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With the launch of two bitcoin futures ETFs occurring in October, an event that was eight years in the making, its conclusion can lead one to ask “what’s next?” for the ETF industry. After all, it’s not often an entirely new asset class is created.
With so many launches seeming like tweaks on existing ideas, it can be tempting to feel everything worth doing has already been done. Many issuers have resorted to competing on price, a topic about which much ink has been spilled both on ETF.com and elsewhere—see here and here.
But with 2,717 existing U.S.-listed ETFs currently searchable within our Screener & Database, is it even possible to come up with something new and unique anymore?
That’s the funny thing about innovation.
Though the attribution of the saying is dubious at best, Henry Ford is often quoted as saying, “If I had asked the public what they wanted, they would have said a faster horse.”
In other words, it’s difficult for us to imagine what doesn’t exist yet. For innovation to happen, it takes the ability to think outside the box and envision something truly radical.
And this is what’s great about ETFs—the space is filled with radical thinkers.
Big Year For ETF Innovation
With the number of ETF launches this year already outpacing last year’s high watermark of 318, several funds stand out to me as embodying this idea of innovation.
We already have not one, but two ETFs that offer plays on the metaverse. The Roundhill Ball Metaverse ETF (META) launched on June 30, months before Google searches for “metaverse” would peak after Facebook’s name change to Meta.
(For a larger view, click on the image above)
The search term shot past both “ETFs” and “inflation” in popularity after Facebook signaled a focus on the metaverse. The Fount Metaverse ETF (MTVR) launched on the same day that the Facebook Connect conference was held, where the name change was announced.
Psychedelic ETFs Debut
This year also saw the launch of the first U.S.-listed psychedelics ETF. The Defiance Next Gen Altered Experience ETF (PSY) debuted in late May. A few months later, the AdvisorShares Psychedelics ETF (PSIL) was launched, bringing a global play to the space.
While public perception of psychedelic drugs often calls to mind the counterculture era of the ’60s, these drugs are a growing area of research, showing therapeutic promise for afflictions such as depression, PTSD or even with assisting someone in coming to terms with a terminal diagnosis.
While mainstream acceptance for these treatments is likely still off in the distance, it was less than four years ago that cannabis ETFs hit the U.S. market, with the conversion of the Tierra XP Latin American Real Estate ETF to the ETFMG Alternative Harvest ETF (MJ).
There are now 10 cannabis ETFs and nearly half of the country lives in a state where marijuana is legal for recreational use. Several other states allow medical usage, though the substance remains illegal at the federal level. It is entirely possible that psychedelic drugs could see the same growing acceptance over the next few years.
GameStop Shifts Investor Appetite
Several launches this year were inspired by an event that was largely unthinkable before it happened. GameStop’s surge was painted as a David and Goliath story of small retail traders getting their revenge on hedge funds.
Since then, ETFs that focus on retail investor sentiment have proliferated. The VanEck Social Sentiment ETF (BUZZ), launched in March, two months after GameStop surged from $17 to a high of nearly $350. Though the stock has since fallen from record highs, it’s still up 962% for the year.
BUZZ gathered $280 million in inflows on its first day of trading, and crossed the half billion mark in two weeks. While BUZZ wasn’t the first take on building an investment thesis around retail trader sentiment on social media—an earlier ETF that closed also tracked the same index a few years before BUZZ’s launch—January’s events gave the idea credibility in a way that didn’t exist before.
In late August, Roundhill filed for the Roundhill MEME ETF (MEME), which is arguably the most inspired take on the GameStop saga. The fund is the first to seek to identify companies with a combination of elevated social media activity and high short interest—exactly the factors that took GameStop to the moon. This filing seems obvious now, but wouldn’t have made as much sense to the average investor even a year ago.
I'm reminded of a quote I heard on an episode of ETF Working Lunch. Jillian DelSignore, head of ETFs & indexing for FLX Distribution, said something that summarizes exactly what I feel: “The ETF industry is that corner of asset management where innovation goes to thrive.”
So while there’s no easy answer to the question of what’s next, the versatility and tradability of the ETF wrapper gives me confidence that, no matter what happens, there’ll be an ETF for it.