What the Kentucky Derby and ETFs Have in Common

Like horse and jockey, ETFs can help professionals win the race.

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Reviewed by: etf.com Staff
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Edited by: James Rubin

As a fan of ETFs as well as horse racing, the 150th running of the Kentucky Derby this Saturday afternoon has metaphors rushing at me like a thoroughbred sprinting down the stretch in the historic rickety cathedral of the sport, Churchill Downs. 

The winner of the race will achieve instant fame. And by winner, I refer not only to the horse but its connections, including the jockey who rides the winner, the trainer who got the horse in top shape, and the owner who funded the adventure.  

What Does This Have to do With ETFs and Advisors? 

If horse racing is the “sport of kings,” then ETFs are the tools of advisor royalty. Because while individual stocks, bonds and mutual funds all have a potential role in client portfolios, ETFs in the aggregate offer the most flexible tool set for which an advisor could ask.  

As such, ETFs are like the thousands of horses that compete at tracks across the world: They all have the potential to be great, but how far they get depends on a couple of key factors. 

Kentucky Derby Trainers and Bitcoin ETF Issuers

Issuers need to get their products into position to compete in a marketplace where everyone is gunning to be a winner. Just think back a few months to the “horse race” surrounding the launch of 10 spot Bitcoin ETFs in January. As it turns out, that race appears to have been won by the iShares Bitcoin Trust (IBIT), which has amassed an astounding $17 billion in assets since it opened the gates to start that “race” in early January. 

IBIT sprinted to the front, held the lead, then had plenty of “kick” down the stretch. And the $9.6 billion Fidelity Wise Origin Bitcoin ETF (FBTC) apparently finished second in what will likely be years of competition for assets in that segment of the ETF business. 

Why Kentucky Derby Jockeys Are Like Advisors  

Advisors are the jockeys. They must figure out what to do with that horse to compete in the race. That is, the onus is on them to position the product so that it has the best chance to deliver for the client. Just as the horse with the best sprint speed doesn’t always win a race, there are tactics involved.  

Things like position size in the portfolio, owning the ETFs at times when it is potentially most favorable, and not excessively valued at purchase. And, just as some of the world’s best jockeys will need to skillfully navigate through lots of traffic with all that horsepower surrounding them during the Kentucky Derby (not to mention the weather), advisors must battle their own obstacles…rough markets.  

Advisors and ETFs: Operating at Top Speed 

ETFs, their issuers, investment advisors and the other parts of the industry chain have a lot more in common with this popular sport than people may realize. With ETFs now more than $10 trillion in assets, this is a part of the investment landscape advisors must be familiar with, even if only as casual participants, like many in the festive crowd in Louisville, Ky. this weekend. 

A final note: the wagering aspect had nothing to do with this article. Because while the gambling aspect of horse racing is part of the fun when done responsibly, the pageantry and tradition of this form of entertainment transcends that aspect of it. Whether you wager or not, enjoy the Kentucky Derby on Saturday! 

Rob Isbitts was an investment advisor for 27 years before selling his practice to focus on ETF research and education. He is based in Weston, Florida. Contact him at  [email protected] and follow him on LinkedIn.