The Fear of Missing Out fund shows that there really is an ETF for everything
Traders work on the trading floor of the New York Stock Exchange.
Afraid of missing out on this wild trade this year? Would you buy a FOMO fund if someone offered it to you?
Some investors are betting you will.
Investing in the stock market these days is like installing a bowling alley in your brain. Your head gets messed up every day.
One day technology will be back, the next reopening sectors including materials and industry, and banking will be back. Then there are the Reddit names and the “thematic” tech sectors like clean energy and cybersecurity.
What can an active investor do? If you’re in the ETF space, the answer is: innovate even more.
A FOMO ETF is coming
In the past few weeks there have been a plethora of ETFs trying to capitalize on the dizzying rotations that shaped the markets in 2021.
Most recently, the Collaborative Investment Series Trust announced that it had registered a FOMO (Fear of Missing Out) ETF. It is said to “track stocks that reflect current or emerging trends”. What does that mean? Almost everything, apparently: stocks around the world, as well as SPACs, other ETFs, derivatives, volatility products, and both leveraged and inverse ETFs.
Matthew Tuttle, the CEO of Tuttle Tactical Management and the man who runs the actively managed fund behind FOMO, says he’s trying to respond to an urgent need in the market: “You have SPACs, you have Cathie Woods stuff, Gamestop -Stuff. If you are the average investor you can try doing it yourself and looking at a lot of different products, but nothing brings it all together. We’ll be in social media, hedge funds, SPACs, ETFs and stocks. “
If that sounds a little daunting, Tuttle won’t be put off. The registration advises that the ETF will “use multiple investment models that combine market trend and counter-trend sequence”.
How is that going to happen? What exactly follows its trend following model and what is “counter trend following”?
“I can say that out of 100 technology stocks I will give 20 with the highest Sharpe ratings in the past 3 months, then the 20 that have had the worst performance in the past week,” he said. “We want to gain momentum, but whatever kicked the butt, we want to get involved. Counter-trend methods smooth out sudden movements in the other direction. [the Sharpe ratio measures the average return on an investment in excess of the risk-free rate of return, usually U.S. Treasurys].
The secret to staying relevant and identifying trends lies in realigning: the FOMO ETF will realign every week.
If that sounds like a lot of trading, it is. “We will not be tax efficient,” he admits.
And while the prospectus implies the ETF could be spread around the world, Tuttle says his original intent is to keep it primarily for U.S.-based investments.
Other ETFs try to capture the wild trends
Tuttle isn’t the only one trying to capture the wild trade zeitgeist. Last week, Van Eck launched the Social Sentiment ETF (BUZZ), which tracks the 75 stocks with a market cap of over $ 5 billion that have received the highest positive attention on social media. However, it is only rebalanced monthly. FOMO will rebalance weekly.
And in January an inflation ETF (INFL) was launched to identify companies that would thrive in an inflationary environment. Various holdings include exchanges such as Intercontinental Exchange (parent company of NYSE) and Deutsche Börse, raw material suppliers Wheaton Precious Metals (WPM), Archers Daniel Midland (ADM) and landowners such as Texas Pacific Land (TPL).
“We’re value investors, so these are good companies to begin with,” said Al Swimmer, managing director at Horizon Kinetics. “It works across business cycles. So if we get inflation you’re fine, if you don’t, you’re still fine.”
Why exchange? “They make money trading and selling trade information,” he said. “If commodity prices go up, people will hedge, and that will increase the volume on the exchanges.”
Grain companies like Archer Daniels Midland would also benefit if commodity prices rose, as would land companies that own land and rent it out for drilling or water.
The INFL joins the quadratic interest rate volatility and inflation hedge (IVOL) ETF which seeks to hedge against inflation in other ways by using TIPS (Treasury Inflation Protected Securities) and long options. It has attracted more than $ 2 billion in assets under management.
There really is an ETF for that
What does this flood of new investment opportunities mean? “This shows the flexibility of the ETF wrapper. In theory, this is a strategy that tries very quickly to get where the puck is going,” said veteran ETF observer Todd Rosenbluth of CFRA Research. “Everything that can be put in an ETF wrapper is put in an ETF wrapper.”
With the exception of Bitcoin: Despite years of pressure, the SEC still has to approve a Bitcoin ETF. Last week, WisdomTree was the last to get approval.
Matt Tuttle from Tuttle Tactical Management, the man behind the FOMO ETF, will be on the mid-term report and ETF Edge on Monday.