ETF Prime: ARK, GICS, Bond ETFS, and Future Proof

On this week’s episode of ETF Prime, host Nate Geraci is joined by Lara Crigger, managing editor of ETF Trends and ETF Database, to discuss a grab bag of topics, including the challenges ARK has been facing, gold ETF flows, bitcoin ETFs, and what the GICS sector changes could mean for investors. Later, Dave Plecha, global head of fixed income at Dimensional Fund Advisors, discusses the company’s lineup of recently launched bond ETFs. The podcast is closed out by Matt Middleton, co-founder and CEO of Advisor Circle, and Josh Brown, CEO of Ritholtz Wealth Management, discussing the Future Proof event being held September 11–14, 2022.

The conversation opens by discussing ARK’s ETFs, the largest of which is down roughly 50% from its peak last year. Crigger discusses how growth stocks, such as the ones in ARK’s products, have faced challenges in the last 12 months, and notes that highly specialized tech funds in particular are facing difficulties in the current market environment.

“The funds that have dropped the most performance-wise have also shed the most assets, which means when they start outperforming again, we can probably expect [investors] are going to put assets back in,” Crigger explains.

Crigger goes on to discuss what is happening with the ARK Innovation ETF (ARKK B+), the attention it is drawing, and how the increased volatility it has experienced boils down to the popularity and visibility of the fund. This is exemplified with the Tuttle Capital Short Innovation ETF (SARK B), an ETF that takes an inverse approach to ARKK’s performance. It’s an approach that Crigger doesn’t believe would be successful based on any other fund or brand.

The SPDR Gold Shares ETF (GLD A-) had a record day of inflows in late January, bringing in $1.6 billion in flows as investors sought to hedge in an inflationary environment, preferring this particular gold ETF above most others. Crigger views this as a tactical investment, however, due to its extreme liquidity.

They also discussed the prospects for a spot bitcoin ETF (basically unchanged) and the proposed changes to the Global Industry Classification Standards (GICS) that would go into effect next year after industry feedback this year. A recent writeup on the GICS changes by Todd Rosenbluth explains that the changes would affect 28 different sector-based ETFs and would redefine companies such as Paypal, Visa, and Mastercard as financials instead of information technology businesses.

“If they do change over to financials, these three companies would be among the top 10 largest financial companies in the sector. That’s going to substantially change the portfolio,” of several different sector ETFs, changing their makeup and risk-return profiles, Crigger explains.

Dave Plecha, global head of fixed income at Dimensional Fund Advisors, now the largest active ETF issuer, was on next to talk about Dimensional’s four bond ETFs: the Dimensional Short-Duration Fixed Income ETF (DFSD ), the Dimensional Core Fixed Income ETF (DFCF ), the Dimensional Inflation-Protected Securities ETF (DFIP ), and the Dimensional National Municipal Bond ETF (DFNM ). When considering bonds within fixed income, DFA looks at expected returns based on term (the maturity of the bond), credit, and the currency that the bond is issued in.

Plecha explains that when the yield curve is up, DFA shifts its portfolios towards their upward, longer limit allocations, and when it is flat or inverse, it moves to the lower limit of what the fund allows. Within credit, in higher credit spread environments, the funds lean into more credit, and when credit spreads are narrow, they will underweight the higher credit end of investments.

Last up are Matt Middleton, co-founder and CEO of Advisor Circle, and Josh Brown, CEO of Ritholtz Wealth Management, to discuss Future Proof, the world’s first wealth festival. Middleton explain that the genesis for this event came from a combination of the changes that the pandemic brings to live events, the intersection of pop culture and investing, and the transference of wealth that is happening as aging money managers are retiring.

Talking about what a younger generation of investors and asset managers would be interested in, Brown says, “I think they want to hear about the cutting edge of fintech, they want to see new user interfaces for how they will work with their brokerage firm, with their advisor, with their asset manager. I think they’re interested in things like blockchain and decentralization,” and that this is a change that should be catered to.

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