It’s been a blockbuster year for ETFs, with over $900 billion in flows to the space. Dave Nadig, CIO and director of research at ETF Trends, discusses the big moments in ETFs and what to expect looking forward into 2022 on Yahoo Finance’s “ETF Report.”
With nearly $670 billion going into primarily U.S. equities, one of the biggest stories wasn’t actually a story at all; big, cheap beta was the name of the ETF game for 2021. Nadig explains that having money in these more predictable, large, diversified funds that invest broadly is a great thing.
“This is solid, long-term money,” he says. While there have been some other areas that have seen interest, the bulk of assets have gone into beta, indexed funds. Such ETFs include the Vanguard S&P 500 ETF (VOO) which brought in $46 billion in flows, and the Vanguard Value ETF (VTV), which, even in a less-than-stellar year of performance, still brought in $15 billion in flows.
“This is one of those weird markets where virtually everything had net inflows almost regardless of if it was going up or down,” Nadig explains.
Inflation has been the show-stealer for much of the latter half of 2021, and TIPS-related ETFs experienced $40 billion of inflows this year — a record year — with investors flocking to inflation products. Looking ahead for TIPS after a huge year, Nadig actually believes that a better play in 2022 will be commodities when investing for systemic, longer-term inflation.
Investment Trends and Recommendations for 2022
Energies, agricultural, and base metals have all had a good year in 2021, and Nadig believes that commodities will continue to be strong for at least the first half of next year. Looking ahead to 2022, Nadig likes the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) for its broader commodities exposure and optimization for yield. It also helps investors avoid some of the contango that has been experienced in commodities this year.
This year was a record year for new listings and SPACs and IPOs overall, but ETF investors remained largely uninterested within the space. Currently, there are seven SPAC-related ETFs in the markets that have managed to collectively bring in roughly $120 million this year; on the IPO side, the three IPO ETFs have lost nearly $247 million this year.
“Net/net investors aren’t really chasing these individual IPOs with big ETFs. The action we’re seeing there suggests that those are really retail and institutional investors betting on the individual names, not trying to roll them up into portfolios,” Nadig says.
Crypto had a lot of excitement this year with the launch of ETFs in the bitcoin futures market, and the launch of the ProShares Bitcoin Strategy ETF (BITO) was the fastest ETF to hit $1 billion, doing so in only two days. That excitement has largely died off, but Nadig believes that one of the best outcomes from this was that BITO helped to invigorate the options market and gave investors access to tools that they wouldn’t typically have through traditional financial markets.
“For advisors and investors that are really looking to make deep plays in crypto, if you’re not interested in looking at the futures, I advise either going and looking at an equity play, something like [the Bitwise Crypto Industry Innovators ETF] BITQ which can get you a bunch of crypto-related equities in one basket, or, frankly, this is probably the time to start doing the research and getting into crypto directly if you really think it’s someplace you want to be,” Nadig says.
He closes out by talking about the barbell performance by KraneShares’ funds with the KraneShares CSI China Internet ETF (KWEB), a fund that experienced record inflows of $7.6 billion despite being down 58% YTD, and then the KraneShares Global Carbon Strategy ETF (KRBN) which is up 100% YTD and has brought in a little over $1 billion this year.
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