As the markets have been tough lately, it’s important to know how investors can position themselves, given all the volatility. Dave Nadig, CIO and director of research at ETF Trends, joined the ETF report on Yahoo Finance to discuss what’s happening so far in 2022, after a previous year with record inflows and which sectors appear to be betting the safest.
As Nadig explains, after a previous year of nearly $900 billion in inflows, it may not be something repeatable, but the flows are still going strong. They have been very strong in equities, despite what is happening in the markets. For Nadig, the most interesting aspect is the focus on sector funds, after being overlooked by investors over the past two years in favor of thematic ETFs.
There has been a lot of interest in traditional sector rotation games. In particular, Nadig would focus on finance, energy and commodities. the Energy Select Sector SPDR ETF (XLE), for example, has grossed $1.5 billion so far this year. the SPDR Selected Financial Sector ETFs (XLF) attracted $2 billion. the Consumers Staples Select Sector SPDR ETF (XLP), another $1.5 billion.
“What we’re seeing are really classic rotations between inflation and rising rates,” Nadig says. He thinks it shows how financials really are where you have to be the tightest. Finances were excellent last year and are currently among the best.
As for why this rotation is happening, Nadig points out how delicate the balance between shifting the curve and rising rates can be, especially with banks coming out of a 2021 year. very solid.
“Sector funds have been largely forgotten by investors over the past two years in favor of thematic ETFs – things like ARKK,” @ETFtrends IT IS @DaveNadig said. “But what we’ve seen already this year is a lot of interest in traditional sector rotation games.” Complete maintenance: pic.twitter.com/qWN0Iwi6Pa
– Yahoo Finance (@YahooFinance) January 24, 2022
As for other places to look, Nadig points to a fund less focused on mega-caps. It would be the Invesco S&P 500 Eql Weight Financials ETF (RYF), which features the same actions that can be found in the XLF. It is more expensive but has proven to be worth its value by overcoming other funds in 2021.
For a more traditional cap-weighted exposure, Nadig highlights the Fidelity MSCI Financial Services Index ETF (FNCL). This fund tracks the MSCI version of a financial index and adds many other names, including 400 stocks, to help dilute some of the exposure to mega-cap names. It is also a cheaper fund at just eight basis points.
Moving on to gold, Nadig points out how terrible the deal has been over the past year as investors pull back. This year, so far, it is the opposite situation. GLD is the highest-earning asset-raising ETF so far this year. It’s used as a safety game, but that’s common reasoning. If there is a caveat, Nadig notes that it turned out to be speculative silver – a trading vehicle for gaining short-term exposure to bullion.
Nadig says, “I wouldn’t read this as the market is rushing to safety. I would read this because people are nervous and looking to stay invested in something, and they don’t like the US dollar sitting in a bank account.
For more market trends, visit ETF Trends.