The market has seen big inflows for U.S. equity ETFs for the first half of the year, with a net gain of $219 billion to just over $3.8 trillion in total equity ETF assets, putting the overall ETF market just north of $6.5 trillion. Fill-in host Frank Holland was on hand for this week’s “ETF Edge” with ETF Trends CIO and Director of Research, Dave Nadig, along with CEO of Reaves Asset Management, Jay Rhame, to talk about the big jump in growth trade, and how big tech leads that charge with value-oriented trades.
In terms of what to expect in the second half of the year and how the looming threat of inflation will play into the value vs. growth dynamic, Nadig notes how there’s been a strong run for value flows over the last 4-6 months, meaning investors are looking for those opportunities.
Nadig continues to say that “I do think value is back, as we see continued interest in things like dividend plays, and I think that shows investors really hunting for income.”
There’s been interest in fixed income that solves problems, such as TIPS, which helps with inflation, or munis, which can help with tax issues that concern a lot of issuers and advisors going into the second half of the year.
Nadig adds that “flows are really unstoppable.” There has been a huge uptick from retail investors, financial advisors, and other institutions.
Where Do Utilities Fall?
Looking over to utilities and keeping the infrastructure deal in mind, Rhame feels there’s a lot of room to run. The utilities space has been a great sector for income growth. Additionally, the infrastructure bill is a positive catalyst for the sector. There’s also been talk about extending tax credits for wind and solar energy.
Rhame explains: “When you factor in the effect tax credits, and a couple more years of cost declines, you can get to a path pretty quickly where building brand new wind/solar, plus battery storage is actually going to be cheaper than just operating existing fossil fuel power plants today.”
This creates an interesting dynamic for utilities in the transition toward renewable energies. The cost-effective manner at the present also creates an opportunity for the sector. Having underperformed recently, based on interest rates, higher inflation expectations, etc., there seems to be a catch-up trade opportunity in the longer-term.
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