📈 Stock picking is the future

Active ETFs step up to the plate | Revolut plows through cash |

Hi Reader, here's what you need to know for June 22nd in 3:05 minutes.

☕️ Finimized over a Nutellachino at Emilie and the Cool Kids in Reykjavík, Iceland (7°C/36°F ⛅️)

Today's big stories

  1. There are more launches of active exchange-traded funds than passive for the first time ever
  2. Billionaire investor Mark Cuban's DeFi token of choice just blew up in spectacular fashion – Read Now
  3. Revolut saw its losses double last year as the European fintech giant expands its crypto offerings



What’s Going On Here?

Fresh data showed launches of actively managed exchange-traded funds (ETFs) are outnumbering passively managed ones for the first time ever.

What Does This Mean?

Active investment managers – who invest in stocks they think will do well, rather than passively track the performance of an index – are having a good year. Lots of them are beating the wider market, and now they’re seeing a lot of demand for their new active ETFs too. Those kinds of ETF were hard to come by not long ago, but the success of Cathie Wood’s ARK Innovation ETF has kicked things off in a big way. There have now been 115 launches so far this year – more than double the number of much more commonplace passive ETFs. All told, that’s led to a record amount of new cash being piled into ETFs overall in the past 12 months.

Why Should I Care?

The bigger picture: This wave is building.
The amount of cash invested in active ETFs only represents 3.4% of the ETF market, but that’s still a jump from 2.7% a year ago (tweet this). It’s all down to rule changes that have made it easier for active investment managers to launch ETF-based stock-picking strategies, as well as allowed them to keep their stock holdings a secret. And now that active ETFs are proving so popular, they’re bound to keep poaching market share as the world’s biggest investment firms start offering their investors a choice of them too.

Zooming out: A bright spot in the bond market.
Investors have also dumped a record $18 billion into ETFs (and related products) that invest in inflation-linked bonds so far this year – already more than 2020’s full-year record of $17 billion. Those bonds’ payments move with the inflation rate, offering investors some protection against climbing prices. And they might need it: data earlier this month showed US inflation hit its highest level since 2008 last month.

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🙋 Ask a question

2. Analyst Take

The Spectacular Implosion Of Mark Cuban’s Favorite DeFi Token

What’s Going On Here?

With DeFi projects booming, there are new tokens being created every week.

But if someone’s offering you a fat return, be aware that that elevated return comes with an equally elevated level of risk.

Mark Cuban learned that the hard way last week: the billionaire investor lost $75,000 when Iron Finance’s titanium token collapsed.

Iron’s pitch was that their so-called stablecoin would pay investors a healthy yield and peg its value to the US dollar, helping it avoid the recent losses in most crypto assets.

That… didn’t pan out.

Today’s Insight is the story of Iron Finance’s spectacular failure, and what lessons you – and Mr Cuban – can learn from it.

Read or listen to the Insight here


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What’s Going On Here?

Revolut announced on Monday that it saw losses from business activities double last year, as the British fintech giant tried to cash in on the crypto boom.

What Does This Mean?

With 15 million customers, Revolut is one of Europe’s hottest startups: its last fundraising round valued the company at a cool $5.5 billion. But expanding from simple banking-style services into things like stock and crypto trading doesn’t come cheap: figures out on Monday showed Revolut’s operating losses doubled to $280 million in 2020, with staff costs tripling. And though a surge in new customers – as well as a tidy return on the company’s own crypto holdings – helped revenue increase by 57% compared to the same time in 2019, profitability may be a ways off yet. Not for lack of trying, mind you: Revolut has grand plans to disrupt financial services across the US, Latin America, India, and Southeast Asia.

Why Should I Care?

The bigger picture: At crypto cross-purposes.
Revolut – along with many major payments providers – might be keen to expand its crypto offering, but British companies with full banking licenses are headed in the opposite direction. TSB Bank announced at the weekend that it was banning customers from buying cryptocurrencies, joining the likes of Barclays, Monzo, and Starling in temporarily blocking cash transfers to crypto trading platforms like Binance. It’s a security issue, after all: TSB estimates that one in every eight payments to crypto trading platforms ended up with fraudsters, compared with one in 5,500 non-crypto transactions.

For markets: Speaking of which…
While Revolut pocketed a $50 million gain from its crypto portfolio last year, 2021 mightn’t be quite so kind. Bitcoin is still 50% down from its mid-April highs, and there was more bad news over the weekend: China extended its crackdown on cryptocurrency mining and urged several major banks – as well as payments giant Ant Group – to stamp out all bitcoin-linked activity.

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🙋 Ask a question

💬 Quote of the day

“Most of the basic truths of life sound absurd at first hearing.”

– Elizabeth Goudge (a British author of novels, short stories, and children's books)
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🌎 Finimize Live

🌏 Big old world, little old you

There’s a big old world out there, full of much more than stocks and bonds. Tricky thing is knowing which ones could really do your portfolio justice. So join EquityMultiple’s CFO for How To Diversify Beyond Stocks And Bonds, and find out which alternative investments are the real winners.

🚀 How To Diversify Beyond Stocks And Bonds: 6pm UK Time, June 22nd
🤑 How To Earn A Passive Income From Crypto: 12pm NYC time, June 24th
🌿 Why Now’s The Time To Invest In Cannabis: 6pm UK time, June 28th
🍔 How To Make Money Going Meat Free: 6pm UK time, June 29th
💄 How To Give Your Portfolio A Beauty Makeover: 6pm UK time, June 30th
🤔 What Does Inflation Mean For Your Portfolio: 2pm UK time, July 15th
📈 How To Protect Yourself From Rising Prices: 6pm UK time, July 26th

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