Will Rhind, GraniteShares

Yeah, sure. I have been doing this for a long time, so over 20 years now. And my kind of history with ETFs goes all the way back to the beginning. So I'm originally from the UK and was involved at the time in the early 2000s with iShares or Barclays Global Investors, which everybody knows now as BlackRock. We were launching the first ETFs in Europe and I really just stayed with the product throughout my career. So after iShares, I did a startup that became very successful that ultimately was sold to WisdomTree. And then after that was the CEO of the World Gold Council's GLD ETF, which is the largest gold and commodity fund in the world and shipped with State Street. And then ultimately left there

So I always like to ask everybody before we kind of jump into it, when you're not working, what are some of the hobbies or some of the things that you enjoy doing outside the office?

Well, for me, I've got three kids. They're still relatively young. So a lot of what I do outside revolves around them. So let's call it family time. But outside of that, I enjoy lots of things. I have always enjoyed traveling. I get to do that with work, fortunately, as well as free time. So I've always liked travel. I like food. I like going to restaurants, etc. And then in the summertime, less than the wintertime, I like boating and, activities come on the water.

So that's great. Yeah, I also have a handful of little ones. And it seems like as soon as, five or six o'clock rolls around, and then all day Saturday and Sunday, it's just their

World, which is fine with me. It's great fun. Exactly. There's not a lot of room for that much

Else, but we find the time. Yeah, we do. So let's talk about Granite Shares business as a whole. You have a unique product lineup. We're going to talk more specifically about kind of the single stock issues a little bit later. But what types of products did you really set out to offer? And kind of how has that business evolved over time?

Yeah, so we think of ourselves as really being high conviction ETFs for the high conviction investor. And, the reason why I say that is because we all know that, and especially previous shops that I've worked in, there's a huge amount of selection, huge amount of choice in the ETF industry. But a lot of it is generic product priced, Walmart style, pilot high and sell it extraordinarily cheap. And there's nothing wrong with that. It's just that those products tend to be obviously generic benchmarks, of which they've been done, many, many times over. So if you're starting a company in the space, clearly, you can't do something along those lines, you have to offer something different to people, have to offer a solution to a problem that exists, and or capture,

Interesting. So let's talk about kind of the single stock levered ETFs, because that you've seen tremendous growth there over the last, since they've been released, I was just curious as I was, kind of reviewing the lineup, is when you set out to make these, did you have any issues getting these approved or having kind of the levered and also inverse levered index products already out there? Did that make the path a little bit easier?

So I think I would start by saying, it's always difficult to get things approved, when you're doing something for the first time. So you need somebody to kind of set the path or someone to build the runway, before you can then land. So in our case, that was us in terms of building that out. Now we had a little bit of, a little bit of help or a little bit of experience in the fact that we've been doing this in Europe for a few years. So we started this business in Europe. It's a very popular business there. We operate in all major markets in Europe. So we did have experience doing it, always wanted to bring it here to the US. But yes, clearly, we did go through a process to get there.

So when you set out to make the product and bring it to market, how did you go about kind of picking the names that you've picked, right? You definitely have picked some of the more hot stocks, I would say. So is there any rhyme or reason? I'm sure there is. But, how do you go about picking what you want to create product for specifically in this single stock levered space?

It is. But I'll be honest with you, Brad, it's definitely more of an art than a science. And we're not going to get it right all the time. But as I mentioned, we had some experience in Europe. So we knew the kind of stocks worked, at least for European investors. Now, that doesn't automatically translate clearly to the US. But hopefully, the kind of high conviction investor that we're looking for is a sort of, I would say it's a global crowd. And there's a lot of similarities. So a stock like Tesla is a good one, whereby I think it's just a stock that has universal appeal. Almost whatever country you're in, the US, all the major companies in Europe, it consistently shows up as sort of, let's say, number one or number two stocks held in retail portfolios.

Yeah, I'd say and I want to talk specifically about that here in one second. And as well as I do that, kind of hot stocks or highly held stocks tend to kind of go through rotations over periods of time. you have kind of a radar in house that kind of looking for maybe what's next? Or as you said, it's kind of an art and you'll kind of know when that you need to maybe add, one or two names to your stable.

Yeah, I think I think for us, it's less about the the stocks themselves, because I think we have a very good idea of what might be popular. The the the the boring answer to the question is that it's really more about managing costs from a business perspective, because running these funds is very expensive. So launching a fund and then managing it or maintaining it is very expensive. And so we just got to be careful that, it's not like a fast food franchise, whereby we just overexpand into every small town in America and then flop a few years time because you can't support the growth. So we don't ever want to do that. We've got to be thoughtful about how we grow.

Well, I was actually going to ask this later. So we might as well we might as well talk about it now. You have grown quite fast. I think first products were out in 2017. If I read the website correctly, you've got about around one point seven billion of AUM on product. So as you've grown on keeping that in mind, what changes have you had to make to the business in order to kind of handle that scale and that growth?

So I think that the way that we've been able to adapt is clearly number one is people. So, outside of anything that you do, it's having people to support the growth, to support the different investing functions, things that you have. We're lucky in the sense that we built our technology, kind of from day one and made a spot in the business. So we're lucky that the chief technology officer worked with us before in a previous company. So he came forward and he was a team of developers that worked, obviously, for the company building our technology offering.

Yeah. So as far as like, as far as scaling AUM as well, are you, have you over time kind of scaled yourself a sales force or boots on the ground? Or are you letting kind of the product do the work for itself and making sure that, people have eyeballs on it and awareness that it's out there?

We've done everything. But for this particular product and for this kind of offering, we definitely lean more into marketing than we do into sort of what you might call traditional sales. So, again, when we think about our audience, our audience is a global community of high conviction investors. Those investors are typically mobile. they have access to online trading accounts through neobrokers, etc. And, those guys know what they want to trade. It's just a question of us making our product accessible to them. And so it's finding that sort of digital connection. And for us, it's a marketing first approach.

Sure. I guess staying here further, you're saying, high conviction investors. I would assume also these products are heavily used by day traders as well. Is there any utilization? Are you finding any utilization inside the, registered investment advisory community? Are they using these somehow to maybe support a model portfolio or try to, in NVIDIA's case, or I guess in most of these cases, these stocks have done pretty well is try to supplement return or generate alpha somehow? Or is it pretty much sticking to that high conviction or, trading community?

I think in the advisor space, it's a bit more tricky because the vast majority of money that's managed today is typically done in a, some kind of managed portfolio. And those more often than not are really kind of set. my remarks are quarterly basis, but they're largely defined for the 60-40. And so those kind of model portfolios are long-term, set and forget type money management offerings. Where you do get application is clearly anybody that's still trying to add value through alpha.

So let's specifically talk about NVDL, which is one and a half times NVIDIA. So can you tell, can we walk a little bit through the product construction and how we're getting the exposure and also getting the leverage?

Sure. So in the simplest form, it's an ETF just like any other. And all leveraged ETFs work the same. So they're typically providing exposure via swaps, which is a derivative contract that you procure from an investment bank. And an investment bank, therefore, is providing with the leverage via the swap contract to the fund. So you have collateral, you have margin, and you have a derivative contract that gives you that exposure. And all these funds rebalance at the end of each day. That's why we target the stated leverage factor, we call it.

So you mentioned some of the funds aren't all one and a half times. Is there any sort of behind the scenes talk about why something might be 1.25, 1.5, or maybe 1.75? Does that have to do with the underlying volatility of the stock itself? Or what drives that decision? Exactly.

There's an SEC derivatives rule, which we and any other ETF has to abide by. There's using derivatives, of course. And what it essentially does is you limit your leverage based upon the volatility of the underlying stock. So very simplistically, the more volatile the underlying stock, the less leverage you're going to deploy. The less volatile the underlying stock, the more leverage you're able to deploy.

So back to NVDL, the ETF is up quite significantly year to date. I don't want to give an exact number for compliance who is definitely going to listen to this. So hello to your compliance department. So as far as that performance, have flows followed performance? Or did you see flows a little bit early on because of the uniqueness of what the product was offering?

I think a bit of both. it's always challenging because, one of the most frustrating things about being an ETF issuer is we never see the actual order. In other words, the client never buys from us directly. What we see is the net effect of all of the buys, all of the sales in the market on a given day. And the residual comes to us in the form of an order to create more shares or in order to cancel or redeem shares. So it's difficult. But I think it has to be a combination of the both. I looked yesterday and NVDL was the best performing ETF of the year so far. So it's done incredibly well.

I don't want to make the assumption, but I would assume when the market goes through volatility, just like anything really, that you're seeing flows maybe quicker than the average issuer to the other side, right? So you're getting more redemptions when there is volatility there because of the leverage. is that right frame of thinking?

Yeah, the word we use internally is we say the platform is alive, meaning that just on a daily basis, we see tons of activity. We create and revise the sales every day, orders coming through. And it can be in the same product on NVDL. You can get simultaneously, a few orders to create shares and a few orders to redeem shares. And it's really quite unique and something that we haven't seen, certainly in our more, dare I say, traditional ETFs.

Sure. So just out of curiosity, have you thought at all about making single stock levered inverses at all?

Yes, we have. We have some. So they're a kind of relatively new fixture. And again, it was we started with all long products just because the market naturally skews long. And, with our book, again, in Europe, the majority of that's long. So you might have 20 to 30 percent of that short on any given day. But it's never 50-50. So we started with long here. We gradually introduced some leveraged shorts as well. So we have Tesla. We have the highest or the most leveraged short Tesla. So TSDG also on a video. We have 1.5 times short on a video. NVD as well.

So out of curiosity, I don't follow the European markets as much. I'd like to get your kind of observation. As we both know, the ETF issuance and product development has absolutely exploded here in the U.S. Is there similar product creations? And is that business as healthy as it is here in the United States?

It's definitely healthy. It's not as healthy because America just has some fundamental advantages, which Europe will never be able to overcome unless, well, certainly not in my lifetime probably. But, the U.S. has an amazing advantage before you start talking about any intricacies because you have one currency, you have one exchange, you have one regulator, and you have one language. And those all might seem pretty straightforward to people, but that makes a massive difference for liquidity, for scalability, for consistency and continuity.

Yeah, I saw a flowchart of our market versus the European market, and it is about as complex as it can get over there in comparison.

Don't get me wrong. People love ETFs. It's just there are just some fundamental challenges, which mean that the U.S. has accelerated far faster than anything in Europe. And some people will say that Europe's like five years behind where the U.S. is. I totally won't run it. Yeah.

So, Will, you have a tremendous amount of experience in this space. You've worked with some of the largest ETFs in the world. What advice would you have for people who are either thinking about issuing today or newly issued as they're kind of entering the space in order? What should they be thinking about and doing in order to make sure that they can run a successful business? This is kind of a loaded question, but run a successful business or get the business to scale?

Well, the big change that's happened in the last 20 years is that 20 years ago, the barrier to entry into ETFs was really high. At 7 to 6 cents was much lower. Nowadays, it's flipped. So, the barrier to entry in ETFs has never been as low as it is today, meaning that if you want to launch an ETF, you can do that. In other words, you don't have to set up your own company that will create an ETF on your path. All you have to do is be able to write a check. If you can write a check, you can launch an ETF. So, the barrier to entry has never been lower. The barrier to success, however, has never been higher.

Yeah, I couldn't agree more. But again, Will, I really, really appreciate your time. This has been extremely interesting. Where can people learn more about you and where can people learn more about Granite Shares and your full suite of products?

Next place is our website, which is graniteshares.com. We've got a good amount of information there really on all the products, everything that we do. I am on Twitter. We're on LinkedIn. But the best place as far as learning more about the business would be on the website. And then obviously, there's multiple options to contact us directly, which people can do so freely.

Well, again, Will, thank you so much. I appreciate your time and look forward to speaking with you again in the future. Great. Thank you so much, Brad.

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