Personally, I've seen two major ETF development trends in recent years. The first was the explosion of thematic ETFs, tracking everything from electric vehicles, marijuana, space travel, genomics, robotics, and even specific YouTube personalities like MeetKevin. For new investors, these ETFs have offered an easy gateway into investing, given that the layperson can now invest based on an idea.
The latter, and arguably more sophisticated trend, is the increasingly large number of ETFs which offer retail investors access to advanced, previously institutional-level strategies. These ETFs have their roots in the leverage mutual funds of the 2000s but have morphed into a wide range of products, dealing with everything from covered calls, to VIX futures, to "portable alpha/return stacking", etc.
A great example of the second trend that I'd like to highlight is the recent ETF / ETN launches from Global X ETFs and RexShares respectively. Their lineups target different strategies and holdings but share a common theme – they provide retail investors with access to sophisticated strategies and exotic assets normally not seen in your average index ETF. Let's break them down.
Global X ETFs
Global X is a large player in both the thematic and income ETF space. When it comes to the latter, the firm offers a large array of covered call ETFs. A notable fund in their covered call lineup is the Global X Nasdaq 100 Covered Call ETF (QYLD), which is so popular that it even has its own Reddit community.
To capitalize on the recent surge in ESG ETF launches, Global X announced two new ETFs in late February 2023: the Nasdaq 100 ESG Covered Call ETF (QYLE) and the S&P 500 ESG Covered Call ETF (XYLE), the latter of which trades on NYSE ARCA. This launch targets yet another subset of investors: ESG-conscious investors who are hungry for yield.
The ETFs are fairly simple to understand – both ETFs take their respective parent indexes, incorporate a series of ESG screens, rank stocks in their respective sectors by ESG scores, and select them from the top-down, targeting 75% of the stocks in each sector, which are then weighted by market cap overall.
According to Global X, this screener causes some changes. Notably, both ETFs are overweight in information technology sector stocks, and underweight in energy, utilities, and industrials. This is fairly typical when it comes to ESG ETFs due to the nature of the screening criteria used.
Like QYLD, both QYLE and XYLE produce higher yields via a covered call overlay. Global X's preferred method for these funds is systematic, writing at-the-money calls on 100% of the portfolio's holdings. There are some differences between the ETFs due to the unavailability of ESG index options for QYLE.
RexShares
On the other hand, RexShares launched two new ETNs linked to the performance of the popular SPDR® Gold Shares ETF (GLD). The two new ETNs are the MicroSectors Gold 3x Leveraged ETNs (SHNY) and MicroSectors Gold -3x Inverse Leveraged ETNs (DULL), and both are currently trading on NYSE ARCA.
SHNY and DULL offer investors leveraged exposure to gold, a role previously filled by the ProShares Ultra Gold ETF (NYSE:GLD) (UGL). The difference is that both of the RexShares ETNs provide 3x daily leveraged exposure, while UGL only provides 2x daily leveraged exposure. Right now, both ETFs are charging a 0.95% expense ratio, which is in line with existing leveraged commodity ETFs.
"We focus on creating trading products for sophisticated investors," says Scott E. McKenna, Vice-President at RexShares. "SHNY and DULL are not buy-and-hold products, they are designed for sophisticated investors looking to express a short-term bullish or bearish view on the price of gold bullion," McKenna says.
In my opinion, the RexShares ETNs are fulfilling a niche left open by the delisting of the VelocityShares 3x Long Gold ETN (UGLD) and VelocityShares 3x Inverse Gold ETN (DGLD) in July 2022. While 3x ETNS are highly risky, they offer a more capital-efficient and accessible way of gaining leveraged exposure to gold without trading futures or options.
This content was originally published by our partners at ETF Central.