On this week’s “ETF Prime” show, host Nate Geraci was joined by VettaFi editor Lara Crigger to talk about the backstory behind the SEC’s approval of equity derivative ETFs. unique and why there are so many mixed messages from the regulatory body surrounding their approval as well as looking at their use case for the future. Later, Phil Huber, CIO at Savant Wealth and author of “The Allocator’s Edge,” talks about alternatives, and Tim Johnston, partner at Blue Horizon Capital, closes the show by discussing the energy transition and the BNE Horizon Blue ETF (BNE).
Leveraged and reverse exchange-traded products have been trading in Europe for some time now, with offers leveraged up to five times in some cases, and have yet to have a noticeable impact on the markets. underlying assets. This is a concern for many with these products, but Crigger is clear in pointing out that leverage on funds launched by AXS Investments is minimal. AXS requested greater leverage and reverse, but the SEC only approved up to 2x leverage on several of the securities and less on the reverse.
“What this tells me is that the SEC takes into account the volatility of the underlying stock in this decision-making process – Tesla is more volatile than Nike, so they allowed a smaller leverage factor “said Crigger.
Crigger believes the funds will be attractive to investors, but only a small subset and with specific use cases that could include market shocks, an outlook on earnings or potential tax loss harvesting.
The funds were able to come to market thanks to the ETF rule (6c-11) passed in 2019, which meant that ETFs that met the qualifying criteria would bypass the need for individual SEC approval. The SEC is still able to use some mechanism to screen out funds they deem to pose excessive risk to investors through their ability to set rules targeting specific types of funds, but they have not done so in this case, and Crigger believes it was because of an empty seat on the Commission at the time.
“There was a vacuum in the Commission, and that majority in the Commission in favor of rule-making was no longer in place, so Gensler…may not have had the votes in this window of time where this particular proposal was in front of them,” Crigger explained.
The conversation also covered the future of these types of funds, currency hedging and the Japanese yen, as well as the growing interest in alternatives and managed futures especially in 2022.
Alternatives and energy transition
Next, Phil Huber, CIO at Savant Wealth, spoke about the inspiration for his book and his desire to help educate advisors and investors about alternative assets and what they can offer portfolios, as well as his outlook on the allocation to alternatives in the future.
“There are sort of two parts to the alternatives argument: there is the environmental side of the market,” Huber explained. “There’s also the kind of evolution in the availability of asset classes in the sense that as allocations, as financial advisers, we just have a bigger set of opportunities and a bigger box to tools to build portfolios.”
The traditional 60/40 portfolio has always carried a level of risk for certain market environments, but due to strong performance for so long, it was largely about not fixing something that hadn’t been broken. until it is. Alternatives are an asset class that can help mitigate bond pain points within a portfolio in today’s economy.
The last was Tim Johnston, partner at Blue Horizon Capital, to talk about BNE and the new energy economy. Blue Horizon defines Old Energy as carbon-producing energy, and New Energy is carbon-free, but believes it is more of a story of energy evolution.
“From an investment perspective, we really see that it’s not a clear-line test,” Johnston said. “We see the old energy and new energy economy as a real transition: we see this transition unfolding over the next 30 years.”
BNE is a fund that invests in five segments and focuses on the energy transition and on finding the right companies that will lead the energy transition and innovation.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.