On this week’s episode of ETF Prime, host Nate Geraci is joined by ETF Trends’ managing editor, Lara Crigger, to discuss the rapid increase of blockchain ETFs, along with Grayscale’s attempt to move the needle in favor of a spot bitcoin ETF. Plus, CFRA’s Todd Rosenbluth offers his top ETF stories of the year and what to look for in 2022. Finally, Life + Liberty Indexes’ Perth Tolle highlights the FRDM ETF.
Starting things off, Geraci brings up the Defiance Digital Revolution ETF (NFTZ), which seeks to own equity securities of global publicly listed companies with relevant thematic exposure to the NFT, blockchain, and cryptocurrency ecosystems. For Crigger, a smaller issuer like Defiance is undoubtedly making a name for itself, but NFTZ is basically not unlike any other blockchain ETF.
“What makes this specifically NFT-related is that Defiance is defining their eligible universe by using public filings and public reports to determine whether the company is involved with NFTs,” Crigger says. But NFTs are an emerging technology and thus represent only a tiny portion of the crypto universe, she adds.
“If you’re looking for early access to NFTs, this is the way to do it,” she says. “But I would caution that if folks are looking at this fund, they take a good hard look under the hood” to make sure they understand what the fund holds.
Blockchain ETFs tend to be highly concentrated ETFs with very small baskets, with only 25–40 names on average. So being careful is necessary to ensure investors can receive what they are expecting and a unique fund, and not overconcentrate in the same equity exposures.
As far as how many of these types of ETFs can be supported by the market, Crigger notes how there are currently 13 of these blockchain ETFs with $2.4 billion in assets across those funds (BLOK holds half of that). It’s certainly a popular theme among issuers, but it’s unclear that there’s much remaining pent-up demand, as very few of the blockchain ETFs have crossed the $100 million mark.
Does that mean more will be on the horizon? Well, with only so many truly breaking out, more needs to be seen to mix things up and show what’s possible.
There Will Be Flows
Later on, Todd Rosenbluth, head of ETF and mutual fund research at CFRA, gets into his top ETF stories, as well as the record ETF flows and his big ETF predictions for 2022. As far as key drivers and catalysts for the flows, Rosenbluth believes the most impressive aspect is the breadth of flows. So many different companies have doubled their inflows, with no dominant firm that stands out.
“$800 billion and counting in an industry that’s still growing is impressive,” Rosenbluth adds. If this number exceeds $841 billion, that will top the best 24-month calendar period of combined inflows for ETFs.
As far as what’s driving this demand, Rosenbluth feels it comes down to ongoing acceptance. With retail and advisors embracing ETFs, along with institutional investors relying on these funds for short-term liquidity and long-term tactical purposes, these funds continue to demonstrate their advantages over things such as mutual funds, particularly with tax efficiency.
Looking at some 2022 predictions, Rosenbluth references trends to watch, including the growth of actively managed equity ETFs and investors doubling down on ARK products that struggled in 2021.
Life, Liberty, and FRDM
Closing out the show is Perth Tolle, founder of Life + Liberty Indexes. She spotlights the Freedom 100 Emerging Markets ETF (FRDM), which recently crossed over $100 million in assets. Plus, given the news flow out of China, it’s fascinating timing for FRDM, as it has zero exposure to the country, despite it being the world’s second-largest economy, which Tolle discusses with Geraci later in the last segment of the episode.
To start, hitting the $100 million milestone made for a great year, as FRDM quadrupled its assets. Speaking about the index, Tolle adds, “It shows there’s something to investing in a way that respects property rights and economic freedoms, which we use as part of our process. We look at both personal and economic freedoms.”
From Tolle’s perspective, investors see that there’s a market destruction related to China’s disregard for the economic freedoms of its people, and that has created a risk in emerging markets that people may not have been aware of before. Now that China is changing its tune, it will be interesting to see how things change and where to go from there.
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