ETF Edge - Status Check: Single-Stock ETFs, Gold & Global Commodities 8/14/23

Episode Date: August 14, 2023

CNBC’s Courtney Reagan spoke with Will Rhind, Founder and CEO of GraniteShares, and Dave Nadig, Financial Futurist at VettaFi. They did a deep dive into single-stock ETFs one year after launching in the U.S. - exploring the promise and pitfalls of single-stock bets on and against big names like Tesla and Nvidia. Plus, gold has yet to regain its luster despite high hope from gold bugs earlier in the year. Our panel debated what's going on with gold, bitcoin and the broader commodity space amid China's deflationary environment. 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 InvescoQQQ, Supporting the Innovators Changing the World, 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. Every week, we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors. I'm your host, Courtney Reagan, filling in for Bob Fassani. A key deadline looms ahead for the crypto community this week,

with the SEC needing to give a thumbs up or. or a thumbs down to ARC's proposals for a Bitcoin ETF by Sunday. Today on the show, we're diving into single-stock ETFs. One year later, how are they faring? We'll dive into the promise and pitfalls of single-stop bets on and against big names like Tesla and NVIDIA. We'll also talk a little gold. Precious metal has yet to regain its luster despite hope from the gold bugs earlier in the year. We'll discuss what's going on with gold, Bitcoin, China, and the broader commodity space.

Here's my conversation with Will Rind, founder and CEO of Granite Chairs, and Dave Notting, Financial Futurists at Vettify. So, Will, I'm going to start with you. I mean, your first single-stocks ETS arose in the U.S. about August of last year, including your long Tesla ETF, followed then later by that long NVIDIA ETF we mentioned. So give us an update on how they've been received by investors and why have some maybe not fared as well as other heavy-hitting tech names?

Well, a couple of thoughts, Courtney. So I think in terms of the flows more broadly, we've seen a lot of money go into fixed income ETS, you know, at the beginning of the year, a lot of money going into money market funds. So I think that the rally that we've seen more broadly over the last six months, you know, maybe hasn't been as participated in,

as you might think, just looking at the actual performance numbers. Secondly, when it comes to individual single-stock ETFs, the interest in those particular tickers is going to be very much correlated with the interest in the underlying stock. There's always enthusiasm for companies like Tesla, be it on the long and the short side. Invidia really has captured the AI zeitgeist so far this year. It was a huge amount of interest in that particular name.

And then other names will be very much dependent about the enthusiasm at that particular time. So whether it's China Tech with Alibaba or Babax as our leveraged single stock on the company or crypto, So there's a huge amount of interest around the approval or potential approval, of course, of a ETF linked to physical Bitcoin. There's a lot of interest in something like Connell, which is leveraged Coinbase. And so, again, like the underlying companies themselves, the demand for those individual leverage single stock ETS will be very much linked to news and enthusiasm for the company at the time.

That makes a lot of sense. So Dave, then what's the benefit of going long or short? a stock using an ETF versus, say, using mortgage brokerage account or even just buying a put-or-call option? Yeah, I mean, really, it's just convenience, right? If you're an investor who doesn't perhaps have options approved on their account, which is the majority of people with a discount brokerage account, or if you don't have margin borrowing turned on your account, which, again, is the majority of people who have access to a trading account, don't turn on that and use that margin feature. Both of those are required if you want to replicate some of these exposures on your own. I think it's worth

noting that ETFs now serve all kinds of investors from long-term buy-and-hold investors who trade every 30 years to day traders who trade every 30 minutes. These products obviously lean much more towards that speculative side of the balance sheet, and the trading volumes have been substantial. The assets, I think we're sitting at about $1.3 billion across all the various single stock products that are out there, which is a sizable number. Obviously, they have been successful, but I would never expect to see them pick up, say, mid-cap names. Those aren't the things people trade. Yeah, that's a good point. Well, I understand there's a huge amount of activity on a daily basis. I mean, the Nvidia long ETF can churn over half the assets under management in a

single day. I mean, what kind of churn does that tell us? And what are we talking about? What does that really mean? Similar to what Dave was just saying that, you know, there's been a huge amount of interest. And because, you know, clearly these products are leveraged, they lend themselves much more to shorter term type activity or short term exposures. And so one way to measure interest is not just the assets under management, but the amount of volume and the value traded on exchange. And with something like NVDL, even today, you know, as a look before I came on, you know, we traded over $85 million in terms of value. So that's well over at the moment, about half the fund. And there's just, I think that goes to show there's a huge pool of investors that are really interested in these particular products and are very interested.

in trading them and trading them pretty consistently. Anything, it seems, to have to do with Tesla and Nvidia gets people's attention these days. Dave, anything to add here before we move on? Yeah, I would just say that, you know, these products, we should see more of them. I know that there are a bunch that have been filed. I know, well, you've probably got some in the can, too. But there will be more of these products. And I think what we'll see is that a lot of them will sit around and be uninteresting

and languished for a while until there's a headline. And then all of a sudden we're going to be talking about why everybody is trading. IBM Daillies, right? And I think it's going to be a very different world. So I do think that these products have a place in the market. I think they do exactly what they say on the tin. And I think for people who are very active traders, they serve a real purpose. Yeah, I bet some other tech names need and want a little bit more attention. Well, let's switch gears and talk a little gold. The precious metal is having a pretty lacklustery up about 6 percent, despite a brief flutter of optimism for gold bugs around the U.S. debt ceiling drama. Price is topped out in May,

and gold ETFs have suffered outflows since then. So, Will some might say inflows into gold have been anemic? I mean, what's really holding gold back? I think at this stage it's been this rising sort of yield and dollar strengthening narrative that's really happened over the last month or so. You know, the dollar was very much on the, has been on the back foot, really since it peaked last year. And so there was a lot of interest in terms of driving gold up to an almost all-time high again. But that's backed off as dollars started to strengthen a little bit.

Yields obviously starting to climb again. So the narrative around gold is reversed, I think, for the medium term. And while the price of gold is really hung in nicely, given where rates are, I think that at the moment, it's a little bit of a cause for a caution, I think, while the dollars in this particular stage. Will, can I ask if there's any crypto component here? I mean, Bitcoin has been rallying and crypto bowls, of course, I like to call it the digital gold. I mean, is Bitcoin drawing any money away from gold buyers?

It's difficult to say. You know, my response would be typically no. And the reason for that is I think that the buyers do tend to be quite different. In other words, a lot of the people that buy gold, they're buying it more for defensive purposes, not for speculative purposes. Contrast that to crypto, including a lot of people that buy crypto, particularly big. Bitcoin, et cetera, it's because they want to buy at whatever level this is and think that it's going up quite significantly. So in other words, it's a way to make money or, you know, a vehicle to translate that optimism.

Gold is less about that. I think it's more defensive. And therefore, while there's always going to be talked between the two and the positioning between the two, I think in reality there's probably a little crossover. That's a good point. I don't think I've ever heard anyone refer to Bitcoin as a defensive play. Dave, give us your take on gold in the broader markets. It's kind of hard to separate the seasonal weakness from the overvaluation in tech names.

How do you see it? Yeah, I mean, there's definitely been less interest in gold than we might have expected. I don't think that we're in any kind of a speculative buy or sell regime for gold. We're an accumulation regime. I've talked to a lot of advisors who are sitting there with their 5, 7, 8% gold allocation and are quite happy with that being where it is. The important thing when you're doing something like that is to make sure you focus on expenses. There are no reason to be paying an enormous amount of money for somebody to put gold in a vault.

Will's products very cheap. There are some other cheap products out there as well. So if you're buying gold for a buy and hold investment, an ETF is the right way to do it. If you're using it as a speculative vehicle to try to sort of game against stocks, I'd point out that the correlations between gold and other asset classes are actually pretty high compared to what they've been before. We are back to a world that seems to be trading risk on, risk off as a giant bucket. and it's very difficult to peg gold when you're in that kind of a market. Well, I want to go back to Bitcoin if I can for just a second before we move on. The SEC actually just delayed a decision on Kathy Wood's proposal for a spot Bitcoin

ETF. You have a number of Bitcoin future ETFs out there, but what are the odds that we get a spot Bitcoin ETF by next year? You know, I gave up on trying to, you know, predict when the SEC would approve or not approve one of these products. I had one in filing myself right at the beginning. And I think once we got that clear indication from the SEC that it wasn't going to happen any time soon, we kind of gave up on it.

So I think other people will speculate that it's happening soon, et cetera. I don't think there's any real grounds for one way or the other. It will happen if it happens and if not, it won't. Dave, do you have any thoughts there on the spot, Bitcoin, do you? Yeah, everything's about the great. Gray scale lawsuit, which we should be hearing about pretty much any day and how the SEC loses that. I think they will lose that, but how they lose it and what they do in response to losing the lawsuit from Grayscale is going to determine what happens with a spot Bitcoin ETF. I don't expect

we'll have one trading by the end of this year, but I will say I'm more optimistic than I have ever been about the odds of approval. Fair enough. Let's take a step back if we can and focus on the broader commodity complex. The inflation picture has been murky here in the U.S., but China has been grappling with a pretty clear deflation story with July consumer and producer prices, both falling for the first time since November of 2020 during the peak of the global pandemic. We all remember that. Well, Dave, way in here. I mean, how should we think about China's rocky reopening and then the ripple effect on commodity prices?

Yeah, I think, you know, again, from a long-term perspective, I think commodities as a core allocation make a ton of sense. You want to do that in a tax-efficient wrapper with minimal expenses. the short-term issue about China, I think, is very real. And I think we underestimate how significant the wall that is facing China, whether it's demographically, whether it's in the finance system, they have significant internal issues. And that's going to continue to hit core commodities, things like copper.

Less so energy commodities. I think they could end up being a surprise consumer there in some parts of the commodity spectrum. But those industrials, those construction-based commodities, I think that the happy days are over there, and we're going to face a continued challenging environment if we're expecting the demand to come from China. Meanwhile, I'd point out, however, we have a manufacturing revolution happening in the United States, and a lot of those commodities are going to go in the ground here.

Well, obviously, a lot of cross currents at play in the commodities complex. We've seen crude oil prices rising, along with wheat. I mean, is a rise in commodity prices a threat to the lower inflation story? It absolutely is. And, you know, it could be the surprise story for the last year, run-in last few months here at the year. We've been battling with this narrative, of course, that inflation has been defeated, and inflation is coming down. All the core metrics seem to be moving in favor of that, including, of course, most importantly, commodity prices.

You know, gas prices are down significantly from the highs and all across the board, the lumbers and all these stories that we know very well over the last couple of years have gone away. However, as people might have noticed over the last couple of years, the last couple of months, excuse me, prices started to slowly take back up again. And that started with oil, and that's moving now to gasoline and other commodity prices. A large amount of that is to do with specific, slowly in the energy market and, you know, specifically OPEC's willingness to seemingly step in and defend oil prices where they are. But I think, to Dave's point, a big X factor here is China.

We know that the Chinese economy is suffering. That's not the news here. The news, really, for the commodity market, will be how aggressively are the Chinese government going to step in and defend the underlying market and stimulate their economy? And I think if that happens, we could see some more demand, particularly for the core commodities that have been most affected like copper. And so we could have a surprise here between now and the end of year,

where we see commodity prices rising and really go against, counteract the inflation is falling narrative. Dave, what are the broader flows telling us about shifting investor attitudes about the commodity complex? Yeah. So in general, we are still sitting on a lot of cash, right? So a lot of folks have banked up into short-term duration, sort of short-duration bonds, sitting in cash.

As that money has come back in, where we've seen to come in is just straight into equities. It has not been flowing into commodities in any kind of a flood. And I'm also a little bit of a seller. on this idea that some uptick in those supply prices is just going to immediately slam inflation. A lot of the inflation prints we've seen over the last 18 months have been about price and margin, not about input costs. There's a lot of room in those margins for companies to hold pricing and absorb a little bit of fluctuation in the input costs. So I don't think that that's what's going to drive things. I think we'll see folks reallocate back into commodities as they wade back

into this market, which is still very much an in-process movement. That's it for today. I'm Courtney Reagan. Filling in for Bob Pisani. Thank you for listening. And make sure you tune in next week. In the meantime, you can tweet us your questions or topic ideas at ETF Edge, CNBC. Inves QQQQ believes new innovations create new opportunities. Become an agent of innovation. Invesco QQQQ, Invesco Distributors, Inc.