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A preview of the type of insight and analysis shown on ExchangeVitafi Vice Chairman Tom Lydon, Head of Research Todd Rosenbluth and Financial Futures Researcher Dave Nadig b. Investment insights conference last week.
Speaking about what VettaFi does, Rosenbluth says, “I look at a lot of what we do from a research perspective to connect the dots on what advisors want with the tools and services that asset managers can provide. With more than 3,000 ETFs in the US, advisors need a way to sift through the noise to find the products they can use to best serve their clients.
“There are certain things that ETFs do,” Nadig said, being careful to point out that there are many other tools in the advisor’s toolbox.
What to look for in an ETF
The first voting question that focused on the meeting was what is the most important parameter to consider when choosing an EFF. Lyden casts his vote for the expense ratio, estimating how much more funds can be afforded. “It’s hard for me not to choose exposure. Certainly, that expense ratio is important,” replied Nadig, adding that while the expense ratio can be critical when switching from an expensive benchmark-hugging active fund to a more expensive one, there are still plenty of cheaper options and knowing what’s in each fund can make the difference.
Rosenbluth pointed to iShares Core S&P 500 ETF (IVV)of SPDR Portfolio S&P 500 (SPLG)And Vanguard S&P 500 ETF (VOO) Direct exposure to the S&P for cheap. Rosenbluth added, “For many advisors, especially if they come from the mutual fund world, we try to look at track record issues.
Nadig cautioned that due diligence is important because it can be easy to read what’s on the tin, but miss out on what a fund is actually doing. Rosenbluth agreed, saying, “The devil is often in the list of ETFs.”
Flows in the ETF Space
In the year ETFs are gaining market share as 2022 sees mutual fund exits amid unusual market conditions. Lydon brought in ARK, which has had a rough time performance-wise but is seeing flows. He recounted a conversation with Kathy Wood in February, asking her what she would say to advisors who bought RKK. He pleaded guilty and said that if an investor invested for the right reasons, he would advise them to double it. “If you made a 4% allocation and now it’s 2% of the portfolio, raising the level, more than ever, may be the right thing to do.”
ETF inflows are expected to end the year at nearly $600 billion, the second largest ever. Nadig underscored that this big year happened across multiple asset classes. Not everyone was just chasing something. He sees this as a good and healthy sign for the ETF industry, and is not unexpected in a down market year when investors are looking for higher expenses, mutual funds and less expensive funds. “Mutual funds lost $800 billion in outflows this year,” he said.
Dividend ETFs have been big winners as the market has moved into a defensive position. “In the third quarter, 96% of US dividend payers maintained or increased their dividends,” Nadig said. of JPMorgan Equity Premium Income ETF (JEPI) It is an active fund that has gained a lot of attention in 2022. According to Nadig, it looks at overall income opportunities using things like options. Nadig continued, “This is really compelling for people who are responding to the first inflationary period in a long time.
Active has a big year.
“The ETF industry is built on the back of traditional indexes,” Lydon said, before asking whether a big year of active management has changed performance wisely.
According to Rosenbluth, “The short answer is ‘yes.'” Capital Group, T. Rowe Price, Fidelity, and JPMorgan all have active products. Active funds had opportunities to capitalize on more success when there was more volatility in the stock market. Rosenbluth pointed out that companies like Avantis have relatively low-cost active options.
Many active mutual fund issuers have jumped into the ETF bandwagon. Although some issuers are worried about being led on the front end, Nadig believes that if the fund is fully or partially transparent, the products will perform as intended. “Everything is doing what it says on the tin,” he said. Nadig thinks that front-end concerns are often overstated, but from the buyer’s side, it doesn’t matter.
Looking into the crystal ball in 2023
“The Fed can cut interest rates, first by raising interest rates and then lowering interest rates to some extent,” Rosenblut said. It is important for that position. He thinks a recession is on the horizon. According to Rosenbluth, growth and thematic strategies could also see a resurgence, especially if the federation slows down or focuses on hiking.
Nadig added, “Everyone is now a global macro investor whether they want to be or not. It also looks at the likely effects of structural inflation and further nominal growth going forward.
Global diversification will be important, but as noted, European indices were “beaten by the strong dollar.”
As yields continue to look attractive, bonds are likely to see a rebound. Nadig said it might be the first year she talks about using the Bond ladder and not being laughed out of the room. Although there has been a lot of outflows in TIPS ETFs this year, tips are starting to look good. “Tips suddenly make sense,” Nadig said, given that inflation won’t come down to 2 percent for a long time.
The big three providers
“The ETF industry used to be like the auto industry,” Lydon said before asking, “But is it changing? Do we have the Tesla of the ETF marketplace that’s going to disrupt the big three?”
Nadig notes that Vanguard is pumping out enough flow to exploit Blackrock at some point. He sees a lot of potential movement below the top three, with Schwab’s “out-of-the-box vanguard” strategy of becoming a low-cost manufacturer in key beta segments. “It can be boring, but boring can be good in a portfolio,” Nadig said. Below five, he sees many innovations and many of his favorite things.
Dimensional went from being a top specialty mutual fund to one of the top 10 issuers, largely through turnover. “They weren’t the first to convert from mutual funds to ETFs, but they were doing it en masse,” said Rosenbluth, who sees them as a firm to watch, especially from an active management angle.
Pacer is also turning heads after knocking off $20 billion. Their largest ETF, the Pacer US Cash Cows 100 ETF (COWZ) He has over $10 billion in assets. Rosenbluth explained that high-quality companies are doing well, which makes COWZ attractive, and considering the market conditions in 2023, he sees such strategies continuing to succeed.
China in 2023
Heading to China, Lydon asked Nadig and Rosenbluth what they expected. Nadig said, “Anybody who tells you they have it, they’ve got it right.” Given their policy concerns, it makes sense to be cautious about China. Still, Nadig pointed out, “China and India are big power drivers for the global economy, so there is a big bet on there not being any exposure.”
managed future
A big story from 2022 is the rise of managed futures. As of 2011 KFA Mount Lucas Managed Futures Index Strategy ETF (KMLM) and the iMGP DBi Managed Futures Strategy ETF (DBMF) The top performers were up nearly 40% for the year, an impressive feat in a year when equity markets were down double-digits.
Nadig said that in a typical year, futures that are managed are more likely to underperform equity markets, which act as a diversion for such years.
Protect your negative side
Low defense was also in vogue in 2022 and could have a big year in 2023. Low-volatility funds such as Invesco S&P 500® Low Volatility ETF (SPLV) and the iShares MSCI USA Min Vol Factor ETF (USMV) as well Innovator defined result set They are helping to protect client portfolios.
Lyden noted that technical indicators are showing some positive signs heading into Q1. Rosenbluth agreed, saying, “I think the trend is starting to become friends with the bullish mentality heading into 2023.”
Let’s continue the conversation
If you haven’t heard, we’ll be discussing how to use these tailwinds and mitigate headwinds during our upcoming exchange on February 5-8.Th. Join over 2000 investment community members in Miami Beach and connect with financial advisors, thought leaders and industry experts.
To learn more about the event and register, Please visit the exchange website.
Visit for more news, information and analysis VettaFi | ETF trends.
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