A skirmish over fees preceded the long-awaited SEC approval of Bitcoin ETFs, which finally arrived on January 10th. Just days before the historic green light, applicants, including BlackRock and ARK, amended their proposals, slashing or eliminating management fees to woo early investors. This sudden fee competition presents a unique opportunity, favoring those who invest in these ETFs first.

BlackRock's ETF, for instance, carries a 0.30% annual fee, preceded by a mere 0.20% introductory rate for the first year or $5 billion in assets under management (AUM). ARK amended their application, indicating they would waive their 0.25% fee during an introductory 6-month period for the first $1 billion in AUM. These pricing moves reflect the intense competition brewing in the nascent Bitcoin ETF space.

Why the sudden price drop? One answer lies in the inherent simplicity of Bitcoin ETFs. Unlike traditional, diversified index funds with hundreds of securities, these products hold primarily just one asset – Bitcoin. This reduces complexity, leaving ample room for fee compression. Consequently, fees are poised to become a differentiator, influencing investor decisions in this uncharted territory.

However, navigating this new landscape requires caution. Investors should closely scrutinize underlying investment structures and track records of issuers. Due diligence is paramount when navigating this rapidly evolving space.

Finsum: The era of cryptocurrency ETFs begins with a race to lower fees, with many initial issuers slashing fees during introductory periods.

For investors nearing or in retirement, navigating the delicate balance between capital preservation and growth can be a tightrope walk. While holding ample cash provides comfort during market downturns, it risks missing out on potential gains. Enter the buffer ETF, a unique investment vehicle offering shelter from storms while still allowing a path to sunshine.

These ETFs, also known as defined outcome ETFs, employ options to create a buffer against market declines. A typical fund might protect holders against, say, the first 9% of losses. But just like insurance, this protection comes at a price.

Unlike regular ETFs that track an index precisely, buffer ETFs also cap their upside potential. So, if the market soars, the fund will only capture a percentage of that gain. It's a trade-off: limited sunshine for guaranteed cover during rain.

Of course, buffer ETFs aren't a magic bullet. Their complexities require careful research. Fees, the specific buffer and cap levels, and the underlying index all affect their performance. As popular as the concept has become in recent years, more than 200 of these funds now exist offering a wide range of features. For advisors looking for a way to offer their clients downside protection, buffer ETFs are worth a look.

Finsum: A new category of exchange traded funds, buffer ETFs, has been growing in popularity due to their downside protection and ability to share in upside gains.

There’s been an ongoing debate about passive strategies vs active strategies in equities and fixed income. While passive strategies have generally proven to outperform in equities, the same is not true for fixed income. In fixed income, active managers have outperformed. Over the last decade, the average active intermediate-term bond fund has outperformed its benchmark, 60% of the time. 

According to Guggenheim, this can be partially attributed to risk mitigation strategies which are not available in passive funds. Another factor is that the equity markets are much more efficiently priced than fixed income since there is more price discovery, publicly reported financials, and a smaller universe of securities. Equities are also dominated by market-cap, weighted indices.

Relative to equities, there is much less information about fixed income securities, less liquidity and price discovery, a larger market at $55 trillion vs $44 trillion, and many more securities especially when accounting for different durations and credit ratings. Additionally, less than half of fixed income securities are in the Bloomberg US Aggregate Bond Index (Agg) benchmark. All of these factors mean that there are more opportunities to generate alpha by astute active managers. 

Finsum: There is an ongoing debate on whether active or passive is better for fixed income. Here’s why Guggenheim believes that active will outperform against passive.