Prime ETFs: popularity of active management, cannabis ETFs and income alternatives


On this week’s episode of ETF Prime, host Nate Geraci is joined by Todd Rosenbluth, Head of Research for ETF Trends and ETF Database, to discuss the growing popularity of actively managed ETFs and the state cannabis ETFs. Later, Geraci is joined by Morgan Paxhia, co-founder and managing director of Poseidon Asset Management, who talks about their cannabis fund, the AdvisorShares Poseidon Dynamic Cannabis ETF (PSDN). Then David Miller, co-founder and CIO of Strategy Shares, is the last to discuss the Nasdaq 7HANDL Index ETF (HNDL) Equity Strategy.

Rosenbluth explains that for the first quarter of 2022, active ETFs made up about 4% of the ETF market but generated 11% of net inflows, almost tripling their market share. The pair discuss Cathie Wood’s appearances at the recent ETF Exchange conference in Miami Beach, Florida last week, as well as her explanation and defense of ARK’s investment approach and thesis for their flagship fund, the ARK Innovation Fund (ARKK).

Geraci believes that the way forward for active funds lies in the more targeted and concentrated approach that ARKK and funds like the Davis Select US Equity ETF (DUSA) to take.

“I agree with you that there is room for growth in the concentrated portfolio approach; those advisors looking to add spice to a core portfolio that is perhaps passively managed with products based on the three-basis-point S&P 500 Index,” says Rosenbluth. “You want something more focused; you want that belief.

More issuers and companies are increasingly looking to launch active ETFs this year, and Rosenbluth believes this will lead to even more choice, but issuers will need to make their strategies and convictions to justify the higher premiums. In an informal poll conducted by Geraci, more than 60% of respondents said they wanted some form of active management within equities, fixed income or both, underscoring interest in current market environments.

Moving on to the discussion of cannabis funds, Rosenbluth explains that despite being behind by more than 1,000 basis points, the AdvisorShares Pure US Cannabis ETF (MSOS) saw strong inflows and investor interest.

“There is no shortage of product,” says Rosenbluth, speaking of the many cannabis funds available today. Instead, the question becomes, “Is there enough demand to meet investors where they are?” »

Cannabis ETFs and income generation

Next is Morgan Paxhia, co-founder and managing director of Poseidon Asset Management, to talk about Poseidon’s entry into cannabis investing. Poseidon was the first to launch an ETF on cannabis, AdvisorShares Poseidon Dynamic Cannabis ETF (PSDN).

“We’re on a great trajectory as an industry, and her vision is amazing that she’s seen that, and together we’ve executed quite a bit, and I feel like we’re just getting started in as an industry,” Paxhia said.

PSDN is actively managed and seeks to provide retail investors access to the institutional cannabis market and its growth potential. The fund is leveraged and uses swaps, a unique approach to investing according to Paxhia, which will be increasingly useful once the cannabis market moves beyond the bear market it was in as more and more more states are opening cannabis consumption laws.

Last up is David Miller, co-founder and CIO of Strategy Shares, to discuss the Nasdaq 7HANDL Index ETF (HNDL) Equity Strategy, which targets an annualized distribution yield of 7%. To do this, the fund uses a fixed allocation core portfolio split half between equity exposure and half between bond exposure to provide what Strategy Shares considers to be the best risk-adjusted returns.

“The big problem with 60/40 is that when you hit one of those years where stocks are criticized but bonds are flying, much like 2008 or March 2020, you quickly realize that your stocks are 60% and stocks are twice as volatile as bonds, it’s actually a portfolio that has about 80% equity risk,” says Miller.

The other half of the portfolio is made through Nasdaq and Dorsey Wright, which use tactical models to perform well in various environments. The fund focuses on risk-adjusted returns over time while seeking to provide a 7% return.

Listen to the full ETF Prime episode with Todd Rosenbluth:

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