Displaying items by tag: etf

Thursday, 18 April 2024 14:28

Buffered ETFs Upside and Downsides

Buffered ETFs are seeing explosive growth. The category had less than $200 million in assets and now has $36.7 billion. The major appeal is that they allow investors to remain fully invested while offering downside protection. 

However, they do tend to have higher costs and may not be appropriate for many investors. Buffered ETFs follow a benchmark while also using stock options to limit downside risk and capping gains on the upside. 

These products are modeled after structured notes, which have proven to be popular among high net worth and institutional investors. Like structured notes, buffered ETFs follow some sort of lifecycle, which means that advisors and investors have to consider market conditions when making a decision. This means they are not appropriate for rebalancing or dollar cost averaging strategies. An important consideration is the start date of the buffer ETF and the performance of the underlying index since the start date, as this could affect the value and desirability of the buffer.

According to Jeff Schwartz, president at the investment analytics firm Markov Processes International, “There is a lot to understand with buffer ETFs, and the history of structured products shows that both advisors and investors often do not fully understand the nuance of these vehicles." 

Finsum: Buffered ETFs are experiencing a surge in growth. The upside is that they allow investors to remain fully invested while capping the downside. However, there are also some downsides to consider.   

Published in Alternatives

Last month, Innovator launched the Innovator Nasdaq 100 Managed Floor ETF (QFLR). The ETF is designed to offer investors exposure to the performance of the Nasdaq 100 while capping losses at 10% over a 12-month period with an expense ratio of 0.89%.

Innovator achieves this by using a laddered put option strategy managed by Parametric, a Morgan Stanley affiliate, in concert with investing in the securities held by the Nasdaq 100. With these put options, the fund hedges against downside risk while reducing volatility in exchange for upside performance. 

According to Graham Day, Chief Investment Officer at Innovator, “Historically, in positive years, the Nasdaq-100 has averaged returns of 29%, but in negative years it has averaged losses of -30%. Most investors are unable to stomach this type of volatility, and QFLR is a solution to allow investors to remain fully invested in the Nasdaq-100 with built-in risk management.” 

2022 and 2023 illustrate the value of QFLR as double-digit losses in the Nasdaq led many investors to reduce equity exposure and miss out on the big rally in the following year. Previously, Innovator launched the Innovator Equity Managed Floor ETF, which has $132 million in assets. The fund tracks an index of large-cap US stocks and limits losses to 10%. According to Innovator, it essentially captures about 80% of upside while limiting volatility to 70%. In the press release for QFLR, SFLR investors saw about 80% of the equity portfolio’s upside but only 70% of the volatility.


Finsum: The private credit market has boomed over the last couple of years due to anemic public markets and hesitant banks. Now, banks are once again competing for business and offering more favorable terms.

Published in Wealth Management
Thursday, 25 January 2024 05:47

What’s Behind the Squeeze in Uranium?

A noteworthy development in 2024 has been soaring uranium prices. The radioactive metal was up more than 90% in 2023 and is now at its highest levels since 2007. According to Ole Hansen, the head of commodity strategy at Saxo Bank, this move is being driven by increased demand from ETFs holding physical inventory and utilities who were not hedging due to years of low prices. 


Prices moved past $100 per pound last week following an announcement from Kazakhstan's state uranium company that it may fail to meet production goals due to construction delays and difficulty sourcing raw materials. This follows a slew of production downgrades from a variety of producers in 2023, adding to pressure on the supply side. 


On the demand side, analysts point to the Sprott Physical Uranium Trust and Yellow Cake as marginal sources of gold demand, contributing to the ‘squeeze’. As a result, many now expect uranium to exceed all-time highs from June 2007 of $136 per pound, and uranium miner equities have also been following the metal higher. 


Longer-term, many believe that the uranium market is at a deficit given the gap between yearly production and consumption. Currently, the gap has been made up by huge amounts of secondary supply, yet this inventory is also rapidly being depleted.  

Finsum: Uranium prices have continued momentum from last year. Many believe new, all-time highs are in store given increased demand from ETFs and utilities, while production is impaired.


Published in Eq: Energy
Friday, 22 December 2023 06:41

Insights From a Model Portfolio Manager

Nick Zamparelli, senior VP and CIO of Sequoia Financial Group, shared some insights from one of Sequoia’s model portfolio. In terms of allocations, 25% is liquid fixed income, 38% is liquid public equities, and 36% is alternatives which includes private credit, private equity, hedge funds, and real assets. He credits Sequoia’s success to mixing in illiquid investments to boost risk-adjusted returns. 


In terms of his outlook, the biggest challenge is on the fixed income side and when to move from short-duration assets to longer-duration ones. Many have been stung by being too early in expecting the Fed’s hiking cycle to force the economy into a recession. Instead, the economy proved to be more resilient than expected and yields kept trending higher for most of the year until recently.


Regardless, he sees opportunities in fixed income given that yields are sufficiently elevated to offer diversification and attractive returns. Additionally, he sees the asset class returning to its traditional role as offering diversification against equities. 


In terms of equities, Zamparelli sees upside for small cap stocks given that they have recently underperformed but history shows outperformance over longer periods of time. Another area of interest is international and emerging market equities which have underperformed for the last 16 years. He believes these stocks will benefit if the dollar weakens.



Finsum: Nick Zamparelli, the senior VP and CIO of Sequoia Financial Group, shared some insights from managing a 50/50 model portfolio including thoughts on fixed income and equities.


Published in Wealth Management

The cryptocurrency industry stands on the precipice of a potentially pivotal moment, with several applications for crypto-based ETFs awaiting approval by the US Securities and Exchange Commission (SEC). Recent activities suggest the SEC is actively preparing to issue its decisions, potentially within the next few months.


The world's largest asset manager, including BlackRock, has expressed increasing confidence in the SEC's approval of their spot Bitcoin ETF applications, possibly as early as January 2024. While the outcome remains uncertain, the SEC's recent engagements with applicants and its compressed 21-day public comment window indicate a focused and potentially accelerated decision-making process.


These developments have fueled speculation in the market, with some attributing the recent rise in Bitcoin prices to the anticipated SEC decision. Others cite the upcoming Bitcoin halving event in 2024 as a contributing factor.


Regardless of the specific drivers, the next few months will likely greatly impact the cryptocurrency landscape. The SEC's decisions on these ETF applications could have significant implications for investor access, market liquidity, and the overall development of the crypto asset class.

Finsum: Anticipation for SEC's decision on crypto ETFs grows, hinting at major shifts in market access to crypto-based investment vehicles.


Published in Wealth Management
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