High conviction is what it takes to build and launch the best ETFs at GraniteShares. Its alternative investment ETFs especially fill a void in times of high volatility and rising interest rates.
New York-based GraniteShares opened its doors in 2016 with the help of private equity firm Bain Capital Ventures. It went live in 2017 with its first flagship ETF, the GraniteShares Gold Trust. Since then, the company has grown its assets to $1.5 billion, of which $176 million is in Europe. It offers nine ETFs to U.S. investors.
How Granite Shares Finds The Best ETFs
GraniteShares prides itself on creating innovative and cost-effective ETFs that provide a different way to access traditional asset classes. Some of its best ETFs eliminate K1s, provide increased transparency or redefine a whole market segment. The offering includes a full range of innovative investment strategies from commodities to leveraged single-stock ETFs.
In times when investors find it difficult to make a buck in the markets, alternative funds might provide exposure with low or no correlation to the markets. These are not your "plain-vanilla" ETFs. One thing that they share is the high level of conviction embedded in their strategies.
This is what Will Rhind, founder and CEO, had in mind when founding the company. He shared with IBD his insights on the best ETFs, the firm's strategy, and his outlook for the markets.
IBD: What is the primary mission of your firm?
Will Rhind: The company specializes in issuing and managing "high conviction" investment products. High conviction investment products include such categories as: leveraged products, concentrated indexes or sectors, commodities, thematics, and other nontraditional asset classes.
How GraniteShares' Best ETFs Are Evolving
IBD: How has your firm's strategy evolved since its founding?
Rhind: The initial product offering focused on establishing a range of low cost, "no-K-1" commodity ETFs. After working in the commodities and ETF industry for nearly 15 years, I decided to leverage my extensive background and establish my own firm. Back in 2016, commodity markets were at a turning point and I knew I could launch a better fund at a lower cost than the broader industry was offering at the time. We launched our flagship ETF, the GraniteShares Gold Trust in 2017 as the lowest-cost gold ETF in the market at that time.
Following the launch of BAR, we dove deeper into the commodities sector with the goal of bringing investors more diversified exposure to commodities, but without the need for a K-1 tax filing, which led to the launch of the GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF followed by the GraniteShares Platinum Trust. We then expanded beyond commodities to explore other areas of the market where we felt there was room for improvement such as getting exposure to high income.
So far, we have successfully reached investors looking for steady yield and high levels of income via the GraniteShares HIPS US High Income ETF, as well as focusing on a smart beta strategy that aims to exclude U.S. large cap companies likely to underperform, the GraniteShares XOUT US Large Cap ETF.
Expansion Of GraniteShares
IBD: Do you have any plans to expand beyond the U.K. and U.S.? For example the European market?
Rhind: GraniteShares pioneered the leveraged single-stock ETF space in Europe three years ago and we now have a leading franchise of high-conviction products, offering a total of 106 ETFs on all major European exchanges including France, Italy and Germany.
IBD: Which products have you launched in the past 18 months and why?
Rhind: We are always either in process of launching new products or considering those to launch next. We launched a suite of short and leveraged single stock ETFs in August (4 ETFs) listed on the Nasdaq that offer high-conviction exposure to Tesla, Coinbase and Apple.
Short and leveraged single stock ETF exposure has gained significant investor attention, both in Europe and now the U.S. The growing popularity of single stock ETFs in Europe was the impetus for our U.S. launch. Our goal is to give sophisticated investors the ability to take high conviction positions on some of the most popular stocks in the U.S. market.
The products include: GraniteShares 1.25X Long TSLA Daily ETF, GraniteShares 1X Short TSLA Daily ETF, GraniteShares 1.5X Long COIN Daily ETF and GraniteShares 1.75X Long AAPL Daily ETF.
What Are The Best ETFs From GraniteShares Now
IBD: Which ETFs have been the best performers this year, and why?
Rhind: Broadly speaking, the best performers this year so far have been commodities and short or inverse ETFs.
The GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF has returned approximately 13% year to date (as of Oct. 24) beating the S&P 500 quite significantly. (This ETF) allows investors to play the commodities space with broad exposure across 23 futures in five economic sectors: softs, livestock, energy as well as base and precious metals. Given this diversification, investors have access to the macroeconomic trends driving markets recently while, at the same time, maintaining a portfolio that acts as an inflation hedge.
Short products that have performed well have allowed investors to profit from falling share prices or markets. As an example, the Graniteshares 1x Short TSLA Daily ETF has returned 32% (as of Oct. 24) since its inception on Aug. 9, 2022.
IBD: Which ones saw the largest flows, and why?
Rhind: In the U.S., COMB (commodities) and BAR (gold).
In the beginning of 2022, investors flocked to real assets to hedge against inflation amid rising interest rates, geopolitical tension and other macro drivers inciting fear in the market.
COMB and BAR provide direct exposure to commodities or real assets that are difficult to access through equity or fixed income markets.
Plans For Future Funds
IBD: Are you working on any new funds?
Rhind: Our recent single-stock ETF launch was just the first step in bringing short and leveraged single-stock ETFs to the U.S. Similar to how we've expanded across European markets, we plan to deepen our pool of single stock funds here in the U.S.
IBD: What is your economic outlook for the next 12 months?
Rhind: In the near term, we anticipate markets will remain volatile. The upcoming midterm elections could act as a political lightning rod to markets with the commodities sector potentially seeing another boost and experiencing higher prices for a longer period.
As for 2023, we believe the Fed will continue to raise interest rates until inflation stabilizes or comes down, increasing the likelihood of a recession within the next year.
Failure Of The 60/40 Portfolio
IBD: What is your message to investors today?
Rhind: For the last decade or so investors have been able to enjoy large returns for very little effort.
The "60/40" portfolio only went up each year and investors didn't really have to think about anything else other than core equities and bonds. This has now changed.
The 60/40 portfolio has so far this year shed approximately 20% already, making this the worst performance on record outside of two calendar years that both occurred during the Great Depression. Investors looking for positive returns perhaps now need to consider alternatives in a way they haven't in the past. I believe high conviction strategies can help investors deliver solutions that are lacking in the traditional 60/40 portfolio.
