ETF Expert Corner

Will Rhind Spotlights GraniteShares ETFs

June 12th, 2018 by ETF Store Staff

Will Rhind, Founder of GraniteShares, spotlights their suite of ETFs featuring the lowest cost gold, platinum, and broad-based commodity ETFs on the market.



Transcript

You can listen to our interview with Will Rhind by using the above media player or enjoy a full transcription of the interview below.

Nate Geraci: We are now very pleased to be joined by Will Rhind, Founder and CEO of GraniteShares. GraniteShares offers five ETFs including the lowest cost broad-based commodity ETF, as well as the lowest cost physical gold and physical platinum ETFs. The gold ETF in particular has made a lot of headlines recently. It's taken in some $150 million dollars in new money just in the past two weeks or so. I should also note ETF.com named GraniteShares the new ETF issuer of the year for 2017. Will is joining us via phone today from New York. Will, a pleasure having you back on the program.

Will Rhind: Pleasure to be back Nate, and thank you for such a very warm and welcome introduction.

Nate Geraci: Will, let’s start with that gold ETF, the GraniteShares Gold Trust, ticker symbol BAR, which is a fantastic ticker symbol by the way. This launched back in the fall of last year. Despite being the lowest cost physical gold ETF on the market, it was a bit slow to gain traction. Why do you think that was and why is that changing now?

Will Rhind: I think, unfortunately, that's the state of the business today Nate, that nothing happens overnight. Rome wasn't built in a day. When you launch new funds, they don't become typically an overnight sensation, although, as much as providers like ourselves would like them to be. I think a lot of that has to do with – GraniteShares, we've really had to do two things. We've had to introduce the company, the brand to the market, and the people wouldn't have been familiar with. And, of course, the new fund kind of on top of it. So, I think from that perspective it's taken a little bit of time for people to get to know us, to get to know the fund, but obviously once they do, it's hopefully a very straightforward proposition if you're looking for gold. I think for us, what we've really tried to do is set a new benchmark for gold investing with BAR that really has started to happen in the last few weeks with the inflow as you're talking about.

Nate Geraci: When you talk about brands, currently the two largest physical gold ETFs are the SPDR Gold Shares (GLD) and the iShares Gold Trust (IAU) and obviously your preference is for every investor to use BAR, it's cheaper, but if we just take a step back here, are there any good reasons why someone would use GLD or IAU? Liquidity, how the bars are vaulted, anything else? I guess I'm just trying to figure out why wouldn't cost always be the differentiator here? They all own physical gold.

Will Rhind: Exactly and that's a hugely important point is that the underlying gold bars are identical irrespective of what fund you own. I think going back to the point about creating a new benchmark, from a very high level, when you step back, you have two big gold funds like you were just talking about, the GLD and the IAU. So what are the high level pros and cons with each? With GLD you have a fund that is expensive to own on a relative basis, high management fees, but it's low cost to trade. On the IAU side, you have a fund that is less expensive to own but is more expensive to trade because of the lower share price. What I tried to do with BAR is really create a fund that answered those two questions. So, low cost to own and low cost to trade. Obviously, that is something we work very hard on every day with BAR to get there, but that's the broad proposition. I think for anybody looking to invest in gold, the difference other than cost for BAR is we hold our gold at a different vault or different custodian in London and that makes a difference to some of the larger clients that are looking to diversify exposure, literally not have all your eggs in one basket so to speak. We also don't allow any lending of the gold. We don't want the gold to be lent out to the market. We don't want to introduce any counterparty or credit risk into the fund. I think most importantly for the gold investors, we have complete transparency with the holdings. We have the gold actually audited two times a year by an independent third party firm to come into the vault and inspect the bars. Once that audit is done for the fiscal year and once at random and selected by us. And then on top of that we have the bar list and the bars that are used within the fund published on our website graniteshares.com. I think that those little things hopefully add up to a compelling proposition and setting this new benchmark for gold investing.

Nate Geraci: Our guest is Will Rhind, Founder and CEO of GraniteShares. Will, I want to move on to the broad-based commodity ETFs now. Again, you offer two ETFs in this space, the Bloomberg Commodity Broad Strategy No K-1 ETF, ticker symbol COMB, and the S&P GSCI Commodity Broad Strategy No K-1 ETF, ticker COMG. Can you give us a quick overview on both of these?

Will Rhind: Absolutely. So, one of the reasons I founded GraniteShares is really to try to address two issues that were present within the commodity market for investors. Those were that commodity products, commodity funds had typically been pretty expensive from a management fee perspective, but also structured sub-optimally for investors - structures investors typically weren't used to. So those were commodity pools or partnerships that issued K-1s or there were notes or ETNs issued by banks. In other words, they were not your average equity or bond ETF that we were familiar with. What we're trying to do with GraniteShares is address those two things and offer a fund that was affording, so similar to your average equity and bond ETF, but with no K-1s and no credit or counterparty risk like ETNs. So, COMB and COMG are the two flagships like you say and really what we did was take the two flagship benchmarks for the commodity world to be the commodity futures based benchmarks that give exposure to the most important underlying commodities in the world and we wrapped those in that no K-1 low cost structure. I do think the key difference for investors in terms of both of those is really the amount of exposure to energy that has. COMG has about two times the amount of energy exposure in it than COMB. That's kind of the main difference. The last 12 months, the performance on COMG has been very strong and that's been because we had this incredible rally in oil prices and the energy complex more broadly. Whereas in COMB, there is just a little bit less exposure to energy.

Nate Geraci: Will, with both gold and broad-based commodities, what do you see as their role in an investor's portfolio?

Will Rhind: Well, I think right now investors are looking for diversification away from the stock market and the bond market. And that doesn't mean to say that investors are going to sell out completely of equities and bonds. I mean, clearly, we're not advocating for that. But what we are saying and seeing from investors is people looking to take some risk out of those markets, particularly the equity market seems to have stalled a little bit over the past 12 months. Bond markets, people are nervous about with interest rates rising, people looking to shorten duration, but they still understand that there's risk in fixed income with a rising interest rate environment. Typically what happens in this particular part of the cycle is when you start to get commodity prices rising, it's a classic late cycle indicator. I'm talking about the business cycle in particular. When you start to see commodity prices outperform stocks, that is a classic late cycle indicator. And so I think what investors are looking for is an asset class that has less correlation to equities and bonds, something that will have the potential to do well in an environment where inflation is rising, where the dollar is weaker, where volatility is also picking up and you see strong sort of synchronized global economic growth. That is sort of a bedrock for commodity investing. That's why we're seeing investors allocate space.

Nate Geraci: What about your platinum ETF? This launched back in January. It's the GraniteShares Platinum Trust, ticker PLTM. Why invest in platinum?

Will Rhind: Yes, so I think the first point is we're really continuing this theme of providing low cost efficient access to the core commodity market. Why platinum? It's a really interesting story and frankly it's a story that I don't think really investors understand. I think investors will be able to rattle off a couple points about why you might want to own gold, but platinum probably less so. So, here is my sort of take on platinum as an investment. Platinum is 30 times rarer than gold. Much smaller market, comes almost exclusively from one place in the world, which is South Africa, which is a country that has had its troubles on the political risk spectrum. Platinum is in my mind, going to be a very important future metal. In the conversations that investors are having about lithium, about manganese, about cobalt, rare earths, all these other fancy metals, particularly used within batteries and other future technologies, I think platinum is a part of that conversation. The reason being that platinum is used in hybrid vehicles for catalytic converters to clean the emissions on cars, but also it's an important technology in hydrogen fuel cells and fuel cell technology more broadly. And although the battery conversation takes up most of the oxygen here in the United States, in China and other huge markets around the world, fuel cells are much more part of that conversation as well. Fuel cells, particularly hydrogen fuel cells as a clean technology, that market is growing. It doesn't have to grow that much for there to be a pretty significant increase in demand for platinum. So, I think that platinum is an important metal and deserves a place in this conversation around future metals in the same way as lithium and some others. I think hydrogen fuel cells is a growing technology around the world, but particularly in Asia, particularly in China.

Nate Geraci: Again, our guest is Will Rhind, Founder and CEO of GraniteShares. Will, I also wanted to be sure to ask you about the US High Income ETF as well, ticker HIPS. I'm curious, what is this ETF designed to do?

Will Rhind: So, this one is kind of really designed to provide a high level of income, but from a non-traditional source. What I mean by that is, as I've sort of said before, most people think about when you go for income you look for dividend paying stocks or you look at bonds of different varieties and obviously the higher you get in terms of the yield spectrum, the more sector specific risk you're taking on. I think from our perspective, what we tried to do with HIPS is offer a high income investment fund that had no, or very little, fixed income exposure and no equity dividend exposure. HIPS is one of the highest yielding ETFs on the market. Yields currently just under 8% per annum. The reason or the way it achieves that is it invests in something called Pass-Through Securities or Pass-Through Entities. Now, these got a lot of play obviously in the last tax reform bill so if you're an individual investor you get tax breaks by investing through Pass-Through Securities. Pass-Through Entities are things like REITs, things like MLPs, business development companies, closed-end funds. So they're entities that are not subject to corporate tax so they pass through all their income to investors. HIPS is what we call an alternative income fund and the acronym stands for High Income Pass-Through Securities and by blending those together what you can achieve is an income or level of yield that's similar to what you'd achieve if you just invested in MLPs directly or REITs directly, but with a bit more diversification and less volatility than the individual sectors. The idea here is that you create a portfolio that can generate a consistent amount of income through all market cycles and is not dependent on one particular sector performing either well or not depending on the business cycle.

Jason Lank: Will, this is Jason Lank. I'd like to broaden the discussion just for a moment. Talk about GraniteShares. The last time we spoke, your firm was younger and we talked about the challenges of starting a business and raising capital. Since that time, you've enjoyed quite a bit of success, including recognition from ETF.com. For the budding financial service entrepreneur out there, what have been some of the keys to GraniteShares’ success? Is it the team? Is it the product? Is it luck? What are some of the things that have helped define the firm since we last spoke?

Will Rhind: That's a great question Jason. I think one of the key things is that I'm slightly different from a lot of the entrepreneurs that you might read about on the front of an entrepreneur magazine or something like that in that I view myself as an industry or executive entrepreneur. In other words, I learned my career or I grew up in the ETF industry. It's something that I know and love and therefore the opportunity to start my own company was done out of experience and knowledge of the sector first and foremost. It wasn't just that I had a great idea to launch an ETF company and no particular background or experience in it and managed to launch some funds and they took off and it was all a great success. So, from my perspective, I'm more of an entrepreneur who has an industry background and therefore have a track record in terms of building, managing businesses in the ETF space. I think that that is very important when it comes to raising capital. As you know Jason, we are backed principally by Bain Capital out of Boston and they understand the financial services base very well. This is the first investment that they've made on the ETF side. But I think them and other sort of top tier or blue chip venture capital companies affirms they want to have some assurance that the executive entrepreneur has an understanding or grounding in the industry. I think it's also important to put together a good team, which I think I've done with GraniteShares. We have over 50 years worth of combined experience in the ETF space. Lastly, of course, you have to have a good business plan. It's got to be a business plan that the VC firm can believe in and get behind in terms of creating something of value and I think our proposition to put investors first and really try and solve problems that exist in the market was something that resonated with them and other investors. Hopefully now in terms of success of the company, people like ETF.com and the underlying investors themselves, are starting to realize that, hey, we're trying to solve problems, we're on your side, and these are solutions that we are bringing to help you get better investment outcomes whether it's commodities or whether it's income.

Nate Geraci: Will, we have about two minutes left. You mentioned being an entrepreneur and looking to solve problems with ETFs. I have to bring up the topic of bitcoin ETFs, because in December of last year, you actually filed for two bitcoin products. Now, those filings along with several other bitcoin ETF filings, they were withdrawn after the SEC expressed some concerns. I know there's a lot of haggling going back and forth between a number of ETF providers and the SEC. I know you can't speak specifically to those filings, so I'll just ask you the same question I've asked many in the industry, which is simply, do you think we'll ever see a bitcoin ETF and if so, when?

Will Rhind: Great question, and yes, I can't speak specifically about the fund because it's in registration, but let me just answer this question because your question is not about the fund. My view, this is my take on it, is that what needs to happen is the SEC and other government bodies need to develop a regulatory framework for cryptocurrency more broadly. Of course that includes bitcoin, but I think the areas they're most focused on, for the moment, are ICOs, so the initial coin offering market, and also the exchanges that offer the gateway between the investor or the speculator and the actual blockchain network and where the distributed ledges are, whether it be Bitcoin or any of the other cryptocurrencies that people are familiar with. So I think there's a framework that needs to be developed and I think the regulators are actively working on that. I think once that framework gets established, then the regulation and subsequent approval of bitcoin ETFs will fall underneath that. I think when it comes to ETFs that do have underlying futures, I certainly believe and am hopeful that they will be approved. I can't say exactly what the timing is because I think the broader framework will take some time to develop and I just don't know when that might happen. I think that's what's got to happen first and then as a result of that framework around cryptocurrencies being developed, I think the regulation of bitcoin ETFs and other types of crypto will come underneath that.

Nate Geraci: Will, greatly enjoyed the conversation today. Thank you very much for taking the time to join us.

Will Rhind: Likewise. Thank you Nate, thank you Jason. Pleasure as always.

Nate Geraci: That was Will Rhind, Founder and CEO of GraniteShares, and you can learn more about the GraniteShares ETF lineup by visiting graniteshares.com.