VettaFi’s vice chairman Tom Lydon joined TD Ameritrade’s The Watchlist program with host Nicole Petallides on Tuesday, discussing recent trends in the ETF space. With markets rebounding thanks to positive news on inflation and taking a breather from banking-related panic, the two discussed the start of the year for ETFs and the insights found in VettaFi’s advisor engagement data.
Going with the 𝓔𝓣𝓕 𝓯𝓵𝓸𝔀𝓼 📊@TomLydon joins @NPetallides to track ETF trends, including which sectors are seeing the most inflows early in 2023, and how regional bank funds have fared amid the $SIVB collapse: https://t.co/jxllrJlQwe
— TD Ameritrade Network (@TDANetwork) March 14, 2023
ETFs have exploded in AUM, investor interest, and institutional use in recent years, but though they started well this year, equities ETFs have seen net redemptions year to date, Lydon explained. In contrast, international equities ETFs and particularly emerging markets equities have presented an opportunity for bargain hunting.
“The big surprise so far this year is developed countries of Europe, Asia, has actually seen a heck of a lot more flows than we have in the U.S.,” Lydon said. “Part of that is those areas have been unloved, and there’s value there, you can buy stocks in developed countries (at) 40% off what you can in the U.S.”
According to advisor engagement data from VettaFi, advisors are using fixed income offerings to try to handle their biggest concern right now, inflation. Those advisors have faith that the Fed is doing its job and inflation will eventually pull back, Lydon explained, and are using ETFs with longer duration or lower credit quality to hold on to some of the yields that may not be the same in six to eight months.
ETFs’ diversification and liquidity have stood out in recent days amid the banking crisis incited by the situation surrounding the Silicon Valley Bank (SVB) Lydon said. Whereas some banks’ single stock offerings saw some notable hiccups or staggers, ETFs “did exactly what they were supposed to do,” he noted, using the SPDR U.S. Regional Bank ETF (KRE) as an example.
“If you look at regional banks from a fundamental standpoint, it was a good investment with the idea that rates were going up. Most regional banks reward the balance sheet in the top line in loans and when rates go up, they’re able to make more on their loan basket,” Lydon said. “Bigger banks do make some money lending, but also they make some money trading and the markets from a trading standpoint had been pretty weak, so from a percentage standpoint, regional banks did pretty well.”
“Fast forward to the last couple of days,” he continued. “You saw Silicon Valley Bank in some of these ETFs, but it was just a fraction of the overall holdings. So those that were invested from a diversified standpoint, regional banks weren’t hurt that badly.”
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