Welcome to the third issue of Volunteer Capital Insights! We’ve got a big week coming up, not only in the economy and market, but also in football: Wednesday’s Fed rate cuts and Saturday's big game against Oklahoma. In this week’s edition, we cover the growing opportunities in India’s equity markets, new ETF derivatives, MicroStrategy's Bitcoin holdings, and the powerhouse of the market, Nvidia.
A special shoutout to our friend Peter Costa from Costa’s Corner for helping us edit this week’s edition. Don’t forget to check out his Substack for more great content!
Let’s break it down!
Equities
Indian Equity Markets: A Profitable Venture for U.S. Investors
India’s equity market has been on a record-smashing bull run for the past four years, with the Nifty 50 and Sensex indices growing 235% and 220%, respectively, since March 2020. This run is partly due to India’s economic boom, with average GDP growth over the past 10 years reaching 5.5%, real GDP reaching 6.5% (2024), and estimates indicating the GDP could double from $3.5 trillion to $7+ trillion by the end of the decade. India also benefits from an increasing population of 1.42 billion people with a median age of 27.6, with high expenditures fueling economic stability and market participation. India has also implemented several reforms with its tax, technology, and business incentive programs aimed at rebuilding its infrastructure. Investing in this market isn’t without its risks; high volatility, valuation gaps, lack of transparency, and subpar regulatory enforcement/standard of financial accounting have forced investors to approach the market with caution and diligence.
U.S. and foreign investors have poured a whopping $206.7 billion into the market, driven by strong rupee performance and the removal of foreign capital restrictions for trading platforms. Investors like Citadel Securities and Jane Street have profited heavily from this, as retail investors create wide spreads for index options and arbitrage strategies benefit from valuation gaps in the tech, consumer goods, and pharmaceuticals sectors. Index investing and buy-and-hold strategies have proven to be less risky investment options to avoid volatility and benefit from accumulating returns. As the Indian Rupee continues to strengthen and stabilize, investors have also benefited from alternative strategies like currency arbitrage due to favorable exchange rates. By tapping into the stable macro outlook and strength in India’s equity market, U.S. investors are bound to unlock substantial profits while making this market an attractive destination for long-term wealth creation.
By: Joshua Reaves
Equities
Use of Derivative Strategies in ETFs: “Boomer Candy”
Investors have put billions of dollars into a new type of exchange traded fund. Since 2020 when the SEC finalized their rule regarding the use of derivative strategies in ETFs, a new class of derivative ETFs have taken considerable market share. These funds have received at ~$31 Billion of new investor money over the past 12 months, according to Fact Set.
The most popular type of derivative ETF has been referred to as “equity premium income.” This type of ETF is essentially executing a covered call strategy. These funds buy large-cap stocks and sell option contracts on those shares. This strategy allows investors to receive a much higher dividend yield of 8% to 10% which is much higher than a typical stock portfolio. However these funds cap investors' gains and charge large fees.
Another popular ETF using derivatives is called a “buffer fund” which claims to prevent investor losses up to a certain point, but limits upside. This new class of funds and in particular “buffer funds” and “equity premium income” funds are extremely popular among retirees who are looking for risk averse investments amidst a volatile market. The Wall Street Journal quoted senior ETF analyst at Bloomberg Intelligence, Eric Balchunas who said, “We like to call this kind of stuff boomer candy.”
Typically retirees would shift from stocks into bonds to balance risk as they get closer to retirement, but due to the returns of bonds lagging so far behind the S&P 500 over the past 15 years many have been hesitant to make the shift. Since March 2009 the U.S. Aggregate bond index has only achieved returns of 50% compared to the S&P 500’s 980% return. The opportunity to share the higher returns of stocks while having limited downside risk has truly turned these funds into “boomer candy.”
By: Josh Sievers
Crypto
Big on Bitcoin
MicroStrategy, the world’s leading institutional Bitcoin holder, recently announced plans to issue a private offering of $700 million in convertible senior notes. The company will use the funds to pay off $500 million in existing senior notes. The remaining capital will be allocated towards growing the company’s Bitcoin holdings.
Earlier this month, MicroStrategy acquired an additional 18,300 Bitcoin, bringing its total holdings to 244,800 Bitcoin, valued at approximately $14.2 billion. This makes MicroStrategy the largest Bitcoin holder among publicly traded companies, excluding exchange-traded funds. The company's Bitcoin holdings represent 1.16% of the total Bitcoin supply, or about 1.24% of the current supply.
MicroStrategy classifies as a business intelligence software and services company, but really does much more than that. The company first bought Bitcoin back in 2020, with the main goal of preserving wealth and generating high returns for shareholders. Since then, it has become a pioneer in institutional Bitcoin investment. Investors now have the opportunity to buy into a software company, while also gaining indirect exposure to Bitcoin. MicroStrategy stock is up over 800% since it started utilizing Bitcoin as a treasury reserve asset and plans to continue buying and holding Bitcoin into the long run.
By: Will Laney
Equities
The Market’s Driving Force: Nvidia
2024's undeniable hero of the stock market is Nvidia ($NVDA).The AI boom has benefitted nobody more than the tech giant and its CEO Jensen Huang. Nvidia at the time of writing this article sits at a market cap of nearly 3 trillion dollars. This success is due in no small part to Nvidia's H100 chip, and the many upgrades that have since come such as the H200 and the Blackwell platform introduced back in March.
In the past month, semiconductor stocks have been somewhat stagnant. Semiconductor ETF, ($SMH) Saw less than 1% growth in the month of August. European stock markets all experienced tough losses following suit of the US exchanges in the beginning of September. ASML ($ASML), a prominent chip manufacturing technology supplier saw some of the U.S market's biggest losses. However, the global sell off is not the fault of Nvidia or semiconductors. I would assert that the stagnation is more so a reflection of the overall U.S economy. Reports indicated a weakening demand for factories, triggering investor fears of recession. In addition, broader economic slowdown has raised questions about the pay off timeline of investments in AI. With The Fed predicted to cut rates, it is likely the market will bounce back in due time.
In the shadows of Nvidia's success, certain equities have flown relatively underappreciated. Taiwan Semiconductor ($TSMC) in particular, the world's largest semiconductor manufacturer, and primary manufacturer of the H100 chip has seen a 70% price increase YTD. With Taiwan Semi gearing up to manufacture Nvidia's Blackwell chips starting in Q4, I am bullish on the stock. The company has shown steady growth despite the stagnation of semiconductors, and I would bet this continues into FY26. TSMC has stayed out of the media spotlight, despite being the key manufacturer of Nvidia without which, growth of such a scale would not have been impossible. While it is a slight possibility that prominent hyperscalers such as Amazon and Microsoft, driven by the AWS and Azure platforms respectively, will temporarily cut back on spending on AI datacenters, which drive the bulk of Nvidia's growth. However, TSMC is likely to avoid much of the associated complications because the broader demand from enterprises for Nvidia will continue to be strong.
By: Nick Huber