There aren’t many people in the financial services world who can claim they’ve helped launch a gold ETF, an airline ETF and a blockchain company, but Frank Holmes is just such a person. He’s the CEO and CIO of U.S. Global Investors and the Executive Chairman of Hive Blockchain and he recently joined the ETF Think Tank to discuss everything from the current cryptocurrency landscape to the tax efficiency of ETFs.
Given his background in the ETF space, Holmes was asked if he agreed with the traditional narrative that ETFs will eventually overtake and kill the mutual fund business. He feels the primary advantage that gives ETFs the edge is its structure. Tax optimization allows more money to stay in investors’ pockets regardless of performance. The recent mutual fund to ETF conversions by both Guinness Atkinson and DFA demonstrate that the traditional fund houses also see the value in ETFs. Many investors came to ETFs because of the ultra-low cost passively-managed structure, but the success of ARK proves that if you’re good at the game, the money will still come even in higher cost active ETFs.
He’s also quick to note that it’s not a “tax loophole” that makes ETFs advantageous. It’s simply a product and benefit of the structure. You didn’t even get much pushback from the regulators because they realized it ultimately promotes good investment behavior. It makes sense that investors shouldn’t be forced to pay taxes for other people’s transactions. He also believes that investors should look to avoid ETFs that make capital gains distributions, of which approximately 5% do every year, because it amounts to laziness on the part of portfolio managers.
Holmes is asked if he could ever imagine the story of the U.S. Global Jets ETF (JETS), which his firm oversees, playing out the way that it did, which saw its assets under management balloon from around $40 million to more than $4 billion over the course of a single year. He mentions the quote he’s heard that “the best way to succeed is to survive”. He acknowledges that the environment was challenging as the COVID pandemic was growing, but noticed that the Robinhood traders, who were driving the growth, were actually sophisticated players in the space and understood the business. Those folks got on board early and when the economy began to turn around, the growth story really accelerated.
In terms of cryptocurrency, Holmes believes that investors should have roughly a 2% stake in their portfolios, a smaller component given how volatile they are in the short-term. Investors might default to investing in Bitcoin for this position, but Ethereum is the backbone of blockchain. Given its disruptive potential in the smart contract space, many crypto enthusiasts now prefer Ethereum to Bitcoin, noting that the number of Ethereum miners now exceeds the number of Bitcoin miners. Millennials will be the ones to drive acceptance and use of cryptocurrencies forward because they’re the ones that best understand it. He also likens Ethereum to silver and Bitcoin to gold explaining that there are more practical applications for silver/Ethereum.
The conversation wrapped with Holmes being asked where he thinks we are in the market cycle. He mentions that growth rates are beginning to come back down but believes the biggest driver of change could be what happens with monetary and fiscal policy. Right now, he believes that it’s a lot of sword fighting and mudslinging. If tax policy gets modified, that will change the narrative, but right now it’s a lot of talk.
DisclosureThe information provided here is for financial professionals only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
All investments involve risk, including possible loss of principal.
The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Toroso nor any of its affiliates guarantees any rate of return or the return of capital invested. This commentary material is available for informational purposes only and nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security and nothing herein should be construed as such. All investment strategies and investments involve risk of loss, including the possible loss of all amounts invested, and nothing herein should be construed as a guarantee of any specific outcome or profit. While we have gathered the information presented herein from sources that we believe to be reliable, we cannot guarantee the accuracy or completeness of the information presented and the information presented should not be relied upon as such. Any opinions expressed herein are our opinions and are current only as of the date of distribution, and are subject to change without notice. We disclaim any obligation to provide revised opinions in the event of changed circumstances.
The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Toroso or its affiliates or any of their officers or employees of Toroso accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Toroso. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of and observe such restrictions (if any).