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A special ETF VettaFi’s Lara Krieger and Morningstar’s Ben Johnson sits down with host Nate Gerasi to recap the best stories of 2022 in ETFs and look ahead to 2023.
Setting the table, Gerasi noted at the top of the show, “It’s been another monster year for ETFs. Second best revenue year, record transaction volume, number of new entrants – including big names like Capital Group, Doubleline and Matthews Asia. We’ve seen continued innovation in products that have literally never been done before – single stock ETFs, single bond ETFs, NightShares. There’s a reason why ETFs are called Silicon Valley asset management.
Year of equal income
After thanking listeners and reflecting on twelve years of running the ETF Prime podcast, Gerasi brought Crigger on board, and asked her what the topic of 2022 will be in the ETF world. Krieger brought up an under-the-radar theme and said, “I think 2022 is the year of equity income.” Not surprising to Crigger as Dividend ETFs. JPMorgan Equity Premium Income ETF (JEPI) They were consistently among the most researched funds on the site. JEPI in 2010 It has taken $12 billion inflows by 2022, along with other dividend ETFs Schwab US Dividend Fund (SCHD) Also racking up impressive numbers. “Poll after poll has been saying that dividends and equity income are extremely important to advisors, and they see it as a way to deal with a balanced environment and inflation,” Krieger said.
Asked if she was surprised by the $600 billion in outflows ETFs took in a year when both stocks and bonds were crashing, Krieger said she wasn’t too surprised. “Investors really like to buy on dips.” According to Krieger, down markets offer attractive prices, which create excellent buying opportunities for investors. There is also a phenomenon in the markets, as this year’s progress and technology have done, one area can crash, and another will rise. Krieger pointed to a correction in commodities received as inflation news began to unfold, prompting investors to hedge into commodities. “There’s always some instrument or some investment that can help you weather the current market conditions,” Crigger said, referring to the depth and breadth of ETFs currently available.
Geraci agrees, seeing this year as the year FFAs officially withdrew from mutual funds, which saw significant inflows. “I think people will look back at 2022 as the tipping point of the new ETF era,” he said.
Good grief
Another big story this year is ESG, which Krieger became more pessimistic after encouraging, “This was my tipping point where I realized there’s a lot of greenwashing. ESG ETFs have stagnated on income streams, which Krieger said could only be related to the down market. Speaking with his own acronym, Krieger asked, “Has it gone the smart beta route?” He thought, and it became a saying that it really means nothing given how watered down the ESG space is. Other terms are starting to fight to replace ESG, “Paris aligned” and “climate change”, but it remains to be seen whether any of these will catch on and become the new umbrella term.
Krieger thinks vague, vague weight loss tools are harder to disprove than more concrete examples. Telling someone that a fund has an ESG filter is more nuanced than making the case for a lithium fund when EVs are the new cars.
As noted by Jerasi, energy has had a big year and ESG tends to overweight tech and growth and underweight energy, causing performance problems for many ESG funds. “In the financial markets, performance is king,” Gerasi said, adding that ESG has become highly politicized this year.
“We’re seeing a lot of interest in renewable energy, again in terms of hedge against ESG, in terms of participation in the platform,” Krieger said. She pushed back on the idea of politics on ESG’s appeal, pointing out that renewable energy is one of the few areas where both agree on a path of passage. “Regardless of my political beliefs, I am interested in power transition. For this I have to put my portfolio.
Goods are hip again
Another big story from 2022 is the rise of commodities. “It’s just been a battle,” Krieger muses, “and now I’m hearing people say that commodities should be a strategic part of your portfolio for good — not just for now or the next couple of years, but for good. He said.
Flows into commodity ETFs spiked before leveling off at the end of the year, but Krieger thinks investors have taken notice of the position and alternatives in general. Krieger pointed to the future as a monster year with such funds iMGP DBi Managed Futures Strategy ETF (DBMF) Amassing impressive performance numbers.
Gold has had an unusual year, with the yellow metal down just 3% for the year, sidelining the carnage in the rest of the markets, but gold ETFs have seen massive inflows. “It’s no surprise to me that we’re seeing outflows from the gold space, even though inflation is modest,” Krieger said, adding that flows for the rest of the commodity space are still strong. of Invesco High Yield Diversified Commodity Strategy No. K-1 ETF (PDBC) It’s still garnering a lot of attention, according to Krieger.
The commodities space is ripe for innovation, with 2022 the first year investors can get K-1 free exposure to grains like ETFs. Teucrium Agricultural Strategy No K-1 ETF (TILL). Krieger believes more innovation is in store for 2023.
Famous start
When asked about notable startups of the year, Krieger mentioned. The latest VettaFi sounds column Those who dig into the topic as well as the NightShares funds and single security ETFs. Although the bull and bear version of stocks seemed to be the clearest expression of a single security ETF, bonds seemed to capture the imagination. US Treasury 3-Month Bill ETF (TBIL) and the US Treasury 2-Year Note ETF (UTO) Trembling in heavy flows. “These EFAs solve a problem,” Krieger said.
2023 predictions
Krieger’s first bold prediction was, “This is the year we officially ditch the 60/40 idea.” She thinks investors will continue to look to equities. “People are used to getting income from the equity markets, which doesn’t change even if yields rise,” Krieger said, pointing to the success of dividends.
While she sees fixed income taking a smaller piece of the pie, alts will be a core part of the modern portfolio. Geraci pushed back that earnings are returning to fixed income, but Krieger said, “Why go 4% or 5% when you can get 14% of JPI?” he replied.
Her other big prediction was focused on crypto. “2023 is the year we’ll see crypto get back into the groove,” Krieger said, noting how new technology is frequently created and changed. In particular, Blockchain has many uses that have not yet been exploited. Despite the grayscale allegations, you don’t see bitcoin ETFs coming any time soon. Asked if that lawsuit could change anything, Krieger said, “If anyone gets fired, it’s grayscale,” but she thinks it’s hard to argue that there’s no fraud or fraud in the FTX story that’s looming over the headlines. She thinks that crypto needs to overcome the reputation that came from the widespread failure of FTX.
For a final prediction, Krieger He joked that there would be a life-changing event in early 2023, the 2020’s covid lockdowns, 2021’s attempted violence and 2022’s war. “I locked my door, I’m locking it, and I’m hiding in my house,” she said.
Johnson’s 2022 year history and 2023 predictions
Listening to Krieger’s top stories, Johnson added, “If you look at Morningstar’s 128 categories, only 9 see positive returns,” reflecting the high inflows into mutual funds and the big swings into ETFs. Johnson notes that “ETFs are cheaper, more convenient, and generally more consistent with modern advisory models.”
He considers the decline in demand for ESG to be a big story, partly due to politics. Johnson thinks many asset managers are quietly integrating ESG into their workflows, so despite the challenges, he sees ESG as alive and well. Regulators see an opportunity to clarify here, but “I think appetite will remain muted,” he said.
Jerasi has brought active management, Johnson thinks he will continue to step in. In the year Most of the launches were active by 2022, he said. Vibrant is here and very much here to stay.
For 2023, John predicted a 60/40 return. “I don’t think 60/40 is going to go away,” he said, having previously written about the issue. He thinks that direct indexing may not benefit average investors in the same way it does high net worth investors, but he understands how it will change the landscape of software and investing. “Software shows itself everywhere.”
Listen to the full ETF Prime episode with Lara Krieger:
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