An ETF By Any Other Name

Here's your recap to a wild week in ETF-ville.

The other day I made a comment in passing in another post that there will be a Bitcoin ETF soon enough. Well, maybe not. It was widely reported that the SEC shut it down for now and so Van Eck, First Trust, ProShares, Direxion and RexShares all pulled their filings. Part of the surprise was that some of the filings were for futures based ETPs and that once futures started trading, which they did of course, those ETPs would get approved fairly quickly. That's not how it turned out for now.

I am disappointed that this is has been back-burnered. Generally speaking I am for putting anything into the market place as long as it can function the way it is supposed to. If a fund demonstrates it can track Bitcoin (futures or the actual tokens) then it is up to the investor who is interested in buying the fund to understand the nature of the underlying market, the mechanics of the fund and the general risk they are taking. I think my views are a little more Libertarian than where the industry is but it is up to the investor, or his adviser, to understand what they own.

Speaking of hot dot investment themes, the marijuana theme is evolving as some of the things I alluded to have since gone mainstream. The link in the last sentence was to a post I wrote about ETFMG Alternative Harvest ETF (MJX). I bought a few shares at $33.40 in one of my IRA accounts shortly after I published the post knowing the risks and still own the shares personally. There is too much going for me to put it in clients accounts.

The story is that because marijuana is not legal on a Federal level, it creates complications up and down the ETF chain, very notably for the custodian banks, or at least the banks are concerned that this creates a problem. ETFMG got around the problem by changing an existing fund from one theme to the marijuana theme. Got around the problem unless of course it ends up getting shut down.

Since I bought it, it went up a lot and then came back down in the last couple of days, closing today at $33.58. To my way of thinking, marijuana and CBD are life changing and will evolve into being very mainstream. The could happen with or without MJX but I am willing to go on what is likely to be a bumpy ride personally and if it ever makes sense for clients I will let you know. It is important to understand that if the fund closes, that is simply a nuisance not a wipe out of the investment.

Yet another hot theme that is about to be ETF-ized is blockchain. Two funds are due next week; Amplify Blockchain Leaders ETF and Reality Shares Nasdaq Blockchain Economy ETF. The reason I struck through the word blockchain is because both fund have to change their names to omit the word blockchain. It feels like the third Austin Powers movie, we mustn't talk about the Blockchain.

One consensus opinions around all of this is that Blockchain is the real deal but Bitcoin may not be. I saw a Tweet about Blockchain that said Blockchain is nothing without Bitcoin, it is what is in the (Blockchain ledger). If that is the conclusion you draw, then by all means stay away from the space but there are daily news stories about ways in which blockchain can be used in disparate industries to improve efficiency, it is simply the next step into how commerce will happen. At least I believe this to be the case. I will dive into the two ETFs when they come out but I am a believer in the concept and we'll see whether funds can be useful or not. Regardless of what the utility of the two ETFs is or isn't I will urge moderation in position sizing for anyone interested.

Also widely reported were more details on the changes coming to the telecom and technology sectors in September. If you missed it, the telecom sector will be reconstituted in September to have a broader scope and include names like Facebook (FB), Twitter (TWTR), Snap (SNAP) and Alphabet (GOOG). This will result in massive shift in sector funds and will potentially be a problem depending on what the ETF companies do. For most client accounts I use iShares US Technology ETF (IYW) for much of the tech allocation and Vanguard Telecommunications ETF (VOX) for much of the telecom allocation. If VOX picks up the names that leave IYW, different fund companies so we'll have to see, then there probably wouldn't need to be a trade made. If VOX does not pick up those names, selling the fund might be difficult in terms of capital gains for non-qualified accounts. An obvious work around would be to add an internet-themed ETF to capture the effect or add an individual stock or two to capture the effect. Hopefully the ETF providers will telegraph how they manage this well in advance.