Of all the new exchange-traded funds in the works, none may be more hotly awaited than those focused on Bitcoin.
Applications to list nine Bitcoin ETFs await approval from the U.S. Securities and Exchange Commission. If the SEC signs off, the first, from VanEck Associates Corp., could launch around Sept. 30, according to Bloomberg Intelligence senior ETF analyst Eric Balchunas.
Bitcoin ETFs could help the industry top the almost $500 billion in inflows it saw in 2020. Investors like ETFs because many are cheap, tax-efficient and, unlike mutual funds, trade like stocks. With mutual funds, trades are executed after the market close — they can’t be traded during the day. And ETFs cover virtually all asset classes, sectors and strategies, allowing investors to place all kinds of targeted bets.
Some of the hottest investments in 2020 were actively managed stock ETFs launched by Ark Investment Management star investor and founder Cathie Wood. Her $20 billion flagship ARK Innovation ETF (ARKK) and ARK Next Generation Internet (ARKW) ETF had triple-digit returns in 2020, thanks to concentrated positions in hot stocks such as Tesla. They’re both down year-to-date, however, while the S&P 500 index is up 10.9% as of May 4.
Speaking at the Bloomberg Wealth Summit this week, Balchunas flagged several ETFs to watch in 2021. Here are some of the ones Bloomberg Intelligence ETF analysts will be keeping an eye on as the year unfolds.
Bitcoin: The closest thing right now to a Bitcoin ETF in the U.S. is the monster $32 billion Grayscale Bitcoin Trust. “If and when a Bitcoin ETF launches, look for some people to leave GBCT or look for it to convert to an ETF,” Balchunas said. Grayscale Investments Trust LLC, the company behind the cryptocurrency trust, has said that it wants to convert into an ETF and recently took a stake in a little-known ETF provider, ClearShares. The Trust is the second-largest position in ARK Next Generation Internet after Tesla, at 5.3%.
ARK Innovation (ARKK): “This is a juggernaut and shows that if you really swing for the fences and hit a home run you can overcome the exodus of flows out of stock-picking funds,” Balchunas said. “The question is: Can they keep it up? When big flows come into a hot strategy, a lot of times it doesn’t really work as well after.” Wood keeps expanding her stable of ETFs, recently launching the Space Exploration and Innovation ETF (ARKX) and she is always one to watch, Balchunas said. On one day this April, even after a rough patch in performance, investors plowed $1 billion in one day into ARKK and ARKX.
Deep value: After years of so-called growth stocks (think: tech stocks) dominating stock market action, the value style of investing may be finally coming into vogue. Value-oriented ETFs focus on stocks considered undervalued relative to their assets, and some that buy stocks that may be even more undervalued than ones more mainstream value funds would buy are dubbed “deep value” ETFs. “We think the next ARKK could be a deep-value ETF,” Balchunas said. “If and when the value ETFs start popping, concentrated ETFs like the iShares Focused Value Factor ETF (FOVL) and the Roundhill Acquirers Deep Value ETF (DEEP) will pop the most, and will double or maybe even triple the performance of an ETF like the Vanguard Value ETF (VTV). We’re watching these for that value comeback.”
Within the value-oriented world of ETFs, Bloomberg Intelligence ETF analysts are monitoring ETFs that focus on small-cap value stocks. “With small-cap value being the most left-behind area, it may be the area to lead the value pack,” Balchunas said. “In the 2000s, small-cap value destroyed the S&P 500. We look for the small-cap value area as a leading indicator of whether there is a bigger regime shift and the SPDR S&P 600 SmallCap Value ETF (SLYV) is one we watch.”
The QQQs: Tech stocks have been the place to be, and that means that ETFs tracking the tech-heavy Nasdaq 100 index have been on fire. Invesco’s QQQ Trust ETF, which does just that, is one of the most popular ETFs in the U.S. The Invesco Nasdaq Next Gen 100 ETF (QQQJ) tracks “the next 100 stocks that are next on deck to go into the QQQ, so it’s sort of like the JV team,” Balchunas said. The ETF, launched in late 2020, has about $1.1 billion in assets. “This one has been a hit for obvious reasons, and it’s one we’re watching,” he said.
SPACs: The investment world is awash in special-purpose acquisition companies, or SPACs, which are throwing so much money at acquisitions that they’re making it hard for would-be acquirers like Berkshire Hathaway’s Warren Buffett to compete. A lot of people think of the Defiance Next Gen SPAC Derived ETF (SPAK) as the SPAC ETF. But the SPAC and New Issue ETF (SPCX) is the more pure SPAC play in that it holds only pre-IPO SPACs — micro-cap stocks before they announce what companies they will acquire, Balchunas said. It is the largest SPAC ETF, at about $133 million.
SPAK, at about $61 million, holds mostly post-IPO stocks. Thematic ETFs focused on areas including SPACs, robotics, fintech, cybersecurity and cannabis have attracted more than $170 billion in assets, according to Bloomberg Intelligence.