Last time ETF Express spoke with Adam Patti, he was managing his ETF business, IndexIQ, which he then sold to New York Life Investments in 2015.
And now, post the sale and the three years of enforced gardening leave, Patti is back in the ETF industry with VistaShares, an innovative asset manager which is aiming to redefine thematic exposures and income strategies.
Patti, who can date his ETF career back to 2002, says: “I wanted to get back in the industry that I love but didn’t want to do what everyone else was doing.”
Patti joined forces with Jon McNeill, a former President of Tesla, and CEO and Co-Founder of the venture studio, DVx Ventures.
“We partnered and he wanted to get into the ETF business because the ETF market is riddled with products that are more about marketing rather than solid portfolio construction – there are many products that simply don’t provide the investment exposure that their name suggests, for instance Jon was looking for a way to get exposure to the AI sector and could see that most were just MAG 7 exposure.
“He wanted to build better products and bring institutional quality thinking and construction to a broader audience so we did lots of research and old-fashioned talking to investors and advisers to find out where we can fill a gap.”
Their first product launched a year ago December, AIS an AI Infrastructure ETF, followed by a series of Target 15 Options Income ETFs which has continued with the October launch of DRKY, joining OMAH and ACKY. If those tickers sound familiar, they are.
“Our goal with OMAH, ACKY and DRKY is to provide exposure to the best thinking of specific managers but overlayed with our options strategy to provide stable monthly income of 1.25 per cent which is 15 per cent per year.”
The firm has raised USD950 million in just over a year: “And we are really proud of that,” Patti says.
“Our strategy is two-fold from a sales perspective,” Patti says. “We are going after the typical channels of RIAs and platforms, but another big part of our strategy is direct to retail. Back in the IndexIQ days there was no way to approach the retail market and I have seen that retail investors have become very sophisticated with income being important to them. They are buying a handful of shares each week to slowly build a dividend stream that will support them as they get older,” he says.
“I assumed the audience would be retirees, but these people are largely in their 20s and are smart investors being patient and buying one, three or five shares a week which stacks and builds up and creates a retirement income stream for when they retire, with some people being able to retire quite early in their career.”
The VistaShares Target 15 DRUKMacro Distribution ETF (DRKY) provides investors with a core equity portfolio designed to mirror the top publicly disclosed holdings of Stanley Druckenmiller’s Duquesne Family Office and does so while also seeking to deliver a target annual income of 15 per cent via an active options overlay.
“From a macro perspective we have been in a momentum-driven market where everyone was a genius. If you invested in the S&P 500 and the QQQs you did incredibly well but momentum driven markets don’t last forever,” Patti says.
“When we went out and talked to advisers the consensus was that we are going into a stockpickers’ market and who better to emulate than Stanley Druckenmiller, Bill Ackman and the Oracle of Omaha himself.”
The firm has new products along the same lines coming. “We are looking for managers with long term track records and high conviction concentrated positions. We want someone who has conviction because they believe there is value there,” he says.
Druckenmiller hasn’t had a down year in 30 years. Patti says: “I have always admired him. He builds the core of his equity portfolios with a handful of high conviction investments.”
And now the story takes another turn with President Trump’s selection of Kevin Warsh as his nominee for Fed chair.
“Kevin Warsh has been working with Druckenmiller for 10 years – it’s a close relationship and Kevin was a protégé and their views are much aligned so from an investor perspective whatever his policies are will probably benefit Druckenmiller’s portfolio because his global macro view of the world aligns with Kevin Warsh’s view of the world.”
The firm has also recently launched the VistaShares BitBonds 5 Yr Enhanced Weekly Option Income ETF (NYSE: BTYB).
BTYB’s underlying portfolio is designed so 80 per cent of the fund’s holdings are in US Treasury securities, US Treasury Futures, and treasury-focused ETFs with target maturities of between three and seven years. The remaining 20 per cent of BTYB’s portfolio provides exposure to the price movements of bitcoin via a synthetic covered call strategy.
BTYB’s actively managed options strategy employs a goal of delivering twice the annual yield of the five-year Treasury and distributions will be made on a weekly basis.
Patti says: “The new product is designed to help investors with stable and consistent income, in particular as investors get frustrated with annuities which have high fees, can be clunky and are not the best use of capital. This is a fixed income alternative strategy. The capital appreciation potential is there over time.”
