| | Good morning and happy Monday. Aim for the moon. Or, if you're a retail investor looking to get into SpaceX before an initial public offering, aim for an ETF. That's one ETF in particular: the ERShares Public-Private Crossover ETF (XOVR). That fund has seen nearly $500 million flow in since Dec. 8, more than doubling the size of it, according to a report last week by Bloomberg. It appears to be the only US ETF on the market with exposure to the coveted SpaceX, which it indirectly owns a slice of ($20 million at the time of its investment) via a special-purpose vehicle. And the fund has likely seen even more investors roll in since the Bloomberg report, as its assets are now about $1.3 billion, per Morningstar data. All that, and investors don't even have to talk to Elon. | | | | | | | | Is Oracle's recent stock plunge a prophecy about the dreaded AI bubble? A couple of observers say no, even if its stock is hardly a value right now. After it hit a record high of over $328 per share in September, the stock has been declining, falling to about $178 by the middle of last week before rebounding to $192 by Friday. That happened as Blue Owl Capital, the biggest partner in its data centers buildout, reportedly opted against backing a new center in Michigan, prompting an exodus by investors who have grown anxious about the monumental capital expenditures around artificial intelligence. Amid an ongoing AI fever, many ETFs hold Oracle, especially because of the stock's high placement in the S&P 500 and other large-cap indexes. "We had some exposure. We no longer have exposure, but we're unique in that our processes are just systematic," said Ryan Kirlin, president of Alpha Architect, citing the firm's US Quantitative Momentum ETF (QMOM), which sold its Oracle holdings after the stock's peak and the decline in momentum. "There's no human element." Heading for the Exit There are 11 US ETFs with 5% or more of their assets in Oracle stock, and well over 100 with 1% or more in it, according to Morningstar Direct. QMOM was the second-biggest seller of Oracle recently, having offloaded over $5 million of stock, representing about 1.5% of the ETF's assets. The biggest exit, by volume of stock, came from the $18 billion Capital Group Growth ETF (CGGR), which sold nearly $59 million in Oracle, though only representing a small proportion of the fund's assets, at less than a third of a percent. The stock's down, but that doesn't automatically make it a buying opportunity. "Our fair-value estimate is at $277 (per share) now. We think the stock is undervalued, but we wouldn't necessarily say it's an attractive buying opportunity now, because there can be a very wide range of outcomes with Oracle's data-center buildout," said Luke Yang, equity analyst at Morningstar. "Only for investors who have very high risk tolerance or have very strong conviction on the future development of AI would I recommend they look at Oracle stock." Here's a look at who's holding, per the Morningstar Direct data: - WisdomTree's US Quality Growth ETF (QGRW) was the biggest buyer recently, at about $48 million, or 2.3% of its portfolio.
- The Pacer Data and Digital Revolution ETF (TRFK) has the largest allocation as a percentage of its assets, at nearly 8.9%, followed by the Direxion Daily Technology Top 5 Bull 2X ETF (TTXU), at 8.7%.
- The big index funds, such as iShares Core S&P 500 ETF (IVV) and SPDR S&P 500 ETF (SPY), own the most stock, at $3.8 billion and $3.6 billion, respectively.
  Not Exactly Value Territory: The Oracle stock price changes are more of a story about that company rather than AI widely, Kirlin and Yang said. There are plenty of cases of tech stocks trading at extremely high price-to-sales ratios, with Palantir being the prime example, Kirlin said. For momentum strategies, "it's good to chase into bubbles," he said. "You can make a lot of money, but you've got to get out before they go the other way." Written by Emile Hallez | | | | | | In turbulent markets, active management matters. Active strategies can help investors stay invested, building a diversified portfolio designed to manage risks and capture potential opportunities in volatile markets. Active investment encompasses a range of strategies, from funds that lie between active and passive strategies to fully active funds that take greater risks in pursuit of significant outperformance. Active ETFs, which combine the research and rigor of active management with the flexibility and transparency of the ETF wrapper, offer investors a range of potential solutions to help navigate market turbulence. Learn more about Goldman Sachs Active ETFs.  | | | | | The Securities and Exchange Commission finally brought dual share classes to the masses … some of them, anyway. The SEC announced last week that it will allow dozens of issuers to offer ETF share classes of mutual funds and vice versa, so long as the SEC doesn't order hearings against the applications. The move is the agency's first announcement on the topic since November, when it approved Dimensional Fund Advisors's proposal. Despite being largely expected, experts said the decision underscores the ongoing ETF boom and the expectation that ETF adoption by traditional money managers will increase. "Managers who were traditionally not in the ETF space, are now very much so in the ETF space," said Rich Lee, head of program trading and execution strategy at Baird. "Approval for the share class [is] really going to be a huge igniter … It helps these managers get access to a channel that maybe they've not traditionally been in." The Post-Approval Landscape The primary benefits of a dual-share-class structure include tax efficiency and liquidity, as the benefits of an ETF wrapper are brought to mutual fund structures, and potentially to retirement accounts. But it won't all be smooth sailing from here, Lee said, since many logistical and operational hurdles remain for traditional managers who haven't had to learn the ins and outs of ETFs before. "[Some managers] may not be as familiar, or may not have direct firsthand experience with in-kind custom baskets," he said, referring to how issuers can create baskets of securities and transfer them directly to whoever is redeeming shares, thus reducing taxes. "That's going to be something managers are going to have to get comfortable with. It's a new tool in their arsenal." While larger managers likely have existing products or the resources in-house, smaller money managers may have to rely on the expertise of others to get their funds off the ground, he added. According to the SEC's notice: - Petitions to offer dual share classes will be granted as early as Jan. 12, since that is the deadline for the SEC to order a hearing on any given application.
- The notice applies to 30 asset managers, including BlackRock, F/m Investments, PIMCO, JPMorgan, Fidelity, Morgan Stanley and others.
Solid, Gas, Liquidity. Liquidity will be something to watch, Lee said, since many of these funds need to hold more cash or other liquid assets, which could cause an increase in underlying fees. "There's more listed tickers for ETFs out there in the marketplace than there are actual single stock tickers," he said. "It will be interesting to see what the impact of this influx of active managers doing custom in-kind baskets … has for balance sheets." Written by Lilly Riddle | | | | | | | | | Who wants to be a unit investment trust, anyway? Invesco finally got the votes it needed for its flagship $399 billion fund, QQQ, to be restructured from a unit investment trust to an open-end fund. The ETF had held several rounds of votes, though it only last week crossed the 51% shareholder approval it needed. For investors, the change will lead to lower fees, which are being reduced from 20 basis points to 18. And crucially for Invesco, it means a significant boost in annual revenue that until now had been off limits for the asset manager. Oh, and it also means that shareholders won't have to endure any more of the outreach blitz from third parties Invesco hired to encourage people to vote. Some shareholders (who presumably hadn't voted) have been venting anonymously about the calls, comparing them to harassment, according to a report by the Financial Times. However, Invesco made clear in investor communications that once someone voted their shares, the calls would end. "This [is] insane," one Reddit user wrote. "I've had stalkers that are less invasive." Yeesh. Key to the Kingdom A huge drawback to the dated unit investment trust model is that Invesco couldn't use much of the revenue from the 26-year-old ETF for anything other than marketing. In proxy materials, the firm indicated it would dramatically reduce the advertising spend for QQQ, cutting it by at least half. (Expect to see fewer QQQ ads next year, sports fans.) Invesco, of course, is happy, with a planned 3 to 4 basis points, or more than $100 million in annual revenue, to be redirected. The reclassification allows Invesco to reinvest income and use securities lending, the company noted in an announcement. "We are proud to deliver a 10% reduction in fees to QQQ investors while creating more flexibility to utilize tools that could deliver better outcomes for investors," Invesco president and CEO Andrew Schlossberg said . QQQ has done well this year: - The ETF, which tracks the Nasdaq 100, has returned over 20% year to date, while the S&P 500 is up over 16%.
- It has seen about $16 billion in net inflows so far this year, despite net outflows of around $1 billion in November, per Morningstar Direct. Over three years, it has taken in $50 billion.
- It's the fourth-largest US ETF on the market, behind Vanguard's $569 billion Total Stock Market ETF (VTI) and ahead of Vanguard's $206 billion Growth ETF (VUG), according to VettaFi.
Herding Cats: If nothing else, the exercise shows how challenging it can be for an asset manager to corral retail investors. Everyone, apart from recipients of ad revenue, is probably relieved this saga is over, and the end of calls will provide some peace and QQQuiet. Written by Emile Hallez | | | | | | | | | |
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