The new ETF provider founded by two ex-BMO bankers is making its product debut today, alongside a pipeline of autocallable and leveraged ETFs.

VegaShares ETF Trust (VegaShares)  has listed its inaugural offering through a covered call strategy on Nasdaq following its founding in September, with a broader suite of autocallable and leveraged ETFs in development.

Based in New York, the asset manager has an intermediate focus on bringing a range of traditional structured notes payoffs into exchange-traded fund (ETF) wrapper. That direction appears a natural fit as both of its co-founders spent the past two decades in derivatives manufacturing for the US market, mostly recently at BMO Capital Markets. 

“Vega was established with the purpose of delivering customised and targeted exposures for investors through the ETF wrapper,” said Sunny Wong (pictured), co-founder of VegaShares and its affiliated adviser Vega Capital Partners. 

Back at the Canadian bank, Wong and the other co-founder Adam Stempel (right) led the trading and structuring for equity-linked notes and exchange-traded notes (ETNs), respectively, until last summer. The duo has known each other since their days at RBC Capital Markets in 2004. 

“We’re great partners. He is full of ideas and I’m full of practicalities. It works well when combined,” said Wong.

Their first offering, VegaShares SPX NDX RTY Premium Income ETF (Ticker: ODTE), is the first cover call ETF that seeks to harvest implied volatility as a source of income across the three major equity benchmarks, according to Wong.

Next in line is an autocallable ETF featuring the use of adaptive volatility for its underlying index that’s co-developed with ICE Data Indices and Salt Financial. It has been scheduled to go live later this month.

“Our approach is to focus on educational disclosure as well as suitability for our various distribution channels and target financial advisors who are already familiar with structured notes or quantitative investment strategies (QIS) products,” said Wong.

The firm has signed an agreement with an external distributor to tap the advisory network while two senior salespersons are set to join this quarter.

“Aside from platform and products, we understand that distribution is the other half of the battle,” added Wong.

Starting with a covered call and an autocallable strategy sends a clear signal of VegaShares’ ambition and optimistic outlook for the structured ETF space.

In December, the firm additionally outlined a batch of 16 ETFs offering 3x or 4x leverage across equities, fixed income and commodities in its filings to the SEC. Their launch remains pending after the regulator raised concerns over these ultra-leveraged funds along with hundreds of others proposed across the industry.

VegaShares is also exploring growth-oriented payoff structures for its ETF lineup.

That space is dominated by buffered/defined outcome ETFs, led by Innovator ETFs and First Trust Portfolios - two pioneers since the adoption of Rule 6c-11 and Rule 18f-4 between 2019 and 2020, which formally opened the door to derivatives-based ETFs.

“I don’t necessarily think that structured outcome ETFs are going to cannibalise the structured notes market with its well-developed infrastructure and a well-trodden distribution path,” said Wong.

The easy access, low minimum investment size and potential for inclusion in model portfolios offered by these ETFs are expected to help expand the total addressable market in the US, the veteran trader added.

That segment is projected to surge to US$650 billion in assets under management (AuM) by 2030, more than tripling from US$181 billion in 2024, a BlackRock research shows.

“If these ETFs can be counted as one of the options in a model portfolio allocation, the usage would scale substantially relative to door-to-door sales,” said Wong.

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