Crypto Attitudes, Dimensional ETFs, & White Labeling

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VettaFi’s President Tom Hendrickson appeared on Nate Geraci’s ETF Prime to discuss the latest Bitwise/VettaFi Benchmark Survey of Financial Advisor Attitudes Toward Crypto Assets. Afterward, Geraci was joined by Dimensional’s Wes Crill for added perspective on the growth of their ETF business, mutual fund to ETF conversions, value investing, and more. For the final segment, Alpha Architect’s Wes Gray explained their white labeling service and spotlighted two recent ETF launches.

Hendrickson took a moment to highlight Exchange’s partnership with three non-profit organizations: Surfrider, Susan G. Komen, and Junior Achievement. Hendrickson shared, “our mission is to transform financial services from an industry into a community, and Exchange is the physical embodiment of our mission.”

Survey Says Crypto is Still a Hot Topic

After being mired in a brutal winter that saw bitcoin down 65%, FTX scams, and Terra Luna’s implosion, crypto has bounced back a bit in 2023. Though nowhere near its heights, the signs of life have brought it back to mind for investors. According to Geraci, the SEC has recently come at crypto “guns blazing” from a regulatory standpoint.

Collaborating with Bitwise, VettaFi released a new survey on investor attitudes toward crypto. This is the sixth survey Bitwise and VettaFi have put together on the matter. This year’s edition was conducted between November 25th and January 6th. “This is nearly hot off the presses, nearly 500 respondents,” Hendrickson said, setting the table for the results.

One immediate eye-catching stat from the survey was that 90% of advisors are receiving questions about crypto. “Start with that. Nearly all advisors are getting some type of questions around what is going on in this space,” Hendrickson said. He also shared that 59% of their clients are investing in crypto outside their client-advisor relationship.

Another interesting result from the survey, according to Hendrickson, is that 37% of advisors are investing in crypto themselves. “This is not a binary retail versus advisor – there is certainly a propensity to invest in the space by advisors themselves,” Hendrickson said, noting that though it’s down from 2022’s 47%, it is still well above the 17% result from 2020.

Crypto Equities

The survey also showed that there was strong interest in crypto equity ETFs such as the Amplify Transformational Data Sharing ETF (BLOK) and the Bitwise Crypto Industry Innovators ETF (BITQ). “If I put myself in the shoes of an advisor,” Hendrickson said, continuing, “one of the things that’s well within the advisor’s playbook is understanding the power of diversification.” Hendrickson sees the ETF wrapper as providing additional diversification benefits outside of just owning straight-up individual coins.

Geraci noted that the number one answer to the question of what is preventing advisors from allocating assets to crypto is regulatory concerns, which was cited by 65% of respondents with volatility trailing after that. “I don’t think most advisors want to go barking up the wrong tree with regulators,” Geraci said.

Hendrickson concurred, saying that it makes sense that as stewards of their client’s capital, advisors might be cautious around nascent spaces that are still finding their regulatory footing.

A Majority Want a Spot Bitcoin

Though the regulatory climate around crypto is currently thorny, a majority of 68% would prefer to invest in bitcoin through a spot ETF. Hendrickson pointed out that this landslide continues to grow, with 58% answering this question the same way last year.

More than One Dimensional

Wes Crill joined Geraci to talk about a variety of ETF-related issues. With 30 ETFs and over $82 billion in assets, Dimensional boasts an enormous amount of growth in just two and half years. Despite not debuting on the ETF stage until November 2020, Dimensional is currently the 8th largest issuer and the largest active issuer.

Mutual fund to ETF conversions are a huge reason for their success. “It’s very rewarding to us to become the 8th largest ETF issuer,” Crill said, praising their clients for making their introduction to the space so warming.

Though Dimensional has had rousing success, Geraci wondered why other issuers were struggling. According to Crill, “the ETF structure itself is not a panacea.” Crill noted that Dimensional typically has mutual fund counterparts to their ETF strategies and that the conversions were a special case, given the focus of those products on tax efficiency and the ETF wrapper’s unique ability to deliver on that.

“I think you’re seeing the value of the ETF structure,” Crill said.

Alpha Architect Launches Two ETFs

Last November, Alpha Architect launched the Alpha Architect High Inflation & Deflation ETF (HIDE) following that up in December with the launch of the Alpha Architect 1-3 Month Box ETF (BOXX). Additionally, their white labeling service has them well positioned.

“We’re leaders in innovating and bringing the costs of ETFs as low as humanly possible,” CEO Wes Gray said.

According to Gray, the ETF’s tax deferral capabilities make it a highly sought wrapper, and Alpha Architect has helped issuers create tax-free conversions for everything from hedge funds to mutual funds. “The ETF is just a better way to manage them because of the tax benefits.”

White labeling services allow issuers to share and market their idea while firms like Alpha Architect handle the more technical, regulatory compliance side of things. “That whole process with the SEC and our board is about four months,” Gray said.