On this week’s episode of ETF Prime, Roxanna Islam, CFA, CAIA, head of sector & industry research at VettaFi, joined host Nate Geraci. The two discussed top ETF performers and trends this year as well as long-established asset managers finally joining the ETF industry. Later, Matt Kaufman, head of ETFs at Calamos, delved into the firm and industry’s first 100% downside protection bitcoin ETF.
Legacy Firms Enter the ETF Fray
Geraci kicked off the episode discussing the recent entry into ETFs by major asset managers. These firms included Raymond James Investment Management, Lazard Asset Management, Thornburg Investment Management, and MFS Investment Management, pioneers of mutual funds. Roxanna Islam, CFA, CAIA, head of sector & industry research at VettaFi, was quick to point out that it’s part of an ongoing trend and larger shift from mutual funds to ETFs.
“This has been occurring over the past years, where we’ve seen sort of this movement of money into ETFs,” explained Islam. “We’ve seen these large inflows into ETFs that have coincided with outflows from mutual funds.”
Putting it into perspective, Islam went on to share that last year the ETF industry brought in $1 trillion in inflows while $600 billion bled from mutual funds. ETFs particularly appeal to younger investors for the innovation happening in the types of strategies and ETFs offered. In a market increasingly oversaturated, innovation and uniqueness matter, alongside low fees.
Legacy firms like Raymond James stand to benefit from the resources at their disposal when launching ETFs. These include large advisor pools, established distribution systems, and more. Islam noted that the legacy firms are all also largely capitalizing on the increasing popularity of active ETFs. Though many of the ETFs launched by these firms may fall under core holdings, they do so with more modern approaches that include current trends.
Teasing Out Trends From January ETF Top Performers
Conversation then turned to top performing ETFs so far this year, and what underlying trends they highlighted.
“Excluding leveraged ETFs, if you look at the top performers, you’ll see some of the similar themes that we saw last year,” said Islam.
Top performing ETFs included those focused on uranium and nuclear, and also crypto trends. The top performing ETF year-to-date is currently Range Nuclear Renaissance Index ETF (NUKZ). NUKZ was followed by several ETFs within the category from VanEck, Sprott, and more. The category took top spot, likely on AI demand and associated power needs.
The top crypto ETFs YTD centered around blockchain and crypto thematics. Geraci revealed that seven out of the top nine ETFs so far this year were blockchain and/or crypto focused. Included in the top performers were the Global X Blockchain ETF (BKCH) and the First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT). ETFs from firms like Valkyrie, Bitwise, Schwab, and State Street also made the top performing list.
Islam attributed the category’s outperformance to many of its individual stocks, such as MicroStrategies and Coinbase. “Another sort of layer of this is the crypto mining space,” explained Islam. “Like other commodity miners, it’s typically leveraged to the price of the commodity. So when bitcoin does well, that means bitcoin miners will also do well — sometimes even better.” The reverse is true for when bitcoin prices plummet, with bitcoin miner stocks often falling further.
Also in the mix were a few ETFs that didn’t fit into broader themes. These included the ARK Genomic Revolution ETF (ARKG), the Strive Natural Resources and Security ETF (FTWO), and the AdvisorShares Psychedelics ETF (PSIL).
In the wake of the AI sell-off yesterday, ETFs focused on gold and international exposures rose to the top. However, Islam anticipates a recovery of those stocks hit hardest, and of tech stocks in general.
Calamos Launches World’s First 100% Downside Protection Bitcoin ETF
Matt Kaufman, head of ETFs at Calamos, appeared next to discuss the Calamos Bitcoin Structures Alt Protection ETF – January (CBOJ). The firm offers the first 100% downside protected strategy within bitcoin, with a 90% and 80% variation launching next month. CBOJ protects against 100% of the downside in bitcoin while capturing price appreciation up to the capped maximum (11.65%) over a year period.
“The first layer here is Treasury bonds. It’s zero-coupon Treasury bonds,” Kaufman said of the strategy. “If you’re familiar with those zero-coupon bonds, it’s discounted by the risk-free rate.”
Kaufman used the example of taking $100 to invest in the strategy. If the risk-free rate of the zero-coupon bonds was 4%, the strategy would invest $96 into them. The additional four dollars would be accreted by the time the bonds matured in one year. At the same time, the 4% freed up could then be spent on a call spread option strategy on bitcoin.
CBOJ’s strategy purchases an at-the-money call on the CBOE U.S. Bitcoin ETF Index. It also sells an out-of-the-money call on the index to fund the purchase of the at-the-money call position.
“Worst case that can happen, your call spread will expire worthless,” Kaufman shared. “Bitcoin goes down and again, your call spread expires worthless — year-ended, you’re left with a basket of Treasuries worth 100% of your portfolio value. Best case, bitcoin goes up and you’ve captured 11.65% of the upside of bitcoin over that year, less a 69 basis point fee.”
Geraci pointed out that the strategy only offers full coverage of the downside protection and upside cap if bought on the first day and held for the year period. The firm offers daily updates on the protection levels, upside potential, and more on their website. If held longer than a year, the strategy rolls over and resets its cap annually.
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