A Look Ahead With ETF Industry Experts and Funds to Watch in 2022

Last year was a banner year for the ETF industry, with record inflows reaching close to $1 trillion, but historic inflation and a hawkish turn by the Fed at the end of year has led to a less sure start in 2022 for advisors and investors. Some of the leading experts from a range of industries within the ETF world joined ETF Trends’ CEO Tom Lydon and Investopedia’s editor-in-chief Caleb Silver to discuss strategies for ETF investing in 2022.

Experts included Joshua Brown, CEO and co-founder of Ritholz Wealth Management ; Liz Young, head of investment strategy for Sofi; Eric Balchunas, senior ETF analyst and funds product specialist for Bloomberg Intelligence; Todd Rosenbluth, senior director of ETF and mutual fund research for CFRA; Perth Tolle, founder of Life + Liberty Indexes; and Leah Wald, CEO of Valkyrie Investments.

A Look Ahead for Markets and ETFs

Advisors polled during the webcast remain fairly optimistic about market performance in 2022, with over 60% reporting that they believe the market will be up over the course of the next 12 months, but inflation and rising interest rates remain major concerns. Liz Young and Josh Brown explain that historically, markets have been overwhelmingly up in the last 20 years, following a trend of either positive or flat performances, but that this year is setting up to be a difficult year for advisors.

“We’re entering a period that if you were a newer investor after the pandemic, you have never seen before; you’ve never seen a monetary tightening cycle. If you are a seasoned investor and you’ve been in this for many, many years, you haven’t seen a monetary tightening cycle with 6.8% inflation since the early ‘80’s,” Young explains. “This is an interesting year for every type of investor.”

2022 could see a shifting for markets as valuations become the key metric to watch instead of price performance. Broadly speaking, this could mean a pivot away from some of the largest tech performers and a greater diversification across sectors and market caps. Both Young and Brown see the potential for investors to learn other sectors and invest in allocations they might not have previously, such as international or small-cap value, which grew 28% in 2021.

Next on are Dave Nadig and Eric Balchunas, who both agree that ETF launches and growth will continue into 2022 because of the appeal and general popularity of the ETF wrapper. With the popularity of cheap beta ETFs that offer all the core allocation investors could want, both believe that there will continue to be an interest in thematic ETFs such as crypto investments, ESG, value-focused, international, and others.

Advisors largely see the best returns coming from U.S. equities in 2022, but almost a quarter polled also indicated emerging market equities as an investment opportunity. Todd Rosenbluth thinks that it’s an accurate assessment, as investors are looking to invest in a risk-on market environment. Perth Tolle explains that there are a variety of ways to invest in the emerging market space, from funds that focus on the freedom levels of countries to those focus on shareholder yield and beyond.

Crypto and ESG in 2022

Leah Wald, Dave Nadig, and Lara Crigger are up next to discuss investing in the crypto space in 2022 as well as ESG. One of the main questions from advisors was why investing in a bitcoin ETF was more appealing than investing in cryptocurrency directly, and the general consensus was the ease with which it can be handled on platforms by advisors alongside other funds within a portfolio.

“When I talk to advisors about why they’re interested in a bitcoin ETF, the number one word is rebalancing,” Nadig explains. Over half of advisors reported that they don’t own crypto largely because they don’t understand it well enough. Wald sees the variety of fund and investment opportunities within crypto as proof that the space will only continue to grow in 2022 with more investors allocating directly into crypto.

Within ESG, Nadig and Crigger are both looking for further innovation in 2022, both from new fund creations as well as potential regulatory definitions for ESG investing. Around a quarter of advisors polled invest in ESG ETFs and mutual funds, but nearly half reported that they were doing research and planned to invest in ESG in 2022.

“What I think we’ve learned about ESG is that there are multiple ways in which an ESG strategy can enhance your returns,” Nadig says, going on to explain that ESG funds are being sought out not just for their principles but also because they are providing returns for investors.

The Q&A section included addressing subjects regarding inflation, yields and dividends, active management ETFs, ETF liquidity, volume trading, and more.

Some of the ETFs recommended in this webcast include: the Global X Autonomous & Electric Vehicle ETF (DRIV), the iShares Russell 2000 ETF (IWM), the Global X Blockchain & Bitcoin Strategy ETF (BITS), the ARK Transparency ETF (CTRU), the Freedom 100 Emerging Markets ETF (FRDM), the Invesco Senior Loan ETF (BKLN), the Engine No. 1 Transform 500 ETF (VOTE), and the Invesco Water Resources ETF (PHO).

Financial advisors who are interested in an outlook on ETFs in 2022 can watch the webcast on demand here