On this week's episode of the Financial Planning Podcast, Sylvia Jablonski explains why the next-generation is so into disruptive innovation.
Jablonski is the CEO and chief investment officer of Miami, Florida-based
Founded in 2018, the company is an exchange-traded funds sponsor and registered investment advisor focused on thematic investing. The themes it focuses on include technologies or practices "set to transform existing paradigms of how we live, work, receive healthcare and pursue leisure."
Jablonski noted that quantum computing, sustainable energy solutions, artificial intelligence and smart cars are the technologies her company is talking about. Prior to joining Defiance, Jablonski was managing director at Direxion, a provider of leveraged and inverse and thematic ETFs.
But Jablonski also regards thematic investing as something bigger than just portfolio performance. She sees it as an opportunity for advisors looking to attract next-generation clients passionate about these kinds of investments.
During her conversation with FP Podcast host and lead editorial producer Justin L. Mack, Jablonski talked about thematic investing as a long-term investment strategy, how to properly identify the next thematic play and how her obsession with the market feeds her love of the business.
Listen to the new episode — as well as to all future and past episodes — by subscribing to the FP Podcast on
Transcript:
Justin L. Mack (00:02):
Good morning, good afternoon and good evening. Welcome to the Financial Planning Podcast. I'm your host, Justin L. Mack, wealthtech editor with Financial Planning. And it is my pleasure to introduce this week's guest, Sylvia Jablonski, CEO and CIO of Defiance ETFs. Thank you Sylvia, so much, for joining us on the show this week.
Sylvia Jablonski (00:20):
Hi, Justin. Great to be here with you and thank you for having me.
Justin L. Mack (00:23):
Absolutely. And Defiance has a philosophy built around thematic investing and giving advisors access to dynamic sectors that are leading the way in disruptive innovations. Hence the name Defiance. With that, Sylvia is a pro when it comes to thematic investing as a long-term investment strategy, accessing these disruptive emerging trends through an ETF and knowing what next thematic play is the right one. Sylvia manages Defiance's retail and institutional investment research, capital markets and thematic ETF model portfolios. Prior to joining Defiance, she was managing director at Direxion, advancing ETF education and strategy throughout the global financial industry. So this week, yeah, it's no surprise, we're going to talk about ETFs. What's new, what's unique, what do advisors need to know in 2023 and what might the market have to say about all of that? But before we jump into those topics, Sylvia, let's start at the beginning. Tell me a little bit about what brought you into this industry in the first place. Obviously very interesting, a lot of movement, never a dull moment. Was it something that you always had an interest in or did it develop from somewhere else?
Sylvia Jablonski (01:24):
Yeah, great question. And it's been a long time since anybody has asked me why I sort of do what I do or like what I do, and it's a great question. So interestingly enough, I went to Boston College for undergrad. And when I graduated, actually both undergrad and grad school, and had a major and concentration like finance and economics, everybody just tried to get a job at the bank. You know, one of the big banks and join one of the big banking rotation programs and things like that. So I just kind of did that. It was just sort of the path that was laid out as the best path to take and whatnot. So I spent the first few years of my career working on an equity derivatives trading desk. So I got to work with hedge funds and ETF issuers and different types of clients on derivatives products.
(02:13)
So for example, swaps and things. So an ETF company would be trying to create a product and they would need a swap to get exposure to an index in order to build their product and whatnot. So, through doing that, I learned so much about it and I thought, this is so cool. The majority of the world knows mutual funds and there are trillions of dollars in mutual funds. But these products, and they were around for obviously a lot longer than I was, but the products that used derivatives were actually fairly new. They came out kind of in the late 90s, early 2000s and whatnot. So this was actually around 2008 when Direxion launched, and they had the first triple- levered ETF products and whatnot. So this is when I was working on that and I thought to myself, this is so cool.
(03:01)
These products are innovative. They use these types of tools and things like that, and so much money was in mutual funds, but look at this now. I mean, you can get leverage and access to cash through an ETF. You get intraday trading through an ETF. You get exposure to all these cool countries in different regions and it's a little more specific and whatnot. And I just thought, this is where the puck is going. And so at some point, the CEO of Direxion, a firm that I'd been covering on the swap side, offered me the opportunity to join the firm in its infancy. And so I did it, and that's how I got into it.
Justin L. Mack (03:38):
Very, very cool. And of course, as we've covered here at Financial Planning, we know the hands-off approach to investing, really bolstered by traditional ETFs, but we've covered a lot of how things are changing. Active ETFs. Thematic ETFs. And on the topic of thematic, it's been really interesting. Because as we've seen, there feels like there's no limits to what an ETF might hold shares in. As we've covered at FP, we're talking about ETFs that hold shares in people's vices, breakfast foods, sports memorabilia, memes, NFTs, psychedelic drugs. It seems like no matter what, hey, we've got something for you. So talk to me a little bit about why that even matters. Why is this something that people should be aware of and what are the benefits of a thematic ETF versus something, I guess a little bit more traditional, if you were to call it traditional?
Sylvia Jablonski (04:26):
So yeah, that's a great question actually, Justin. So I think what's really interesting about thematics is you sort of hit the nail on the head. They provide access to innovative strategies and asset classes that might not be available or sort of obvious in terms of how to invest in them through different investment vehicles. So you know, get access to things like disruptive technology, robotics, automation, healthcare innovation. At Defiance, we create products that give investors access to 5G, quantum computing, the next generation of energy use, which is hydrogen. Travel … hotels and crews in one product that gives you access to the whole leisure sector and crypto related products. So why that's really interesting though, to really get at your question, is because the world is changing. So during COVID, I think there's this big shift where a lot of young people, young meaning like high school level and above, came to the market for the first time, became more interested in their finances, they were sort of home.
(05:34)
And this kind of Robinhood frenzy, I'll call it, and meme stock frenzy sort of started. But what it really led to I think is a real generational shift in how people invest. And for the first time, I think we've kind of connected baby boomers and the younger generation in terms of discussing what they invest in and also being the inheritors of accounts in the future. So for example, the grandparents of a young child are now communicating about their investments. And while the grandparents may be invested for their grandchild in things like a basic S&P 500 fund. Just sort of set it and forget it. That younger child that will inherit that account. The trillions of dollars will sort of pour down to the next few generations. They're not really interested in that. They're more interested in 5G, they're interested in artificial intelligence, big data, electric vehicles, climate change and things like that. So I think thematic ETFs really brought a focus on the feature and disruptive technology, and where the world will go in the next couple of decades to the market and made it accessible in a basket of stocks that represent different themes.
Justin L. Mack (06:43):
Absolutely, and it's interesting you point out that that's kind of a side effect of COVID, which is driving interest in an even younger group of investors and shifting priorities about what do I want to invest in? Is it really solely about what I can get back? Is it tied to what I'm personally passionate about? Or do I want to be, like you said, jumping into something that's technology focused. Something that's thematic, still unproven, but the potential is there and people are getting into it from AI, from quantum, from whatever might be next. That's really interesting, and it's kind of the — I'm going to steal a phrase from someone I've interviewed for FP, Alison Dooher from Schwab Advisor Services, I'll give her a shout out — but she coined the phrase, the silver linings of the pandemic cloud. And I like that because it is a side effect that, like you mentioned, people are having conversations about investing. Young people, old people, grandparents and grandchildren that might not have taken place before, and also opens up the avenue for the thematic ETF to thrive. That's very much the power of youth. These young folks might not even be investors yet, but they might be getting their parents interested in something like a thematic. Have you seen a higher demand for it in recent years or people more ready to take a chance on something like a thematic than in years past?
Sylvia Jablonski (08:02):
I think they really are. And it's interesting because again, going back to the days where I started in this space, which was around 2008 or so, I remember talking to clients at that time and various companies had different thematic ETF products out there. I think Hack was one of the first notable ones that I thought was a cool disruptive technology type of idea. And they just were having it, right? Although that ETF ended up growing very, very quickly, the initial conversations were sort of like, I don't really know where this fits in a portfolio. This might never happen. When will this pay out? So I think that there was a lot of resistance by institutional types of investors and larger private wealth firms and things like that to add this as a permanent portfolio. And I think a lot of that was just a sort of lack of knowledge. Not because they didn't have the aptitude for it, they just hadn't heard about it or weren't really maybe interested at that point in learning more about it.
(09:03)
And I think that now as you talk to advisors, I think most of them are really willing to put maybe a 5% allocation to a theme that they really believe in. And so electric vehicles is one of those themes. For example, electric vehicles, companies like Tesla, they're actually growing. They're actually taking over market share. Alternative energy, the climate change and efforts to change the climate, global commitments to it, inflation reduction acts, like these are actual tangible things. And money will flow into companies that provide alternative energy like hydrogen related hydrogen stock related companies. So I think that innovation that's tangible and that you can understand what the output will be, like a 5G, you're connecting rural and urban America. You need higher speed and lower latency in order to have AI function and to have big data sort of work where different surgeons around the world can connect and access data easily. All of these things are actually happening and the companies that are working on them and participating in these trends, I think are really worth investing in. And why ETFs are interesting in that space is because when you think about a single stock, if you like EV, think the natural inclination is to go to Tesla, which is great until Elon Musk goes to Twitter <laugh> Right?
Justin L. Mack (10:29):
Yeah.
Sylvia Jablonski (10:31):
So I think some of these, whether it's hydrogen or quantum computing or some of the things that our competitors do, I think it's really great to look at baskets because you don't know who the winner will be. So while Elon Musk is kind of figuring everything out and whatnot, maybe Rivian will grow? Maybe Fisker will grow? Maybe NIO will grow? And same with 5G, you have a couple of companies that are focused on it … T-Mobile, for example, that's rated one of the sort of fast companies. I mean, some of them are having great success in ROI from these themes. So I think an ETF is great because you diversify your exposure there and you have a little bit of a natural hedge by a couple of the winners really standing out, and a hedge against some of the names in the basket or the space not winning. I think it's easier to pick one of the top S&P 500 stocks that you think will do well versus one of the top disruptive quantum computing stocks, for example.
Justin L. Mack (11:32):
Absolutely. And you bring to another question that comes up when I think about how do you do this as a long-term investment strategy? Because so much of what we just discussed is predicated on what's now, what's next, what's happening. So it requires you to keep your head on a swivel. You very much have to be active if you're going to do this well, whether you're doing it individually or as an advisor, because you kind of have to react with the punches that the world is going to throw at you. And just thinking about last year, if you are into disruptive tech or what's next, you couldn't have predicted, like you said, Elon going to Twitter. You couldn't have predicted what happened with FTX. You couldn't have predicted so many things. Heck, years ago you couldn't have predicted COVID. If you were into tech that was emerging before that and then saw some of the tech that emerged after that. So tell me how you do this, right long term are you always paying attention? Is there a way to bring some stability into something that is so fluid? What about thematic as a long term?
Sylvia Jablonski (12:29):
Yeah, and I think the important thing is just that, right? I think because it is long term, if you have market pull box and higher rates and inflation, everything that happened in the last year is absolutely terrible for disruptive technology. But the good news is that it's just been absolutely hammered to the ground. And I think that there's sort of nowhere to go. I mean, in the near term, there's a way, potentially a way to go down, but eventually there's nowhere to go but up, right? Yeah, you hit that. You do hit that point. And I don't mean that to be true for every single deceptive technology company out there. But the companies that are sort of well capitalized have strong balance sheets and make it into an ETF product, whether it's Defiance's or our competitors' products. We as ETF providers tend to give clients access to liquid underlying names that are tradable.
(13:20)
So they have a market cap, they have a balance sheet, they have things like that which leads you to believe that they will survive over time. So in my mind I'm really big on dollar cost averaging, the kind of the boring old, how do you invest over time? I think disruptive technologies, 5G, it's getting such bad press … Well, no, it hasn't happened in time. It hasn't happened as fast as everybody would like it to, but it's absolutely happening and it's crucial to defense. It's crucial to banks. It's crucial to smart cities. Electric vehicles, all of these things that we've been talking about. So I think that with this, you really have to have a mindset of this is a portion of your portfolio. You're going to keep your stock, whatever they might be that you're kind of comfortable with or your day trade, or you hold for shorter periods of time, and that's fine, but this is a small allocation of your portfolio that you are planning on holding for the next decade because that's how long it takes these things to play out.
(14:19)
And then along the way, if you benefit, because what happens is the ETF provider has methodology and they have index rebalances and things like that. So if some of the names are just not panning out, eventually they are taken out of the index and the new and improved company that will be the leader in that theme gets added in. So with these types of trades, it really is the long term. Just think about EV, we're kind of picking on Tesla today, right? Or even semiconductors. We'll use semiconductors like Nvidia and AMD. I mean, absolutely hammered. You can't make coffee in the morning without <laugh> a chip. I think that a lot of the themes that then rely on semiconductors like quantum computing and 5G, for example, will continue to move those stocks forward and those ETFs forward. So it's just you have to hold onto it for a long period of time. You have to have patience. And it does often pay out over time.
Justin L. Mack (15:18):
Absolutely, absolutely. And since you mentioned Nvidia, I'll use this chance to say, hey, Nvidia, get it together and start shipping 4000 series graphics cards and get over the semiconductor issue that is holding you back. So, just wanted to throw that out there. <laugh> And with that, we're actually going to take a quick break and enjoy a word from our sponsors. But when we return, we're going to jump right back into our conversation with Sylvia Jablonski of Defiance ETFs. Stay locked. We'll be right back after this break.
And welcome back to the Financial Planning Podcast. I'm your host, Justin Mack, and we're diving back into our conversation this week with Sylvia Jablonski of Defiance ETFs. Now, Sylvia, before the break, we talked a little bit about disruptive tech. A rough time for it in 2022 and just that thought that maybe there's nowhere else to go but up. I'll knock on something that's made out of wood tonight, anyone who's into that. So let's get a little bit more broad. Let's not just talk about tech. Let's talk about going up, hopefully, in the market in 2023. I know that's something you're always paying attention to. What is your outlook for 2023? Is it going to be better than last year? Because I think there's some folks who are just ready for the next thing to happen, kind of becoming comfortable in their uncomfortability. So what do you see on the horizon for us in 2023?
Sylvia Jablonski (16:34):
Yeah, and I think you hit the nail on the head, Justin. People are very uncomfortable. So we've seen last year was rough on just about everyone who was in the market. I think very few people had the foresight to go to a full cash position or whatnot, and if you did sort of bravo, you have all these opportunities now to buy here. But I think we've seen a nice start to the year with major indices up into this year … and here we are into January, coming in towards the end of January, and we've still continued to fail at that 4,000 resistance level and stay there.
(17:31)
But the earning season is going to set the tone for the market for the next couple of weeks. So I think we'll see some choppiness. I think we will really have a sense of where economic prosperity is, if it's holding up. The fears of recession have been accelerating lately, and we see that in the softened consumer spend, manufacturing data contracted slightly. We see PPI down. And all of these things lead to choppy markets, but what to do? Ignore the day-to-day volatility, the gyrations. Use it as an opportunity to gather stocks that you've been wanting to add to your portfolio, whether it's the thematic names we talked about … again, there's just no innovation without some of these names in terms of building out society and also expanding our economy. So I think that this year is going to be tough in the first couple of quarters.
(18:25)
I think that the Fed will eventually stop hiking, and then they'll sort of stay there for longer, as they said they will. But at that point, I think the market tone of the market and the psychology of investors is going to change because then you start thinking like, okay, are we in a recession? Did we have a soft recession? If we're not really sure, and this is still going on, whatever it is is probably not going to be massive. And at some point, markets tend to turn around before recessions end. So either way, we're in this softness, the Fed will come to an end. And I think that towards the end of the year, once we get past probably the worst couple of earnings announcements that we're going to see, I think that the market starts to turn the other direction. I also think the Fed … maybe the Fed doesn't have to go stay as high for as long as they think, right? Because the data is looking pretty compelling.
Justin L. Mack (19:18):
All right. And then keeping on that theme of what you see coming in 2023, jumping back into the ETF conversation a little bit, is there anything that you see on the horizon as far as ETF themes that might emerge? Anything that you see bubbling now? Some advice you can give listeners who are into it? What's on the horizon for ETFs and themes in 2023?
Sylvia Jablonski (19:46):
I think keep your eye out for active ETFs that provide you pure exposure to different sectors and themes that you like. So when issuers create ETFs, you have to follow the different rules that are out there. With the 1940 ACT fund, for example, there are diversification rules and things like that. So when you're talking about themes, a lot of times, you know, you have to have 25, 30 names in a basket whenever it might be. But there are only actually 10 pure names. So the great thing is that now a lot of issuers have discovered that through the use of active ETFs, you can actually just have a basket with a product or a fund or index that tracks very discreetly the theme that you're looking to get access to. So I think that's going to completely turn the ETF industry upside down and really provide great tools for advisors.
Justin L. Mack (20:38):
All right. And then also just personally, what are you working on in 2023 with Defiance? I know we've had a chance at FP to cover what you guys were doing in the space last year. Anything on deck or any priorities for Defiance and yourself that you have on deck for 2023?
Sylvia Jablonski (20:54):
Yeah, I mean, we're still more or less a startup that's kind of graduating out of that phase. And we'd really like to get out there and continue working with investors, young investors, registered investment advisors, hedge funds, pensions institutions, all of the different clients that we have, and educating them on these themes that we're incredibly passionate about. And we're also hoping to bring amazing products to the market. So some of our latest additions have been hydrogen, for example. So we're really looking to provide access to sectors and areas of the market that investors are hungry to get access to, and we're really excited to keep doing that and growing and continuing to meet and speak with our clients.
Justin L. Mack (21:40):
Fantastic. And as we kind of bring our conversation this week to a close, we're going to transition into something that's become a bit of a tradition here on the Financial Planning Podcast. Some good vibes. We've talked a little bit about so many things, your path into the industry, the work you're doing at Defiance, the impact of thematic ETFs, how that changes, what you see in the market. All that considered, and kind of going back to my first question about how you got here, what do you love most about the work that you do? What keeps you coming back knowing that it's always going to be something crazy, usually when you start your day, and that it'll probably end not how you expected it. Because that's how it is when you work in the world of financial services and the financial industry. But what keeps you coming back all these years later and loving it as much as it sounds like you still do?
Sylvia Jablonski (22:27):
Yeah, I love it. And I have a pure passion for it. So I'm obsessed with markets. I mean, I am watching the market for the minute that futures start trading at night to the day. To the point that my family's like, oh my God, just stop. So I'm actually obsessed with markets and I love debating markets and having great conversations with our clients. Some of them agree with me, some of them absolutely don't. And it's just so much fun when you have a passion for this to watch what happens and watch unfold. And also just these years … I think these terrible years are just generational opportunities, and I'm so excited to be part of that. I have young kids, so investing in the market when tech stocks are down 50%, I mean, I'm super excited for that type of opportunity for them. So yeah, market obsession.
Justin L. Mack (23:14):
For sure. It sounds real. It sounds like even if you weren't doing this, you would still be obsessed with the market. So to simplify, you're truly about that life. So we love to see that authenticity, and I want to thank you for joining us this week and sharing some of that authenticity with us on the Financial Planning Podcast.
Sylvia Jablonski (23:30):
Thanks so much for having me, Justin. Thank you.
Justin L. Mack (23:32):
No problem. And I want to thank everyone for listening to the Financial Planning Podcast. This episode was produced by Arizent with audio production by Kevin Parise. Special thanks again to our guests, Sylvia Jablonski of Defiance ETFs. Rate us, review us and subscribe to all of our content at