In an ETF marketplace dominated by Vanguard, State Street and BlackRock, smaller issuers must carve out a successful niche. Will Rhind, the founder of the $2.6 billion GraniteShares family of funds, decided on an unorthodox approach.
The firm initially focused on nontraditional and alternative asset classes. When his company launched in 2016, the commodity ETF space was still emerging. Funds focused on other commodities existed. But success was scattered and many commodity funds charged high expense ratios.
Rhind competed there first with the 2017 launches of the GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF and the GraniteShares Gold Trust. The funds' strategies are relatively unspectacular. COMB invests in agriculture, metals and energy futures. BAR invests in physical gold stored in a London vault. The differentiators are two factors important to retail investors — taxes and fees.
Gaining Steam
Both ETFs gained traction over time. In 2017, the company expanded its lineup by acquiring a fund focused on generating high income through alternative investments. It held investments in real estate, business development companies, master limited partnerships and closed-end funds. The fund was rebranded to GraniteShares HIPS U.S. High Income ETF. This fund isn't designed to compete on cost. It offers a yield alternative to traditional fixed income.
In 2022, GraniteShares jumped into leveraged and inverse single-stock ETFs. It was one of the first issuers to launch leveraged options for Coinbase, Tesla and Apple. GraniteShares now has 10 single-stock ETFs. GraniteShares was the first issuer to bring a leveraged long Nvidia ETF to the market. That fund grew to nearly $1 billion in assets in just over a year's time.
Where will GraniteShares innovate next? Investors Business Daily caught up with Rhind to get his thoughts on the future for the global economy in 2024 and beyond.
Best ETFs: Finding A Niche
IBD: Where do you see your niche in the ETF marketplace?
Will Rhind: We've carved out our niche in the ETF marketplace by focusing on high-conviction products for high-conviction investors. With a diverse portfolio that includes everything from leveraged single-stock ETFs to commodities, large-cap disrupters and high-income securities, we aim to offer dynamic, efficient and accessible investment options.
IBD: Earlier this year, GraniteShares increased the amount of leverage on several of its ETFs to 200%. Can you provide some insight into the thought process behind that decision?
Rhind: The driving factor was simple: investor demand. This, coupled with the suite's strong performance in 2023 — specifically from the 2X long Nvidia and 2X long Coinbase ETFs — made the decision something we felt would enhance the offering. Leveraged single-stock ETFs are a rapidly growing ETF category. Investors are highly engaged and looking for ways to make conviction investments, both on the long and short side, in popular stocks.
IBD: How should investors use leveraged single-stock ETFs in their portfolios?
Rhind: Any product that uses leverage has an outsized risk profile. And that's true regardless of whether you are using margin accounts, trading options or leveraged ETFs. Like any investment product, they're designed for those who understand the mechanics — primarily, how leverage amplifies returns and how the daily rebalancing impacts long-term performance.
With increased risk comes the potential for increased returns. Some of our funds were some of the best-performing ETFs in 2023. As with any investment or ETF, education is key. Understanding how these products work and what scenarios they're best used for can help investors integrate them into their portfolios effectively.
Correction Coming For The Best ETFs?
IBD: Are you concerned at all that these stocks have gotten overvalued and are due for a correction?
Rhind: The rally in tech stocks is largely a continuation of the same phenomenon experienced up until the end of 2021. The rising-interest-rate environment repriced the stock market and in particular tech companies with high forward earnings multiples.
Post-2022, the rally in tech has, in my opinion, been driven largely by fundamentals rather than macro factors such as zero interest rates and masses of excess liquidity. In this environment, companies have to deliver on earnings to be rewarded by the market. And that is what has happened with the largest tech companies.
It's difficult to say companies are "overvalued" on a fundamental basis if they are meeting or exceeding the earnings expectations set by the market. Therefore, I expect this to continue provided companies continue to perform.
Nvidia has been the poster stock for AI. Even as recently as last week when they announced Q4 earnings, there were plenty of bears telling people to "sell the news" and that the stock was overvalued. But they were extremely disappointed when the earnings were released and the stock rallied significantly.
The Fed's Moves
IBD: Where do you feel monetary policy could be headed?
Rhind: I think interest rates will start to come down in 2024, but perhaps not by as much as some are predicting. The economy is performing well. But financial conditions are extremely tight, especially for those looking to obtain a mortgage or borrow money. It is an election year so we can't underestimate that factor in thinking about how the Fed will respond, especially as we get closer to the election date.
IBD: Do you think the market is underestimating inflation as a longer-term risk for both stocks and bonds?
Rhind: The vast majority of data considered in official and unofficial inflation statistics does show (inflation) falling. Despite the odd blip here or there, I think inflation is coming down, especially if financial conditions remain tight.
One possibility to consider is that perhaps inflation won't fall as far as the Fed's official target (i.e., back to 2%) but will remain a little higher for longer, but hopefully not high enough as to cause any major economic problems.
Future For Crypto For The Best ETFs?
IBD: Do you think spot bitcoin ETFs will ignite a rally in the price of bitcoin?
Rhind: In short, yes, and I think that's already self-evident. The price of bitcoin has rallied along with crypto stocks on the back of the strong debut of the spot bitcoin ETFs and a view that the market is maturing and becoming more acceptable to institutional investors.
IBD: Do you think we can really pull off a soft landing or is recession still a near-term risk?"
Rhind: I think the soft landing argument is more persuasive than talk of recession at present. Those calling for a recession last year were very disappointed. And while those voices have receded, it's difficult to point to a catalyst that would drive a recession at present. Earnings have by and large been strong. And the economy is in good shape despite the pressures of high interest rates.
We are in an election year and if history is any guide the probability of the market delivering a positive return in an election year is quite favorable.
Sensing Future Risks
IBD: What is the most underappreciated risk you see in the financial markets today?
Rhind: I think the risk of the Fed not cutting rates or indeed interest rates moving higher is probably a risk no one is talking about. Mortgage rates on the 30-year fixed have moved up to over 7% again from the 6% range in January, which is one sign that higher rates may be more stubborn than we think.
IBD: Any other final thoughts on the state of the global economy and financial markets?
Rhind: Markets have started the year very strongly. The three major U.S. benchmark indices have all reached all-time highs. Overall, the economy is performing well and there don't appear to be any obvious catalysts that would change that picture.
The rally in major tech stocks is, if anything, showing signs of broadening out into other sectors of the market, which is a healthy sign. Trends that have powered the growth such as AI are not going away and I think will continue to drive value for years to come.
