How a hedge fund became an ETF

Darren Sinden

According to data from the FT flows into ETFs surged by a record 14.50% in November 2020, taking net inflows into the sector to $659.30 billion over the first 11 months of the year

Ultra-modern-meets-1920s-Wall-Street-as-Tradimo-launches-Little-Traders-game

Hedge funds have been having a tough time in recent years. Their performance has often been lacklustre when compared to market benchmarks and indices and their fee structures are under near-constant pressure, thanks to the growth of low-cost passive investment strategies and in particular ETFs.

According to data from the Financial Times flows, into ETFs surged by a record 14.50% in November 2020, taking net inflows into the sector to $659.30 billion over the first 11 months of the year. That figure surpassed the previous full-year record of $654.0 billion seen in 2017, while a report from ETF.com shows that a further $16.80 billion flowed into US-listed ETFs in the first week of the New Year.

In terms of performance, fund of hedge funds manager Arum has calculated that the hedge fund industry returned an average of 3.43% in December. Whilst for 2020 that figure was 9.32%.

In normal circumstances, those performance figures might be thought of as creditable. However, these are not normal times and investors could have made far bigger returns elsewhere. For example, the Nasdaq 100 index was up 47.60% during 2020.

Against that background then it’s interesting to note that a small US hedge fund has undergone a transformation and turned itself into an ETF.

Fund manager Upholdings Funds LLC has converted a technology-focused portfolio that it manages, into an exchange-traded fund.

The new fund is the Upholdings Compound Kings ETF which has the ticker KNGS. This is the first time that a hedge fund has been transformed into an ETF.

Upholdings was keen to expand the investors base of their tech fund, which they launched back in 2019. They started to explore the possibility of transforming it into an ETF in March last year and filed formal plans for the switch, with the SEC in October 2020.

Unlike many ETFs, the fund will remain actively managed, and in a year that’s been tipped as being tailor-made for stock pickers that may be to its advantage.

The act of converting into an ETF is no guarantee of success on its own. As the FT also reports that one in 20 ETFs were closed in 2020 having failed to build sufficient scale.

Globally 297 ETFs were shuttered last year. That represents a closure rate of 5.50%, up from comparable rates of 4.30% in 2019 and 3.50% in 2018.

Despite those closures competition for assets remained fiercely contested and there were 318 new ETF launches in 2020.

ETFs are not exempt from competition from other products. Stock baskets and specialist indices are becoming both more common palace and more popular. For example, CMC Markets has created more than 20 thematic share baskets for its clients to trade on.

The emergence of fractional share trading is likely to bring about the ability for traders to build personalised indices and baskets in the near future, and that could create a whole a new wave of tradable products aimed at both professionals and retail investors alike.

Read this next

Digital Assets

Cathie Wood’s sponsored Bitcoin ETF sees historic $200 million inflows

The ARK 21Shares Bitcoin ETF (ARKB), co-sponsored by Cathie Wood’s ARK Invest, registered historic inflows exceeding $200 million on Wednesday, signaling a robust appetite among investors for Bitcoin-centric investments.

Digital Assets

Sam Bankman-Fried might see his 25-year sentence halved

Sam Bankman-Fried, the founder of the failed cryptocurrency exchange FTX, was sentenced to 25 years in federal prison by a Manhattan court on Thursday. This comes after he was convicted of defrauding customers and investors, with Judge Lewis Kaplan highlighting the potential future risks posed by Bankman-Fried.

Technical Analysis

EURJPY Technical Analysis Report 28 March, 2024

EURJPY currency pair under the bearish pressure after the pair reversed down from the major resistance level 164.25, which also stopped the sharp weekly uptrend at the end of last year,

Digital Assets

BlockDAG’s Presale Hits $9.9M, MultiversX & MINA Price Predictions Show Green

Read about BlockDAG’s promising $10 prediction and insights on MultiversX Price Prediction as MINA’s potential unfolds.

Digital Assets

Rockstar Co-Founder and All-star Line Up Join Advisory Board to Take Metacade into Post Beta Orbit

Metacade, the revolutionary Web3 gaming platform, prepares to streak out of beta with a slew of ground-breaking initiatives that will redefine the way blockchain games are developed.

Retail FX

Prop firm The Funded Trader shuts down, claims relaunch in April

Prop trading firm The Funded Trader has ceased all operations, with claims for a relaunch in the near future.

Digital Assets

Ethereum-Based Tokenized Real Estate Platform USP Launches On Republic

How This Californian Startup Is Revolutionizing Real Estate Investment through Ethereum-Based Tokenization.

Digital Assets

Sui Spikes in Weekly DEX Volume, Joins Top 10 of All Blockchains

March DEX volume on Sui stands at over $2.88B – up more than 49% from February – with decentralized exchange Cetus and wholesale liquidity layer DeepBook leading.

Digital Assets

Prisma Finance suffers $10 million crypto exploit, attack ongoing

Liquid staking protocol Prisma Finance fell victim to a security exploit on March 28, resulting in nearly $10 million in Prisma mkUSD and wrapped stETH being stolen by hackers.

<