ETF Prime: Rosenbluth on Spot Ether, Marijuana ETFs, and More

On this week’s episode of ETF Prime, host Nate Geraci is joined by VettaFi Head of Research Todd Rosenbluth to discuss hedge funds embracing ETFs, spot ether ETFs, and a potential shortage of ETF tickers, among other topics. Afterward, Bancreek CEO and CIO Andrew Skatoff spoke with Geraci about his investment philosophy.

To begin, Geraci observed a growing trend of hedge funds inching towards embracing the ETF wrapper. Citing Rosenbluth’s recent post on closed-end funds converting into ETFs, Geraci asked him to weigh in. Rosenbluth noted that a wide variety of different fund types have been gravitating towards ETF options, including mutual funds, closed-end funds, and SMAs. Rosenbluth speculated that we should expect to see more mutual funds convert into ETFs down the line, but many funds that prioritize a lack of transparency will likely stick with the mutual fund platform.

“I think we’ve got some years to come before we get critical mass  of the higher profile hedge fund managers offering their own ETFs,” said Rosenbluth.

Future of Spot Ether

Moving on, Geraci asked Rosenbluth for his opinion on the latest developments with the SEC filings for spot Ethereum ETFs. In particular, Geraci noted his alarm that Grayscale withdrew their spot ether application last week. Rosenbluth noted that Grayscale may be instead seeking to convert one of its ether strategies into an ETF, instead of waiting for the SEC to come to a conclusion on spot ether products as a whole.

“It’s also quite possible that Grayscale doesn’t want to offer a futures-based ETF for ether,” Rosenbluth added. “Those products have not been popular.”

Marijuana Momentum

Looking at cannabis ETFs, Geraci observed that reports of marijuana being reclassified to a Schedule I drug could stir up demand for Cannabis investing. However, the news has not translated into flows for cannabis ETFs yet. Rosenbluth noted that the AdvisorShares Pure US Cannabis ETF (MSOS) has been dominating the Marijuana ETF space. Rosenbluth added that the regulatory news has a strong U.S. focus, benefitting products that invest in the U.S. cannabis industry.

Diving a bit deeper, Rosenbluth evaluated that advisors may be concerned that a marijuana ETF can endanger client sentiment. “I find it hard to believe that many advisors are going to feel comfortable putting a cannabis ETF in a client portfolio, the same way that they might with an artificial intelligence, ETF, or a robotics ETF, or a cybersecurity ETF,” Rosenbluth added.

The NATE ETF

Using the creative names of marijuana ETFs like the AdvisorShares Pure Cannabis ETF (YOLO) and the Cambria Cannabis ETF (TOKE) as a segue, Geraci asked Rosenbluth about recent research from Bloomberg’s Eric Balchunas on ETF tickers. Balchunas’ research found that ETFs are progressively relying on tickers with 4 symbols instead of 3, signaling a potential lack of options for fund tickers. With more ETFs launching every single day, and the potential for a surge in funds if the SEC approves the ETF share class structure filings, Geraci speculated that there could be further a shortage of ETF tickers down the line. Going further, Geraci wondered if ETF issuers are going to need to get more creative in naming products.

Rosenbluth responded by joking that the tickers for NATE and TODD still remain available for Geraci and Rosenbluth to launch their own ETFs down the line. Geraci then asked Rosenbluth what he would expect the NATE ETF to hold.

“Well, it certainly would have some bitcoin exposure in it. I think the audience would agree with me on that! I think you’d have some low-cost, index-based products as your core, and you’d probably have some thematic to round that out with – I’ll go with active fixed income, because I think you’re a believer in active fixed income,” said Rosenbluth. He jokingly added that NATE would be a multi-asset structure.

Looking at the ticker shortage, Rosenbluth noted that the markets could utilize a five-character ticker structure fairly easily, similar to that of a mutual fund. On an optimistic note, Rosenbluth assed that a potential ticker shortage is “a good problem to have”, as it signals momentum and demand within the ETF space.

Investing Strategy

To close out this week’s podcast, Geraci is joined by Bancreek CEO and CIO Andrew Skatoff. Geraci asked Skatoff to discuss his investment philosophy, noting that Skatoff seeks structurally advantaged businesses. Skatoff explained that his approach began as an internal “mental model for investing” which evolved into a robust approach through collaboration. Skatoff told Geraci that his philosophy involves internal quantitative metrics, along with evaluating fundamental factors within a business.

Geraci then asked Skatoff how his approach differs from other financial professionals in the field. Skatoff explained that Bancreek’s advantage lies within the quantitative models that he and his team have developed. The models allow Skatoff and his team to assess a wide variety of factors and rate companies based on predictable cash flows. In particular, the models allow Skatoff to evaluate whether businesses are executing on projected growth goals. These factors can signal strength in a potential investment.

Listen to the entire episode of ETF Prime, Featuring Todd Rosenbluth and Andrew Skatoff:

For more ETF Prime podcast episodes, visit our  ETF Prime Channel