ETF Prime: Popularity of Active Management, Cannabis ETFs and Income Alternatives

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

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

Geraci believes the way forward for active funds lies in a more focused, focused approach, the ARKK and funds like them Davis Select US Stock ETF (DUSA) take.

“I agree with you that there is room for growth within the concentrated portfolio approach; those advisors who want to add some sizzle to a core portfolio that might be passively managed with three products based on the S&P 500 index at three basis points,” says Rosenbluth. “They want something more focused; you want that belief.”

More issuers and companies are looking to launch active ETFs this year, and Rosenbluth believes this will lead to even more choice, but that issuers will need to execute their strategies and beliefs to justify the higher premiums. In an informal poll conducted by Geraci, over 60% of respondents said they would like some form of active management in either equities, fixed income or both, underscoring interest in the current market environment.

Rosenbluth switches to discussing cannabis funds and explains that despite being over 1,000 basis points behind, the AdvisorShares Pure US Cannabis ETF (MSOS) has experienced net inflows and interest from investors.

“There’s no shortage of products,” Rosenbluth says of the numerous cannabis funds currently available. Instead, the question becomes, “Is there enough demand to pick investors up where they are?”

Cannabis ETFs and income generating

Next, Morgan Paxhia, co-founder and chief executive officer of Poseidon Asset Management, talks about Poseidon’s entry into cannabis investing. Poseidon was the first to launch a cannabis ETF AdvisorShares Poseidon Dynamic Cannabis ETF (PSDN).

“We’re on a great path as an industry and her vision is amazing to see that and together we’ve accomplished some things and I feel like we’re just beginning as an industry,” Paxhia says.

PSDN is actively managed and seeks to provide retail to institutional investors with access to the cannabis market and its potential for growth. The fund is leveraged and uses swaps, a unique investment approach that Paxhia says will become increasingly useful once the cannabis market emerges from the bear market it’s been in, as more states open up laws to cannabis use.

Finally, David Miller, Co-Founder and CIO of Strategy Shares, talks about the Strategy Stocks Nasdaq 7HANDL Index ETF (HNDL), which is targeting an annualized distribution yield of 7%. The fund does this through a fixed allocation core portfolio that is split half between equity exposures and half between bonds to deliver what Strategy Shares believes are the best risk-adjusted returns.

“The big problem with 60/40 is when you come across one of those years where stocks slam but bonds fly, like 2008 or March 2020, you quickly find that your 60% stocks and equities double are as volatile as bonds, that’s actually a portfolio with about 80% equity risk,” Miller explains.

The other half of the portfolio is managed by Nasdaq and Dorsey Wright, who use tactical models to perform well in different environments. The fund focuses on risk-adjusted returns over time and targets a return of 7%.

Listen to the entire ETF Prime episode with Todd Rosenbluth:

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