ETF Edge - “Alternatives” going mainstream 9/22/25

Episode Date: September 22, 2025

There’s been an explosion of interest and offerings in the “alt” etf category. But the role those types of funds play for investors might be changing.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by Invesco QQQ, proud provider of access to innovation for the last 25 years. Invesco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange-traded funds, you're in the right place. Now, every week we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors. I am your host, Dominic Chu. Now, for many investors and providers, quote-unquote, alternative investments are becoming much more mainstream.

So here's my conversation with Paisley Nardini, managing director and portfolio manager at Simplify, along with Todd Rosenblu, Director of Research at Vetify. All right, so let's talk a little bit about the alt side of things. And Paisley, I will start with you, because for those people who did watch our CNBC air for the halftime report, we kind of teased a little bit of the content we're going to have on this show today, the growing role of alternatives and then how they manifest themselves in exchange traded funds.

Simplify specializes in these types of investments. Why are alternatives getting so much more attention these days? Great question. Thanks for having us today. I would say one of the biggest drivers of the rise of alternatives, both from an AUM perspective and an adoption perspective in portfolios, is really driven by stocks and bonds and how they behave together. We've relied on this historical correlation between stocks and bonds, which has been negative for really the last 10, 15 years.

And with the rise of interest rates in 2022, stock bond correlations became positive. What does that mean for a portfolio? It means that bonds are no longer providing that ballast. And I think bonds have been a big headwin for a lot of multi-asset portfolios the last few years, which now has investors looking for unique sources of risk and return in the portfolio. And one thing I've mentioned on this show in the past is thinking about what historically has been a two-legged stool, of stocks bonds is now becoming a three-legged stool. How can investors look beyond their bond portfolio

to find other ways to provide ballast and equity market drawdowns, other ways to find sources of income. That's also a growing part of the alternative market, is equity income solutions. And so all of those tailwinds are really leading investors and allocators to start thinking about this third leg of the stool, an additional way to build out a more resilient portfolio, but a lot of that driven by just how stocks and bonds have behaved together. the great financial crisis, by the way. It maybe is no coincidence that since the active intervention from central banks, putting a bid underneath the market for bonds, lowering interest rates and boosting equity valuations that you can kind of see that positive correlation moving, you know,

manifesting itself in bonds and stocks. We've talked a lot taught about the, I wouldn't say death though, that's hyperbolic, but we've talked about the 6040 portfolio, right, stocks and bonds, how you kind of move that on a scale based upon age. But a lot of people have said that that 60-40 model is kind of evolving away or going away. I wouldn't say going extinct. But to Paisley's point, there are now multiple more options that you can put besides stocks and bonds. What exactly are alternatives in terms of your view? What is the role of alternatives in trying to kind of provide a little bit more of that diversified approach to investing?

Well, in the ETF space, it's a pretty broad category. So you mentioned it's been evolving. It was traditionally gold was the way to get exposure. And we've seen record highs for gold and strong demand for ETFs like GLD and GLDM. But we've also seen a new wave of products that have come to market that offer alternatives. Calamos has a autocallable income ETF, C-A-I-E, that's been in the market a couple of months and already has $200 million. Unlimited has launched some funds. in the hedge fund like space that's in that space. And Bitcoin is, of course, for many people, the alternative that they've been using to get exposure to ETFs, whether that's spot Bitcoin or that's offering something else.

But what we find is that advisors are looking for something beyond, as Paisley said, stocks and bonds. They want something else to be a diversifier, whether it offers income or just has higher return potential, and the ETS space has been a great place to get exposure. Paisley, Todd brings up an interesting point that it's advisors who are looking for these different types of instruments, different avenues to go down. Advisors are one part of the equation, but the people that advisors service are also a big part of that equation as well and might be a driver basewise for much of the interest from retail

investment advisors, investment advisors and whatnot. Do you feel as though it is not just the advisors themselves, but perhaps even the clients they serve that are driving a lot of the narrative around why people want alternative investments. Yeah, I think you're right. And it's actually been pretty interesting in the most recent kind of rally in equities. It's actually been driven more by the retail investor than the institutional investor, which I think has caught a lot of people off guard. It's not typically what we've seen. But to your question is thinking about that need at the retail level, the end client, there's always a need for income in portfolios. And as back to your earlier comment,

or question, thinking about as we're starting to cut rates, as yields are going to come down, there's going to be a greater need for alternative sources of income for many of these retail portfolios. You mentioned some of the strategies that have come to market. Simplify also has strategies within the equity income space. And so if you're thinking about core bonds might be delivering about five, six percent yields, if you're thinking about equity income solutions, those can be delivering double-digit yields through selling options, whether they have barriers or whether they're put options to deliver income in 10, 12, 15% type levels. I think that starts to become really attractive, especially for retirees in the retail space that are looking for ways to supplement

their lifestyle, especially once they're no longer working. So the income side of things is interesting, especially when it comes to using options or derivative type strategies to kind of get those. We know that there are many targeted outcome or buffer type products that are coming to market or have come to market these days. If I could follow up Paisley on that, we're also dealing in a macro environment right now. We're because of the nature of interest rates and the equity markets at or near all-time highs, volatility premiums have collapsed in many ways, and they are well below their historical norms. That also means that if you're looking to sell derivatives or options to generate income, you're not generating as much as has been expected in the past.

How exactly does an asset manager kind of navigate those types of waters where volatility is cheap, so to speak, on a relative basis, but you're trying to use it to generate income? One thing we actually saw coming out of the tariff tantrum earlier this year was heightened levels of volatility premiums that we were able to capture. So thinking about active management and simplify it is an active manager, looking at the opportunity set. thinking about the risk-reward profile and having the manager have the ability to have discretion. So when there are opportune times like we saw in the May, June, July, and even August time frame where those premiums were elevated, strategies that historically have delivered or expected to deliver

maybe 10% or closer to 13% for the last few months, an active manager can start to thinking about smoothing out that income potential for clients. So kind of harvesting some of that greater yield today for when yields start to drift lower over the next six months. But to your point, I do think we're starting to look at kind of a reduction of yields. And so, again, the active management component of that allows us to kind of manage around that and set expectations. Todd, the idea that the macro still at least plays a huge part in the narrative around how investment managers are kind of managing around client funds. it also comes to a point where you're looking at the types of income generating strategies that are out there. It is a big part of some of that alternative story.

But you guys also mention asset classes that are not typically associated with spinning off income. You mentioned gold, not a dividend type investing construct. Bitcoin, not a true kind of income producing product. So when it comes to alternatives, Todd, how do you kind of love? look at from an investor standpoint about the types of places you should be looking inside and outside of income requirements. So I think it matters what your goal is. If your goal is to provide a hedge against volatility and the equity in the bond market, then gold can provide that as a safe haven. If you're looking for reward opportunities, Bitcoin has been very rewarding and

and using ETFs to get exposure to that and the growing number of cryptocurrency strategies that are there. If you're looking for income and you're looking for diversified ways to get income, then these covered call strategies that have become increasingly popular are a good way to be able to do that. Private credit is a good way to be able to do that through the ETF wrapper. There's lots of other ways to get income outside of your traditional equity through dividends or bonds. And I might actually add to that. Simplify has addressed that concern that you mentioned are a pitfall of some of these alternative asset classes,

which don't have income potential in them. We have a gold strategy, wide gold, which has a levered gold plus an income overlay. So for clients that are maybe funding this from a bond portfolio, they don't have to sacrifice on that income potential. We also have a similar strategy within crypto. A Bitcoin ETF, Maxi, is the ticker, which also has our active income overlay embedded with it.

within that. So that's a way to deliver the alternative diversification, but then also address that common objective that many clients have, which is income. So it's become almost like the next evolution of structured products in that way, right? So you're trying to find ways to take an underlying and use trade strategies around the underlying to get a targeted outcome the way that you want to. Paisley, if I could just follow up on that point, if you are looking at some of these alternative type strategies, where do you actually see as an environment? investment manager the most kind of interest coming from. Is it from places that are straight

income equity or income fixed income? Is it around option strategies for underlying gold or Bitcoin type strategies? What exactly is driving a lot of the interest in alternatives right now? Very simply stated, I think when you see a high level of income kicking off of a strategy, that's what captures investors' attention, especially at the retail level. A lot of retail investors, might not understand the nuances or intricacies of options or derivative components. But if they're seeing a 10%, a 12%, a 15% distribution rate, that's something that resonates with them. So as it relates to what has really captured attention and flows, I think income strategies, whether they be equity income or more traditional sources of income, are absolutely

at the top of that list. And I would say in kind of a little bit lower down, but definitely gaining attraction for more of the sophisticated high net worth RIA type clients. is true diversifiers, such as trend following. Strategy that has the ability to go long, short. Many of the exposures are not tied to economic risks. So they provide that true diversification, low correlation to stocks and bonds, and really help to smooth overall portfolio volatility. She's, I think, referring to commodity trading advisor or CTA momentum following strategies.

They're basically kind of computer model-driven strategies that kind of track movements and prices to try to follow trends. that are happening right now. If that's the case, Todd, if those types of strategies are the ones that are getting a lot more attention these days, what exactly does that say about where investors have evolved towards over the course of the last 10 years? It's no longer just about, hey, I kind of like these stocks or this portfolio, these are the types of things I'm looking for earnings, growth, revenue growth. Many times this is a straight up kind of formulaic approach to just following momentum trends. So a couple of things pop into my mind.

One is that even though we're at record highs for the equity market, even though we're the Fed cut once and is likely to cut multiple times, many investors are still nervous. They're looking to diversify their portfolio. We've heard from them at VETI. Obviously, you've seen the flows there. Also, it just, to me, the ETF wrapper has become so comfortable for advisors for investors to put into their portfolio that they're now looking to the ETF space to get exposure for that diversification. whether that's through Matters Futures approach, whether that's through commodities, whether that's through Bitcoin. I came back to it again, but we've seen record demand a second year for Bitcoin strategies in the ETF wrapper because people still are gaining comfort in that space.

This is also very much a demographic story in many ways, right? This idea that there is demand for certain types of these income-oriented or targeted outcome-type products because as people are getting older or more progressive in their life cycle, they're looking for ways to become slightly more conservative, but not lose the entire upside that some of these investments can give while still collecting a paycheck on a monthly, quarterly, or yearly basis. To that point, Todd, and I'll start with you on this one here, just how much as that demographic tail when going to be something that can be captured, or is this just a kind of product cycle that you think maybe has a finite runway, or is this one where you think that, you know,

this is going to be something that's going to have decades in terms of runway? So I think the finding alternative ways to get income is going to be a trend that's going to persist for the foreseeable future. We've seen it. It came on a few years ago. J.P. Morgan was one of the initial products that had success, JEPI or JEPI, and it's now several years later, and we continue to see traction. But it's evolved. We've seen a exposure to other products. We've seen it for individual stocks to get income generation. That's probably a little bit more risk-taking than the older generation of folks. But I think that income is still important for many people, certainly as they get older, and the ETF wrapper is

something they've become comfortable with. I think this is a transitional change. Income, investor demand, and asset management, and all of the other roads are kind of converging at a point right now, one place in particular, and that's in the boom in interest in places like private credit. It's maybe a coincidence or not a coincidence that you both are here right now today. VETify and Simplify are actually collaborating on a new ETF offering. I was wondering, and Paisley, I'll start with you. What exactly is this new offering that you're working with VETify on? I know that it's tackling private credit, but take us through the story. of what this new product will be and what led you to it and to vetify and simplify joining forces.

Yeah, well, it is very coincidental. Todd and I actually reflected on this today. Like, what are the chances that today is the launch of a joint ETF strategy? But to get to the question, the role of private credit in a portfolio is something that has historically only been available to very high net worth investors and institutional investors. We've started to see that trickle down from an accessibility perspective, whether it be through interval funds or just greater flexibility in how these strategies

and private credit in particular are brought to market. But there is a missing link for two reasons, which is really the culmination of our firms coming together to provide a daily liquid accessible through an ETF strategy that is private credit. So of course this is not going to be the traditional private credit that has lockups and high fees. This is an efficient liquid vehicle that's going to provide indirect exposure to the BDCs or the closed-end funds that are investing in these companies.

So many of these names were familiar with, but fully liquid, the index was developed by VETify, so Simplify is wrapping that in an ETF and delivering it. But I think very importantly, what is the use case for this? It could be for those retail investors that aren't just at scale or are not accredited to get access to ill-liquid private credit. So there's one opportunity. And then what's I think a little bit more interesting is across investment or client sizes is the use of a liquid proxy,

which can be the strategy, the ticker on this is PCR, for when you're waiting on these capital calls. If you have a firm have determined that you're going to allocate, say, 10% to private credit, now you need to go out and do manage or due diligence, and you need to find these investments, and then there's capital calls.

All of this can take months, quarters, and years. And so in the meantime, you can get access to a direct liquid play on private credit through an ETF like PCR. All right, Todd, a lot of things, I mean, this is a master's or maybe even a doctoral dissertation at this point to kind of break all of this down. We're going to try to do it in a couple minutes here, which is not going to do it justice, but you're the index provider.

You know, Paisley mentioned the types of investments that go into this particular fund. She mentioned BDCs, business development companies. She mentioned some of the private instruments that are being used. How does an index provider actually come up with the constituency of that particular index, with all of these different private credit exposures and then allow an asset manager to try to formulate portfolios based upon it. Right. So we had VETify, we're an index provider

for a number of different strategies. So we're excited for this product to be launching. They're going to be business development companies. There are going to be debt-focused, closed-end funds that are part of this ETF. There's a quality and a liquidity screen that's part of this process. so we're continuing to call the universe and make sure that it's appropriate and it's accessible

for investors. And I think that's particularly important because many people don't have access to private credit. There's a handful of ETFs that exist today, all taking a nuanced way of getting exposure. But we recently at VETify did a survey for advisors as to how they were looking to diversify their portfolio. And what was compelling to me was more people chose private credit than digital assets. So more people were interested in getting exposure through the ETF wrapper through something that is very hard to find right now

as opposed to Bitcoin. We think there's going to be demand for it. We think it's a well-constructed index, and we're super excited to have the simplified team as a partner. All right, Paisley, one last question for each of you before we go. For you, I'm going to target this idea of private credit. If private credit is going to be as big as the most, momentum right now suggests how disruptive in your mind could private credit be with regard to how

income chasing investors are going to view that versus, say, other types of income products in the market? Private credit, one of the main benefits and reasons we've seen this rush to this asset class is that it can provide low to even high double digit type income and distribution yields. So we start to think about, again, moving beyond traditional fixed income sources, traditional aggregate bonds into some of these equity income, private credit type instruments, that's where it starts to become really attractive for investors who need high levels of distribution to maintain their lifestyle. So I think private credit as an asset class really came around from like a broader institutional adoption perspective. And maybe like 2016,

2017, we saw a lot of interval funds come to market. I think we'll continue to see demand there and interest, provided there's ways to access. And I think, again, going back to right now, the accessibility of private credit is something that hasn't reached all parts of the market. So if we can bring innovative solutions to help some of those maybe more downstream investors find ways to access these higher distribution yields and more alternative source of the credit market, I think that will help alleviate some of that pressure and require more adoption from the industry. My final question to you, Todd, is in the midst of this entire conversation, private credit, all of these income strategies, Bitcoin, gold, and all the other alts out there. How important will it be this development that private assets will now be more of a focal point perhaps for 401K investors who are out there? This is a development that seems to fit hand in hand with this idea that you're trying to improve accessibility for mass market investors. workplace retirement funds are about as mass market as they get.

So I think it's a great opportunity for investors, retail, and institutional investors, that there's going to be greater access to private assets. It's a diversifier as opposed to just traditional stocks and bonds. So I think we'll start to see that. And using ETFs as the vehicle to get exposure, assuming that an ETF was available in the 401K plan, is a great opportunity because instead of just owning your S&P, P 500 or your Bloomberg ag, or an active management that's trying to outperform those strategies, you can have a more truly diversified portfolio.

These are still going to be relatively small slices, the alternative space. Paisley was talking about earlier about what we're seeing in that space, but it's usually 5 to 10 percent tops that we tend to find in a diversified portfolio, but I think it can help round that out. Now it's time to round out the conversation with some thoughtful analysis and perspective to help you better understand ETFs with our Markets 102 portion of the podcast. Todd Rosenblu, Director of Research at Vetify, continues with us now. Todd, the conversation we had about alternatives was fascinating to me,

and we could spend hours talking about it. But one of the things that kind of struck me a little bit more was just how much of an emphasis, both you and Paisley, put on this kind of demographic, secular tailwind that is going to be income investing, as people get older as they kind of march towards retirement and are tilting more towards the income or collecting a check side of the investment cycle, those types of income-producing instruments

are going to be a much bigger portion of it. We talked about some of the strategies there, but it's not that traditional fixed income has gone the way of the dodo bird. In fact, it's a very big part of the market right now, just how big is that bond market side of things and how it's evolved over the course of the last 10 years. So in the ETF space,

we continue to see fixed income adoption. It's roughly 20% of the overall ETF industry, but we've actually seen this year that fixed income ETFs are punching above their weight, and in particular, actively managed fixed income ETFs have become even larger. So many people prefer to work with a professional, with an expert to help them navigate the bond market

more so than they might do so on the equity side, and so active fixed income ETFs have gained traction, and not surprisingly, the asset managers have brought some of their best and brightest in the ETFs or in their asset management space into the ETF world. Active and passive is something that we deal a lot with in terms of the ETF world. But can you take us through just what the difference is? What does an active ETF manager in fixed income bring to the table that a traditional

passive index ETF manager in fixed income would not? So the largest of the fixed income ETF? The two of them are neck and neck. So B&D, which is a Vanguard, ETF, it's a total bond market index product, and then AGG, which is the I shares, Barclays, or IShare's core aggregate bond ETF, which tracks the Bloomberg Barclays aggregate index.

Those two index-based ETFs offer you investment-grade bond exposure to the most liquid and debt-ridden companies, or the government. So those index-based products are disproportionately heavily exposed to treasury bonds and then investment-grade corporate bonds. Much of the bond market is not represented or is underrepresented in that space. So the securitized market, for example, agencies and mortgages are under-exposed. That if you had exposure to AGG and B, and D, you'd have no international bonds. You'd have no high-yield corporate bonds.

So we've seen many advisors and investors embrace active management because you truly get the best ideas of a portfolio management team. And so there tend to be structures and mandates and focus so they don't go everywhere, and they tend to focus on the investment grade space, but you'll get more opportunities and a chance to, of course, outperform by using an active manager. You could, of course, underperform too, and you'd pay a little bit more but for many people that's worth the risk. All right.

If we talk about, you mentioned before the kind of big providers out there of these massive bond ETF products. It's also interesting to me that some of the biggest names in passive or income index investing are also now becoming very big players in active bond management and ETFs.

I think of Vanguard as one of those examples, a name that we just associate with indexing and passive investing. But now they are offering more products tied to active bond ETF management. Take us through how that is evolved in your mind and why a company like, say, a Vanguard, just for example, would be much more now active in terms of bond management. So you're right. Vanguard has been launching actively managed fixed income ETFs the last few years. They've got a core bond fund, VCRB, a core platform. Plus bond fund, they've now actually most recently launched a high yield.

Bond ETF actively managed. Vanguard is known for being an index-based provider, but they have a long legacy and heritage as an active manager in the mutual fund space. So it's more Vanguard has brought their active capabilities into the ETF marketplace, as opposed to them going out and finding them or developing them themselves. I shares as well, or BlackRock, which I mentioned is AGG. they have an ETF, the ticker is B-I-N-C. Rick Reeder, I believe, is the manager for that.

It's a flexible income fund that is gained in popularity. So we have I-Shures and Vanguard now in the same space with some of the more traditional active managers like PIMCO or Fidelity or Capital Group. And that's wonderful for investors, advisors. These are firms, many of them have been familiar with. They now have access to those they can choose from them and conduct due diligence on those.

products, quite simply. More options, in my mind, are always good, right? The idea that you can go and find different types of investments that may be better suited, even incrementally so, for each individual investor. But having that many options out there right now is also perhaps a little bit of a headwind or perhaps presents hurdles, especially for investment managers who now have to screen for that many more products to service their client's needs. How exactly in your mind, do investment advisors now have to scan and screen for this new kind of boom in active ETFs, especially when it comes to bond ETFs? So the good thing is many of these firms are well known by the asset, by an advisor, by an investor beforehand. So if it's a firm that you're familiar

with and you've had a long history with, but it might have been in the mutual fund wrapper and they're now here in the ETF space, that's a good thing. It tends to be less expensive, To buy an ETF, it tends to be more tax-efficient in the ETF wrapper. So you should conduct the same level of due diligence that you did in the mutual fund space, but with the benefits of what's in the ETF wrapper. We can see what's inside the portfolio every day. With actively managed ETFs, you can see how the fund is positioned. You can read their commentary on their websites and make sure that you're comfortable with,

if they're taking on risk in order to generate reward, is that a risk that you're comfortable with? And so I think it's a great time, but yes, there's a lot of choices and it's hard. It's probably easier to go with, I know of this firm, I've worked with this firm, I trust this firm, that's a good starting point. Now, when it comes to fixed income outside of the world of treasury and rates, you mentioned corporate credit before, whether it's investment rate or high yield, it's part of these indices and part of these active bond ETFs.

As a research director, as you take a look at the current macro, economic landscape as we now have visibility for as much as we can. Do you feel as though there's any real risk on the credit side of things for either a cyclical economic downturn or even if it's not a massive one, what it could do to corporate balance sheets and creditworthiness out there? Does there, in your mind, appear to be any cracks in the economy that should be worrisome in, say, the next six to 12 months? So I'm not worried about the economy as much as we, We saw the Fed make their first cut. It felt like they were prudent, at least in the readout, of how things were.

It was not a strong push for 50 basis points. That would concern me, that they saw something coming in the economy, and they were trying to overcorrect. So I think it's okay right now, but we still have to obviously watch. There's a lot of things going on geopolitically to keep our eyes on. All right. Todd Rosenbluth at Vetify, thank you very much for the conversation. Appreciate it. Thanks a lot for having me. All right, that does it for the ETF Edge podcast.

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