ETF Edge: Tom Lydon Talks Record Inflows & ESG | ETF Trends

The holidays are approaching, and medical experts are concerned about potential flares-ups. With that in mind, there is the question of how investors can make sense of it all. CNBC’s Leslie Picker hosts CNBC’s “ETF Edge” this week. She spoke with ETF Trends’ CEO, Tom Lydon, David Botset, Head of Equity Product and Strategy with Schwab Asset Management, and Dave Avner, Local Head of Business Development at Gemini, about the current situation, Schwab’s new ESG ETF, and more.

It is important to note how markets have held onto their optimism regarding economic recovery, despite this week coming closer to reaching an inflection point. From Lydon’s perspective, it’s healthy for markets to be somewhat pessimistic. Markets have been at all-time highs, there have been greater earnings than expected, and the FAANG stocks, along with Microsoft and Tesla, have really held the heavy cap-ratings that push the market indexes higher.

Compared to last year, which had an equal weight S&P 500 do better than the cap-weighted S&P 500, things are now back to how things used to play out. The ones that have suffered are the work-from-home stocks that did so well in 2020, only to come off of a February high in need of big corrections.

As far as what the flows are showing to detail how investors are setting themselves up for the end of the year, Botset first emphasizes how the flows for ETFs have been off the charts. “It’s another record-breaking year in 2021,” Botset explains, noting how it will go over a trillion dollars in total ETFs in 2021, which is remarkable.

Looking at what to highlight, Botset notes ESG investments, which have really taken off in the past year. He also notes the investors looking for income, while the FAANG stocks are important, there are also a considerable number of individuals transitioning to retirement who need income in a low-interest-rate environment, which is challenging.

“They’re looking at low-income-oriented strategies,” Botset notes, as the market has seen dividend strategies absorb over $30 billion in flows in 2021. Plus, low cost has been the trend that hasn’t gone away. 60% of the flows in 2021 have gone to ETFs with expense ratios of 10 basis points or less.

“It’s great to see investors continue to demand low cost,” Botset adds.

ESG In The Fabric

Taking a closer look at ESG, which continues to find more and more companies weaving it into the fabric of their DNA, it’s worth pointing out the recent launch of Schwab’s first-ever ESG ETF, the Schwab Ariel ESG ETF (SAEF). In addition to being an active fund, Botset notes a few things that set this ETF apart.

“First, it’s the partnership with Ariel investments, one of the oldest and largest minority-owned investment shops in the world. They have nearly $20 million in assets, and Charles Schwab has been working with Ariel for around 20 years, dating back to the early 1990s.” It’s been a winning collaboration that’s been telling as far as the dichotomy of investors in the universe, Botset adds.

Ariel brings a unique investment style, making for a strong point in an investor’s portfolio. More of this is detailed in a recent discussion ETF trends had with Schwab and Ariel concerning the release of the fund.

For Lydon, as far as new ESG offerings, he recognizes its popularity and the thought of standardizing ESG as far as the research goes. However, with everything already out there and so many choices in managing companies and index providers, it’s too late to do much about that. Plus, this doesn’t seem to matter, as it is ultimately good for the average investor.

Lydon adds, “You look at the unique approach that Ariel brings and the fact that they have been at this for decades, where there are a lot of companies that can’t say the same. However, it does require more research for the average investor, and most importantly, the average advisor.”

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