ETF Zoo: The Staggering Flows Driving the 2-Speed ETF Market
This week's ETF Zoo crew digs in under the hood of the stunning flows data behind 2025's two-speed ETF market. From predictable passive to the innovations driving high-fee derivative products, investors want it all this year. Then find out how Vanguard became the unlikely "white knight" for bitcoin, and why it's business as usual at the SEC.
Welcome to ETF Zoo, where we check in on the latest happenings in the wild world of ETFs. This week's conversation covers the ongoing popularity of derivative strategies, underscored by the announcement of Goldman Sach's acquisition of Innovator. The group also talks the reality of crypto investing, valuing psychological commodities, and the SEC rejection of 3x-5x leveraged ETF filings.
Hosts Dave Nadig, President and Director of Research at ETF.com as well as Sumit Roy, Senior ETF Analyst at ETF.com, are joined by industry experts to cover the latest and greatest happenings in ETFs. This week's episode features Mike Akins, Founding Partner of ETF Action; Eric Balchunas, Senior ETF Analyst at Bloomberg Intelligence; and Todd Sohn, Senior ETF & Technical Strategist at Strategas Securities.
Topics and Timestamps
[00:00:48] The Flow Story: The discussion opens with the massive flow numbers for the year – over $1.5 trillion – and the consensus that about 75% of the money is still going into "boring" cheap beta. However, the major action in new launches and growth is in complex, derivative-based products (options, buffers, leverage), which target investor feelings and anxieties.
[00:04:47] The Power and Popularity of Derivatives: Goldman Sachs' $2 billion acquisition of Innovator underscores the immense profitability of defined outcome/buffered products. Investors continue to prove that they're willing to pay sizable fees as a trade off for managing portfolio anxiety. It serves to reinforce the trend of new issuers pursuing high-fee, complex products where revenue is huge, as competing with Vanguard on core beta is too difficult.
[00:10:23] Vanguard Gives in on Crypto and the Future of Digital Asset Fees: The major news of Vanguard allowing clients to trade crypto ETFs proved shocking for some of the group. This, combined with Schwab's upcoming direct crypto trading, leads to the question of the future for digital treasury companies like MicroStrategy. Balchunas shares his experiment with crypto investing via Coinbase and why ETFs are exposing the friction and high cost of direct crypto ownership.
[00:18:38] Cryptocurrency as a Psychological Commodity: The discussion pivots to the fundamental nature of bitcoin, which is defined as a psychological commodity akin to gold or a Picasso painting, whose value is based on scarcity and human perception. The group then debates the importance of brand and trust in this new, complex landscape across crypto and non-traditional products).
[00:23:10] SEC Rejects High-Leverage Single-Stock ETFs: The group addresses the SEC's rejection of all filings for 3X and 5X single-stock leverage ETFs. Balchunas suggests that the existing 2X leverage single-stock ETFs act as a back door to high leverage, which leads to a debate about fee transparency, particularly the undisclosed financing costs in these products, which can cause them to deviate significantly from their intended return.
[00:28:51] The Cost of Fee Transparency: The conversation carries over into transparency and how financing costs, acquired fund fees, and high turnover are often not fully captured in the expense ratio, impacting investor performance. The high fee insensitivity in complex products are also leading to growing interest by asset managers as they chase these more lucrative strategies. The collective acknowledgment is that many of the traders using leveraged products are doing so skillfully, reflected in outflows during strong upward markets and diving in after pullbacks.
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