So what we do is we actually search for and identify companies specific to that sub-sector, right? So, we actually go through and look at all the public filings, and look at all the trade periodicals, and you name it, to identify the actual companies that specialize in either CRISPR gene editing technology, which, you know, you’ll see it right there in their public filings what they are, right? And they tell you. And then you can find out all the clinical partners, you know, because they tell you in their filings and trade periodicals and things like that, as well as the sequencing companies.
So, what we do is we actually… It’s rules-based, and one of the key things is that you have to think about it in a free float capitalization manner. So the largest companies with the most liquidity have the biggest weightings in positions within their sub-sectors. And the reason why we did that is because the market cap and the free float capitalization and liquidity is going to be reflected publicly on a daily basis about the companies that have been succeeding through the different various stages of, you know, phase 1, 1A, 2, 3, so they get bigger as they start hitting what’s known in the space as milestones.
So as they become more successful, and they hit milestones, you start to see the market capitalizations of these companies become bigger because they’re closer to commercialization. There are publicly traded CRISPR companies that we don’t have because they’re too small or they don’t have the liquidity. So one of them is Precision Biosciences, but they just had a successful partnership with Novartis, which we have in the portfolio. So as Precision gets bigger, their tickers detail, they will eventually become into the portfolio, which does rebalance and reconstitute on a quarterly basis.
Meb: You know, I was just hanging out with the biotech med devices PM this past week, and sort of bemoaning the state of biotech, which has been getting pummeled along with a lot of the other tech but, you know, I said, “Look,” I said, “like biotech, it seems like every four years it goes through this cycle, where has, you know, amazing returns and then kind of gets walloped and go sideways for a year, and then back up, all the way back to 2000.” But he sent me a chart that was Biotech stocks trading at or below cash. And it was the highest amount, if not ever, right, like, right, where the lowest it’s ever been. Is that what you’re seeing? Is it something where these have just been pummeled, and it’s a generational buying opportunity? Is it something that we’re not seeing? Is it specific to other areas and not in kind of what you’re doing? Give us a little color?
Kevin: No, I think that’s a great point, a lot of these companies are trading below their cash, which is interesting, because the dollar has gotten stronger, and cash is king in this type of market. But what it’s important to think, and here’s how I look at our space, specifically, is that this is publicly-traded venture capital, right? Because you’re betting on the calm right now. It’s like a movie studio, right? They’re going to come out with 10 movies, and hope that three of them are just blockbuster successes, and who cares about the other seven. And that’s how I’m looking at this, publicly-traded venture capital that I’m going to own, right now, we’re not even commercialized. So, in the next five years, I hope there’s going to be a lot of commercialization, and then we’re going to see cash flows, and then we’re going to see growth, but over the next 5, 10, 15 years, I mean, this is going to change the way we live in every form and facet of our lives from what we eat, and how our bodies are, you know, treated for diseases.
Because right now you see some biotechnology stocks are gene therapy. So what they’re trying to do is you’re trying to suppress the disease, you’re trying to push it down. Well, there’s companies that are going to compete within the CRISPR gene editing space, where what they do is they knock it out. They remove the bad stuff, it’s a one-time treatment. So it’s going to make those gene therapy stocks go away. They’re rendered useless because why would you continuously take drugs when you could do a one-time treatment?
So, what needs to happen in our space is the commercialization and insurances working around that too where we’re going to cost pool treatments? Because it’s really for rare diseases right now. But we’re seeing success in sickle cell. So, anyways, I look at it like Biotech is a great space to be, especially because we have an aging demographic, right? So if we take a step back, our demographic is aging, they’re going to need this, we’re living longer. So Biotech, that’s where you start, and then you look at companies that don’t have patent cliffs or they have good partnerships that are generating a lot of money, and they’re doing well, and they succeed. And Regeneron is a great company to bring that up.
If you look at the charter, Regeneron, it’s not going through the Biotech slump, that the overall index is, right? So there’s great companies that you can pick and choose, or there’s sub-sectors, vis-a-vis, you know, CRISPR and gene editing that you can look at that can provide you kind of exposure that’s idiosyncratic to not only the market, but also Biotech.
Meb: If we look back, you and I are doing this podcast again in 5 years, 3 years, 10 years, but we say like, “Oh, that was a big turning point in the adoption of this technology,” or what do you think a big milestone would be?
Kevin: Well, I think it’s going to be curing sickle cell, which we’ve actually seen happen in some of the trials right now. One of the first patients in one of the first sickle cell trials is no longer in their trial because she’s been cured. She actually was during the pandemic able to fly around the country, which normally she couldn’t do before because she had this chronic disease and illness and COVID is out. And now, she’s cured. And so, I think that’s going to be the pivotal change that’s going to happen is we’re going to look back and we’re going to see the commercialization, the first drug that’s going to be released that’s going to change everything is the approval… The FDA is going to approve a sickle cell drug for people to take, and then you’re going to see sickle cell eradicated essentially among the population, you’re going to see people…
And then that’s really what’s going to hit society hard is that it’s like, oh, my gosh, one of the seminal things that happened in the early 1900s was curing polio, right? Now, it’s we’ve fixed sickle cell. And so I think that’s going to be it because everything else is kind of behind it. We’re trying to cure the disease right now, the Broad Institute is, that kind of does Benjamin Button where you age really old, really quickly. And there was a YouTube star that passed away at 15. And it looked like she was 85. But she had such positive messages. But we’re looking at that disease. And I think that is another disease that we’re going to cure and eradicate using one-time applications. So, we’re pretty excited but I think it’s the sickle cell that’s going to change the game.
Meb: Well, the word of the world could use some good news. I like that idea. Anything else on the Biotech front, before we hop on over to your other two ideas?
Kevin: Yeah, you know, I just think the last thing is, you know, the reason why I came out with this, so, you know, you look at it, it’s like, everyone’s like xDNA, that’s kind of random considering your forte, but it was a seminal change that happened in 2021, with Intellia and Regeneron. And I was looking for a solution, and it wasn’t there, so we came out with this product. And so, you know, that’s why it came out, and it’s necessary, and I believe in it, it’s just, you know, 24 names could be 28 but we have liquidity. But the important thing is that the product was launched because it provides little to no overlap with traditional indices. So it’s a great thing to put in even if you’re a Biotech. Of your Biotech, own, you know, 25% to this, or your broad-based healthcare, own a percent of your portfolio to this. You know, it’s a great satellite, and that’s why I wanted to come out with this product.
Meb: Yeah, I think that’s a… We talk to investors all the time, where they’re like, “Look, there’s 10,000 funds out there, why does the world need more?” And it’s shocking to me how often, you know, some of our ideas are like, it just doesn’t exist, or, like, look, there’s just not a solution we want to use for our own fund of funds, etc. So let’s go build it and it’s kind of fun to see the holes in the opportunity space there. So, Biotech, now for something totally different, which one do you want to pick next, RESI or HOTL?
Kevin: Let’s go RESI.
Meb: All right.
Kevin: So RESI is a residential and apartment ETF. And it really actually focuses on the entire, you know, multifamily market that’s publicly traded, right? So it has four distinct subcategories. The first is single-family rentals. The second is apartments. The third is manufactured housing. And the fourth is student housing. Right? So, those are the four traditional sub-sectors of the residential real estate market. And what we’ve seen is that over the past couple of years, we’re really having a housing issue. And that stems back from ’08, ’09 When we did severe under-building. And all that capacity has been sucked up. And we actually have new household formation, but homes haven’t kept up with new housing development for several reasons, including what’s called nimbyism, not in my backyard. So build everywhere else but my, you know, community, my house.
So, the millennials are now coming out and trying to purchase homes, but there’s just no inventory out there. So, there’s the Matic changes that are happening within the residential real estate market. And so, single-family rentals are…we think there’s a huge growth area, especially for starter homes. So you’re seeing people go from college to apartments, to household formation, to then doing single-family rentals. and then buying a house.
Meb: As we think about this fund, what are some of the macro drivers that distinguish it from the others on whether it’s, like, attractive? I mean, I’m thinking mortgage rates, thinking of potential rising rents. Like, what are some of the things that investors should be thinking about that might be tailwinds or headwinds either way for this strategy?
Kevin: Well, one of the biggest things is household affordability. The problem is, and this came out of the “Wall Street Journal,” even a couple of days ago, housing affordability is getting hurt so bad because interest rates have gone up on mortgages so significantly. I mean, we saw a spike to 6%. Now they’re back around 5.25%. But the problem was, you can buy less house with that, or you’re just going to spend more on the financing aspect. It’s actually better now to rent. And we’ve even seen REITs got gone up almost year over year 25% in some major metropolitan markets.
Meb: As you look at the compensation of this portfolio, tell us a little more about it. Like, do you guys market cap wait the sucker? How does it kind of fit together?
Kevin: So, the construction of the portfolio is based off of the size of the individual REITs themselves. So, we’d like to say it’s a real estate-based cap, I guess you could say. So, the biggest companies with the most properties have the highest weightings. And so, that’s why you see the composition, and the names in the orders that they are, it’s because they own just that many more properties. It’s free fro capitalization weighted. And so, like I said, we want the properties to drive the returns. You know, we don’t think active management is a great thing to do within the sub-sector of residential real estate for that very reason, because then you’re picking management teams hoping they’re going to win or lose. This is really just a, you know, let the space grow, the best operators are going to accumulate the most properties and they’re going to do well. And so, you want to own the biggest names. You don’t want to pick your winners and losers.
Meb: Where we stand in sort of the REIT cycle, you know, you talked earlier about net asset values, you know, there’s times, kind of reminds me a little of closing funds, but when REITs will blow out on discount to net asset value, sometimes they’re premium, sometimes it’s specific sub-sectors. What does the landscape look like today for the kind of REIT marketplace? Are there areas that you think are more opportune? Is this one? Is this a time that looks kind of interesting?
Kevin: Yeah. So that’s another reason why we launched this product, and especially when we did is because rising rents matter more than rising rates in this type of market. And so residential real estate is one of the best beneficiaries of that, because they have the short duration of one year lease, so they can automatically tick up their rents, you know, as they go along. So we see that as a huge beneficiary going forward. And I’ve met with REIT management teams, and they talked about that. They run very efficient portfolios, They have the best portfolios and the best markets with high barriers to entry. Now, when I say the best, I’m just saying, you know, as a generalization, right, they have some of the best properties and the best locations with high barriers to entry. They know those state and local governments. They can work with them. They can do more builds.
And so that’s the nice thing that they also have opportunistic financing. Most of the financing for the residential REITs are fixed financing. So 70% or more of most of their balance sheets are fixed at lower interest rates. So, they sold debt at like 2%, 3%. And their duration is of 10 years or more. So, they’re doing really well but they’re also under-levered. If you think about it, most of the debt on their balance sheets about 25%. So, one of the best things they can do, if there’s a dislocation in the market, let’s say the stock market goes down, the economy goes down, these guys can issue shares at the market, at their net asset value taken proceeds of equity and buy buildings and buy distressed assets. And these are the best management teams that companies flock to.
Every broker goes to them with prime portfolios. If they’re JLL, or whoever else, CBRE, trying to sell real estate or portfolio, they go to these guys because they know they can digest it. So we’re very opportunistic. So we’ve got that one-year lease, where they reset rents higher. And there’s a discount to NAV right now in one of our sub-sectors. It’s a single-family rental. And it’s been distorted because we’ve seen one of the company’s invitation homes go down. It’s a great time to go in and purchase a portfolio of quality like invitations home. If you’re an investor, we’ve seen active investors like Jonathan Litt of Land & Buildings talk about this. It’s one of his favorite sub-sectors and sectors overall. So, you know, it’s gotten hit because of the rising rents. And then there was some, you know, lawsuit in some locale. And so it’s just headline risk. It’s such a small subsection of their overall portfolio. That is de minimis, but it presents opportunities.
Meb: Who’s the big competitor in the ETF space for this fund? Is it iShares?
Kevin: Yeah, so iShares is the biggest competitor. They have a product that has residential, but it also has healthcare REITs, it has self-storage REITs, it’s not pure.
Meb: Right. Because they’re big.
Kevin: They’re big. They’re big. Well, and also, you know, iShares just throws a lot of products out there, you know, to fit, you know, what they think is sleeves and portfolios. I don’t know… iShares isn’t a known real estate specialist where I am, right? Like, I know, the REIT management teams. I hold webinars with them. You know, so and I talk to them and I meet them. I’ve known them since I’ve run that Luxury Portfolio. So I go to REIT week every year.
Meb: So what’s REIT week?
Kevin: So, REIT week is an annual confab put on by the National Association of real estate investment trusts, where every REIT comes and descends on the New York Midtown Hilton in June. And they hold sessions to meet investors, the public. And so they present what’s going on with their portfolios, you know, what they’re doing. And so you can meet three management teams. And so, every REIT is there, so you can get a great understanding. And it’s free to the public. You know, we go and we have private meetings with REITs to talk about what’s going on with their portfolios, but it’s a great way to educate yourself. And I’ve built, you know, long-lasting relationships with a lot of REIT management teams. You know, and so we go there, and, you know, I understand the drivers behind what’s going on, not only in the space but each company.
Meb: Did you go this year?
Kevin: Yeah, I went this year. So, I was in New York, and, you know, we had some good lunches, good happy hours, good dinner drinks with the REITs.
Meb: What’s the mood currently with the CEOs, the REITs folks? Were they optimistic? Are they nervous? Give us a little inside information.
Kevin: So this is public inside information.
Meb: Sorry. Yeah, we got to be careful with the phrasing I use. Sorry.
Kevin: Yes. No, no.
Meb: I meant to say insider insights.
Kevin: Yes. Yes. I’ll give you the Kelly Intelligence. So, what we discovered is that there’s sort of a dislocation in the bid-ask spread of the overall real estate market. So, sellers want February pricing, right, and buyers want August pricing. So you’re having this huge bid-ask spread now when assets are being disposed or bought. So, one of the interesting aspects of REITs is they recycle their portfolio, right? So a lot of times they dispose assets and they buy assets. So when I was talking to a lot of the REIT management teams that were saying, “Listen, we would have loved to sell this portfolio at 10% higher, but we’re being realistic, and we’re looking to sell it at you know, in between the bid-ask right now. And we don’t have as many bidders. We used to have a list of 10 in best and final, and now we only have two or three that actually can pull the trigger and finance these portfolios.
So it’s pretty interesting because sellers want prices from a few months ago, and now buyers want prices that they think is going to happen in a few months because the Fed is still raising rates. So they know the cost of capital and the cost of financing is going up. So they’re thinking when they close and what happens in recession. So the buyers are really trying to negotiate down hard. And this has been the first time in the last three to four years that they’ve been able to do that.
Meb: These are domestic only or are these global?
Kevin: Domestic only in the RESI fund that also includes Canada. So Tricon is listed in Canada, which is a great example of a company. They have significant operations here in the United States. They partner actually with Blackstone on single-family rental, and they also just cross-listed here in the New York Stock Exchange. But we do also include the Canadian companies because they have significant operations here in the United States and have since the dawn of the modern read area in 1993.
Meb: Should we hop over to HOTL or anything else you want to say on the RESI side?
Kevin: I mean, on RESI, it’s just pure play exposure, and also the best part about RESI is 0% management fee till next May. so you can invest for free, no management fee in residential real estate in some of the highest quality portfolios.
Meb: Yeah, that’s a cool idea that I’ve come around to, and we haven’t done it historically. And I think we probably should. And there’s kind of two ways and you can tell us kind of why you decided to make this decision. But to me, it’s a cool idea because it rewards early adopters of fun. And there’s two ways we’ve thought about doing it. One is a time base. So hey, it’s going to be free for one year, we’ll subsidize it two years, whatever, or be an asset management base but, look, the first 100 million, maybe a combo or two, meaning like, hey, if you come in and help us get this to scale, you’ll benefit. Was that their thinking? Give us some insight.
Kevin: Yeah. So my thinking was, you know, being around the block, a lot of times, the first two things people see is the price, and then the volume. And then the third thing they go to is fee. And so, there’s never been a better time to invest in residential real estate than today. And I wanted to remove one of the obstacles of, “Oh, well, your fees too high or what’s the fee?” It’s like, does it matter…? You have no reason not to invest in this product if you want to. We think this is the best time and I’m not going to make anything from it, right? Like, if anything, I’m going to be basically paying you to invest in the product. That’s how much I believe in the timing of this right now. And especially because a lot of people understand the right story and they’re getting killed. So I talked to people that are paying rent and like, “Oh, my gosh, it went up so much.” And I was like, the best way to play this is pay yourself back the rent and invest in residential real estate, whether it’s through, you know, private offerings, you know, crowdsourcing apps, or the residential real estate ETF at 0%.
Meb: Cool idea, man. I love that. We may have to borrow that from you later. Let’s talk about HOTL now. What’s the story here? Mean, you got three great tickers. You and I were laughing earlier that you had such a good ticker on xDNA that someone has launched an xDNA ETF in a different country.
Kevin: Yes. So, one of the interesting things is we just launched in January, and then I opened on my email inbox, getting alerts about xDNA launched, you know, and it launched in a developed market that’s North of us by another issuer. And it doesn’t have a similar strategy. I mean, it’s in the healthcare space, but I guess they liked my ticker so much that they went and launched the product.
Meb: Well, maybe you can piggyback on some of their advertising or marketing, just set up some really smart Google AdWords that’ll point them towards you, as opposed to the other one.
Kevin: Yeah. And I’m hoping they’re going to start using the dollar sign symbol and xDNA on Twitter, because then that goes to us over here, and not them up there.
Meb: Yeah. I like it. All right. So, another great ticker, HOTL, H-O-T-L. Tell me about it. What does this fund do?
Kevin: Yeah. So this is the killer strategy, right? Like, coming out of my cage, and I’m feeling just fine, got to be down because I want it all. That’s the American consumer right now. We have a voracious appetite to go experience. So the travel and tourism industry is massive. It’s like an $8 trillion industry that’s, you know, got hampered. But we think that the hotel and lodging space is the best way to play going from pandemic to endemic because if you think about the travel and tourism industry, think about like cruises, right? Like, that’s such a narrow niche target segment. And then if you also think about airlines, heavily regulated industry, very heavily regulated, price of oil impacts it.
So, we think the best way to play travel and tourism is hotel and lodging because you’re always going to stay at a hotel. You get on a plane, you’re going to stay at a hotel. Same with, if you get in your car, you’re going to go stay at a hotel. So if gas gets too expensive, you’re not going to fly, you’re still going to go to a hotel. And the interesting aspect is one of the fastest growing segments is the extended-stay segment. So, you’re starting to see… So it represents 9% of overall portfolio properties within it, but you’re starting to see private equity go in there, get into the extended safe space. We also own Airbnb within the portfolio because, you know, they’re booking platform, right? So, the interesting aspects, there’s no difference between Marriott, which is a servicing company they don’t own the hotels primarily, and Airbnb. They do the same thing, right?
So, the interesting aspect about Airbnb is their fastest growing segment now largest revenue segment is stays of 28 days or longer. So, there’s this huge dramatic demand driver out there where people want to work from home longer, or they want to go travel longer. And so it’s interesting because one of the things is happening is it at Airbnb, people are working remote and staying at places for 30 to 60 days at a time and moving around. And that’s at a lot of big tech companies, also to smaller companies. So, I actually talked to a lawyer who during the pandemic, because they were made to go in their office, he went to Brazil to learn Portuguese. So, I booked it on Airbnb.
Meb: Sounds like he’s single.
Kevin: Yeah, sounds like his billable hours were going down. But the interesting aspect is that there’s been so little built. So this is a simple supply and demand. So little built and so much… So a very limited supply, huge amount of demand. We have to build over the next three to five years just to catch up to where we are today.
Meb: I mean, so, you know, it was pretty wonky last couple of years. This fund obviously wasn’t out at the time. But what do you think we stand in sort of that, you know, reopening? Oh, my God, I’ve travelled quite a bit in the last six months. It seems to me like every half their hotels, I look at her like $500, $1,000 somehow. Is that story of just people trying to get back out there? What’s the…?
Kevin: Yeah, that’s exactly it. So what’s happened is we’re almost back to what’s called RevPAR, which is revenue per average room, where we were in 2019. So, we’ve seen RevPAR grow almost 125% this past previous quarter. So we’re back now, right, to almost pre-pandemic levels. And it’s only going to set to go higher, because what you touch base on is, rooms are very expensive, not only on the weekends, where they’re exorbitant, during the weekdays. And so that tells you that the business traveller is starting to come back and it’s very expensive, as well as small groups have started to come back into the hotel space. And so, right now, it’s primarily consumer-driven but the next tailwind, and this is why I’m so, so excited by HOTL is once businesses come back and small groups come back to the level they were in 2019, it is set to take off.
I mean, we’re having problems now in a consumer-driven, just wait till the fury of businesses and small groups start to spend like they did, and it’s going to go through the roof. I’ll give you one quick anecdote. VICI, V-I-C-I is the ticker symbol. They are the Las Vegas lead company that owns, you know, Caesars, and they own the Venetian, and things like that.
Meb: Largest holding, right?
Kevin: One of our largest holdings. Yeah. So, great company. They just merged with MGM Growth Properties. And I was meeting with the management team, and we’ve done webinars with them. They’re great guys, very smart, a great company. So, I was meeting with the management team, and we were talking about Vegas, and he had his own hotel, the room rate, the preferred room rate he got during weekday was $622. I was like, “You own the hotel.” But Vegas is back, everyone’s out of travelling. So, we’re going to see this. The sad part is we haven’t seen any demand destruction at price points. This is the all-time summer record, according to Marriott CEO, so it’s unbelievable.
Meb: Interesting. As people think about, like, these have only been out a few months, but you have obviously been doing this for a while. When you talk to advisors and investors, like, the feedback, like, how do they think about using these? Traditionally people holding these for, “Hey, I want to hold this indefinitely. I want to hold it for more of a two, three-year hold our, you know, kind of funds thinking about them as tradables, where nothing others exists like a basket, you know, a trade to be able to represent a theme.” What’s the kind of the feedback been thus far?
Kevin: Yeah, so first and foremost, the feedback has been wide-ranging per strategy. So, what we’re seeing is for xDNA, a lot of people are talking about some tax loss harvesting for biotechnology and looking to rotate and replace into getting more niche and narrow instead of a broad-based approach, which they thought they could take with biotechnology because the long-term tailwinds and, you know aging population. So, I thought that was interesting because that means we’re at that capitulation bottoming point in biotech when people are actually looking to finally, like, kind of sell and get out and rotated at different things. So, I think that’s the capitulation point for biotech.
Next up is HOTL, where people have been confused on whether they want to play quickly or over the long term. And what I’ve seen actually happen is once they dig down deeper into it, they’re like, “Oh, I’m going to play it for the next, you know, 6, 9, 12 months as, you know, we reopen.” And what I’ve noticed is once they dig deeper, they’re like, “I’m going to replace some of my consumer discretionary with this.” So they’re kind of tailing area back to where they’re spending their money. Because they’re like, “Wait, I just booked my summer vacation, I better buy this, oh, my gosh. And I’m looking out in the fall because I want to get ahead of pricing for the holidays. Oh, my gosh, that’s huge. And then I’ve got this, you know, guys trip, you know, to go golfing, you know, February, March of now. Oh, my gosh.” And so they’re seeing the pricing. And demand has been so high that it’s not come down but they’re looking to hold HOTL and replace consumer discretionary and own it for really sort of a two to three-year time period as they start to see, you know, the full reopening take hold.
And RESI is a bond replacement. Sorry about that, that this is sort of one of those… You know, they’re kind of looking at this weird situation where there’s low yields out there, but they’re worried about the economy, and they’re trying to face where do I put this? And so they’re like, “All right, this is a good alternatives, fixed income replacement, ALTs bucket, you know, real estate 10%.” Overall, I have to that I can have 1% to 2% in here, and this is sort of my real estate asset allocation. This is some of the best real estate I want to own because what’s happened is we’ve seen a dislocation in some of the other sub-sectors where they don’t want exposure to that. So they’re going to overwrite residential, especially because these companies are growing and underweight broad-based. And those are five-year horizons that you see those allocations happen.
Meb: Yeah. Yeah. Well, we’ll see on the five-year how long people actually hold them.
Kevin: Right. Totally.
Kevin: It’s the Mike Tyson thing. Everyone has a plan until they get punched.
Meb: Everyone says five years and then they wait about a year, see how it’s going. Before we hop off these current funds, you got any more thoughts? I’d kind of like to bounce off some ideas on the whole ETF space. You’re ready to move on or you got anything…?
Meb: All right. So, you’ve been a longtime participant in this world. Any general thoughts? Any brainstorms? You and I, if were sitting here over coffee and beer, and I wasn’t publishing this, but you can reveal any secrets, what are you thinking about as the space matures, as you’re now launching funds, any general thoughts on ETFs, in general, and where we stand here in 2022?
Kevin: Yeah, you know, I think ETFs are really just a product vehicle, right? Because I come up with strategies all the time that, you know, it would look good in interval fund, or it would look good in certain different, you know, vehicles for that very reason. So I think what we’ve seen is that the ETF has become the dominant vehicle for liquidity tax purposes, which is so great. And so we’re starting to see tons and tons of products come out. And I think there’s a lot of Me2, Me3, Me4 products coming out around hot things, which is okay, but it’s important to know why certain ones behave the way they do. So you’re starting to see performance dispersion within a lot of sub-sectors and sectors within the ETF space.
So I think this is a great time for investors to really look at what’s under the hood. Like, why did this one FinTech fund outperform the other FinTech fund? Or do I have similar holdings in a, you know, Blockchain fund that I do in this FinTech fund? And so really dig beneath the surface to see, okay, how do I rebalance and rotate? And I think this is the year for that. I think 2022 as we start going into the third quarter, and fourth quarter with tax loss, harvesting, rebalancing, we’re going to start to see the best funds in the categories start to garner more AUM, and do better, and have enhanced liquidity if the issuers doing their job on educating the marketplace. So I think that’s going to happen. The only other thing is, you know, we’re starting to see a lot more options cover call strategies filed come out. And I think a lot more active products will be coming out.
I’m looking at a strategy to do active because it’s the only way to do this strategy, right? And I think people are now comfortable with actively managed ETFs. It took a long time to get there, same with options ETFs, took a long time for people to get comfortable, but now they’re comfortable saying, “Oh, you’re not rules-based.” And, you know, they realize they’re investing in the person, in the firm, not the actual underlying index. So, I think that’s going to be a big pivot where we’re going to start to see a lot more actively managed strategies come about.
Meb: Yeah, narrative has certainly changed around active. I mean, for many years, we would talk to DDQs at these institutions. And they would say, “We don’t do active funds.” I know you have thousands of active mutual funds right now. But these ETFs, I don’t know, something sketchy about them. So, anyway, the platform’s going to hold onto the pearls as long as they can. Can you give us a preview of any ideas you have or is the Comono going to stay sharp for now?
Kevin: No, I can give you a preview. One of them has already been filed and is out there, and it’s effective. And it’s the Internet of Things strategy that we have. We have the ticker INET. And it has four sub-sectors, but, you know, we’re going from like 10 billion devices connected to the internet today, we’re going to get like some 40 billion. Everything’s going to be connected to the internet. And it’s going to be talking about satellites. Micro data center satellites are going to be in the air from AWS, right? And so, everything’s going to be connected. So, just the proliferation of devices, that we believe this is the best way to play it. We haven’t found any other solution to play that. We think the Internet of Things is one of the future four horsemen of going forward. So the Internet of Things, blockchain/distributed ledger technologies, AI, you know, machine learning, is another one.
So there are three. I forget what the fourth is. I’ll tell you what it pops in my head. But we think that’s coming. And the other strategy I like is a strategy… And this is the active one I was talking about, that you would want to own for when I believe is an inevitability if you read the “Wall Street Journal” every day, or you watch the news, or you see actually what’s coming out of China. And that’s the invasion of Taiwan. And so, you know, I’ve been tracking that myself, my own portfolio, sort of a, how do you play the market, when the second largest economy in the world takes over Taiwan for their critical technology infrastructure?
Taiwan has the semiconductor manufacturing fab produced by ASML, that does EUV, which makes more law go on. So you can fit more information in the nanometers on the silicon chips. So, right now, ASML is blocked from selling that to China, right? They can’t because China said they had their 2015 plan. By 2025, they want to be in the top five of all these technologies. By 2035, they want to have the number one military in the world. And by 2049, the 100-year anniversary of the CCP, they want to be able to defeat any military and run the world. That’s literally in their 2015 plan. So, you can see it with all their munitions and everything that they’re doing. You know, they did a strategic relationship with Russia. They’re launching their own satellite, so they don’t have to worry about our GPS.
So, listen, if they don’t get this technology, they’re going to take over Taiwan and take it. They think it’s one country, two systems. They’ve already proved the platform with Hong Kong. Hong Kong is no longer, you know, a democratic city. So, you know, it’s inevitable. It’s in their plan. And that’s how the CCP stays in power, right? So, I have a strategy that I want to launch based off of that. Offline, I’ll tell you the ticker, I think you’ll like it. But that would be an actively managed strategy. And it’s something that I’m super passionate about.
Meb: This is a really interesting one for, you know, 95% of the emerging market investors that own Russian equities. And that hasn’t played out yet, of course, but is a potential playbook is. And you can answer this or not, is the way to think about how to play that. Is it short exposure to those markets? Is it an option overlay where you’re somehow getting exposure to certain outcomes? Is there a way to think about that? Because I’m sure it’s on every giant institutions mind because Russia, you know, while, let’s ignore the human strategy, and we’re focusing only on the investment implications, Russia is a rounding error compared to China, right? I mean, the emerging market indices in China often is like, near half of some of these indices, whereas Russia, you know, is much more. What’s the like, kind of thesis can you hint?
Kevin: Yeah. So, the way to think about this is… And if we can go back to February 24, when Russia invaded Ukraine, you know, they waited until the Olympics were over, but we saw the market you find and go up, but what we knew there were going to be shortages at weeks, we knew oil went up, gold went up. So, you got to look at it from a holistic basis where you have these new technologies like … which you can get satellite images are publicly traded. You can own gold, you can overwrite calls on that if you want to produce some income. You want to go short semiconductors, right? So, the problem is, is that you’ve got a dislocation, typically with wars and prolonged wars, like, we’re seeing now. There’s recessions that happen that’s happening over in Europe, which leads to demand destruction.
We see currencies go up, like the U.S. dollar, right? We’ve seen the Euro go down. It’s almost near parity. So, what you want to do is you want to invest in strength, and you want to short weakness on that. And then you also want to have exposure to resources because that’s how wars are run. It’s resources. So, you want to own oil, you can overwrite calls, buy some puts if you want to, so in case it goes back down, but, you know, it’s all a resource play. So, own oil, own gold, own the new modern warfare companies. You can overwrite calls on them, you can short semiconductors. There’s so many different ways to play it. But you have to be very conscientious of kind of how resources feed into wars and what that does to currencies and economies. And that’s how you start with sort of putting together a portfolio.
Meb: Yeah, that’s interesting one. And that’s I know something on everyone’s mind, but also nothing I’ve heard that is anyone addressing that. So, good luck, man. That’ll be an interesting one. What else is on your mind as we start to wind down? Is there anything you’re scratching your head about here? It’s summertime sabbatical for many. Anything you’re brainstorming, confused, excited, concerned about, elated about other than what we’ve talked about thus far?
Kevin: Yeah, you know, the funny thing is we call Kelly ETFs because I want to own every single one of these strategies, right? And I’m personally invested, right? You will find anyone more invested in these strategies than me because, you know, I launched or I created them. I believe in them. I’m, you know, helping put them on. But, you know, I think you know, where we are today in the market, we haven’t seen capitulation, right? So, investors need to be very conscientious of what they own, and the idiosyncratic drivers behind it, because that’s what’s going to save your neck when correlations go to one, right?
We haven’t seen correlations go to one. And that’s when capitulation happens, volatility spikes, and then you want to own things that are rebound quickly, because everything goes out with the tide, right? I remember March 2020, everything dropped, gold dropped, you name it. If it was liquid, and not stapled to the ground, people sold it. So, you’re going to get hurt in the short-term, but you won’t own the names, right, that will rebound the quickest, right, and have that idiosyncratic drivers behind it and recover quicker, because that’s where people will, once they calm down, and they start putting money to work, we’ll purchase those things. And those will come back the quickest. And so I think that’s the important thing that people need to really kind of focus on because I talk to investors all the time, and they don’t want to put money to work or I’m like, “Well, you already have money at work. Do you have your money working in the right way, right?” So, do you want to own, you know, this product that owns residential, but also healthcare and self-storage and things like that? Or do you just want to own pure residential, right?
So start thinking about that. So that’s one of the things I talk ad nauseam to be because they’re like, “Oh, well, I don’t…” I’m like, “Well, you know, do you think we’re at a bottom?” Almost everybody says, “No.” Okay, well, then, are you ready for a bottom? Are you positioned for a bottom? You know, when you ask somebody, are you positioned for a bottom? Their eyes start rolling in the back of their head, and they’re like, “Yeah.” Means, no, right? So it’s no you own and, you know, position yourself. If you think we’re not at a bottom, are you ready for a bottom and are you positioned for it? And that’s it.
Meb: As you look back in your career, what’s been your most memorable investment?
Kevin: Whoo, my most memorable investment, well…
Meb: It could be good. It could be bad. It could be in between.
Kevin: Yeah. Yeah. You know, the most memorable investment probably was, I purchased a lot of the industrial REITs when they were trading at 60 cents on the dollar in the bottom of the pandemic, because it made absolutely no sense because, you know, you’re going to love this. It’s called the banana effect, right? So, the banana affects, what was happening during the pandemic, is, people used to go to stores to buy bananas, right, and same with toilet paper. I’m not going to order it online. But what the pandemic did was the banana effect. They bought bananas online, right? So, the industrial REITs were trading at like 60 cents on the dollar and I’m looking at scratching my head. I’m like, “What does the market know that I don’t know?” Because people are now buying groceries online.
You know, we’re having a great toilet paper shortage of 2020. We got to build more storage. You know, we’re building it higher, what am I missing? And it was a great trade. It was one thing I went into great quality assets and Ecommerce picked up and that thing just rebounded. Now, was I smarter than the market? Well, I also got help from the federal reserve that also did that ultimate pivot too. So, like, that’s the sad thing about the markets these days is everyone thinks they’re smart, and like things were going up, and the Fed pivoted back in early 2019. And things rebounded. And then also, you know, 2020 lead to investment opportunities. Now is the time where I’m going to figure out if I really am, you know, putting money to work efficiently and in the right way, and trying to hit singles, doubles, triples, not home runs, not grand slams.
Everybody knew Nvidia was a great company, everybody knows Nvidia with crypto and AI and things like that, but it’s still trading at high earnings. You know, commodities, you know, have come down. You’ve also gotten… Semiconductors have come down too. You know, there’s supply chain disruption. So, this is the time now where we’re going to cut our teeth and see who knows what they’re doing and who doesn’t.
Meb: Yeah, it’s tough, though. You know, I mean, investing when terrified, investing when, you know, feels like the zombie apocalypse is happening, or, you know, who knows what the rest of this year. I’m ready for some nice calm, like, three-quarters of calm, it’s unlikely going to happen. Things are already crazy enough this summer when it’s supposed to be quiet. So, who knows? People want to check out your funds, what you’re up to, all you got going on, what’s the best places to go?
Kevin: The best place to go is kellyetfs.com. You’ll actually see the ETFs, download the fact sheet. Email me firstname.lastname@example.org. Also, kellyintel.com, that’s the RA site where a lot of thought leadership goes. That’s where we talk about a lot these spaces, kind of the happenings. So, Kelly Intelligence is really focused on these sectors, and, you know, what I talked about too, you know, with what we think is the inevitability of China, you know, going over to Taiwan. So, you know, we talk a lot about stuff over there. So Kelly Intel’s where you’re going to get the latest on the market intelligence, but Kelly ETFs is where you can go find product information.
Meb: My friend, listeners, check out his website. When we hold the inaugural bud’s burgers brews, and ETFs, we’ll let you know. Kevin, thanks so much for joining us today.
Kevin: Thanks so much for having me. Really appreciate it.
Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at the mebfabershow.com. We love to read the reviews please review us on iTunes and subscribe to the show anywhere good podcasts are found. Thanks for listening, friends, and good investing.