Todd Rosenbluth Talks Financials ETFs and Shorting ARKK on ETF Edge

VettaFi’s head of research Todd Rosenbluth appeared on CNBC’s “ETF Edge” with Bob Pisani along with Roundhill’s Dave Mazza and AXS Investments’ Greg Bassuk to discuss investing in financials and leveraged/inverse ETFs related to the ARK Innovation ETF (ARKK).

The fallout from the Silicon Valley Bank debacle continues. Regional banks are bouncing today but most are still down more than 30% in the last two weeks alone. Not surprisingly, the ETF industry is moving very quickly with new products to address all the confusion in response to the banking crisis tomorrow.

For example, tomorrow, Roundhill Investments will launch the Roundhill Big Bank ETF (BIGB), part of a suite of “BIG ETFs” the firm is launching.

“There’s been a lot of question marks about the financial sector, and what we’ve been hearing from investors for years is they’re looking for opportunities for more precision,” Mazza said.

With BIGB, investors are given exposure to “the largest and most liquid banks in the U.S.,” according to Mazza, which are Bank of America, Citigroup, Goldman, Sachs Morgan, Stanley J.P. Morgan, and Wells Fargo.

“These are the banks that actually stand to benefit from this turmoil that we believe actually are going offer… potentially the opportunity to do better than what we have seen of course, with the regional banks,” Mazza added.

Don’t Go Chasing Headlines

Host Bob Pisani noted that the industry often sees investors pile money into thematic ETFs when they become a hot topic, like tech, cybersecurity, or social media-focused funds, but often underperform a year later. Rosenbluth agreed, saying that investors shouldn’t just invest in a thematic ETF just because the theme is making headlines.

“Investors shouldn’t just jump to this just because banks are in the news,” Rosenbluth said. “You really want to do some due diligence, make sure those six banks that Dave was talking about are important.”

Rosenbluth explained that investor interest in financial ETFs spiked significantly in the past week, with more than 50% of the traffic to VettaFi’s website going toward financial ETFs. Meanwhile, traffic shifted away from energy and technology ETFs.

“You want to make sure that you’re researching for the right reasons… You shouldn’t just go into financials just because it’s making the headlines,” Rosenbluth said. “In fact, that might be the reason of risk, why you may want to steer clear of financials.”

Turning to Value Financial ETFs

Rosenbluth said that while financials is one of the larger sectors within the broader ETF marketplace, but in value ETFs in particular, “it’s the heavyweight,” where investors “tend to turn to undervalued companies like JPMorgan, Bank of America.” So, investors are more exposed than they likely realize.

With this sector and more concentrated ETFs, Rosenbluth said that now is “a great time to be overexposed to these companies” and overweight these financials value ETFs.

“That comes with the plusses, that comes with the minuses, but make sure you know what’s inside your ETF,” he added.

Shorting ARKK

Later in the episode, Greg Bassuk, CEO of AXS Investments discussed the AXS Short Innovation Daily ETF (SARK) and the AXS 2X Innovation ETF (TARK), which short Cathie Wood’s flagship ARKK fund.

“With thousands of startups and small high growth companies driving innovation having received financing from Silicon Valley Bank and others like it, this really could be a harbinger for concern around the ability of these kinds of innovation-driving companies to get financing going forward,” Bassuk said, noting that in the seven days after the news of Silicon Valley Bank’s collapse broke, SARK saw “an 80% jump in trading volume versus the seven days leading into that news,” while TARK’s trading activity jumped over 50%.

While these ETFs make sense for investors who have high convictions, Rosenbluth pointed out that investors need to understand the risks inherent to these funds.

“Shorting obviously comes with greater risks than investors probably fully appreciate when they just see the price performance chart,” he said, adding that VettaFi has seen investors rotating towards ARKK during times of uncertainty “because it’s a risk-on way of getting exposure to the growth economy.”

Added Rosenbluth: “But of course, concentrated bets are concentrated and come with risk on its own, so you just want to make sure you know what you’re getting and what you’re not getting.”

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