The market may be entering a new phase. A departure from the most crowded “non-traditional” strategies.
Mike Akins, founding partner at ETF Action, argues that it doesn’t make sense to cram everything into exchange-traded funds, including personal assets, and that we need to ask some questions.
“ETF wrappers are just more efficient at a lot of things, just not everything,” Akins told CNBC’s “ETF Edge” this week. “I always say I’m an ETF first guy, but I’m not just an ETF guy.”
Akins says what’s happening in the world is more important than the structure of an ETF. He found that investors are now more interested in exposure to real asset themes such as infrastructure and industrial reshoring than in artificial intelligence.
“The ability to obtain [an] ETFs have become very mainstream in the market. If you have the right provider or partner, it’s a no-brainer,” Akins said. “So I think investors will drive the next theme based on the market.”
He expects that to drive innovation in ETF products, for better or worse.
“There’s always a small performance drive going on, and by the time a theme hits the market, it’s sometimes out of business,” Akins said. “However, there is no reason to think that innovation will dry up in the ETF space.”
“You are responsible.”
He cites changes in macroeconomic conditions, leaders and laggards as catalysts for industry adaptation. Eakins argues that new thematic funds could be a tactical tool that imposes more responsibility on investors.
“When you’re investing in these niche strategies, success depends on your managers and their ability to use the product at the right time,” he said. “You are responsible for deciding whether it is a good time to invest.”
This dynamic is causing a shakeout, especially in the hottest area of option-based product design. Looking ahead to the rest of this year, Akins expects non-traditional ETF strategies to consolidate.
He pointed to a recent wave of so-called copycat products, with issuers rushing to launch similar products, including various covered call and buffer strategies.
“We’re going to start to see a consolidation of the strategies that are performing best and gaining market share,” he said. “So I think there will be a shift towards consolidation. I think they’ll continue to grow and gain adoption from investors. But I think we’ll start to see some serious winners and losers in that.”
His reason is that since everyone started something, you can’t have as many strategies tracking the same location.
At the same time, innovation in ETFs may be shifting from what a fund owns to how it is managed. Tidal Financial Group’s Aga Kuplinska sees AI finding its way into the investment process beyond simple “AI-themed” portfolios.
Kuplinska told CNBC in the same interview that Tidal is already showing early signs of that transition in the market.
“We’re already seeing AI-enhanced and AI-managed product launches and submissions on our platform,” said the company’s senior vice president of product development, adding that this is an area in which “we’re just scratching the surface.”
