Not Taking Single-Stock ETFs for Granite

Will Rhind has watched the ETF business for more than two decades. He was an original member of the iShares team — back when it was part of Barclays — and he was later CEO of World Gold Trust Services, the sponsor of the now $98 billion SPDR Gold Shares ETF (GLD). He left that company in 2016 to found GraniteShares, which has built out an extensive line of leveraged single-stock ETFs. 

Rhind, who has roots in the “Granite City” of Aberdeen, Scotland, joined ETF Upside for a conversation about the burgeoning world of single-stock ETFs. GraniteShares filed last week with the Securities and Exchange Commission for 25 additional leveraged single-stock ETFs. Rhind did not discuss the pending funds, given that they are in the registration period, but he talked about where the firm is headed.

ETF Upside: How did GraniteShares get its start, and why did you decide to focus on leveraged single-stock ETFs? 

Will Rhind: When we started GraniteShares, there were only two companies in the US allowed to do leveraged ETFs, and that was a weird regulatory quirk at the time. The leveraged ETF market hadn’t had a lot of innovation for a long time, and the SEC updated the rules around ETFs back in 2020 or 2019. That allowed anybody to do leveraged ETFs; there were all sorts of harmonization things that came with it. There was “white space” on the leveraged side in doing leverage on single stocks, which no one had done before, and so that’s what we started to do. We’d actually done it in Europe first, because we couldn’t do it here. So we started the first levered single-stock products in Europe, and then bought them here when we were able to.

What do you hear from investors about how they’re using the products? I assume most people are aware of the risks and are trading daily.

The great thing about ETFs is that there are so many different ways to use it. The directional — two times long, two times short —is one obvious application, but you’re able to trade in the pre-market —so before the open, after the close — which is a big benefit against things like options. For example, you’re able to short or take an inverse view, which is very useful in environments like this year that we’ve seen so far. And then, there are other strategies around creating tax events you know could be using short, for example, to generate a taxable loss that you can often offset against gains elsewhere in the portfolio. 

How do you decide what strategies to pursue? How long do you give a particular strategy if it doesn’t catch on? What are some examples of what’s worked well and what hasn’t?

With any ETF, it’s much more of an art than a science. Predicting exactly what the market wants is seriously difficult. You can look at a few obvious things when it comes to single stocks: You can look at the size of the stock, the amount that it trades. You can look at different sorts of forecasts. You can look at the amount of mentions it gets on social media. You look at all these things, but ultimately, investors have to buy it, and there has to be that sort of unique cocktail of enthusiasm around it, which is just difficult to predict. Nvidia, for example — that’s our biggest — NVDL, two times Nvidia. And that one, it’s obvious to everybody now, but it perhaps wasn’t as obvious at the time when we launched it, because it was before ChatGPT was released. So I think those in the know knew Nvidia was a good company, but it obviously, absolutely caught on fire after the release of ChatGPT, and everybody had their eyes opened to the potential of AI. When a product doesn’t work, it’s just a profitability calculus. It’s binary — it’s either profitable or it’s not profitable. There’s no hard rule in terms of how long we’ll keep it. But we’ll look beyond profitability, at things like trading volume.

What categories are you planning to expand in?

We love what we call “high conviction” products, and leverage is in that category. Crypto is in that category. Options-based income is in that category. Options-based income is probably the one where we think there’s a big amount of potential, and we’re expanding in that space with our YieldBoost brand. Leveraged single stocks is also one where we want to expand the number of products we offer there, but it’s always according to demand of the market. And then outside of that, it’s really just based upon your market conditions and what sort of investment or key investment trends are identified at that time.