Todd Rosenbluth, CFRA Head of ETF and Mutual Fund Research, joins Yahoo Finance to discuss the new Bitcoin Futures ETF, potential shakeup to three of the largest U.S. sectors, and demand growth in active ETFs.
JARED BLIKRE: Well, in today’s ETF report brought to you by Invesco QQQ, we want to welcome in Todd Rosenbluth CFRA head of ETFs and mutual fund research. And I want to begin with this new Bitcoin ETF, the Pro shares Bitcoin strategy, it’s tracking the price of Bitcoin which itself is at a record high today. This ETF was considered an ETF. Let’s make sure we put it that way. It was considered the Holy Grail to let retail investors participate in cryptocurrency in Bitcoin. I’m just wondering, how important is this for the industry here?
TODD ROSENBLUTH: Well, we’ve got eight years in the making before we had any Bitcoin ETF that was available for investors both retail and institutional. So that’s a key milestone. We’ve seen pent up demand, we’ve seen money moving in to this product a lot of trading volume and this is key. This is the first of the products but we’re likely to see multiple Bitcoin futures based ETFs, probably going to see some price competition as well as we see new products come second and third and fourth the market.
– And Todd, thank you so much for joining us today. I want to talk about the changes coming to the classification system. Can you explain what that is?
TODD ROSENBLUTH: Sure. So GICs is the classification system that is used by both S&P and MSCI. It’s a partnership that they have so that there’s consistency in the way that companies are classified within various sectors like technology, financials, industrials. They have long had visa and Mastercard and PayPal as technology companies but as part of a consultation that’s underway that just started this week and is likely to take the next month or so. We think and it’s expected according to what the consultation is that those companies again, Visa Mastercard and PayPal could move to the financial sector. They’re currently top 10 holdings in XLK the technology Select Sector, the SPDR and the Vanguard information technology ETF and they likely will move to be the top 10 holdings and in fact, the top four or five holdings within the financial services sector ETF, the financial Select Sector SPDR, XLF itself among others. So this is pretty significant. We don’t have changes in the way companies are classified that often. And when it does, it’s usually not with heavyweight companies like the ones we’re talking about.
– That’s right. Well, we used to be owned by Verizon and I do remember when Verizon was placed in a brand new communications sector, communications services sector ETF and that was a big shakeup back then as well. But I want to move on to something else you’re tracking here, really fascinating. So according to your notes are about 360 ETFs set to launch in 2021, many of which are based on active management strategies as opposed to passive and this gets back to that age old divide or I guess debate that we’ve been having over the last five 10 years here, maybe quite a bit longer. Can you shed any light on this?
TODD ROSENBLUTH: Yes, so we have roughly 4% of the overall ETF assets, are actively managed. Most of them are tracking an index like the S&P 500, the Russell 1,000, the [? agg ?] that’s used for fixed income. We’ve seen growing interest in fixed in both actively managed equity and actively managed fixed income ETFs. A couple of active products that have come to market this year include Gema, which is a JP Morgan, active emerging markets ETF and the horizon kinetics inflation beneficiary, ETF INFL. These are both actively managed, they’re choosing stocks as opposed to tracking a broader benchmark and we’re seeing investors increasingly often want these products and we’re seeing asset managers increasingly roll out these products to meet that demand. We’ve seen products from Ark, we’ve seen products from other firms that are more established within the mutual fund world. We think this is a key trend that we’re watching at CFRA as we head into 2022.
– And Todd, there’s been, know, go ahead Jared, please.
– Oh, I’m sorry. I just wanted to jump in and follow up there. You talked about Arc and you specifically mentioned that this is one probably the poster child for the modern active traded fund and of course, sponsored by Kathy Wood and her companies. But this is really kind of, it’s either, I think it’s either changed the retail landscape or it’s reflecting big changes in the retail investing landscape and do you think with this new crop of investors that we’ve seen kind of joined the markets over the last year, year and a half that this is, that they are really geared more towards active investment funds than passive ones perhaps?
TODD ROSENBLUTH: Yes. So the irony is that our success in 2020 with our financial Ark innovation and the range of different products that were very popular and strong performing in 2021, has led to both the supply and the demand for actively managed equity ETFs that we’re seeing at the same time that Ark is facing struggles. The flagship product is down and lagging, notably the broader markets but yet is holding on to much of that money that’s there. So we think investors have become more comfortable that they don’t have to track a benchmark that you can have security selection and get the benefits of an ETF structure and we’re seeing more of these asset managers want to participate in that trend including JP Morgan as well as some of the newer entrants.
– And Todd, I want to go back to the Bitcoin ETF for a quick second because you know, there’s so much interest in it but retail investors are a big part of the Bitcoin story. ETFs don’t come without any risks, what are some of those risks? Roll costs are involved, for example.
TODD ROSENBLUTH: That’s right. So there’s risks related to these being futures based Bitcoin ETFs. You mentioned roll costs that as the contracts need to be moved forward each month. The ETF has to buy at a higher price point, assuming that we’re in the current state of contango. So that’s a risk that investors need to be aware of. But that’s largely being offset, we think by the accessibility and the liquidity and the tight spreads that you’re able to buy and sell intraday, and that’s appealing to both retail investors, advisors we think as well as institutional investors that are more tactical in nature. So there’s a lot of benefits as well.
– Todd, any interview in which we get to hear the word contango is a good one. Thank you for joining us Todd Rosenbluth, CFRA head of ETFs and mutual fund research.