YouTuber Is Closing His ETF After Performance Woes, Soaring Costs #NewsETFs

A popular YouTuber is closing down his actively-managed exchange-traded fund after it underperformed the market and ran up against the costs of doing business in the competitive ETF industry.

Kevin Paffrath, a financial influencer who goes by the online moniker “Meet Kevin,” said in a video on his channel that his fund, the Meet Kevin Pricing Power ETF, would be closing at the end of this month some two years after its inception and with just $32 million in assets.

Paffrath, who has more than 2 million followers on YouTube alone, sells courses on his website promising to teach people how to grow their wealth and “master stocks.” But Paffrath struggled to pick stocks that would make his fund grow.

The holdings of the fund, which carries the cheeky ticker PP, include about a dozen names like Rocket Cos Inc. and Yelp Inc. alongside a leveraged Treasury ETF. During its lifetime, it has lagged the broader market mightily, underperforming the S&P 500 by about 26 percentage points since its November 2022 inception, data compiled by Bloomberg show.

Poor returns have not always stopped fund managers from attracting inflows. But the landscape for ETFs has become increasingly competitive, especially for funds that are not passively following the big stock indexes. Over the past year, active funds have only attracted roughly a quarter of the $1.2 trillion that flowed into ETFs.

For the remaining players, pulling in enough money to even cover the costs of doing business can be hard. Paffrath’s ETF charged a relatively high management fee of 0.76%, which is above the industry average of 0.69% for all actively managed US ETFs. But in a YouTube video announcing the closure, Paffrath estimated that he had lost $1 million running his fund.

“All the bankers, the suits, the lawyers, they all get their hands in the cookie jar, and basically you’re left feeding the kitty,” he said in the video. “Almost every month, you’re paying them — the lawyers and whatever — their fees.”

Paffrath declined a request for comment from Bloomberg News.

Somewhere between a third and half of the 3,900 or so US-listed ETFs are likely unable to cover their annual operating costs, according to a Citigroup Inc. analysis, which assumed that funds have between $200,000 to $350,000 in fixed costs, with up to 7.5 basis points in variable costs.

Michael Venuto, the co-founder and chief investment officer at Tidal, which helped launch the PP fund, said that in addition to having to pay annual costs to maintain an ETF, active managers also face additional costs around compliance.

These harsh economics have not deterred online personalities and brand-name stock pickers from trying their luck with their own ETFs.

A number of prominent money managers and strategists — including economist Nouriel Roubini, Fairlead’s Katie Stockton and others — have attached their names to funds, and financial influencers are also getting into the game, with varying degrees of success.

Financial analyst Tom Lee, of Fundstrat Capital, has already gathered about $900 million for his new ETF, the Fundstrat Granny Shots US Large Cap ETF, which just launched in November. Lee’s fund, named after an old-fashioned basketball shot, has slightly outperformed the S&P 500 so far, though it carries a management fee of 0.75% that is far above what S&P 500 index funds tend to charge.

Paffrath’s ETF had, at its peak, about $50 million in assets, which he said was in the ballpark of what was required to make it a financially-viable business.

In the video announcing PP’s closure, Paffrath said he wanted to create something that would give him a “legacy” that would last, rather than launching a memecoin, as so many celebrities and political figures have done recently.

“But then came the downsides,” he said.

Paffrath said he would not recommend starting a fund to anyone looking to make money.

For industry watchers, his experience underscores the difficulty of translating popularity on social media into success in the financial markets.

“It shows how hard it is to raise money, even if you have a lot of followers,” said Athanasios Psarofagis at Bloomberg Intelligence. “At the end of the day, the thing that matters is performance. Performance trumps everything.”

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