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The Tidal Financial Group (Tidal) expanded rapidly over the last decade and encompassed multiple ETF related brands including Toroso Investments, Tidal ETF Services, and the ETF Think Tank. Going forward all activity will be unified under the Tidal brand as we become one company, dream, family, and platform focused on holistic ETF customer solutions.

Much Ado About a Lot in ETFs

There’s a lot going on in the ETF space these days, so we thought we’d highlight three quick things that are top of mind this week.

Earnings, Earnings, Earnings

For starters, we are in the middle of earnings season, and more than 170 companies – including key tech giants such as Microsoft and Apple – are reporting Q2 results this week. About 1/3 of all US equity ETFs own shares of Microsoft; some 30% own Apple. Their earnings impact ETFs across the board.

For ETF investors, where built-in portfolio diversification typically helps soothe the nerves come earnings surprises, jitters are still real. Why? When correlations are defying historical precedence, and models and allocations that we’ve come to rely on for risk diversification are failing to deliver the same type of protection, fundamentals matter.

Both stocks and bonds, measured by ETFs such as SPY, AGG, and TLT, are all down year-to-date with losses ranging from 8% to 19%. The classic bad-weather diversifier, gold, is also down about 6%. Commodities and energy, which had been one of the only bright spots in 2022, have now lost steam in recent weeks, and weakened. If you look at ETFs as proxies for these markets such as USO, XLE, and PDBC, they have all peaked in early June and have lost ground since.

Put simply, it’s been hard to spot winners with staying power, and this earnings season will offer us another opportunity to assess the impact inflation and rising rates are having on companies’ bottom lines, and search for any signs of stability and growth – or confirmation of the ‘R’ word: recession.

Single-Stock ETFs Are in The House

In that backdrop, we’re digesting an entirely new type of ETF wrapper that has come to market: the single-stock fund. With now two issuers already in this space, and many more ETFs filed in this category, we are off to the races on a new genre of ETF investing.

The first set (from AXS) came mostly as bull and bear pairs of investor favorites like Tesla, Paypal, and Nike, offering varying levels of leverage and inverse performance depending on the stock. Innovator, known for the Defined Outcome ETFs, followed with a hedged single-stock play on Tesla, offering more of a buffered ride on the stock performance.

These new ETF types are about single-stock risk magnified – big risk for big potential return.  

For fans of diversification, which is one of the key ETF traits we love to boast about, this latest product innovation can be a bit of a head scratcher. But at the end of the day, these strategies are just another tool that ETF investor can employ tactically to express short-term views or to hedge other existing positions in a portfolio.

And like any other tools, they need to be implemented responsibly. Don’t invest and drive. Our friend Dave Nadig wrote an excellent piece detailing the math of these strategies, which is a must read if you are considering jumping into them.

Product innovation is exciting, and we’ll be watching this space with interest, looking to see how they are used and what impact they have in the overall ETF market, if any.

To quote Nadig, “For now, we have a handful of products tracking extremely liquid underlying securities with low assets. The sky is most assuredly not falling. But imagine if these products existed in several flavors for every stock in the S&P 500? What happens when a stock becomes a meme-darling, and the liquidity flows into the geared products out of proportion to the underlying stock? The short answer is, ‘more end-of-day volatility,’ and the long answer is, ‘who knows, it’s not like anyone expected Roaring Kitty to blow up GameStop’.”

No Better Time to Learn About Digital Assets

Talking about potential blow-ups, Bitcoin is down some 55% this year. Between those with perfect hindsight 20-20 vision and those with clear crystal balls, it seems as if everyone saw this coming, and everyone knows what happens next.

If you (like me) are not among those blessed with absolute clarity, education remains your trusted best friend. And given recent market action, there’s no better time to take the plunge and learn more about this space.

To that end, we have good news!

The ETF Think Tank has partnered with the Digital Assets Council for Financial Professionals to help you learn about crypto and get the DACFP Certificate in Blockchain and Digital Assets. DACFP has put together an impressive 11-module course on digital assets that offer 13 CE credits and a certificate that’s endorsed by the CFP Board among other groups.

If you are a financial advisor, and you want to grow your expertise in crypto assets, we may be able to sponsor your effort. To check out if you qualify for our sponsorship, scroll down our homepage to the DACFP link (looks like the image below), click on “Learn More” here, or give my colleague Dan Weiskopf a call. For more details on the Certificate, see the DACFP website.

Disclosure

All investments involve risk, including possible loss of principal.

This material is provided for informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Toroso nor any of its affiliates guarantees any rate of return or the return of capital invested. This commentary material is available for informational purposes only and nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security and nothing herein should be construed as such. All investment strategies and investments involve risk of loss, including the possible loss of all amounts invested, and nothing herein should be construed as a guarantee of any specific outcome or profit.  While we have gathered the information presented herein from sources that we believe to be reliable, we cannot guarantee the accuracy or completeness of the information presented and the information presented should not be relied upon as such. Any opinions expressed herein are our opinions and are current only as of the date of distribution, and are subject to change without notice. We disclaim any obligation to provide revised opinions in the event of changed circumstances.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Toroso or its affiliates or any of their officers or employees of Toroso accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Toroso. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of and observe such restrictions (if any).

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