Author: Aaron Neuwirth

BITQ – ETF of the Week: Bitwise Crypto Industry Innovators ETF (BITQ)

ETF Trends CEO Tom Lydon discussed the Bitwise Crypto Industry Innovators ETF (BITQ) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.

BITQ tracks an index designed with Bitwise’s industry expertise to identify the pioneering companies that generate most of their revenue from their crypto business activities. It’s a traditional ETF. Blockchain companies rallied as cryptocurrencies come back under the limelight, and BITQ was among the better performing ETFs of the past week.

Amazon

Blockchain sector-related exchange traded funds surged on rumors that Amazon plans to accept cryptocurrencies as payment. According to an anonymously sourced report in the London newspaper City A.M., Amazon has plans to accept the cryptocurrency bitcoin by the end of 2021.

This isn’t just going through the motions to set up cryptocurrency payment solutions at some point in the future. It’s believed that this is a full-on, well-discussed, integral part of the future mechanism of how Amazon will work.

The insider stated that bitcoin would be the first of eight cryptocurrencies Amazon could accept. They also claimed that Amazon’s crypto plans have been in the works since 2019, and it “won’t take long” for the company to fully accept crypto as a form of payment for its online transactions.

Amazon could even begin developing its own cryptocurrency, allowing shoppers to earn rewards for paying through Amazon’s “native coin.” Adding to this speculation, Amazon revealed it was hiring a cryptocurrency expert. Plus, Amazon is advertising for a “digital currency and blockchain product lead” to look at “how Amazon’s customers pay.”

Tesla

Elon Musk has hinted at how much bitcoin Tesla holds after a Twitter user shared a rough estimate of its holdings. Dave Lee suggested Tesla should be holding 42,069 in bitcoin and that the total holding may amount to $1.47 billion. Musk said, “We don’t have that many Bitcoin, but it’s close.”

“Tesla likely to start accepting bitcoin as payment again,” Elon Musk stated. Musk stated that Tesla could resume acceptance of bitcoin if bitcoin mining were more environmentally friendly.

“I wanted a little bit more due diligence to confirm that the percentage of renewable energy usage is most likely at or above 50% and that there is a trend towards increasing that number, and if so, Tesla would resume accepting bitcoin,” Musk said.

Twitter

Twitter CEO Jack Dorsey confirmed to investors that bitcoin would be a “big part” of the company’s future. He sees opportunities to integrate the cryptocurrency into existing Twitter products and services, including commerce, subscriptions, and other new additions like the Twitter Tip Jar and Super Follows.

BITQ

BITQ offers investors a “picks and shovels” approach to investing in the crypto economy. It offers exposure to the fast-growing bitcoin and crypto economy without the complications of owning cryptocurrencies like bitcoin directly.

As noted, the fund tracks the Bitwise Crypto Innovators 30 Index. At least 85% of the index is focused on pure-play crypto companies, including bitcoin and crypto trading venues, crypto mining and mining equipment firms, and service providers. Examples include Coinbase (COIN), Silvergate Capital (SI), and MicroStrategy (MSTR).

Up to 15% of the index is focused on supporting companies: Innovative large cap firms with diversified business interests that include at least one significant business line focused on the crypto economy.

Listen to the full podcast episode on the BITQ:

For more podcast episodes featuring Tom Lydon, visit our podcasts category.

INFL – ETF of the Week: Horizon Kinetics Inflation Beneficiaries ETF (INFL)

ETF Trends CEO Tom Lydon discussed the Horizon Kinetics Inflation Beneficiaries ETF (INFL) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.

INFL is an actively managed ETF that seeks long-term growth of capital in real (inflation-adjusted) terms. It seeks to achieve its investment objective by investing primarily in domestic and foreign equity securities of companies that are expected to benefit, either directly or indirectly, from rising prices of real assets (i.e., assets whose value is mainly derived from physical properties such as commodities) such as those whose revenues are expected to increase with inflation without corresponding increases in expenses.

Worried about inflation? This ETF is for you. INFL is an ETF strategy to address rising inflation concerns. INFL will own stocks and invest in the equity of companies that are currently profitable and well managed. It avoids the typical industry focus on traditional investment categories and attempts to find unique, undiscovered, long-term value and price appreciation drivers.

With that in mind, these companies do not need inflation to be successful. These asset-light businesses have the ability to profitably endure low inflation for extended periods of time, compounding asset value and economic returns. One asset-light example today is Inter-continental Exchange  [ICE]. Founded 20 years ago as a digital exchange, trading  Brent crude-oil futures, and now a global powerhouse in the financial exchange, clearing, and data industry.

However, they are expected to benefit from inflation. The portfolio is designed to provide a full cycle inflation exposure and seeks to thrive under many different inflation scenarios. INFL emphasizes companies that have exposure to inflationary underlying assets yet do not have high capital intensity. This is a key feature differentiating INFL from other products intended to hedge against inflation.

Federal Reserve Chairman Jerome Powell, testifying before the Senate Banking Committee, said inflation would likely remain elevated in the coming months before moderating. Treasury Secretary Janet Yellen told CNBC that she expects the U.S. economy will see “several more months of rapid inflation.”

Listen to the full podcast episode on the INFL:

For more podcast episodes featuring Tom Lydon, visit our podcasts category.

JFWD – Jacob Asset Management Launches Its First ETF

On Wednesday, Jacob Asset Management (JAM) launched its first exchange traded fund, the Jacob Forward ETF. Shares of the ETF will begin trading today on the New York Stock Exchange (NYSE) under the ticker symbol JFWD.

The Jacob Forward ETF invests in innovative, forward-thinking companies that the team believes leverage technology to create significant competitive advantages and, ultimately, superior, lasting growth.

“We thrive on discovering exciting, enduring businesses with the potential to introduce innovative solutions to the global economy while delivering solid growth for our investors,” said Ryan Jacob, founder and CEO of Jacob Asset Management. “This ETF joins our three mutual funds and takes advantage of our more than 20 years of experience analyzing companies in rapidly-evolving industries.”

While the ETF can invest in a broad array of sectors, its primary focus is centered on technology and healthcare. It is an actively managed ETF that can be bought and sold through online broker platforms or a personal financial advisor.

Jacob, who has been at the helm of the firm since 1999, is the lead portfolio manager for the ETF. At age 29, he was among the youngest individuals ever to launch a mutual fund – the Jacob Internet Fund. For two decades, he has been at the forefront of technology investing, navigating some of history’s most volatile markets.

“We invest in companies that we believe are dynamic leaders in their industries with enduring franchise value and seek to identify disruptive up and coming leaders in the competitive landscape with ‘game-changing’ ideas. Our goal is to provide these potential opportunities to our shareholders,” added Jacob.

Founded in 1999, Jacob Asset Management offers a full range of actively managed investment solutions to retail and institutional clients. With the goal of providing what is believed to be superior investment vehicles, JAM uses a proprietary, bottom-up investment style to search for and filter through exciting opportunities across an expansive investment universe. Recognized as a leader in technology investing, the firm has broadened its offerings from the Jacob Internet Fund (JAMFX) to include the Jacob Small Cap Fund (JSCGX), the Jacob Discovery Fund (JMCGX), and the Jacob Forward ETF (JFWD).

More information is available at www.jacobforwardetfs.com.

ASPY – ETF Prime: Dave Nadig Talks Evolving Markets

On this week’s episode of ETF Prime, host Nate Geraci is joined by ETF Trends’ CIO and Director of Research, Dave Nadig, to discuss volatility, risk, and evolving market dynamics. This episode also features Onramp Invest’s co-founder Eric Ervine, who explains the importance of cryptoasset education and offers perspective on the recent pullback across the space. Lastly, ASYMmetric ETFs’ CEO, Darren Schuringa, spotlights the ASYMmetric 500 ETF (ASPY), which launched in March.

Picking up with Nadig, he spends time highlighting some points from his recent article, “Long Vol: It’s Always Different,” which features many points concerning the current state of the market, what regard to have for historical data, and what to expect regarding volatility.

As Nadig states, “From an academic perspective, really what we are concerned about is expected returns. As advisors/investors, expected returns are all we really care about – What to expect next year, what’s a normal year look like, and what does a normal investing cycle look like. The entire financial advisory industry is built on helping investors predict and manage that very tricky question,”

Additionally, something Nadig feels people have gotten hung up on for decades is focusing on what the prior state of things was like. Now, he has started to uncover that the very math and models used to manipulate those priors into a sense of expected returns are very suspect. The fact that much of the math and strategy stems from what made sense during the Industrial Revolution is a good signifier that things are outdated. Since then, people have learned a lot, and it’s time to turn things in an updated direction.

Updating The Models For The Better

With that in mind, knowing that it’s impossible to truly predict the future, it’s important to keep in mind how much risk there is and how it’s countered by sudden moves in the market. This is what makes it truly important for investors to understand how to position a portfolio.

As far as what investors should do, currently, Nadig makes note of volatility parity. Because volatility is generally bad for many, the idea is balancing short volatility bets with long bets. That means using the options market, which is essentially heading downside risk, as a way to provide an opportunity to participate in outsized upside. This effectively creates a convex set of returns.

“The decisions that are the correct decisions are actually probably going to make matters worse when they are put together collectively,” Nadig adds. “Many of the things that we’re doing, such as leaning on the options market and learning how to understand volatility and risk better, are going to accelerate this feature.”

Still, Nadig thinks it’s better to take certain risks than relying on sitting cash. As it is the nature of the market, it’s still best for investors to do the best for their clients and their client’s portfolios. It just seems important to start questioning the models.

Later in the episode, Ervine delves into how the Onramp team has built a bridge between traditional financial services and cryptoassets. It’s a big undertaking given how fast crypto moves and how slow traditional financial services can be. That said, there’s a status update that’s worthwhile, in addition to problems to be solved. Plus, Ervine delivers thoughts on bitcoin and crypto currently as he manages a multistrategy fund at Blockforce.

Finally, Schuringa and Geraci discuss ASYMmetric’s fairly recent launch of ASPY, the first ETF for the company. This ETF can go short the S&P 500, but it’s entirely rules-based, and the long component of this fund holds lower volatility stocks.

Listen to the Entire ETF Prime Episode Featuring Dave Nadig:

For more ETF Prime podcast episodes, visit our ETF Prime channel.

DFNL – ETF of the Week: Davis Select Financial ETF (DFNL)

ETF Trends CEO Tom Lydon discussed the Davis Select Financial ETF (DFNL) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.

DFNL is an actively managed portfolio of global financial sector stocks. The fund seeks long-term growth of capital. The financial sector has more room to run. The sector is safer than ever with proven durability, steady compounding machines, attractive valuations, potential underearnings, and attractive dividends and buybacks. Banks look durable with greater capital allocations that have helped limit their downside risks.

Over the past year, banks were required to increase capital to hedge against potentially bad loans that would bite back over the course of the coronavirus pandemic. However, these bad loans never materialized, which has left banks with more capital to deploy elsewhere. After the recent stress test, the Federal Reserve removed the post-Covid capital requirements on banks, which could allow them to redistribute capital back to shareholders through dividends and buybacks.

A Compounding Machine

The financial sector is seen as a steady compounding machine. The S&P Financial Index has exhibited a 6% 5-year cumulative earnings per share growth since the 1990s.

Looking at valuations, financials are attractively priced. The S&P 500 financials sector is the most attractively priced among the various market sectors with a 14.9 forward price-to-earnings ratio. In comparison, the consumer discretionary sector was trading at around a 34.9 forward P/E, and the technology sector showed a 25.8 forward P/E.

Furthermore, financials relative P/E scores are hovering below their 10-year averages. While financials earnings per share have grown faster than the  S&P 500 index, financial stocks prices continue to fall behind the broader index – lots more room to catch up. Normalizing interest rates would increase financial sector earnings due to the sector’s positive sensitivity to higher interest rates.

Listen to the full podcast episode on the DFNL:

For more podcast episodes featuring Tom Lydon, visit our podcasts category.

RAAX – ETF of the Week: VanEck Vectors Real Asset Allocation ETF (RAAX)

ETF Trends CEO Tom Lydon discussed the VanEck Vectors Real Asset Allocation ETF (RAAX) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.

RAAX is an actively managed fund of funds that seeks to maximize long-term real returns. It invests in ETPs with exposure to real assets, such as real estate, commodities, natural resources, or infrastructure, and may hold up to 100% cash or equivalents.

Real assets have the potential to protect investors’ portfolios from the effects of rising inflation. Many market observers believed that we would not have high inflation and that any inflationary forces would be mild. This was not correct. As of May 31, 2021, the year-over-year inflation change was 5%, based on the Consumer Price Index.

Commodities and other real assets have significantly underperformed the stock market since the great financial crisis. Following the market bottom, in March 2009, the S&P 500 Index has returned a gain of 561% versus a loss of 15% for the Bloomberg Commodity Index. With higher inflation, real assets have finally awoken from their decade-plus hibernation, and most are leading the markets higher. The lost decade-plus in commodities has created a situation where, relative to stocks, the prices of commodities and natural resource equities may still be cheap and have a lot more room to run.

Gold has, so far, been left behind in the latest inflation-led rally, but that may be starting to change as inflation concerns rise. Over the past month, the price of gold has increased from $1,685 per ounce to hovering around the $1,900 level. No firm conclusions can be drawn yet from such a short period of time, but history does tell us that gold is likely to kick into overdrive if high inflation persists.

Opportunity In Bitcoin?

RAAX now has exposure to bitcoin. There was an initial investment of 2% into the Grayscale Bitcoin Trust. Digital assets may offer RAAX many of the same benefits as gold. Most notably, protection against inflation and currency debasement in addition to overall portfolio diversification.

Bitcoin has sometimes been referred to as ‘digital gold,’ with supporters suggesting it could be a good safe-haven investment. The cryptocurrency has tended to trade closer to equity markets in recent times and has been plagued by massive volatility, making investors fortunes or crushed them. Like gold, it is scarce, cannot be counterfeited, and is easily exchangeable. These attributes have created competition between bitcoin and gold.

Listen to the full podcast episode on the RAAX:


For more podcast episodes featuring Tom Lydon, visit our podcasts category.

JOET – ETF of the Week: Virtus Terranova U.S. Quality Momentum ETF (JOET)

ETF Trends CEO Tom Lydon discussed the Virtus Terranova U.S. Quality Momentum ETF (JOET)  on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.

JOET strives to deliver exposure to U.S.-listed large-cap companies that combine strong quality fundamentals with positive momentum technical trends. The Fund seeks investment results that correspond, before fees and expenses, to the performance of the Terranova U.S. Quality Momentum Index.

This fund has become more important for investors to identify longer-term trends. Combining quality with momentum, “quality momentum” is a modern index strategy that offers an intuitive investment balance of both offense and defense. The idea is to capture changing market dynamics and different investment cycles through a combination of fundamental (quality) and technical (momentum) measures.

JOET provides exposure to the best performing U.S. large-cap companies with the highest quality fundamental characteristics, resulting in a distinct portfolio built for long-term growth. It seeks to identify and capture the returns of high-conviction investment opportunities characterized by fundamental (quality) and technical (momentum) attributes.

Momentum Factor

Momentum investing is rooted in the notion that securities on torrid paces will continue to thrive over the near term. Long-term data for the momentum factor are compelling, but the factor can be volatile. Momentum investing targets companies exhibiting high levels of growth.

Additionally, the momentum factor selects company stocks that have recently outperformed based on the idea that “the trend is your friend” and that stock market leaders typically continue to outperform. This type of strategy can be an effective way of targeting growth-oriented companies since stocks with positive momentum often continue to generate strong earnings.

Quality Factor

The quality factor is more fluid but can emphasize key indicators such as profitability, management efficiency, and cash flow. While the quality factor often trades at a premium to value, quality stocks are usually less volatile than traditional broad market strategies, indicating some overlap with the low volatility factor.

The quality investment factor can help investors focus on companies that are better equipped to handle uncertainties the markets may throw at us. Sift out corporations with questionable profit outlooks and rising debt levels as a way to hone in on those with solid fundamentals.

Listen to the full podcast episode on the JOET:

For more podcast episodes featuring Tom Lydon, visit our podcasts category.

ASPY – ETF of the Week: ASYMshares ASYMmetric 500 ETF (ASPY)

ETF Trends CEO Tom Lydon discussed the ASYMshares ASYMmetric 500 ETF (ASPY) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.

ASPY is a passively managed, rules-based alternative strategy to hedging US large cap equities. The fund targets between -25% and 75% net long equity exposure based on market risk.

The fund has the potential to generate positive returns across bear and bull markets. That strategy matters now because ASPY was built with the objective of helping investors during times like this. The S&P 500 is trading near or at all-time highs, and U.S. equities are in the midst of one of the longest bull market runs in history.

With that said, the stock market does not go up forever. It is cyclical. There will be another bear market. The question is not if, but when. This means helping investors participate in further market upside while potentially protecting their nest eggs from an inevitable market correction.

Challenges Investors Face Today

For those sitting in cash, the question is when to buy, and is it too late? Those with massive unrealized gains from the long bull market run, may also be asking when to sell to lock in their gains. ASPY seeks to address both of these questions because it was engineered with the potential to provide upside participation with downside protection.

The fund offers investors sitting on the sidelines the potential to participate in further market upside, with the potential for downside protection built-in.

ASPY is designed to provide investors with a less volatile way to gain equity exposure. The strategy is designed to potentially lower the risk and improve the performance of a traditional stock and bond portfolio. The 60/40 stock and bond portfolio is arguably broken. Bonds come with very little income and have the risk of losing money in a rising interest rate environment.

Adding more equity exposure isn’t the answer either, as it increases the risk of losses in a portfolio. ASPY is designed to provide consistent returns across bear and bull markets. It is also designed to avoid catastrophic losses and, in fact, seeks to make money in down markets. ASYMmetric has the potential to provide investors with a new path to wealth creation that is uncorrelated to either stocks or bonds.

Listen to the full podcast episode on the ASPY:

For more podcast episodes featuring Tom Lydon, visit our podcasts category.

COWZ – ETF of the Week: Pacer US Cash Cows 100 ETF (COWZ)

ETF Trends CEO Tom Lydon discussed the Pacer US Cash Cows 100 ETF (COWZ) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.

COWZ is a strategy-driven ETF aiming to provide capital appreciation over time by screening the Russell 1000 for the top 100 companies based on free cash flow yield.

The free cash generation is likely to provide a truer valuation comparison between companies. Free cash flow is the cash left over after a company has paid expenses, interest, taxes, and long-term investments. It is used to buy back stocks, pay dividends, or participate in mergers and acquisitions.

The ability to generate a high free cash flow yield indicates that a company is producing more cash than it needs to run the business, which can then be invested in growth opportunities. Free cash flow producing companies generally have three defining characteristics – they are productive, reliable, and self-sufficient.

The companies generate more cash flow than they spend, which allows them to grow without external financing. Free cash flow is a sturdy measure of profitability than earnings, which are subject to manipulation and accounting assumptions. Lastly, as the companies are less reliant on capital markets for financing, they won’t dilute their issued company stocks.

Using free cash flow yield to measure a company’s sustainability may produce potentially higher returns and more attractive upside/downside capture over time.

Value Investing

From 1926 to 2020, there were 16 periods of sustained value outperformance, on average lasting 39 months. Over the last ten years, value has rallied only twice. The last ten years have seen the worst returns ever for US value stocks versus growth. This was even worse than during the dot-com bubble.

Rethinking value investing – there were problems with traditional measures of value. The price-to-book ratio remains a key input to all major value indexes. From 1960 to 1989, the cheapest 20% of stocks based on P/B significantly outperformed the most expensive 20%. However, from 1990 through 2020, the relative performance of the cheapest P/B stocks was much more muted.

P/B then ceased to be as effective as the economy shifted toward intangible investments that are not captured. Traditional book value makes less sense in an economy driven by intangibles, such as patents, licensing agreements, proprietary data, brand value, and network effects. What is more valuable to a company like Google? The physical buildings and the network servers inside of them, or the intangible algorithms running on those servers?

Now, companies’ value and ability to generate free cash flow mostly is a result of their intangible assets.  Traditional book value(assets minus liabilities) ignores many of the most important resources to companies today. Market leaders such as enterprise software firms generate cash flows in ways not easily recognized by conventional valuation metrics.

More free cash flow is tied to the intangible asset. Because free cash flow is less distorted by accrual-based accounting rules, measures of free cash generation are likely to provide a truer valuation comparison between firms. Looking at free cash flow in relation to enterprise value puts companies on more equal footing and presents a more comparable picture of valuation. Looking at COWZ, free cash flow yield = free cash flow/enterprise value (or market cap + debt – cash).

Listen to the full podcast episode on the COWZ:

For more podcast episodes featuring Tom Lydon, visit our podcasts category.