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Slip into something more comfortable and delve into personal finance with Josh Sheluk and Colin White, experienced portfolio managers at Verecan Capital Management. Each episode demystifies complex financial topics, stripping them to their bare essentials. From investment strategies and financial planning to economic headlines and philanthropic giving, delivered with a blend of insight, transparency, and a touch of humour. Perfect for anyone looking to understand and navigate their financial future with confidence. Subscribe now to stay informed, empowered, and entertained.
Verecan Capital Management Inc. is registered as a Portfolio Manager in all provinces in Canada except Manitoba.
Have you heard of the ETF named GRFT?
Josh Sheluk:Maybe, but I'd I I can't pick the ticker out of the the air. So what does it do?
Colin White:Aims to let Americans bet on Washington insider ties. So it is an ETF that's launched in The US that is based on the insider trading of politicians. And they titled Grift.
Kathryn Toope:Welcome to Barenaked Money, the podcast where we strip down the complex world of finance to its bare essentials. Essentials with your hosts, Josh Sheluk and Colin White, portfolio managers with Verecan Capital Management Inc.
Colin White:Welcome to the next edition of Barenaked Money. Josh and Colin coming at you, and we're going to try to educate people. This is the purpose of Barenaked Money. We're here to provide you information to allow you to make better decisions for yourself, to look after yourself a little bit better than you were yesterday. So we're hoping today that we're able to accomplish our goal, and I'm sure we will because I ran out of room to record all of the things I wanted to talk about today because today, Josh, we're gonna talk about bad investor products that have been launched recently that we have decided to highlight as part of what's wrong with the world.
Colin White:Is that a is that a good enough description?
Josh Sheluk:Well, you've been teasing this for a while, I think, since we did a forward looking 2025 podcast. So we're, like, eight months into the year. You told me you could do one of these every quarter, so you better have an awesome list of products selected.
Colin White:I I ran out of ink to write things down. Like so as long as we have people's attention, I think we can talk about the next thing on the list. And I know you, Josh. You know, you're not letting on, but you have a a list somewhere.
Josh Sheluk:I don't. I'm I'm coming in totally blank slate for this one. So you're gonna you're gonna amaze me with all of the the the long list that you have. It sounds like you have more than enough to cover a podcast worth of material. So I'm just gonna be here as your muse for
Colin White:a little while. So you put the grandfather sweater on and you decided to sit back and not have lists like it have you what what's what's changed in your life, Josh?
Josh Sheluk:So the grandfather sweater, you asked about it before the podcast. So I have this sweater sitting in the office for when it's cold out. Now today, it's, like, 40 degrees with the humidity. So it's like, why are you wearing this? So I went to the doctor with Grant before I came to the office this morning.
Josh Sheluk:He had to get a a vaccination, a chickenpox vaccination. So he got it. No problem. Everything's good. But I gave him some Tylenol to help stem any fever.
Josh Sheluk:And Tylenol, it's liquid for his age. He's a year and a half. So he immediately spit it onto me. So so I was like, okay. That's probably gonna dry.
Josh Sheluk:I got to the office an hour later, and it didn't dry. So so that that's why I'm here sitting in a sweater because I don't wanna have the marks, the stains from my my child's medicine all over me
Colin White:for the whole day. You're right. It's way easier to explain the sweater than it would be to explain the stain on your shirt. I get it. Alright.
Colin White:Fair enough. Decisions were made.
Josh Sheluk:People don't ask about the the stain. They they are just like, this guy's a slob. Was like, what is he doing?
Colin White:Alright, Josh. Listen. The the the first one I wanna talk about, and I wanna really lean into you on this one because you're the technical guy. You're you're you're the guy that really gets into the meat of these things. These zero day products that seem to have proliferated out of nowhere.
Colin White:Like, I I don't remember in my career seeing such a flurry of this zero day stuff getting proffered onto the market. Was I asleep and missed this in the past or is this a recurrence or something or is this and maybe for the audience's sake, I'm just calling it zero day. Maybe you can explain it more technically as to to what it is.
Josh Sheluk:Yeah. So with a a different type of security, a specific type of security or specific type of investment called an option, you actually have an expiration on the option. So at a specific date and time, that option no longer trades. It no longer exists. It basically is is kinda wrapped up, and, you can either get a payout on the option or you can sell it, or there's a variety of different things that can happen.
Josh Sheluk:But, basically, this is a way for you to invest in a let's call it a stock like instrument just for simplicity, and it expires at a a specific point in time. So when you say zero day, what people are doing or what investors are doing is buying an option that expires at the end of the day. So you're essentially making a play on what's going to happen on that specific day with that specific stock or that specific market.
Colin White:Well, maybe I can go back to the movies because just to help our listeners understand that because this is the example that kinda sticks with me from way way back in the day about somebody buying an option on orange juice and they've got an option on, you know, 500 pounds and for 500 tons of orange juice and they forget they have the contract, and then the truck shows up outside their host to deliver the orange juice because the contract they were contracted to the orange juice. And they're going, what's this? Well, this is the orange juice future that you bought. So I got the future. No.
Colin White:No. Well, the future's now. You know, you let the contract get all the way to the end, so this is what you have to deal So that's kind of in a very simplistic, you know, very civilized way to explain it. I've also seen it in the movies where they've done it with pork belly futures so a bunch of pigs show up. So if you're trading on a commodity is one way that this kinda happens.
Colin White:But Josh, the market has a real basic way of dealing with this. They basically pair up contracts at the end and kind of, you know, rinse things out. Like, why why is the trading of these or the launching of an ETF that trades in zero day all of a sudden become a thing? Do you have any any sense as to how we got here?
Josh Sheluk:Yeah. So options are all executed. At least all all options on stocks are executed against a market maker. So you're not it's not like a stock where you're buying and selling against another investor. You're you're buying and selling against some type of institution, and they will take both sides of that trade.
Josh Sheluk:So they'll sell a call option to you and buy a call option from somebody else or, you know, vice versa or same with puts. Right? So they're they're the market maker is essentially taking both sides of the trade, and they're hedging their exposure on both sides of the trade. So the market maker themselves, all they want is as much volume in trading and activity as possible because that helps them make sure that they're hedging their position, and that helps them generate income. They're they're charging a spread on what they're buying and selling, so it's advantageous for them to be activity, as much as much as many market participants as possible.
Josh Sheluk:Zero day options have always existed. Like, as you get closer every option expires. So as you get closer to expiry, you've always had the option to to to purchase zero day options. But I don't know why it's become a thing over the recent the recent history. I think my sense is that it's tied to this whole retail trading, Reddit trading type of of mentality, very short termism, and people trying to make a very, very quick buck, I suppose.
Josh Sheluk:And that's type of the narrative around it, I guess, has driven some of the the more activity in that space as well.
Colin White:So there's fees and then there hills, I guess, would be another way of saying it. Like, they're able to generate a a a fee on on the ETF that they have out there. Right?
Josh Sheluk:Well, yeah. So so that I was just trying to explain why zero day options have become a thing, but now we're starting because it as we know, as we're really going to talk about here, anything that draws interest from investors is gonna be productified. Does that is that a good word? Productized. Productified?
Colin White:Productified is I'm gonna use that, Josh. Like, that we've just witnessed the birth of of a word.
Josh Sheluk:There you go. So the the investment industry will turn anything that has appeal to it, rightly or wrongly, into a product they can sell and they can make money off of. So that's what we've seen as I knock my microphone over. Out of outrage out of outrage, well, that's what we've seen now is that there's actually starting to be products launched on this idea of zero day options. And I don't know who they're appealing to.
Josh Sheluk:I expect they're appealing to the people that are trading these zero day options, what I think are mostly retail investors. Do it yourself first. But yeah. And as soon as you turn something into a product, you charge a management fee on the product, and away you go. And now you're earning income to do something that may or may not be smart.
Colin White:Well, I was like, when they they the product based on the VIX came out, they were gonna like, you're not supposed to be able to trade with the VIX. The VIX is a calculation. Like, what well, how do we have a product on this? But but as you said something really, really important I think in your explanation. The market maker takes both sides of this and they just wanna see activity.
Colin White:So the big guys are doing their thing with it and they're making money off it. Now they're just introduced another layer of profit because they've somehow there's a group of people now willing to buy it. And that goes back to the the industry and its desire to, you know, whatever somebody's gonna buy, they're gonna manufacture. And Maria on the team checked to see how many Canadian mutual funds are currently listed and we've cracked 21,000 now. So there are over 21,000 mutual funds listed in Canada for your dining pleasure.
Colin White:So which I guess is a pretty good indication that anything that somebody wants to buy is probably available somewhere.
Josh Sheluk:This
Colin White:the the product that's came out, the zero day product is an exchange traded fund and I I believe it comes with the proviso that it's not designed as a buy and hold, designed as a trade. But my my mind just starts to spin like, you know, money flows into it. The market maker that day is looking for zero day contracts that day. Like, that the the arbitrage opportunities and the efficiency of trying to execute on that, I can't even begin to imagine.
Josh Sheluk:Well, yeah, I I I don't know enough about that space. It's been a while since I've been talking directly to market makers on those types of things, but I guess towards the the zero day, the the last day of the trading for the the underlying instruments, there's probably a sort of a flurry of activity that that happens around that because people are looking or investors are looking to to close out contracts, mostly close out contracts. Like, I just I've so they've launched daily options have become a thing and become more of a thing over the last several years. And most mostly these dailies, I think, are on indexes, not on individual stocks. But I just don't know who's trying to make these investment decisions.
Josh Sheluk:Like, who is it that is that is is buying and selling these things? Like, how do you really have a call or investment thesis over a one day period? I I I don't know. So it's a little bit unbeknownst to me as to exactly what's happening and why, but the bottom line is what I can say with with quite a bit of conviction is the market maker, at the end of the day, the person that's taking both sides of the trade, all they want is activity, and they want as much activity as possible because that's helping them generate more profit for their for their bottom line. So if if people want the product, if people want zero day options or daily options, they're gonna provide it to them.
Colin White:Alright. So for our for our audience, I want everybody to note that Josh said, I don't know. And if Josh doesn't know, everybody else should just give up trying. You know, the the difficulty and the complexity of what this product may or may not be, I think and Josh, probably agree with me on this. It's probably beyond the ability of a retail investor to have a really firm grasp of what's going on and know how to deploy something like that in a portfolio.
Colin White:Is that a fair?
Josh Sheluk:Yeah. Like, I I I I do wanna highlight. I don't know. There's probably some investors or organization or institution out there somewhere that that daily options make sense for or zero day options make sense for. I don't know who that is, and I know it's probably not the most the majority of people listening to this podcast.
Josh Sheluk:So can you maybe understand what's going on? Yeah. Sure. I I don't think zero day options are extremely complex, but I think the bigger thing for me is why are you trying to make an investment decision based off something that needs to happen in the next six hours? Like, that that's what it is.
Josh Sheluk:The market opens at nine. It closes at 09:30. It closes at four. You you needed something to happen in six hours for your investment thesis to play out. Like, how does that make any sense?
Colin White:Yeah. Well, you said it. Like, that's an institutional thing, and there can be lots of reasons. And, again, we could debate the institutional use of, you know, these kinds of products and strategies for sure. But to turn it into an ETF and make it available to a retail investor, that's where I think it goes into the ditch.
Colin White:Anyway, I was fascinated by that one because I've never seen that turned in and what living in a time when we've seen the VIX turned into a product which is just a measure of volatility. I thought maybe I've seen everything turned into a product, but anyway, I've lived long enough to to stop saying that. I'm I'm sure I'm gonna see it. So Josh, I had a few things sent to me in addition to the ones I found. So this one, I thought that this was coming from The Onion when I first got it because I thought there's no way.
Colin White:There's no way this is real. Have you heard of the ETF named GRFT?
Josh Sheluk:Maybe, but I'd I I can't pick the ticker out of the the air. So what does it do?
Colin White:Aims to let Americans bet on Washington insider ties. So it is an ETF slashed in The US that is based on the insider trading of politicians, and they titled Grift. Like, I thought that had to be I had to be the onion, but I'm looking at a Bloomberg report right now describing this product. He's launching in Matthew Tuttle is launching an exchange traded fund, Grift, that aims to profit from political influence in corporate America by holding a portfolio of companies with ties to the politically connected. That sounds like a good product, don't you think, Josh?
Josh Sheluk:I mean, if you have an investment thesis or if you believe that there's some shady stuff going on in politics and there's a bit of the greasing of the wheels, then maybe it is a really good investment idea. I don't know.
Colin White:So, I mean, it would seem to run afoul of a couple, I don't know, fairly basic tenants of investing about fundamental analysis or profitability or being able to get something at a discount and kind of going all in on, you know, there's insider trading going on and I wanna be on the inside. But does this not strike you as maybe Grift Squared? Like, you're you're launching a product that's based on, as they've described it, a Grifft. So it's a product on a product kind of thing. I'm I'm just stunned.
Colin White:I'm stunned at the the ticker that they've given it. I'm I'm stunned at the concept.
Josh Sheluk:Yeah. They're really leaning into representing what it is. Right? They're not they're not shying away. They're not trying to edge institutionalize or what's the what's the word I'm looking for?
Josh Sheluk:Like, you know, turn it into anything that that there's actually research or credibility to. They're just saying they're just calling it exactly what it is.
Colin White:And they're loosely defining it. It's not like it's a fairly tight definition. It's like, you know, politically connected people. Like, well, the for the full love of god, you can put anything in there then and and call it, you know, somehow politically connected.
Kathryn Toope:So
Josh Sheluk:Yeah. Is there any explanation as to how the the the portfolio is actually built?
Colin White:I'm glad you asked. The fund strategy involves targeting holdings disclosed by members of congress, companies with ties to a sitting US president, and short term trades linked to presidential praise or social media commentary. See?
Josh Sheluk:Okay. So so we're scowling scouring acts to see who's posted about what companies.
Colin White:It's just it it it there was I listened to I think it was PBS in The US. There's one of the journalists down there. They had this idea back on Trump's last presidency because Trump likes to tweet out about companies at different times. So they set up a bot which basically would monitor his Twitter account. And every time something was mentioned, and good news or bad news, it was either bought or sold based on what was tweeted.
Colin White:And they went back to it, like, six months later and it had not placed a trade because there hadn't been one tweak while the market was open. And then oh, okay. Alright. That's well, we weren't expecting that. So Yeah.
Colin White:Again, they we we sit back and think that there's no rhyme or reason to some of this, but, you know, maybe there's a bit of a rhyme and or a reason to some. But that one made my list just because of the ticker they chose. Seems a little bit too on point.
Josh Sheluk:Yeah. Yeah. Well, as again, as we said, the people will make a product for anything. So some of the stuff that comes out of The US just astounds me in terms of, like, the the ridiculousness of it. They there's just no shame with some of the product providers, it seems.
Colin White:And this one here is gonna count on your institutional knowledge, Josh, of things that have gone before. Are you ready to dig back into your memory banks and pull out details that'll make this make you're gonna get the punch line on this one because this is a name you should recognize. Remember Kathy Kathy Wood?
Josh Sheluk:Oh, yes.
Colin White:Yeah. Well, she's back. Yeah. Because, well, she had to launch something else. So she has a let's see here.
Colin White:A buffer ETF designed to limit equity losses. So ARK Investment Manager is launching four exchange traded funds, ETFs, designed to limit equity losses with the goal of protecting investors against modest losses while still offering upside.
Josh Sheluk:That's important for her because she's had such a disastrous track record with capital losses over the last five years.
Colin White:Well, I think that you you want somebody who's really good at losing equity money to launch a public like this because she's probably very experienced at it. Right? And does I'm sorry. I'm putting you on the spot. Can you give any context to what we're alluding to here with what her losses were that she had in the marketplace?
Josh Sheluk:Well, let let me look it up because the number off the top of my head seems to be somewhere in the 80% range. So just to as I look it up here, the most questions I got about this ETF and probably any, like, random ETF was during the 2021 hype around this product. And there's there's a couple related products,
Colin White:but
Josh Sheluk:it it was right around that time and for her her main ARC product. And I I I remember my my sister. My sister's a personal trainer. So she she she texted me. She said, hey.
Josh Sheluk:One of my clients wanted to know your opinion on this ARC ETF. And I was like, what what are these people talking to my sister about? And at the time, I was like, look. This thing is very, very concentrated and tech focused, and you just gotta be really careful with it. And sure enough, like, it's been a disastrous investment for anybody over over that the the the stretch of time that we're talking about.
Josh Sheluk:So it peaked I'm just looking up. Peaked in twenty twenty one, roughly February at roughly a $156. It's currently trading at about 76. So four and a half or so years later, it's lost about half of its value. And from peak to trough, it went from $1.56 to about 31.
Josh Sheluk:So pretty much bang on what I what I said. It was about a 80% drawdown. So that's who we're now trusting to put a buffer in place to avoid drawdowns. I guess she really needs it, but this has been a disastrous investment for so many people that chased it at the exact wrong time.
Colin White:But, Josh, Josh, you're framing this all wrong. You you you don't know how to frame things at all because, you know, the move comes as ARCs actively managed ETFs to see in over 3,000,000,000 in net outflows over the last twelve months despite posting double digit gains over the same period.
Josh Sheluk:Yeah. Yeah.
Colin White:People just don't get it, Josh. Like, you're you're just being a negative Nelly. Like like, come on now.
Josh Sheluk:Yeah. Double digit gains over the last twelve months, but 50% losses over the last four years. So I'm actually happy that those outflows have still continued, and people haven't lost sight of the bigger picture that this has been disastrous for a lot of people. And, it's more than just bad performance. It's like if you actually listen to the ideas or beliefs of the team here behind it, they're just outlandish.
Josh Sheluk:They're outlandish claims, and that can get you so far for so long. But when you're not actually hitting some of those claims and maybe getting extremely lucky with some of those claims, then it can be disastrous, and that's what we've seen. And it's really sad because I think people have lost billions of dollars investing in these products.
Colin White:Oh, no. Look. Absolutely. And they also the the the the product that she's launching there, limit losses to about 50% of any drop in the share price of the innovative ETF while allowing full participation gains above a set hurdle rate around 5%. That that description, I mean, that that that kind of product has been out there for a while.
Colin White:I guess, again, this is where you're the expert. That's more of a note kind of structure that we would more commonly see that are done either in principal risk or principal protected notes. And those have been around for quite a long time and there's an absolute trade off and and a fairly significant cost to to that kind of product. Would that be fair?
Josh Sheluk:Yeah. Yeah. This I I think this is gonna be thematic through everything that we talk about today or a lot at least a lot of the products is there's a cost to every protection that you put onto something. So, yeah, you're exactly right. These products have been around for a while, and, generally, as we were talking about options before, generally, they're overlaying some type of option strategy on the underlying stocks that they're buying.
Josh Sheluk:And so that's how you can limit losses. But, like, you're eliminating losses to 50%. Like, only somebody that can lose 80% of your capital in a short period of time needs to limit losses to 50%. That's crazy.
Colin White:And call it a win.
Josh Sheluk:Yeah. Because even the the worst periods of time in the last hundred years, I mean, aside from the the nineteen thirties, we look at 2,008. And even at that time, you had about 50%
Colin White:losses for first as of Josh, I I'm sorry. I gotta correct this thing in the interest of being fair and accurate here to 50% of any drop. So it's not an absolute limit
Josh Sheluk:of 50.
Colin White:It's 50% of any drop. So just
Josh Sheluk:Any drop. Okay. I gotcha. Gotcha.
Colin White:Our so just the interest being share. I mean, we're we're still gonna beat up on people, but we don't wanna beat up on them unnecessarily.
Josh Sheluk:Unfairly. Yes. Exactly. We only wanna beat up on them fairly. Yeah.
Colin White:Exactly. Exactly.
Josh Sheluk:Factually. Yes.
Colin White:So this one is Trump media furthers push into crypto with third ETF filing. So apparently, they put a 30 okay. So Trump media and technology has filed for an exchange traded fund called crypto blue chip. Oh, touch of blue chips. Crypto.
Colin White:That's coins. Ethersoletta. There's oh. And x XRP. It's gonna hold XRP as well.
Colin White:Three quarters compromised of Bitcoin and would join a crowded field of crypto minded. Yeah. So it's Josh, I mean, come on now. Blue chip. I've been trained my whole career that investing blue chip is low risk and and all the really uber wealthy people.
Colin White:Yeah. Yeah. Crypto chip.
Josh Sheluk:Yeah. Well, you know, it's it's it is all the blue chips of crypto, all that stuff that's been around for, like, between eighteen and twenty four months. Right? So, you know, the long, long, long standing players in the Bitcoin space or the crypto space rather. But my question for you, Colin, is how much of the Grift portfolio do you think is gonna be made up of this new ETF?
Josh Sheluk:Because this seems to be very aligned with some of that grifting that we talked about before.
Colin White:Yeah. I know there could be overlap here. There's a there's a real danger of overconcentration here. Like, so, you know, we don't want, you know, to be layering strategy on top of strategy, which is all the same strategy, then you end up with strategy squared. And and is that really what you want?
Colin White:Desjardins has just launched a Quebec equity ETF. So you can buy an ETF that holds nothing but Quebec based businesses. How many Quebec based businesses are there, Josh?
Josh Sheluk:So, actually, you'd be surprised at how many quality Quebec based businesses there are on the TSX. It's not a ton. It's not a lot, but there are a lot of good quality businesses that have originated from Quebec in Canada. You look at, like, Couche Tard, for example, which is probably the most prominent one. They're not just Quebec based, but they're and I don't know if there's anything to this, but there do seem to be some high quality Canadian businesses that have high returns on equity and and good solid businesses that have originated from Quebec.
Josh Sheluk:Now would I ever base a product or investment philosophy off of it? No. But there's probably more than you think at first glance, and you've probably done the research, so you probably know that.
Colin White:Oh, no. There's absolutely none. This is not disparaging to the businesses based in Quebec because Couche Tard is is a global power based out of Quebec. So they they they do have businesses there, but I am more palled or attacking the idea of trying to accomplish a non financial goal with a financial asset because that's what this is set out to do. So basically for people that are trying to keep their money in province because they think that that's you know the thing to do, you're gonna end up with a non optimal portfolio.
Colin White:You're not gonna be able to balance a risk and return as well as you could in fishing in a bigger pool. And moreover, when these things really go sideways and you start raising more capital than can actually be absorbed by the market, you end up seeing, you know, the the degradation of the quality of the companies. You know, so whenever you see something targeted that's raising capital in a specific sector, you know, it can get to a point where you know there's too much money flowing in and then it actually degrades the quality of the businesses that are there because you no longer have to be competitive, you just have to have a label. Now whether that's green or whether that's marijuana or whether whatever it is and then you end up you know, that money absolutely gets burnt for heat. So that's always something.
Colin White:Trying to accomplish nonfinancial goals of the financial asset whenever that's the theme, that always catches my eye.
Josh Sheluk:Yeah. I pulled up the list of holdings here actually because I was kinda interested in what's there. And it it is a, you know, a list of good businesses, but the other thing with this is like, okay. Well, we're investing in in Quebec or we're investing in Ontario or whatever it is. We're investing in the GTA.
Josh Sheluk:It's like, okay. But all of these companies are are mostly at least the top holdings. They're global businesses. They probably have a lot more of their revenue source outside of Quebec than they do inside of Quebec. So, like, how much are you actually investing in Quebec just to and and we make this mistake so often.
Josh Sheluk:I and I think it it's it's not it's not just this product. It's, like, worldwide we do this. We talk about, oh, like, this is a US business or this is a Japanese business or this is a Canadian business. Well, they're all global businesses the way that we operate these days. Like, if you look at the S and P 500, I think something like 40% of the revenues of those companies in in the the S and P 500 are derived from outside of The US.
Josh Sheluk:So it's just things are so sort of blurred now in terms of, like, yeah, I can buy a business that's based here in Ontario or Quebec or whatever, but it could source so much of its revenue and sales globally that how much is it actually representative of that economy?
Colin White:Well, you know, if that company's got 80% of its workforce outside of the geographic area that you're talking about, where there there could be all all kinds of the economic benefits could be flowing outside. So even if you're trying to accomplish your goal, it may not be able to be accomplished. You know, you're not doing what you think you're doing and you're harming yourself again because every time you limit your investment pool, you're changing the math and that's it. Alright, so here we go. You ready for this one?
Colin White:I I didn't think this would come back. I thought that, you know, there's a product that was launched like this in gold a little while ago, but this has come back. So that get the Beta Pro three times S and P 500 daily leveraged bull alternative ETFs and the Beta Pro minus three times S and P 500 daily long leveraged bear alternative.
Josh Sheluk:Yeah. Yeah. So these are probably some of the most damaging products you can find. Again, you're making a call on literally a one day time horizon. That's that's what it is.
Josh Sheluk:And you can look at the offering documents for these products, and they say these are not designed for buy and hold. They're designed for very short term price movements. So, you know, we spend more time thinking about markets than I'd say, like, 99.9 percent of the population combined between the two of us, and I don't think either of us believe that we have any ability to predict what's gonna happen next tomorrow or next next week or next month for that matter. So I don't know why people believe that they can.
Colin White:Well, see and and here's the problem. So they launched this product and, yeah, there's a disclaimer that goes with it. Like, this is for active traders. Like, it's not a buy and hold. One of the reasons they have that disclaimer was, I don't know if you remember the bear and bull gold ETFs that got launched, you know, a number of years ago.
Colin White:Double and triple bear gold. And both of them were lost like huge double digits over the same year and lawsuits, class action lawsuits for launch going, how can the bear and the bully to have both lose money over a year? And then they get into, okay, here's how the contracts work and the degradation of the contracts and the term of the contracts because this is all options trading. Right? So you know, you've you've got all kinds of things that are gonna erode value over time.
Colin White:But again, it's giving the do it yourself investor the misconception that if they think things are gonna go bad, that they can profit from it or if they think things are gonna go good, they can profit three times as much. So you can do that just, you know, so so I wanna make sure that we everybody knows. You can do that on both the S and P 500 and the Nasdaq 100. Like, so you can even pick a a more volatile index to three times it. So those are all available to you.
Colin White:And for the record, no. We're not calling this a good idea. Right, Josh? Like, just to be clear, we're we're making fun of it. I'm not sure that's clear this time, but we're making fun of this.
Josh Sheluk:Well, I did find in my my search at one point a five times levered ETF based out of Cypress. So I you know that if you have to go overseas to to Cypress to source the product, it's probably not a good idea.
Colin White:Well, that's interesting because I have never seen anything go higher than three times in North America. So they're probably somewhere, somebody in
Josh Sheluk:Gotta be regulated. Right?
Colin White:Has has put a limit. It's like, you know, this is the level of stupid that we're gonna let out into the world. Anything above that is gonna be crazy.
Josh Sheluk:And Yeah.
Colin White:So I'd I'd like to meet that person that made that decision because that's
Josh Sheluk:That's right.
Colin White:Seems still pretty. Alright.
Josh Sheluk:Do do you have the levered single stock ETFs on your list?
Colin White:It's the next one.
Josh Sheluk:Stealing your thunder?
Colin White:Okay. Next one. Roll out of it. Harvest Portfolios Group lost the Harvest Apple Enhanced High Income Share ETF trading under the symbol APLE. That's not confusing on the TSX.
Colin White:You know, that reminds me of people that show up in Sydney, Nova Scotia think landing at Sydney, Australia. Like, you know, the the the name is gonna cause people to to purchase this thing, and they're actually buying the stock. I guarantee that's gonna happen.
Josh Sheluk:Well, I'll tell you a funny story related to that, and it ties into all this stuff that we're talking about. But when I worked for iTrade a while back, this is, like, almost fifteen years ago now, there's a story about a guy who bought Google options that were literally zero day to expiry. Right? So they're expiring that afternoon. And I guess who the the investor looked at them and said, holy shit.
Josh Sheluk:I can buy Google for 10¢? It was like a thousand dollars just yesterday. I'm gonna load up and buy these 10¢ Google shares. Sure enough, they were options, not the shares, and they expired worthless at the end of the day as they tend to do. And the funniest part is he actually sued the discount brokerage.
Josh Sheluk:He said it wasn't transparent enough. It wasn't obvious enough that he was gonna lose all his money on this. So he sued the the organization, the financial institution. So I don't know what happened from the lawsuit, but that's zero day options nutshell, and that's leverage investing in a nutshell, and that's the stupidity of of of retail investors getting over their heads with products in a nutshell.
Colin White:Well, again, it's it's based on the premise that if I can sell it, I'm gonna build it. You know, with no I no care or concern necessarily to how badly it's gonna turn out. And you know, again, stuff like that. Even the the naming nomenclature and something. Trying to make it look like a stock.
Colin White:Come on. Like, that's Yeah. I I don't care
Josh Sheluk:who that's wrong. Mistakenly buy that. Right? Somebody's gonna mistakenly buy that, and they're gonna realize they have a a levered covered call position or whatever the hell it is. Enhanced high yield.
Josh Sheluk:Right? That's what you said.
Colin White:Yeah. Enhanced high yield. That that's a that sounds way better. Who does not want to be enhanced and have high yield, Josh?
Josh Sheluk:Yeah. I wanna do that personally.
Colin White:I don't Absolutely.
Josh Sheluk:As a as a human being, I wanna be an enhanced high yield human being.
Colin White:There there there is just so much to like in in the naming of these things. It's gone forever. Alright. So here's the next one.
Josh Sheluk:But hold hold on. Can we can we can we stay with that for a second? Because so I I I I guess the enhanced part is that it's levered. Correct? And the high yield part is that they layer a covered call on it.
Josh Sheluk:Is that am I understanding it correctly?
Colin White:Yeah. Well, it is levered. It's right in the title. But, yeah, it's a covered call is what's giving the yield. Right?
Colin White:That's that's how all of these things reduce their yield. And just explain to our audience, like, when you're buying ostensibly, would Apple still be considered a growth company? Is that still
Josh Sheluk:I don't know what the and and this is part of the problem with this is there's no actual definition of what a growth company is. I I think it's probably losing a bit of its luster in that space
Colin White:now. So let's let's well, for a second, think we can talk about what the cover call strategy is like. Basically, if you've got a company that's paying out a dividend and you think it's gonna be a stable company, you can increase your yield off of that by selling contracts and pocketing the the premium on those contracts. But what you're giving away is if the stock goes up, then you're gonna give away some of the growth of the stock. So basically somebody's willing to bet against you and say, yeah, we think the stock's going up that much.
Colin White:And if you don't think it's going up, you sell the contract and then you you profit by pocketing the premium. So in a world where people are starved for yield or think yields, you know, the be all and end all and they think it's what they need to focus on, that really makes the product more attractive. Is that a fair explanation of of that aspect of things?
Josh Sheluk:Very much so. And this was actually going to be my theme for there's not I didn't come with a specific product, but I came with a specific idea that I think is the worst the worst investment idea collectively. And I shouldn't say worst. I shouldn't say worst. But it's so prevalent and so pervasive now, and I just don't think people understand what they're doing to themselves by buying covered call strategies Because I think they see the yields and the premium that is generated by these strategies, and they think that's awesome.
Josh Sheluk:And it can be at times. But as you said, what you're doing when you sell covered calls is you're capping your upside. And I don't know about you, Colin, but the only reason I own stocks is for their upside. And they tend to rip very quickly in very short periods of time to significant magnitudes, and sometimes they trade sideways for a while. And and if you're capping that that that upside that you're getting, if you're capping all of that appreciation that you typically get over over short periods of time, then you're I think you're doing yourself a disservice.
Josh Sheluk:And there's been academic research on this too. I think I think these products are positioned as increasing your returns, lowering your risk, and increasing your returns. Anything that positions itself that way is is needs to be questioned. Lower risk, higher higher return. Effectively, what these products do, I think, is they they may slightly lower your risk, but you're reducing your return as well.
Colin White:The other thing is, like, these things are sold into the market. So, basically, it's a bet that's being placed, and the market's gonna price the likelihood. Right? So to a certain extent, the the price that you're the what the revenue you're gonna receive is proportional to the likelihood of an outcome. So to the effect to the extent that a market is efficient, you're you're really not gonna get you know, there's there's no there's no advantage there for you.
Colin White:You're you're there's a the market if the market's being efficient at that time, less all the transaction fees. You know, it's it's not a lit market, so you can the fees are a little bit tough to discern sometimes. It's fact is stacked against you, but they're relying on the the investor wanting that income and thinking is dividend and dividend, and that all I want is a dividend. I'm gonna put all my money in this investment, and I'm just gonna spend the dividend because that means I'm just spending profit. And, you know Yeah.
Colin White:In their mind with their guerrilla math, that's what makes sense. They don't necessarily understand what they're getting into.
Josh Sheluk:Yeah. Well, I'm glad you mentioned transaction fees as well because that's my other issue with these products is they tend to be so one, they usually have a reasonably high management fee on them. Like, it's it's a pretty simple strategy at the end of the day. So to layer a management fee of, like, half a percent or more on them, it's very advantageous for the issuer of the product. The second part is your transaction costs tend to be quite high for for the the ETF itself because there's so much activity.
Josh Sheluk:As I said before, options expire. So you need to consistently buy or sell more and more options, and those generate commissions for not you not you, for the market maker or for the institution that's executing the orders. And that's a real cost to you as a holder of the ETF that is very tough to figure out unless you're scouring the ETF fax documents that that Canadian organizations are required to put out. And then the third part of the transaction cost that is often overlooked is by having so much activity on these products, there's a high tax burden on a year to year basis. The tax cost, you you lose some of the benefit of a deferral that you would typically get by investing in stocks, where a lot of your capital gain is gonna be taxed when you sell the investment longer term.
Josh Sheluk:You're you're you're accelerating the tax hit for yourself because there's so much activity going on in these products on a year to year basis, and the premium that you're generating is gonna be taxable for you. So there's a few issues that I think are often overlooked that are a real drag on your return, especially your after tax, after fee return that people don't consider. But you get a 8% yield, so it's awesome.
Colin White:Okay, Josh. I need I need you to take a breath, sign to yourself, and and and not overreact. K? Like, Can you can you promise us that? Nope.
Colin White:Okay. Good. Excellent. Because Longpoint Asset Management has introduced a pair of ETFs that provide investors with leverage exposure to US stocks that are significant players in the digital asset space. LFG Daily two times MSTR long ETF, and there's another name I won't bother reading out.
Colin White:Before fees and expenses, the funds seat delivered two times the daily return of the respective US listed stocks, MicroStrategy and Coinbase Global Inc. Both funds are traded in Canadian dollars and have a 1.55% management fee.
Josh Sheluk:Yeah. Yeah. So the management fees are ridiculous, first of all. Like, I've talked a lot over the last year about strategies that I could execute in my basement. This is one of them.
Josh Sheluk:Right? I I it's so simple. If if other financial organizations cared about trying to execute this type of strategy, you could probably do it for 10 basis points and be be pretty well covered, be profitable. So MicroStrategy, that's one of the stocks that they've levered. MicroStrategy, all it is is it owns Bitcoin.
Josh Sheluk:That's all it is. The company
Colin White:It's a strategy, Josh. Just write it in name. It's a strategy. Right?
Josh Sheluk:Yeah. It's a small strategy, It's a micro strategy. Yeah. So the company used to have some, like, technology platform. And, basically, a few years ago, they said, yeah.
Josh Sheluk:We'd rather just own own Bitcoin. Let's we're just gonna own Bitcoin. We're just gonna sort of abandon our technology platform strategy. We're just gonna own Bitcoin instead. And this has happened with a few companies recently where they just own Bitcoin or some type of cryptocurrency.
Josh Sheluk:They do almost literally nothing else. And the stock market, for some unknown reason, is putting a premium on the price of their shares. So last I I checked, and I could be a little bit off on this, but MicroStrategy was trading at about twice the value of the Bitcoin that it owned. And, again, that's that's for the most part, it's only asset. So these stocks, if you just bought the stock, it's like a leveraged play on Bitcoin.
Josh Sheluk:It's like you're buying leveraged Bitcoin essentially is what it is. So if you're levering up that, you got leverage on leverage, and we all know how well that works out.
Colin White:Oh, it works great right until it doesn't, which, you know Yeah. Who knows when that day is gonna be. Yeah. No. This is funny because we've, you know, kind of been following the MicroStrategy, you know, story or PM call on Thursdays just marveling at it really.
Colin White:Just sitting back going like how is this a thing? And it's now turned into a double levered ETF for the 1.55 percent fee. That probably is the one that I would end with, but I do have one more on my list that's that's not as as extreme.
Josh Sheluk:Yeah. But but just quickly on that, by my gorilla math, if Bitcoin falls about 25% and the stock behaves as it has historically, you've wiped out that investment. Right? You've because the the lever that's implied with the MicroStrategy's balance sheet plus the leverage on the ETF, we could go to zero pretty quickly. So I don't know.
Josh Sheluk:That doesn't seem like a stretch. 25% downturn for for Bitcoin could happen next month.
Colin White:Don't know. But they're also up to mark to market there. Like, the market would have to accept that it was, you know, diminished by that amount too. Right? So
Josh Sheluk:There's a lot of things that would need to happen, but yeah. In terms of I think I think at the start of the year, I said one of these products is gonna blow up this year. That would be my guess. If I had to guess today which one it's gonna be, that that has my money.
Colin White:Well, I've I've I've been skipping over all the ones that are being closed right now. Maybe we could do another podcast on the the strategies that have been closed this year because that would be a different list.
Josh Sheluk:Well, the good thing with with strategies like this, they're like a dime a dozen. So as an ETF provider, all you have to do is throw 30 strategies at the wall. Couple of them will stick. The rest of them you close, and couple of them that are successful will pay for the rest. So it's a really great business model.
Colin White:Well, welcome to business planning with Josh Schellick. You too can be a millionaire. This last one is a little a little bit harder to I don't know. A bit more obscure because the the target date funds are making a comeback, Josh. I'm not sure if you're aware of that.
Colin White:You Target date funds have come and gone a couple of times over the last number of years, you know, for many But it's based on the premise that everything goes in a straight line and portfolio allocation should behave in a straight line. And you know, in order to keep you from making mistakes, we're just going to buy this product that's going to reallocate the money from equities to fixed income over time based on a straight line. That's the the So the CIBC has launched education portfolios. So you can now have a target date fund for when your kid goes to school. Alright.
Colin White:So let's start with, is your kid really gonna go to school? As a parent, that's not for sure. Like, so let's let's let's let's start there. Like, if you're buying a targeted fund for, you know, the 2045 education portfolio, you know, a lot's gonna happen for your kid to go to school in 2045. So that's probably not in in a straight line.
Colin White:But yeah, so they've launched a whole list of education portfolios in five year increments. And the the idea is that they control the movement between equities and fixed income over that time. Targeted portfolios have an annual management fee of 1.65% and annual fixed administration fee of point 1%. So you're at 1.75%. Portfolios are actively monitored.
Colin White:So that's interesting. They chose the word monitored instead of managed. Actively monitored by CAM investment team. So the weakness of the targeted funds has been many fold. But, you know, as it gets closer because the the theory is that you're largely fixed income by the target date.
Colin White:And if you get to the point of being largely fixed income and you're still charging 1.75% as a management fee, that's extreme. Would that would that be an unfair characterization, Josh?
Josh Sheluk:No. I I think that point is is well made. I I don't hate these products because I think for a lot of people, they could do a lot worse. And I guess when we're talking about worst product launches of the year, I I'd say this ranks way, way, way down that list
Colin White:for me. We we should have ended on the last one. I know. But this was on my list. I wanted to
Josh Sheluk:discuss the one that I
Colin White:should say.
Josh Sheluk:Yeah. I I think the the the point that you're making is, like, you you can't really you you should be reevaluating what your priorities and your timelines are on a regular basis, and you shouldn't let a a that you own reevaluate that timeline for you, essentially, is what's happening here. So now if you never wanna talk to anybody about your money and you're gonna retire in 2050 and you buy a 2050 target date fund, you can probably do a lot worse. And the the costs, it sounds like the costs of the actual product them sell itself are quite low, so you could probably do a lot worse than this. But what I think what we saw the last time around we had one of these cycles is they had a prescriptive a bond allocation by the end of it, as you're suggesting, and they ended up with with bonds when the yields were, 1%.
Josh Sheluk:And you're like, well, this doesn't really make any sense because bonds are maybe the most overvalued that they've ever been, and you're getting, like, literally a negative real return on it after time. So maybe I don't want that. So there can be some issues with them, but I I think they're better than alternatives for like, if if somebody came out of this podcast and said, if I had to buy which which one of the products that you guys talked about, these would be the ones that we would steer them to out of everything that we talked about today.
Colin White:Yeah. No. The the other you're right, Josh. I mean, people try to set it and forget it and there are worse ways to do it but that's not the best way to do it. The other thing that I found with these products is that when they talk about the equity and income allocation, they're the most basic and simple of allocations to internal product.
Colin White:So you're talking about a government bond portfolio and broad based index exposure and not necessarily the cheapest of either. And like you said, you highlighted one of the points and one of the values in maintaining eyeballs on these when you see bond interest rates go down to 1% and you're paying 1.75 here, it's a negative real return and that that's meaningful. I mean that that that's worth paying attention to and and and allocating differently. So I think that the idea that you can buy it again and part of it's the goal of like here's a 2040 target fund. Really?
Colin White:We're gonna sit here today and have a have a goal that's gonna go on a straight line between now and 2040. Oh, come on. Like, just stop, please. You know, there's there's there's value in paying attention to this. Hey.
Colin White:Listen. You can listen to Bare Naked Money every every couple of weeks and, you know, follow what we say. You'll be way better off than using target date. Right, Josh? Congue firmly in cheek.
Josh Sheluk:How do we turn this into an optimistic something that leave people on an optimistic way?
Colin White:They can be optimistic that they now know a few of the buzzwords they need to watch for and stay away from. So we have just educated people on some buzzwords that they they should be careful of. So let's review the buzzwords that people should stay away from because this is positive. This is keeping people safe. Right, Jeff?
Colin White:So if you see the word levered leverage, that should be a warning sign that you wanna walk away from it. A single stock anything? Like any product that's a single stock, that's you should walk away from that. Yeah. Covered call.
Colin White:I don't know if we should say all covered call strategies you should walk away from. Be cautious of covered anybody says a covered call strategy, be be skeptical for sure. Are there any other big words that people should steer away from, Josh?
Josh Sheluk:Well, I I keep going back to that product, enhanced high yield. Right? Yeah. Enhanced. If I need to call something enhanced, what are you enhancing about it?
Josh Sheluk:Have some questions. And high yield, like, I can't say you stay away from high yield because there are high yield bonds that can be a very effective part of a portfolio. But I think anything that really draws your attention to the income that you're generating specifically, you should be a little bit cautious of because you're probably either you're not entirely understanding where that income's coming from or you're giving up something to get that income. And unless you understand what you're giving up and understand it well, you should probably be cautious.
Colin White:Yeah. Those products are are feeding on people's desire to just invest their money and spend the profit. It's how they think of it. And when you really look at these products, oftentimes, it's not that. So anything that's overemphasizing what it's going to pay out, whether they call it a yield, a dividend or whatever they call it and they're emphasizing that piece as being better than anything else that's available, yeah, run away.
Colin White:So I guess in a positive way, we've we've allowed people to protect themselves from sick or at least added skepticism when they hear some keywords. And the good news is that basic investing still works. You you don't need to all these fancy products. You don't need to overcomplicate things. There is no back me up, Josh.
Colin White:There's no brand new investment idea or there's no secret investment idea that anybody needs to care about.
Josh Sheluk:True. That's very true. And I think these the the concepts, the basic ideas that you're talking about, they haven't really fundamentally changed in decades from an investment perspective. And I to just to add to the optimism since we're on that that topic right now, product prices in general, like the cost of ETFs and and mutual funds and getting into good quality strategies has come down, is it fair to say, exponentially over the past couple decades? And there's lots of good quality people that are giving good quality advice to to get people into the right the right types of investments.
Josh Sheluk:These things that we talked about are still mostly at the fringes, which is is a a good thing.
Colin White:Yeah. And and just, you know, as an anecdote, I was watching a podcast from another institution here recently where they were interviewing somebody who was really pumping this the student housing, which has been some product launch around the student housing thing. They spent like forty five minutes discussing the nuances of student housing, why it was a good investment. I'm going, I was just spending a lot of time trying to build a story around something that basically you're building housing. Not different.
Colin White:We didn't discover this week that students need housing. This isn't anything new. This is something we've been dealing with for decades, right? So if you're hearing that much of a detailed story about that much of a niche thing and and trying to call it a special kind of investment, you're probably barking up the wrong tree. Alright, Josh.
Colin White:Was that optimistic enough? Like, did we leave
Josh Sheluk:I think
Colin White:so. Empowered. We've empowered people. So go out there and be powerful. And if you like the podcast, share it with your friends and family.
Colin White:If you have any feedback for us, we'd love to hear it. And we're always looking for ideas for new podcasts. So if you wanna send those into us, we will do our best to be entertaining. And I don't know, Josh. I think the sweater's gonna stick.
Colin White:I think you're gonna have to make that part of your one of your props for doing podcasts now on.
Josh Sheluk:It'd be my new podcast sweater. You got it. We go.
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