As has been widely documented, a flurry of new exchange traded funds are coming to market. As of Nov. 24, that number resided at 406 – an all-time high.
Of course, it's higher today because ETF issuers don't take breaks simply because it's the holiday season. As is always the case with the annual crops of new ETFs, this year's batch of rookie ETFs feature everything from boring, practical ideas to some “interesting” concepts.
Inevitably, some of this year's new ETFs will take time to catch on, but they do address asset classes and niches that are increasingly relevant to clients, particularly those in highly sought after younger demographics.
Take the case of the Defiance NFT ETF (NYSE:NFTZ), the first ETF dedicated to the burgeoning non-fungible tokens (NFT) space.
“Non-fungible tokens or NFTs are cryptographic assets on blockchain with unique identification codes and metadata that distinguish them from each other. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency,” according to Investopedia.
In plain English, an NFT is not Bitcoin, but NFT's are garnering almost as much hype, and in the mainstream media at that, indicating it's not unreasonable that this is a topic advisors may soon be addressing with clients.
NFTZ Could Matter
As an asset class, NFTs can be both a minefield and an opportunity-rich environment. Both factors could underscore the validity of NFTZ going forward. At the end of the day, there's no getting around the fact that clients are hearing more and more about NFTs (the scenario today is comparable to crypto three to five years ago) and there being regaled with tails of quick upside.
However, the NFT space isn't just new. As is the case with crypto, it has complexities stemming from a heavy reliance on technology that make the asset class unapproachable for many clients.
“The blockchain technology underlying NFTs has the potential to go even further. It supports trustless peer to peer transactions with no third-party involvement, paving the way for a new economic structure and construction of property rights,” according to Defiance ETFs. “It facilitates smart contracts, which are self executing contracts based on predetermined conditions, allowing users to efficiently and automatically transfer value upon transactions. Blockchain’s decentralized architecture lies behind cryptocurrencies, DeFi (Decentralized Finance) and a whole new way of thinking about art, culture, business and social cooperation.”
Translation: With NFTs being a new, complex segment, stock picking in this space is tricky, but those complexities aren't going to diminish clients' interest. That highlights utility with NFTZ as do jaw-dropping growth expectations for this nascent marketplace.
“The market for NFTs hit new highs in the second quarter, with $2.5 billion in sales so far this year. This is almost 20-times more than the $13.7 million in the first half of 2020,” says Nigel Greene, chief executive and founder of deVere Group. “With soaring interest from major investors like payments giant Visa, who understand and value that the future of almost everything is geared towards digital, demand is set to explode.”
NFTZ: Best Solution for Now
NFTZ, which tracks the BITA NFT and Blockchain Select Index, is an effective, somewhat safe idea for risk-tolerant clients to access an asset class that's earning praise from luminaries such as Mark Cuban and the chief executive officer of Coinbase (NASDAQ:COIN), among others.
Data support the notion that NFTs are a future growth avenue and one that's sure to catch some clients' attention, pointing to benefits with NFTZ's ease-of-use.
“Close to $6 billion was spent on non-fungible tokens, or NFTs, during the third quarter of 2021, and Google trends data in September showed that interest in NFTs surpassed that in cryptocurrency,” concludes Defiance. “But while NFTs enable true digital ownership, releasing creativity into the virtual world as a cooperative venture between artist and fan; the NFT explosion is merely the current expression of a disruptive potential that could transform how we interact, live, do business and even govern.”