Forget the cryptos! Some ETF providers are betting this $ 800 billion industry in 2024 is the new frontier of fund investing


Happy Thursday ETF Wrap readers! It’s a roller coaster ride on Wall Street. Stock markets were knocking on the door of a correction last week, after being rocked down by the new omicron variant of COVID. Now the S&P 500 SPX,
-0.18%
is keeping a shouting distance from his record of 18 November. What a journey!

We will discuss some strategies for dealing with volatile markets. And we’ll also talk about the metaverse trend, which some are proclaiming as a new frontier for the internet and communication. But is this fertile ground for ETFs?

Send tips or comments and find me on Twitter at @mdecambre or LinkedIn, as some of you are used to doing, to tell me what we need to jump on.

Most importantly, sign up here to receive a freshly sent ETF envelope each week delivered to your inbox.

Read: What is an ETF? We will explain.

Good…
Top 5 winners from last week %Performance
VanEck Oil Services ETFs
OIH,
-0.98%

9.8

LP American Oil Fund
USO,
-1.41%

9.7

US Global Jets ETFs
JETS,
-0.93%

9.4

ETF SPDR S&P Exploration and production of oil and gas
XOP,
-1.09%

9.0

IShares MSCI Brazil ETF
EWZ,
-2.32%

7.7

Source: FactSet, until Wednesday December 7, excluding ETNs and leveraged products. Includes ETFs traded on NYSE, Nasdaq and Cboe of $ 500 million or morer
… and evil
Top 5 drops from last week %Performance
Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF
PDBC,
-0.65%

-23.4

ProShares Bitcoin Strategy ETF
BITO,
-5.18%

-10.9

ETF Amplifying transformational data sharing
BLOK,
-3.97%

-4.3

VanEck Rare Earths / Strategic Metals ETFs
REMX,
-1.47%

-3.5

Global X Lithium & Battery Tech FNB
BED,
-2.20%

-2.3

Source: FactSet
Short ETF stay in Grayscale

Here’s a fun one to start our readers.

As of at least Monday, FactSet System Inc. FDS has listed Bitcoin Trust GBTC from crypto-focused asset manager Grayscale Investment as Grayscale Bitcoin Trust ETF on its platform, which is used by professional investors and investors. ‘other Wall Street clients, including MarketWatch publisher Dow Jones.

And as all readers know, the Grayscale Fund, the largest bitcoin investment vehicle on the planet, which posted a market value of around $ 27 billion at Tuesday’s close, is not an ETF, far from there. ETFs can be bought and sold like stocks and offer transparent pricing. Grayscale is a closed-end mutual fund-like product and aspires to convert to ETFs, but it hasn’t yet.

It is not known what happened to the FactSet data platform, but the error has since been corrected, but for at least a day or so, Grayscale’s wish to be an ETF became a reality.

No TLC for TLT

It’s no secret that Treasuries, like stocks in recent weeks, have seen turbulent times. However, the folks at Bespoke Investment Group argue that ordinary bonds experience a volatility that one would normally associate with stocks, not bonds that promise stability because of their constant cash flow.

Rated by the popular iShares 20+ Year Treasury Bond ETF TLT,
+ 0.13%
against the SPDR S&P 500 ETF Trust SPY,
-0.14%
bond volatility is reaching extremely negative levels. The people of Bespoke put it that way. “Since 2002, in fact, there have only been three other periods where the spread was at similar or more extreme levels,” referring to a measure of the spread between the daily movements of the SPY against the TLT dating back to 2002.

“When the readings are positive, this indicates that SPY has been more volatile than TLT, while negative readings indicate that TLT has been more volatile than SPY,” Bespoke writes (see attached graph).

Tailor-made investment group


It’s so meta

What started as a much maligned name change by Facebook Inc. FB,
+ 0.62%,
aka Meta Platforms Inc., has turned into a dash for investor money. Bloomberg writes that ETF providers are rushing to create metaverse funds offering exposure to virtual reality-related companies after Zuckerberg called this nascent segment of internet technology the “next frontier.”

So far there is the $ 830 million Roundhill Ball Metaverse ETF META,
-1.68%,
which was launched in June and the small Fount Metaverse ETF MTVR,
-0.29%,
which started at the end of October.

Now, First Trust Advisors LP has recently applied to launch the Indxx Metaverse ETF, and Bloomberg estimates, citing industry analysts, that the metaverse market will reach around $ 800 billion in two years, with annual growth. by 13%.

“Asset managers are increasingly turning to long-term thematic strategies where they can offer a unique approach and often charge a premium over more traditional index ETFs,” said Todd Rosenbluth, Head of Fund Research mutual funds and CFRA ETFs.

“There are over 200 thematic ETFs managing $ 135 billion in assets,” he notes.

Admittedly, the metaverse remains an emerging industry and the potential of which is not fully understood.

BlackRock spreads love

The Wall Street Journal reports that asset management giant BlackRock BLK,
+ 0.08%
draws $ 2,000 billion in ETF assets that have been kept by State Street STT,
+1.48%
for over a decade.

BlackRock does this to reduce its reliance on a small number of parties and lower the fees it pays for back office work. Part of the administrative work managed by State Street is transferred to Citigroup C,
-0.25%,
JPMorgan Chase & Co. JPM,
-0.05%
and Bank of New York Mellon Corp. BK,
+ 2.03%,
WSJ Reports.

ETFs to help you sleep?

Choppy markets accompany Wall Street territory. However, not everyone appreciates the kind of stock churning moves the markets experienced in late November and early December, amid the emergence of the omicron.

Fortunately, there are ETFs for this, but not everyone is suitable.

We spoke to Jay Pestrichelli, CEO of ZEGA Financial, which manages $ 600 million, and launched a low volatility ETF about five months ago that has so far attracted around $ 100 million in assets.

ZEGA Buy & Hedge ETF ZHDG,
-0.18%
carries an official expense ratio of 1.02% (which translates to an annual cost of just over $ 10 for every $ 1,000 invested) and is an actively managed fund that uses options to limit the downside, while capping the downside risk.

Pestrichelli said typical low-volatility strategies involve buying a stock and buying a put as a hedge, or buying a put-spread as a hedge.

“We don’t do that,” he said.

Instead, Pestrichelli said that ZEGA Buy & Hedge ETF aims to buy call options. [options] and these options represent “notional value but also built-in protection” for an ETF investor.

An option is a derivative security that allows the buyer to buy or sell a security at a particular price within a specified time period. This price is known as the strike price. Call options allow the buyer to buy, while a put option allows the buyer to sell at a specified price and time. When you buy a put option you profit when the value of a stock goes down and when you buy a call option you profit when the stock goes above a specified level. Since options can be bought for a fraction of the value of the underlying stocks, they are often implemented as a strategy to express a directional view on an asset or to dampen fluctuations in value.

“Using long calls as market exposure, the maximum I could lose is 8% to 10% from a stock market perspective,” said the CEO of ZEGA. The ETF buys calls on SPY, aka SPDR S&P 500 ETF Trust. The ideal candidate for this ETF is someone nearing retirement who wants to limit losses, the fund provider said. The fund also invests in companies like American Airlines AAL,
-0.68%
and Occidental Petroleum OXY,
-1.04%.

“The portion of the portfolio invested in equity options provides long-term exposure to equity markets, seeking upside potential while mitigating downside risk. The income portion of the portfolio seeks to generate cash to help purchase stock options, ”ZEGA employees write in a statement.

Since the beginning of the month, the ETF is up 2.2%, against a gain of 2.6% for the S&P 500, an increase of 3.6% for the Dow Jones Industrial Average DJIA,
+ 0.16%
and an increase of 0.8% for the Nasdaq Composite Index COMP,
-0.78%.

Pestrichelli said that if your “goal is to beat the stock market, that’s not aggressive enough” for you, but if your goal is to sleep at night, ZDHG may be worth checking out.

Low volume options

Competitors include Amplify BlackSwan Growth & Treasury Core ETF SWAN,
-0.14%,
which manages over $ 900 million and has been around since 2018. SWAN is down 0.2% in the month-to-date, but shows an expense ratio of 0.49%.

One of the largest ETFs aimed at smoothing market fluctuations, the iShares MSCI USA Min Vol Factor USMV ETF,
-0.12%,
manages $ 29 billion and is up 2.7% so far in November and carries an expense ratio of 0.15%. USMV was launched in 2011. Invesco’s low volatility SPLV S&P 500 ETF,
+ 0.11%,
which has also been around for a decade, is up 4% in November and carries an expense ratio of 0.25%.

Visual of the week?

Is it time to catch some falling knives? This is a question that Instinet’s Frank Cappelleri makes us think about as he highlights a batch of ETFs that have had a good weekly run but have otherwise been in the niche. These include Cathie Wood’s Ark Innovation ETF ARKK,
-3.68%,
KranShares CSI China Internet ETF KWEB,
-0.54%,
SPDR S&P Biotech ETF XBI,
-2.08%,
Roundhill BETZ Sports Betting and Gaming ETF,
-1.52%,
among others. Check it out:

via Instinet


Let us know if you think it’s time to dive back into any of these names.

Good ETF reads

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