Alternative ETFs, Madison’s ETF Entrance, & the Industry’s Biggest Trends

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On this episode of ETF Prime, host Nate Geraci speaks with a trio of individuals discussing several different ETF-related topics. His guests include VettaFi’sTom Lydon who gives his perspective on how to use alternative ETFs in a portfolio. Geraci also speaks with Madison’s Patrick Ryan to discuss his firm’s entrance into the land of ETFs. To close the podcast, Geraci speaks with Daniil Shapiro of Cerulli who highlights some of the industry’s biggest trends.

Alternative ETFs

To open the podcast this week Geraci brings on Tom Lydon to get his take on how advisors and investors should use alternative ETFs in their portfolios. Geraci first highlights that directly following Lydon’s conversation with him he will be off to moderate VettaFi’s Alternatives Symposium. He then asks Lydon why he felt it was important to hold an event with such a large emphasis on alts at this point of the year.

“It has been tough for investors; it’s been tough for advisors. Having a couple of years where you have negative returns in the bond market is something that just hasn’t happened in almost four decades,” Lydon said.

Lydon points to the adversity that both investors and advisors have had to face in the past couple of years as a contributing factor as to why alternatives are such a prevalent topic at the current moment. Lydon also mentions that a lot of investors are moving away from the 60/40 portfolio and lots of cash is sitting on the sideline as other contributing factors to the relevance of this topic. He also thinks it is the perfect time for this conversation because advisors are starting to look at where they plan on putting their client’s cash in 2024.

In addition, the pair discuss how the development of ETFs has changed portfolio management overall and the importance of understanding what you are investing in.

Thoughts on Gold

The conversation then shifts gears when Geraci and Lydon begin to look at alternative investments directly, specifically discussing how advisors should use gold in their portfolios. Geraci highlights that physical gold ETFs are clearly popular among advisors as there are more than $100 billion dollars in these products currently. He also mentions that in terms of alternatives he feels that these are products that are easier for investors to get their heads around. Geraci then asks for Lydon’s view on gold overall.

“The story for gold is strong,” Lydon said.

Lydon highlighted that in the last year, a lot of investors got gold wrong because they were looking for China to rebound. He then mentions that because of this there was a significant amount of selling of the precious metal, but there was also a lot of buying of gold, specifically from central banks. He feels that central banks purchasing a large amount of gold is a good sign for the metal moving forward. Overall, Lydon believes that investors will see a nice pickup in gold in the new year, especially if the dollar weakens. To close their conversation, Geraci and Lydon discuss cryptocurrency and more.

Madison’s Entrance Into ETFs

Geraci then brings on Patrick Ryan the President of Mutual funds and ETFs at Madison Investments to discuss his firm’s recent entrance into the ETF world. The firm launched its first ETF in August of 2023 and it now offers four ETFs altogether. The funds have already garnered close to $250 million in assets on top of the significant amount of assets the firm manages in other areas of the investment world. Geraci then asks Ryan why he and his firm thought now was the right time to get into the ETF space.

“Madison has a long history in separately managed accounts and in mutual funds. ETFs were really just a natural extension of what we were already doing,” Ryan said.

Ryan and his firm feel that ETFs have recently become a bigger piece of the pie in terms of investors’ and advisors’ allocation of capital. Madison as a firm wanted to ensure that they were able to offer their products to investors as they continue to look to ETFs as a key investment vehicle.

To close the segment Ryan gives his thoughts on the recent rise of active ETFs, and his explanation as to why interest in it has grown recently. Additionally, the pair explore Madison’s four ETFs, and Ryan provides more information about them.

Industry’s Biggest Trends

To close this week’s show Geraci brings on Daniil Shapiro the director of Cerulli Associates to discuss some of the industry’s biggest trends. Shapiro primarily focuses on ETFs and alternative investments for the firm. The duo began their conversation discussing alternative investments, and Shapiro offered his take on what his latest research suggests surrounding this style of investment.

“The ETF structure is a bit understated in terms of how important it is to alternative investments overall,” Shapiro said.

Shapiro then highlighted that there are approximately $430 billion dollars in liquid alternative ETF assets and feels that this is a high amount for this style of ETF. Especially, when this style of ETF was originally considered to only be a mutual fund specialty. Another important note that Shapiro shared during his appearance was that research shows this style of ETF is the advisor’s preferred way to access alternative investments. Overall, Shapiro believes that alternative investments are something that advisors are currently paying attention to.

To close the conversation, Shapiro shares his thoughts on several other of the industry’s biggest trends.