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Russell Tencer on Leveraged ETF Innovations, Tesla and Nvidia Trading Strategies, and Emerging Market Applications

• Michael A. Gayed, CFA

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Could leveraging new ETFs revolutionize your investment strategy? Join us as we promise to unpack innovative leveraged ETF strategies with Russell Tencer, President of AXS Investments. We dissect the limitations of conventional daily reset leveraged ETFs and how they sometimes fall short for long-term performance. Discover the game-changing potential of calendar reset leveraged ETFs, designed to offer sustained leverage over longer periods. These products could be a crucial tool for financial advisors and self-directed traders eager to align their strategies more effectively with long-term investment goals.

Russell shares insights on AXS Investments' pioneering approach with single stock ETFs, spotlighting Tesla and Nvidia shorts in a competitive market. We explore the critical role of first-mover advantage and the necessity of a unique value proposition. Our discussion navigates the broader application of leveraged ETFs in emerging markets, underscoring the significance of investor education on leveraging risks and benefits. Whether you're eyeing short-term tactical trades or longer-term strategic bets, the insights in this episode aim to enhance your understanding and approach to leveraged ETF trading.

The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related to all investment decisions.


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Speaker 1:

With the financial advisor channel. We think it's really interesting, like to date they really haven't been allowed to use levered products, and for good reason. I mean there are a couple of firms where they've actually been advisors that have been sued because they left clients in daily products for weeks, months, years, and the client said, hey, I was supposed to get 2X, whatever. And ended up the underlying was positive and the 2x or 3x product was negative over that time, which is the line, the point we're making, right, right, um, so financial advisors have a fiduciary responsibility to kind of meet objectives of clients. So these products are actually very well designed to help those financial advisors with their, as you say, more aggressive clients financial advisors, but they are, as you say, more aggressive clients.

Speaker 2:

This should be a good conversation, in that I've gotten to get to know you a little bit the last couple of weeks. We're at the Money Show. My name is Michael Guyad. I've been asked to host these podcasts on behalf of the Money Show and I think this is very appropriate of a conversation, in the sense that a lot of people here are self-directed traders. A lot of people want to leverage. They don't know how to leverage. That's right. If they think they know how to leverage, in reality they don't know the implications of daily leverage. So, russell, introduce yourself to those that are listening and watching. Who are you? What's your background? How'd you get involved in the ETF space?

Speaker 1:

Sure, so, russell Tenser, I'm the president of Access Investments, and Access Investments is a firm I co-founded five years ago. We're an issuer of ETFs and manage mutual funds, and this year we launched a new brand called Trader ETFs and it's the first brand, from us, at least, that focused specifically on traders and providing levered ETF strategies. So, out of the gate, we had four ETFs the SARC and TARC, or dailys that are long and inverse. The ARKK Kathy Woods flagship ETF, and then we had single stock ETFs the short Tesla and short NVIDIA, tslq and NBDS ETFs, and those have been out for a couple of years. So those were out of the gate in May this year and then, very recently, we were very excited to launch the first ever what we call calendar reset levered ETFs, and those were launched just last month and actually a couple of just this month, and those are the first ever to provide leverage for more than just a day.

Speaker 1:

So, as you probably know, there's over 100 billion in levered ETFs ETFs that provide leverage on single stocks or single ETFs or indices that they reset each and every day, so they're really for intraday and day trading. But what we found in our research is that those daily reset ETFs are actually being held for days, weeks, months, quarters, years and forever, and they really are not designed for the kind of long term how they're actually being used. In fact, 80 percent or more of the assets in those funds are being held for weeks, months and quarters. We liken it to taking a wrench and knocking in a nail, and the reason people are doing that is because it actually makes sense. It's a cheap way to have long-term leverage, even with the volatility drag of a daily reset. But we said, hey, there's a smarter way to do this. Let's produce the hammer that people need to solve this problem, and that's where weekly, monthly and quarterly resets let's talk about that volatility drag, because I think that's a very misunderstood concept.

Speaker 2:

Sure, also known as the constant leverage trap right, explain why it's more than just about direction when you're using a leverage fund, why it is about the path, that sequence of returns.

Speaker 1:

Yeah, yeah. So basically, if you're in an ETF for a day, you're going to get that particular day's leverage. It's going to reset. Let's say it's a 2X product, it's going to reset that particular day, but then what's going to happen the next day? And so what we're providing is a point-to-point leverage for that specific period, whether it's a week, a month, a quarter. So you know, when you're getting into the ETF at the beginning of the period and you're exiting at the end of the period, you're getting exactly what's on the cover 2X, whatever it may be. And so, with the daily reset, you just don't know what's going to happen over that period.

Speaker 2:

And that's because the volatility can throw off the leveraging aspect.

Speaker 1:

It can throw off the return. In a long trending market, it could throw it off in a positive direction. In many markets, however, it tends to produce an underperforming result, and so that's why we're excited about offering the proper leverage for the proper period in these calendar reset ETFs.

Speaker 2:

It seems to me that if you're going to be a real long term set it and forget it investor and you believe in equities in particular for the long run, the daily reset is actually very, very dangerous, whereas if you have a monthly or quarterly reset because you will get these occasional VIX spikes that's right. That would hurt the daily over a long enough time frame, right. Correct spikes that's right. That would hurt the daily over a long enough time frame, right. You're allowing for that to not crush your returns by simply not having that daily reset. Now let's talk about how that's been taken in by the retail community and by advisors. I actually think a lot of what you do, very much, is appropriate for financial advisors from an asset allocation perspective for their more aggressive clients. Yeah, do you find that you're getting enough traction from the retail side? Do you find they still want the daily or they just don't know yet about the?

Speaker 1:

fund suite. Well, I mean, first of all, we launched a month ago, so hence that Exactly. So it's pretty new. Yeah, with the, with the financial advisor channel, we think it's really interesting. Like to date, they really haven't been allowed to use levered products, and for good reason. I mean there are a couple of firms where they've actually been advisors that have been sued because they left clients in daily products for weeks, months, years, and the client said, hey, I was supposed to get 2X, whatever, and it ended up the underlying was positive and the 2X or 3X product was negative over that time, which is the line, the point we're making, right, right, so financial advisors have a fiduciary responsibility to kind of meet objectives of clients.

Speaker 1:

So these products are actually very well designed to help those financial advisors with their, as you say, more aggressive clients to try to beat the returns, or beat the returns of indices and signal stocks with leverage. So we're actually really interested to get to bring these products to that channel with the self-directed I mean that's where a lot of the initial trading has come from From individual traders that are using maybe pro shares of direction products and understand, hey, this is a better way, we actually found the right tool for the job. It hadn't existed before, and that's where a lot of our trading has come from thus far. We're starting to get some adoption from the RIA channel as well. They're typically larger checks, larger dollars and they want to see more AUM in the funds. So as these funds have been scaling, we're starting to see track. Some of the small to medium-sized RIAs and some of the larger RIAs have committed to using the products when they start to get to the you know couple hundred million to billion dollar AUM levels.

Speaker 2:

So let's talk about that because I think this is important. You're newer on the fund launch side. First thing people think about is volume, yeah, and they equate volume with liquidity. You and I both know that they're not the same. That's right. Yes, talk about and educate those that are listening around assets under management in the funds being small, yeah, but still tremendous liquidity, despite the volume not being there just yet for most people to consider.

Speaker 1:

Yeah, so we're treating the underlyings of these products are SPY Q's SOC as liquid as it gets Most liquid markets that exist on planet Earth, so we're able to provide that level of liquidity. The volume in these products is really starting to scale up, but they're still not quite obviously where we want them. But you're not going to have any problem accessing liquidities in SPY Q's SOX, tesla.

Speaker 2:

NVIDIA, et cetera. It's funny, right, because I would think that in many ways, you actually don't want the volume to be that high because you want people to be allocators, you want them to buy and hold. You know, I'm known for putting a paper out called leverage for the long run yeah, which is tax fee timing leverage, that's right. This is calendar timing leverage, that's right, so it's still taxable just based on the calendar basis. That is a way to own a magnified exposure in equities, right? Which means you shouldn't really care about volume, you should care about the end point.

Speaker 1:

Many, many years down the line. That's right. Well, it's the issue where we like to see volume because people are just using the product, right? But I totally agree with your point. We have daily reset ETFfs and they trade millions of shares a day, and that's what they're designed to do. These are not designed for the ins and outs trade, for dean activity each day. It's really designed as a medium and longer term allocation tool and to that end, the volume should be lower over time, but the asset should increase, uh, you know, over time as well the.

Speaker 2:

The thing that I find really interesting is that you have a treasury product. Duration has been brutal the last three years, yes, and I give you credit because the time to launch a fund around an asset class is after three years of hell Right, which has been the case for a long time. I speak from experience, even from my own strategies. Yes, talk about that, because I think there's a really compelling case there when it comes to long duration, calendar reset, leverage, well, what's really interesting is we've been able to poll directly users of some of the competitive daily reset products.

Speaker 1:

Yeah, and what we ask is you know if you own SSO or you own QLD? You know kind of what's your typical hold period A day, a week, a month, a quarter, forever? Uh, you know kind of what's your typical hold period a day, a week, a month, a quarter, forever? And what we found is, just, like our research shows, 80 90 percent of the uh of the holders are holding them for a week, month. But tmf, right, the 2x treasury, 20 year in particular, almost nobody holds that for one day. It's a daily reset. So, in terms of a product that was ripe for a longer term reset product, it was like the ground zero. So, and that's filling out a yield too, right, I mean, this is right, yeah, so not only the timing, but also just the use case. Yep, where nobody's holding on to the treasury, well, not nobody. It's a very small market, right? Uh for just a day. So right, for a longer term reset, yeah, and that underlying yeah, so help me out with the math of this.

Speaker 2:

So you delivered on the calendar right. Two X price drops. The leverage is still. It's actually magnified even further right into the decline, or is it not? How does that?

Speaker 1:

Well, we have a floating leverage and, in fact, on our site on the homepage it shows what the leverage is at any given time over the period. But, point to point, it's always going to be whatever's on the cover, and that's the beautiful part about it. You know exactly what you're going to get, and that's the only thing that's unique in the industry.

Speaker 2:

Talk to me about the single stock side. I'm blown away by the retail demand around some of these products. Yeah, I mean there has been a proliferation of these funds. Again, still daily, again, you're doing it on a calendar side. First of all, just because you've been in the industry for as long as you have been, has that been surprising?

Speaker 1:

Do you see that kind of demands from the retail community? Well, I'll tell you a little known fact Access Investments was the first to market with single stock ETFs oh, is that right? We launched the first tranche, which included the Tesla short and the video short. Those are the two largest Tesla video shorts in the market. So we were first to market. We identified the opportunity. Obviously, they've been available in Europe prior to us launching in the us, and so now we saw a real opportunity there. Uh, you know, other firms launched alongside us and then did very well. Branded shares were there, the video long and t-rex came along with a nice suite of products and directions in there as well. Uh, so you know, I wouldn't say we were surprised. I think some of the more recent launches, like the micro strategies yeah, both, uh, um, defiance as well as t-rex yep, I mean some of the fastest asset raises we've seen out of the gate, uh, apart from, maybe, bitcoin so I wonder, does that worry you a little bit to see that kind of excitement?

Speaker 1:

Well, I prefer to be in the indices and these longer dated set products because it's, like you know, the fad, the flavor of the month. It's right, and I'd rather own a long term product that we think is sustainable into the month's quarters futures.

Speaker 2:

And stickier, I mean to your point. If you're an, an issuer, you want also the assets to stick right.

Speaker 1:

You know a soocratic risk of a particular stock, you know going one way or the other, is that it's a difficult business to get your to keep your stomach good in the same place.

Speaker 2:

Any thoughts on doing something like this for emerging markets at some point? For?

Speaker 1:

emerging markets. Yeah, I mean, I think the concept has legs and application in many different formats. Yeah, it's like you know. If you think an index like the queues or a spy is going to go up over time, like it has over the last decades, then why not own it with leverage? And that's the same in other markets.

Speaker 2:

Yeah, talk about the challenges of competing in a very saturated space. There's so many funds out there, so many ETFs out there. It's not easy to grab attention right. Especially, it seems like first mover advantage is such a big driver of that stickiness.

Speaker 1:

First mover advantage is critical, but you have to have a key differentiator and a value prop that people care about, and I think you know what's unique about these products again is that there's nobody that's doing it in this way, and yet this is how the market is using them. So I think if we drive that clear value prop home and what it means to be, what does it mean in terms of typical basis point outperformance over a period of time it would really drive that message home. I think we've got it. But if you were second to third to market with our product or another MicroStrategy's levered product, that's a tough business.

Speaker 2:

I'm always amazed at how, on a single stock levered side, you determine which single stocks to choose. Yeah, right, like I get it. You look at Reddit, you look at some of these other places. See what the volatility side, but to your point, it's flavor of the month, right. So how do you try to identify the next flavor? If you're trying to launch funds, you want to look for the next micro strategy potential.

Speaker 1:

Yeah Well, from our standpoint, I think we're getting out of that business in a sense, like we're not looking to identify the flavor of the month. What we're saying is this calendar reset concept to your point is application across markets, across indices, and we're going to focus on this concept for the foreseeable future.

Speaker 2:

Yeah, no, I think that it makes sense from a lot of perspectives. What else is? It should be what we concern about or think about when it comes to using leverage. So you mentioned research. I put a lot of research around leverage itself, but I got to assume a large part of what you're doing is educating people about the pitfalls of leverage and the benefits, obviously, too.

Speaker 1:

Yeah, no, I mean, I think if you're trying to make a tactical trade for a period, for a day or two, and you're trying to trade around earnings or something, you have a view, that's great. Use a daily product. It's great to use a daily product, but in terms of Dragon making the longer-term bet, using a quarterly of ours and trying to hold on to it for multiple quarters, I think over time you're going to see that you're going to be in a good position.

Speaker 2:

I think, obviously, you have to be careful when you're using leverage, because what is 2x up is also potentially 2x down, and so if you have a view over a week or a month or a quarter, that's how you address and I think the real takeaway here is that over a full market cycle where you will have these volatility bursts, yes, likely a calendar reset leverage timing vehicle would be better than daily and better than on leverage? Certainly, yes, and improve it over time Right Over a full cycle. That's right. For those who want to learn more about Tr etf, where would you point them to?

Speaker 1:

yeah, so our website is uh, trader etfs, that's tier adr etfscom. We've got a great learn tab. We can learn more about calendar resets and now they're different, uh, from the regular daily uh resets that are out there. Uh, follow us on twitter or x these days and follow us on linkedin. Very good yeah appreciate it.

Speaker 2:

Thank you very much for watching. Thank you.

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Michael A. Gayed, CFA

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