Will Rhind, CEO of GraniteShares, has said leveraged and inverse ETPs are just another tool in the toolkit for investors following the launch of the firm’s
long and short single security ETPs
in Europe, marking its first push into the continent.
GraniteShares launched in the US two years ago with financial backing from capital ventures that also specialise in the fintech space. This has carried over into the firm’s objective of looking for “margin on something that has not been disrupted yet,” according to Rhind.
Both Rhind (pictured) and GraniteShares’ chief operating officer, Benoit Autier, started their financial careers in Europe and were keen to create disruption within the region having confidently done so in the US.
Speaking to ETF Stream, Rhind said: “With Brexit and market volatility surrounding global events, it is timely to introduce these leveraged exposures to European investors.”
The ETPs launched offer European investors exposure to 3x long or 3x short to what GraniteShares believes are the 11 most popular securities in the UK. By launching this platform in Europe, Rhind says it hopes to further expand its offering in response to client feedback.
“We hope to develop a community surrounding our platform and will get feedback from the users on what more they would like,” said Rhind. “This is just the beginning and the first offering in the market and we hope to offer exposure to the most popular UK names.”
In the future, GraniteShares plans to expand its exposures outside of just UK securities such as mainland Europe equities as well as from the US.
“We started off offering physically-backed gold ETPs in the US as it was disruptive at the time but we did not want to just be a gold business,” said Rhind. “Eventually we branched out into other asset classes and exposures.”
GraniteShares expects the typical user of these ETPs will be sophisticated investors.
“The products are more directed at active investors and a trading-based community rather than the typical buy and hold investors due to the complexity of the products,” said Rhind.
The ETPs come with much greater risks, for example, if the underlying security was to change by 2% on a given day, the ETP will change by 6% depending on whether the buyer has chosen a long or short position. Therefore, if an investor chose to hold their position for several weeks and the performance was to go against them by 10%, then they would be exposed to losses of 30%.
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These risks have resulted in investors to be hesitant towards the leveraged and inverse ETPs and have regarded them as gambling products. Some fund buyers stay clear of leveraged products as they are a "killer for returns".
Rhind responded by saying “yes they do carry out a higher degree of risk but all investments carry risk”.
“These products are directed at people who understand risk and will go through these issues with their financial advisors,” he continued.
“We offer both a long and a short position for these securities which are just another tool in the toolkit to ensure investors are building a more complete portfolio.”
Regulators have been cracking down on non-transparent products such as contract for differences (CFDs) which have resulted in investors unknowingly adopting a high level of risk.
Rhind said: “Regulators are looking for products which have been previously in the shadows and need to be exposed so we are trying to be a part of the trend of transitioning to transparent and liquid investment vehicles which are solving issues for investors.”
