Episode summary
$1.5 Trillion Flowed Into ETFs. So Why Did a 25-Year ETF Veteran Cut Risk?
Excess Returns
· · 58 min · Hosts: Jack Forehand, Justin Carbonneau · Guests: John Davi
Summary
John Davi argued that markets are in a tricky midcycle transition: growth is still strong, but equities have already enjoyed a lot of easy gains and investors should be more selective. He said Astoria trimmed its equity overweight not to call a top, but because sentiment is high, valuations in cap-weighted U.S. indices are full, and seven stocks now dominate the S&P 500. He prefers equal weight, quality, and diversification over a concentrated bet on the Magnificent Seven.
Davi also pushed back on the idea that today’s higher rates are automatically restrictive. He said the 10-year Treasury still looks reasonable versus nominal economic growth, especially in a stronger economy, though smaller businesses and lower-income consumers feel the pressure. He framed the current inflation environment as closer to the 1970s than the late 1990s, and said portfolios should shift toward real assets such as infrastructure, industrials, energy, and commodities.
On AI, Davi said the trade has changed: the big tech platforms are spending far more capex and taking on more funding risk, so he is watching credit markets, CDS, and spreads for signs of stress. He prefers AI adopters over enablers, and he argued that passive flows have reinforced a feedback loop in mega-cap stocks, even if discretionary trading still matters. His broader message was simple: own the market, but hedge it, diversify it, and stop assuming what worked for the last decade will keep working.
Key takeaways
- Davi said Astoria scaled back its equity overweight because sentiment and valuations were stretched, not because he was calling a market top.
- He argued the 10-year Treasury yield is not extreme relative to nominal GDP growth, though tighter rates still hurt smaller borrowers.
- He sees the current inflation backdrop as more like the 1970s than the late 1990s, and prefers real assets such as infrastructure, energy, and commodities.
- Davi said the Magnificent Seven now carry more risk because AI capex is rising and some firms are funding it with debt and equity.
- He thinks passive ETF flows have created a feedback loop that keeps mega-cap stocks bid, making diversification more important.
- His preferred response is to own quality and growth but neutralize single-stock and sector risk rather than abandon tech altogether.
Notable quotes
“I think it's more like the 1970s. It's kind of gone vertical and parabolic”
“we have scaled back uh quite a bit from like a portfolio risk management standpoint so several months ago you know we closed our overweight position”
“Seven stocks make up 41% of the S&P”
“This whole investment world seems like it's one AI bet and I think that's like a problem”
How the episode opens
This whole investment world seems like it's one AI bet and I think that's like a problem. Seven stocks make up 41% of the S&P. We've already crossed one and a half trillion about a month or two ago.
I mean, Euphoria is kind of skyhigh. I think it's more like the 1970s. It's kind of gone vertical and parabolic.
I I just think there's so many more opportunities in the investable landscape. So, there's like a perpetual bid for these stocks. Everything works until it doesn't.
John, welcome to Excess Returns. Great to be here. Nice to see you.
You are founder, CEO, and CIO of Atoria Investment Advisors. It's a firm that combines macroeconomic thoughts and research with quantitative research to build investment strategies. And um you guys run a series of ETFs, which I know we'll talk about.
And I think this this intersection of macro and and quant is really sort of a sweet spot for our audience. So we're looking forward to diving into a bunch of different things with you because there's a lot to unpack. There's a lot going on in the market.
You have a lot of thoughts on the markets and you know how investors should be positioning their portfolios and thinking. So that's what we're going to talk to you about today. We're looking forward to having a good thoughtful conversation with you.
Great. Can't wait to can't wait to get started. Yeah, excellent. I think last time we were you guys also have a very great investment conference. Just want to put a plug for that because Jack and I did come to one and we were uh privileged to to be with you and the team at a story with all those great guests. So So that was very cool, too.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- etf flows
- equity risk trimming
- treasury yields vs growth
- ai credit risk
- portfolio diversification
Companies and tickers mentioned
- Astoria Investment Management
Watch the episode
Watch “$1.5 Trillion Flowed Into ETFs. So Why Did a 25-Year ETF Veteran Cut Risk?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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