TD Ameritrade: Tom Lydon Talks ARKK and Commodities

As Lydon points out, today, ARKK is actually up, while the NASDAQ is down. It speaks to the idea that if there’s a high correlation to the S&P 500; 30% of that weighting is in ten stocks (essentially the FAANG stocks). With NASDAQ, it’s 50%. With this current proliferation in ETFs with the number of choices seen, especially with COVID-19, there’s a lot of interest in thematic stocks and thematic ETFs.

This includes a whole slew focusing on robotics, A.I., cloud computing, clean energy, work from home stocks, biotech, and more. “There are a lot more choices,” Lydon states, with this currently making up $9 trillion in ETFs.

As far as looking at ARKK as a long-term investment, Lydon explains how diversification is a big part of what to consider in relation to the fund. Investors all know that the S&P 500 has been tough to beat because of the FAANG stocks. The question now is, will they continue to lead the markets in future years? It could be wise to have a future allocation put into those disruptive tech companies that will be the future FAANG stocks, or at least cover oneself in those areas.

“That’s something that, on the ETF side, we’re looking at all the time,” Lydon says. “We’re seeing advisors spend a lot more time focusing on new opportunities and innovation. As we saw in COVID, it really brought the growth in those types of companies and stocks to the surface. They were challenged. And, individuals working at home really upped their game from a technology standpoint and embraced the growth with those types of companies. Hence, more people are looking to diversify outside the major market indexes.”

As far as commodity funds such as GLD and PDBC go, in terms of their roles in a diversified portfolio, Lydon notes how there is enough guidance from the Fed to understand that inflation is transitory. That said, with plenty of surveys and questions brought to advisors, inflation was a significant concern last week, and it continues to be one now.

More and more, there’s a shift toward real commodities like gas, food, and base metals, and they continue to do well. With that in mind, gold tends to be a second-half player whenever looking at inflation. It’s only after other commodities start to take off that gold suddenly comes in as a player too.

“If you’re concerned about inflation, gold is not the only way to protect yourself,” Lydon adds. “There are a lot of commodity-based funds out there in ETFs that can help you get a little more diversified.”