Nasdaq ETFs

On the latest episode of Nate Geraci’s ETF Prime, VettaFi’s financial futurist Dave Nadig discussed recent SEC regulatory initiatives and the potential impact on advisors and ETF issuers. Goldman Sachs Asset Management’s Alexandra Wilson-Elizondo highlighted their approach to ETF model portfolios. Natixis’ Nick Elward explained the merits of active management utilizing the semi-transparent ETF wrapper. SEC chair Gary [...] Read more at ETFtrends.com.

With midterm elections on the horizon, are you feeling prepared? In the upcoming webcast, Axelrod and Rove on What’s at Stake in the Midterms, political strategists David Axelrod and Karl Rove will discuss the current political landscape and the various midterm scenarios. To help you plan for any outcome, Michael Arone, CFA, chief investment strategist [...] Read more at ETFtrends.com.

Equities Gain in October Amid hopes for a slowing pace of interest rate hikes, equities mainly were up in October as the Dow Jones Industrial Average Index gained 14%, posting its best month since January 1976. US small-caps were among the best performers (+12.1%), followed by US value stocks (+11.5%), and US mid-caps (+10.5%). Bonds [...] Read more at ETFtrends.com.

As we consider the current market environment, investors can use collateralized loan obligations and floating-rate notes related ETF strategies investments to diversify their investment portfolios today. In the recent webcast, Rise Above Rising Rates with CLOs and FRNs, Fran Rodilosso, head of fixed income ETF portfolio management at VanEck, pointed out that floating rate assets [...] Read more at ETFtrends.com.

Until recently, the world of private credit was ruled by Wall Street banks in their chase for higher yields and more exclusive offerings for their institutional clients. Often taking the form of closed end funds with long lock-up periods, private credit investments seek to generate higher yields by directly lending to a portfolio of companies, that are either unable or unwilling to receive funding from more traditional sources such as issuing bonds, or bank loans. In exchange for these lending services, private lenders are able to collect much higher yields, historically in the range of 8-13%.

This illiquid asset class is often reserved for pension funds, endowment funds, and HNW investors with long time horizons, who are not concerned with having access to their funds for 10 years or more. Allocations to this asset class have benefited institutional investors greatly over the last 10 years, during periods where yields have seen historic lows.

European developments in private credit

But the genie cannot be kept in the bottle indefinitely, and as the appetite from non-institutional investors for alternative strategies grows, players are emerging that seek to satiate it. 
Blackstone, one of the largest names in the investing world has recently launched a European private credit fund. Having received regulatory approval in Luxembourg, the fund aims to provide institutional-level strategies to wealthy Europeans. As of May 2022, HNW European investors have had access to this restricted fund and are now able to benefit from an asset class that has grown from $50 billion in 2001, to 1.2 trillion as of 2021 as per PIMCO data. 
But what about retail investors? Although developments in the space will surely continue, for the time being, retail investors can gain exposure to private credit markets through index tracking ETFs. The Virtus Private Credit Strategy ETF provides exposure to the asset class through investments in BDCs (business development companies, which are often structured as close ended funds investing in the private credit space. The ETF yields 11.54% as of October 20th, with distributions paid on a quarterly basis, making it an excellent substitute for a high yield bond ETF such as HYG, on a relative yield basis.

Should European Investors consider Private Credit? 

The asset class has seen significant growth over the last 15 years, with over 30% of the Total Credit market in the US being made up of Private Credit as of 2021, leading some market participants to believe that future growth at the same rate is unsustainable. Firms such as Blackstone take a different view, however. 

As per an April 2022 report, the firm believes that Private Credit will continue to grow, as it is still a relatively small portion of overall credit markets. One of Private Credit’s main advantages are partnerships formed with the portfolio companies, which allow for flexible terms and a more active role in the operations of the companies. Contrasting this with publicly traded credit such as Leveraged Loans, which give investors little say over the operations of their borrowers, Private Credit investments form long-lasting partnerships between investors and borrowers, allowing them to command a premium yield even in a rising rate environment.

 

Source: Morningstar, Cliffwater, as of December 31st, 2021

The benefit to European investors is compounded, considering the relatively low-interest rate environment as compared to North American Yields. Although North American investors may have more incentive to add public floating rate debt after the recent hiking cycle, European investors are still yield-starved, with the ECB rate only at 1.25% as of September 2022.  

There are many misconceptions about emerging markets, with a key one being that EM investing brings significant risk to a portfolio.  The reality is that the volatility of emerging markets has evolved over the years, and adding emerging markets exposure to a portfolio can potentially act as a diversifier and reduce risks.  Cooper Abbott, CEO [...] Read more at ETFtrends.com.

There are really just two types of ETF investors in 2022's market environment.

The first one is the index ETF investor. Their portfolio is comprised of broad-market, asset allocation ETFs tracking thousands of stocks from every geography, sector, and market cap size. It's intended to be passive and achieve the average return of the world's stock market net of fees. 

The second one is the thematic ETF investor. Their portfolio is a mishmash of various thematic funds. A more typical one might include electric vehicles, solar power, next-generation internet, etc. Or, it could be as weird as meme stocks, breakfast foods, "vice" industries, or inversing Jim Cramer.

And now we can add the Korean pop music industry, or "K-pop," to the list. Are you a die-hard BTS fan (known as a "Stan")? Well, now you can invest in the future of your favorite band via the KPOP and Korean Entertainment ETF (KPOP). Let's take a deep dive into its prospectus.

How the K-Pop ETF works

KPOP passively tracks a proprietary index comprised of 30 companies listed on Korean exchanges that engage in the entertainment and interactive media industry (music, movies, drama, entertainment, and content). Since its debut, the fund has attracted $2.1 million in assets under management (AUM).

KPOP's holdings are selected by an algorithm that scans keywords on company filings and press releases online to assess whether or not they qualify as a "K-Pop company." There is a minimum market cap requirement of $76 million for inclusion. 

Whether or not a company is included in the underlying index depends on its free float-adjusted market cap and K-Pop "relevance score" as assigned by the algorithm:

• For the entertainment industry, the five largest companies by market cap and the top three by K-Pop relevance score will be included. 
• For the interactive media & services industry, the two largest companies by market cap and the top one by K-Pop relevance score will be included. 
• Within the remaining universe of companies, the highest-ranked ones by K-Pop relevance score will be selected until 30 constituents are held. 
• The index will be market-cap weighted, with a target weight of 80% of holdings from the entertainment industry and 20% from interactive media & services, with a 10% cap on any individual holding. 
• The ETF will be rebalanced on a quarterly basis.

My thoughts on the K-Pop ETF

K-Pop has a large and dedicated fan base, but I'm unsure how many of those "Stans" are avid investors eager to invest in a niche thematic ETF. The majority of the population still remains fairly in the dark when it comes to ETF investing, even for popular broad-market, low-cost indexes.

A concentrated thematic fund like KPOP will likely face an uphill battle when it comes to attracting inflows. It faces the challenges of educating a fanbase with little to no investment knowledge and competition against increasingly large numbers of thematic ETFs being launched. 

The main risk here is concentration risk. That is, a sharp downturn in either the K-Pop industry or the Korean economy can cause severe drawdowns for the ETF. Unlike most ETFs investing in the Korean region, this ETF lacks exposure to notable large-cap Korean stocks like Samsung, Hyundai, or LG. 

There's also foreign exchange risk. Holdings in KPOP are denominated in Won, while the ETF itself trades in USD. If the Won depreciates against the U.S. dollar, the net asset value (NAV) of the ETF could lose value even if the underlying holdings increase in value. 

I'm curious as to why KPOP wasn't currency hedged, especially given the recent strength of the USD and the relative power of the U.S. economy compared to the South Korean one. The lack of currency hedging will likely create additional volatility for the ETF. 

That being said, if the USD falls against the Won, the ETF will gain additional value. Maybe reversion to the mean will help KPOP out here. All in all, the best investor profile for KPOP is someone highly knowledgeable about the industry with a bullish long-term thesis.  

Summary US producers have demonstrated that they are capable of significant growth at a lower oil price level, so it can be baffling that production is not growing more at higher prices. Despite ample reserves, significant industry expertise in shale production, and financial incentive from higher oil prices, US oil production is only growing modestly [...] Read more at ETFtrends.com.

Top Performing Unleveraged ETFs Last Week These were last week’s top-performing ETFs. We’ve excluded funds that use leverage or make inverse bets on their underlying assets. Ticker Name 1 Week Return (KEUA ) KraneShares European Carbon Allowance Strategy ETF 20.36% (GRN C) iPath Series B Carbon ETN 18.54% (KARB ) Carbon Strategy ETF 15.74% (KRBN ) KraneShares Global Carbon [...] Read more at ETFtrends.com.

The bond market has endured a shocking 2022 as the Federal Reserve rushed to raise rates amid inflation and economic uncertainty. What opportunities does the market hold for 2023? VettaFi contributor Dan Mika spoke with Ryan O’Malley, a fixed income portfolio strategist at Sage Advisory Services, to look at the potential to benefit from the [...] Read more at ETFtrends.com.

By Andrew Poreda, Vice President & Senior Research Analyst  1) World Rocked By 29 Billion-Dollar Weather Disasters In 2022  What it means: It sure has been a costly year in terms of weather damage. According to insurance broker Aon, the world has seen at least 29 weather events this year that have caused $1 billion [...] Read more at ETFtrends.com.

While all of Invesco’s equal-weight sector ETFs recorded gains during October, there were five sectors that performed exceptionally well, pulling the S&P 500 Equal Weight Index higher. The S&P 500 Index gained 8.10% on a total return basis during the month of October, notching its best month since the broad market’s July rally. During the [...] Read more at ETFtrends.com.

Sometimes a rising tide does not lift all boats. Despite the S&P 500 gaining 8% in October, some of its biggest names experienced sharp selloffs in response to disappointing earnings figures, including Microsoft, Alphabet, Amazon, and Facebook. With stark differences between individual stocks emerging, benchmark dispersion surged to an annualized 36%, the highest since March [...] Read more at ETFtrends.com.

Allianz Investment Management has expanded its lineup of Buffered ETFs with the launch of two monthly buffered U.S. large-cap November funds. The two new ETFs are the AllianzIM U.S. Large Cap Buffer10 Nov ETF (NYSE Arca: NVBT) and the AllianzIM U.S. Large Cap Buffer20 Nov ETF (NYSE Arca: NVBW). As market conditions remain turbulent due [...] Read more at ETFtrends.com.

I had the great fortune to sit down and talk individually to three notable advisors within the investment community about innovations they’re seeing within bonds. Jim Bianco, CMT, president and macro strategist at Bianco Research LLC; John Davi, founder, CEO, and CIO at Astoria Portfolio Advisors; and Cameron Dawson, CFA, CIO at NewEdge Wealth all [...] Read more at ETFtrends.com.

Solar energy can give investors exposure to high growth opportunities to set up their portfolios for future gains. One solar company in particular, First Solar, is getting bullish vibes from a pair of Wall Street analysts. Bank of America analyst Julien Dumoulin-Smith confirmed a buy rating, noting that the stock is “well positioned to benefit [...] Read more at ETFtrends.com.

In the most recent episode of “ETF 360,” VettaFi head of research Todd Rosenbluth is joined by ProShares head of investment strategy group Simeon Hyman, CFA to discuss ex-sector ETFs tied to the S&P 500. Advisors typically take a broad approach when it comes to investing in the S&P 500, but Rosenbluth noted that “what [...] Read more at ETFtrends.com.

Real estate equities and the related funds are slumping this year against the backdrop of five interest rate hikes by the Federal Reserve. Those are the breaks for rate-sensitive asset classes. However, talk of a “Fed pivot” is increasing, indicating that funds such as the Virtus Duff & Phelps Global Real Estate Securities (VGISX) could [...] Read more at ETFtrends.com.

In financial market terms, October has a dubious reputation, but the S&P 500 jumped 8.13% last month. That could be a good sign, particularly with seasonality turning favorable. If a year-end rally shows further signs of materializing, investors may want to evaluate exchange traded funds such as the Invesco QQQ Trust (QQQ) and the Invesco [...] Read more at ETFtrends.com.

Fixed income investors are increasingly demanding climate-aware solutions, and one of the primary destinations for fulfilling those demands is green bond territory. The VanEck Green Bond ETF (NYSEArca: GRNB) is the leading exchange traded fund for efficient exposure to green bonds, and it could be on the cusp of big things, both over the near- [...] Read more at ETFtrends.com.