BITO & SLX: Solid Calls for 2023

A pair of ETFs Andrew Hecht wrote about have delivered big returns this year.

With the end of the year on the horizon, I’m analyzing some of my worst and best calls in 2022 and 2023. This week, I chronicle two ETFs I wrote about that have delivered significant returns this year.

On Jan. 10, I asked if “Reports of Crypto’s Death” were “Greatly Exaggerated.” In that piece, I highlighted the potential for the ProShares Bitcoin Strategy ETF (BITO). On August 2022, I wrote “Commodity Price Trends Support SLX.” The VanEck Steel ETF (SLX) owns shares of leading steel-making companies.  

In early December 2023, BITO and SLX were higher with both products in bullish trends.  

BITO: A Huge Winner in 2023 

BITO does not invest directly in bitcoin but in cash-settled, front-month CME bitcoin futures contracts. While regulation of the cryptocurrency asset class remains cloudy, BITO has two layers, as the CFTC regulates futures and the SEC oversees equities and ETF products.  

In the Jan.10 etf.com article on BITO, I wrote: 

Bitcoin and crypto are highly volatile assets that have experienced boom-and-bust cycles. In bitcoins’ 13th year, the historical trading pattern suggests another boom period could be on the horizon. The level of price variance behooves market participants looking to dip a toe into bitcoin, BITO, or any other related cryptocurrency assets. 

BITO closed at $10.88 per share on Jan. 9, 2023. On Dec. 8, it was trading more than 100% higher, at the $21.84 level.  

Impressive fund flows since mid-January

BITO’s assets under management grew from $545 million in early 2023 to $1.68 billion on Dec. 8. The etf.com fund flows tool shows positive inflows since Jan. 9. 

Source: etf.com 

More than $471 million has flowed into BITO since Jan. 8, with the most significant inflow in early November at $150 million.  

SLX Rally Sparked by Steel Deals

In late August 2022, I noted that steel is a proxy for China in an etf.com article, “Investing in China without Investing in China.” In that piece, I wrote: 

As the world’s leading producer and consumer of steel, the path of least resistance of the industrial metal is a function of China’s economic growth or contraction. The recent rally in SLX could signal that a recovery in the country is on the horizon despite weak economic Chinese data.  

SLX owns shares of the leading steel companies and traded at $64.95 per share on Aug. 11. At $69.25 on Dec. 8, SLX was 6.6% higher, but reached $71.23 on Dec. 1. SLX has an exposure of more than 5% to United States Steel Corporation (X) and a takeover bid has lifted X shares over the past several months. While the latest data shows that China’s economy remains weak, SLX has outperformed China and could have more upside if a Chinese recovery occurs in 2024.  

Positive fund flows since August 2022 

At more than $69 per share, SLX had $128.87 million in assets under management.  

Source: etf.com 

The chart shows that $3.33 million has flowed into SLX since the end of July 2023. SLX remains a proxy for Chinese economic growth or contraction.  

Protect Profits in 2024 

As markets head into 2024, it’s critical to adjust risk levels to reflect current market prices. Many investors and traders make the mistake of considering risk positions at original price execution levels instead of current market prices. Risk positions are always long or short at the current market price.  

When you review portfolios for the coming year, ask if the original investment or trading thesis remains valid at the current market price—and adjust risk-reward levels accordingly. Increasing profit horizons on profitable positions should include a requisite adjustment in risk levels. Raising stops is an excellent strategy to protect capital for the coming year.