15 ETFs to Watch in '24

Episode Summary

Executive Summary: Bloomberg’s Trillions devotes its annual “ETFs for the year ahead” episode to 15 U.S. funds/trends likely to matter in 2024, spanning small-cap quality, spot Bitcoin’s arrival, income diversification, ESG index design, commercial real estate, active bond growth, cannabis exposure, factor tilts, leveraged/covered-call income, value, cash parking, and likely crypto-futures closures. The discussion emphasizes watching behavior, flows, and product structure—not making return forecasts.

Main Topics: Small-cap quality and flow momentum (Priority: 5/5): Pacer US Small Cap Cash Cows 100 (CAF) is highlighted for strong inflows, quality/cash-flow selection inside weak small caps, and evidence that investors are rewarding a differentiated small-cap strategy. Bitcoin ETF transition and futures-vs-spot decay (Priority: 5/5): ProShares Bitcoin Strategy ETF (BITO) is framed as a bridge product likely to lose relevance once spot Bitcoin ETFs launch, with futures roll costs creating material tracking drag versus spot. Income and covered-call product innovation (Priority: 4/5): Several funds—MDiv, JEPQ, and JEPI-related strategies—show how investors are chasing yield and protection, while issuers package income from multiple sources or write options for enhanced distributions. ESG, factor, and equity concentration debates (Priority: 4/5): SNPE, RSPT, YSP, and QVAL are used to debate how investors should diversify beyond the Mag 7, whether ESG should be used as an exclusion/filter tool, and whether value can stage a durable comeback. Real estate and rate-sensitive contrarian plays (Priority: 3/5): VanEck’s office/commercial REIT ETF (DESC) is presented as a contrarian proxy for office and commercial property recovery if rates ease and in-office trends strengthen. Active fixed income and platform shifts (Priority: 4/5): FBND is used to illustrate Fidelity’s ETF expansion and the broader growth opportunity in active bond ETFs, a market segment still early relative to active equity ETFs. Crypto-futures cleanup and product closures (Priority: 4/5): The Bitwise Ethereum futures ETF (ETH) is cited as likely to shut if spot Ethereum ETFs arrive and if assets remain negligible, reflecting a broader shakeout in crypto futures funds.

Key Arguments: CAF is notable because its cash-flow quality screen helped a small-cap ETF beat both Russell 2000 and even the S&P 500, suggesting investors may reward quality inside neglected segments. BITO’s futures structure creates roll costs that can materially underperform spot Bitcoin, so the product is likely to be displaced by spot ETFs for most direct investors. MDiv’s appeal is diversification of income sources rather than reliance on one yield engine, which may reduce concentration risk versus single-strategy income ETFs. SNPE shows that an ESG ETF can outperform while using a filtered, sector-relative methodology instead of strict bottom-up purity, though critics argue it may not meaningfully change corporate behavior. DESC is a focused bet on commercial/office real estate and could benefit if rates decline and office usage normalizes; its narrow exposure is the point. FBND reflects a major issuer shift: Fidelity is using low-fee active ETFs, conversions, and potential mutual-fund share classes to migrate assets from mutual funds to ETFs. JEPQ’s QQQ-based covered-call strategy offers yield with a growth tilt, and could be attractive if mega-cap tech momentum cools but does not collapse. RSPT and YSP are ways to reduce dependency on the Magnificent Seven without fully exiting tech or the S&P 500, using equal-weight or reverse-cap weighting. QVAL is positioned as a concentrated, junk-screened value tilt that could outperform if factor rotation into value finally materializes. ETH and other Ethereum futures ETFs are likely closure candidates because they arrived with little investor enthusiasm and offer inferior economics to anticipated spot products.

Data Points: ETF count discussed: 15 U.S. ETFs - The hosts selected the U.S. portion of their 24 ETFs for 2024 list. Total list size: 24 ETFs for 2024 - Bloomberg Intelligence’s annual listicle includes U.S., Europe, and Asia names. CAF inflow streak: 44 months straight - Pacer US Small Cap Cash Cows 100 has taken in flows for 44 consecutive months. CAF weekly inflows: Every week this year, but one - Shows sustained investor demand for CAF. CAF inflow streak (days): 100-day inflow streak - Eric cites unusually persistent inflows. CAF relative performance: Doubled the Russell 2000 - CAF’s strategy and returns are described as roughly twice the benchmark’s performance. BITO underperformance vs spot: More than 14% - Year-to-date drag attributed to futures roll costs. MDiv yield: 6% - Athanasios cites MDiv’s distribution yield. JEPI yield: 8.6% - Used as a comparison for MDiv. SNPE holdings count: 322 stocks - Shows the fund’s diversified but filtered exposure. SNPE index outperformance: 35%+ - The index is said to beat the S&P 500 by over 35% since inception/backtest. SNPE since launch: 11% ahead of SPY - Since 2019 launch, the ETF is described as outperforming SPY by 11%. SNPE expense ratio: 10 bps - Presented as a cheap ESG index option. DESC asset size: About $1 million - Athanasios notes the office/commercial REIT ETF is very small and new. FBND assets: $6.5 billion - Used to illustrate the scale of Fidelity’s active bond ETF success. FBND fee: 36 bps - Active bond ETF pricing noted as competitive. WEED portfolio size: 5 stocks - The cannabis ETF is described as highly concentrated in MSOs. RSPT category: Equal-weight S&P 500 tech - Used to dilute Mag 7 concentration while staying in tech. JEPQ year-to-date return: 35% - Eric contrasts JEPQ’s return with JEPI. JEPQ yield: 10–11% - Covered-call income level cited as an advantage. JEPQ Sharpe ratio: 2.5 - Eric uses this to argue JEPQ has been a strong risk-adjusted performer. JEPI year-to-date return: 9% - Benchmarking JEPQ against JEPI. JEPI yield: 9% - Used in comparison to JEPQ. JEPI Sharpe ratio: 0.5 - Shows weaker risk-adjusted performance than JEPQ. YSP assets: $10 million - James notes the reverse-cap S&P 500 ETF is tiny and little-traded. QVAL factor ranking: Top five in value intensity - Eric positions QVAL as a strong pure-value exposure. IVAL PE ratio: About 6x - Used to show how cheap international value is relative to the S&P 500. S&P 500 PE ratio: About 25–26x - Benchmarked against IVAL’s valuation. TUA fee: 15 bps - Presented as hedge-fund-style management at low ETF fees. SWVXX assets end-2022: $161 billion - Schwab money market fund size before 2023 inflows. SWVXX current assets: $258 billion - Shows massive one-year growth. SWVXX one-year inflow: $97 billion - James calls this mind-boggling for a single fund. SWVXX yield: 5.26% - Current money-market yield cited. SWVXX fee: 34 bps - Noted as relatively expensive for a cash-like fund.

Pivotal Quotes: "These are not our picks for what will go up or down. We don't know. We don't make calls." — Eric Balchunas: Opening disclaimer that the episode is about noteworthy ETFs, not return forecasts. "People use them to bet on these situations." — Eric Balchunas: Describing single-country ETFs like Argentina as geopolitics in a sportsbook-like format. "Why not just buy the stupid S&P 500? Like what are we really doing here?" — Eric Balchunas: Critiquing ESG ETFs that still hold controversial mega-cap names while claiming sustainability goals.

Implications: Listeners get a roadmap to 2024 ETF themes: quality over junk, spot crypto displacing futures, income packaging, and product consolidation. The industry appears headed toward lower-fee active ETFs, more targeted factor plays, and fewer redundant crypto futures funds.