In a recent sit-down with ETFdb.com, the Founder and CEO of GraniteShares, Will Rhind, discussed GraniteShares’ lineup of ETFs. We discuss GraniteShares’ commodity ETF lineup as well as how they are different from traditional commodity ETFs. Will also discusses why he believes gold is a hedge against inflation and a true store of value as well as why gold investing can help investors’ protect portfolio returns.
ETFdb.com (ETFdb): Please tell us a little about yourself and the career trajectory that led you to founding GraniteShares. Why did you decide to launch your own company? What does it take to start an ETF company?
Will Rhind (W.R.): I’m originally from Scotland, though I currently reside in New York City. I have spent 16 years in the ETF industry having started my career with iShares. I then moved onto ETF Securities, and lastly became the CEO of GLD before starting GraniteShares. In that time, I’ve worked in both the European and U.S. ETF markets. I’ve always wanted to set up my own business and decided that last year was the right time to do that. There was a big gap in the market; investors were calling for lower cost, better-structured commodity products. We decided to step in and provide that solution. Having experience in the industry, we knew that ETFs were (and are) the wrapper of choice in asset management. This is where we believe the majority of fund flows will go in the next 10 years and we want to be a catalyst for change.
With regards to what it takes to start an ETF company, you have to have great ideas and a lot of determination. Assuming you have those, you then need capital. The barriers to entry are high as this is a highly regulated industry. There is a steep cost to set up the infrastructure and run the funds. We’re fortunate that we were able to attract the attention of Bain Capital Ventures and, therefore, have a blue-chip backer for our business.
ETFdb: What is GraniteShares’s overall strategy in the ETF space? Why do you see room for growth in commodities?
W.R.: Overall, our strategy is to offer best-in-class products that really solve problems for investors – be it lower cost, superior structure or new investment ideas that have not been seen before.
We see room for growth in commodities because, collectively, they are a major asset class trading below their all-time highs. Commodities are also cyclical, having been in a bear market since 2011. We believe the cycle is turning and, if prices stay the same as where they are now or rise, we’ll have two back-to-back years of positive returns for broad commodity indices.
ETFdb: What are some of the advantages and disadvantages of allocating a portion of an investor portfolio in commodities? What is the biggest misconception that investors have surrounding commodity ETFs?
W.R.: The advantages are that you have a major liquid asset class with a low correlation to equities and bonds. Commodities are a way to hedge against inflation and diversify a portfolio. Gold, for example, is a crisis hedge in times of distress and has a very low market correlation. Like any asset class, prices go up and down. Commodities are cyclical and they can also be volatile. Therefore, they should be part of a long-term strategy.
With regard to misconceptions – and this is beyond just commodities – it is often assumed that liquidity can be an issue for a fund that doesn’t trade a high volume of shares daily. In the case of commodities especially, this is wrong, because commodities themselves are very liquid underlying assets. The liquidity of any ETF should be that of the underlying asset class upon which it is based.
ETFdb: GraniteShares has two commodity ETFs – the GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (COMB) and the GraniteShares S&P GSCI Commodity Broad Strategy No K-1 ETF (COMG). Tell us more about these ETFs. What inspired the creation of these ETFs? What are the differences between the two ETFs?
W.R.: We decided to create these ETFs to solve two critical issues that have plagued commodity investors for years: high management fees and imperfectly structured funds. COMB and COMG are the two lowest-cost ways to invest in the Bloomberg and GSCI commodity indices respectively – both of which are flagship benchmarks in the commodity world. The Bloomberg Commodity Index caps each sector at 33 percent and no individual commodity can be weighted at more than 15 percent. The GSCI Commodity Index, on the other hand, is production weighted, so energy is the largest component. Think of COMG as potentially a better inflation hedge due to its energy tilt. COMB may be better from a diversification perspective due to its more disciplined approach. Both products are K-1 free making them much easier to manage from an administrative perspective around tax time.
Compare and contrast commodity ETFs such as the GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (COMB ) and the GraniteShares S&P GSCI Commodity Broad Strategy No K-1 ETF (COMG ) using our Head-to-Head Comparison tool. Analyze the ETFs on a variety of criteria such as performance, technicals, AUM, expenses, trading volume and more.
ETFdb: What type of investor should hold each of the COMB and COMG ETFs?
W.R.: Any investors looking to add commodities to their portfolios for diversification from the equity and bond market. The funds are relevant for all types of investors – retail and institutional alike.
ETFdb: Do you think that gold is a long-term currency hedge? What are the benefits of having exposure to gold in an investor’s portfolio? What type of investor should hold the GraniteShares Gold Trust ETF (BAR )?
W.R.: Yes – gold is the oldest form of money the world has. It has been a long-standing hedge against the U.S. dollar and can be very effective. Gold is uncorrelated to equity and bonds. Gold is also one of the highest-quality liquid assets in the world as it has no counterparty or credit risk. It is a hedge against inflation and true store of value.
An ideal investor who should hold the GraniteShares Gold Trust ETF (BAR ) would be someone looking to hedge against a market correction, a weakening dollar and/or inflation. Ultimately, this is someone who is looking to preserve wealth – be it a retail investor or an institution.
With geopolitical risk rising in today’s market environment, read How to Invest in Gold: Physical vs. Miners ETFs and use gold to diversify your portfolio returns. For a full list of Gold ETFs, click here.
ETFdb: What makes an ETF succeed or fail in this crowded marketplace?
W.R.: ETFs need to add value and resonate with investors. There are many ETFs available so they need to help people make smarter investment decisions. For advisors, they need to demonstrate value to their clients so saving them money is a good way to be better fiduciaries.
ETFdb: What are the three biggest current trends in the ETF space (eg. fee wars, more ETF proliferation, etc.)?
W.R.: Firstly, we’re seeing a lot of interest in ETFs that invest in uncorrelated asset classes such as commodities and alternatives like bitcoin. Secondly, more channels and advisors are using ETFs. Finally, the race is to zero. ETF companies have to compete on price and we feel we are doing that with our low-cost commodity ETFs.
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The Bottom Line
GraniteShares created the (COMB ) and (COMG ) ETFs to solve two critical issues that have plagued commodity investors for years: high management fees and imperfectly structured funds. GraniteShares believes that gold is an effective hedge against inflation, and investors looking to hedge against a market correction, a weakening dollar and/or inflation should have exposure to gold via the GraniteShares Gold Trust ETF (BAR ).