00:00I am joined by Joe Castigli, COO and CIO of Sycon Asset Management.
00:06Joe, great to have you here.
00:07Thank you for having me. I'm excited to be here today with you to talk about ETF products,
00:13specifically FMKT, which my team recently brought to market.
00:17Yes, and I know that you're really looking to capitalize on shifts in the regulatory environment,
00:23but let's take a step back and talk about progress,
00:25because there was, of course, a lot of optimism in terms of the new Trump administration
00:30about what it could mean for growth in the overall regulatory landscape.
00:35Where do we stand in terms of progress made?
00:38So I think there's been the pace of executive orders that have come out recently has been tremendous,
00:43and it's touching on a number of different sectors throughout the economy,
00:47energy with focus on nuclear energy, vertical takeoff and landing vehicles.
00:55We've seen some executive orders around that.
00:57There's been cryptocurrency and digital asset legislation that's come out.
01:01So I think the pace has been okay to this point.
01:04I think our personal feeling is that that's going to pick up.
01:08I think when you look at the Trump administration's policies, they've been looking at tariffs.
01:12They've been looking at the tax reform bill.
01:15And obviously, we're still negotiating some of those tariffs at this point.
01:18That deadline seems to shift almost hourly.
01:22But the tax reform bill is now done.
01:26And so it's our belief that the next focus, the next pillar is going to be how do we deregulate
01:33and lower the burden for American corporations.
01:36And what industries stand to benefit most from that potential deregulation?
01:42Yeah, so we believe energy is definitely one that can benefit.
01:46As you look at the growth of AI and data centers, the demand for energy use that's cheap and stable
01:54is only going to continue to grow.
01:56And so we believe there's going to be some effort there to cut regulation
02:00and allow for things such as small modular reactors and more nuclear plays that provide that stable energy.
02:08I would also say financials.
02:10There's been a lot of talk recently about scaling back the capital requirements for banks.
02:15That has a knock-on effect throughout the economy as it lowers capital costs
02:20and it injects liquidity into the system.
02:23Specifically, I think regional banks can benefit there.
02:26What about tech?
02:26I think there can be some benefits for technology for sure.
02:32You know, AI, a more friendly AI regime can definitely help technology
02:36as that's really the focus for the mega-cap tech names.
02:40They're all spending like crazy to hire talent.
02:43It seems like almost every day there's somebody leaving a company to go to meta right now.
02:47So I think AI is an area where they could benefit.
02:50And they too would stand to benefit from, you know, energy costs coming down
02:55or capital requirements being lowered that injects capital into the system
02:59because it lowers their cost of capital and lowers their input costs for their overall business,
03:03which boosts their operating margin.
03:06What are your expectations in terms of potential M&A?
03:09Because there was also a lot of optimism about a pickup in deals.
03:13And we haven't necessarily seen that.
03:15Do you think that's a result of all of the economic uncertainty, the tariffs, as you mentioned?
03:20Or do you think that's actually a result of a tighter regulatory regime than may be expected?
03:27I think the uncertainty is the big thing there.
03:30I think a lot of companies, right, companies like certainty in their cash flows
03:35and how they're modeling things out.
03:36And the market itself is a mechanism that prefers that certainty, right?
03:39When you have uncertainty being introduced to companies' earnings,
03:43it creates uncertainty and volatility in the market.
03:46I think if I had to look at one space in particular where there could be some activity,
03:51I would look at regional banks.
03:53They've underperformed versus the broader financial sector.
03:56They've underperformed versus the market.
03:58And I think if you lower those capital costs for larger banks,
04:02there could be some M&A potential there.
04:04And there could be some consolidation just within the regionals themselves.
04:07So I mentioned you're looking to capitalize on some of these shifts in the regulatory environment
04:13with your free market ETF.
04:16Tell me about the biggest holdings there and how you're looking to do that.
04:19Something tells me there's some regional banks in there.
04:21So, yes, we recently added some regional banks.
04:24We added a few different names, not among our largest positions.
04:28We chose to broaden it out among a few different names.
04:32Citizens Financial, Huntington Bank Shares, Key Corp.
04:35Those are a few of the ones that we've recently added.
04:38I think, you know, we've decided to take a play on the sector more broadly
04:43rather than picking individual names directly.
04:47But what are some of the biggest holdings then?
04:49So some of our biggest holdings are in some of the sectors that we've already discussed.
04:53Energy.
04:54So we have Uranium Energy Corp, UEC.
04:57We expect, you know, Uranium and Nuclear is going to continue to play a role in bringing those energy costs down.
05:04I think there's been a push towards small modular reactors.
05:08I think we're going to see that.
05:09And just enhanced approvals, you know, expedited approvals for nuclear reactors.
05:16Another area is financials.
05:20One of our biggest is Robinhood.
05:23We believe they'll see some benefits from some of the recent executive orders around digital assets and cryptocurrencies.
05:28There's also been the stablecoin legislation.
05:31And lastly, there's potential benefits from, you know, more relaxed AI standards for financial companies.
05:38And then the last area is McKesson in health care.
05:43We think there's potential for some FDA approvals that get expedited.
05:47We also have heard some inklings of domestic reshoring and some incentives to move production domestically.
05:53And as a benefits distributor, that would help them.
05:57I was taking a look.
05:57I also see names like Uber and DoorDash on there.
06:00Why do those names have upside potential as it relates to deregulation?
06:05So when you think about the gig economy, there's a lot of regulation around the categorization of employees.
06:12And that is their biggest cost, right?
06:15The delivery drivers that are making the deliveries for Uber or that are picking you up to take you to the airport or wherever it may be.
06:23The categorization of those people as either employees or contractors is a really big sort of battle that those gig economy companies are facing.
06:31And the reason for that is because there's a big classification difference within the tax code and what you have to do in terms of paying someone benefits and things of that nature.
06:41So if they're not categorized as employees, theoretically, you're lowering the operating expense of hiring those employees or contractors and thus boosting operating margin.
06:55As you think about it as a broader market catalyst, how much is already priced into the market in terms of expectations of this deregulation and an easier regulatory environment?
07:10I think, I actually think it's fairly underappreciated.
07:15I think the uncertainty around the tariff environment, there's been a lot of uncertainty geopolitically.
07:21There has been a big battle over the tax bill that was signed into law last week, a lot of skepticism around the debt levels that that bill may or may not cause.
07:32And as we were saying just a minute ago, right, uncertainty is something that the market does not like and it's something that companies don't like.
07:39And I think there's a lot of people who are undervaluing the potential for deregulation and what that could do to the American economy and American companies.
07:48Yeah, the S&P 500 is very close to all-time highs, despite all of this uncertainty and despite the fact that we haven't seen necessarily the deals that we thought initially we might see.
08:00It sounds like you think that those are coming.
08:01So all of that being said, where do you think the market goes from here?
08:05Well, just today, there were a number of analysts that raised their price targets for the S&P.
08:10I think we're about to enter earnings season.
08:13I think it's going to be very interesting.
08:14The market itself has been very resilient.
08:16I think the operating efficiency of American companies has been very, very strong.
08:22And I also think we've had a resilient consumer.
08:24So I think we're going to see as we go through the earnings season what exactly we may have in store for the back half of the year.
08:32I would venture to say we'll likely be higher because I'm thinking that there's going to be some movement on deregulation.
08:40We're going to get some certainty around some of these tariff agreements.
08:43And you have the potential for rate cuts out there.
08:44And generally speaking, the positive momentum begets more positive momentum.
