On the latest episode of ETF Prime, VettaFi’s Todd Rosenbluth evaluated Nate’s 2023 ETF predictions and made a few bets of his own. Axel Merk spotlighted the Merk Stagflation ETF (STGF) and the VanEck Merk Gold Trust (OUNZ). ETF Think Tank’s Cinthia Murphy offered an inside look at the booming ETF white labeling business.

To kick the show off, Nate congratulated Rosenbluth on TMX’s strategic investment in VettaFi. “We’re really excited about it,” Rosenbluth said, noting that TMX owns the Toronto Exchange, which listed the first ever ETF and has been a home to ETF innovation since the existence of the wrapper.

Geraci Has Bold Predictions for 2023

Predications can be a dangerous game to get into, and before digging into Geraci’s 2023 predictions, Rosenbluth took a moment to point out that ESG closures did not happen to the extent Geraci predicted in 2022.

For a first prediction, Geraci thinks that the SPDR S&P 500 ETF (SPY) loses its crown to the iShares Core S&P 500 ETF (IVV) or the Vanguard S&P 500 ETF (VOO). SPY currently commands $360 billion in AUM with IVV at $293 billion, and VOO sitting at $279 billion. VOO took in $40 billion last year, IVV took in $20 billion, all while SPY lost money.

Rosenbluth said, “I think you are a little early, I think this is probably a 2024 scenario.” He conceded that the market share is shifting with IVV, VOO, and even the lower cost SPDR Portfolio S&P 500 ETF (SPLG) all making gains on SPY. Rosenbluth also said that if Geraci’s second prediction comes true, this one very well could happen in 2023.

That second prediction is one Geraci has been on record saying for quite some time, namely that ETF inflows in 2023 will surpass $1 trillion. “The last time I was on your podcast, I said this would happen too,” Rosenbluth concurred. 2022 was a dismal year for both equities and bonds, and yet ETFs still managed to have their second biggest year ever, priming 2023 for explosive ETF growth should the market regain some sense of equilibrium. 2021 saw over $900 billion, by way of comparison for possibilities.

Gleaming at the Future of Gold and Placing Bets

For his third prediction, Geraci said he believed physical gold ETFs will regain their luster. Geraci asked Rosenbluth how he thought that might play out in the ETF space given the sheer amount of funds available, which include the SPDR Gold Shares (GLD), the iShares Gold Trust (IEU), the SPDR Gold Minishares Trust (GLDM), the abrdn Physical Gold Shares (SGOL), the iShares Gold Trust Micro ETF (IAUM), the GraniteShares Gold Trust (BAR), the VanEck Merk Gold Trust (OUNZ), the Goldman Sachs Physical Gold Trust (AAAU), and the Franklin Responsibly Sourced Gold ETF (FGLD).

Asked to put a number on the inflows into gold, Geraci settled on $5 billion, saying gold will perform admirably in 2023. Rosenbluth, on a betting winning streak, made a dinner bet taking the under on that $5 billion mark with Geraci.

“I think inflation is going to be more muted,” Rosenbluth said, noting that gold ETFs should have had an ideal environment last year but fell short. “I just think investors have moved to other investment styles in the commodities marketplace.” Geraci pushed back that a weaker dollar could work in gold’s favor, not to mention crypto’s failures, which he thinks could lead to investors who thought of it as “digital gold” pivoting to the real thing.

Keeping in the crypto theme, Geraci also predicted no spot bitcoin ETF. Rosenbluth had no disagreement. “Until we have new leadership at the SEC, I don’t think we’ll have a bitcoin ETF,” he said.

Geraci’s final prediction is that Morgan Stanley will be the ETF issuer of the year, which he said meant the issuer most likely to represent the success of ETFs — not necessarily the issuer who takes in the most flows. Capital Group is Geraci’s comparison point, given the splash they made as a newcomer. Rosenbluth noted that Morgan Stanley will be at Exchange with a notable presence, providing an opportunity to educate about their products. Taking Vanguard off the table, Rosenbluth said, “I’m actually looking at JP Morgan, who is likely to pass over $100 billion in assets under management in 2023, has more conversions under way, and has two largest active ETFs.” Rosenbluth added that the JPMorgan Equity Premium Income ETF (JEPI) turns 3 years old in the coming year.

Rosenbluth’s Crystal Ball

Not one to show up to a crystal ball party without his own predictions, Rosenbluth has previously noted that he sees 2023 as another big year for value investors, though he has cautioned to make sure investors look under the hood. He noted that the Invesco Pure Value ETF (RPV) no longer owns value staples like Exxon and Chevron — those funds have changed to the growth version of the fund, the Invesco S&P 500 Pure Growth ETF (RPG). Value stocks now include companies like Amazon and Meta.

Another prediction from Rosenbluth is that Smart Beta is due for a comeback. “I’m looking to the multi-factor ETFs,” Rosenbluth said, pointing to ETFs such as the ALPS O’Shares U.S. Quality Dividend ETF (OUSA), the iShares US Equity Factor ETF (LRGF), and the SPDR MSCI USA StrategicFactors ETF (QUS) — all of which outperformed in 2022. “It’s not dead, its actually doing quite well.”

Defined outcomes are another kind of ETF Rosenbluth sees as continuing to gain traction, particularly after a strong 2022. “It couldn’t have been a better year for these risk reduction but still be invested in the market type of products,” Rosenbluth said, noting ETFs like the Innovator U.S. Equity Power Buffer ETF – January (PJAN) was down by just 5.3%, compared to the S&P’s 18% decline. Rosenbluth is intrigued by offerings such as the Innovator U.S. Small Cap Power Buffer ETF – January (KJAN) which outperformed the Russell 2000. “I think these products are going to continue to gain traction.”

Last week, Rosenbluth also highlighted Harbor’s move to NYSE trading floor. Following in the footsteps of the PIMCO Active Bond ETF (BOND), Harbor has moved to the floor of the NYSE. “I think we’re going to have a dozen of these within the next year. We have four so far.”

Merk Spotlights STGF and OUNZ

With over $1 billion in AUM, Merk Investment Management is behind STGF and OUNZ. Launched back in May, STGF is designed to give investors a tool to deal with potential stagflation. Despite rumors that stagflation might be brief, Merk thinks it was worth creating a product designed around them, given how ill-equipped central banks are at dealing with stagflation. “The politically attractive reaction to a stagflationary shark is counterproductive,” Merk said, noting that stimulus checks don’t increase the supply of goods.

He sees the stagflation period of the 70s as lasting over a decade because of policy mistakes. STGF provides additional diversifiers. Merk doesn’t think the Fed knows quite what they want to do yet. “The year over year on inflation will look better. But then what?”

Merk says inflation could jump around and continue to be a thorn in the side of investors. STGF uses a trend following strategy and TIPS exposure, that rounds out with gold, oil, and housing — all of which perform well in inflationary times.

“When you buy TIPs you lock in real interest rates,” Merk proffered.

Cinthia Murphy on White Labels

For the final segment, ETF Think Tank’s Cinthia Murphy discussed white label ETF business. “I like to think of white label as a service stack,” Murphy said, noting that big players such as Goldman Sachs are getting into the white label business.

Putting an ETF together takes a great deal of work, with different white label providers having options for a range of necessary services available. “You bring your ETF idea, you bring your ETF brand,” Murphy said, with white labels potentially providing the rest. “Each client is different, their needs are different. Its basically a way to outsource your ETF business.”

Tidal saw an 80% boost to its ETF leads in the 4^th quarter of 2022, with Murphy noting that Alpha Architect and other white label services also seeing increased interest. “Everyone has a cool idea they want to bring to the table.”