As tensions continue between Russia and Ukraine, there are ways that this is reflecting on the market. ETF Trends’ Dave Nadig joins hosts Alexis Christoforous and Karina Mitchell on Yahoo Finance’s “ETF Report” to talk all about the recent trends concerning this very subject and what investors and advisors can look into to adjust accordingly.
Nadig starts by noting that Russia is the place that many want to find ways to invest in from a business perspective. He points out the VanEck Russia ETF (RSX), which has had steady inflows all year long; around $120 million has come in just the last few weeks.
As far as how that’s possible, as Nadig explains, “Gas and oil are representing about 16%-18% of the fund by itself. It’s 40% energy, 26% materials, and 16% financials. So, it’s a remarkably undiversified index for a country index like this.”
That’s not to say there aren’t reasons to want to invest in Russia. Plenty of people have noticed that Russia was down 30% from October highs just two weeks ago, and it has come back now 10% with a relatively low PE of around 17, making it quite risky.
— Yahoo Finance (@YahooFinance) February 15, 2022
Energy Drain or Gain?
Relating this to energy, Nadig notes how while there’s been a rally in oil on the backs of these geopolitical concerns, green energy plays have gotten a lot of traction. If anything, sustained high oil prices will be fantastic for any number of clean energy ETFs or plays on the carbon transition.
One of the most interesting plays is the KraneShares Global Carbon ETN (KRBN), which follows the most liquid carbon credit futures contracts. The fund has consistent inflows, and it’s up to 1.7 billion in assets and is up 89% over the last 12 months.
Nadig adds, “It’s an interesting way to invest in that low carbon transition that we see. So, instead of chasing the high oil prices, chase the thing that’s going to come after it, which is that transition away from the need for fossil fuels.”
The Hunt for Yield Continues
Transitioning over to talks about yield, Nadig states how it’s been a bull market in new products trying to trace key needs — the need for income and looking into the inflation regime that’s been unseen by many in this generation.
There are two products to keep in mind. As Nadig notes, today featured an interesting launch from Simplify Asset Management, the Simplify High Yield PLUS Credit Hedge ETF (CDX). It invests in broad high yield (USHY) and fallen angels (ANGL) and offsets that exposure with a hedge against any blowup risk in the underlying bonds. It’s an active approach to extracting value from the fixed income market used by many institutions, now in a packaged, actively managed ETF.
The other interesting launch was the AXS Astoria Inflation Sensitive ETF (PPI). It invests in cyclical stocks, like energy companies, commodities directly through commodities ETFs, and some of TIPS. It’s an exciting one-stop-shop for inflation defense at 70 bps, actively managed by John Davi at Astoria, a fantastic macro asset allocator.
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