Casey:
Hi there, everyone that's listening. This is Casey Stubbs from the How to Tate it podcast. And today we have a new guest very excited to be here with Will Rind, the founder and CEO of graniteshares.com. Hey Will, how are you doing today?
Will Rhind:
Doing great, Casey. Thank you so much for having me on your show.
Casey:
You're welcome. Okay, so start me out by telling me a little bit about what you do and what Granite Shares does.
Will Rhind:
So I'm in the asset management business, the money management business. Granite shares is a company that I founded about six years ago. We specialize in the creation, the management, the distribution of exchange traded funds or ETFs as people would more commonly know them. So we create the ETFs, we manage them and distribute them. We have a range of products here in the United States and also all major European markets.
Casey:
Okay, well, that's pretty interesting. How did you get involved in starting an ETF?
Will Rhind:
Well, my career was, I thought I was kind of lucky in some respects because I started out in London. I was actually in an investment bank after college and didn't particularly like that and ended up moving into asset management. And at the time, the company that I worked for was called Barclays Global Investors, and they were one of the largest asset managers in the world. And very long story short, we started. the what's now known as the iShares business, which is owned by BlackRock, but the first ETFs in Europe. So was it the right place, right time, working on the right product, was growing like crazy, and then that business is acquired, so no longer exists today, but it's BlackRock, which is the world's largest asset manager.
Casey:
Okay, that's a pretty cool story. So tell me a little bit about the ETFs that you're working with right now and what is maybe the big draw for investors? Why would an investor? Because here's what I'm thinking right off the bat right now is ETFs nowadays are just everywhere, right? So originally there was not a large selection of them. but now they're everywhere and it's becoming such a big business. So tell me a little bit about your ETFs and what is a big advantage for investors, what kind of sets you apart?
Will Rhind:
Yeah, no, I mean, you're absolutely right, Casey. When we started working on this, there were really a handful of products in the world. And certainly, within a few years, you could still, by memory, recount every single product in the market. But those days are long gone. We've got thousands of products out there. And it's a little bit like the Apple iPhone analogy, where the quote is, there's an app for that. In the ETF world, typically, there's an ETF for that. Whatever you're thinking. in terms of investment, there's typically an ETF on that. So we specialize in ETFs for what we call the high conviction investor. So as you know, the beauty of an ETF is it's listed on the stock exchange and be bought and sold just like a stock. So you can hold an ETF, you're in control of when you buy, you're in control of when you sell, so you get ETFs that are for the longer term, get ETFs that are for the shorter term. And we like to specialize in ones that, like I said, are for high conviction investors. We do products such as in the commodity space, in the income space, in the technology, sort of equity-based. And then probably most relevant for this audience, leverage single stock ETFs, which is a big business that we've been doing now for a few years. And as the name may sound, it's an ETF that provides exposure to a single stock. like Tesla, for example, but with leverage. And that can be on the long side or on the short side, if it's a inverse or a bear strategy.
Casey:
So, high conviction investor. I feel like that's me because I really like Tesla and I'm sure there's a lot of us, right? There's a big group of us. And I got that from my dad first. He's like, Tesla's amazing and he knows everything about Tesla and he reads every news article about Tesla and he tells me about it. And so I'm like, oh, okay, yeah, you're right. Tesla's really cool. I'm starting to investing. So, you know, I'm like all in on Tesla. I'm investing in Tesla all the time. I'm not the only one. Institutions are doing it. So is that kind of your description of a high conviction investor?
Will Rhind:
Yeah, typically what high conviction means to us is our investments have a bit more volatility. In other words, you know, there's more of a move up and down. You know, if you look at somebody like Vanguard, which, you know, probably your viewers will be familiar with, you know, typically those kinds of investments are things that you put in a retirement account and lock and leave. They tend to be quite generic, quite basic. The products that we have, they're a bit more risky. You know, they're
Casey:
Quite
Will Rhind:
leveraged.
Casey:
boring with
Will Rhind:
They're...
Casey:
the returns as well.
Will Rhind:
Exactly. So, you know,
Casey:
Yeah.
Will Rhind:
when we're talking about, you know, 1.75 times the return of a stock like Tesla or Nvidia, other companies such as that, they're by definition, they're more risky. So risk reward wise, yes, there's more potential for return, but you're taking a higher risk. And so we're trying to appeal to people that want that kind of exposure, want that kind of investment.
Casey:
Okay, so based on that answer, I have a couple different questions for you here that just kind of popped into my head. And so the first one is, how do you achieve a 1.75 leverage? What's the strategy behind doing that?
Will Rhind:
The way that we do that is we get the leverage from an investment bank or a broker dealer in the form of a derivative contract called a swap. And so the fund has a derivative exposure with the bank and that is where we get the performance that enables us to have the leverage. So it's almost like you're getting the leverage from a bank and then building that into the mechanism around the fund.
Casey:
Okay, so, you know, I liked how you broke that down with the iPhone analogy. This was not quite as simple for me to understand, so I'm going to try to rephrase it. Is it essentially you're just getting a loan from them to cover additional shares?
Will Rhind:
In its simplest form, it's exactly right. So the derivative contract, you can think of it as literally just you're borrowing that exposure from the bank, from the counterparty, to be able to increase your position and have 1.75 or 1.5 times leverage.
Casey:
Okay, okay, so that makes sense. So is there, do you use options at all to get that leverage as well?
Will Rhind:
We do not use options. The reason for that is that options are a very different type of instrument. So we're looking for linear leverage, which means our investment objective is to provide exactly one and a half times leverage to Tesla, for example, in the case of TSLR, over one day. And then we'd rebalance the portfolio, go again the next day, 1.75, 1.75. So what we don't want is that to be stopped out in any way. Clearly, we don't want anything expiring, like in the options world. And so it's really just a form of derivative, a form of exposure that we can maintain that every day so the investor or the customer doesn't need margin in that position.
Casey:
All right, now this is kind of a just a random thought question in my head, because I know there's a lot of ETFs now that are using options. And so I don't want you to necessarily make too much of a comment about not one of your ETFs, but doesn't that really increase the risk? If you're doing some options and they expire in the, the fund has a whole bunch of options that go south on them.
Will Rhind:
It can be, yeah, no, absolutely. I mean, the options strategies that are out there in the ETF world tend to be more about yield. So tend to be designed to give people yield where they might be selling call options, for example, to generate some premium. But yeah, absolutely, that's the job of the manager. That's the strategy that they have. And it's their job to make sure that doesn't happen and that the fund is doing what it's. what its investment objective is, which is to generate yield or whatever it may be.
Casey:
Okay, now with your fund, let's just stick on the Tesla fund. What's what's the symbol for that one, by the way?
Will Rhind:
So we have actually three Tesla ETFs, would you believe. So we have TSLR, which is the highest leverage you can get in the market on Tesla. So that's 1.75 times Tesla. We have TSDD, which is 1.5 times short. So that's the highest leverage short Tesla ETF. And then we have TSL, which is 1.25 times leveraged Tesla. So lower leverage, lower amount of leverage than TSLR. So we have three products on it.
Casey:
Well, I just got my strategy now. I'm gonna go in Tesla short and Tesla long, split it up, and then when it goes up, I'm making money, and when it goes down, I'm making money. There you go.
Will Rhind:
You're good.
Casey:
So I did actually have a question though. When you're dealing, we'll go with your 1.75. When you're dealing with that, is that automatically an increased 1.75 additional risk as well?
Will Rhind:
Absolutely. So clearly, if the price goes up by 10% in a day, then you're going to go up 17.5% on the upside. If it goes down 10%, then also that's the case. So it's amplified risk with anything leveraged amplified on the upside, but also on the downside.
Casey:
I see. Okay. All right. And so does that hinder you guys at all if you're hitting a really long down streak? Have you thought of long-term risk management on there because you've got all these loans out there, you've got fees probably on top of that? So what's the long-term prognosis if you enter a real long bear market with one of these individual shares?
Will Rhind:
It works really in the same basis as on the upside. So on the downside, really the net effect for both us and the investor is that people lose money. So the investor obviously loses the exposure in the form of the mark to market move. We lose in terms of the management fees that we charge. But the actual risk per se is the same. Really what happens, Casey, is that if you think about the share price, the stock price, It just goes down and down and down and down and down. And at some point, you would then do a reverse split. So you'd do a stop split in reverse to put the price back to a level where you almost like start again. But the exposure itself is really, it would just work very similar to any other fund that you'd be familiar with. It just has some leverage in it. So those that are familiar with Leveraged ETFs. just more broadly in the commodity space or the equity space or fixed income space will kind of be familiar with this concept.
Casey:
Okay, so with that, with the leverage and you get, you know, working with investment banks that obviously cost you guys money, what is the particular fees involved with your ETF?
Will Rhind:
So in terms of fees, we charge 99 basis points per annum typically. So that's obviously if you were to hold it for 365 days and that's what we have to publish by law. The reality is these are shorter term trading products. People are looking to use these products on a very regular basis. So the cost to hold these on a daily basis is a fraction of one basis point, which is a fraction of one hundredth of a percent. So it's very, very inexpensive to hold these over the short term.
Casey:
Okay, so then if I'm a day trader and I'm ready to trade Tesla, I want to make a buy on the daily chart and the price looks like it's going up and there's support and resistance there and everything's magical and wonderful. And so rather than putting the money into Tesla, I could buy your fund, get an increase on it. It moves very similar to the price of Tesla and then there'll be a small commission. It's not really a commission. Well, I guess it is. It's a fee or commission on that. particular trait.
Will Rhind:
Yeah, just to be specific, because we've got a lot of high-frequency trading firms that trade these products and are very active on that. So if you're trading intraday, there's really, well, not really, there's no fee that we get from that. It's actually free. The fee that you pay is a bid-off of spread. And obviously, as you know, the bid-off of spread is always moving and depending on where you get, you could either get in the middle of that spread. or pay obviously the offer or bid whatever you're trying to do. So really commission, it depends on obviously what service you use, but that would be to the broker that you use and typically these days obviously a lot of these platforms, they're commission free. So if you're looking at it from that perspective, it's really the bid offer just like any stock and that's it on a daily basis.
Casey:
So if I'm doing a commission free broker, there's just the, and that's with every stock bid as price. I mean, that's how the market works.
Will Rhind:
Yep.
Casey:
That's how the brokers get paid and all that. But so there would be no fee on a day trade. But then if I held it overnight, then there would
Will Rhind:
Yeah.
Casey:
be an additional fee that would come out. And that's the fee you
Will Rhind:
That's
Casey:
talked
Will Rhind:
right.
Casey:
about.
Will Rhind:
So it would be like 1,365th roughly of 99 basis points, which is well less than less than 1 and 1 hundredth of a percent. So it's tiny.
Casey:
Okay, and just out of curiosity, when you mentioned the spread, that all goes to the broker, right? You don't actually get a part of that, or do you guys get part of that as well?
Will Rhind:
We do not. So the way that ETFs work is the issuer or the manager, which is us. We are purely the people that set the fund up and then we're responsible for listing it and managing it. The only way that we make money is through the management fee. So the bid offer that's from market makers or liquidity providers that are on the stock exchange. They are the ones that are committing risk capital to make those two way prices. So that's how they get paid. But that's nothing to do with us.
Casey:
Okay, well how many, so your company formulates these ETFs, how many ETFs do you guys have available right now?
Will Rhind:
So in the US we've got around 15. In Europe, they're not technically the same structure, but they're very similar. We got over 100.
Casey:
Oh wow. Okay, and so in Europe are they also called exchange traded funds? ETFs?
Will Rhind:
They are the products that we have, we call them exchange traded products or ETPs because they're a slightly different structure because they have a single underlying. But over in Europe, you can get higher levels of leverage on the individual stocks and some of the baskets, which is appealing to people.
Casey:
Okay, and those are with different symbols. And are US traders allowed to access those?
Will Rhind:
It's a little bit of a gray area. So officially no. And that what I mean officially is they're not registered securities in the
Casey:
Okay.
Will Rhind:
United States. So we can't promote them. We can't solicit them in any way. But, you know, we live in an interconnected world. And, you know, people, if they have access, again, it's all about the broker. If the broker allows access to a foreign market and people go and buy. those securities, that would be the way that they would do it.
Casey:
Okay, so you mentioned that traders really like your funds. Give me some other people that would be interested and maybe some other ways that people are using your funds other than just day trading or swing trading.
Will Rhind:
Yeah, no, exactly. So we have a big range of people that use the funds. So you have fund managers, professional fund managers, hedge fund managers, etc. People that are just actively managing money. So in other words, this is not just passive cash that just sits there in an account and never moves. This is people who, and I think this market environment is actually a really good example of that, where yesterday we were up 1% Now, obviously, the time we're doing this, we're down 1%. And so a lot of people are being more active with their money. And that could be something as simple as over-earning season, taking a view on a company's earnings and either going long or short for the earnings to people implementing your risk management strategies and using a short or an inverse product to hedge out exposure on the long side. So there's a number of ways that people could use it, but in its simple. simplest form, it's just directional views on the stock, depending on obviously how bullish or bearish people are.
Casey:
Okay, and so also a question that popped into my mind when you mentioned the short side of things, a lot of people don't understand how short works. How does your short ETF work? Like how does that whole process play out?
Will Rhind:
Yeah, good question. It works in the same way as the long. It's just you have to obviously borrow the short. So when we get the derivative contract from the bank, how the bank is getting that exposure is they're having to find those shares in the market, borrow those shares in order to be able to implement the short position. So for us, mechanically, it's the same as the long. We're getting the performance on the downside, but the way that's achieved is typically through borrowing stock.
Casey:
Okay, now is there not more risk involved with short trading because you have unlimited risk? Because if the
Will Rhind:
Ah.
Casey:
stock continues to go up forever and you're short, you're in big trouble.
Will Rhind:
Great question. And that is absolutely the case, other than with these products. And these products, you're first of all, like any ETF, you're limited in terms of losses to the amount that you invested. So it's not possible to lose more than your initial investment amount. That's number one, most important. And so from that perspective, yes, you are exposed to losses. Clearly, if you're short and the stock rallies and stock goes the other way, but you're not exposed to unlimited losses like you would be in a real derivatives contract, a real situation where you have margin with a broker
Casey:
Right.
Will Rhind:
and you're short the stock and that is potentially exposing you to unlimited losses.
Casey:
So this is a much safer way to short because like we said, if you borrow a thousand shares and those shares go up a thousand dollars, you got to pay all that back. And so whatever you cut pay to borrow it, you might actually have to pay more. But with the ETF, that doesn't happen. You just pay the price of the, it's like buying really. It's almost like buying. It's short,
Will Rhind:
Yeah.
Casey:
you're buying a short fund. So it is buying, you're buying a fund that is short. Now you guys have that unlimited risk though.
Will Rhind:
We don't. So that is again, it's not with us. It's with the investment bank who's doing it. But clearly there are procedures in place that are laid out so that if you have a stock that was to go through a certain floor, you would close out that position. And obviously in a very extreme situation, if the fund went to zero, that fund would be terminated or liquidated.
Casey:
Okay, I am not as familiar with the shorts, so here's my initial thought on it, just on the risk.
Will Rhind:
Yep.
Casey:
Tesla, I feel like could, and I'm a high conviction guy, and a lot of people are, you know, I've heard people saying that thing could go up for years and years and years and years. So does it make sense to be in a short fund if this thing really just blows up and continues to rise for, you know, 10 years in a row? Does, like, what's the logic behind it?
Will Rhind:
The logic is so you can get exposure to the downside. I mean, it's just as simple as that. Casey, you might be a massive believer in Tesla, but as you know, there are a ton of people out there who want to take the other side of that, including some of the most famous investors in the world that publicly talk about the downside and how stocks overvalue. So that's the beauty of it. I mean, you need two sides to make a market and you need the people that think the stock's gonna go up forever. And you also need the people that you know think the stock's going to go down. And so that's why we have a you know Have an efficient market so yeah Logically clearly if you're right the people who are on the other side we're going to lose money But what tends to happen and this is why I address specifically the volatility point is Things never tend to go up in a straight line or down a straight line. There's always move. There's always movement And in that movement, there's a chance to capture swings on the upside and downside. So it might be the case, for example, that even if you were massive Tesla bull, last year was just a situation where almost everything you did lost money.
Casey:
That's true.
Will Rhind:
If you were holding it for, let's say, a couple of weeks or more. So there you might be in a situation where you would accept that, okay, situation's really bad, I may not want to sell my long Tesla stock, but I might want to hedge a bit here. So I might want to buy a short Tesla position just to limit my losses and to hedge. And then obviously you're not outright speculating or suddenly saying that Tesla is a bad company. You're just adjusting your trading strategy because of the market environment and trying to make the best of a bad situation. And so that's how these tools can really be used and used to great effect. But a lot of the times we're talking about stocks that don't go up in a straight line. and markets that are volatile move around a bit that gives opportunity for both the long and the short side.
Casey:
Okay. And I totally agree with you because last year was a big, big correction and the short fund probably did really well. I was just thinking more of long-term. I know there's like
Will Rhind:
Yeah.
Casey:
S&P 500 funds that have been short and I don't know how old the oldest ones are, but there's some that have been around for a while. And I just think about the long-term viability of a fund. Yes, there are corrections to the downside, but Overall, when you look at it year after year, the SMP is moving in on its way up.
Will Rhind:
Exactly right. So the long term viability, you think a bit more from our perspective as a manufacturer, it's about having something that's profitable. We don't obviously want to run a fund that's not profitable for us. And so providing there's a kind of critical mass of assets that you can have those assets deteriorate, but if more people are buying over time and keeping that asset level up, you'll maintain the fund.
Casey:
Okay, all right. So you guys have 15 funds in the United States. It was that the correct number that I rephrase that properly
Will Rhind:
Somewhere around there. I don't
Casey:
Okay
Will Rhind:
even know myself, but
Casey:
You
Will Rhind:
we have a number.
Casey:
are you guys launching new stuff all the time
Will Rhind:
We are, yeah. I mean, we're a product first company. So like a lot of manufacturers, albeit our manufacturing expertise is financial products, we're trying to bring out more products all the time according to market demand and where we see the opportunity to fix problems or to provide solutions for investors. So suffice to say that we're always going to thinking about bringing out more products and we'll continue to do that.
Casey:
Okay, and so right now with your range of products, give me a kind of a scope here of like some of the different things that you guys are offering right now.
Will Rhind:
The big thing for us this year, and we talked a lot about Tesla, but the big one for us this year was Nvidia. So we have NVDL, which is 1.5 times Nvidia. And as you know, that's just been an incredible story with everything from the financial results of the company themselves to the association with Chatt GPT and the AI story that the stocks just performed so well this year. So NVDL is probably one of the best performing, not the best performing ETF in the market this year, but a very specific situation tied to NVIDIA. And then we have quite a lot of the other names. In there we have Facebook or Meta now obviously represented by FBL. We have Alibaba, which is Babx, which is kind of a proxy for China and Chinese tech as well. We have Coinbase. which is an interesting one because when we launched, there was no way to get leverage exposure to crypto, certainly in the ETF world. And so Coinbase of 1.5 times Coinbase with Conel is a way that people can get access to leverage exposure on crypto and of course, you know, by definition, Coinbase. Apple, because it's Apple, you know, everybody has a piece of Apple, but we have a highest leveraged Apple ETF, AAPB. AMD, AMD S. Yeah, we've got a good range. You can see them all on the website.
Casey:
Okay, now this is more of a compounding type question because I'm a big believer that, and everybody knows this, this is not me, but compounding your returns is really where the success comes from for investors, right? And so I know that over time, if I can get a certain return and then I take that return and I compound it, and then that's really where the power comes from. And so the first thing that hits me really hard about this leverage is like, oh, well, there could be really some exciting results here because it increases the ability to compound the results. Could you kind of share your thoughts on that? And if is that kind of one of the reasons why you launched one of these funds?
Will Rhind:
So, I guess thinking about it, it's not necessarily the reason we launched it. The reason we launched these products is because fundamentally we believe that this is a better way for people to do leverage. And when I say better way, I mean then what's traditionally been available to people. So opening a margin account with your broker, broker charging you massive amounts of interest on a margin loan. giving access to some stocks, not other, a lot of paperwork, just very, very clunky and a lot of people lose money, not because they were necessarily wrong about the actual trade, but because of the margin situation
Casey:
Yes.
Will Rhind:
with the broker and the broker calling them away or asking them to post more margin. So first and foremost, we believe that the product is an improvement on what you can do in terms of leverage. So that's the solution that we're bringing. In terms of specifically the compounding, you're absolutely right. So if you look at NVDL over this year, you look at the performance of the underlying, which is Nvidia stock, look at the performance of NVDL, you'll see massive outperformance. And that is because those returns have been compounded over the course of the year. But it's very important to mention, again, going back to leverage. that compounding works for you and compounding works against you. So in a market such as this year so far where the market's, you know, let's kind of oversimplify and say it's basically gone up, then in a stock like Nvidia, you've done incredibly well. Now, if we were to hypothetically say the stock this year would have done the opposite, then clearly you would have been compounded, your returns would have been compounded, you know, the other way around. And so negatively affect. is you would have massively underperformed the Nvidia stock. And that's just really important for people to understand that. That when you're using leverage, obviously, if it goes for you, you're going to see some amplified gains, amplified returns. But obviously, if it goes the other way, compounding is a big negative drag.
Casey:
So that's a great response. So yes, it can work in an advantage, but it's really important to measure the risk. So if there's a leverage gain, there's going to be a leverage loss. So you have to actually plan that out, calculate it, and then see long term if that fits into your investing strategy.
Will Rhind:
Yeah, there's no, unfortunately, there's no free lunch in this world. So, you know, that when you, when you buy leverage long, or if you're, you're in short, um, if you make the right decision and the market goes, goes for, or with you, um, then there's a potential to make, make good amounts of money. But obviously if it goes against you, um, there's no way that you're sort of insulated in any way for that.
Casey:
Yeah, well, I agree for the most part, there's no free lunch and there's also no get rich quick. And, you know, you got to solve a problem, you got to figure it out, you got to have discipline, you got to manage it. But there are sometimes a free lunch because if I go in to Manhattan and I see you, I'm going to be like, hey, well, let's go have lunch. It's on me. And then you get to hang out. But then
Will Rhind:
Exactly.
Casey:
I guess there is the time
Will Rhind:
But
Casey:
cost.
Will Rhind:
that's not free for me.
Casey:
Yeah, yeah, the time costs, you know, it's like, oh, man, I got to hang out with this guy. So I had one other question about, because it was brought up and I'm just kind of curious. Do you guys have any high yield ETFs and if not, are you planning on launching some?
Will Rhind:
We do have a high yield ETF, it's called HIPPS. So literally H-I-P-S is the ticker. And it's a slightly weird name perhaps, but the logic is it stands for High Income Pass-Through Securities. And it's about a 10% per annum yielder product. And the idea is it gives exposure to pass-through securities. Now, pass-through securities are all things that people will be familiar with, but... Most popular categories are things like MLPs, which are typically energy, oil and gas pipeline infrastructure assets. REITs on the real estate side, closed end funds, which can offer a number of different strategies and the BDCs, which are business development companies typically think of them as almost quasi private equity entities that lend money to small medium sized businesses. So the main thing we all have in common, Casey, is that they're not corporate taxed. payers. So these entities are designed by tax law to distribute almost all of their income to shareholders. So you're starting at a higher level of income automatically. And then the beautiful thing about HIPs is it pays a fixed cash distribution every month. So every month you get 10.75 cents per share or $1.29 of income per annum. And when you divide that by the current share price, like if you were to buy today, you'd be locking in that yield. And that's the kind of unique thing about it is it's a fixed cash distribution where we're aiming to get the same consistent payout every month. We've been doing that since inception.
Casey:
That's pretty cool and you've really shared a lot of great insight, information about your ETFs and some good tools, I feel like, for investors, some good opportunities. So thank you for doing that. And can you share with our listeners how they can maybe find out more about your funds and maybe get some information and contact some people where they can talk about them?
Will Rhind:
Yeah, the best place is our website, which is just graniteshares.com, as the name sounds. And on there you'll see all the lists of products that we offer. You see our contact details, et cetera. So please feel free to reach out. We're happy to talk to anybody and answer anybody's questions. But the best way to see the menu, so to speak, of what we offer is on the website.
Casey:
Okay, so everyone that was listening heard that. It's graniteshares.com and we're going to have that link in the description. So if you're listening on your phone or on your computer or wherever you're listening, you can grab access to that link. Just click it. Check it out. Do some research. Always, always, always do some research. Plan it out and then get in contact with some people over there and talk to them. Learn some things as well. But Will, I really thank you for stopping by and sharing this. It was great having this conversation with you.
Will Rhind:
Casey, thank you so much for having me. Really a pleasure. Hope it was informative.
Casey:
It definitely was, it was very valuable, so thank you. Alright, well that's it for this episode of the How to Trade a Podcast. Until next time, thank you.