The NHL ETF Power Play

In the latest wave of NHL-related ETF filings, three firms have submitted preliminary filings, including Volatility Shares, Roundhill and LeagueShares. These funds aim to track the CME FSPI NHL Index, which measures the performance of NHL teams. The ETFs will be filed through Cayman subsidiaries to hold their futures exposure, simplifying investors' tax returns.

While the index design is clever and objective, it comes with several issues. The scoring system is largely zero-sum, meaning one team's gain is another team's loss. Penalties negatively impact the index, and there's a risk of the index going negative. Furthermore, the index doesn't indicate playoff chances. Past futures ETFs were tracking established markets, but NHL contracts don't exist yet. They will likely become active around October 28th.

The NHL index contracts present a unique challenge as they don't follow typical futures contract mechanics. In futures trading, participants hedge against time and delivery risks. However, in the NHL, there are no natural market participants who require such hedges. The index values and potential future values are highly uncertain, making these ETFs less suitable for predicting game outcomes or team performance.