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Consumer staples are what investors buy when they want nothing much to happen. Bank of Montreal has now issued notes that make nothing much happen three times as fast, in either direction.
MicroSectors 3x Long and –3x Short Consumer Staples (XLP) ETNs (XLPU and XLPD, Cboe BZX)
The staples sector is the stock market's waiting room. Supermarkets, soft drinks, washing powder, toothpaste. People keep buying these things in a recession, so the shares hold up when everything else falls, and the sector is chosen precisely because it has no thrills.
These notes track a VettaFi index whose only job is to follow the State Street Consumer Staples Select Sector SPDR ETF, ticker XLP. So the underlying is an index of an ETF, the wrapper is a note on that index, and the tickers are the ETF's own three letters with a U or a D on the end. Every day the exposure resets to three times long or three times short. Whichever way you think the price of mouthwash is heading, there is now a ticker for it.
Here is the part that gives the idea more credit than it first appears to deserve. The thing that slowly destroys daily-reset leverage is volatility. The more the underlying swings, the more the compounding works against the holder. Staples swing less than almost anything else on the equity menu. If you are determined to triple something every day, the dullest sector in the S&P 500 is mathematically the least self-harming place to do it.
I recently wrote that the MicroSectors shelf had stopped holding views and started holding every view. This batch confirms it. The staples pair arrived on the same day as a matching pair on communication services (XLCU and XLCD), the sector that contains much of the internet's advertising business. The most defensive corner of the market and one of the most excitable were geared up together, both ways, by the same desk.
The notes are senior unsecured obligations of BMO, so the bank's credit is part of the trade, and they run for twenty years. The issuer's own disclosure says they are not suitable for anyone planning to hold them for more than a day.
XFUNDS Large Cap Income ETF (VOOY, NYSE Arca)
Read the ticker slowly. Then look at the top holding, which is the Vanguard S&P 500 ETF, ticker VOO, at around 99% of the fund.
So this is an actively managed fund that holds VOO and trades option spreads around it, charging 0.75% a year. VOO costs 0.03%. That puts the wrapper at roughly twenty-five times the price of its contents, and the extra pays for the options overlay. The issuer's own marketing invites investors to “VOOY and chill”, which deserves some credit for honesty about how much attention the strategy expects from its owners.
The pattern is deliberate. The same filing names three siblings, VUGY, VTVX and VGTX. Anyone who has looked at a Vanguard price list will recognise VUG, VTV and VGT underneath them. The range has borrowed the house's best-known tickers, added a letter, and put the option strategy in the gap. A later filing amended the options strategy almost as soon as the prospectus was printed. That is what happens when a range is still deciding exactly which spreads it means to sell.
For anyone maintaining a security master, the risk is not the strategy. It is fuzzy matching. A system that matches on ticker prefix will eventually decide VOOY is a share class of the largest asset gatherer in the industry. It is not. It is a separate fund that happens to own one of its ETFs.
800VDC AI Datacenter Ecosystem ETF (HUMM, NYSE Arca)
I recently suggested there was nothing below the ceramic capacitor for the AI trade to reach. I was wrong about which way to look. The next fund is not named after a smaller component. It is named after a voltage.
Harbor's new fund invests in companies positioned for the move of AI datacentres from legacy low-voltage power to 800-volt direct current. That covers power semiconductors, switchgear, power conversion, voltage regulation and, yes, “connectors, passive components, and isolation technologies”. The capacitors are back, this time as part of an electrical standard.
The prospectus is refreshingly direct about the bet. The thesis “depends on widespread adoption of 800VDC power architectures in datacentres, which may be delayed, slower than expected, or may not occur at all.” It also warns that hyperscalers may spend their money on “other perceived bottlenecks” instead. Hold that phrase for the next section.
It is actively managed, holds 20 to 50 names, and charges 0.49%. The ticker is HUMM, the sound a transformer makes, which is the most quietly accurate ticker choice I have seen in some time.
xETFs AI Bottlenecks ETF (NECK, NYSE Arca)
Hong Kong already has an index fund named after an AI bottleneck. New York now has an actively managed one, and it has thought harder about the problem.
The core of the fund is companies whose products are sold out, backlogged or committed: memory; optics and networking; power and infrastructure; semiconductors and compute. Each sub-theme requires at least half of revenue, operating profit or assets to come from that activity. 15 to 25 names, 0.75% a year, with swaps where local market access is awkward.
Then comes the clever part. Up to 20% of the fund can go into “Future AI Bottleneck Companies”, which the prospectus defines to include companies “whose products are designed to relieve an existing or expected shortage”. So the fund can own the bottleneck and the company paid to remove it. If the shortage persists, the first sleeve wins. If it is solved, the second one might. It is less a thematic fund than a fund that has hedged its own theme.
The prospectus also notes that the sub-adviser “is a newly created entity and has a limited operating history”. That is one more constraint in a fund full of them, and one it cannot buy its way out of. The ticker is NECK, as in bottle, and as in what investors are sticking out.
Global X Space Tech UCITS ETF (LUNA, SIX Swiss Exchange)
A pure-play space fund has now reached Zurich. The index wants companies earning at least half their revenue from launch, satellite communications, space technology or exploration, and lets existing members stay down to 40%. The fee is 0.50%.
The tickers are the interesting part. In London the fund trades as LUNR, which on Nasdaq is the ticker of Intuitive Machines, the lunar lander company that sits in the holdings of the fund's US sibling. In Zurich, Milan and Frankfurt it trades as LUNA, which crypto investors will remember as the name of the token whose collapse wiped out tens of billions of dollars almost overnight. One fund, several tickers, and the two most prominent are each already attached to something else.
Vanguard Global Core-Plus Bond ETF (VCOR, Toronto Stock Exchange)
And then, quietly, Vanguard's first actively managed bond ETF outside the United States.
It holds a “core” of investment-grade global bonds and a “plus” sleeve of higher-yielding paper. In practice the Canadian fund invests in Vanguard's US-listed Core-Plus Bond ETF and hedges the US dollar exposure back to Canadian dollars. The management fee is 0.25%.
Note the shape, because it matches VOOY further up the page. Both are one ETF wrapped around another. One adds an options overlay and a fee twenty-five times that of what it holds. The other adds a currency hedge, so that a Canadian saver owns a bond view without picking up a dollar view by accident. Same plumbing, opposite instincts. The products that cost the most to explain are rarely the ones doing the most useful work, and this one will simply sit in thousands of retirement accounts, paying coupons in the right currency, without anybody thinking about it at all.
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