Leveraged CLOs | Weekly Dividends | Selling Puts on Coinbase | Asia Pacific Defence | Digital Technologies
Ultumus has found five recent launches that illustrate various aspects of innovation in the ETF market, including leveraged structured credit, more frequent dividends, use of single stock options, a specific sector within a region and investing in innovative technologies. These products generally, but not always, have higher costs.
The active fixed income ETFs gathering the largest inflows have been in structured credit, where investors can now choose a leveraged ETF. In common with other CLO ETFs, Reckoner Leveraged AAA CLO ETF (RAAA) only invests in CLOs with the highest triple A credit ratings, which have never defaulted in 30 years. The difference is that Reckoner also uses leverage to increase income and the product makes monthly distributions. Reckoner is a new firm launched in October 2024 by fund managers from private equity firm RedBird Capital Partners. RAAA’s expense ratio of 0.30% is typical for a structured credit ETF, though leveraged ETFs in general report higher costs.
Roundhill has added to its range of WeeklyPay™ ETFs, which offer weekly dividend distributions linked to the share price moves. In July it launched products linked to Microstrategy, Microsoft, Avgo and Google, rounding out the existing range covering Apple, AMD, Amazon, Berkshire Hathaway, Coinbase, Robinhood, Meta, Netflix, Nvidia, Palantir or Tesla. The target is to provide 120% of the weekly performance of the individual stock purely by using leverage of 20%; unlike many other enhanced income ETFs they do not sell options. The expense ratio of 0.99% seems high for such a small amount of leverage.
Roundhill has trademarked WeeklyPay™ but there is nothing to stop other providers launching products that pay weekly dividends. GraniteShares YieldBOOST COIN ETF (COYY) combines three specialist sorts of ETF strategies: selling options to enhance income, leveraged ETFs, and crypto-related ETFs. It sells put options on the double leveraged 2x Long Coin Daily ETF, which aims to deliver double the daily price change in crypto broker Coinbase. The last weekly distribution of 84 cents represents an enormous 4% of the NAV, which reflects what traders are prepared to pay for options on Coinbase, but there is some downside risk if Coinbase crashes and the puts shoot up in value: the disclaimer warns that investors could lose 100% in a single day. The expense ratio of 1.07% is above average even for an option selling enhanced income ETF.
NATO and western oriented defence ETFs have attracted a lot of attention but investors may have overlooked the fact that Korean defence stocks – and KDEF, a pure play on South Korean defence – are up 100% this year after North Korea signed a mutual defence pact with Russia last year. HANetf’s new Future of Defence Indo-Pac ex-China UCITS ETF (QUAD) tracking a VettaFi index invests in countries such as India, Japan and South Korea that are raising their defence spending in response to China’s ambitions to expand its control over the South China Sea and elsewhere. The top holdings have a heavy weighting in South Korea, including Hanwha Aerospace, Hanwha Systems, Hyundai Rotem, LIG Nex1 and Korea Aerospace. A less well-known name is Australia’s drone detection and security firm, Droneshield, which makes DroneGun, DroneSentinel and DroneSentry. QUAD’s expense ratio of 0.59% is slightly below the average 0.67% for aerospace and defence ETFs.
Horizon Digital Frontier ETF covers a broad range of transformative digital technologies, including artificial intelligence, blockchain, quantum computing, and cybersecurity. Whereas other ETFs exist for investors who want to pinpoint any one of these Horizon aims to offer wider exposure to next generation technology. Its top ten holdings however are mainly the obvious mega cap tech stocks: Amazon, Alphabet, Meta, Broadcom, Oracle, Taiwan Semi, Palantir, Nvidia, Microsoft and Netflix. It remains to be seen how much value is added compared with a Nasdaq 100 tracker. The expense ratio of 0.75% is above average even for a sector specialist product.
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