It could be an eventful year for trend-based investing.
If you ask industry leaders, the long-awaited bitcoin ETF, cannabis plays and ESG (environmental, social and governance) investing will continue to make headlines in 2020 as interest in the groups grows.
Here's what two Wall Street professionals — Tom Lydon, CEO of ETF Trends and president of Global Trends Investments, and Nick Colas, co-founder of market research firm DataTrek — see ahead for the three trends.
Bitcoin ETF approval
Bitcoin bulls probably have a bit more waiting to do.
A bitcoin ETF from Bitwise Asset Management came closer than it ever had to being approved by the Securities and Exchange Commission in October of last year, according to Matt Hougan, Bitwise's head of research, only to be rejected again for concerns around potential fraud and manipulation.
The latest hiccup in issuers' yearslong battle for a bitcoin-based ETF has put a slight hold on cryptocurrencies' entrance into the exchange-traded fund space. Bitwise's top management wrote in a letter to the SEC in December that the firm remained "committed" to bringing a bitcoin ETF to market that addressed regulators' concerns.
For Lydon, the whole process has been a bit like the movie "Groundhog Day," he said in a Monday interview with CNBC's "ETF Edge."
But "a couple good things … have happened," Lydon said. "First of all, the SEC approved the first '40-Act-approved ETF."
Lydon, who put 60% odds on a bitcoin ETF receiving full SEC approval in 2020, was referring to the Investment Company Act of 1940, which regulates companies that invest or trade securities and sell their own shares to investors. The NYDIG Bitcoin Strategy Fund from Stone Ridge Trust was the first bitcoin-based fund to receive approval via the '40 Act, though, as Lydon noted Monday, it has a $25 million limit on its assets.
"Like a regular mutual fund, like the Magellan Fund, there's a sister mutual fund out there where you can invest in bitcoin," Lydon said of the NYDIG product. "The more [that bitcoin-based products] can get on public … account statements like your Schwab account, like your TD account, that's going to help things out."
With the Chicago Mercantile Exchange launching options on bitcoin futures Monday, that could help the digital currency's chances, Lydon added.
DataTrek's Colas wasn't as bullish, putting his odds of bitcoin ETF approval this year at 10% in the same "ETF Edge" interview.
Marijuana stocks and 2020
The cannabis industry's contraction in late 2019 hasn't put too big a stink on the group, Lydon said.
"It's not going away. We know that," he said.
As U.S. marijuana legalization continues to spread and "critical" legislation to allow the industry to use standard banking methods and financial services — the SAFE Banking Act — works its way through Congress, pot stocks could begin to make up for their 2019 losses this year.
The ETFMG Alternative Harvest ETF (MJ), the largest U.S.-listed cannabis ETF by total assets according to ETF.com, has lost 38.5% in the last 12 months.
For Colas, the "bottom line is if you think there's a chance of an Elizabeth Warren or a Bernie Sanders presidency, you've got to buy that group today," he said Monday. Warren co-sponsored a bipartisan marijuana bill in 2018, while Sanders released a plan in October to legalize cannabis nationwide and use the taxes to promote business development.
"It's a 100% political play," the researcher said.
The impact of ESG investing
Colas and Lydon agreed that sustainable investing could come closer to being the norm on Wall Street this year as ESG themes gain traction.
Last year, the successful launches of Xtrackers' MSCI USA ESG Leaders Equity ETF (USSG) and iShares' ESG MSCI USA Leaders ETF (SUSL) put ESG strategies — which score companies based on characteristics like their sustainability efforts and their relationships with investors and employees — in the spotlight, with the two funds attracting roughly $1.74 billion and $1.88 billion, respectively, since their spring 2019 debuts. Both funds hit new 52-week highs on Thursday.
"The rip in assets last year was … about bringing some products to market that were cheaper than the ones before, so, that really helped, but I think everything's going to be ESG going forward," Colas said. "It's such a big topic."
With global sustainable investing topping $30 trillion in assets in recent years, Lydon wasn't fighting the tape, either.
"If you can buy the S&P 500 in ESG form, which you can for 7 basis points today, why wouldn't you do that, especially with the idea that you aren't going to give up performance?" Lydon said, referring to Xtrackers' S&P 500 ESG ETF (SNPE).
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