Despite light trading volumes at the end of the year, some segments of the ETF market have weathered the trading slowdown and are managing continued and steady returns.
Currencies linked to China, such as KraneShares CSI China Internet ETF (KWEB)They have made significant improvements to China’s reopening. The tech-focused ETF has rallied more than 55% since early November, though it’s down 15% for the year.
“All eyes are on China,” VettaFi Vice Chairman Tom Lydon told Dominic Chu on CNBC’s “ETF Edge” on Monday. “They want a return, so they support real estate a lot.”
Liden explained that as China begins to relax its strict zero-covid policy, shops and casinos welcome customers while the government encourages growth in the real estate space.
“China does not want to cut ties with international capital markets,” he said. “All the saber-rattling we’ve seen with the SEC over the next couple of years to delist Chinese stocks is probably not going to happen.”
Will Rhind, founder and CEO of Granite Shares, said news of China’s reopening is positive for commodity funds. The lifting of domestic travel restrictions could lead to an increase in demand for jet fuel.
“Commodities were one of the few places where people made money. [this year]” Rhind is in the same room. “And in my mind, it will continue next year.”
China aside, fixed income funds are also seeing an end-of-year emergence as more investors seek opportunities for tax-loss harvesting plays.
“People are looking to prioritize cash flow and prioritize income, and they’re actually taking a lot more defensive positions,” Rhind said. “That’s where income products come in.”
Despite rising interest rates, income funds will continue to perform well in the new year as investors move away from growth products in favor of value-oriented plays, Rhind said.
“We continue to see interest in high-quality companies that have a good track record of increasing their dividends over time,” Rhind said. “This will be more attractive.”
Dividend ETFs have seen more than $50 billion in inflows this year, according to GraniteShares, making it one of the most consistent and best-performing fund categories in 2022.
Rhind added that GraniteShares has seen more interest in securities, which are alternative income funds backed by hard or real assets, linked to inflation in earnings.
A revenue oriented product, GraniteShares HIPS US High Income ETF (HIPS) It offers securities for the four top earners in alternative income: MLPs, REITs, BDCs and closed-end funds. The currency is up more than 10 percent since hitting a 2022 low in October but is down 18 percent for the year.
“This is an area of the market where we will see more demand next year,” he said.
The ETF space is on track for its second-best year of inflows in 2022, with inflows of more than $600 billion this year.
“It’s all about choice, it’s all about packaging,” Lydon said. “But when you look at the vehicle of choice, it’s really been ETFs for a number of reasons.”
Lyden explained that some large asset managers, such as Bernstein, Morgan Stanley and Capital Group, which traditionally focus on individually managed accounts or mutual funds, are now entering the ETF space. And investment firms like Dimensional Fund Advisors are turning their mutual funds into ETFs, he said.
Options overlay strategies among equity-based ETFs are another trend Lyden sees growth potential for in 2022. JPMorgan Equity Premium Income ETF (JEPI) It seeks to provide the majority of returns associated with the S&P 500 index National Risk Managed Income ETF (NUSI) It replicates the Nasdaq-100.
“If you can multiply the index at the same time you can get 7%, 8%, 9% yield, that’s very attractive,” Lyden said.