On this week’s ETF Prime, VettaFi’s Financial Futurist Dave Nadig discusses the recent wave of single security ETFs, “social influencer” product filings, and Night Shares. BondBloxx’s JoAnne Bianco spotlights unique single sector and single credit rating high yield bond ETFs. 21Shares’ Ophelia Snyder offers perspective on the SEC’s current spot bitcoin ETF stance.
Fresh off of time at Camp Kotok, Nadig reflected on his two new pieces, one which speaks to the power of having shared experiences and the other a transcript of a conversation with Barry Ritholtz and Sam Rines and labor, deglobalization, and more. “I walked away feeling surprisingly hopeful,” Nadig said.
With concerns about the risk around single stock ETFs, the Massachusetts securities head opened an inquiry on these products.
There are currently 20 on the market, 16 single stock ETFs and one risk-managed ETF that offers exposure to Tesla up to a cap each quarter, and then three single bond ETFs. Roundhill also has filings for single stock ETFs that aren’t leveraged or inverse and just provide pure 1:1 exposure to single stocks, in this case, Samsung and Saudi Aramco. Nadig sees an obvious use case here. “It’s really difficult to get exposure to direct shares of Samsung or Saudi Aramco because they don’t trade in the U.S. They don’t trade in a dollar form that you can easily access.” Nadig sees the Roundhill funds as useful access vehicles, especially given Saudi Aramco’s importance in the energy space.
The leveraged funds give Nadig mixed feelings. On one hand, Nadig sees these ETFs have been run by companies that know what they are doing and can deliver what’s advertised on the box. “The problem is because these are leveraged and inverse, we all know that there’s this problem of people who think they are buying for the long-term and these are day trading vehicles.” Nadig also noted how expensive they are and wondered about the potential fallout if these leveraged and inverse ETPs became a significant percentage of the market cap of these companies.
“The single bond ETFs are a little more interesting,” Nadig said. “I see them as targets for people running sophisticated models that really require that kind of precision. I think that’s a very narrow use case, but at least I can come up with it.”
Pivoting back to the Roundhill products, Nadig believes it will be difficult for these products to not be approved. “I suspect they’ll be approved and they’ll get some moderate amount of use. I don’t think they are as controversial as some of the other products.”
In Nadig’s view, the leveraged single-stock products could see regulation from FINRA, but the SEC is unlikely to try and put the genie back in the bottle. Both Geraci and Nadig wonder what could happen if more and more of these types of products are launched. Given all the different flavors of up and down leverage, Nadig said, “it is not inconceivable the 50 most traded stocks in the country could have ten versions of single stock ETPs on each ticker. That’s just those top 50, so if you talk about expanding these out to a tradable set of all of the stocks in the S&P 500. Easily 1500 to 3000 securities. That’s a pain in the neck.”
Influencer ETFs are back in the spotlight after new filings from Toroso centered around influencer Meet Kevin, who has almost 2 million YouTube subscribers and a large following on Twitter. “This is someone who literally two years ago told you to not give him money to put in the stock market,” Nadig said. Though there is a possibility of Meet Kevin finding some success, Nadig is extremely skeptical of putting money into someone who doesn’t have any professional experience.
Night Shares products have stumbled out of the gate. The NightShares 500 ETF (NSPY) and the NightShares 2000 ETF (NIWN), aim to capture the night performance of the S&P 500 and the Russell 2000 respectively. Since its launch, NSPY is down 4% while the S&P is up 6%. Meanwhile, NIWM is down 6% while the Russell 2000 is up 9%.
“I’ve heard some counters that because we’ve been in a little bit of down news cycle the overnight news has been particularly bad and the markets have been rallying in the day which isn’t normal,” Nadig said, though quickly added, “but, look, the market is never normal.” The holes Night Shares needs to dig out of look quite substantial, especially for this early in the life of the funds.
Both Geraci and Nadig think these products are interesting, and Nadig said, “these are funds that need to live for three to five years for us to really understand.” But if the performance isn’t there, nobody is going to keep their money in these funds out of charity.
Playing With BondBloxx
Next up, JoAnne Bianco, client portfolio manager at Bondbloxx, joined Geraci. Back in February, Bondbloxx launched 7 single sector high yield bond ETFs. They have had four additional launches since, and about $300 million in assets.
“Bondbloxx was founded less than a year ago by a team of industry veterans who realized that there was this meaningful gap between the needs of fixed income investors and the ETF space and the products available to them,” Bianco said.
Bondbloxx is the first firm with a sole focus on fixed income ETFs. According to Bianco, “we aren’t trying to beat the established players at their own game, but we’re launching products that they are not.”
The BondBloxx USD High Yield Bond Energy Sector ETF (XHYE) covers energy, with other products covering different sectors. Bianco sees these funds as enabling investors to execute their sector views with granular precision. “Our products are designed to help portfolio managers build this precision exposure.”
Where to Spot a Spot Bitcoin ETF
Back in 2018 21Shares launched the world’s first crypto ETF on the Six Swiss Exchange. They currently offer 40 crypto ETPs across Europe. They have a live spot bitcoin ETF filed in the U.S. in partnership with ARK. Cofounder Ophelia Snyder joined Geraci for the final segment. “The ethos of this company has always been bridging traditional finance with crypto,” Snyder said.
“Financial plumbing – how money moves through systems, is fascinating to me,” Synder said, explaining the winding path she took toward getting into crypto.
The SEC has rejected spot ETF filings from Grayscale and Bitwise, but 21Shares has a live filing. “No asset class can survive with regulation,” Snyder noted, continuing, “the regulatory environment is always evolving.” Regulations can protect investors, provide market stability, and prevent money laundering. Snyder hopes that the U.S. can find a path to regulatory clarity around cryptocurrencies.
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