FCP 148: Investing In Exchange Trader Funds & Gold – Featuring Will Rhind

Hello, and welcome to another episode of “The Forever Cash Life Real Estate Podcast” where we talk about all things concerning wealth, assets, wealth creation, generation of wealth, passive income, those kind of things. Today, we’re going to have, for the first time ever, a discussion about exchange-traded funds and about things like gold. So be super curious. Be super…I’m super excited to cover that topic from different angles, and we’ll be right back with that.

All right, so here we are. So our guest today is Will Rhind, and Will, welcome to the show.

Will: Thank you, Jack. Thank you for having me. It’s a pleasure to be on.

Jack: Right. So Will is the founder of GraniteShares, an independent exchange-traded fund built for investors seeking simple, cost-effective access to differentiated investments. So they’re backed by big VCs like Bain Venture Capitals, Clocktower Technologies and so on. Will has created, like, an ETF fund, which we…a first question for you is, like, give us a little bit of a background of you, and also for our audience, which is mostly real estate investors. Also explain to us what ETF even means.

Will: Yeah, sure, and I’ll be happy to. So in terms of me, I’ve been involved in the asset management business, the money management business all my career. I’m from Scotland, originally, but I’ve been here in the States, New York, specifically, for the last 11 years, but I’ve been involved in asset management all my career. So I got involved in this exchange-traded fund business, you know, early on in my career. And, really, ETFs are like the new technology compared to the mutual fund, which everybody will be familiar with. And ETFs really got going about 20 years ago and, you know, have become a huge multitrillion-dollar business. And, really, they’re kind of successful for the same reason that a lot of things have become successful in our everyday lives, particularly on the consumer lives, is because what ETFs represent for the most part is just low-cost investing. And everybody likes low cost.

So this is probably one of the biggest things that have driven people into ETFs over time, and of course there are other benefits for people, such as they’re exchange traded. So you buy and sell them just like any other share on the stock market, and you can put them in your brokerage account or in your 401K, and they really give you access to almost any kind of investment that you want. So they’ve become very, very popular.

In terms of our particular company, we’ve been doing this for three years now, but like I said, I’ve been doing this for a lot longer in my career. And I think the cool thing about ETFs is that although they are, you know, listed on the stock market, they don’t always provide access to stock market investments. So those of you that like real estate, for example, you know, companies like GraniteShares, for example, we offer exposure to some real assets like gold or platinum, when we talk about that. But you can invest in all sorts of things. The main point is it’s just a liquid, easy way to invest.

Jack: Okay. So exchange-traded funds, the way I’ve always heard about them…and, again, I’m no market expert, because my thing is real estate, right? So is…I’ve usually heard it most oftenly mentioned in association with gold, but you’re saying it’s not only for gold. So these are exchange-traded funds that specialize in what kind of assets, for example?

Will: Yeah, so the largest ETF that you can buy today is an ETF on the broad stock market. So specifically, it’s the index of the S&P 500. So those are…yes, yeah.

Jack: [inaudible 00:08:35] index funds, in a sense, are ETF funds, or am I turning terminology around?

Will: Index funds, for the most part, are just a fund that replicates an underlying index. Majority of ETFs reference an underlying index. So a lot of people can use the same kind of technology, or terminology, I should say. But yeah, typically, ETFs mean index funds or passive investing, which is investing in an index.

Jack: Okay. So index funds. And then ETFs, how do they separate themselves from that if they mimic an index?

Will: Well, think about the ETF as just the fund vehicle. So think about an ETF as just another word for saying a fund. It just happens to be, like the moniker says, it’s traded on the exchange, hence the exchange-traded part. So like a mutual fund, you can buy a mutual fund that invests in all sorts of different underlyings, or all sorts of different asset classes, and an ETF is no different. So you can have an ETF on gold, you can have an ETF on oil, you can have an ETF on bonds, you can have an ETF on real estate or large-cap equities. But you have now over 2000 ETFs listed in the United States, multitrillions in terms of assets under management, and, pretty much, you can invest whatever you want.

Jack: Okay, very cool. So now let’s…that’s very educational. I don’t think I knew that. So that’s good stuff. So now, your…so particularly which niche in the ETF world did you pick?

Will: Well, we do three things. So in our business, we don’t focus typically on one particular niche, and the reason for that is because you get all sorts of different investors that like or have all sorts of different styles. So in many ways, you know, no one investor is the same and everybody is slightly different in the way that they think about the world and the way that they think about investing. So broadly speaking, there’s three things that we do. One is real assets. So real assets would be gold, platinum, which is another precious metal, and then we have broad commodities which you can invest in, a broad basket or an index of multiple commodities. Then we have income. Our twist on it is what we call alternative income. So that’s income that’s generated from listed securities that do not pay corporate tax. So REITs or real estate investment trusts would be an example of one of those asset classes. And the last thing we have is we have large-cap equities. So you can invest in the broad market. Our twist on it is we have a strategy that we try and exclude companies that we think are gonna underperform the market overtime, and we ex out the losers, so to speak, in order to create a fund that, hopefully, the winners take care of themselves.

Jack: Right. So then I’m a very process-oriented person. So if I’m thinking about you guys in this market, then if you guys…let me adjust this a little bit. When you guys…so your firm owns the fund, and with the fund, the investors invest in the fund, and now the fund goes to buy shares of REITs or then just select which ones to buy, is that how…?

Will: That’s exactly right. Yup, exactly right. So we, as the company, we are the management company. Underneath, we have a number of different funds. So again, we’re no different to some of the big investment brands that people would have heard of. We’re just obviously a smaller version of that, more entrepreneurial, but it’s the same setup, and ultimately we have, in the case of our income fund, the ticket code is HIPS, H-I-P-S. It stands for high-income pass-through securities. So within that fund, we invest in a portfolio of pass-through securities, REITs being one of those pass-through asset classes. We have MLPs, mass limited partnerships, business development companies or BDCs, and closed-end funds as well. So in that, you own 60 companies of which those 60 are broken down to those different sectors.

Jack: And the investor can then choose which of these segments they invest in, or they invest in one that has them all in it?

Will: Yeah. They invest just in the fund. So when they buy one share of the fund, what they’re doing is accepting the strategy of that fund. The strategy of the fund is following the index, which is being created to give exposure to those four segments. And, literally, you just invest on that basis. And that’s the same with all of our ETFs. You’re buying into a strategy that’s already predetermined, whether that’s gold, or whether it’s, you know, the equity strategy we’re talking about. So they all work in the same way.

Jack: Okay. So somebody said you have products that, for example, a gold product that somebody could invest in that is distinct from the income strategy, because, obviously, all gold is not an income strategy.

Will: That’s exactly right. So gold obviously is a completely different asset class, completely different return stream. You know, obviously, everyone will know that gold doesn’t pay an income, for example. So, literally, what happens is…and that fund is pretty cool. We actually have a vault, a maximum security facility in London, England where we actually store the gold bars. So, specifically, when you invest in that fund, one share corresponds to one-hundredth of an ounce of gold. So if you take the gold price in the market today, a little bit over $1,800 an ounce, you divide that by 100, then you get to, roughly, the share price of our gold ETF. So it’s gonna be about $18 a share, for easy math.

Jack: [crosstalk 00:14:28]

Will: That means that, by share, you hold the gold.

Jack: Roger that. So why would somebody invest in an ETF for gold, particularly? Since I said in the beginning, we’re gonna be talking a little bit more gold. How…because I’m not against gold. I’m actually…I like gold. So I bought an ounce of gold. I think we’re in for a [inaudible 00:14:46] inflationary period at some point in time in the not so far distant future. So gold is actually amazing, but most gold [inaudible 00:14:55] $1,800 because it’s just…you can’t print $6 billion or 200…sorry, $6 trillion of additional money without having any…and just send out billions and billions and hundreds of billions of dollars out to the public and ultimately not having inflationary affecting it. Which of course right now is not directed by the deflationary impact of people losing their jobs and so on. But over…at some point of time, they’ll have [inaudible 00:15:30] liquidities the market. So that’s gonna lead to some kind of an asset problem again.

Will: Yup.

Jack: And so, in this case, well, it’s a good number. But why is…I’m sure you’ve been asked this question a million times, but why would somebody not just go buy all of these places, all of these stores and buy gold and put it in a safe at home instead of having it in your safe? Like, if they need to use it, they can’t get a hold of it because you [inaudible 00:15:58].

Will: Yup. No, it’s a great question. And, look, I think my answer to this is that they’re two different investments, and I’ll tell you why. So the majority of people that we’re talking to are professional investors. They’re financial advisors, they’re people that manage money for underlying wealthy individuals, or for pension funds, you know, endowments, etc. Now obviously individual investors can buy ETFs. You just need access to a brokerage account. You go online, Charles Schwab or whatever your broker is, and you can buy shares in the ETF. But for the majority of times, we’re talking to people that are using it in the context of a portfolio. And what our gold ETF allows you to do is just own gold in a portfolio of other investments. And the reason why you’ll wanna do that, or you might wanna do that, is that, in that portfolio, you’re trying to generate a return. And so your gold, plus your equities, plus your bonds, whatever else you have in there, it’s just a really easy way for people to buy and sell and get exposure directly to the gold price.

So when you look about, or when you talk about the gold price, we’re talking about the spot price of the gold. And the spot price of gold, what that actually really means is that’s an ounce of gold that settled into one of the four clearing vaults in London, and not a lot of people know that, but that is exactly what an ounce of gold officially is. And we provide access to that specific measure or that spot price. And so that is what’s called the interbank price. That’s the price that central banks will trade at, you know, big bullion banks, and obviously you and I, if we buy shares in the fund, we can transact to that price, and that’s unique.

Jack: [inaudible 00:17:46]

Will: So if you go… Yeah.

Jack: Yeah, [inaudible 00:17:46] the American Eagle or [inaudible 00:17:50], you pay a premium over them. [inaudible 00:17:52].

Will: Exactly right. Exactly right. So what happens there is a mint, which is obviously a part of a government, a mint makes a coin. That coin, they sell typically a 3% markup to an agent. And that agent then goes and sells that coin onwards to a member of the general public or who else. So by the time it gets to you and you’re buying that coin, you could be paying 6% or 10% premiums to buy that coin as opposed to buying a share in the ETF for basically very little or no premium other than the bid offer spread [crosstalk 00:18:28].

Jack: Right. I was on a gold website just yesterday, and with the gold prices where they are, around $1,800, the American Eagle gold or whatever…it is one of these reputable companies. Then the ones I’m going on a gold bar costs about $90 to $100 more than the spot price. So it’s…

Will: Exactly, and that’s a big thing. And what I say to people is, “Look, there’s nothing wrong with coins. I love coins, personally, but I like them for, you know, personal, sort of, reasons.” In other words I like to have them kind of to look at around the house. I don’t view them as being an easy or liquid investment strategy, because it’s too expensive. I don’t wanna pay those premiums and then when I come to sell them back, those discounts, I wanna put the gold in a portfolio very efficiently, just buy and sell, and ETF gives me the ability to do that.

Jack: Right, wonderful. Yeah, that makes a lot of sense. So from what I hear you say is like there’s space for both. Like there’s not…

Will: No, absolutely. They’re just two different ways of doing this. There’s nothing wrong with coins. There’s nothing wrong with people buying physical gold and storing it themselves. They just need to be aware that there’s extra cost in doing that. It doesn’t mean it’s a bad thing. It just means, in my mind, it’s just a different thing that a lot of our investors are trying to do which is own gold as cheaply and as inefficiently as possible.

Jack: Right. And then also…now, do your investors, is there in any shape or form that a big investor could say, “Yes, I wanna actually not just [inaudible 00:20:03]. Can you shake things up a bit?”

Will: Yeah, you can actually do that.

Jack: Yes, right.

Will: So yeah, you can do that. I’ve been involved in gold ETFs for probably now like 15-plus years and I have to…I mean, I can count on one hand the amount of people that have asked to do that. So really very few.

Jack: [Inaudible 00:20:21]. It’s not common, but it is possible you could say, “Hey, I got a million dollars worth in there. Give me a million dollars worth of gold [inaudible 00:20:30].”

Will: Yeah, exactly. You have to have a certain minimum size, but, really, as long as you’ve got a gold account, you know, theoretically, you can get that gold delivered. But, obviously, very few institutions do that.

Jack: Sure. No, absolutely, yeah. Makes sense. Very, very cool. So now, how big is your company? How many people do you have? How much…what’s the volume? Tell me a little bit about your history as a company.

Will: Yeah, I mean, we started just three years ago, so we’re a very young company. And we’re growing quickly. I mean, we started with nothing and we’re now managing just over $1.2 billion. So we have a lot of money that’s grown very quickly among the five ETF strategies that we have here in the States. In terms of the company, we have about 14 people, so it’s…I don’t know whether people think that’s a big number or small number. For me, it’s quite small but, you know, that’s the beauty of what we do.

Jack: It’s a couple of things. It’s probably a small firm, but 140 people managing $1.2 billion is a good number. Yeah, it’s a [inaudible 00:21:40].

Will: Yeah, exactly. So we’re expanding. We’re trying to grow the business but, you know, really, obviously at this time, as you can imagine, we’ve just had a huge amount of interest in gold really since the beginning of the year. I mean, other things as well but, principally, it’s gold just because of what’s been happening in the economy. And people are really looking for something that’s not correlated, which means something that doesn’t move in line with the stock market or the bond market, and so that means a lot of people will turn to gold.

Jack: Absolutely, and now you’re the founder of the firm. What made you start your own company? Just let’s jump a little bit into the entrepreneurial [inaudible 00:22:21].

Will: Yeah, that’s a great question. So, like I said, I’ve been doing this, really, my career. So I’m like the boring entrepreneurial story whereby, for me, it was, “This is what I do, this is my industry expertise.” I just started my own company because I saw a way to do it better and I could serve the investors, my clients, better myself, and the only way to do that, ultimately, is to set up your own thing. So I came at it from being, you know, somebody that had a lot of industry experience, and then the ultimate step for me was to set up my own company, which I did a few years ago. But yeah, I’m not one of those people that just sort of came up with this idea overnight and then, suddenly, you know, flash, it was an ETF company and launching all of these ETFs.

Jack: Right. So you said you can serve the customers better. How do you serve the customers better?

Will: Yeah, so it’s a great question. What your viewers probably won’t know about me is that I used to run the largest gold fund in the world, and so that’s actually the job I was doing prior to setting up my own company. So I used to run a fund which is now, you know, it’s over $60 billion in size. It’s still the largest gold fund of the world. And from my vantage point there, I could clearly see that we were…it was amazingly successful, but I could see a better way to deliver a very similar thing to the investment audience. And put simply, again, a lot of people, I’m sure, this will resonate with them, but I decided to launch a lower-cost version, or a way to invest in gold. And so the management fee that people pay is less than 50%, or more than 50% less than the fund I was managing prior. And I adjusted other things in terms of the way the security was dealt with, and the pricing of the shares and other things, which perhaps matter less to people. But the most important things are that we ended up replicating the gold price closer for a lot less money than people were investing, and that was pretty powerful. And so that’s one of the reasons that we’ve been successful.

Jack: Yep, that makes total sense. And yes, running the largest gold fund at some point in time, what are you doing for the rest of your life? Likely, you would start your own company, particularly if you can, if you see where it’s improving, and that’s really powerful.

Now, originally, you’re from Scotland. So tell us…we’re actually doing this podcast interview probably backwards. Most people start with the beginning story. I like to jump always right into the subject matter, and that’s kind of my style is like I wanna hear the story [inaudible 00:25:00] backwards on up. So tell us a little bit about your story from your background. So did you just decide to come from Scotland over to the United States, or is that some coincidence in there, or did you come here to college? Or tell us a little bit about that.

Will: Yeah, I’ll tell you my story, yeah. So yeah, I’m from Scotland, from rural Scotland in the highlands. People will have seen the movies, “Braveheart,” etc., and that’s very similar to where I grew up. You know, I could look out of my window from my house and not see anything around. So living in New York City where I do now is completely opposite that experience. So I grew up in rural Scotland. I went to school there, and with school, I’m talking about high school. And then for university, I guess, like a lot of kids, I decided, actually, to move sort of as far away as I could from Scotland or from my home. And so I ended up, in the case of the U.K., going to England, and not just to England, but to the Southwest of England. And so where I’m from in Scotland, it’s sort of like the completely opposite end of the country.

Jack: Right.

Will: So I ended up going to college in a place called Bath, and Bath is a…it’s a beautiful Roman town kind of an hour and a half outside of London. And so I went to university there. And then after that, because Bath itself is what, you know, people would call in the States a college town. So there’s not a lot of kind of industry. Well, there’s no industry, basically, there. It’s just college and then where you might retire to when you’re older. I ended up going to London after university because London is kind of like the New York of the U.K.

And I got involved in finance. That was the first thing I did. I went into banking. Was an investment banker for nearly two years just out of college and then got into the asset management industry. That’s how I found ETFs and then ended up building and managing businesses within the space. And then one prior company, I actually came…how I ended up in New York was I came to New York to set up their U.S. business. So it was a U.K. company looking to set up a business in the U.S. And so I came to the U.S., I set up their business and ran that for a number of years, and I just ended up staying. So that was 11 years ago now.

Jack: All right, and that’s a fascinating story [inaudible 00:27:24]. I actually have been Bath while, I think, I was a little boy as a family.

Will: Yeah, it’s a very beautiful place.

Jack: Yeah. Since I’m from Germany, we did the trip to England, and I do remember that some friend of my parents that we visited there. Wonderful, but the Highlands is still on my list. So it’s like I definitely wanna go out there and explore that and including, of course, the unavoidable distilleries up there.

Will: Yeah, absolutely.

Jack: So to check all that Scottish world heritage out, both landscape as well as liquids. Very nice. So do you drink…do you enjoy a nice glass of Scottish whiskey up there, eventually, or have you become a follower of American bourbon?

Will: Yeah, it’s funny. Yeah, I do like Scottish whiskey, and I have a few nice ones that I like. I do like bourbon as well, but I just haven’t got into it in the same way and, again, it’s maybe I haven’t tried the right ones but whiskey is the main thing that I would have.

Jack: Of course. I mean, why would you stray from the best in the world there? Very nice. So great. How can we help you, as a community, with your mission of spreading the word about this? Is there a website that you can send our audience to or…?

Will: Yeah, graniteshares.com., you can find us, is our website. So just www.graniteshares.com, all one word. You can check out what we do. Like I said, the different funds, if you’re looking for income, if you’re looking for gold, if you’re looking for, you know, just broad markets. So stock market exposure, we have that. And, really, we’re just about educating and giving people, you know, the education that they need to make better investment decisions.

Jack: Wonderful. Now on the income side…because again, I mean, real estate, usually, I just focus on the gold because I think there’s a timeliness to it right now that with all that [inaudible 00:29:35] of money that’s going on, which I think there is a time period. We’re not gonna see much inflation until this is all resolved, but at some point in time, there should be [inaudible 00:29:43]. So to focus on gold, but the income part, obviously, at the end of the day, we are cash flow investors, all right. We talk about cash flow, we talk about The Forever Cash [inaudible 00:29:56] podcast. So the income product that you have, does it actually give the investors income? Does it distribute dividends, or is it that income gets reinvested and therefore it has to be the value of the fund [inaudible 00:30:12] and people get their portion?

Will: Yeah, so, again, we actually distribute the income. That’s kind of the main reason behind it because it’s really designed for people that need, you know, income first. So the way it works is it distributes an amount of income every month. So it pays out monthly, and we try and generate, obviously, a high level of income. So right now, it’s around about 10% per annum, which is obviously very high, but that’s a product more of the fact that some of the underlying assets have fallen in value over the corona crisis. And so it was a high-yielding fund beforehand. It was probably about 7% or 8%, but obviously higher now because the value of the underlying portfolio’s come down a little bit.

Jack: Which allows you to make investments of the same cash flow for less money.

Will: Exactly.

Jack: Okay. Very nice. So, good. That’s good to know because at the end of the day, I was like, if I find the words, you typically…anything that it’s like, let’s say you need to have the dividends for that kind of situation where the underlying asset still appreciates, but we get some cash from it.

Will: Exactly.

Jack: Because now this is more or less a gamble. So that would make sense for people to look at, which…great. So now let’s start…that income one, is it mostly REITs, or is there other income releasing asset classes, I mean?

Will: Yeah, right now, it’s actually…the largest components that are within it is closed-end funds. So that’s a different category. And then we have business development companies and then REITs. So REITs would be the second largest…sorry, the second smallest component currently in it. MLPs, or mass limited partnerships would be smallest.

Jack: Now, since you have obviously your hands in the market on a daily basis, you talk to lots of other people, that’s kind of one of the final questions is what do you think the next few years will bring in terms of market conditions out there, in terms of values [inaudible 00:32:23] values? What asset class is gonna continue to go up? Which asset class is gonna struggle for a while? Like, where do you see the market conditions go?

Will: Well, I think that, sort of, to riff off of something you said, which is very much, you know, why or how we’ve positioned our business, you know, we think that the stimulus that’s coming out of, you know, the COVID situation, means that the money printing, both on the monetary and the fiscal side, but printing more money, all things being equal, leads to higher asset prices. And the victim or the bad news is that the loser in this is the currency. In other words, the value of the dollar will be sacrificed or will fall as a result of all this money printing. And so the lesson from 2008 was, of course, when similar conditions came around that you want it to be long assets. And, obviously, asset prices rose in the period since 2008. And I think the same thing is happening again, which has caught a lot of people by surprise, because, remember, a lot of people were very skeptical of the stimulus that was put in place after the 2008 financial crisis. People were struggling to understand why the stock market was going up and why asset prices were going up when the economy was doing so badly. But I think the one thing that we’ve learned is that, you know, the government money printing, you know, influences that in a huge way.

And so, to my mind, I think that if the stimulus or the money printing continues, you could expect asset prices to continue to rise. I think the difference is that what we’re gonna see in terms of the stock market and the economy is a divergence between those companies that can thrive in this particular new economic environment, and those companies that won’t survive. And to me, one of the main sort of differentiators here is technology and being able to have a digital strategy. And so I think that companies that have a digital strategy and are able to survive in a digital economy…and think about this just very, very simply. You know, when the economy shut down due to COVID, we had really two states. We had the physically economy and then we had the digital economy. If you were in the digital economy, you were fine. Your business was still open. If anything, you were probably thriving off of that environment.

If you were in the physical economy, you were shut down. You’re out of business. And so I think that’s a big sort of wake up call that anybody in the physical economy has a digital strategy to adapt to that, and that’s gonna be the difference between the haves and the have-nots of the market going forward.

Jack: Absolutely, 100% agree.. I mean, those… And this COVID crisis has taken us, accelerated the digital progress probably by 5 to 10 years, because everyone had to scramble to get a digital strategy [inaudible 00:35:27] takes that. So very, very, good. Very good. Wonderful. Well, thank you very much.

Will: Yeah, thank you Jack.

Jack: Thanks.

Will: Thanks beyond pleasure.

Jack: Yeah, thank you for being on the show. Was certainly a little bit different, but it’s in a good way. I love it. So I particularly like that you have an income strategy too because, again, we are all about income, all about income generation and really as fast as possible and which you obviously provide. And also timeliness of the gold. So that’s it, guys, everyone. This concludes another episode of “The Forever Cash Live Real Estate Podcast.” Thank you for tuning into the show, and with that said, as always, give us a five-star review, give us a thumbs up, share us. And, again, make sure you go check out the website here right now that Will has shared with us, which is graniteshares.com. Right, graniteshares.com. We’ll also put everything into the show notes here. And with that said, thank you very much. Right. Bye-bye.

Will: Thank you.