Crypto News: ETF IQ: Who wants a leveraged Buffett fund?

Welcome to ETF IQ, a weekly newsletter dedicated to the $14 trillion global ETF industry. I'm Bloomberg News reporter and anchor Katie Greifeld.

This newsletter has spilled a lot of ink over all the wacky ideas that have made it into the single-stock ETF wrapper. Here's another one: one of South Korea's largest retail brokerages has teamed up with Milwaukee-based Tidal Investments to create a double-leveraged fund tracking Class B shares of Warren Buffett's Berkshire Hathaway Inc.

This planned ETF is weird just because Berkshire stock is so boring. Single-stock ETFs have been a hit among retail traders in particular because they are essentially packaged adrenaline — layering leverage onto an already volatile stock, packaged into a fund that the average investor can buy with the click of a button.

Berkshire, a conglomerate sitting on a record cash pile, is relatively sedate: the Class B stock's 90-day volatility is just under 19%. Compare that to some of the most popular names in the single-stock ETF arena: Nvidia's 90-day volatility is 58%, while MicroStrategy's measure clocks in at a stunning 97%.

An attendee holds a cardboard cutout of Warren Buffett during the Berkshire Hathaway annual shareholders meeting in Omaha, Nebraska. Photographer: Dan Brouillette/Bloomberg

However, Tidal — the white-label issuer helping to bring this fund to life — is well-aware that Berkshire is boring, and seem to be embracing it.

"Traditionally on the leveraged ETFs, the lion's share of the interest and asset flow has been on the more volatile names," Gavin Filmore, chief revenue officer for Tidal, said in an article by Bloomberg's Miles Weiss and Youkyung Lee. "Berkshire is almost the polar opposite."

That doesn't quite answer the question of, who wants this ETF? It will likely lack the big pop-potential of other single-stock ETFs, and as we've discussed, the volatility drag embedded into these products rules them out as buy-and-hold investments. Other attempts have been met with tepid demand: the European-listed Leverage Shares 2x Long Berkshire Hathaway ETP Securities, for example, has only gathered about $2.3 million in assets since its 2022 launch.

Bloomberg's Weiss and Lee point out that Buffett does have a following in South Korea, and individual investors from the nation have embraced leveraged ETFs such as Direxion Daily TSLA Bull 2X Shares fund. We'll see if that enthusiasm extends to the Oracle of Omaha.

Elsewhere in filings, BlackRock Inc. is throwing its weight behind an early push to bring ETFs to money-market investors. The asset management titan submitted plans for the iShares Government Money Market ETF and the iShares Prime Money Market ETF last Friday, just one day after the Federal Reserve delivered the second rate cut of this cycle.

Given that the central bank has already lowered interest rates by 75 basis points, it's easy to make the case that BlackRock is coming to the scene just as the money-market craze peaks. Not only are lofty cash yields set to drop, but stocks at all-time high should lure investors off the sidelines and into risky assets, the thinking goes.

And yet demand for cash continues to stun. Total assets held in money-market accounts topped $7 trillion this week for the first time ever, according to Crane Data. Data from the Investment Company Institute isn't too far behind, which shows that $6.7 trillion sits in such funds.

So what gives? As reported by Bloomberg's Alex Harris, money-market funds tend to be slower to pass on the effects of lower rates when compared to banks. For example, The seven-day yield on the Crane 100 Money Fund Index, which tracks the 100 largest funds, was 4.51% as of Nov. 13. According to Steve Chiavarone of Federated Hermes, the continued flood of funds into money-market funds could be coming from bank deposits:

A lot of those money-market assets are not necessarily investable assets. this isn't cash that's going to be put into stocks or bonds. What you've seen and what you're continuing to see is that money markets in many cases offer better yields a little longer duration and a much better deal than bank deposits. So you're seeing this money that's been in bank deposits — when rates were zero, it could sit there, because it didn't matter. Well now, rather than getting 0% in a bank deposit, you can still get a high 4% yield in money-markets and that's still really attractive.

So that 'cash on the sidelines' bull case might be a mirage.

Over more than four decades managing money, Ron Baron has heard all the advice. He's taken virtually none of it and in so doing has achieved a record of investment success that's the envy of Wall Street.

The world's biggest asset manager is leaning into the stock market's post-election rally after shying away from risk exposure in the run-up to the vote.

Jeff Talpins' Element Capital Management built a stake in ETFs tracking the S&P 500 that was worth about $2 billion at the end of September — trades that paid off when Donald Trump recaptured the White House.

In this week's Drill Down on Bloomberg Television's ETF IQ, DBi's Andrew Beer stopped by to talk about the iM DBi Managed Futures Strategy ETF (ticker DBMF). The fund seeks to track the performance of the largest managed futures hedge funds for a tidy fee of 0.85%. The portfolio is made up of long and short derivatives across asset classes, from stocks to bonds to commodities.

DBMF is an interesting snapshot of how these hedge funds are positioning — and turns out, being early is the same as being wrong. Here's how Beer described it:

We seek to identify what these 20 large managed future hedge funds are doing, what are the trades they're seeing, what do they find exciting and in July, they nailed the Trump trade. They had it. They were long equities, they were short bonds, they were long the dollar. And then you had this massive two month market head fake where they essentially got out of a lot of those positions.

DBMF has climbed just 7.6% on a total return basis this year, after being higher by 20% through mid-July. The fund has amassed $1 billion in assets since its May 2019 launch.

Nasdaq's Alison Doyle and Paul Baiocchi of SS&C ALPS Advisors join me, Eric Balchunas and Scarlet Fu on Bloomberg Television's ETF IQ. We'll be live at noon on Wednesday given Monday's US holiday. Watch on Bloomberg Television, on the Bloomberg Terminal at TV <GO> and on YouTube.