October 10, 2024 • 28 mins
Derivatives-enhanced exchange-traded funds have become a hit with retail investors. There’s been more than 160 such launches so far this year, with monikers such as “laddered buffer” and “covered call,” and they’ve attracted $50 billion and counting. While many of the products were designed to protect from downturns, some include options that can generate cash, which comes back to investors in the form of dividends. (Did someone say “yields”?)
On this episode of Trillions, Eric Balchunas and Joel Weber speak with Denitsa Tsekova and Vildana Hajric, Bloomberg cross-asset reporters who wrote a recent feature story about this new retail boom. The group is also joined by Todd Akin, a retail trader behind the Unconventional Wealth Ideas YouTube channel and one of the characters in their story. They discuss why these ETFs have become so popular, how they work—and what the risks are.
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Episode Transcript
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Speaker 1 (00:05):
Bok No Trillions. I'm Joel Webber and.
Speaker 2 (00:07):
I'm Eric Balchunis.
Speaker 1 (00:12):
There is this headline that jumped out at me the
moment I saw it. It was a big take from
our colleagues Danizza Takova and Veldonajdrik. It describes something called
a quick buck ETF and that immediately made me go,
we got to talk to them and a character in
(00:32):
the story, but you know, set the table for us.
What is a quick buck ETF? According to Eric Baltunis, well.
Speaker 2 (00:40):
Look, over the years, there's been a sort of movement
to launch kind of unusual products. So try to get
very creative for the ETF industry. Why the core of
the portfolio? A lot of people go to like cheap
index funds and you can't really compete there. What are
you gonna do? Launch like a two basis point SMP
five hundred, hang Guard and Blackrock own the core. So
(01:02):
what a lot of issuers are doing is trying to
innovate their way to something different and new. Some are
innovating on the buffer side to sort of ease worry
for older investors, and some are innovating to try to
appeal to younger investors and retail investors who may favor
income over total returns or in some cases a lot
of leverage. We call it packaged adrenaline. So on that front,
(01:24):
we have this, you know, sort of phrase we call
hot sauce, and we have there's like six different flavors
of hot sauce, and one of them are these I
call them yield boost that's the brand name of one
of them. But the yield Boosters, this one firm went
from like no money at the beginning of the year
to like four billion, and every product has inflows and
they just write call options barely out of the money,
(01:45):
so you give up almost all your upside, but you
get a giant fat yield. So some of them yield
over one hundred percent. So it's just another example of
how the ETF industry is a big tent serving many
different people, and this is one sort of evolution in
what I call the hot sauce bucket.
Speaker 1 (02:06):
We're going to be speaking with Denisa and Veldona, our
cross asset reporters with Bloomberg News, as well as one
of our sources, Todd Can. You can find him on
YouTube at Unconventional Wealth Ideas, this time on trillions quick
buck ETFs. Deniza Veldonna Todd, Welcome to Trillions.
Speaker 3 (02:29):
Thanks for having.
Speaker 4 (02:29):
Me, Thanks for having me, thanks for having us.
Speaker 1 (02:32):
Okay, Denise, I want to start with you. How did
you spot what became this story?
Speaker 4 (02:39):
Well, we saw we look at Reddit, and we look
at one of the firms, field Max, which Eric mentioned earlier,
and he'd already had ten thousands readitors tweeting about it
every day, talking about it every day. And then we
looked at the inflows and the growth was incredible. Just
to give you an example, their first CDs was just
(03:00):
two years ago and this year they launched nearly twenty
products anything you can imagine. They have single stock products,
they have inverse in those talk products that generate income,
and then we realized that there is a much broader
universe there. First, they charge us higher than average fees.
We often see fees in the range of one percent
(03:21):
in those products. So we saw a lot of new
issues being part of that movement. We looked at the
data and actually at the broader universe of the rialties
and enhanced product We saw over one hundred and sixty launches,
which is a record high. We looked at the assets
under management and it's just the growth is so rapid.
(03:42):
It reached three hundred billion, and just five years ago
it was like fifty billion. So the more you looked
into the space, the more you found the social media marketing,
the long YouTube videos, like a whole universe of people
that engage into this community daily that call it a
yield community that you know, there are hundreds of products
(04:04):
they talk about and compare and discuss. So it's really
something that's been growing by the day. We run the
data at the beginning of the story, and we pretty
much had to update it every day because there were
so many launches coming. Some of them had like twenty
five products in them. So it's just like insane amount
of products that are coming to the market at a
(04:25):
very rapid base.
Speaker 1 (04:26):
Okay, well, Dona tell us more about what the products
are and what an investor might hope to accomplish with them.
Speaker 5 (04:34):
So, as the NITSA mentioned, there's more than one hundred
and sixty new ones just so far this year, which
is a record high for the number of new We
call them in the story derivatives enhanced exchange traded funds.
You can divide them, as Eric does, into a number
of different categories. We focused on two main categories in
the story. One is the ones that have like the
(04:57):
options overlays that then have these hefty yields, these hefty payouts,
and another one is the single stock version, so those
are levered or inverse funds that focus on just one company.
One of the most popular ones is based on Navidia
No Surprise. This year, and we mentioned in the story
(05:19):
its assets grew from like two hundred million at the
start of the year to five billion dollars currently, So
just a tremendous amount of money is going towards anything
that can sort of catch people's attention these days. Obviously,
then Navidio one is actually a really good example because
Navidia has the stock itself has been doing so well,
(05:39):
and so then what people do is turn towards some
of these ETFs that can amp up these returns and
just juice things up even further and make things more exciting.
Speaker 2 (05:50):
And a lot of the launches are because you've got
to cover all these stocks, so there's going to be
like dozens and dozens of these over the years. I
think Granted Shares has a filing to do this sort
of yield boost thing. I think their firm is called
yield Boost yield Boost, Yes, and they're going to do
like three x q's yield boosts. So they're gonna do
(06:10):
yield boost thing on something already really boosted. And I
also noticed something funny about this. In Canada, there's an
issue called there's an issue called Yield Maximizer, and their
product line was Yield in all caps, but then Maximizer
was in capital M and then lowercase, and they had
an official name change for all their funds. And normally
when you see that the name changes like dramatically or substantially.
(06:33):
They just wanted to capitalize maximizer, so they and that's
what I got a feeling that there's this like sort
of race to package and push the envelope. I think
of that top gun meme need for speed. You know,
there is just a market for volatility, big numbers, and
(06:54):
it's a you know, largely retail traders who are looking
for this.
Speaker 1 (06:58):
Okay, speaking of retail trader, so I'm going to bring
Todd Akenn here. Todd, you are a retail trader and
you have a growing YouTube channel. Talk to us about
how you got into this specific type of ETF.
Speaker 4 (07:12):
Yeah.
Speaker 3 (07:12):
Well, thanks for having me everyone once again. And well,
when I started Unconventional wealth Ideas, I was investing in
the more traditional kinds of ETFs, and then subscribers would
bring yield max and these other ideas to me, and
then I realized that not only is it a way
to get more attention of my videos, but I thought, well,
(07:34):
maybe there's a way to actually make this investment viable
and work for everyone. And so it doesn't really work
for others because they don't really play them right. But
if you use them properly and you blend them with
other ETFs that give you the growth so you don't
have as much nabdicate, then you can kind of get
an overall blend of ETFs that help you outperform the market.
Speaker 1 (07:58):
Talk to us about the specific products that you've used
and what kind of experience you've had.
Speaker 3 (08:06):
Yeah, well, the first ETFs that came out were Tesla,
and you know the more popular stocks that everyone trades,
Tesla and Video. So we had Tesley and vide and
Tesla was struggling with its stock price. So tes Lee
was not liked by many people in the community. They
kept saying, the nab erosion is so bad. And how
(08:29):
are you ever going to get back to even on this,
you know, with this investment. But I'm always from the
camp that if you hold your dividends long enough, you'll
eventually cash flow. But the key with Tesli is that
you can't live out of it because if you're trying
to live out of Tesli and live free from your
nine to five with things like Tesli, well, that obviously
has too much volatility. It drops, it can be a
(08:50):
widow maker in your account by itself. And so you know,
you don't want to have too much stock exposure anyway
with any one stock. You want to stay with the indexes.
So Tesla just had bad luck, you know, and share
prices down. So Tesley was was not a favorite for others.
But if you hold it long enough, you'll come out
on top, you know, if you hold it long enough.
(09:12):
And so that's my belief is well, cash flow eventually,
but in the meantime, in the meantime, how can you
still get performance and not only outperform the markets, but
withdraw freely out of your account without it cannibalizing your account.
So we combine it with other yield max ETFs that
actually grow, you know, some other yield Max stocks have
been doing doing well. In VIDI was doing well. It
(09:33):
was moving upward left right on its chart, so even
though it was it had a huge dividend, you're still
getting some growth. So people were really happy with NVIDI,
not happy with Tesli, and I just started, you know,
diversifying my portfolio out with the you know, Amazon's apples
of the world through yield Max, and then they came
out with their fund of funds, which helped give a
(09:55):
little bit more diversification and stability with volatility, but still
that it wasn't quite enough to live out of your
account with. You have to combine it with some of
these other funds that have come, you know, out to
the market. Now. Like you know, y'all mentioned yield Boost,
there's also defiance and rec shares and stuff like that,
which all help balance out your portfolio a little bit better.
Speaker 4 (10:17):
And I think something that Total also mentioned there is
such a wide variety of products. And we talked a
lot about the smaller firms that have been around for
just a few years. But for example, one of the
biggest products is coming from JP Morgan Acid Management, and
during twenty twenty two, that product actually worked quite well.
(10:37):
There's obviously a massive sell of and due to the
covered code nature, they manage to outperform the SMP and
Acid jumped to seventeen billion. I think they kind of
tripled in twenty twenty two, which you know was a
year when people were staying away, you know, staying in cash,
(10:58):
being careful and JEPI got that popularity. So we have
those big players actually running some of the biggest products now.
Is thirty six billion obviously really really big TTF, A
lot of options, people are writing about it whatever it's rebouncing,
so it has its own power and importance in the market.
(11:20):
Goldman is also having similar products. A lot of the
big issuers are working on them, whether it's Buffer, whether
it's covered CO. They're less likely to engage with retail,
even though we've seen some of the portfolio managers like
Hamilton Reiner, you know, I've seen a few videos of
him on YouTube engaging with some of them. But it's
(11:42):
really those mainstream products like eield Max, like Tidal, they're
really encouraging that interaction with retail traders. And something they're
saying is a lot of maybe the big names like
JP Morgan and you know, big financial institutions are maybe
underestimating retail traders. You are not going directly to them,
(12:05):
so they find this is a way to market and
reach a new audience. And indeed they're seeing big impact
from it. After each video they appear, they're saying, oh,
we're seeing more inflows after we go on YouTube. So
it tells you a lot about how the ETF industry
is changing.
Speaker 2 (12:28):
Jeffy, which is the JP Morgan equity premium income, I
would call that more conservative. That's writing call options way
out of the money, right, so you get some upside,
you get a little income like eight nine percent. As
you said, those I think are really appealing to older investors,
but some younger One guy on our team we call
him Jeffy. Jackie loves that ETF and I likes JEFFQ.
(12:51):
But I think what the yield Max and yield Boost
people did to say, oh, that's an interesting idea, but
why don't we write calls right here? Or why don't
we do a straddle? And this is how the ETF
industry progresses. Like the first smart beta ETF was very general.
Let's wait by price to earnings and we're screened by that,
and then all of a sudden, you get ones that have, like,
(13:11):
you know, twenty five different criteria. Now, so when it
comes to these ETFs, I want to ask Todd a
question about this. If you buy Tesla Tesla tsly, that's
the one that writes call options just out of it,
are you making a call that Tesla won't go up
because you are giving up a lot of your I
(13:33):
mean almost all your upside so you do get this dividend,
so I guess you have to believe Tesla's not going
to go on some big run. And then the second
thing is dividends are taxes ordinary income. I was having
a conversation with someone says, actually might be more tax
efficient to take a stock you've held for a year
and just sell small increments of it and almost pretend
(13:55):
that's your dividend to be tax less. What do you
think about both those?
Speaker 5 (13:59):
Todd?
Speaker 3 (14:00):
Yeah, Well, so they have vehicles that they combine, you know,
you can combine with the test lead to get your upside,
like a t SLL. I don't know if that's granted shares,
but y'all were mentioning yield boost before, and so there
are vehicles that you can use to get your upside.
I mean me myself. I will buy a little bit
of Tesla stock or sell put options on Tesla to
(14:24):
get more upside appreciation and lower my risk a little
bit there, and then I'll buy test Lead just for
the income. And obviously my big thing at my channel
is I stick with the index. Is where Tesla is
a large part of let's say the nasadack, it's a
pretty good chunk of it. So I don't mind putting
the most the bulk of my money in things like Cornerstone,
(14:47):
which is you know, like JEPI is one of my
one of my favorites. That's a that's a crowd favorite.
It's more conservative, but Cornerstone was one of the first
ever you know, they've been around since the eighties. And
that's where I get a lot of my perform hormans.
That's index. So I don't have to reach reach for
a Tesla or any stock specific gains I can. I
can put it in something like a Cornerstone CRFCLM, and
(15:10):
then that gives me not only the index exposure that
I need, but it's it's a very unique, a very
unique fund. It has a twenty one percent dividend at
the NAV and it drips that dividend, and it drips
the twenty one percent divinitent down at NAV for free
money every month. As I always say, so it's you know,
if there's like an eighteen percent premium right now with
(15:31):
Cornerstone shares to its net asset value, So when you
drip that twenty one percent dividend, you're also getting that
premium gain every month, which is really, you know, really interesting,
and I don't know why more people don't discuss Cornerstone.
It's four star rated on morning Star five stars sometimes,
and so I instead of reaching for a tesla, I
go with the indexes and I go with things that
(15:53):
can help me get performance. Cornerstone moves. It has twenty
percent premiums on average, and it has a twenty percent
dividen and it drips it down at the NAV. So
I kind of get my oun performance that way, and
then I play it around It's Wright's offerings to really
level up my account. But then I have Cornerstone and
all these other funds that I mentioned, Rex Funds and
other funds like that. But as far as the taxes go,
(16:16):
Cornerstone is also a return of capital. So many of
these funds might be a return of capital, but Cornerstone,
if you don't sell those shares, you don't have to
pay taxes. So that's also how I get around the
taxes with you know, return of capital.
Speaker 5 (16:29):
I want to jump in and say, just to be
super clear, like a lot of people will consider these
investments really really risky. And Eric, you mentioned that they
can trail. A lot of them trail they're underlying stock
or they're underlying index, So you know, you'll have like
the Tesla will just be underperforming by that much more
(16:51):
versus Tesla. Even during a year when Tesla is down
a lot, it'll be down even more. The same goes
for you know, the coinbase one we mentioned in the story,
and a lot of other ones for retail investors. For
a lot of retail investors, that might not matter. Maybe
they're more interested in getting that dividend income and less
interested in maybe it's just not as big of a
(17:15):
concern that something is underperforming. They want the dividend income.
But I just wanted to caveat that they really are
considered a lot of them are considered risky by you know,
the investment community, people who watch this space.
Speaker 2 (17:27):
Yeah, no, doubt. I mean this is we have our
traffic light system. These would be yellow lights. They're not
quite red because there's no leverage involved. They're not rolling futures,
but you are. You got to really read the fine
print here and know what you're doing. I think something
like a two x tesla, though that is red light
because you could lose money quicker. These are a writing call.
(17:50):
It's just it's different. Once you add leverage into the mix,
then everything could go twice as fast up or down.
So I think that's where these are moderately risky. But
they're again I think Todd, you seem like you have
a plan for this. You like this sort of mixing
and the concoction of different things, and this is what
(18:11):
you like to do every day. So I think this
is the kind of template for like the kind of
retail trader because remember Joel we had, Remember we had
that guy on that nineteen year old who'd love to
trade sqqq and tqqq but he monitored all day.
Speaker 1 (18:27):
It seems so long ago and quaint it does well.
Speaker 2 (18:31):
Honestly, that's a lot of volatility, though that guy was
that's a whole other level. I think this is actually tamer.
But at some point, I think, Todd, let me ask
you this, like, you have fun trading, you do this
stuff like at some point you know, either you do
really well and you stick to it, or maybe you're like,
you know, actually, I'll just buy Tesla stock or the
(18:55):
cues and just not mess with this anymore. I do
think sometimes trade do come to that, But on the flip,
that's not as fun. And this is part of what
we call roe returnal entertainment because a lot of people
have a Core four one K. They can't touch it.
You got away thirty years for it to compound. It's
like watching paint dry. Actually it's watched like watching a
tree grow. You would go mental looking at it every day.
(19:17):
So they like to have fun with some stuff on
the side. Is that this for you or is this
like your whole nest egg? I guess. And how do
you feel about that idea of do you think you'll
someday come out the other end and be like, you
know what, I'll just buy the stock and wait thirty years.
Speaker 3 (19:32):
Yeah, I appreciate that question, Eric. You know, for me
it is it is fun to not have fomo because
when you're in the indexes You'll see other stocks kind
of jump up and you'll say, oh, man, I wish
I was in that stock. So what yield Max and
some of these funds do for me is they allow
me to not have fomo. I invest a very small amount,
(19:53):
and these kinds of vehicles like yield Max. I always say,
you know, if I have one hundred thousand dollars position
in this index over here, well then yield Max will
be like one or two thousand dollars of my dollars
towards the bottom of my portfolio. They just kind of
give a little bit of extra growth for me. The
whole name of the game is qualifying income. And when
you mentioned your trader that did SQQQ and t QQ,
(20:17):
I strangle those often. But my thing was the banks
didn't let me get my house with those gains. They
were two up and down. I needed dividends. So I
go with yield Max and all these other dividend funds
to give me the qualifying income I need to get
loans and to live free. And if I hold them
long enough again, they'll cash flow. And even though they're
(20:39):
down at the moment, they will eventually cash flow eventually,
And you know, I keep them so small to where
they don't even affect my performance. They just kind of
give me the fomo that i'm you know that I can,
I can take care of their and they give me
the qualifying income I need to live free from a
nine to five.
Speaker 2 (20:58):
That is interesting, guy, It's a great anecdote touch.
Speaker 1 (21:00):
So I'm so curious about that, toddic So just in general,
talk to us about how you approach a portfolio.
Speaker 3 (21:08):
Yeah, I mean every day I say it in my
videos to stay with the indexes. And obviously on my
about a million dollars invested in my account, we're up
thirty two percent for the year. Most of that is
because I anchor my portfolio to Cornerstone, and then I
anchor it next to Defiance and then round Hill because
(21:30):
Roundhill gives you some of the gains that move up
upward left right and you get the dividends. But Cornerstone
I always tout that one because it has the lowest maintenance,
which is another term. I don't know if y'all want
to get into that on this podcast, but in order
to withdraw out of your account, you need to have
low maintenance names, and Cornerstone is such high quality that
it's low maintenance, whereas a lot of yield Mac's names
(21:51):
are low quality, so they have high maintenance, so they
suck up all of your equity right off the bat.
So I tried to stay with low maintenance names that
are indexed near the top of my portfolio. Those give
me the compounding that I need because it's easier to
make ten if you have a million invested, it's easier
to make one hundred thousand on ten percent on a
(22:13):
ten percent gain then it is to invest one hundred
thousand and expect a double off of one hundred thousand.
So I'll let compounding do a lot of my work
for me. It takes care of my taxes because the
return of capital, it takes care of my risk. They
minimize my volatility. And then I just keep Yieldmac small
for the fun no fomo and to just give me
a little bit of extra qualifying income that then pays
(22:35):
down my margin as well, and then I'm getting extra
growth obviously by using the margin that we use in
my channel.
Speaker 4 (22:42):
Yeah, I think it's an interesting point that we discovered
during our reporting that a lot of those traders are
using those CTFs as part of their personal finances. Most
people are taking loans. You know, some of those things
are obviously quite risky, but I think a lot of
it goes back to the fire movement, people generating passive income.
(23:04):
So that's definitely a big force we're seeing on these
forums and people very excited. But then this goes back
to the bigger picture of like why this is happening now,
And in terms of regulation, there were a lot of changes.
There was the ETF through in twenty nineteen, the derivatives
through in twenty twenty, so before that we really didn't
(23:28):
have access to those products. We also saw the single
stock ETFs, which have impact both on the cover code.
We saw the biggest eels thanks to the single stock ETFs,
and we saw the biggest leverage and biggest volatility thanks
to those single stocktf So, you know, kind of wrapping
up around here about the fact that what we've seen
(23:49):
is something new, something that wasn't available to retail before.
Some people are conscious about that. We even spoke to
the SEC Advocate and they say they're worried about the
growing complex city at a time where retail traders are
so active, they're very interested in the space. The space
is growing so fast. So perhaps one important point to
think about it is like those products are often used.
(24:13):
You know, they have big impact on people's lives if
they're taken as a loan. And also this is something
kind of new in terms of access for retail traders.
Speaker 2 (24:31):
Movie ratings, Joel, that solves all this.
Speaker 1 (24:33):
Do you like, oh, these are lights? Yeah?
Speaker 2 (24:36):
I know. I was not to do it because of copyright,
but movie ratings are perfect. It's like, oh, these yield
max is, they're PG thirteen. Okay, why well x y
Z or TSL two x TESLA that's our and then
there are a few beyond our. We won't go into those.
There's a lot of How about this leveraged VIX futures rollers,
(25:00):
that's the US.
Speaker 1 (25:03):
That's a roller coaster.
Speaker 5 (25:04):
Two x micro strategy.
Speaker 2 (25:06):
Too, yeah, two x microst Well, honestly, you have to
have commodity futures rolling. The t VIX was the ultimate
because it was an ATN which has credit risk. It
rolled futures, and it was leveraged, and it was the VIX.
It was always going to go down to negative ninety
nine point nine percent. But I'm okay with this, Joel.
I feel like this is a big tent the industry.
(25:29):
The rapper is so malleable that they can really work
in a lot of ideas. Some of these are going
to solve real life problems. There will be a couple,
you know, spots where somebody who doesn't know what they're
doing steps into the wrong product, and that's that sucks.
So I think you need ratings, but ultimately get ready
for more of this. I mean, this is not going away.
(25:49):
I heard from someone the sec you know, the products
coming in and not just the yield Max but like
the buffer which are for older people conservative. Some of
those are getting really wonky and we're going to continue
to see a lot of derivative use. But most of
it I think will be pretty responsible. But there's definitely
gonna be the fun stuff trol. I mean, that's just
(26:09):
the it's always been this way.
Speaker 1 (26:12):
Todd as somebody who is so intimate with the retail
crowd and the advice that you're giving to people on
YouTube curious, like, what do you recommend people understand about
the fine print in the perspectives while they're considering emulating
what you've been able to do.
Speaker 3 (26:31):
Absolutely, I completely agree that there's a lot of risk
with these types of vehicles. So what I always say
is to make sure that you match these vehicles with
the percentage with the percentages that they are in the indexes.
So if you have Apple, which is ten percent of
the Nasdaq, or Microsoft, which is ten percent, then I
(26:53):
didn't mind having ten percent of my portfolio and MSFO
and that was doing really well. It was a nice,
steady gainer, and it was doing well until they had
maintenance changes. When they had maintenance changes, that sent shockwaves
throughout the communities because some people were prematurely margin called
(27:13):
just because of the maintenance change. So I would say
to keep them matched at no more than they are
as the as a percentage of what they traded in
the indexes. And also even with that, that's still that
could still be a lot of volatility in your account,
because you know, you just you want to stay indexed,
(27:34):
is what I always say. Keep them. If you're gonna
buy these, make sure they're no more than the percentages
that they're that they're represented in the indexes. But also
just stay indexed, you know, because ninety percent of traders
can't beat the S and P, and so stay indexed.
Keep these positions small and make them no more than
what they are represented in the indexes.
Speaker 1 (27:55):
All right, on that note, we're going to wrap. Deniza,
Vildanna and Todd. Thank you so much for joining us
on Trillions.
Speaker 3 (28:02):
Thank you so much for having me.
Speaker 4 (28:04):
Thank you, thanks for having.
Speaker 1 (28:05):
Us and that story. One hundred percent yields are fueling
a retail boom and new quickbook ets. Thanks for listening
to Trillions. Until next time. You can find us on
the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify, or
(28:28):
wherever else we'd like to listen. We'd love to hear
from you. We're on Twitter, I'm at Joel webbershow He's
at Eric Aultness. This episode of Trillions was produced by
Magnus Hendrickson. Bye
Bok No Trillions. I'm Joel Webber and.
Speaker 2 (00:07):
I'm Eric Balchunis.
Speaker 1 (00:12):
There is this headline that jumped out at me the
moment I saw it. It was a big take from
our colleagues Danizza Takova and Veldonajdrik. It describes something called
a quick buck ETF and that immediately made me go,
we got to talk to them and a character in
(00:32):
the story, but you know, set the table for us.
What is a quick buck ETF? According to Eric Baltunis, well.
Speaker 2 (00:40):
Look, over the years, there's been a sort of movement
to launch kind of unusual products. So try to get
very creative for the ETF industry. Why the core of
the portfolio? A lot of people go to like cheap
index funds and you can't really compete there. What are
you gonna do? Launch like a two basis point SMP
five hundred, hang Guard and Blackrock own the core. So
(01:02):
what a lot of issuers are doing is trying to
innovate their way to something different and new. Some are
innovating on the buffer side to sort of ease worry
for older investors, and some are innovating to try to
appeal to younger investors and retail investors who may favor
income over total returns or in some cases a lot
of leverage. We call it packaged adrenaline. So on that front,
(01:24):
we have this, you know, sort of phrase we call
hot sauce, and we have there's like six different flavors
of hot sauce, and one of them are these I
call them yield boost that's the brand name of one
of them. But the yield Boosters, this one firm went
from like no money at the beginning of the year
to like four billion, and every product has inflows and
they just write call options barely out of the money,
(01:45):
so you give up almost all your upside, but you
get a giant fat yield. So some of them yield
over one hundred percent. So it's just another example of
how the ETF industry is a big tent serving many
different people, and this is one sort of evolution in
what I call the hot sauce bucket.
Speaker 1 (02:06):
We're going to be speaking with Denisa and Veldona, our
cross asset reporters with Bloomberg News, as well as one
of our sources, Todd Can. You can find him on
YouTube at Unconventional Wealth Ideas, this time on trillions quick
buck ETFs. Deniza Veldonna Todd, Welcome to Trillions.
Speaker 3 (02:29):
Thanks for having.
Speaker 4 (02:29):
Me, Thanks for having me, thanks for having us.
Speaker 1 (02:32):
Okay, Denise, I want to start with you. How did
you spot what became this story?
Speaker 4 (02:39):
Well, we saw we look at Reddit, and we look
at one of the firms, field Max, which Eric mentioned earlier,
and he'd already had ten thousands readitors tweeting about it
every day, talking about it every day. And then we
looked at the inflows and the growth was incredible. Just
to give you an example, their first CDs was just
(03:00):
two years ago and this year they launched nearly twenty
products anything you can imagine. They have single stock products,
they have inverse in those talk products that generate income,
and then we realized that there is a much broader
universe there. First, they charge us higher than average fees.
We often see fees in the range of one percent
(03:21):
in those products. So we saw a lot of new
issues being part of that movement. We looked at the
data and actually at the broader universe of the rialties
and enhanced product We saw over one hundred and sixty launches,
which is a record high. We looked at the assets
under management and it's just the growth is so rapid.
(03:42):
It reached three hundred billion, and just five years ago
it was like fifty billion. So the more you looked
into the space, the more you found the social media marketing,
the long YouTube videos, like a whole universe of people
that engage into this community daily that call it a
yield community that you know, there are hundreds of products
(04:04):
they talk about and compare and discuss. So it's really
something that's been growing by the day. We run the
data at the beginning of the story, and we pretty
much had to update it every day because there were
so many launches coming. Some of them had like twenty
five products in them. So it's just like insane amount
of products that are coming to the market at a
(04:25):
very rapid base.
Speaker 1 (04:26):
Okay, well, Dona tell us more about what the products
are and what an investor might hope to accomplish with them.
Speaker 5 (04:34):
So, as the NITSA mentioned, there's more than one hundred
and sixty new ones just so far this year, which
is a record high for the number of new We
call them in the story derivatives enhanced exchange traded funds.
You can divide them, as Eric does, into a number
of different categories. We focused on two main categories in
the story. One is the ones that have like the
(04:57):
options overlays that then have these hefty yields, these hefty payouts,
and another one is the single stock version, so those
are levered or inverse funds that focus on just one company.
One of the most popular ones is based on Navidia
No Surprise. This year, and we mentioned in the story
(05:19):
its assets grew from like two hundred million at the
start of the year to five billion dollars currently, So
just a tremendous amount of money is going towards anything
that can sort of catch people's attention these days. Obviously,
then Navidio one is actually a really good example because
Navidia has the stock itself has been doing so well,
(05:39):
and so then what people do is turn towards some
of these ETFs that can amp up these returns and
just juice things up even further and make things more exciting.
Speaker 2 (05:50):
And a lot of the launches are because you've got
to cover all these stocks, so there's going to be
like dozens and dozens of these over the years. I
think Granted Shares has a filing to do this sort
of yield boost thing. I think their firm is called
yield Boost yield Boost, Yes, and they're going to do
like three x q's yield boosts. So they're gonna do
(06:10):
yield boost thing on something already really boosted. And I
also noticed something funny about this. In Canada, there's an
issue called there's an issue called Yield Maximizer, and their
product line was Yield in all caps, but then Maximizer
was in capital M and then lowercase, and they had
an official name change for all their funds. And normally
when you see that the name changes like dramatically or substantially.
(06:33):
They just wanted to capitalize maximizer, so they and that's
what I got a feeling that there's this like sort
of race to package and push the envelope. I think
of that top gun meme need for speed. You know,
there is just a market for volatility, big numbers, and
(06:54):
it's a you know, largely retail traders who are looking
for this.
Speaker 1 (06:58):
Okay, speaking of retail trader, so I'm going to bring
Todd Akenn here. Todd, you are a retail trader and
you have a growing YouTube channel. Talk to us about
how you got into this specific type of ETF.
Speaker 4 (07:12):
Yeah.
Speaker 3 (07:12):
Well, thanks for having me everyone once again. And well,
when I started Unconventional wealth Ideas, I was investing in
the more traditional kinds of ETFs, and then subscribers would
bring yield max and these other ideas to me, and
then I realized that not only is it a way
to get more attention of my videos, but I thought, well,
(07:34):
maybe there's a way to actually make this investment viable
and work for everyone. And so it doesn't really work
for others because they don't really play them right. But
if you use them properly and you blend them with
other ETFs that give you the growth so you don't
have as much nabdicate, then you can kind of get
an overall blend of ETFs that help you outperform the market.
Speaker 1 (07:58):
Talk to us about the specific products that you've used
and what kind of experience you've had.
Speaker 3 (08:06):
Yeah, well, the first ETFs that came out were Tesla,
and you know the more popular stocks that everyone trades,
Tesla and Video. So we had Tesley and vide and
Tesla was struggling with its stock price. So tes Lee
was not liked by many people in the community. They
kept saying, the nab erosion is so bad. And how
(08:29):
are you ever going to get back to even on this,
you know, with this investment. But I'm always from the
camp that if you hold your dividends long enough, you'll
eventually cash flow. But the key with Tesli is that
you can't live out of it because if you're trying
to live out of Tesli and live free from your
nine to five with things like Tesli, well, that obviously
has too much volatility. It drops, it can be a
(08:50):
widow maker in your account by itself. And so you know,
you don't want to have too much stock exposure anyway
with any one stock. You want to stay with the indexes.
So Tesla just had bad luck, you know, and share
prices down. So Tesley was was not a favorite for others.
But if you hold it long enough, you'll come out
on top, you know, if you hold it long enough.
(09:12):
And so that's my belief is well, cash flow eventually,
but in the meantime, in the meantime, how can you
still get performance and not only outperform the markets, but
withdraw freely out of your account without it cannibalizing your account.
So we combine it with other yield max ETFs that
actually grow, you know, some other yield Max stocks have
been doing doing well. In VIDI was doing well. It
(09:33):
was moving upward left right on its chart, so even
though it was it had a huge dividend, you're still
getting some growth. So people were really happy with NVIDI,
not happy with Tesli, and I just started, you know,
diversifying my portfolio out with the you know, Amazon's apples
of the world through yield Max, and then they came
out with their fund of funds, which helped give a
(09:55):
little bit more diversification and stability with volatility, but still
that it wasn't quite enough to live out of your
account with. You have to combine it with some of
these other funds that have come, you know, out to
the market. Now. Like you know, y'all mentioned yield Boost,
there's also defiance and rec shares and stuff like that,
which all help balance out your portfolio a little bit better.
Speaker 4 (10:17):
And I think something that Total also mentioned there is
such a wide variety of products. And we talked a
lot about the smaller firms that have been around for
just a few years. But for example, one of the
biggest products is coming from JP Morgan Acid Management, and
during twenty twenty two, that product actually worked quite well.
(10:37):
There's obviously a massive sell of and due to the
covered code nature, they manage to outperform the SMP and
Acid jumped to seventeen billion. I think they kind of
tripled in twenty twenty two, which you know was a
year when people were staying away, you know, staying in cash,
(10:58):
being careful and JEPI got that popularity. So we have
those big players actually running some of the biggest products now.
Is thirty six billion obviously really really big TTF, A
lot of options, people are writing about it whatever it's rebouncing,
so it has its own power and importance in the market.
(11:20):
Goldman is also having similar products. A lot of the
big issuers are working on them, whether it's Buffer, whether
it's covered CO. They're less likely to engage with retail,
even though we've seen some of the portfolio managers like
Hamilton Reiner, you know, I've seen a few videos of
him on YouTube engaging with some of them. But it's
(11:42):
really those mainstream products like eield Max, like Tidal, they're
really encouraging that interaction with retail traders. And something they're
saying is a lot of maybe the big names like
JP Morgan and you know, big financial institutions are maybe
underestimating retail traders. You are not going directly to them,
(12:05):
so they find this is a way to market and
reach a new audience. And indeed they're seeing big impact
from it. After each video they appear, they're saying, oh,
we're seeing more inflows after we go on YouTube. So
it tells you a lot about how the ETF industry
is changing.
Speaker 2 (12:28):
Jeffy, which is the JP Morgan equity premium income, I
would call that more conservative. That's writing call options way
out of the money, right, so you get some upside,
you get a little income like eight nine percent. As
you said, those I think are really appealing to older investors,
but some younger One guy on our team we call
him Jeffy. Jackie loves that ETF and I likes JEFFQ.
(12:51):
But I think what the yield Max and yield Boost
people did to say, oh, that's an interesting idea, but
why don't we write calls right here? Or why don't
we do a straddle? And this is how the ETF
industry progresses. Like the first smart beta ETF was very general.
Let's wait by price to earnings and we're screened by that,
and then all of a sudden, you get ones that have, like,
(13:11):
you know, twenty five different criteria. Now, so when it
comes to these ETFs, I want to ask Todd a
question about this. If you buy Tesla Tesla tsly, that's
the one that writes call options just out of it,
are you making a call that Tesla won't go up
because you are giving up a lot of your I
(13:33):
mean almost all your upside so you do get this dividend,
so I guess you have to believe Tesla's not going
to go on some big run. And then the second
thing is dividends are taxes ordinary income. I was having
a conversation with someone says, actually might be more tax
efficient to take a stock you've held for a year
and just sell small increments of it and almost pretend
(13:55):
that's your dividend to be tax less. What do you
think about both those?
Speaker 5 (13:59):
Todd?
Speaker 3 (14:00):
Yeah, Well, so they have vehicles that they combine, you know,
you can combine with the test lead to get your upside,
like a t SLL. I don't know if that's granted shares,
but y'all were mentioning yield boost before, and so there
are vehicles that you can use to get your upside.
I mean me myself. I will buy a little bit
of Tesla stock or sell put options on Tesla to
(14:24):
get more upside appreciation and lower my risk a little
bit there, and then I'll buy test Lead just for
the income. And obviously my big thing at my channel
is I stick with the index. Is where Tesla is
a large part of let's say the nasadack, it's a
pretty good chunk of it. So I don't mind putting
the most the bulk of my money in things like Cornerstone,
(14:47):
which is you know, like JEPI is one of my
one of my favorites. That's a that's a crowd favorite.
It's more conservative, but Cornerstone was one of the first
ever you know, they've been around since the eighties. And
that's where I get a lot of my perform hormans.
That's index. So I don't have to reach reach for
a Tesla or any stock specific gains I can. I
can put it in something like a Cornerstone CRFCLM, and
(15:10):
then that gives me not only the index exposure that
I need, but it's it's a very unique, a very
unique fund. It has a twenty one percent dividend at
the NAV and it drips that dividend, and it drips
the twenty one percent divinitent down at NAV for free
money every month. As I always say, so it's you know,
if there's like an eighteen percent premium right now with
(15:31):
Cornerstone shares to its net asset value, So when you
drip that twenty one percent dividend, you're also getting that
premium gain every month, which is really, you know, really interesting,
and I don't know why more people don't discuss Cornerstone.
It's four star rated on morning Star five stars sometimes,
and so I instead of reaching for a tesla, I
go with the indexes and I go with things that
(15:53):
can help me get performance. Cornerstone moves. It has twenty
percent premiums on average, and it has a twenty percent
dividen and it drips it down at the NAV. So
I kind of get my oun performance that way, and
then I play it around It's Wright's offerings to really
level up my account. But then I have Cornerstone and
all these other funds that I mentioned, Rex Funds and
other funds like that. But as far as the taxes go,
(16:16):
Cornerstone is also a return of capital. So many of
these funds might be a return of capital, but Cornerstone,
if you don't sell those shares, you don't have to
pay taxes. So that's also how I get around the
taxes with you know, return of capital.
Speaker 5 (16:29):
I want to jump in and say, just to be
super clear, like a lot of people will consider these
investments really really risky. And Eric, you mentioned that they
can trail. A lot of them trail they're underlying stock
or they're underlying index, So you know, you'll have like
the Tesla will just be underperforming by that much more
(16:51):
versus Tesla. Even during a year when Tesla is down
a lot, it'll be down even more. The same goes
for you know, the coinbase one we mentioned in the story,
and a lot of other ones for retail investors. For
a lot of retail investors, that might not matter. Maybe
they're more interested in getting that dividend income and less
interested in maybe it's just not as big of a
(17:15):
concern that something is underperforming. They want the dividend income.
But I just wanted to caveat that they really are
considered a lot of them are considered risky by you know,
the investment community, people who watch this space.
Speaker 2 (17:27):
Yeah, no, doubt. I mean this is we have our
traffic light system. These would be yellow lights. They're not
quite red because there's no leverage involved. They're not rolling futures,
but you are. You got to really read the fine
print here and know what you're doing. I think something
like a two x tesla, though that is red light
because you could lose money quicker. These are a writing call.
(17:50):
It's just it's different. Once you add leverage into the mix,
then everything could go twice as fast up or down.
So I think that's where these are moderately risky. But
they're again I think Todd, you seem like you have
a plan for this. You like this sort of mixing
and the concoction of different things, and this is what
(18:11):
you like to do every day. So I think this
is the kind of template for like the kind of
retail trader because remember Joel we had, Remember we had
that guy on that nineteen year old who'd love to
trade sqqq and tqqq but he monitored all day.
Speaker 1 (18:27):
It seems so long ago and quaint it does well.
Speaker 2 (18:31):
Honestly, that's a lot of volatility, though that guy was
that's a whole other level. I think this is actually tamer.
But at some point, I think, Todd, let me ask
you this, like, you have fun trading, you do this
stuff like at some point you know, either you do
really well and you stick to it, or maybe you're like,
you know, actually, I'll just buy Tesla stock or the
(18:55):
cues and just not mess with this anymore. I do
think sometimes trade do come to that, But on the flip,
that's not as fun. And this is part of what
we call roe returnal entertainment because a lot of people
have a Core four one K. They can't touch it.
You got away thirty years for it to compound. It's
like watching paint dry. Actually it's watched like watching a
tree grow. You would go mental looking at it every day.
(19:17):
So they like to have fun with some stuff on
the side. Is that this for you or is this
like your whole nest egg? I guess. And how do
you feel about that idea of do you think you'll
someday come out the other end and be like, you
know what, I'll just buy the stock and wait thirty years.
Speaker 3 (19:32):
Yeah, I appreciate that question, Eric. You know, for me
it is it is fun to not have fomo because
when you're in the indexes You'll see other stocks kind
of jump up and you'll say, oh, man, I wish
I was in that stock. So what yield Max and
some of these funds do for me is they allow
me to not have fomo. I invest a very small amount,
(19:53):
and these kinds of vehicles like yield Max. I always say,
you know, if I have one hundred thousand dollars position
in this index over here, well then yield Max will
be like one or two thousand dollars of my dollars
towards the bottom of my portfolio. They just kind of
give a little bit of extra growth for me. The
whole name of the game is qualifying income. And when
you mentioned your trader that did SQQQ and t QQ,
(20:17):
I strangle those often. But my thing was the banks
didn't let me get my house with those gains. They
were two up and down. I needed dividends. So I
go with yield Max and all these other dividend funds
to give me the qualifying income I need to get
loans and to live free. And if I hold them
long enough again, they'll cash flow. And even though they're
(20:39):
down at the moment, they will eventually cash flow eventually,
And you know, I keep them so small to where
they don't even affect my performance. They just kind of
give me the fomo that i'm you know that I can,
I can take care of their and they give me
the qualifying income I need to live free from a
nine to five.
Speaker 2 (20:58):
That is interesting, guy, It's a great anecdote touch.
Speaker 1 (21:00):
So I'm so curious about that, toddic So just in general,
talk to us about how you approach a portfolio.
Speaker 3 (21:08):
Yeah, I mean every day I say it in my
videos to stay with the indexes. And obviously on my
about a million dollars invested in my account, we're up
thirty two percent for the year. Most of that is
because I anchor my portfolio to Cornerstone, and then I
anchor it next to Defiance and then round Hill because
(21:30):
Roundhill gives you some of the gains that move up
upward left right and you get the dividends. But Cornerstone
I always tout that one because it has the lowest maintenance,
which is another term. I don't know if y'all want
to get into that on this podcast, but in order
to withdraw out of your account, you need to have
low maintenance names, and Cornerstone is such high quality that
it's low maintenance, whereas a lot of yield Mac's names
(21:51):
are low quality, so they have high maintenance, so they
suck up all of your equity right off the bat.
So I tried to stay with low maintenance names that
are indexed near the top of my portfolio. Those give
me the compounding that I need because it's easier to
make ten if you have a million invested, it's easier
to make one hundred thousand on ten percent on a
(22:13):
ten percent gain then it is to invest one hundred
thousand and expect a double off of one hundred thousand.
So I'll let compounding do a lot of my work
for me. It takes care of my taxes because the
return of capital, it takes care of my risk. They
minimize my volatility. And then I just keep Yieldmac small
for the fun no fomo and to just give me
a little bit of extra qualifying income that then pays
(22:35):
down my margin as well, and then I'm getting extra
growth obviously by using the margin that we use in
my channel.
Speaker 4 (22:42):
Yeah, I think it's an interesting point that we discovered
during our reporting that a lot of those traders are
using those CTFs as part of their personal finances. Most
people are taking loans. You know, some of those things
are obviously quite risky, but I think a lot of
it goes back to the fire movement, people generating passive income.
(23:04):
So that's definitely a big force we're seeing on these
forums and people very excited. But then this goes back
to the bigger picture of like why this is happening now,
And in terms of regulation, there were a lot of changes.
There was the ETF through in twenty nineteen, the derivatives
through in twenty twenty, so before that we really didn't
(23:28):
have access to those products. We also saw the single
stock ETFs, which have impact both on the cover code.
We saw the biggest eels thanks to the single stock ETFs,
and we saw the biggest leverage and biggest volatility thanks
to those single stocktf So, you know, kind of wrapping
up around here about the fact that what we've seen
(23:49):
is something new, something that wasn't available to retail before.
Some people are conscious about that. We even spoke to
the SEC Advocate and they say they're worried about the
growing complex city at a time where retail traders are
so active, they're very interested in the space. The space
is growing so fast. So perhaps one important point to
think about it is like those products are often used.
(24:13):
You know, they have big impact on people's lives if
they're taken as a loan. And also this is something
kind of new in terms of access for retail traders.
Speaker 2 (24:31):
Movie ratings, Joel, that solves all this.
Speaker 1 (24:33):
Do you like, oh, these are lights? Yeah?
Speaker 2 (24:36):
I know. I was not to do it because of copyright,
but movie ratings are perfect. It's like, oh, these yield
max is, they're PG thirteen. Okay, why well x y
Z or TSL two x TESLA that's our and then
there are a few beyond our. We won't go into those.
There's a lot of How about this leveraged VIX futures rollers,
(25:00):
that's the US.
Speaker 1 (25:03):
That's a roller coaster.
Speaker 5 (25:04):
Two x micro strategy.
Speaker 2 (25:06):
Too, yeah, two x microst Well, honestly, you have to
have commodity futures rolling. The t VIX was the ultimate
because it was an ATN which has credit risk. It
rolled futures, and it was leveraged, and it was the VIX.
It was always going to go down to negative ninety
nine point nine percent. But I'm okay with this, Joel.
I feel like this is a big tent the industry.
(25:29):
The rapper is so malleable that they can really work
in a lot of ideas. Some of these are going
to solve real life problems. There will be a couple,
you know, spots where somebody who doesn't know what they're
doing steps into the wrong product, and that's that sucks.
So I think you need ratings, but ultimately get ready
for more of this. I mean, this is not going away.
(25:49):
I heard from someone the sec you know, the products
coming in and not just the yield Max but like
the buffer which are for older people conservative. Some of
those are getting really wonky and we're going to continue
to see a lot of derivative use. But most of
it I think will be pretty responsible. But there's definitely
gonna be the fun stuff trol. I mean, that's just
(26:09):
the it's always been this way.
Speaker 1 (26:12):
Todd as somebody who is so intimate with the retail
crowd and the advice that you're giving to people on
YouTube curious, like, what do you recommend people understand about
the fine print in the perspectives while they're considering emulating
what you've been able to do.
Speaker 3 (26:31):
Absolutely, I completely agree that there's a lot of risk
with these types of vehicles. So what I always say
is to make sure that you match these vehicles with
the percentage with the percentages that they are in the indexes.
So if you have Apple, which is ten percent of
the Nasdaq, or Microsoft, which is ten percent, then I
(26:53):
didn't mind having ten percent of my portfolio and MSFO
and that was doing really well. It was a nice,
steady gainer, and it was doing well until they had
maintenance changes. When they had maintenance changes, that sent shockwaves
throughout the communities because some people were prematurely margin called
(27:13):
just because of the maintenance change. So I would say
to keep them matched at no more than they are
as the as a percentage of what they traded in
the indexes. And also even with that, that's still that
could still be a lot of volatility in your account,
because you know, you just you want to stay indexed,
(27:34):
is what I always say. Keep them. If you're gonna
buy these, make sure they're no more than the percentages
that they're that they're represented in the indexes. But also
just stay indexed, you know, because ninety percent of traders
can't beat the S and P, and so stay indexed.
Keep these positions small and make them no more than
what they are represented in the indexes.
Speaker 1 (27:55):
All right, on that note, we're going to wrap. Deniza,
Vildanna and Todd. Thank you so much for joining us
on Trillions.
Speaker 3 (28:02):
Thank you so much for having me.
Speaker 4 (28:04):
Thank you, thanks for having.
Speaker 1 (28:05):
Us and that story. One hundred percent yields are fueling
a retail boom and new quickbook ets. Thanks for listening
to Trillions. Until next time. You can find us on
the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify, or
(28:28):
wherever else we'd like to listen. We'd love to hear
from you. We're on Twitter, I'm at Joel webbershow He's
at Eric Aultness. This episode of Trillions was produced by
Magnus Hendrickson. Bye
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