Passive Investing in a Tri Polar World

Featuring Jay Pelosky

Jay Pelosky’s long career in investment banking has led him to focus on the benefits of ETFs and passive investing for the millennial generation. With more opportunities from Asia and Europe than the US, Jay is calling for regional deepening for the resurgence of the global economy from the slow growth, low returns environment he sees persisting and passive’s share of investing to grow significantly, encompassing major pension funds and sovereign wealth funds. Filmed on July 14, 2017, in New York.

Published on
27 July, 2017
Global Outlook, Europe, ETF
62 minutes
Asset class


  • AC

    Andrew C.

    4 8 2017 05:07

    2       0

    I think we need to define passive. Is it really passive, or just final realisation that the two and 20 model has been ripping investors off for years, and better real returns in a pension/retirement portfolio can be had just through indexing?

  • AC

    Andrew C.

    4 8 2017 05:03

    0       0

    This interview -particularly the Europe discussion- reminds me of this. Not mine, but I love this quote: "I asked the CEO 'how's business?' He said 'fantastic, couldn't be better!' So I sold the shares.

    "I asked the CEO 'how's business?' He said 'bad, disgustingly bad, couldn't be worse!' So I backed up the truck and loaded up on the shares.

  • rr

    rlw r.

    3 8 2017 16:04

    3       0

    Grant exactly, getting another perspective is an awesome thing. I often read comments prior viewing, and with so many negative ones cropping up just knew it would be an excellent thought provoking interview piece. It was. Excellent RV value add.

  • am

    amit m.

    30 7 2017 13:33

    0       0

    Lots of sizzle n very little steak

  • AE

    Alex E.

    30 7 2017 05:35

    1       0

    I'd also like to mention that Geopolitics were not mentioned in this interview, which, I beleive, can be a very big driver of negative implications i.e. Black swans that could seriously affect evryone's portfolio. Would have been nice to hear Mr. Peloshy's take on North Korea, et. al.

  • AE

    Alex E.

    30 7 2017 05:20

    0       1

    Two points to make. I think anyone who invests in the passive ETFs is going to get slaughtered because of the fees (9 basis points on 100,000 is still $ 900.00 a year every year whether the market goes up or down) and because ETFs get pushed to the back of the line in a market crash! Two, humans have not changed in 150 years of market existence. Humans panic in large market downturns, buying at the top and selling at the bottom. this has happened 13 times since the NYSE has been in existence. What makes anyone think it will change in the next crash?

  • VS

    Victor S.

    28 7 2017 19:20

    4       3

    I enjoyed Jay's comments and voted as such .... but Jay has a half glass full view of Asia and the Euro and i posit this question/fact-When did Socialism ever work in the long run? Please show me where -never!!! 5000 year low interest rates covers up a lot of problems. A long time ago a man taught me NEVER TO JUDGE SUCCESS UNTIL YOU SEE A "FULL CYCLE". Sadly these models are a double edge sword and Jay is playing the "Black knight " in Monty Python's Holy Grail !

  • TW

    Thomas W.

    28 7 2017 18:35

    11       1

    Oh, thank god they bailed out the Italian banks so we can get back to business as usual , learn nothing from the crisis, and make the problem bigger down the road.

    Because, I mean, nothing does more for the health of the system long term than a good, well-timed bailout., right?


  • ML

    M L.

    28 7 2017 15:17

    3       1

    A very good interview.

  • CM

    Carl M.

    28 7 2017 15:00

    6       0

    What happens when investors want to unwind their ETF positions in a bear/down trend market? It's always wonderful on the way up...but will there be enough of liquidity on the way down? How do they protect themselves when that happens or minimize the losses? Sell Short ETF's? Or long bearish ETF's?

  • KV

    Koen V.

    28 7 2017 12:48

    12       0

    42:15 "The global economy is in a better shape today than its been in the last decade"

    After governments and central banks enacted the most extreme and unorthodox policies in history. ZIRP and NIRP are historical anomalies (Read Homer and Sylla A History of Interest Rates). We're in the third longest businesscycle, surely there must be some point at which we go into recession? The global economy was in its best shape in 1928, just prior to the crash of '29, just as the global economy was in its best shape in 2007.

    43:15 "Removing NIRP is actually a positive, at least flat is going to be good for the financial system, and good for the European economy"

    Is it really positive for Europe? There are numerous Italian and Spanish banks that have been teetering on the brink of collapse. Wouldn't an increase in interest rates lead to a slowdown around the world, and in Europe in particular? Numerous large Spanish and Italian banks have atrocious balance sheets.

    "If the Texas Ratio is over 100%, the bank doesn’t have enough money “pay for all the bad stuff.” Hence, banks tend to fail when the ratio surpasses 100%. In Italy there are 114 of them. Of them, 24 have ratios of over 200%."

    It might be that I am just too pessimistic about European financials, but I suspect that the Europe Growth Story is nothing but an exercise in Irrational Positive Groupthink. Sure there are positive developments in Europe, but do they outweigh:

    1. A South European financial sector wrought with bad debts, which is tightly interwoven with a healthier Northern European financial sector, and can as a result bring down the whole of Europe
    2. Bad demographics
    3. Serious political disagreements within the EU over migration

    There is also the danger of populism. While commentators may claim that the Dragon of Populism has been vanquished by Macron and the like, it seems more likely that populism has temporarily been put to sleep. This slumbering populism, which is sure to come back to the fore once (a) the migration crisis heats up again, (b) we go into recession, or (c) if terrorists manage to pull off a Bataclan, or 9/11 sized attack. It usually takes quite a long time before the average person opts for extreme measures, but if the suffering goes on for a long enough time, then populism in one shape or form is inevitable.

    Extremist politicians Weimar Germany did not gain power after the Great War and Hyperinflation, and in, at the height of the Roaring Twenties business cycle in 1928 relatively few Germans supported Hitler's NSDAP and the hardline communist KPD who gained 2.63% and 10.62% respectively. It was clear that the Germans preferred stability and economic growth under moderates over unorthodox policies lead by extremists. Two years later, the NSDAP stood at 18.25% and the KPD stood at 13.13%. Four years later Hitler became chancellor with 37.27%, and the communists ended up with 14.32%.

    Similar developments occurred in many countries around the world. (

    I dont know what roadmap the global powerelite has set out, but I do suspect that if they make mistakes, then some countries will suffer horrible. And it would not surprise me at all if the citizens of these countries will choose populism.

  • SS

    Steven S.

    28 7 2017 07:15

    0       0

    Ozzy Osbourne of the Black Sabbath band would ask the same question of any lowering of Interest Rates.

  • DS

    David S.

    28 7 2017 01:36

    1       2

    With the risk of equities, who would invest with an expected return of 2%. DLS

  • AB

    AJ B.

    28 7 2017 00:49

    9       0

    Very valuable to get a different perspective in which your disagree with.

    EFT's are not revolutionary. Cheaper is not revolutionary. ETF's are a step backwards, and at some point in the future will cause a major liquidity trap.

    It was ironic that he told the bear/Mexican peso story, then 5 min later said he does not see an imminent crisis.

  • DS

    David S.

    27 7 2017 21:00

    5       3

    Excellent interview. I believe that Mr. Pelosky investment structures are smart and reasonable for the future. The fly in the ointment for me is the high P/Es in the market. I think we need a reversion to mean, and then use Mr. Pelosky's insights to buy in. DLS

  • jS

    jurgen S.

    27 7 2017 20:16

    10       2

    Really loved how Jay goes about it.
    Whether you agree with him or not you have to admire his passion and belief in his own theories.
    Great to hear someone who is more bullish than your average RV subs

  • JH

    Jesse H.

    27 7 2017 19:50

    3       0

    Would love to see Mike Green interview / debate Jay. That would be one to watch. I think Mike Green would quickly show Jay that in the next 5 years, it is probable that the emperor has no clothes. And ETFs are a highly risky experiment / house of cards.

  • JH

    Jesse H.

    27 7 2017 19:47

    9       0

    Found the key point of this interview to be, how the major switching of balance of power to the other nodes of the Tripolar axis takes place. When it does, things are definitely going to break, I think...or perhaps begin a slow crumbling in the US, Europe, etc. My biggest fear is that we are increasingly entering a more centralised world where wealth and power concentration is strengthening, and democracy and public control are weakening. We could see a two-tier world and market, one of low growth where the poor and middle class are really hard hit while the wealthy keep rising markets higher till they break. What we have is a recipe for social strife in the Western world, the beginnings of which we are seeing in Brexit and Trump.

  • AG

    Austin G.

    27 7 2017 19:31

    3       0

    The herding is so important in my view. I don't think it ever ends or bottom...
    The ETFs and herding suggest to me that looking at individual companies has a bright future after the next reset...ETFs are agnostic to individual company management, vision etc

  • MN

    Mark N.

    27 7 2017 18:47

    6       3

    Highly entertaining if nothing else. Is entertainment what I got a RV subscription for? Not sure.

  • MC

    Minum C.

    27 7 2017 18:40

    7       0

    The bit on ETFs was interesting. Perhaps ETFs will continue to gain market share as an investment vehicle, but nothing goes in a straight line. For example, in an equity bear market, an index ETF is more likely going to under perform an active manager who has the ability to hold cash. I suspect during the depths of the next equity bear market, broad based beta generating index ETFs will become unpopular again. But I don't think this necessarily means all ETFs will become unpopular.

    Seeing as how many are currently not using ETFs as passive investment vehicles to gain broad based long-term market beta, but are instead actively trading them in search of short to medium term alpha, it seems to me today's investor might actually be more interested in the ETF structure than the passive beta generating investment returns ETFs were originally designed to produce.

    This made me think about how much more downside there could be during the next equity bear market if, for example, the large and growing group of active ETF advisors (many of whom have not historically put on short positions for their clients) suddenly become attracted to price momentum of an inverse beta ETF in a bear market. If large capital flows into long ETFs can exaggerate price moves to the upside, does it not reason that large capital flows into inverse ETFs can exaggerate price moves to the downside?

  • TS

    Thomas S.

    27 7 2017 17:01

    13       0

    OK, I get it that RV guests are professional money managers whose livelihoods depend on telling a positive investment story to institutional investors. Upton Sinclair said, "it's difficult to get a man to understand something when his salary depends on his not understanding it." I'm not implying Mr. P doesn't understand certain things, but I am implying the current trajectory of economy and society is not going to turn positive until people like those interviewed on RV start couching their theses in language stating the current trend toward centralized everything isn't really working out for mankind. Because these are the thought leaders, they have to lead toward better thinking. Otherwise, if the world just continues lumbering toward total centralized control of everything - government, economies, money, media, you name it - then we in the finance industry are only putting hammer and nail to our own gallows.

  • HJ

    Harry J.

    27 7 2017 16:13

    0       0

    If your going to panic be first.
    Buy the way the fed is in a crowded corner with no options left.
    The insistance on lower rates and a huge balance sheet won't end well.
    But what do i know. Just been

  • HJ

    Harry J.

    27 7 2017 16:09

    0       0

    Good job Grant.
    Every body has a plan going into the ring for the first time till they get hit hard in the nose. Young untested
    Player are often prone to panic.
    A wise man once told me that if your g

  • BA

    Ben A.

    27 7 2017 15:45

    5       0

    Each to their own I guess, but excuse me while I go visit Russell Clark for some "Real Vision"

  • WB

    Wes B.

    27 7 2017 15:26

    19       2

    I enjoyed hearing from someone that counters much of what we hear from other RV guests.

  • SS

    Sam S.

    27 7 2017 15:01

    0       0

    Who needs Real Vision when we got Passive ETF Investing. Just because it's happening and the only thing working right now, doesn't insure it's future. What we can count on is change and cycles. However, I did truly enjoy this interview with Jay, and Grant pressed the questions in such a way all this this discussion very meaningful. Bravo.

  • PU

    Peter U.

    27 7 2017 14:56

    12       0

    whoever is holding the camera should stay off the sauce . . . you seem smashed

  • PU

    Peter U.

    27 7 2017 14:43

    3       0

    he is a good story teller!

  • PU

    Peter U.

    27 7 2017 14:40

    22       0

    Ok, with only 17 mins left, his credibility has been damaged. "The Fed has optionality" with the recent and anticipated rate increases. Rose colored glasses. He sounds like he is selling his book. One question for him to answer: If things are as bullish as he espouses, then why are the major central banks controlling rates via over $3.6 trillion (current run rate) liquidity infusions? Why is it "ok" for central banks to purchase equities and corporate bonds? Why do we need such easy financing conditions?

  • PU

    Peter U.

    27 7 2017 14:19

    13       0

    He sounds knowledgable and very positive. However, I believe he should address the many large "elephants in the room" that are in opposition to his outlook. This would have been a more complete interview. Grant does a good job trying to bring the headwinds into the discussion.

  • PU

    Peter U.

    27 7 2017 13:59

    5       0

    I second "please keep the camera stationary". Let's not get cute here.

  • RM

    Richard M.

    27 7 2017 12:49

    4       0

    Please keep the camera stationary. thanks.