Christian Magoon, founder and CEO of Amplify ETFs, entered the ETF marketplace in 2005. He knew from the start he had to innovate to create the best ETFs in an industry dominated by larger players.
The industry's giants were likely to control most of the assets, he thought. So he needed to offer products to "amplify" an investor's portfolio to compete. Building on the experience he developed at First Trust and Claymore Securities as well as his own strategic counsel firm, Magoon Capital, he now oversees one of the industry's top thematic ETF issuers.
Magoon officially launched Amplify ETFs in 2016. By April of that year, the company launched its first fund, the Amplify Online Retail ETF, in what was just the start of a very busy year. In September, Amplify officially acquired fund provider YieldShares, another firm that Magoon founded.
The merger brought the Amplify (formerly YieldShares) High Income ETF in house, which was gaining a reputation as one of the industry's more unique offerings. It tracked a basket of high-yielding closed-end funds, giving investors easy access to an asset class that had been overlooked by many income seekers. The company ended 2016 with the launch of the Amplify CWP Enhanced Dividend Income ETF, which is currently the issuer's largest ETF and has more than $3 billion in assets.
Searching For The Best ETFs
Magoon and Amplify drive the development of many "first to market" products, including ETFs targeting cybersecurity, online retail, blockchain, frontier markets, China technology, commodities, clean energy and multi-asset income strategies. Amplify grew its ETF lineup to 31 different funds managing roughly $9 billion in investor assets.
How is Amplify planning to grow its ETF industry footprint next? Investor's Business Daily talked with Magoon about innovation in ETFs.
IBD: Earlier this year, Amplify completed the acquisition of the ETFMG fund lineup. How did this acquisition come about and how will it enhance the Amplify roster?
Christian Magoon: Amplify has focused on the organic growth of assets under management (AUM) since our first ETF launch in 2016. Once we achieved a material level of scale, we began to consider inorganic growth through acquisitions. After engaging in conversations with various ETF sponsors, we came to an agreement to acquire 14 ETFs from ETF Managers Group in the spring of 2023. At the time, our 17 ETF lineup was at all-time highs in AUM with 80% of our assets concentrated in strategies with an equity-income focus. The acquired ETFs were about 80% thematic equity oriented, thus adding diversification to our income-heavy lineup. Growing Amplify AUM from just over $5 billion to $9 billion with this transaction presented benefits across all aspects of our business.
In Search Of Cash Flow
IBD: You recently launched a pair of ETFs targeting companies with high free cash flows. What sets your ETFs apart from the others?
Magoon: Companies with high free cash flows have historically offered stability and predictability to investors. We developed three key improvements impacting income, portfolio concentration and risk.
First, the free cash flow indices Amplify's ETFs track only include dividend-paying, high-free-cash-flow companies. Our belief is that adding a dividend requirement to a free-cash-flow-qualifying stock adds another measure of security to the investment.
Second, adding a constraint that the portfolio may have no more than 25% exposure to a single industry was a prudent risk control. Industry concentrations add additional risk that may not be apparent when investing in a factor like free cash flow.
The final addition to the free-cash-flow benchmarks Amplify ETFs follow is to equally consider a company's historical and forward free cash flow. We believe this balanced view is superior to only considering historical free cash flow because stock prices are impacted by both historic and forward-looking cash flow.
In short, we believe our suite of free-cash-flow ETFs delivers a purposeful focus on dividend-paying stocks with less industry concentration risk and a more complete assessment of a company's historic and future free-cash-flow profile.
Big Growth On Horizon For Best ETFs
IBD: Where do you envision the next big growth frontier is for your company?
Magoon: There are always new investment themes emerging not captured by standard market cap or sector ETFs, as evidenced by our recent filing for the Amplify Weight Loss Drug & Treatment ETF. Thematic ETFs offer an essential tool for investors — the ability to access evolving segments of companies without taking on the portfolio concentration and business-specific risk of owning one or two companies in an emerging space. We believe it's easier to be right on a theme than it is to be right about what one or two companies will be thematic winners.
Investors Look To Amp Up Yield
IBD: Where do you see the interest rate environment heading in 2024? Where might investors consider looking for yield in their portfolios?
Magoon: The potential for more than one interest rate cut in 2024 seems to be dwindling due to inflation being a bit sticky. We would lean toward one rate cut in 2024, and that is partly influenced by President Biden essentially promising a rate cut recently during an election year. That's a statement that is hard to ignore.
Investors interested in short-term fixed-income ETFs may want to consider the Amplify Samsung SOFR ETF, which seeks to generate the same income rate net of all fees and expenses as the institutional-oriented Secured Overnight Financing Rate, which is currently 5.3%.
Equity income investors who want yield but need the potential for capital appreciation through equities can look toward our Amplify CWP Enhanced Dividend Income ETF, which combines dividend and tactical option writing income on individual blue-chip stocks to generate a bit over 5% yield.
The Amplify Cash Flow High Income ETF yields 7.8% via high-free-cash-flow stock exposure plus a call-income strategy on the S&P 500. Our highest income generating ETF, the Amplify High Income ETF, owns a portfolio of 45 closed-end funds that has a 11.99% distribution rate.
These four Amplify ETFs distribute income monthly and carry unique risks and characteristics which should be reviewed by reading each ETF's prospectus.
Where Is Inflation Going?
IBD: Will it be a long process to get back to the Fed's 2% inflation target? What can investors do to protect themselves?
Magoon: Inflation appears to be a challenge for the Fed to conquer — at least bringing it closer to its 2% target. If inflation remains elevated, a solution to consider is the Amplify Inflation Fighter ETF. This ETF owns a basket of inflation beneficiaries which share one common characteristic — scarcity in the assets these companies do business in or in the commodity being held by the fund.
Stock holdings include mining companies, land development and homebuilder companies in states with population growth as well as royalty-producing commodity REITs. Other asset holdings include gold and bitcoin futures. This portfolio mix has allowed investors to outpace inflation significantly since its inception in February of 2022.
IBD: What's your outlook for AI and tech in general?
Magoon: AI is a world-changing technology that needs to grow alongside cybersecurity and blockchain stocks. Cybersecurity spending will accelerate as AI pushes more of our personal, corporate and government data into the digital realm and needs protection. AI will also become a key resource for both attackers and defenders in the cyber world. Indeed, the race between hackers and defenders for more powerful AI tools and computing may be never-ending.
These are just two reasons we like the capital appreciation potential for the Amplify Cybersecurity ETF heading into the future. Cybersecurity will need to be another pillar of the AI-powered world, and that will be the technology used to efficiently determine authenticity and formulate trust among various AI applications utilizing the digital landscape.
The Amplify Transformational Data Sharing ETF is well-positioned to capitalize on the AI-powered push into digital authentication, transactions and settlement.
The Race Of The Best ETFs Of Bitcoin
IBD: Did you ever consider getting into the bitcoin ETF race?
Magoon: We considered launching an Amplify bitcoin ETF to join the dozen or so ETF offerings in the U.S. but felt there wasn't sufficient differentiation we could deliver to the marketplace. With that being said, we continue to analyze the cryptocurrency asset class for future product development as the regulatory environment continues to evolve.
IBD: What is the most underappreciated risk you see in the financial markets today?
Magoon: The exploding U.S. national debt and the ramifications it could have both on tax policy and the future value of the U.S. dollar are likely underappreciated by most investors today, as they are unprecedented in U.S. history. The future impact of these dual issues is likely why we are witnessing finite assets like gold, silver and bitcoin become increasingly favored by investors worldwide.
