ETF Prime: 2022 ETF Industry & Market Preview | ETF Trends

On this week’s episode of ETF Prime, host Nate Geraci is joined by Lara Crigger, managing editor at ETF Trends, to discuss new ETFs that are expected to launch this year as well as bigger trends in product launches.

Later Geraci is joined by Meb Faber, co-founder and CIO at Cambria Investment Management, to discuss global stock valuations and why investors should consider international allocations. Finally, James Seyffart, ETF analyst at Bloomberg Intelligence, is on to discuss the ETF space in 2022 and take a dive into discussing the odds of a spot bitcoin ETF approval this year.

Crigger opens up by discussing the impacts of the 2019 ETF rule that did away with the exemptive relief requirement, which enabled ETF launches to be a much easier process for issuers. Importantly, it opened up access to custom baskets for all issuers, not just the largest, legacy providers. 2021 was finally able to bear the fruit of that rule with a record number of ETFs launched, particularly active funds and mutual fund conversions.

“It all comes back to the ETF rule making it easier for active shops to enter the ETF market and to package their thoughts, their IP into a vehicle that is more tax-friendly, lower cost, and more flexible,” Crigger explains.

Looking ahead, Crigger sees the funds springing up around the metaverse — like the Roundhill Metaverse ETF (META), which was the first to launch last summer — not as a new thematic slice, but as the next evolution of a trend that started with blockchain ETFs, then evolved to bitcoin ETFs.

“There’s an acknowledgement that digital assets and digital infrastructure is the way of the future and that the world is kind of spiraling towards a Ready Player One-style internet-as-real-life future, and investors want to be part of that,” Crigger says. For now, though, the investible assets remain rather thin, and funds will most likely contain a lot of crossover until the space develops further.

Moving on, Geraci notes that the KraneShares Global Carbon Strategy (KRBN) brought in over $1 billion last year, and there are multiple carbon ETF filings currently with the SEC from a variety of issuers. Crigger believes that this space can afford growth; funds that invest in carbon allowances can pull from a number of global markets as well as from contracts with a variety of expiration dates, and therefore create a space that is open to a lot more creativity in portfolio construction.

Crigger doesn’t see a spot bitcoin ETF being approved anytime soon, nor does she see an ether futures ETF being approved because of the complex nature of ether as both a token and a smart contract vehicle. One fund that she does find interesting, however, is a VanEck filing for a fund that contains both bitcoin futures and gold futures, as they offer different exposures within the same fund.

Valuations and a Look Forward to 2022 and Beyond

Next on is Meb Faber, who discusses the record valuations that U.S. markets are opening 2022 with and the historical implications for markets going forward. Faber explains that in other markets when valuations have been high, the returns have dropped to zero for the next decade in every single instance.

“Historically speaking, when your P/E ratio is above 40, which is bubble territory, historically the carnage comes soon. It may not be next month, but it’s very likely within the next couple years, so be aware,” Faber cautions advisors. Faber believes that advisors should move out of market cap-weighted investments in the U.S. and diversify into foreign investments, particularly dividends that have yields of 4–5%.

The program ends with James Seyffart discussing the complexities surrounding a spot bitcoin ETF approval and the various filing types of bitcoin funds with the SEC, as well as Grayscale’s letter to the SEC that claims that the regulatory body was violating the Administrative Protections Act in not approving a spot bitcoin ETF.

Seyffart discusses the transition of fund flows into equity mutual funds up through 2019 shifting to favor equity ETFs with the pandemic crash in March 2020. There has also been a shift by investors to build portfolios with a core allocation but also fringe investments into more volatile ETFs, such as thematics.

ETFs that Seyffart highlights to watch in 2022 include the ProShares Bitcoin Strategy ETF (BITO), the Engine No. 1 Transform 500 ETF (VOTE), interest rate hedged ETFs such as the ProShares Investment Grade-Interest Rate Hedged ETF (IGHG), and the Freedom 100 Emerging Markets ETF (FRDM).

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