Tom Lydon on CNBC: Opportunities in Emerging Markets, Fixed Income

“If you see that this might just be a tactical move on Trump’s part and their plan is to eventually work something out, what a great buying opportunity and we’ve already seen a huge amount of money come in through ETFs this year,” added Lydon.

Emerging market ETFs, such as the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO)–down 7.67% YTD, iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG)–down 7.3% YTD and iShares MSCI Emerging Markets ETF (NYSEArca: EEM)–down 7.78% YTD, could turn their fortunes around by year’s end with a tailwind of positive trade news. While these options present broad-market exposure to opportunities abroad, there are country-specific ETFs investors can capitalize on as well, but Lydon says general exposure to international markets, developed or emerging, will suffice.

“For the average investor, they do have a home country bias, especially as everything has been great in the U.S.,” said Lyon. “Make sure you have at least some allocation overseas–overseas developed, overseas emerging markets.”

Related: Emerging Markets Enter First Big Rate Rise Cycle Since 2011

Fixed-Income ETF Movement from ‘AGG’

Bonds have typically complemented an investor’s portfolio replete with U.S. equities and that trend appears to continue in the ETF space. While broad market exposure to fixed income can be realized with the iShares Barclays Aggregate Bond Fund (NYSEARCA: AGG), investors are currently in a risk-on mindset, which doesn’t parallel the low yields in safe-haven government debt like benchmark Treasuries.

The gains seen in the stock market have worked up a similar thirst for high-yield investments in the fixed-income space, which could be realized in corporate bond ETFs and high-yield bond ETFs. In addition, funds that employ an active strategy are also coming in to favor, giving investors exposure to ETFs that can flex with the economic landscape as opposed to staying in a fixed strategy as the market unfolds.

“We’ve seen a lot of movement away from the Barclays AGG because it’s got so much Treasury,” said Lydon. “So a lot of ETF money has moved into active ETF strategies to move away from Treasuries, because they’re top heavy in that area and more into areas like corporates, like high-yields, like bank stocks–those types of things.”

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